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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): APRIL 26, 1999
Commission File Number: 000-23000
THE HARVEY ENTERTAINMENT COMPANY
(Name of Small Business Issuer in its Charter)
CALIFORNIA 95-4217605
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1999 AVENUE OF THE STARS, SUITE 2050
LOS ANGELES, CALIFORNIA 90067
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (310) 789-1990
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ITEM 5. OTHER EVENTS
On April 26, 1999 The Harvey Entertainment Company (the
"Company") completed a sale of $17 million of its newly-issued Series A
Preferred Stock to an investor group led by Roger A. Burlage, Michael R. Burns,
Al Checchi, Ken Slutsky and The Kushner-Locke Company. The investment consists
of $11.5 million in cash and $5.5 million of the common stock of The
Kushner-Locke Company. The holders of the Series A Preferred Stock have the
right as a separate class to elect two members of the Company's expanded
five-person Board of Directors. In addition, the holders of Series A Preferred
Stock have the right to vote together as a single class with the holders of the
Company's common stock ("Common Stock") on all other matters. Each share of
Series A Preferred Stock is convertible into shares of Common Stock at an
initial conversion price of $6.75 per share (which is subject to anti-dilution
adjustments) and has a number of votes equal to the number of shares of Common
Stock into which it is convertible.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
The exhibits listed below are filed as part of this Current Report.
<TABLE>
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Exhibit Number Description of Exhibit
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<S> <C>
3.1 Certificate of Determination filed with the California Secretary of
State on April 15, 1999.
10.1 Stock Purchase Agreement dated as of April 7, 1999 by and among
the Company, Michael R. Burns, Roger A. Burlage, Ken Slutsky
and The Kushner-Locke Company.
10.2 Warrant Agreement dated as of April 26, 1999 among the
Company, Roger A. Burlage, Michael R. Burns, The Kushner-
Locke Company, Al Checchi and Ken Slutsky.
10.3 Registration Rights Agreement dated as of April 26, 1999 by and
among the Company, The Kushner-Locke Company, Roger A.
Burlage, Michael R. Burns, Al Checchi and Ken Slutsky.
10.4 Registration Rights Agreement dated as of April 26, 1999 by and
between The Kushner-Locke Company and the Company.
10.5 Employment Agreement dated as of April 5, 1999 by and between
the Company and Roger A. Burlage.
99.1 Press Release of the Company dated April 27, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Company has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: May 7, 1999 THE HARVEY ENTERTAINMENT COMPANY
By: /s/ Ronald B. Cushey
-------------------------------
Name: Ronald B. Cushey
Title: Chief Financial Officer
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EXHIBIT INDEX
The exhibits listed below are filed as part of this Current Report.
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- -------------- ----------------------
<S> <C>
3.1 Certificate of Determination filed with the California Secretary of
State on April 15, 1999.
10.1 Stock Purchase Agreement dated as of April 7, 1999 by and among
the Company, Michael R. Burns, Roger A. Burlage, Ken Slutsky
and The Kushner-Locke Company.
10.2 Warrant Agreement dated as of April 26, 1999 among the
Company, Roger A. Burlage, Michael R. Burns, The Kushner-
Locke Company, Al Checchi and Ken Slutsky.
10.3 Registration Rights Agreement dated as of April 26, 1999 by and
among the Company, The Kushner-Locke Company, Roger A.
Burlage, Michael R. Burns, Al Checchi and Ken Slutsky.
10.4 Registration Rights Agreement dated as of April 26, 1999 by and
between The Kushner-Locke Company and the Company.
10.5 Employment Agreement dated as of April 5, 1999 by and between
the Company and Roger A. Burlage.
99.1 Press Release of the Company dated April 27, 1999.
</TABLE>
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EXHIBIT 3.1
CERTIFICATE OF DETERMINATION
FOR
THE HARVEY ENTERTAINMENT COMPANY
The undersigned, Anthony J. Scotti, and Michael S. Hope, hereby certify
that:
They are the duly elected and acting President and Secretary,
respectively, of The Harvey Entertainment Company, a California corporation (the
"Company"); and
The number of authorized shares of the Company's Series A Convertible
Preferred Stock with no par value ("Preferred Stock") is 170,000, none of which
has been issued; and
There are no shares of the Company's Class B Common Stock outstanding.
The Board of Directors of the Company (the "Board of Directors") by
unanimous written consent dated April 6, 1999, duly adopted the following
preambles and resolutions:
WHEREAS, the amended Articles of Incorporation of the Company authorize
the Preferred Stock of the Company to be issued in series and authorize the
Board of Directors to determine the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly issued series of Preferred
Stock and to fix the number of shares and designation of any such series; and
WHEREAS, the Company has not heretofore issued any Preferred Stock and
it is the desire of the Board of Directors, pursuant to its authority as
aforesaid and under Section 401(a) of the California General Corporations Code,
to fix the rights, preferences, restrictions and other matters relating to a
series of Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
establish a series of Preferred Stock as follows:
SECTION 1. DESIGNATION; NUMBER OF SHARES. The shares of such
series shall be designated as "Series A Convertible
Preferred Stock" (the "Series A Preferred Stock"), and the
number of authorized shares constituting the Series A
Preferred Stock shall be 170,000. Each share shall have a
stated value of One Hundred Dollars $100.00 (the "Stated
Value").
SECTION 2. RANK. The Series A Preferred Stock shall rank (i) prior
to all of the Company's Common Stock, no par value (the
"Common Stock") and any class or series of preferred or
other capital stock now outstanding or
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hereafter issued, as to distributions of assets upon the
liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary and (ii) prior to all
Common Stock and prior to or on parity with any class or
series of preferred or other capital stock now outstanding
or hereafter issued as to payment of dividends.
SECTION 3. DIVIDENDS.
(a) Holders of the Series A Preferred Stock shall be entitled to
receive an annual dividend at the rate, in the form, at the times
and in the manner set forth in this Section 3. Such dividends
shall accrue on any given share from the day of issuance of such
share until the Conversion Date (as defined in Section 5(c)(i)
below) applicable to such share.
(b) Holders of Series A Preferred Stock shall be entitled to
receive, and the Company shall pay, in cash or additional shares
of Series A Preferred Stock, at its sole option, cumulative
dividends as follows: if paid, at the option of the Company, in
additional shares of Series A Preferred Stock, at the rate per
share (as a percentage of the Stated Value per share) equal to 7%
per annum (the number of additional shares of Series A Preferred
Stock issuable shall be calculated by dividing the amount of the
dividend by $100), or (ii) if paid, at the option of the Company,
in cash, dividends shall be calculated at a rate per share (as a
percentage of the Stated Value per share) equal to 7% per annum.
Any such dividend payment may be made, in the sole discretion of
the Board of Directors, partially in cash and partially in shares
of Series A Preferred Stock determined in accordance with the
preceding terms; provided further, that in the event that any
such dividend payment is made partially in cash and partially in
shares of Series A Preferred Stock, each holder of Series A
Preferred Stock shall receive a ratable amount of cash and Series
A Preferred Stock. If any fractional interest in a share of
Series A Preferred Stock would be delivered upon any payment of
dividends pursuant to this Section 3, the Company, in lieu of
delivering the fractional share of Series A Preferred Stock shall
pay an amount to the holder thereof equal to such fraction
multiplied by the Stated Value. All shares of Series A Preferred
Stock issued as a dividend shall be duly authorized, validly
issued, fully paid and nonassessable.
(c) Dividends on the Series A Preferred Stock shall accrue daily
commencing on the date of issuance of such shares, and shall be
deemed to accrue whether or not earned or declared and whether or
not there are profits, surplus or other funds of the Company
legally available for the payment of dividends, and shall be paid
quarterly in four equal quarterly payments on the last day of
March, June, September and December of each year (each such date
being a "Dividend Payment Date"). The party that holds the Series
A Preferred Stock on an applicable Dividend Payment Date or on
the Conversion Date with respect to
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shares of Series A Preferred Stock being converted on such date
will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such Dividend
Payment Date. Except as otherwise provided herein, if at any time
the Company pays less than the total amount of dividends then
accrued on account of the Series A Preferred Stock, such payment
shall be distributed ratably among the holders of Series A
Preferred Stock based upon the number of shares held by each
holder on such applicable record date. Dividends shall accrue on
the basis of a 360-day year consisting of twelve 30-day months
(four 90 day quarters) and the actual number of days elapsed in
the period for which payable.
(d) No dividends or other distributions (other than dividends
payable in Junior Dividend Stock (as defined below)) shall be
paid or set apart for payment on, and no purchase, redemption or
other acquisition shall be made by the Company, or any of its
subsidiaries, of, any shares of Common Stock or other capital
stock of the Company ranking junior as to payment of dividends on
the Series A Preferred Stock (such Common Stock and other capital
stock being referred to herein collectively as "Junior Dividend
Stock") unless all dividends on the Series A Preferred Stock have
been paid in full.
SECTION 4. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the Company, whether voluntary
or involuntary, the holders of Series A Preferred Stock
shall be entitled to receive out of the assets of the
Company an amount equal to the dividends accumulated and
unpaid thereon to the date of final distribution to such
holders, whether or not declared, without interest, plus a
sum equal to $100.00 per share, and no more (the
"Liquidation Amount"), before any payment shall be made or
any assets distributed to the holders of Common Stock or any
other capital stock of the Company. The entire assets of the
Company available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock.
After payment in full of the liquidation preference of the
shares of the Series A Preferred Stock, the holders of such
shares shall not be entitled to any further participation in
any distribution of assets by the Company. A consolidation,
merger or business combination of the Company with another
corporation (in the event that the Company is not the
surviving entity and the holders of Common Stock prior to
the transaction do not hold more than a majority of the
outstanding shares of the surviving entity immediately after
the transaction) or the sale or conveyance of all or
substantially all of the Company's assets, shall be deemed
to be a liquidation, dissolution or winding up of the
Company for purposes of this Section 4.
SECTION 5. CONVERSION. The record holders of Series A Preferred
Stock shall have conversion rights as follows (the
"Conversion Rights"):
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(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible at the option of the holder at any time
prior to 11:00 a.m. Pacific Standard Time on the business day
next preceding the date fixed for redemption of such share
pursuant to Section 6 below, into shares of Common Stock at an
initial conversion price of $6.75 per share (the "Initial
Conversion Price"), subject to adjustment as set forth in Section
6 below (as adjusted from time to time, the "Conversion Price"),
at the office of the Company or any transfer agent for the Series
A Preferred Stock, at any time beginning on the date six months
following the date of the Closing. As used herein, the term
"Closing" shall mean the date of the closing of the sale by the
Company of the Series A Preferred Stock. The number of shares of
Common Stock issuable upon conversion of a share of Series A
Preferred Stock shall be calculated by dividing the Stated Value
of such share of Series A Preferred Stock by the Conversion
Price.
(b) Automatic Conversion. This Section 5(b) shall apply if and
only if the Company is a "listed corporation" as defined in
Section 301.5 of the California Corporations Code ("CCC"). If the
Company is a "listed corporation" as defined in CCC Section
301.5, then, as authorized by CCC Section 403(a)(3), during any
period following the third anniversary of the Closing in which
the Average Market Price of the Common Stock exceeds 175% of the
Conversion Price and the average daily trading volume of the
Common Stock for the same period such Average Market Price is
determined exceeds 10,000 shares, the Company may, at its option,
require the holders of Series A Preferred Stock to convert all
such shares on the same terms as set forth in Section 5(a) above.
"Average Market Price" of the Common Stock shall mean the average
of the daily closing prices of the Common Stock for the twenty
trading days preceding the Conversion Date. The closing price for
each day shall be the last reported sale price regular way of the
Common Stock or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked
prices regular way of the Common Stock, 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.
(c) Mechanics of Conversion.
(i) At Holder's Option pursuant to Section 5(a) above.
In order to convert Series A Preferred Stock into full shares of Common Stock, a
Holder shall deliver, no later than 11:00 a.m., Pacific Standard Time on the
business day next preceding the conversion date, to the office of the Company's
designated transfer agent for the Series A Preferred Stock (the "Transfer
Agent") (1) a fully executed notice of conversion ("Notice of Conversion"), and
(2) the original certificate or certificates evidencing the Series A Preferred
Stock (a "Certificate"), duly endorsed.
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(ii) Automatic Conversion Pursuant to Section 5(b)
above. Upon the satisfaction of the conditions set forth in Section 5(b) above,
the Company may, by notice to the holders of Series A Preferred Stock elect to
require such holders to convert all shares of Series A Preferred Stock into
fully paid and nonassessable shares of Common Stock at the applicable Conversion
Price. Such notice shall be delivered by first class mail, postage prepaid,
shall be given to the holders of record of the Series A Preferred Stock to be
converted, addressed to such holders at their last addresses as shown on the
Company's stock transfer ledger. Such notice of conversion shall specify the
date fixed for conversion; the then effective Conversion Price; that accumulated
but unpaid dividends to the date fixed for conversion will be paid, at the
Company's election in cash or in a number of shares of Common Stock equal to the
dividend amount divided by the Conversion Price on the date fixed for conversion
(which shall be within thirty (30) days of the notice); and that on and after
the Conversion Date, dividends will cease to accumulate on such shares.
Any notice which is mailed as herein provided shall be conclusively presumed to
have been duly given, whether or not a holder of the Series A Preferred Stock
receives such notice; and failure so to give such notice or any defect in such
notice, shall not affect the validity of the proceedings for the conversion.
(iii) Conversion Date. The date on which conversion
occurs (the "Conversion Date") shall be deemed to be the date the Notice of
Conversion and the original Certificates representing the Series A Preferred
Stock to be converted are surrendered to the Transfer Agent.
(iv) Issuance of Common Stock Within Three (3) Business
Days. Upon receipt of the original Certificates representing the Series A
Preferred Stock to be converted, the Company shall use its reasonable best
efforts to cause the Transfer Agent to issue the appropriate number of shares of
Common Stock no later than three (3) business days thereafter.
(v) No Fractional Shares. If any conversion of the
Series A Preferred Stock would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon conversion
shall, on an aggregate basis, be rounded to the nearest number of shares.
(vi) Lost or Stolen Certificates. Within three (3)
business days after receipt by the Company of evidence of the loss, theft,
destruction or mutilation of a certificate or certificates representing the
Series A Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company and the Transfer
Agent, and upon surrender and cancellation of the Series A Preferred Stock, if
mutilated, the Company shall use its reasonable best efforts to cause the
execution and delivery of new Series A Preferred Stock of like tenor and date.
The Company shall not be required to deliver new Series A Preferred Stock if the
request for replacement is made contemporaneously with the conversion or
redemption of such Series A Preferred Stock.
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(vii) Record Holders. The person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(d) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the Series A Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be issuable upon the conversion of all then
outstanding Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall
not be sufficient to issue all shares of Common Stock issuable
upon the conversion of all then outstanding Series A Preferred
Stock, the Company will as soon as practicable take such
corporate action as may be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
SECTION 6. ADJUSTMENT TO CONVERSION PRICE AND CONVERSION SHARES.
(a) Prohibited Actions. So long as any shares of Series A
Preferred Stock are outstanding, the Company will not avoid or
seek to avoid the observance or performance of any of the terms
of the Series A Preferred Stock or impair the ability of the
holders of Series A Preferred Stock to realize the full intended
economic value thereof, but will at all times in 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 holders of Series A Preferred Stock
against dilution or other impairment.
(b) Adjustment of Number of Shares. Subject to any applicable
exceptions set forth in Section 6(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 (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
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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 the Conversion
Price shall be reduced to a price determined by multiplying the
Conversion Price in effect prior to the adjustment referred to in
this Section 6(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 such 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.
(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 of Directors as the record date for such
purposes or, if none is established by the Board of Directors,
then the record date shall be the effective date for such action;
provided however, that if such dividend or other distribution
payable in shares of Common Stock or Common Stock Equivalents is
not paid on the applicable payment date, then such shares of
Common Stock issuable upon conversion of Series A Preferred
Stock, and the applicable Conversion Price, shall be adjusted so
as to give effect as if each declaration of a dividend or other
distribution had never been made
(d) Certain Dividends. In case the Company shall pay a dividend
or make a distribution generally to the holders of the 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(e) below, (iii) distributions
relating to reclassifications, changes, consolidations, mergers,
sales or conveyances covered by Section 6(f) below and (iv)
rights, warrants or options to purchase or subscribe for shares
of Common Stock or
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Common Stock Equivalents or other issuances covered by Section
6(b)), then in each such case the Conversion Price shall be
adjusted so that the same shall equal the price determined by
multiplying the Conversion 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 consideration payable to the Company
upon the exercise of such rights, options or warrants, 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. 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.
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 Conversion Price, the holders of Series A Preferred Stock,
upon the conversion 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 such holders would have
been entitled if such holders had converted the Series A Preferred Stock
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 upon the conversion of
the Series A Preferred Stock.
(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 Conversion Price in
effect immediately prior to such subdivision shall be
proportionally reduced. In case the outstanding shares of the
Common Stock of the Company shall be combined into a smaller
number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(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(e) above), 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 (a
"Reorganization Event"),
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shall be effected in such a way that holders of 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 holders of Series A Preferred Stock
shall thereafter have the right to receive upon conversion of the
Series A Preferred Stock and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion of the
Series A Preferred Stock, 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 issuable upon conversion of the Series A Preferred
Stock 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 holders of Series A
Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion
Price and the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be, in relation to any stock,
securities or assets thereafter deliverable upon the conversion
of the Series A Preferred Stock. The Company shall not effect any
such 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 each holder of Series A
Preferred Stock, the obligation to deliver to such holder of
Series A Preferred Stock such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such
holder of Series A Preferred Stock 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 herein to be performed and observed by the
Company and of all liabilities and obligations of the Company
hereunder.
(g) Exceptions to Adjustment. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any
adjustment of the Conversion Price or Conversion Quantity (i)
upon the issuance of additional shares of Series A Preferred
Stock pursuant to Section 3(b) above or (ii) upon the issuance of
Common Stock issuable upon conversion of Series A Preferred
Stock, (iii) 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 that the Series A
Preferred Stock is originally issued in accordance with the terms
of such securities as of such date; (iv) upon the grant or
exercise of any stock or options which may hereinafter be granted
or exercised under any employee benefit plan of the
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Company existing as of the date that the Series A Preferred Stock
is originally issued 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, if such
grant or plan was approved by the Board of Directors of the
Company; (v) 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; (vi) upon the issuance of securities
issued as the result of anti-dilution rights granted to a third
party; or (vii) 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 Average
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 Holders of Series A Preferred Stock.
Upon any increase or decrease in the number of shares of Common
Stock issuable upon the conversion of Series A Preferred Stock,
or upon any adjustment in the Conversion Price, then, and in each
such case, the Company shall promptly deliver written notice
thereof to each holder of Series A Preferred Stock, which notice
shall state the increased or decreased number of shares of Common
Stock issuable upon conversion of Series A Preferred Stock,
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.
(j) Minimum Adjustment. No adjustment shall be made under this
Section 6 unless such adjustment would change the Conversion
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 Conversion Price at the time
by $.125 or more.
(k) Fair Value Defined. "Fair Value" of the Common Stock 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
10
<PAGE> 11
common Stock is listed or admitted to treading 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 of a
majority of the shares of Series A Preferred Stock (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" hereunder, 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 hereunder 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 holders of Series A Preferred
Stock notice of such event, and the Company and the holders of
Series A Preferred Stock 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 opinion.
The determination so made shall be conclusive and binding on the
Company and the holders of Series A Preferred Stock. The fees and
expenses of the investment banking firm retained for such purpose
shall be shared equally by the Company and the holders of Series
A Preferred Stock.
(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, a holder of Series A Preferred Stock
shall, upon conversion of such stock, 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.
SECTION 7. REDEMPTION BY COMPANY.
(a) Company's Right to Redeem. At any time beginning 5 years
after issuance, the Company shall have the right, in its sole
discretion, to redeem all or any part of the outstanding Series A
Preferred Stock.
11
<PAGE> 12
(i) Redemption Price. The "Redemption Price" shall be
equal to the Liquidation Amount.
(ii) Mechanics of Redemption. The Company shall effect
any such redemption by giving at least 30 days prior
written notice ("Notice of Redemption") to (A) the
holders of Series A Preferred Stock selected for
redemption, at the address and facsimile number of such
holder appearing in the Company's register for the
Series A Preferred Stock and (B) the Transfer Agent,
which Notice of Redemption shall be deemed to have been
delivered three (3) business days after the Company's
mailing (by overnight courier, with a copy by
facsimile) of such Notice of Redemption. Such Notice of
Redemption shall indicate the date which such
redemption is to become effective (the "Redemption
Date") and the Redemption Price.
(iii) Company Must Have Immediately Available Funds or
Credit Facilities. The Company shall not be entitled to
send any Notice of Redemption and begin the redemption
procedure under this Section 7(a) unless it believes in
good faith that as of the Date of Redemption it will
have:
(1) the full amount of the aggregate Redemption Price
in cash, available in a demand or other immediately available account in
a bank or similar institution; or
(2) immediately available credit facilities, in the
full amount of the aggregate Redemption Price with a bank or similar
financial institution, or
(3) a combination of the items set forth in (1) and
(2) above, aggregating the full amount of the aggregate Redemption
Price.
(b) Payment of Redemption Price. Each holder of Series A
Preferred Stock submitting stock being redeemed under this
Section 6 shall send their certificates representing the stock so
redeemed to the Company or its Transfer Agent, and the Company
shall pay the redemption price to that holder within ten (10)
business days of the date of such receipt of the certificates.
The Company shall not be obligated to deliver the Redemption
Price unless the certificates representing the Series A Preferred
Stock so redeemed are delivered to the Company or its Transfer
Agent, or in the event one or more certificates have been lost,
stolen, mutilated or destroyed, the holder has complied with
Section 5(c)(vi).
SECTION 8. STATUS OF CONVERTED OR REDEEMED STOCK AND STOCK UPON A
REORGANIZATION EVENT. On the first to occur with respect to
any Series A Preferred Stock of a Conversion Date or a
Redemption Date, such Series
12
<PAGE> 13
A Preferred Stock shall no longer be deemed to be
outstanding and all rights with respect thereto, except only
the right of the holders of Series A Preferred Stock to
receive shares of Common Stock upon such conversion, payment
of the applicable Redemption Price upon such redemption or
the receipt of the consideration payable to holders of
Common Stock in the Reorganization Event as if such shares
of Series A Preferred Stock were converted immediately prior
to the record date or other date of determination of the
holders of Common Stock entitled to receive consideration in
such Reorganization Event, shall terminate, and such shares
of Series A Preferred Stock shall be canceled. The Series A
Preferred Stock so canceled shall return to the status of
authorized but unissued Preferred Stock of no designated
series.
SECTION 9. PROTECTIVE PROVISIONS.
(a) So long as shares of Series A Preferred Stock are outstanding,
the Company may not waive or amend any term of this Certificate of Determination
without first obtaining the approval (by vote or written consent) of the holders
of a majority of the Series A Preferred Stock then outstanding.
(b) So long shares of Series A Preferred Stock are outstanding, the
Company shall not, without the consent of the holders of a majority of the
shares of Series A Preferred Stock then outstanding:
(i) issue any class or series of preferred or other
capital stock senior to the Series A Preferred Stock as
to payment of dividends or senior to or on a parity
with the Series A Preferred Stock as to payments on
liquidation, dissolution or winding up of the Company;
(ii) amend its Articles of Incorporation or bylaws in
any manner which would impair or reduce the rights of
the Series A Preferred Stock; or
(iii) permit a liquidation, dissolution or winding up of
the Company to occur.
SECTION 10. VOTING RIGHTS. For so long as at least 42,500
shares of Series A Preferred Stock remain outstanding,
the holders of Series A Preferred Stock shall as a
class be entitled to elect two directors to the
Company's Board of Directors and shall otherwise be
entitled to vote on all matters (including the election
of remaining directors) together with the holders of
Common Stock, voting together as one class. Each share
of Series A Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common
Stock into which it is then convertible under Section
5. Holders of the Series A Preferred Stock shall be
entitled to notice of all
13
<PAGE> 14
shareholders meetings or written consents with respect
to which they would be entitled to vote.
SECTION 11. PREFERENCE RIGHTS. Nothing contained herein shall
be construed to prevent the Board of Directors of the
Company from issuing one or more series of Preferred
Stock with dividend and/or liquidation preferences
junior to the dividend, liquidation and other
preferences of the Series A Preferred Stock.
There are no shares of the Company's Class B Common Stock currently
outstanding.
RESOLVED FURTHER, that the President and Secretary of the Company be,
and hereby are, authorized and directed to prepare, execute, verify and file in
the Office of the California Secretary of State, a Certificate of Determination
in accordance with this resolution and as required by law.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Signed on April 14, 1999
/s/ Anthony J. Scotti
------------------------------------
Anthony J. Scotti, President
/s/ Michael S. Hope
------------------------------------
Michael S. Hope, Secretary
14
<PAGE> 15
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert __________ shares of Series
A Preferred Stock, represented by stock certificate No(s). _______________ (the
"Preferred Stock Certificates") into shares of common stock ("Common Stock") of
The Harvey Entertainment Company (the "Company") according to the conditions of
the Certificate of Determination of Series A Preferred Stock, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates. No fee will be charged to
the holder for any conversion, except for transfer taxes, if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the shares of Series A Preferred Stock represented by the Series A
Preferred Stock Certificates shall be made pursuant to and subject to an
effective registration statement covering the Common Stock under the Securities
Act of 1933, as amended (the "Act"), or pursuant to an exemption from
registration under the Act.
Conversion Calculations:
-------------------------------------
Date of Conversion
-------------------------------------
Applicable Conversion Price
-------------------------------------
Signature
-------------------------------------
Name
Address:
-------------------------------------
-------------------------------------
No shares of Common Stock will be issued until the original Preferred Stock
Certificate(s) to be converted and the Notice of Conversion are received by the
Company or the Company's transfer agent (the "Transfer Agent") as required by
the Certificate of Determination of the Series A Preferred Stock. The original
certificate(s) representing the Series A Preferred Stock to be converted and the
Notice of Conversion must be received by the Company or Transfer Agent by
15
<PAGE> 16
the fifth business day following the Date of Conversion, or such Notice of
Conversion may, at Company's option, be declared null and void and of no further
effect. If not declared null and void, the Series A Preferred Stock to be
converted shall be deemed to cease to be outstanding as of the Date of
Conversion (irrespective as to when the underlying Common Stock is delivered).
16
<PAGE> 1
EXHIBIT 10.1
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
THE HARVEY ENTERTAINMENT COMPANY,
MICHAEL R. BURNS, ROGER A. BURLAGE, KEN SLUTSKY
AND
THE KUSHNER-LOCKE COMPANY
DATED AS OF APRIL 7, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION I. AUTHORIZATION; SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING...........................1
1.1 Authorization of Securities.....................................................................1
1.2 Sale and Purchase of Series A Preferred Stock; Issuance of Warrants; Good Faith Deposit.........1
1.3 Closing.........................................................................................2
1.4 Delivery; Payment...............................................................................2
1.5 Registration Rights.............................................................................3
1.6 First Quarter Balance Sheet.....................................................................3
SECTION II. THE COMPANY'S REPRESENTATIONS AND WARRANTIES....................................................3
2.1 Organization and Qualification; Subsidiaries....................................................3
2.2 Articles of Incorporation and Bylaws............................................................4
2.3 Capitalization..................................................................................4
2.4 Authority Relative to the Transaction Agreements................................................5
2.5 Material Contracts; No Conflict; Required Filings and Consents..................................5
2.6 SEC Filings; Financial Statements...............................................................7
2.7 Absence of Certain Changes or Events............................................................8
2.8 Intellectual Property...........................................................................8
2.9 Tax Matters.....................................................................................9
2.10 Litigation.....................................................................................10
2.11 Brokers........................................................................................10
2.12 Shares Fully Paid, Etc.........................................................................10
2.13 Shares of Common Stock.........................................................................10
2.14 No Preemptive Rights...........................................................................10
2.15 Employee Benefit Plan..........................................................................10
2.16 Insurance......................................................................................10
2.17 Registration Rights............................................................................11
2.18 Fairness Opinion...............................................................................11
2.19 Investment Intent..............................................................................11
2.20 Location of Principal Office...................................................................12
2.21 Accredited Investor............................................................................12
SECTION III. REPRESENTATIONS OF THE INVESTORS. .............................................................12
A. Each investor represents for itself that:......................................................12
3.1 Investment Intent..............................................................................12
3.2 Location of Principal Office, Qualification, Etc...............................................13
3.3 Acts and Proceedings...........................................................................13
3.4 No Brokers or Finders..........................................................................13
3.5 Accredited Investor............................................................................13
3.6 Burlage Employment Agreement...................................................................14
3.7 Distribution Agreement.........................................................................14
</TABLE>
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<TABLE>
<S> <C> <C>
3.8 Shareholders Agreement.........................................................................14
B. Kushner-Locke..................................................................................14
3.9 Organization and Qualification.................................................................14
3.10 KL Stock.......................................................................................14
3.11 Capitalization.................................................................................14
3.12 Material Contracts; No Conflict; Required Filings and Consents.................................14
3.13 SEC Filings; Financial Statements..............................................................16
3.14 Absence of Certain Changes or Events...........................................................17
3.15 Litigation.....................................................................................17
SECTION IV. CONDITIONS OF EACH INVESTOR'S OBLIGATION............................................................17
4.1 Representations and Warranties.................................................................17
4.2 Compliance with Agreement......................................................................17
4.3 Certificate of Officers........................................................................17
4.4 Board of Directors.............................................................................17
4.5 Legal Opinion..................................................................................18
4.6 Necessary Consents.............................................................................18
4.7 Certificate of Determination...................................................................18
4.8 Injunctions, Restraining Order or Adverse Litigation...........................................18
4.9 Warrant Agreement..............................................................................18
4.10 Company Registration Rights Agreement..........................................................18
SECTION V. CONDITIONS TO COMPANY'S OBLIGATIONS............................................................18
5.1 Representations and Warranties.................................................................18
5.2 Compliance with Agreement......................................................................18
5.3 Legal Opinion..................................................................................19
5.4 Necessary Consents.............................................................................19
5.5 Employment Agreement...........................................................................19
5.6 KL Registration Rights Agreement...............................................................19
5.7 All Shares of Series A Preferred Stock Purchased...............................................19
5.8 Injunctions, Restraining Order or Adverse Litigation...........................................19
5.9 NASDAQ Waiver of Any Shareholder Approval Requirements.........................................19
5.10 Distribution Agreement Term Sheet..............................................................19
SECTION VI. CERTAIN COVENANTS OF THE INVESTORS AND THE COMPANY...................................................19
6.1 Right of First Refusal.........................................................................19
6.2 Exclusive Dealing..............................................................................20
6.3 Conducting Business of the Company.............................................................21
6.4 Approvals, etc.................................................................................21
6.5 Access.........................................................................................22
6.6 NMS Waiver.....................................................................................22
6.7 KL Stock.......................................................................................22
6.8 Distribution Arrangements with Kushner Locke...................................................22
SECTION VII. TERMINATION........................................................................................23
7.1 Termination by Mutual Consent..................................................................23
</TABLE>
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<TABLE>
<S> <C> <C>
7.2 Termination by Either Investors or the Company.................................................23
7.3 Termination by Investors.......................................................................23
7.4 Termination by the Company.....................................................................23
7.5 Termination Fee................................................................................24
SECTION VIII. MISCELLANEOUS.....................................................................................24
8.1 No Waivers; Cumulative Remedies................................................................24
8.2 Amendments; Waiver and Consents................................................................25
8.3 Changes, Waivers, Etc..........................................................................25
8.4 Expenses.......................................................................................25
8.5 Notices........................................................................................25
8.6 Assignment.....................................................................................25
8.7 Severability...................................................................................26
8.8 Entire Agreement...............................................................................26
8.9 Governing Law..................................................................................26
8.10 Counterparts...................................................................................26
SCHEDULES:
Schedule 1 - Investments
Schedule 2 - Waivers and Consents
EXHIBITS:
Exhibit A Certificate of Determination
Exhibit B Warrant Agreement
Exhibit C-1 Registration Rights Agreement
Exhibit C-2 Registration Rights Agreement
Exhibit D Company Disclosure Schedule
Exhibit E Burlage Employment Agreement
Exhibit F Legal Opinion of Counsel to Company
Exhibit G Legal Opinion of Counsel to Investors
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, made and entered into as of April 7, 1999
(the "Agreement"), among The Harvey Entertainment Company, a California
corporation (the "Company"), The Kushner-Locke Company, a California corporation
("Kushner-Locke"), Michael R. Burns, Roger A. Burlage and Ken Slutsky (each an
"Investor," and collectively, along with any Designated Investors (as
hereinafter defined), the "Investors").
WHEREAS, the Company desires to sell, and each of the Investors desires
to purchase, subject to the terms and conditions of this Agreement, shares of
the newly designated Series A Convertible Preferred Stock of the Company (the
"Series A Preferred Stock");
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
SECTION I. AUTHORIZATION; SALE AND PURCHASE OF THE COMPANY'S SECURITIES;
CLOSING.
1.1 AUTHORIZATION OF SECURITIES. The Company shall
authorize, issue and sell an aggregate of 170,000
shares of Series A Preferred Stock which shall be
issued pursuant to and shall be entitled to such
preferences, rights and benefits as are set forth in
the Company's Certificate of Determination, which
shall be in the form attached hereto as Exhibit A. On
or before the Closing Date (as defined in Section
1.3), the Company shall cause the Certificate of
Determination to be filed in the office of the
Secretary of State of California. The Company shall
authorize and issue warrants (the "Warrants") to
purchase 2,400,000 shares of the Company's common
stock, no par value ("Common Stock") at the exercise
prices and upon the terms and conditions set forth in
the Warrant Agreement in the form attached hereto as
Exhibit B (the "Warrant Agreement"). In addition, the
Company shall authorize and reserve for issuance such
number of shares of Common Stock as is issuable from
time to time upon conversion of the Series A Preferred
Stock (the "Conversion Shares") and the exercise of
the Warrants (the "Warrant Shares").
1.2 SALE AND PURCHASE OF SERIES A PREFERRED STOCK;
ISSUANCE OF WARRANTS; GOOD FAITH DEPOSIT.
(a) Subject to the terms and conditions hereof,
the Company agrees to sell to each Investor and
each Investor severally agrees to purchase from
the Company on the Closing Date, the number of
shares of Series A
1
<PAGE> 6
Preferred Stock set forth opposite its name on
Schedule 1 hereto (i) in the case of all Investors
other than Kushner-Locke, for a cash purchase
price of One Hundred Dollars ($100.00) per share
and (ii) in the case of Kushner-Locke, in exchange
for a number of shares of its common stock, no par
value (the "KL Stock"), determined by dividing
$5,500,000 by 80% of the Average Market Price (as
hereinafter defined) of the KL Stock for the
twenty consecutive trading days ending two trading
days prior to the Closing Date. "Average Market
Price" of the KL Stock shall mean the average of
the daily closing prices of the KL Stock. The
closing price for each day shall be the last
reported sale price regular way of the KL Stock
or, in case no such reported sale takes place on
such day, the average of the reported closing bid
and asked prices regular way of the KL Stock, as
reported by the National Association of Securities
Dealers Automated Quotation System. The KL Stock
shall be registered for public resale pursuant to
the KL Registration Rights Agreement referenced
below. All such number of shares of KL Stock shall
be subject to adjustment for stock splits,
combinations, stock dividends and similar events
effected by Kushner-Locke after the date hereof.
(b) In partial consideration for the Investors'
purchase of the Series A Preferred Stock, the
Company shall issue Warrants to each Investor to
purchase the number of shares of the Common Stock
set forth opposite such Investor's name on
Schedule 1 hereto.
(c) The Investors agree to make a "good faith
deposit" of $750,000 upon the signing of this
Agreement into the escrow account established
pursuant to the terms of the escrow agreement
being executed by the parties hereto on the date
hereof (the "Escrow Agreement"). In the event that
the Closing occurs, the deposit shall be credited
toward the $11,500,000 cash portion of the
purchase price for the Series A Preferred Stock to
be sold hereunder. In the event that this
Agreement is terminated in accordance with Section
7.1, 7.2 (other than a termination by the Company
under Section 7.2(a) based on a material breach of
this Agreement by the Investors), 7.3 or 7.4(b),
such deposit shall be returned to the Investors in
accordance with the terms of the Escrow Agreement.
In the event that this Agreement is terminated by
the Company in accordance with Section 7.2(a)
based on a material breach of this Agreement by
the Investors or 7.4(a) or (c), the Company shall
be entitled to receive such deposit as liquidated
damages in accordance with the terms of the Escrow
Agreement.
1.3 CLOSING. The closing of the transactions (the
"Transactions") contemplated by this Agreement (the
"Closing"), shall take place at the offices of Kaye,
Scholer, Fierman, Hays & Handler, LLP, 1999 Avenue of
the Stars, Suite 1600, Los Angeles,
2
<PAGE> 7
CA 90067 at 10:00 a.m., Pacific Standard time, on the
second business day following satisfaction (or waiver)
of all of the conditions set forth in Sections IV and
V hereof (but no sooner than April 19, 1999) (the
"Closing Date") or at such other place or day as may
be mutually acceptable to the Investors and the
Company.
1.4 DELIVERY; PAYMENT. At the Closing, the Company
will deliver to each Investor a certificate, dated the
Closing Date, representing the shares of Series A
Preferred Stock purchased by such Investor, registered
in its name as stated on Schedule 1 (or in the name of
its nominee if it so specifies to the Company at least
48 hours prior to the Closing Date) against payment to
the Company of the purchase price of shares of Series
A Preferred Stock being purchased by such Investor,
which payment shall be made (i) if in cash, by wire
transfer of immediately available funds, or (ii) if in
KL Stock, by delivery of certificates representing
such stock registered in the name of the Company (or
in the name of its nominee if the Company so specifies
at least 48 hours prior to the Closing Date). At the
Closing, the Company will also deliver the Warrants to
the Investors.
1.5 REGISTRATION RIGHTS.
(a) In connection with the issuance and sale of
the Series A Preferred Stock and the issuance of
the Warrants to the Investors, the Company agrees
that the Investors shall have the registration
rights set forth in the Registration Rights
Agreement in substantially the form attached
hereto as Exhibit C-1 (the "Company Registration
Rights Agreement").
(b) In connection with the issuance of the KL
Stock to the Company, Kushner-Locke agrees that
the Company shall have the registration rights set
forth in the Registration Rights Agreement in
substantially the form attached hereto as Exhibit
C-2 (The "KL Registration Rights Agreement").
1.6 FIRST QUARTER BALANCE SHEET. Within 30 days after
the Closing, the Company, represented by its current
Interim Chief Financial Officer under the direction of
the current members of the Board of Directors, shall
in good faith prepare and deliver to the Investors a
consolidated balance sheet of the Company as of March
31, 1999 (the "First Quarter Balance Sheet") prepared
in a manner consistent with the consolidated balance
sheet contained in the 1998 Financials (as hereinafter
defined), but subject to the principles set forth in
Annex A. If the First Quarter Balance Sheet shows
total stockholders' equity of less than $11.0 million,
the
3
<PAGE> 8
Company and the Investors shall negotiate in good
faith with respect to the issuance of additional
warrants to purchase Common Stock so that the
Investors are made-whole as to their proportionate
investment in the Company.
SECTION II. THE COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce each Investor to enter into this Agreement and to
purchase the number of shares of Series A Preferred Stock and Warrants set forth
opposite its name on Schedule 1, the Company hereby represents and warrants to
each Investor, except as disclosed in the Company Disclosure Schedule delivered
to the Investors on the date hereof, as follows. The matters referred to in the
Company Disclosure Letter shall be deemed to qualify (i) the specific
representations and warranties which are referred to therein, and (ii) such
other representations and warranties where the substance of the disclosure made
with respect to such matter includes sufficient information and detail to make
clear the nature of such qualification.
2.1 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 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 or under the other Transaction Documents,
provided that none of the following shall constitute a
Company
4
<PAGE> 9
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 Transactions or that is disclosed on the Company
Disclosure Schedule, (iii) changes arising directly or
indirectly from the execution or announcement of this
Agreement or (iv) matters disclosed to the Investors
by the Company prior to the date hereof on the Company
Disclosure Schedule. For purposes of this Agreement,
the term "Subsidiary" shall mean a subsidiary of the
Company that is identified as such in Section 2.1 of
the Company Disclosure Schedule. Section 2.1 of the
Company Disclosure Schedule sets forth a complete list
of all subsidiaries of the Company. Except as set
forth in Section 2.1 of the Company Disclosure
Schedule, the Company owns directly or indirectly all
of the issued and outstanding shares of capital stock
of each of its Subsidiaries. Other than as set forth
in Section 2.1 of the Company Disclosure Schedule, as
of the date of this Agreement the Company has no other
equity interest in any other entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company
has heretofore furnished to Investors 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 Agreement, neither
the Company nor any of its Subsidiaries is in
violation of any of the provisions of its respective
Articles of Incorporation or bylaws.
2.3 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"), and (iii)
3,000,000 shares of Series Preferred Stock (the
"Series Preferred Stock"). As of March 26, 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 677,650 shares of
Common Stock were reserved for future issuance upon
exercise of Company Option Securities. As of March 26,
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 March
26, 1999, (i) no shares of Series Preferred Stock were
issued and
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<PAGE> 10
outstanding or held in treasury or by its Subsidiaries
and (ii) no shares of Series Preferred Stock were
reserved for future issuance. Except as described
above and except as described in Section 2.3 of the
Company 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 or 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.
2.4 AUTHORITY RELATIVE TO THE TRANSACTION AGREEMENTS.
The Company has all necessary corporate power and
authority to execute and deliver this Agreement, the
Warrant Agreement, the Warrants, the Company
Registration Rights Agreements and the Certificate of
Determination (collectively, the "Transaction
Documents"), to perform its obligations hereunder and
thereunder and to consummate the Transactions. The
execution and delivery of the Transaction Documents,
the filing of the Certificate of Determination and the
consummation by the Company of the Transactions 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 the
Transaction Documents or to consummate the
Transactions. The Transaction Documents have been duly
and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery
by each Investor a party thereto, constitute legal,
valid and binding obligations of the Company,
enforceable against the Company in accordance with
their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors' rights
generally and to general principles of equity.
2.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS
AND CONSENTS.
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(a) The exhibit indexes to the Company's most
recently filed Annual Report on Form 10-K and Form
10-Qs filed since the date of such Form 10-K, as
supplemented by Section 2.5(a) of the Company
Disclosure Schedule, include each agreement,
contract or other instrument (including all
amendments thereto) to which the Company or its
Subsidiaries is a party or by which any of them is
bound which would be required as of the date of
such reports and as of the date hereof pursuant to
the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations
thereunder to be filed as an exhibit to an Annual
Report on Form 10-K, a Quarterly Report on Form
10-Q or a Current Report on Form 8-K
(collectively, the "Material Contracts"). The
Company has made available to the Investors on or
prior to the date hereof true, correct and
complete copies of each such Material Contract.
(b) Except as disclosed in Section 2.5(b) of the
Disclosure Schedule, neither the Company nor any
of its Subsidiaries nor, to the knowledge of the
Company, any party other than the Company or any
of its Subsidiaries, is in default in the
performance, observance or fulfillment of any of
the material obligations, covenants or conditions
contained in any Material Contract to which the
Company or any of its Subsidiaries is a party,
except for any such default which could not
reasonably be expected to result in a Company
Material Adverse Effect.
(c) The execution and delivery of this Agreement
by the Company does not, and the performance of
this Agreement by the Company will not (i)
conflict with or violate the Articles of
Incorporation or bylaws of the Company or
materially conflict with or materially violate the
Articles of Incorporation or bylaws or equivalent
organizational documents of any of its
Subsidiaries, (ii) assuming that all consents,
approvals, authorizations and other actions
described in subsection (d) have been obtained and
all filings and obligations described in
subsection (d) have been made or complied with,
conflict with or violate any foreign or domestic
(federal, state or local) law, statute, ordinance,
rule, regulation, permit, injunction, writ,
judgment, decree or order ("Law") applicable to
the Company or any of its Subsidiaries or by which
any asset of the Company or any of its
Subsidiaries is bound or affected, or (iii)
conflict with, result in any breach of or
constitute a default (or an event that with notice
or lapse of time or both would become a default)
under, or give to others any right of termination,
amendment, acceleration or cancellation of, or
require any payment under, or result in the
creation of a lien, claim, security interest or
other charge or encumbrance on any asset of the
Company or any of its Subsidiaries pursuant to,
any Material Contract except, with respect to
clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults, or other
occurrences that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
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<PAGE> 12
(d) The execution and delivery of this Agreement
by the Company do not, and the performance of this
Agreement by the Company will not, require any
consent, approval, authorization or permit of, or
filing with or notification to, any United States
(federal, state or local) or foreign government or
governmental, regulatory or administrative
authority, agency, commission, board, bureau,
court or instrumentality or arbitrator of any kind
("Governmental Authority"), except (i) for
applicable requirements, if any, of the Securities
Act of 1933, as amended (the "Securities Act"),
the Exchange Act, National Association of
Securities Dealers, Inc. Automated
Quotation/National Market System ("NASDAQ/NMS")
and state securities laws, and (ii) where failure
to obtain such consents, approvals, authorizations
or permits, or to make such filings or
notifications, would not prevent consummation of
the Transactions or otherwise prevent the Company
from performing its obligations under this
Agreement, and would not, individually or in the
aggregate, have a Company Material Adverse Effect.
2.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Since January 1, 1997, and prior to the
execution and delivery of this Agreement, the
Company has filed all forms, reports, statements
and other documents required to be filed with the
Securities and Exchange Commission (the "SEC"),
including, without limitation, (A) all Annual
Reports on Form 10-K, (B) all Quarterly Reports on
Form 10- Q, (C) all proxy statements relating to
meetings of shareholders (whether annual or
special), (D) all Reports on Form 8-K, (E) all
other reports or registration statements and (F)
all amendments and supplements to all such reports
and registration statements filed from January 1,
1997 to the date hereof (collectively, the "SEC
Reports"). The SEC Reports (i) were prepared in
all material respects in accordance with the
requirements of the Securities Act and the
Exchange Act and the rules and regulations of the
SEC thereunder applicable to such SEC Reports and
(ii) did not at the time they were filed and, with
respect to registration statements as of their
effective dates, contain any untrue statement of a
material fact or omit to state a material fact
required to be stated therein or necessary in
order to make the statements therein, in the light
of the circumstances under which they were made,
not misleading.
(b) The Company has heretofore delivered to
Investors a true and complete copy of the draft
consolidated financial statements (including the
notes thereto) of the Company as of and for the
year ended December 31, 1998 which the Company
intends to finalize substantially in the form of
the draft, except as set forth in item 7 of
Schedule 2.7, promptly after the date hereof (as
modified by such item 7 to Schedule 2.7 the "1998
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<PAGE> 13
Financials"). Each of the 1998 Financials and
consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC
Reports has been prepared in all material respects
in accordance with the published rules and
regulations of the SEC and generally accepted
accounting principles applied on a consistent
basis throughout the periods indicated (except as
may be indicated in the notes thereto) and each
fairly presents, in all material respects, the
consolidated financial position, results of
operations and cash flows of the Company and its
consolidated subsidiaries as at the respective
dates thereof and for the respective periods
indicated therein, except as otherwise indicated
in the notes thereto (subject, in the case of
unaudited statements, to normal and recurring
year-end adjustments which were not and are not
expected, individually or in the aggregate, to
have a Company Material Adverse Effect).
(c) Except as and to the extent set forth on, or
reserved against on, the consolidated balance
sheet of the Company and its consolidated
subsidiaries as of December 31, 1998 contained in
the 1998 Financials, including the notes thereto,
neither the Company nor any of its Subsidiaries
has any liability or obligation of any nature
(whether accrued, absolute, contingent, fixed,
liquidated, unliquidated or otherwise) as of the
date of execution and delivery of this Agreement
that would be required to be reflected on, or
reserved against in, a balance sheet of the
Company, or in the notes thereto, prepared in
accordance with the published rules and
regulations of the SEC and generally accepted
accounting principles, except for liabilities or
obligations (i) incurred pursuant to the Revolving
Loan and Security Agreement, dated as of October
27, 1993, as amended, between the Company and City
National Bank (the "Amended Loan Agreement"), (ii)
disclosed in any SEC Report or in Section 2.7 of
the Company Disclosure Schedule or (iii) incurred
in the ordinary course of business since December
31, 1998.
(d) Except in each case as disclosed in the SEC
Reports or the 1998 Financials, neither the
Company nor any of its Subsidiaries is indebted to
any director or executive officer of the Company
or any of its Subsidiaries (except for amounts due
as normal salaries and bonuses, in reimbursement
of ordinary expenses and directors' fees) and no
such person is indebted to the Company or any of
its Subsidiaries, and since January 1, 1998 there
have been no other transactions of the type
required to be disclosed pursuant to Item 404 of
Regulation S-K under the Exchange Act.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
December 31, 1998, except as contemplated by this
Agreement, Section 2.7 of the Company Disclosure
Schedule or as disclosed in any SEC Report filed since
December 31, 1998 and prior to the execution and
delivery of this Agreement, the Company and its
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<PAGE> 14
Subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with
past practice and, since such date to the date hereof,
there has not been (a) any material change by the
Company in its accounting methods, principles or
practices, (b) any revaluation by the Company of any
material asset (including, without limitation, any
writing down of the value of inventory or writing off
of notes or accounts receivable), other than in the
ordinary course of business consistent with past
practice, (c) entry by the Company or any of its
Subsidiaries into any commitment or transaction
material to the Company and any of its Subsidiaries
taken as a whole, except in the ordinary course of
business and consistent with past practice and except
for the Amended Loan Agreement, (d) any agreement by
the Company or any of its Subsidiaries to take any of
the actions described in this Section 2.7 except as
expressly contemplated by this Agreement, other than
for such events that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
2.8 INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 2.8 of the
Company Disclosure Schedule, and except when it
would not, individually or in the aggregate, have,
or give rise to, a Company Material Adverse
Effect, and subject to the Licenses referenced in
Section 2.8(b)(ii) below and the Company's filed
statements from time to time with the Securities
Exchange Commission, to the Company's best
knowledge: (i) the Company and its Subsidiaries
own good and marketable title to, or hold fully
valid, enforceable, and exclusive licenses of all
rights under all copyrights, trademarks, service
marks, trade secrets, and other intellectual
property used or otherwise exploited by the
Company or its Subsidiaries, including without
limitation the exclusive rights to use, duplicate,
distribute, merchandise, create derivative works
based upon, publicly perform, and publicly
display, in any media and by any means, any
character (including without limitation Casper the
Friendly Ghost, Richie Rich, Wendy the Good Witch
and Baby Huey), motion picture, or other work of
authorship or artistic work exploited by the
Company or its Subsidiaries, and the exclusive
right to use any confidential or proprietary
know-how, system, procedure or software used by
the Company or its Subsidiaries, (collectively,
the "Intellectual Property"); and (ii) all of the
Intellectual Property is fully valid and
enforceable, and none of the Intellectual Property
is subject to any claim, encumbrance, or material
restriction, including without limitation any
limitation of the Company's or its Subsidiaries'
right to use, assign or license (except as may
occur by operation of statute, including pursuant
to Section 304 of the Copyright Act of 1976, as
amended). The exploitation of the Intellectual
Property by
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<PAGE> 15
any means in connection with the business and
operations of the Company or its Subsidiaries does
not infringe or misappropriate the rights of any
person(s), including without limitation any rights
relating to defamation, contract, trademark,
unfair competition, copyright, trade secret,
privacy or publicity, except when it would not,
individually or in the aggregate, have or give
rise to a Company Material Adverse Effect.
(b) Except as set forth in Section 2.8 of the
Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries has received any
notice of infringement or misappropriation or
other notice or claim relating to any Intellectual
Property. Further, to the Company's best
knowledge, and except when it would not,
individually or in the aggregate, have or give
rise to a Company Material Adverse Effect: (i) no
presently existing assignment, license or other
transfer to the Company or any of its Subsidiaries
of any Intellectual Property or of any rights
thereunder is now or will in the future become
subject to rescission, cancellation or termination
(except as may occur by operation of statute,
pursuant to Section 304 of the Copyright Act of
1976, as amended); and (ii) Section 2.8 of the
Company Disclosure Schedule identifies by
reference all current material licenses and other
rights agreements with respect to the Intellectual
Property entered into by the Company or any of its
Subsidiaries or any of its predecessors in
interest (collectively, the "Licenses"). The
Company has made available to the Investors true
and correct copies of all material agreements
pertaining to the Intellectual Property, and has
identified all such agreements in the data room
indexes of April 2, 1999 and/or in Section 2.5(a)
of the Company Disclosure Schedule.
2.9 TAX MATTERS. Except as set forth in Section 2.9
of the Company Disclosure Schedule:
(a) Each of the Company and its Subsidiaries has
filed all Federal income tax returns and all other
material tax returns and reports required to be
filed by it prior to the date hereof. Each of the
Company and its Subsidiaries has paid (or the
Company has paid on its Subsidiaries' behalf) all
taxes shown as due on such returns, and the most
recent financial statements contained in the SEC
Reports filed prior to the date of this Agreement
reflect an adequate reserve for all taxes payable
by the Company and its Subsidiaries for all
taxable periods and portions thereof through the
date of such financial statements.
(b) As of the date of this Agreement, except as
set forth in the Company Disclosure Schedule: (i)
no material tax return of the Company or and of
its Subsidiaries is under audit or examination by
any taxing authority, and no written notice of
such an audit or examination has been
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<PAGE> 16
received by the Company or any of its
Subsidiaries; (ii) each material deficiency
resulting from any audit or examination relating
to taxes by any taxing authority has been paid,
except for deficiencies being contested in good
faith; and (iii) no material issues relating to
taxes were raised in writing by the relevant
taxing authority during any presently pending
audit or examination, and no material issues
relating to taxes were raised in writing by the
relevant taxing authority in any completed audit
or examination that can reasonably be expected to
recur in a later taxable period.
2.10 LITIGATION. As of the date of this Agreement,
except as set forth in Section 2.10 of the Company
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.
2.11 BROKERS. Except as set forth in Schedule 2.11 of
the Company Disclosure Schedule, no broker, finder or
investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with
the Transactions based upon arrangements made by or on
behalf of the Company.
2.12 SHARES FULLY PAID, ETC. The shares of Series A
Preferred Stock, when issued and paid for pursuant to
the terms of this Agreement, and any additional shares
of Series A Preferred Stock issued as dividends
pursuant to the terms and conditions of the
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
Certificate of Determination and shall be free and
clear of all pledges, liens, encumbrances and
restrictions. The Conversion Shares and the Warrant
Shares have been reserved for issuance and when issued
upon conversion or exercise, as the case may be, will
be duly authorized, validly issued and outstanding,
fully paid, nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions.
2.13 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.
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<PAGE> 17
2.14 NO PREEMPTIVE RIGHTS. The issuance, sale and
delivery 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.
2.15 EMPLOYEE BENEFIT PLAN. The Company does not
maintain any pension plan. Each employee benefit plan
which covers employees of the Company has been
maintained in compliance with all applicable laws,
except for any such failure to comply that would not
have a Company Material Adverse Effect.
2.16 INSURANCE. The Company and its Subsidiaries are
insured with reputable insurers against such risks and
in such amounts as are prudent in accordance with
industry practices. All of the insurance policies,
binders or bonds maintained by the Company or its
Subsidiaries (the "Policies") have been maintained in
accordance with their respective terms and will remain
in full force and effect after the Closing. Neither
the Company nor any of its Subsidiaries has received
any notice of default with respect to any provision of
any such Policies. With respect to its directors' and
officers' liability insurance Policies, neither the
Company nor any of its Subsidiaries has failed to give
any notice or present any claim thereunder in due and
timely fashion or as required by such Policies so as
to jeopardize full recovery under such Policies.
2.17 REGISTRATION RIGHTS. Other than as set forth in
Section 2.17 of the Company Disclosure Schedule, the
Company has not granted or agreed to grant any
registration rights, including piggyback rights, to
any Person.
2.18 FAIRNESS OPINION. The Company has received an
opinion from Donaldson, Lufkin & Jenrette Securities
Corporation that the consideration to be received by
the Company pursuant hereto is fair from a financial
point of view to the Company.
The Company hereby makes the following additional representations to
Kushner-Locke only:
2.19 INVESTMENT INTENT.
(a) The shares of KL Stock being acquired by the
Company are being acquired for investment for the
Company's own account and not with the view to, or
for resale in connection with, any distribution or
public
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<PAGE> 18
offering thereof. The Company understands that the
shares of KL Stock 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
Kushner-Locke on these exemptions is predicated in
part upon this representation by the Company. The
Company further understands that the shares of KL
Stock 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.
(b) Each certificate representing shares of KL
Stock shall be endorsed with the following legend:
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 EXEMPTION 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).
2.20 LOCATION OF PRINCIPAL OFFICE. The state in which
the Company's principal office is located is the state
set forth in the Company's address in Section 8.5(b)
hereof. The Company acknowledges that Kushner-Locke
has made available to the Company at a reasonable time
prior to the execution of this Agreement the
opportunity to ask questions and receive answers
concerning the terms and conditions of the KL Stock
contemplated by this Agreement and to obtain any
additional information (which Kushner-Locke possesses
or can acquire without unreasonable effort or expense)
as may be necessary to verify the accuracy of
information furnished to the Company. The Company 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.
2.21 ACCREDITED INVESTOR. The Company is an "accredited
investor" within the meaning of Rule 501 promulgated
under the Securities Act.
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SECTION III. REPRESENTATIONS OF THE INVESTORS.
A. EACH INVESTOR REPRESENTS FOR ITSELF THAT:
3.1 INVESTMENT INTENT.
(a) The shares of Series A Preferred Stock and
Warrants being acquired by such Investor are being
acquired and, when acquired, 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 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
each Investor. Such Investor further understands
that 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.
(b) The shares of Series A Preferred Stock,
Conversion Shares, Warrants and Warrant Shares are
only transferable pursuant to (a) a public
offering registered under the Securities Act, (b)
pursuant to 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.
(c) Each certificate representing shares of Series
A Preferred Stock, Conversion Shares, Warrants and
Warrant Shares shall be endorsed with the
following legend:
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 EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE SECURITIES
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<PAGE> 20
LAWS (IF REQUESTED BY THE COMPANY, UPON PROVISION OF AN OPINION OF
COUNSEL IN FORM SATISFACTORY TO THE COMPANY).
3.2 LOCATION OF PRINCIPAL OFFICE, QUALIFICATION, ETC.
The state in which such Investor's principal office
(or domicile, if such Investor is an individual) is
located is the state set forth in such Investor's
address on Schedule 1 hereto. Such Investor
acknowledges that the Company has made available to
such Investor at a reasonable time prior to the
execution of this Agreement the opportunity to ask
questions and receive answers concerning the terms and
conditions of the sale of securities contemplated by
this Agreement 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 such Investor. Such Investor (a) is able
to bear the loss of its entire investment in the
shares of Series A Preferred 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.
3.3 ACTS AND PROCEEDINGS. This Agreement has been duly
authorized by all necessary action on the part of such
Investor, has been duty executed and delivered by such
Investor, and is a valid and binding agreement of such
Investor.
3.4 NO BROKERS OR FINDERS. Other than as previously
disclosed to the Company in writing, no person, firm
or corporation has or will have, as a result of any
act or omission by such 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. Such 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 such Investor in
connection with the Transactions.
3.5 ACCREDITED INVESTOR. Such Investor is an
"accredited investor" within the meaning of Rule 501
promulgated under the Securities Act.
3.6 BURLAGE EMPLOYMENT AGREEMENT. Roger Burlage has
entered into an employment agreement with the Company
in
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<PAGE> 21
substantially the form attached hereto as Exhibit E
(the "Burlage Employment Agreement"), which agreement
shall be effective as of the Closing Date subject only
to the Closing.
3.7 DISTRIBUTION AGREEMENT. Universal Studios Home
Video has delivered a term sheet (a copy of which has
been delivered to the Company and each of the
Investors) with respect to a domestic video
distribution agreement for the Company's
direct-to-video feature films (the "Distribution
Agreement Term Sheet").
3.8 SHAREHOLDERS AGREEMENT. True and correct copies
of all agreements among any or all of the Investors
relating to the transactions contemplated hereby or
the voting of their shares of Series A Preferred
Stock, Conversion Shares or Warrant Shares, as in
effect on the date hereof and on the Closing Date,
have heretofore been provided to the Company.
B. KUSHNER-LOCKE ADDITIONALLY REPRESENTS FOR ITSELF THAT:
3.9 ORGANIZATION AND QUALIFICATION. Kushner-Locke 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 material adverse effect on
Kushner-Locke's business, operations, properties,
assets, financial condition or results of operations.
3.10 KL STOCK. The shares of KL Stock, when issued to
the Company and upon receipt of the consideration
therefor pursuant to the terms of this Agreement, will
be duly authorized, validly issued and outstanding,
fully paid and nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions, except
as otherwise created by the Company and other than
restrictions arising under applicable securities laws.
3.11 CAPITALIZATION. The authorized capital stock of
Kushner-Locker consists of 50,000,000 shares of common
stock. As of March 31, 1999, (i) approximately
11,624,606 shares of Kushner-Locke common stock were
issued and outstanding, all of which were duly
authorized, validly issued and outstanding, fully paid
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and nonassessable and (ii) no shares of Kushner-Locke
common stock were held in treasury.
3.12 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS
AND CONSENTS.
(a) The exhibit indexes to the Kushner-Locke's
most recently filed Annual Report on Form 10-K and
any Form 10-Qs filed since the date of such Form
10-K, include each agreement, contract or other
instrument (including all amendments thereto) to
which Kushner-Locke or any Kushner-Locke
Subsidiary is a party or by which it is bound
which would be required pursuant to the Exchange
Act and the rules and regulations thereunder to be
filed as an exhibit to an Annual Report on Form
10-K, a Quarterly Report on Form 10-Q or a Current
Report on Form 8-K (collectively, the "KL Material
Contracts").
(b) Neither Kushner-Locke nor any Kushner-Locke
Subsidiary is, nor to the knowledge of
Kushner-Locke is any party other than
Kushner-Locke or any Kushner-Locke Subsidiary, in
default in the performance, observance or
fulfillment of any of the material obligations,
covenants or conditions contained in any KL
Material Contract to which Kushner-Locke or any
Kushner-Locke Subsidiary is a party, except for
any such default which could not reasonably be
expected to result in a material adverse effect on
the business, operations, properties or assets of
Kushner-Locke and the Kushner-Locke Subsidiaries
taken as a whole.
(c) The execution and delivery of this Agreement
by Kushner-Locke does not, and the performance of
this Agreement by Kushner-Locke will not (i)
conflict with or violate the Articles of
Incorporation or bylaws of Kushner-Locke, (ii)
assuming that all consents, approvals,
authorizations and other actions described in
subsection (d) have been obtained and all filings
and obligations described in subsection (d) have
been made or complied with, conflict with or
violate any foreign or domestic (federal, state or
local) law, statute, ordinance, rule, regulation,
permit, injunction, writ, judgment, decree or
order applicable to Kushner-Locke or any
Kushner-Locke Subsidiary or by which any asset of
Kushner-Locke or any Kushner-Locke Subsidiary is
bound or affected, or (iii) except as set forth in
the next succeeding sentence, conflict with,
result in any breach of or constitute a default
(or an event that with notice or lapse of time or
both would become a default) under, or give to
others any right of termination, amendment,
acceleration or cancellation of, or require any
payment under, or result in the creation of a
lien, claim, security interest or other charge or
encumbrance on any asset of Kushner-Locke or any
Kushner-Locke Subsidiary pursuant to any KL
Material Contract except, with respect to clauses
(ii) and (iii), for any such conflicts,
violations, breaches, defaults,
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<PAGE> 23
or other occurrences that would not, individually
or in the aggregate, have a material adverse
effect on the business, operations, properties or
assets of Kushner-Locke and the Kushner-Locke
Subsidiaries taken as a whole. The issuance of the
KL Stock hereunder requires consent of the lenders
pursuant to that certain Credit, Security,
Guaranty and Pledge Agreement, dated as of June
19, 1996 among The Kushner-Locke Company, the
Guarantors named therein, the lenders named
therein and the Chase Manhattan Bank, N.A.
(formerly Chemical Bank) as Agent, and as Fronting
Bank for the lenders, as heretofore amended, which
consent has been obtained orally from the Agent on
or prior to the date hereof.
(d) The execution and delivery of this Agreement
by Kushner-Locke do not, and the performance of
this Agreement by Kushner-Locke will not, require
any consent, approval, authorization or permit of,
or filing with or notification to, any
Governmental Authority, except (i) for applicable
requirements, if any, of the Securities Act, the
Exchange Act, NASDAQ/NMS and state securities
laws, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or
to make such filings or notifications, would not
prevent consummation of the Transactions or
otherwise prevent Kushner-Locke from performing
its obligations under this Agreement, and would
not, individually or in the aggregate, have a
material adverse effect on the business,
operations, properties or assets of Kushner-Locke
and the Kushner-Locke Subsidiaries taken as a
whole.
3.13 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Since October 1, 1997, and prior to the
execution and delivery of this Agreement,
Kushner-Locke has filed all forms, reports,
statements and other documents required to be
filed with the SEC, including, without limitation,
(A) all Annual Reports on Form 10-K, (B) all
Quarterly Reports on Form 10-Q, (C) all proxy
statements relating to meetings of shareholders
(whether annual or special), (D) all Reports on
Form 8-K, (E) all other reports or registration
statements and (F) all amendments and supplements
to all such reports and registration statements
filed from October 1, 1997 to the date hereof
(collectively, the "KL SEC Reports"). The KL SEC
Reports (i) were prepared in all material respects
in accordance with the requirements of the
Securities Act and the Exchange Act and the rules
and regulations of the SEC thereunder applicable
to such KL SEC Reports and (ii) did not at the
time they were filed contain any untrue statement
of a material fact or omit to state a material
fact required to be stated therein or necessary in
order to make the statements therein, in the light
of the circumstances under which they were made,
not misleading.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto)
contained in the KL SEC Reports has been prepared
in all material respects in accordance with the
published rules and regulations of the SEC and
generally accepted accounting principles applied
on a consistent basis throughout the periods
indicated
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(except as may be indicated in the notes thereto,
and in the case of quarterly financial statements,
as permitted by Form 10-Q) and each fairly
presents, in all material respects, the
consolidated financial position, results of
operations and cash flows of Kushner-Locke as at
the respective dates thereof and for the
respective periods indicated therein, except as
otherwise indicated in the notes thereto (subject,
in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and
are not expected, individually or in the
aggregate, to have a material adverse effect on
the business, operations, properties or assets of
Kushner-Locke).
(c) Except as and to the extent set forth on, or
reserved against on, the balance sheet of
Kushner-Locke as of September 30, 1998, including
the notes thereto, neither Kushner-Locke nor any
Kushner-Locke Subsidiary has any liability or
obligation of any nature (whether accrued,
absolute, contingent, fixed, liquidated,
unliquidated or otherwise) as of the date of
execution and delivery of this Agreement that
would be required to be reflected on, or reserved
against in, a balance sheet of Kushner-Locke, or
in the notes thereto, prepared in accordance with
the published rules and regulations of the SEC and
generally accepted accounting principles, except
for liabilities or obligations (i) disclosed in
any KL SEC Report filed since September 30, 1998
and prior to the execution and delivery of this
Agreement, or (ii) incurred in the ordinary course
of business since September 30, 1998, that would
not, individually or in the aggregate, have a
material adverse effect on the business,
operations, properties or assets of Kushner-Locke.
3.14 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
September 30, 1998, except as contemplated by this
Agreement or as disclosed in any KL SEC Report filed
since September 30, 1998 and prior to the execution
and delivery of this Agreement, Kushner-Locke and its
subsidiaries have conducted their business only in the
ordinary course and in a manner consistent with past
practice and, since such date, to the date hereof no
event has occurred that would, individually or in the
aggregate, have a material adverse effect on the
business, operations, properties or assets of
Kushner-Locke and its subsidiaries taken as a whole
nor has there occurred any event that could reasonably
be foreseen by Kushner-Locke to result in such a
material adverse effect.
3.15 LITIGATION. As of the date of this Agreement,
there is no suit, claim, action, proceeding or
investigation pending, or, to Kushner-Locke's best
knowledge, threatened against Kushner-Locke or any
Kushner-Locke Subsidiary that could reasonably be
expected to have a material adverse effect on the
business, operations, properties or assets of
Kushner-Locke and the Kushner-Locke Subsidiaries taken
as a whole or prevent or materially delay the
consummation of the Transactions.
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SECTION IV. CONDITIONS OF EACH INVESTOR'S OBLIGATION
The obligation to purchase and pay for the shares of Series A Preferred
Stock which each Investor has agreed to purchase on the Closing Date is subject
to the fulfillment prior to or on the Closing Date, of the conditions set forth
in this Section 4.
4.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company under
this Agreement which are qualified as to materiality
or a Company Material Adverse Effect shall have been
true and correct (as so qualified) when made and shall
be true and correct (as so qualified) at and as of the
Closing Date, as if made on and as of such date. The
representations and warranties of the Company under
this Agreement which are not qualified as to
materiality or a Company Material Adverse Effect shall
have been true and correct in all material respects
when made and shall be true and correct in all
material respects at and as of the Closing Date, as if
made on and as of such date.
4.2 COMPLIANCE WITH AGREEMENT. The Company shall have
performed and complied with all agreements or
covenants required by this Agreement to be performed
and complied with by it prior to or as of the Closing
Date.
4.3 CERTIFICATE OF OFFICERS. The Company shall have
delivered to the Investors a certificate, dated the
Closing Date, executed by the Chief Executive Officer
of the Company and certifying to the satisfaction of
the conditions specified in Sections 4.1 and 4.2.
4.4 BOARD OF DIRECTORS. Upon the Closing, the number
of directors comprising the Company's Board of
Directors shall be five, two of whom (Roger A. Burlage
and Donald Kushner (or any designee of Donald Kushner,
provided that no disclosure under Item 401(f) of
Regulation S-K would be required to be made with
respect to such designee if he were a director of the
Company)) shall be selected by the Investors, two of
whom shall be the existing members of the Board of
Directors, and the fifth of whom shall be selected by
the foregoing members of the Board of Directors
subsequent to the Closing.
4.5 LEGAL OPINION. The Investors shall have received
an originally executed opinion of Kaye, Scholer,
Fierman, Hays & Handler, LLP, counsel for the Company,
dated as of the Closing Date, in substantially the
form attached hereto as Exhibit F.
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4.6 NECESSARY CONSENTS. On or before the Closing Date,
the Company shall have obtained any consents or
waivers of any person or governmental authority
necessary for the consummation by the Company of the
Transactions contemplated under this Agreement or
referred to in Schedule 2 and the Investors shall have
received satisfactory evidence of such consents.
4.7 CERTIFICATE OF DETERMINATION. On or prior to the
Closing Date, the Company shall have filed with the
Secretary of State of California, the Certificate of
Determination in the form attached hereto as Exhibit A
and the Certificate of Determination shall have become
effective.
4.8 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE
LITIGATION. No order, judgment or decree of any court,
arbitral tribunal, administrative agency or other
governmental or regulatory authority or agency shall
purport to enjoin or restrain the Investors from
acquiring the shares of Series A Preferred Stock on
the Closing Date.
4.9 WARRANT AGREEMENTS. The Company shall have
executed and delivered the Warrant Agreements and the
Warrant Agreements shall be in full force and effect.
4.10 COMPANY REGISTRATION RIGHTS AGREEMENT. The Company
has executed and delivered the Company Registration
Rights Agreement and the Company Registration Rights
Agreement shall be in full force and effect.
4.11 EMPLOYMENT AGREEMENT. The Burlage Employment
Agreement shall be in full force and effect.
SECTION V. CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation to sell the shares of Series A Preferred Stock which the
Company has agreed to sell on the Closing Date is subject to the fulfillment
prior to or on the Closing Date of the conditions set forth in this Section 5.
5.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investors under
this Agreement shall be true and correct in all
material respects as of the Closing Date with the same
effect as though made on and as of the Closing Date.
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<PAGE> 27
5.2 COMPLIANCE WITH AGREEMENT. The Investors shall
have performed and complied with all agreements or
covenants required by this Agreement to be performed
and complied with by them prior to or as of the
Closing Date.
5.3 LEGAL OPINION. The Company shall have received
originally executed opinions of Troop Steuber Pasich
Reddick & Tobey, LLP, counsel for the Investors (other
than Kushner-Locke), and Paul, Hastings, Janofsky &
Walker LLP, counsel for Kushner-Locke, dated as of the
Closing Date, in substantially the forms attached
hereto as Exhibits G-1 and G-2.
5.4 NECESSARY CONSENTS. On or before the Closing Date,
the Investors shall have obtained any consents of any
person or governmental authority necessary for the
consummation of the transactions by the Investors and
the Company shall have received satisfactory evidence
of such consents.
5.5 EMPLOYMENT AGREEMENT. The Burlage Employment
Agreement shall be in full force and effect.
5.6 KL REGISTRATION RIGHTS AGREEMENT. Kushner-Locke
shall have executed and delivered the KL Registration
Rights Agreement and the KL Registration Rights
Agreement shall be in full force and effect.
5.7 ALL SHARES OF SERIES A PREFERRED STOCK PURCHASED.
Each of the Investors shall have purchased and paid
for all of the shares of Series A Preferred Stock
listed opposite such Investor's name on Schedule 1.
5.8 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE
LITIGATION. No order, judgment or decree of any court,
arbitral tribunal, administrative agency or other
governmental or regulatory authority or agency shall
purport to enjoin or restrain the Investors from
acquiring the shares of Series A Preferred Stock on
the Closing Date.
5.9 NASDAQ WAIVER OF ANY SHAREHOLDER APPROVAL
REQUIREMENTS. The Company shall have received either
confirmation from NASDAQ that approval of the
shareholders of the Company is not required with
respect to the transactions pursuant to NASDAQ/NMS
rules otherwise applicable to the Transactions or a
waiver from NASDAQ of any such shareholder approval
requirements, and at least ten days have elapsed since
the
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date on which the Company has mailed a letter to its
shareholders alerting them to the omission to seek
shareholder approval of the transactions contemplated
hereby.
5.10 DISTRIBUTION AGREEMENT TERM SHEET. The
Distribution Agreement Term Sheet shall not have been
withdrawn or rescinded.
SECTION VI. CERTAIN COVENANTS OF THE INVESTORS AND THE COMPANY.
6.1 RIGHT OF FIRST REFUSAL. In the event (and on each
occasion) that prior to the conversion of the Series A
Preferred Stock, any Investor shall seek to sell its
shares of Series A Preferred Stock to any person or
entity (other than (i) an affiliate of such Investor
or another Investor or an affiliate of another
Investor, or (ii) any family member of an Investor or
in connection with estate planning matters), such
Investor shall obtain a bona fide written 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 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 from the
date of the Purchase Notice. If the Company does not
agree to purchase such shares, such 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 such Investor than
those set forth in the Sale Notice. If any 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 6.1 shall terminate with
respect to any shares of Series A Preferred Stock
which are converted into shares of Common Stock of the
Company (or other securities or assets) pursuant to
the terms of the Certificate of Determination.
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<PAGE> 29
6.2 EXCLUSIVE DEALING.
(a) Until the earlier of the Closing Date or the
termination of this Agreement, the Company will
not, and will instruct its representatives not to,
initiate, solicit or encourage (including by way
of furnishing information or assistance) any
Competing Transaction (as defined below), or enter
into or maintain discussions or negotiate with any
person in furtherance of or relating to or to
obtain a Competing Transaction, or agree to or
endorse any Competing Transaction, or authorize or
permit any representative of the Company or its
Subsidiaries to take any such action; provided,
however, that nothing contained in this Section
6.2 shall prohibit the Board of Directors of the
Company from (i) furnishing information to or
entering into discussions or negotiations with,
any person that makes an unsolicited, bona fide
written proposal regarding a Competing
Transaction, or agreeing to or endorsing any such
Competing Transaction (but only if the Company
first terminates this Agreement in accordance with
the provisions of Section VII) if the Board of
Directors of the Company, after consultation with
independent legal counsel with respect to legal
matters and a nationally recognized investment
banking firm with respect to business matters,
determines in good faith that the Competing
Transaction represents a more favorable
alternative to the Company's shareholders, and
that such action is required for the Company's
Board of Directors to comply with its fiduciary
duties to shareholders under applicable law or
(ii) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to a Competing
Transaction. The Company shall not be deemed to
have violated this Section 6.2(a) as a result of
its furnishing information to, or entering into
discussions or negotiations with , any person
regarding a Competing Transaction on or prior to
the date hereof.
(b) For purposes of this Agreement "Competing
Transaction" shall mean any of the following
involving the Company or its Subsidiaries: (a) any
merger, consolidation, business combination, or
other similar transaction as a result of which any
"person" becomes the "beneficial owner" (as each
such term is defined in Rule 13d-3 and Rule 3d-5
under the Exchange Act) of more than 50% of the
Company's outstanding voting securities; (b) any
sale or other disposition outside the ordinary
course of business of 50% or more of the fair
market value of the assets of the Company and its
Subsidiaries, taken as a whole, in a single
transaction or series of transactions; or (c) any
tender offer or exchange offer for more than 50%
of the Company's outstanding voting securities, or
(d) any other recapitalization transaction in
which investors (other than the Investors) provide
at least $5,000,000 in equity or subordinated debt
to the Company.
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6.3 CONDUCTING BUSINESS OF THE COMPANY. Except as set
forth in the Company Disclosure Schedule, from the
date of this Agreement until the Closing Date, unless
the prior written consent of Investors who would hold
more than a majority of the shares of Series A
Preferred Stock if the Closing had occurred shall have
been obtained, and except as otherwise is contemplated
by this Agreement, the Company will conduct, and will
cause each of its Subsidiaries to conduct, its
operations according to its ordinary and usual course
of business consistent with past practice and shall
use all reasonable efforts to preserve intact its
current business organizations, maintain its material
permits and contracts and preserve its relationships
with its customers, suppliers and others having
material business dealings with it. Without limiting
the generality of the foregoing, from the date of this
Agreement to the Closing Date, the Company shall not,
and shall cause each of its Subsidiaries not to (a)
issue, sell, grant, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, sale,
disposition or pledge or other encumbrance of (i) any
additional shares of capital stock of any class, or
any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe
for any shares of capital stock, or any rights,
warrants, options, calls, commitments or any other
agreements of any character to purchase or acquire any
shares of capital stock or any securities or rights to
subscribe for, any shares of capital stock, other than
shares of Common Stock issuable pursuant to options,
warrants or other rights, agreements, arrangements or
commitments described in Section 2.3 of the Company
Disclosure Schedule or (ii) any other securities in
respect of, in lieu of, or in substitution for shares
of Common Stock outstanding on the date hereof; (b)
redeem, repurchase or otherwise acquire, or propose to
redeem, repurchase or otherwise acquire, any of its
outstanding shares of capital stock; or (c) split,
combine, subdivide or reclassify any shares of Common
Stock or declare, set aside for payment or pay any
dividend, or make any other actual, constructive or
deemed distribution in respect of any capital stock of
the Company or otherwise make any payments to
stockholders in their capacity as such, except for
dividends by a direct or indirect wholly owned
subsidiary of the Company.
6.4 APPROVALS, ETC. Subject to the terms and
conditions provided herein, each of the parties hereto
agrees to (i) use all reasonable efforts to take all
action and to do all other things necessary, proper or
advisable to consummate and make effective as promptly
as practicable the transactions contemplated by this
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<PAGE> 31
Agreement; and (ii) use all reasonable efforts to
obtain all necessary or appropriate waivers
contemplated by this Agreement.
6.5 ACCESS. The Company hereby agrees that, from the
date hereof until the earlier to occur of the
termination of this Agreement and the Closing Date,
the Company will grant the Investors and its (or
their) representatives such access during normal
business hours as may be reasonably requested to the
personnel, advisors, properties, books, accounts,
records, contracts and documentation of, or relating
to, the business and operations of the Company and its
Subsidiaries.
6.6 NMS WAIVER.
(a) The Company shall within two business days of
the date hereof submit to Nasdaq an application
seeking a written waiver of the shareholder
approval requirements of Rule 4310 of the Nasdaq
Stock Market Rules with respect to the issuance
and sale of the Series A Preferred Stock and
Warrants pursuant to this Agreement, and within
two business days of the date hereof mail a letter
to its shareholders alerting them to the omission
to seek shareholder approval of the Transactions
contemplated hereby. The application referred to
in this section has been approved by the Board of
Directors of the Company in accordance with Nasdaq
requirements. The Company and the Investors will
cooperate in making all filings and taking all
other actions which are reasonably required in
order to obtain such waiver from Nasdaq.
(b) The Company will provide the Investors with
drafts of written correspondence from the Company
to Nasdaq and shall obtain the approval of the
Investors (which approval shall not be
unreasonably withheld) prior to its delivery to
Nasdaq, and a copy of all correspondence received
from Nasdaq with respect to the matters discussed
in this Section 6.6, as soon as practicable after
the receipt thereof from Nasdaq. The Company
agrees to use all reasonable efforts to include
the Investors in all conference calls with
representatives of Nasdaq with respect to the
matters discussed in this Section 6.6
6.7 KL STOCK. During the period of 90 days beginning
with the Closing Date, the Company shall not sell,
transfer or otherwise dispose of in any public
transaction (collectively, "Transfer") any of the
shares of KL Stock delivered to the Company hereunder.
During the period of 9 months beginning with the day
immediately following the expiration of the 90-day
period referred to in the immediately preceding
sentence, the Company shall not Transfer more than
100,000 shares of KL Stock (subject to adjustment for
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<PAGE> 32
stock splits, combinations, stock dividends and
similar events effected by KL after the date hereof)
during any 30 day period. Thereafter, the Company
shall be free to sell any of the KL Stock without
restriction, subject to compliance with any applicable
securities laws. Nothing herein should prohibit the
Company from engaging in any hedging activities (other
than short sales) with respect to the KL Stock.
6.8 DISTRIBUTION ARRANGEMENTS WITH KUSHNER LOCKE.
Kushner-Locke and the Company recognize and will try
to take advantage of the synergies between them
including discussing using Kushner-Locke's
international distribution system, production
capabilities, off balance sheet financing and the
branding of Kushner-Locke's family product and its
planned cartoon channel in Latin America.
SECTION VII. TERMINATION
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may
be terminated and the Transactions may be abandoned at
any time prior to the Closing Date by mutual consent
of the Company and Investors who would hold more than
a majority of the shares of Series A Preferred Stock
if the Closing had occurred.
7.2 TERMINATION BY EITHER INVESTORS OR THE COMPANY.
This Agreement may be terminated and the Transactions
may be abandoned by either the Company or the
Investors who would hold more than a majority of the
Series A Preferred Stock if the Closing had occurred
if:
(a) the Transactions shall not have been consummated
on or before May 28, 1999 (unless the Transactions
have not have been consummated solely due to: a
governmental authority having enacted, issued,
promulgated, enforced or entered any law, rule,
regulation, executive order or order that is then
in effect and has the effect of prohibiting the
consummation of the Transactions, in which case
either the Company or the Investors who would hold
more than a majority of the Series A Preferred
Stock if the Closing had occurred may terminate
this Agreement and abandon the Transactions on and
after the date three months after the date of this
Agreement), unless the failure to consummate the
Transactions is the result of a material breach of
this Agreement by the party seeking to terminate
this Agreement; or
(b) there shall be any law that makes consummation of
the Transactions, or any part thereof, illegal or
otherwise prohibited or any
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order that is final and nonappealable preventing
the consummation of the Transactions.
7.3 TERMINATION BY INVESTORS. This Agreement may be
terminated and the Transactions may be abandoned at
any time prior to the Closing Date, by Investors who
would hold more than a majority of the shares of the
Series A Preferred Stock if the Closing had occurred
if, prior to the Closing Date:
(a) there has been a breach of any material
representation, warranty, covenant or agreement on
the part of the Company set forth in this
Agreement (a "Terminating Company Breach");
provided, however, that, if such Terminating
Company Breach is curable by the Company through
the exercise of its reasonable best efforts and
for so long as the Company continues to exercise
such reasonable best efforts (but in no event
longer than thirty business days after the
Investors' notification to the Company of the
occurrence of such Terminating Company Breach),
the Investors may not terminate this Agreement
under this Section 7.3(a); or
(b) the Company or any of its representatives takes
any action referred to in Section 7.4(b) or enters
into an agreement to effect a Competing
Transaction.
7.4 TERMINATION BY THE COMPANY. This Agreement may be
terminated and the Transactions may be abandoned at
any time prior to the Closing Date by the Company:
(a) if there has been a breach of any material
representation, warranty, covenant or agreement on
the part of any Investor set forth in this
Agreement (a "Terminating Investor Breach");
provided, however, that, if such Terminating
Investor Breach is curable by such Investor
through the exercise of its reasonable best
efforts and for so long as such Investor continues
to exercise such reasonable best efforts (but in
no event longer than thirty business days after
the Company's notification to such Investor of the
occurrence of such Terminating Investor Breach),
the Company may not terminate this Agreement under
this Section 7.4(a);
(b) if prior to the Closing Date (i) the Board of
Directors of the Company withdraws, modifies or
changes its recommendation of this Agreement or
the Transactions or (ii) the Board of Directors of
the Company shall have recommended to the
shareholders of the Company any Competing
Transaction, or resolved to do either of the
foregoing; or
(c) if at least one business day has elapsed since all
of the conditions set forth in Section IV have
been fulfilled, the Company may terminate
29
<PAGE> 34
this Agreement at any time after April 19, 1999,
in the event that the Investors have not purchased
and paid for all of the shares of Series A
Preferred Stock to be purchased by them hereunder
at a closing date noticed by the Company.
7.5 TERMINATION FEE. If the Investors terminate this
Agreement pursuant to Section 7.3(a) or (b) or the
Company terminates this Agreement pursuant to Section
7.4(b), the Company shall pay to the Investors a
termination fee in the amount of $750,000, plus an
amount equal to documented fees and expenses incurred
by or on behalf of the Investors in connection with
the Transactions up to an aggregate maximum amount of
$250,000. The liability of the Company to pay the
termination fee in accordance with the preceding
sentence shall accrue as of the date the Investors
terminate this Agreement pursuant to Section 7.3(a) or
(b) or the Company terminates this Agreement pursuant
to Section 7.4(b); provided, however, that the Company
may delay payment of such fee until the earlier of (i)
six months following termination of this Agreement or
(ii) concurrently with the consummation of a Competing
Transaction in immediately available funds to an
account designated by the Investors in writing. The
obligation of the Company to pay any fees and expenses
in accordance with this Section 7.5 shall survive
termination of this Agreement by the Investors
pursuant to Section 7.3(a) or (b) or by the Company
pursuant to Section 7.4(b).
SECTION VIII. MISCELLANEOUS.
8.1 NO WAIVERS; CUMULATIVE REMEDIES. No failure or
delay on the part of the Investors, or any other
holder of any shares of Series A Preferred Stock in
exercising any right, power or remedy hereunder or
thereunder shall operate as waiver thereof; nor shall
any single or partial exercise of any such right,
power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or
remedy hereunder or thereunder. The remedies herein
provided are cumulative and not exclusive of any
remedies provided by law.
8.2 AMENDMENTS; WAIVER AND CONSENTS. This Agreement
may be amended or modified, and the obligations of the
Company and the Investors, with respect to the
Company's and each individual Investor's rights
hereunder, respectively, may be waived only by the
Company or an Investor, acting only for itself or
himself. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any
waiver or consent
30
<PAGE> 35
shall be effective only in the specific instance and
for the specific purpose for which given. Following
the Closing and the election to the Company's Board of
Directors of two directors selected by the Investors
as set forth in Section 4.4 hereof, any amendment,
modification or waiver of any of the Company's rights
under the Transaction Documents or the Certificate of
Determination shall require the approval of a majority
of the Company's directors who were not so elected.
8.3 CHANGES, WAIVERS, ETC. Neither this Agreement nor
any provision hereof may be changed, waived,
discharged or terminated orally, but only by a
statement in writing signed by the party against which
enforcement of the change, waiver, discharge or
termination is sought.
8.4 EXPENSES. If the Transactions are consummated, the
Company agrees to pay at the Closing the out-of-pocket
documented fees and expenses incurred by or on behalf
of the Investors which arise in connection with the
negotiation, preparation, execution and delivery of
this Agreement, the Certificate of Determination and
the Transactions contemplated hereby and thereby up to
but not in excess of $800,000. If this Agreement is
terminated pursuant to Section 7.3(a), the Company
agrees to pay upon demand the out-of-pocket documented
fees and expenses incurred by or on behalf of the
Investors which arise in connection with the
negotiation, preparation, execution and/or delivery of
this Agreement, the Certificate of Determination and
the Transactions contemplated hereby and thereby up to
but not in excess of $250,000.
8.5 NOTICES. All notices, requests, consents and
other communications required or permitted hereunder
shall be in writing and shall be delivered, or mailed
first-class postage prepaid, registered or certified
mail.
(a) if to any Investor addressed to such Investor at
its address as shown on the books of the Company,
or at such other address as such holder may
specify by written notice to the Company; or
(b) if to the Company at 1999 Avenue of the Stars,
Suite 2050, Los Angeles, California 90067.
Attention: President; or at such other address as
the Company may specify by written notice to the
Investors.
31
<PAGE> 36
8.6 ASSIGNMENT.
(a) This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of
the parties hereto and their respective successors
and permitted assigns.
(b) An Investor may only assign its rights under this
Agreement to purchase all or a portion of the
Series A Preferred Stock and/or Warrants which
such Investor has agreed to purchase to another
person or entity if such assignee assumes in
writing all of the obligations of such Investor
under this Agreement with respect to the Series A
Preferred Stock and/or Warrants so assigned and,
in the case of any such assignee that would after
such assignment hold Series A Preferred Stock
and/or Warrants convertible or exercisable into or
for more than 4.9% of the outstanding shares of
Common Stock (on a fully diluted basis), if such
assignee is specified on Schedule 1 hereto as a
permitted Designated Investor or has been approved
in writing by the Company in advance of such
assignment (a "Designated Investor").
8.7 SEVERABILITY. Whenever possible, each provision
of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but
if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining
provisions of this Agreement.
8.8 ENTIRE AGREEMENT. This Agreement and exhibits and
schedules hereto the other Transaction Documents
contain the entire agreement between the parties and
supersede any prior understandings, agreements or
representations by or between the parties, written or
oral, which may have related to the subject matter
hereof in any way.
8.9 GOVERNING LAW. The internal law, without regard
to conflicts of laws principles, of the State of
California shall govern all questions concerning the
construction, validity and interpretation of this
Agreement and the performance of the obligations
imposed by this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed
concurrently in two or more counterparts, each of
which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
32
<PAGE> 37
IN WITNESS WHEREOF, the Company and each of the Investors has caused
this Agreement to be executed by its duly authorized representative.
THE HARVEY ENTERTAINMENT COMPANY
By: /s/ MICHAEL HOPE
-------------------------------------
Name: Michael Hope
Title: Interim Chief Financial
Officer
INVESTORS:
THE KUSHNER-LOCKE COMPANY
By: /s/ DONALD KUSHNER
-------------------------------------
Name: Donald Kushner
Title: Co-Chief Executive Officer
/s/ ROGER A. BURLAGE
----------------------------------------
Roger A. Burlage
/s/ MICHAEL R. BURNS
---------------------------------------
Michael R. Burns
/s/ KEN SLUTSKY
---------------------------------------
Ken Slutsky
33
<PAGE> 38
SCHEDULE 1
<TABLE>
<CAPTION>
INVESTORS
SHARES OF SERIES
A PREFERRED PURCHASE MANAGEMENT INVESTOR
NAME STOCK PRICE WARRANTS WARRANTS
---- ---------------- -------- ---------- --------
<S> <C> <C> <C> <C>
The Kushner- 55,000 $5,500,000 ------ 388,235
Locke (payable in
Company shares of KL
Stock)
Roger A. 10,000(1) $1,000,000 400,000 70,588
Burlage
Management, 0 $0 800,000 (up to ------
directors or 200,000 of which
consultants to can be allocated
the Company to Roger A.
Burlage)
Michael R. 95,000(1) $9,500,000 ----- 670,589
Burns
Ken Slutsky 10,000 $1,000,000 ----- 70,588
Total: 170,000 $17,000,000 1,200,000 1,200,000
</TABLE>
(1) Includes shares purchased by certain of the designated investors listed
below.
List of Permitted Designated Investors
William Dallas
L. D. Brinkman
Bob Sinnot
Paul Guez
Gerard Guez
The Aries Fund
The Pennsylvania Merchant Fund
Ron Morton
Elaine Hastings Edell
Ray Manzella
Melvin Pearl
Ron Cushey
Eric Mischel
Loren Burlage
Sterling Capital
Bob Rehme
34
<PAGE> 39
Steve Pettise
Jack Silverman
Jimmy Buffett
Christopher Clarke
35
<PAGE> 40
ANNEX A
Principles to be Applied
All accounts shall be valued as of March 31, 1999 based upon consistent
application of generally accepted accounting principles and in accordance with
past practices as reflected in the 1998 Financials, except as noted on this
Annex A (which Annex A shall take precedence over the 1998 Financials).
No adjustment shall be made to the carrying value of the Company's film
assets, except for additions to film costs and amortization of film costs,
consistent with historical ultimate values, relating to revenue recognized
during the first quarter.
No accruals, reserves or similar amounts shall be reflected for
commitments and contingencies.
No adjustments shall be made for bad debt, goodwill (other than normal
amortization consistent with past practices) or in trademarks and copyrights.
No adjustments shall be made for events occurring on or after March 31,
1999, including but not limited to events relating to or arising from the
execution or consummation of the Stock Purchase Agreement and the transactions
contemplated thereby.
All deal costs through April 7, 1999 relating to the proposed sale or
recapitalization of the Company consisting of legal fees and costs and
investment banking fees and costs shall be added back to total stockholders'
equity (to the extent subtracted therefrom). Such deal costs consist of an
$800,000 fee (plus reasonable out-of-pocket expenses) to be paid to DLJ, a
$50,000 fee (plus reasonable out-of-pocket expenses) to be paid to Media
Finance, Inc. and an estimated $250,000 (plus reasonable out-of-pocket expenses)
to be paid to Kaye Scholer Fierman Hays & Handler LLP.
36
<PAGE> 1
EXHIBIT 10.2
================================================================================
WARRANT AGREEMENT OF
THE HARVEY ENTERTAINMENT COMPANY
2,400,000 SHARES
Dated as of April 26, 1999
================================================================================
COMMON STOCK PURCHASE WARRANT
<PAGE> 2
WARRANT AGREEMENT (the "Agreement") dated as of April 26, 1999 among The
Harvey Entertainment Company, a California corporation (the "Company"), Roger A.
Burlage, Michael R. Burns, The Kushner-Locke Company, a California corporation,
Al Checchi and Ken Slutsky (collectively with any permitted transferee hereunder
the "Holders").
The Company and the Holders hereby agree as follows:
SECTION 1. ISSUANCE OF THE WARRANTS; TRANSFERABILITY AND FORM OF THE
WARRANTS.
1.1 THE WARRANTS. The Company hereby grants to the
Holders, in the individual amounts set forth on
Schedule 1 hereto, (i) an aggregate of 533,332 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) an aggregate of 533,332 Common Stock Purchase
Warrants (Series B) (the "Series B Warrants"), each to
purchase one share of the Common Stock; and (iii) an
aggregate of 533,336 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. In addition, within one year after the
date hereof, the Company will grant to management,
directors or consultants to the Company, as determined
by Roger A. Burlage, (i) an aggregate of 266,666
Series A Warrants, (ii) an aggregate of 266,667 Series
B Warrants and (iii) an aggregate of 266,667 Series C
Warrants. 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 April 26,
1999, between the Company and the Holders and,
accordingly, have the benefit of the registration
rights pursuant to that agreement.
1.3 TRANSFER RESTRICTIONS. No Holder may 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 a Holder or in connection with estate
planning matters (including by operation of law).
Should such consent be granted, the Warrants so
transferred shall continue
<PAGE> 3
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 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 Holders 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
2
<PAGE> 4
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. As used herein, the term
"Closing" shall mean the date of the closing of the
issuance by the Company of the Warrants.
2.2 VESTING OF THE WARRANTS. The Warrants, other than
the Warrants for Roger Burlage, are vested in full and
may be exercised on or after the date hereof in
accordance with the terms of this Agreement and the
Warrants. The Warrants for Roger Burlage vest pursuant
to the terms of his Employment Agreement dated April
7, 1999, by and between the Company and Roger Burlage.
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 Holders may designate, a
certificate or certificates for the number of Warrant Shares so 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.
3
<PAGE> 5
2.4 COMPLIANCE WITH GOVERNMENT REGULATIONS. Holders
acknowledge 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 APRIL 26, 1999,
AMONG THE HARVEY ENTERTAINMENT COMPANY, THE KUSHNER-LOCKE
COMPANY, ROGER A. BURLAGE, MICHAEL R. BURNS AND KEN SLUTSKY (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.
4
<PAGE> 6
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 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 each Holder. Any Warrant surrendered in
the exercise of the rights thereby evidenced shall be
canceled by the Company.
5
<PAGE> 7
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 Holders to realize the full
intended economic value thereof, but will at all times in 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 Holders 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
6
<PAGE> 8
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 Holders (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 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
7
<PAGE> 9
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.
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 such Holder would have been entitled if such 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
8
<PAGE> 10
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 Holders 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 Holders 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 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 each registered Holder, the obligation to deliver to such Holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such 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
9
<PAGE> 11
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 HOLDERS. 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 each 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.
(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) AIR 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 (the "Majority of the Holders") or, in the
event the parties are
10
<PAGE> 12
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 Holders of the Warrants notice of such event, and the Company and
the Holders 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.
(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 each Holder
notice of such adjustment or adjustments and shall
deliver to each Holder a copy of a certificate of
either the Board of Directors of the Company or of a
firm of independent public
11
<PAGE> 13
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 Holders 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.
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 Holders 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 Holders 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
12
<PAGE> 14
the Company will notify the Holders of the name and address of such subsequent
transfer agent.
SECTION 10. NOTICES. Any notice pursuant to this Agreement by any
Holders 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
Holders shall be in writing and shall be mailed first class, postage prepaid, or
delivered to the Holders at their addresses 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 Holders.
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.
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
13
<PAGE> 15
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 Holders
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
Holders.
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 any Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of any Holder of a Warrant, shall
give rise to any liability of such 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 HOLDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR FOR ANY COUNTERCLAIM THEREIN.
14
<PAGE> 16
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: /s/ ANTHONY J. SCOTTI
------------------------------------
Name: Anthony J. Scotti
Title: Interim President &
Chief Executive Officer
15
<PAGE> 17
ROGER A. BURLAGE
/s/ ROGER A. BURLAGE
----------------------------------------
Signature
Address:
1999 Avenue of the Stars, Suite 2050
----------------------------------------
Los Angeles, California 90067
----------------------------------------
MICHAEL R. BURNS
/s/ MICHAEL R. BURNS
----------------------------------------
Signature
Address:
2049 Century Park East, Suite 1200
----------------------------------------
Los Angeles, California 90067
----------------------------------------
THE KUSHNER-LOCKE COMPANY
/s/ DONALD KUSHNER
----------------------------------------
Signature
Address:
11601 Wilshire Blvd.
----------------------------------------
Los Angeles, California 90025
----------------------------------------
16
<PAGE> 18
KEN SLUTSKY
/s/ KEN SLUTSKY
----------------------------------------
Signature
Address:
----------------------------------------
----------------------------------------
AL CHECCHI
/s/ AL CHECCHI
----------------------------------------
Signature
Address:
----------------------------------------
----------------------------------------
17
<PAGE> 19
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 [April ___, 2005] [April ___, 2006] [April ____, 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 [April ___, 2005] [April ___, 2006]
[April ____, 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 April __, 1999, between the Company, the Holder and the other
Holders signatory thereto 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> 20
"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 APRIL 26, 1999, AMONG
THE HARVEY ENTERTAINMENT COMPANY, THE KUSHNER-LOCKE COMPANY,
ROGER A. BURLAGE, MICHAEL R. BURNS AND KEN SLUTSKY (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:
Title:
DATED: As of April 26, 1999
2
<PAGE> 21
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> 22
Schedule 1
NUMBER OF SHARES OF COMMON STOCK INITIALLY
ISSUABLE UPON EXERCISE OF THE WARRANTS
<TABLE>
<CAPTION>
SERIES A WARRANT INVESTORS MANAGEMENT
- ---------------- --------- ----------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Holder Shares of Common Stock
- -----------------------------------------------------------------------------------------------
Roger A. Burlage 23,529 133,333
- -----------------------------------------------------------------------------------------------
Management, directors or 266,666
consultants to the Company
- -----------------------------------------------------------------------------------------------
Michael R. Burns 223,530
- -----------------------------------------------------------------------------------------------
The Kushner-Locke Company 129,411
- -----------------------------------------------------------------------------------------------
Al Checchi 18,823
- -----------------------------------------------------------------------------------------------
Ken Slutsky 4,706
- -----------------------------------------------------------------------------------------------
Total 399,999 399,999
- -----------------------------------------------------------------------------------------------
SERIES B WARRANT
- ----------------
- -----------------------------------------------------------------------------------------------
Holder Shares of Common Stock
- -----------------------------------------------------------------------------------------------
Roger A. Burlage 23,529 133,333
- -----------------------------------------------------------------------------------------------
Management, directors or 266,667
consultants to the Company
- -----------------------------------------------------------------------------------------------
Michael R. Burns 223,529
- -----------------------------------------------------------------------------------------------
The Kushner-Locke Company 129,412
- -----------------------------------------------------------------------------------------------
Al Checchi 18,823
- -----------------------------------------------------------------------------------------------
Ken Slutsky 4,706
- -----------------------------------------------------------------------------------------------
Total 399,999 400,000
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
SERIES C WARRANT
- ----------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Holder Shares of Common Stock
- -----------------------------------------------------------------------------------------------
Roger A. Burlage 23,530 133,334
- -----------------------------------------------------------------------------------------------
Management, directors or 266,667
consultants to the Company
- -----------------------------------------------------------------------------------------------
Michael R. Burns 223,530
- -----------------------------------------------------------------------------------------------
The Kushner-Locke Company 129,412
- -----------------------------------------------------------------------------------------------
Al Checchi 18,824
- -----------------------------------------------------------------------------------------------
Ken Slutsky 4,706
- -----------------------------------------------------------------------------------------------
Total 400,002 400,001
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of April 26, 1999, by and among
The Harvey Entertainment Company, a California corporation (the "Company"), The
Kushner-Locke Company, a California Corporation ("Kushner-Locke"), Roger A.
Burlage, Michael R. Burns, Al Checchi and Ken Slutsky (collectively the
"Shareholders").
W I T N E S S E T H
WHEREAS, pursuant to the Stock Purchase Agreement dated as of April 7,
1999, by and among the Company, and the Shareholders (the "Purchase Agreement"),
the Shareholders will purchase an aggregate of 170,000 shares of the Company's
Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock")
which shall be convertible into shares of the Company's common stock, no par
value ("Common Stock") and receive warrants (the "Warrants") to purchase an
aggregate of 2,400,000 shares of Common Stock;
WHEREAS, the Purchase Agreement provides that the Shareholders will have
certain demand and piggyback registration rights and it is a condition to the
consummation of the purchase and sale of the Series A Preferred Stock that each
of the Shareholders 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
1.1 Defined Terms. Capitalized terms used herein but not otherwise
defined shall have the meaning given to such terms in the Purchase Agreement.
"Closing" shall mean the consummation of the Purchase Agreement and the
transactions contemplated thereby by the Company and the Shareholders.
"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.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <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.................................................9
3.8 Expenses....................................................................10
3.9 Indemnification.............................................................10
3.10 Participation in Underwritten Registrations.................................12
ARTICLE IV MISCELLANEOUS...............................................................12
4.1 Recapitalizations, Exchanges, Etc. Affecting Shareholder Common Stock.......12
4.2 Binding Effect..............................................................13
4.3 Amendment; Waiver...........................................................13
4.4 Notices.....................................................................13
4.5 Governing Law...............................................................13
4.6 Counterparts................................................................13
4.7 Invalidity..................................................................13
4.8 Cumulative Remedies.........................................................14
</TABLE>
i
<PAGE> 3
"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.
"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 Shareholders upon conversion of the Series A Preferred Stock and
upon exercise of the Warrants.
ARTICLE II
TRANSFERS OF SHARES
2.1 Shareholder Common Stock Unregistered. Each Shareholder
acknowledges and represents that he has been advised by the Company that:
(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 3.1(c)
of the Purchase Agreement 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.
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2.2 Rule 144 Reporting. The Company agrees that to the extent
reasonably necessary to permit the Shareholders 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 Shareholders and such shares 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 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 any Shareholder owns any Shareholder Common Stock
issued to such Shareholder pursuant to the Purchase Agreement, 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 such 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
3.1 Demand Registration. If at any time commencing 18 months from the
Closing Date, 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, 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 Shareholders; 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
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Shareholders 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 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;
(ii) With respect to any of the Shareholder Common Stock
which has been transferred to any holder who is not one of the Shareholders
listed above or a family member of any such Shareholder or a trust for the
benefit of any such Shareholder or family member; or
(iii) 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).
3.2 Right to Include Securities. If at any time during the period
commencing 18 months from the Closing Date 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 Shareholders. 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 Shareholders) of any 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
Shareholders 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)
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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.
3.3 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 owned by the Shareholders 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.
3.4 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;
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(c) furnish to the managing underwriter, if any, and to the
Shareholders, 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 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
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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.
(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.
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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.
3.5 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 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 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.
3.6 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.
3.7 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
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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 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 each of the Shareholders 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,
each 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.
3.8 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
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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.
3.9 Indemnification.
(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, each of the Shareholders and, when applicable, its officers,
directors, agents and employees and each Person who controls (or is controlled
by or under common control with) any of the Shareholders (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 any
Shareholder expressly for use therein or (ii) are caused by any of the
Shareholders' failure to deliver a copy of the current required prospectus after
the Company has furnished any such Shareholders 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 any 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
Shareholders and shall enter into an indemnification agreement with such Persons
containing such terms, if requested.
(b) Indemnification by the Shareholders. In connection with each
registration statement effected pursuant hereto in which Shareholder Common
Stock is to be disposed of, each of the participating Shareholders shall,
severally but not jointly, 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
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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 such Shareholder to the
Company expressly for inclusion in such registration statement or prospectus. In
no event shall the liability of any Shareholder hereunder be greater in amount
than the dollar amount of the proceeds received or to be received by such
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
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 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 any Shareholder for such
contribution and indemnification exceed, in the aggregate, the dollar amount of
the proceeds
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received or to be received by such Shareholder upon the sale of securities
giving rise to such indemnification and contribution obligation.
3.10 Participation in Underwritten Registrations. None of the
Shareholders may participate in any underwritten registration hereunder unless
each of the Shareholders which is a Selling Securityholder (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.
ARTICLE IV
MISCELLANEOUS
4.1 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.
4.2 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.
4.3 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.
4.4 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
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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 a Shareholder, to such Shareholder at the
address set forth on the signature pages hereto.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE HARVEY ENTERTAINMENT COMPANY
By: /s/ ANTHONY J. SCOTTI
------------------------------------------
Name: Anthony J. Scotti
Title: Interim President &
Chief Executive Officer
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<PAGE> 15
SHAREHOLDERS:
THE KUSHNER-LOCKE COMPANY
By: /s/ DONALD KUSHNER
------------------------------------------
Name: Donald Kushner
Title: Co-Chief Executive Officer
Address: 11601 Wilshire Blvd.,
Los Angeles, CA 90025
/s/ ROGER A. BURLAGE
---------------------------------------------
Name: Roger A. Burlage
Address:
/s/ MICHAEL R. BURNS
---------------------------------------------
Name: Michael R. Burns
Address:
/s/ KEN SLUTSKY
---------------------------------------------
Name: Ken Slutsky
Address:
/s/ AL CHECCHI
---------------------------------------------
Name: Al Checchi
Address:
14
<PAGE> 1
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of April 26, 1999, by and between
The Kushner-Locke Company, a California Corporation (the "Company") and The
Harvey Entertainment Company, a California corporation (the "Shareholder").
W I T N E S S E T H
WHEREAS, pursuant to the Stock Purchase Agreement dated as of April 7,
1999, by and among the Shareholder, the Company, Roger A. Burlage, Michael R.
Burns and Ken Slutsky (the "Purchase Agreement"), the Shareholder will acquire
an aggregate of 468,883 shares of the Company's common stock, no par value
("Common Stock");
WHEREAS, the Purchase Agreement provides that the Shareholder will have
certain demand and piggyback registration rights and it is a condition to the
consummation of the acquisition of the Common Stock 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
1.1 Defined Terms. Capitalized terms used herein but not otherwise
defined shall have the meaning given to such terms in the Purchase Agreement.
"Closing" shall mean the consummation of the Purchase Agreement and the
transactions contemplated thereby.
"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.
"Holders" shall mean the Shareholder and any other holders of record of
the Shareholder Common Stock.
"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.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <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 Automatic Registration; 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.....................................12
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.........................................................................13
4.5 Governing Law...................................................................13
4.6 Counterparts....................................................................13
4.7 Invalidity......................................................................13
4.8 Cumulative Remedies.............................................................13
</TABLE>
i
<PAGE> 3
"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.
"Shareholder Common Stock" shall mean the 468,883 shares of Common
Stock issuable to the Shareholder under the terms and conditions of the Purchase
Agreement.
ARTICLE II
TRANSFERS OF SHARES
2.1 Shareholder Common Stock Unregistered. The Shareholder
acknowledges and represents that he has been advised by the Company that:
(a) the acquisition of the Shareholder Common Stock has 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, including without limitation Section 6.7 thereof
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 3.1(c)
of the Purchase Agreement 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 Common Stock.
2.2 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
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<PAGE> 4
reliance on Rule 144, and for so long as such shares are owned by the
Shareholder and such shares 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 at all times from and after 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 such Shareholder pursuant to the Purchase Agreement, inform the
Shareholder upon request as to compliance by the Company 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
3.1 Automatic Registration; Demand Registration.
(a) Not later than 60 days after the Closing Date, the Company
shall file a registration statement on Form S-3 (or, if not available, any other
applicable form) registering the resale of the Shareholder Common Stock (the
"Automatic Registration Statement").
(b) If at any subsequent time the Automatic Registration
Statement has been suspended and the Company receives a written request from the
Holders of at least 25% of the Shareholder Common Stock (excluding shares
previously publicly sold) the Company will file a registration statement on Form
S-3 or any successor form (or, if not available, any other applicable form) with
the SEC within 45 days after the initiating Holder or Holders 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 qualification 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
3
<PAGE> 5
the Holders of such shares of Shareholder Common Stock under applicable law;
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 of the Shareholder Common Stock for resale pursuant to this
Section 3.1, and each such registration has been declared or ordered effective;
or
(iii) Other than in the case of the Automatic
Registration Statement, 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).
3.2 Right to Include Securities. If at any time within one year after
the Closing Date, or within two years thereafter if the Shareholder is deemed to
be an affiliate of the Company within the meaning of Rule 144, 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 Holders. 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 Holder) of any Holder 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 any
Holder 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 Holders 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 Holders for the same
period as the delay in registration of such other securities.
4
<PAGE> 6
3.3 Priority in Incidental Registration. In a registration pursuant
to Section 3.2 hereof, if the managing underwriter of any 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 owned by the Holders 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
for sale by third parties exercising "demand" registration rights in accordance
with the preceding sentence.
3.4 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 thereunder; provided that the Automatic
Registration Statement shall remain continuously in effect and not subject to
such limitations until (A) if the Shareholder is not deemed to be an affiliate
of the Company within the meaning of Rule 144, one year from the date of the
Closing or (B) if the Shareholder is deemed to be an affiliate of the Company
within the meaning of Rule 144, two years from the date of the Closing;
(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 or any underwriter is required under the Securities Act to deliver a
prospectus in accordance with the intended methods of disposition by the sellers
of such Shareholder Common Stock set forth in such registration statement or
supplement to such prospectus;
5
<PAGE> 7
(c) furnish to the managing underwriter, if any, and to the
Shareholder at least one executed original of the registration statement and to
each applicable Holder 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 with the requirements of the Securities Act as may
reasonably be requested by such Holder;
(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 applicable Holders 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 applicable Holders
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 applicable Holders 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
6
<PAGE> 8
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 applicable
Holders a signed counterpart, addressed to the applicable Holders 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;
(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 applicable Holders 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 applicable Holders 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 the Holders to furnish to the Company such
information and documents regarding the Holders 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 Holder 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. The Holders agree
7
<PAGE> 9
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.
3.5 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 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 the Shareholder Common Stock sought to
be included in such registration, the Holders who hold Shareholder Common Stock
to be distributed by such underwriters in accordance with Section 3.2 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
Holders to and for the benefit of such underwriters shall also be made to and
for the benefit of the Company.
3.6 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 Holders, 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 Holders, and the underwriters' respective outside counsel
to conduct a reasonable investigation within the meaning of the Securities Act.
3.7 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 (except in the case of the Automatic Registration Statement):
(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of the
Holders to make sales pursuant to, any
8
<PAGE> 10
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 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 applicable Holders of such determination, and such
applicable Holders 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 each Holder, which each Holder 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 regulators and to obtain any acceleration of the effective date of
such registration statement or maintain the effectiveness of 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 the Company, each Holder agrees not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Shareholder 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.
3.8 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 and 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
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<PAGE> 11
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 Holders (which legal counsel shall be chosen by the majority-in-interest of
the Holders in their discretion), but each Holder 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 and the legal expenses of the
Shareholder's counsel in connection with the Automatic Registration Statement.
3.9 Indemnification.
(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which Shareholder Common Stock are to be
disposed of, the Company shall indemnify and hold harmless, to the fullest
extent permitted by law, each Holder and, when applicable, its officers,
directors, agents and employees and each Person who controls (or is controlled
by or under common control with) each Holder (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 such Holder
expressly for use therein or (ii) are caused by such Holder's failure to deliver
a copy of the current required prospectus after the Company has furnished such
Holder 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 such Holder is required to discontinue sales under Section
3.4(e). 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 Holders
and shall enter into an indemnification agreement with such Persons containing
such terms, if requested.
(b) Indemnification by the Holders. In connection with each
registration statement effected pursuant hereto in which Shareholder Common
Stock is to be disposed of, each Holder whose shares of Shareholder Common Stock
are included in such registration statement shall indemnify and hold harmless,
to the fullest extent permitted by law, the Company and its directors, officers,
agents and employees and each Person who controls the Company (within the
meaning of the Securities Act and the Exchange Act) and the managing
underwriter, if any, and its directors,
10
<PAGE> 12
officers, agents and employees and each person who controls such underwriter
(within the meaning of the Securities Act and the 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 Company expressly for
inclusion in such registration statement or prospectus. In no event shall the
liability of any Holder hereunder be greater in amount than the dollar amount of
the proceeds received or to be received by such Holder 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
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 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,
claims 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
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<PAGE> 13
equitable considerations, provided that in no event shall the liability of any
Holder for such contribution and indemnification exceed, in the aggregate, the
dollar amount of the proceeds received or to be received by such Holder upon the
sale of securities giving rise to such indemnification and contribution
obligation.
3.10 Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (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.
ARTICLE IV
MISCELLANEOUS
4.1 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.
4.2 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.
4.3 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.
4.4 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
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<PAGE> 14
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 Kushner-Locke Company
11601 Wilshire Boulevard, 21st Floor
Los Angeles, California 90025
Fax: (310) 481-2093
Attn: Secretary
(b) If to any Holder, to such address as may appear on
the records of the Company.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE KUSHNER-LOCKE COMPANY
By: /s/ DONALD KUSHNER
----------------------------------------
Name: Donald Kushner
Title: Co-Chief Executive Officer
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<PAGE> 15
SHAREHOLDER:
THE HARVEY ENTERTAINMENT
COMPANY
By: /s/ ANTHONY J. SCOTTI
----------------------------------------
Name: Anthony J. Scotti
Title: Interim President &
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 5th day of
April, 1999, by and between The Harvey Entertainment Company, a California
corporation (the "Company"), and Roger A. Burlage (the "Employee").
Whereas, the Company desires to assure that the Company retains the
services of Employee, whose experience, knowledge and abilities with respect to
the business and affairs of the Company are extremely valuable to the Company.
Now, therefore, the Company and Employee agree as follows:
1. Positions and Duties.
a. The Company hereby employs Employee as Chief Executive Officer
of the Company during the term of this Agreement, with powers and duties
consistent with such position. Employee shall, during the term of this
Agreement, perform such additional or different duties, and accept the election
or appointment to such other offices or positions, as may mutually be agreeable
to Employee and the Board of Directors of the Company. Employee shall report to
the Board of Directors of the Company. Employee shall also be appointed to the
Board of Directors of the Company (and shall be elected Chairman of the Board)
as soon as practicable after the date hereof and shall thereafter be included in
management's state of directors nominated for approval by the Company's
shareholders.
b. Employee shall devote his full working time to the promotion
of the Company's business and welfare; provided, however, that Employee may
engage in other business activities with the Company's prior written consent
which consent shall not be unreasonably withheld provided that such other
business activities shall not constitute a Competitive Business (as defined
below) and shall not adversely affect the performance of Employee's services
hereunder. The Company hereby consents to Employee's activities as provided on
Schedule II hereof. Employee shall perform such duties and responsibilities
incidental to his employment as may from time to time be requested by the Board
of Directors of the Company, consistent with Employee's position, stature and
experience, and shall faithfully observe the Company's policies and procedures
consistent with the provisions hereof. Employee shall have the authority to
select and employ all staff necessary to conduct the business of the Company
and each of its subsidiaries, and all such staff shall ultimately report to, and
be subject to the control and direction of, Employee.
<PAGE> 2
c. During the term of this Agreement, Employee shall not,
directly or indirectly, (i) engage in any business for his own account which is
competitive with the businesses of the Company or the Company's subsidiaries or
affiliates (collectively, "Competitive Business") so long as the Company or the
Company's subsidiaries or affiliates (as the case may be) continue to engage in
such business; (ii) enter the employ of, or render any services to, any person
engaged in a Competitive Business; or (iii) become interested in a Competitive
Business in any capacity, including, without limitation, as an individual,
partner, shareholder, officer, director, principal, agent, trustee or
consultant. In addition, during the term of this Agreement and during the one
year period following termination of his employment hereunder, Employee shall
not, directly or indirectly (i) induce any customer or supplier of the Company
or the Company's subsidiaries or affiliates to terminate its relationship with
the Company or the Company's subsidiaries or affiliates (as the case may be); or
(ii) solicit or induce any of the Company's employees to terminate their
employment with the Company, or hire or cause any of the then current employees
of the Company to be hired by any other company (except companies controlled by
the Company). Notwithstanding anything to the contrary, Employee may acquire
and/or retain, solely as an investment, and take customary actions to maintain
and preserve Employee's ownership of:
(1) securities of any corporation which are registered under
Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended, and which are publicly traded, as long as Employee is not part
of any control group of such corporation (the Company is aware that
Employee holds options in Trimark Holdings, Inc. and such holdings are
not in conflict with this Section 1 (c)); and
(2) any securities of a partnership, trust, corporation or
other person so long as Employee remains a passive investor in that
entity and does not become part of any control group thereof (except in
a passive capacity) and so long as such entity is not, directly or
indirectly, in competition with the Company or its subsidiaries or
affiliates.
2. (a) Salary. During the term of his employment hereunder, the Company
shall pay to Employee a salary, in equal installments not less frequently than
monthly, at the rate of $500,000 per year subject to review annually by the
Board of Directors for increase in the Board's discretion (however, the annual
increase shall be no less than 7-1/2% per year).
(b) Incentive Compensation. Employee shall be eligible to receive
an annual bonus based on the Company's performance, which bonus (if any) shall
be determined by the Board of Directors in its sole discretion.
3. Warrants to Purchase Common Stock. Employee shall be granted
Warrants to purchase 400,000 shares of common stock, no par value per share
("Common Stock"), of the Company ("Warrants") on the effective date hereof
pursuant to the terms of the Warrant Agreement dated as of April 5, 1999, among
the Company, the Employee and the other signatories thereto (the "Warrant
Agreement"). The Warrants granted to Employee shall consist equally of Series A
Warrants, Series B Warrants and Series C Warrants. In addition, Employee
2
<PAGE> 3
shall have the right within one year after the effective date hereof to direct
the award of Warrants (consisting equally of Series A Warrants, Series B
Warrants and Series C Warrants) to purchase an additional 800,000 shares of
Common Stock pursuant to the Warrant Agreement to management, directors or
consultants to Harvey (of which Warrants up to 200,000 shares may be directed to
Employee). In other words, the Warrants referred to above shall constitute
1,200,000 of the 2,400,000 shares covered by the Warrant Agreement. If the
employment of Employee hereunder is terminated by the Company for Cause (as
defined in section 6(a) below) or if Employee terminates his employment
hereunder without Cause, the portion of the Warrants which have not theretofore
vested as of the date of termination, as specified on Schedule I hereto, shall
be immediately canceled, and all of Employee's rights under the Warrants that
are canceled shall revert back to the Company.
4. Expenses. The Company will reimburse or pay Employee for all usual,
reasonable and necessary expenses paid or incurred by Employee in the
performance of his duties hereunder, consistent with the Company's expense
reimbursement policies and subject to receipt by the Company of appropriate
documentary proof of all expenditures for which reimbursement is sought.
Employee will be entitled to first-class air transportation and accommodations
whenever he travels in connection with the business of the Company and shall
have the right, up to two times per year, to have his wife accompany him on such
trips at the Company's expense.
5. Employee Benefits. a. During the term of his employment hereunder,
Employee shall be entitled to participate in and receive all other benefits of
employment generally available to other currently existing officers of the
Company, including, among other things, participation in any stock option and
stock incentive plans, retirement plans, medical, dental and accidental benefit
plans, life insurance and disability insurance benefits and vacation, if and to
the extent that Employee is eligible to participate in accordance with the
provisions of any such plans or benefits. In the event Employee chooses primary
medical coverage pursuant to his wife's plan, the Company will provide a wrap
around policy providing excess medical coverage and benefits up to the level
otherwise available to Company officers. The Company will also reimburse
Employee for the cost of monthly membership dues and other charges for the
business use of his current local country club for the term hereof, up to $7,500
per year.
b. Without limiting any other provision hereof, Employee shall be
entitled to participate to the full extent of the participation by any other
senior executive employee of the Company in any profit-sharing, pension, health,
vacation, insurance or other plans, benefits or policies available to the senior
executive employees of the Company established by the Company in its sole and
absolute discretion from time to time and not duplicative of those provided
herein.
6. Term.
a. The term of Employee's employment by the Company under this
Agreement shall commence on the effective date hereof and shall terminate upon
the first to occur of the following events: (i) April 30, 2003, (ii) the death
of Employee, (iii) at the option of
3
<PAGE> 4
the Company upon 20 days prior written notice to Employee, in the event of the
inability of Employee to perform his duties hereunder, whether by reason of
injury, illness (physical or mental) or otherwise, for a period of six (6)
consecutive months ("disability"), or (iv) the discharge of Employee for Cause.
Cause shall mean, and be limited to, (i) acts of deliberate dishonesty
constituting either the commission of a felony or the misappropriation of
substantial corporate assets for personal benefit, (ii) willful failure to
observe or follow reasonable and explicit instructions or directives of the
Board of Directors of the Company, or (iii) willful malfeasance or willful
failure to act involving material nonfeasance, if in either case such
malfeasance or nonfeasance would have a material adverse effect on the Company.
The Company agrees to give written notice to Employee specifying the claimed
Cause and, provided such Cause is curable, to permit Employee to correct the
claimed Cause as soon as practical thereafter but no later than thirty (30) days
after receipt of the applicable notice prior to termination. However, in no
event shall the occurrence of Cause within clause (i) be subject to cure. Upon
the termination of Employee's employment pursuant to this Section 6G3 (a), the
Company shall have no further liability or obligation of any kind or nature
whatsoever to Employee under this Agreement, except that any salary or other
benefits accrued or earned by Employee to the date of termination but not paid
shall be paid by the Company to Employee or his estate, and Employee shall be
entitled to such benefits, if any, under Sections 4 and 5 hereof to which he has
become entitled prior to the date of his termination of employment.
b. If, without Cause, the Board of Directors of the Company
without Employee's consent determines to remove Employee from the office of the
Chief Executive Officer of the Company, Employee shall have the right to elect
to treat such event as a termination of his employment by the Company without
Cause with the consequences provided in this paragraph 6(b). In the event the
Company shall be merged or consolidated with another corporation and as a result
of such merger or consolidation, Employee's position is eliminated or Employee
is not the chief executive officer of the surviving or resulting corporation,
Employee shall be entitled to terminate his employment within three (3) months
of such merger or consolidation, and such termination shall be deemed to be a
termination by the Company without Cause hereunder. If Employee's employment is
terminated by the Company without Cause, Employee shall be entitled to receive
from the Company until the ending date of the period of employment hereunder
(determined as provided in paragraph 6(a) hereof) the salary, benefits and
emoluments in effect at the date of such termination. Upon the payment of the
amounts provided in this paragraph 6(b), the Company shall have no further
liability or obligation of any kind or nature whatsoever to Employee under this
Agreement, except that Employee shall be entitled to such benefits, if any,
under Section 4 hereof to which he has become entitled prior to the date of his
termination of employment.
c. In the event that the term of Employee's employment by the
Company terminates at the end of the term on April 30, 2003, Employee shall be
entitled to maintain an office and secretary at the Company for an additional
three year period, at the Company's expense. Employee shall provide such
continuing services, in such capacity and for such compensation as the parties
mutually agree in good faith.
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<PAGE> 5
7. Mitigation. Employee shall not be obligated to mitigate the damages
he may incur in the event of termination by the Company without Cause. Employee
agrees that if Employee furnishes his services for other engagements or
employment after termination hereunder, fifty percent (50%) of the total
compensation actually earned by Employee together with any other benefits earned
by Employee shall reduce any amounts and benefits which Company would otherwise
be required to pay or provide to Employee. In no event, however, shall
activities to the extent permitted on Schedule II hereof be considered for such
offset purposes. Employee agrees that he shall give written notice to the
Company (promptly after accepting employment or furnishing his services after
termination of his employment with the Company) of any amounts earned (or to be
earned) by Employee and any benefits provided (or to be provided) to Employee
pursuant to his new employment arrangement.
8. Nondisclosure of Confidential Information.
a. "Confidential Information" shall include, but not be limited
to, all of the Company's and its subsidiaries' and affiliates' performance,
sales, financial, pricing, cost, manufacturing, contractual and marketing
information, ideas, knowledge and data, and all processes, products, formulae,
designs, practices, techniques, trade secrets, research, know-how, merchandising
agreements, licensing agreements, distribution agreements, customer lists,
technical requirements of customers and identity and purchasing terms of
suppliers.
b. Employee acknowledges that the Company, and its subsidiaries
and affiliates, have exclusive property rights to all of their respective
Confidential Information and agrees to assign all rights he might otherwise
possess in any Confidential Information to the Company. Except as required in
the performance of his duties hereunder, Employee shall not at any time during
or after the term of his employment, directly or indirectly use, communicate,
disclose or disseminate, lecture upon/publish articles or otherwise put in the
public domain, any Confidential Information or any other information of a
secret, proprietary, confidential or generally undisclosed nature relating to
the Company, or its subsidiaries or affiliates, or their products, operations
and activities until such Confidential Information becomes generally available
to the public by independent discovery, development or publication or generally
known within the industry other than as a result of Employee's breach hereof.
c. All documents, records, notebooks, notes, memoranda, computer
records and other repositories of or containing Confidential Information or any
other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Company, or its subsidiaries or affiliates,
or to its products, operations and activities made or compiled by Employee at
any time or made available to Employee prior to or during the term of his
employment by the Company, including any and all copies thereof shall be the
property of the Company, shall be held by Employee in trust solely for the
benefit of the Company, and shall be delivered to the Company by Employee on the
termination of Employee's employment or at any other time on the request of the
Company.
5
<PAGE> 6
9. Right to Injunction. Employee acknowledges that any remedy at law
for a breach by him of the provisions of Section 1 or 9 hereof will be
inadequate. Accordingly, in the event of the breach or threatened breach by
Employee of Section 1 or 9 hereof, the Company shall be entitled to seek
injunctive relief in addition to any other remedy it may have.
10. Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior agreements of the parties with respect
to the subject matter hereof. This Agreement may not be changed or amended
except in writing signed by the parties.
11. Governing Law. This Agreement shall be subject to, and be governed
by, the laws of the State of California .
12. Assignment. Employee may not assign, transfer or convey this
Agreement or any interest therein. This Agreement and all of the Company's
rights and obligations hereunder may be assigned or transferred by it, in whole
but not in part, to and shall be binding upon and inure to the benefit of any
successor of the Company, but any such assignment shall not relieve the Company
of any of its obligations. The term successors shall mean only any corporation
or other business entity which by merger, consolidation, purchase of assets or
otherwise succeeds to or otherwise acquires all or substantially all of the
assets of the Company; provided that nothing herein shall limit the provisions
of the second sentence of Section 6(b) hereof.
13. Arbitration. a. Without limiting the Company's right to seek
injunctive relief as described in Section 9, in the event of a disagreement or
dispute between the Company and Employee related to this Agreement, the matter
will be finally settled in Los Angeles, California by arbitration by a single
arbitrator (unless the parties cannot agree on such arbitrator in which case
each party will select an arbitrator and the two arbitrators so selected shall
select the third arbitrator) in a proceeding conducted under the rules of the
American Arbitration Association or any similar successor body, the arbitrator
also apportioning the costs of the arbitration. The decision of the
arbitrator(s) in writing shall be final and binding upon the parties and will
not be subject to appeal. If either party fails to abide by such decision, the
other party may seek the order of any federal or state court having jurisdiction
thereof which shall enter judgment on the decision of the arbitrator(s), and the
party so failing to abide shall be responsible for the payment of the expenses
of the court proceeding and all resulting enforcement expenses, including actual
attorneys' fees.
b. The prevailing party in any arbitration shall be entitled to
be reimbursed for attorneys fees and costs in connection with the pursuit of
such arbitration, subject to the following limitation: such reimbursement shall
not exceed the total attorneys fees and costs incurred by whichever of the two
parties to such arbitration has the lesser aggregate attorneys fees and costs.
By way of example, if Employee brings an arbitration against the Company and the
Company prevails in such arbitration, (thus entitling the Company to
reimbursement of attorneys fees and costs), and if Employee's legal fees and
costs amount to $50,000 and the Company's legal fees and costs amount to
$85,000, Company's recovery of legal fees and costs against Employee in such
instance shall be limited to $50,000.
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<PAGE> 7
14. Indemnification. Employee shall be entitled to the benefit of
indemnification to the fullest extent permitted by applicable law at the time of
assertion of any liability against Employee, and, in any event, to the most
favorable indemnification provisions or agreements available to any other senior
executive of the Company. The Company represents that it currently has
directors' and officers' liability insurance with coverage up to $5,000,000.
15. Waiver. Waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
16. Counterparts. This Agreement shall be executed in a number of
identical counterparts, each of which shall be construed as an original for all
purposes, but all of which taken together shall constitute one and the same
Agreement.
17. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and delivered in person or sent by registered or
certified United States mail, postage and fees prepaid, to the addresses of the
parties set forth below, or such other address as shall be furnished by notice
hereunder by any such party:
If to the Company: The Harvey Entertainment Company
1999 Avenue of the Stars, Suite 2050
Los Angeles, California 90067
Attention: Chairman of the Board
with copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Attention: Barry L. Dastin, Esq.
Fax: (310) 788-1202
If to Employee: Roger A. Burlage
5451 N. Newcastle Lane
Calabasas, California 91302
Home Fax: (818) 878-0012
with a copy to: Kleinberg Lopez Lange Brubin & Cuddy
2049 Century Park East, Suite 3180
Los Angeles, California 90067
Attention: Kenneth Kleinberg, Esq.
Fax: (310) 277-7145
18. Effective Date. This Employment Agreement shall become effective
(the "effective date") on the closing of the Stock Purchase Agreement dated as
of even date herewith
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<PAGE> 8
(the "SPA") between the Company, Employee, Michael R. Burns, The Kushner-Locke
Company and the other parties thereto. If the acquisition of shares of Series A
Convertible Preferred Stock under the SPA is not consummated, or if the SPA is
terminated in accordance with its terms, this Employment Agreement shall be null
and void.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMPLOYEE THE HARVEY ENTERTAINMENT COMPANY
/s/ ROGER A. BURLAGE By: /s/ MICHAEL S. HOPE
- -------------------------------- -------------------------------------
Roger A. Burlage Michael S. Hope
8
<PAGE> 9
Schedule I
Employee's right to exercise the Warrants will proportionally vest based upon
his length of employment with the Company pursuant to the terms of this
Agreement. One-half (50%) of the warrants will be immediately vested. The
balance of the warrants will vest as follows:
<TABLE>
<CAPTION>
Percentage of Employee's
Length of Employment Warrants That Vest
- -------------------- ------------------------
<S> <C>
one year 25%
two years 12.5%
three years 12.5%
</TABLE>
Notwithstanding anything to the contrary herein or in the Warrant Agreement, in
the event of the termination of Employee's employment by the Company without
Cause or as a result of Employee's death or disability during the term of and
pursuant to the attached Employment Agreement, all unvested Warrants held
individually by Employee shall immediately vest and shall remain exercisable for
a period equal to the then balance of the term of the Warrants (i.e. the balance
of the six year, seven year or eight year term depending on the relevant
Warrants).
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<PAGE> 10
Schedule II
Additional Activities
1. Employee consults with various other entertainment companies, including
without limitation Trimark Holdings Inc. through his company Roch
Enterprises Inc. These activities will be immediately limited to
current clients and will be phased out over a period of six months from
the effective date of the attached Employment Agreement. Employee is a
member of the Board of Directors of Trimark Holdings Inc. and shall
resign from such position as soon as practical and in any event within
three months from the effective date.
2. Employee is a partner of Burlage/Edell Productions, Inc., a television
and theatrical motion picture and development company which also acts
as a consultant to Trimark Holdings Inc. After the closing and subject
to a six-month maximum phase-out period, Employee will turn over all
management functions to his partner Elaine Hastings Edell or other
third party. Following the closing, Employee shall promptly offer the
Company a customary "first look" deal on all new projects (subject to
existing deals in place) in exchange for a general overhead
housekeeping/ deal on terms to be negotiated with the Company (which
the Company can enter into or not enter into in its sole discretion and
as to which deliberations Employee shall recuse himself).
3. Employee is a founding shareholder and chief executive officer of
Heartland Entertainment, Inc., formed in 1998 for the purpose of
producing filmed entertainment product, primarily for worldwide
theatrical and television audiences. Heartland is currently negotiating
with Universal Pictures to distribute a slate of a minimum of twelve
feature films, to be financed by a line of credit from Chase Manhattan
Bank backed by an insurance program. Employee shall either arrange for
Harvey to acquire all or a controlling stake in Heartland, on terms
satisfactory to Harvey, or he will resign as CEO, while retaining his
economic stake on a passive basis (in which case, Employee may consult
with Heartland on a part-time basis in such manner as does not conflict
with the Company or Employee's obligations under the attached
Employment Agreement).
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<PAGE> 1
EXHIBIT 99.1
HARVEY ENTERTAINMENT COMPLETES $17 MILLION RECAPITALIZATION
WITH INVESTOR GROUP LED BY ROGER A. BURLAGE
LOS ANGELES-(BUSINESS WIRE)-April 27, 1999--
- Burlage Named CEO and Rick Mischel to be Designated as President and
COO -
The Harvey Entertainment Company (NASDAQ:HRVY) announced today that it has
completed, on the previously announced terms, a Stock Purchase Agreement with
Roger A. Burlage, Michael R. Burns, Paul Guez, Al Checchi, Ken Slutsky and The
Kushner-Locke Company (NASDAQ:KLOC), pursuant to which the investor group
purchased $17 million in newly-issued shares of Harvey's Series A Convertible
Preferred Stock.
The investment consists of $5.5 million in Kushner-Locke common stock,
contributed by Kushner-Locke, and $11.5 million in cash from the remaining
members of the investment group. Harvey also announced that in conjunction with
the closing of the investment, entertainment industry executives Roger A.
Burlage will lead and Rick Mischel is expected to join Harvey Entertainment's
management team. Effective with the closing of the investment yesterday
afternoon, Mr. Burlage is Chairman and Chief Executive Officer, and Mr. Mischel
is expected to become President and Chief Operating Officer upon formal election
by the Board of Directors.
The holders of the new preferred stock have the right as a separate class to
elect two members of an expanded five-person Harvey Board of Directors. Roger
Burlage and Michael R. Burns, a Managing Director of entertainment investment
banking at Prudential Securities Incorporated, have joined Director Michael
Doherty and former Chairman of the Board Gary Gray on the Board of Directors. A
fifth Director seat will be filled by the Board in the near future.
Commenting on the closing, Harvey Entertainment's new Chief Executive Officer,
Roger A. Burlage, stated, "With the recapitalization complete, we are now full
speed ahead in our efforts to solidify the senior management team and begin
implementing our business plan. As we previously stated, in addition to
leveraging Harvey's impressive character portfolio and reinvigorating its
traditional base of operations, we also look to enhance shareholder value by
using Harvey as a publicly-traded platform for expanding into a wider range of
opportunities and markets including new media and the Internet. As significant
shareholders in the Company, we are extremely motivated to realize the
significant growth opportunities we see for Harvey."
As Chairman and CEO of LIVE Entertainment, Inc., Mr. Burlage directed LIVE's
financial and operational turnaround. Earlier, as President and Chief Executive
Officer of entertainment
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distribution and home video company, Trimark Holdings, Inc., Mr. Burlage oversaw
a nearly three-fold revenue increase over a four-year period. He also was a
founding executive and served for five years as President and Chief Operating
Officer of New World Entertainment. While at New World, sales rose from $8
million in the first nine months to approximately $400 million, five years
later.
The Harvey Entertainment Company is engaged in the management and exploitation
of its proprietary branded characters through merchandising and filmed
entertainment, which includes theatrical, home video and television. The Harvey
Classic Character Brands include Casper, the Friendly Ghost, Fatso, Stinkie and
Stretch (the Ghostly Trio), Richie Rich, Baby Huey, Hot Stuff, Little Audrey,
Wendy the Good Little Witch and many others. For more information on The Harvey
Entertainment Company, visit the Company's website at http://www.harvey.com.
This press release contains forward-looking statements that involve risks and
uncertainties, including, but not limited to, the success of the Company's
expansion strategy and risks of the Company's merchandising, home video, and
filmed entertainment activities, the management of growth, fluctuations in
quarterly and annual operating results, the release of filmed entertainment
products and other risks most recently outlined in the Company's filings with
the Securities and Exchange Commission. Actual results may differ materially
from management expectations.
CONTACT:
The Harvey Entertainment Company, Los Angeles
Roger A. Burlage, 310/789-1990
or
Jaffoni & Collins Incorporated, New York
David Collins, 212/835-8500
[email protected]
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