<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
CinemaStar Luxury Theaters, Inc.
--------------------------------------------------------
(Name of Issuer)
Common Stock, no par value
--------------------------------------------------------
(Title of Class of Securities)
17244C-10-3
--------------------------------------------------------
(CUSIP Number)
Neil Austrian, c/o Rust Capital, Ltd., 327 Congress Avenue,
Suite 200, Austin, Texas 78701 (512)476-2995
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
September 23, 1997
--------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
Check the following box if a fee is being paid with this statement / /. (A
fee is not required only if the reporting person: (1) has a previous statement
on file reporting beneficial ownership of more than five percent of the class
of securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
(Continued on following page(s))
Page 1 of 12 Pages
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CUSIP No. 17244C-10-3 13D Page 2 of 12 Pages
----------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
Reel Partners, L.L.C. (FEIN 74-2853736)
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) / /
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Delaware
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power 7,500,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting
Power -0-
--------------------------------------------------
(9) Sole Dispositive
Power 7,500,000
--------------------------------------------------
(10) Shared Dispositive
Power -0-
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
7,500,000
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares* / /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
48.3%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
00
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
CUSIP No. 17244C-10-3 13D Page 3 of 12 Pages
----------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
CinemaStar Acquisition Partners, L.L.C. (FEIN 74-2853737)
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) / /
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Delaware
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power 1,000,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting
Power -0-
--------------------------------------------------
(9) Sole Dispositive
Power 1,000,000
--------------------------------------------------
(10) Shared Dispositive
Power -0-
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares* / /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
11.1%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
00
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
CUSIP No. 17244C-10-3 13D Page 4 of 12 Pages
----------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
SCP Private Equity Partners, L.P. (FEIN 23-2854478)
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) / /
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Delaware
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power 1,000,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting
Power -0-
--------------------------------------------------
(9) Sole Dispositive
Power 1,000,000
--------------------------------------------------
(10) Shared Dispositive
Power -0-
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares* / /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
11.1%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
00
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
CUSIP No. 17244C-10-3 13D Page 5 of 12 Pages
----------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
SCP Private Equity Management, L.P. (FEIN 23-2854479)
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) / /
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Delaware
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power 1,000,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting
Power -0-
--------------------------------------------------
(9) Sole Dispositive
Power 1,000,000
--------------------------------------------------
(10) Shared Dispositive
Power -0-
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares* / /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
11.1%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
00
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
CUSIP No. 17244C-10-3 13D Page 6 of 12 Pages
----------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
Safeguard Capital Management, Inc. (FEIN 23-2893097)
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) / /
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Delaware
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power 1,000,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting
Power -0-
--------------------------------------------------
(9) Sole Dispositive
Power 1,000,000
--------------------------------------------------
(10) Shared Dispositive
Power -0-
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares* / /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
11.1%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
00
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
CUSIP No. 17244C-10-3 13D Page 7 of 12 Pages
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(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
Winston J. Churchill (SS # ###-##-####)
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(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) / /
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
United States
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power 1,000,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting
Power -0-
--------------------------------------------------
(9) Sole Dispositive
Power 1,000,000
--------------------------------------------------
(10) Shared Dispositive
Power -0-
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares* / /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
11.1%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
00
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
CUSIP No. 17244C-10-3 13D Page 8 of 12 Pages
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(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
Samuel A. Plum (SS # ###-##-####)
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) / /
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
United States
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power 1,000,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting
Power -0-
--------------------------------------------------
(9) Sole Dispositive
Power 1,000,000
--------------------------------------------------
(10) Shared Dispositive
Power -0-
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares* / /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
11.1%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
00
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
ITEM 1. SECURITY AND ISSUER
This Schedule 13D relates to the shares of common stock, no par value (the
"Common Stock" or the "Shares") of CinemaStar Luxury Theaters, Inc. (the
"Company") with its principal executive offices located at 431 College
Boulevard, Oceanside, California 92507.
ITEM 2. IDENTITY AND BACKGROUND
This Schedule 13D is being filed by, among other parties described in this
Item 2, Reel Partners, L.L.C., a Delaware limited liability company ("Reel").
Reel's business address is c/o Rust Capital, Ltd., 327 Congress Avenue, Suite
200, Austin, Texas 78701. Reel was organized for the purpose of making a
$3,000,000 loan to the Company (the "Loan"), and in connection with such Loan
receiving warrants to purchase Shares (the "Warrants"). Reel's members are as
follows: (a) JW Bridge Investors, L.L.C., a Delaware limited liability company
("JW"), 1259 Rimmer Avenue, Pacific Palisades, California 90272; (b) Rust Cinema
Investors, L.L.C., a Texas limited liability company ("Rust"), c/o Rust Capital,
Ltd., 327 Congress Avenue, Suite 200, Austin, Texas 78701; and (c) SCP Private
Equity Partners, L.P., a Delaware limited partnership ("SCP"), 800 The Safeguard
Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087 (JW, Rust and SCP may
be collectively referred to as the "Members"). JW is controlled by James
Villanueva ("JV"), 1259 Rimmer Avenue, Pacific Palisades, California 90272 and
Warren Schlichting ("WS"), 15447 Albright Street, Pacific Palisades, California
90272. Rust is controlled by the Sharp Irrevocable Intervivos Trust, a Texas
trust ("Sharp"). Sharp's address is the same address as is applicable for Rust.
SCP's general partner is SCP Private Equity Management, L.P., a Delaware limited
partnership ("Management"). Management's general partners are Safeguard Capital
Management, Inc., a Delaware corporation ("Safeguard") which is controlled by
Safeguard Scientifics, Inc., a Delaware corporation which is publicly traded on
the New York Stock Exchange, Winston J. Churchill ("Churchill") and Samuel A.
Plum ("Plum"). Safeguard's Chairman of the Board is Warren V. Musser
("Musser"). Robert E. Keith, Jr. ("Keith") is a director of Safeguard, Donald
R. Caldwell ("Caldwell") is its President, Gerald M. Wilk ("Wilk") is its
Vice-President and Treasurer and James A. Ounsworth ("Ounsworth") is its
Vice-President and Secretary. Each of Management, Safeguard, SChurchill, Plum,
Musser, Keith, Caldwell, Wilk and Ounsworth (collectively, the "Other SCP
Persons") are located at the same address at which SCP is located. Reel was
organized for the purpose of making the Loan and obtaining the Warrants. JW was
organized for the purpose of making an investment in Reel. Rust was organized
for the purpose of making an investment in Reel. SCP is a private investment
partnership. Management is a private investment partnership. Safeguard is a
private investment corporation. This Schedule 13D is also being filed by
CinemaStar Acquisition Partners, L.L.C., a Delaware limited liability company
("CAP"), in connection with the Stock Purchase Agreement described in Item 4.
CAP is controlled by SCP, one of its members. CAP's other members are JV, WS
and Sharp. Sharp is controlled by Jack S. Gray, Jr., its Trustee ("Gray").
Gray's address is the same address as is applicable for Rust. Because each of
SCP, Management, Safeguard, Churchill and Plum are deemed pursuant to Rule
13d-3(a) of Regulation 13D to have beneficial ownership of the securities of the
Company held by CAP, each such entity is also filing this Schedule 13D.
Therefore, Reel, CAP, SCP, Management, Safeguard, Churchill and Plum may be
collectively referred to as the "Reporting Persons." During the last five
years, none of the Reporting Persons, any other Members or any of the other
Other SCP Persons has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors). During the last five years, none of the
Reporting Persons, any other Members or any of the other Other SCP Persons has
been a party in a civil proceeding of a judicial or administrative body of
competent jurisdiction resulting in its being subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws. Each of Churchill, Plum, Musser, Keith, Caldwell,
Wilk, Ounsworth and Gray are citizens of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Reel obtained the necessary funds to make the Loan from each of its
Member's capital contributions. The Warrants were granted to Reel as
consideration for the making of the Loan. Each of the Members obtained the
funds necessary to make the capital contribution to Reel through contributions
to each such Member of investment capital from such Member's members or
partners, as applicable. CAP obtained the warrant which it received in
connection with the execution of the Stock Purchase Agreement as consideration
for such execution.
ITEM 4. PURPOSE OF TRANSACTION
Reel has acquired the Warrants which are exercisable into Shares and made
the Loan, which is convertible into Shares, for investment purposes. To the
extent that the Warrants and the Loan are distributable to the Members, such
Members have made such investment for investment purposes. The Loan was made
and the Warrants were obtained simultaneously with the signing of a Stock
Purchase Agreement (the "Stock Purchase Agreement") dated September 23, 1997 by
and among the Company, Reel and CAP. Pursuant to the terms of the Stock
Purchase Agreement, CAP will make a $15 million equity investment in the Company
for investment purposes, the proceeds of which will be used in part to repay the
Loan. Pursuant to the Stock Purchase Agreement, upon funding of the Loan, CAP
acquired a warrant to purchase 1,000,000 Shares as consideration for executing
the Stock Purchase
SEC 1746(12-91) 9 of 12
<PAGE>
Agreement. Upon closing of the transactions contemplated by the Stock
Purchase Agreement, CAP will acquire 17,684,464 Shares and a warrant to
purchase an additional 1,630,624 Shares, with the possibility of receiving
additional Shares pursuant to certain post-closing adjustments. As of such
closing of the Stock Purchase Agreement, CAP will own 61.25% of the
outstanding Common Stock of the Company and warrants to purchase an
additional 9.11% of the outstanding (assuming exercise) Common Stock of the
Company. In the event that the Stock Purchase Agreement transactions are
consummated, it is unlikely that the Loan will be converted and Warrants
representing 1,500,000 Shares will be cancelled, thus leaving Reel with
3,000,000 Shares issuable upon exercise of the Warrants. Assuming the closing
of the Stock Purchase Agreement and no conversion of the Loan, Reel will have
Warrants remaining which are exercisable only for approximately 9.41% of the
outstanding Common Stock of the Company. With respect to paragraphs (a)
through (j) of Item 4 of Schedule 13D, no Reporting Person has any plans or
proposals which relate to, or could result in, any of such matters. However,
in connection with the Stock Purchase Agreement: (i) the present Board of
Directors will be reconstituted upon closing of the transactions contemplated
by the Stock Purchase Agreement such that the Board of Directors will consist
of seven members of which four members will be appointed by CAP; (ii) CAP
intends on beginning a search for the purposes of hiring a qualified chief
financial officer for the Company; (iii) the Company's Articles of
Incorporation will be proposed by a proxy sent to the existing shareholders
of the Company to be changed to authorize the number of Shares to effect the
transactions contemplated by the Stock Purchase Agreement and by the
documents evidencing the Loan and the Warrants; and (iv) the Reporting Persons
are discussing with management of the Company the possibility of making
certain changes in the management of the Company but no decisions with
respect to such changes have been made. The Reporting Persons may in
the future take such actions with respect to their respective holdings in the
Company as they deem appropriate in light of circumstances existing from time
to time and will continue to explore measures aimed at enhancing the
shareholder value. Such actions may include the purchase of additional
Shares in the open market, through privately negotiated transactions with
third parties or otherwise, or the sale at any time, in the open market,
through privately negotiated transactions with third parties or otherwise, of
all or a portion of the Shares which may be acquired pursuant to the
Warrants, upon conversion of the Loan, upon consummation of the transactions
contemplated by the Stock Purchase Agreement, acquired pursuant to the
warrants thereunder or otherwise. The Reporting Persons reserve the right to
adopt any plans with respect to paragraphs (a) through (j) of Item 4 of
Schedule 13D, in addition to those already stated herein, subject to any
applicable regulatory requirements.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Loan is convertible into 3,000,000 Shares and Reel has a Warrant
to purchase 3,000,000 Shares and a Warrant to purchase 1,500,000
Shares. If the Stock Purchase Agreement transactions are consummated,
the Warrant to purchase 1,500,000 Shares will be cancelled and the
Loan will be repaid. However, as of this date, Reel has rights to
purchase or rights to convert into a total of 7,500,000 Shares of the
Company which would represent 48.327% of the outstanding Shares. As
of closing of the transactions contemplated by the Stock Purchase
Agreement, CAP will acquire 17,684,464 Shares and a warrant to
purchase an additional 1,630,624 Shares, with the possibility of
receiving additional Shares pursuant to certain post-closing
adjustments. As of such closing of the Stock Purchase Agreement, CAP
will own 61.25% of the outstanding Common Stock of the Company and
warrants to purchase an additional 9.11% of the outstanding (assuming
exercise) Common Stock of the Company. However, as of this date, CAP
is, pursuant to Rule 13d-3(d)(l)(i) of Regulation 13D, the beneficial
owner of only 1,000,000 Shares as evidenced by the warrant received by
CAP in connection with the execution of the Stock Purchase Agreement.
None of SCP, Management, Safeguard, Churchill or Plum beneficially own
any additional Shares other than such 1,000,000 Shares and are
Reporting Persons solely as a result of their respective rights to
control the voting power and/or disposition of such securities as set
forth in Rule 13d-3(a) of Regulation 13D.
(b) Reel has the sole power to vote and the sole power to dispose of all
7,500,000 Shares subject to this Schedule 13D with respect to Reel.
Reel has the shared power to vote and the shared power to dispose of
zero Shares. As defined in Rule 13d-3(a), each of CAP, SCP,
Management, Safeguard, Churchill and Plum have the sole power to vote
and the sole power to dispose of all 1,000,000 Shares subject to this
Schedule 13D with respect to such entities. Similarly, each of CAP,
SCP, Management, Safeguard, Churchill and Plum have the shared power
to vote and the shared power to dispose of zero Shares.
(c) Not applicable;
(d) Other than the Reporting Persons, the other Members (and the
individuals or entities which constitute such entities) and the other
Other SCP Persons (and the individuals or entities which constitute
such entities), no other person has the right to receive or the power
to direct receipt of dividends from, or the proceeds from the sale of
any such securities; and
(e) Not applicable.
SEC 1746(12-91) 10 of 12
<PAGE>
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
Except as described above or in this Item 6, there are no contracts,
arrangements, understandings or relationships (legal or otherwise) among the
persons named in Item 2 hereof or between such persons and any persons with
respect to any securities of the Company, including but not limited to transfer
or voting of any other securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, divisions of profits or
loss, or the giving or withholding of proxies. Upon closing of the transactions
contemplated by the Stock Purchase Agreement, a party unaffiliated with the
Reporting Persons, the other Members or the other Other SCP Persons is entitled
to receive warrants from the Company. Such party has agreed to transfer
warrants to purchase approximately 850,000 Shares at the direction of CAP.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. Stock Purchase Agreement, dated as of September 23, 1997, by and among
CinemaStar Luxury Theaters, Inc., Reel Partners, L.L.C., and
CinemaStar Acquisition Partners, L.L.C.
2. Form of Warrant to Purchase Common Stock
3. Warrant to Purchase Common Stock, dated September 23, 1997
4. Convertible Secured Promissory Note, dated September 23, 1997
5. Warrant to Purchase Common Stock, dated September 23, 1997
6. Warrant to Purchase Common Stock, dated September 23, 1997
SIGNATURE
After reasonable inquiry and to the best of each of the undersigned's
knowledge and belief, each of the undersigned certify that the information set
forth in this statement is true, complete and correct.
REEL
----
October 3, 1997 /s/ NEIL AUSTRIAN
----------------------------------- -------------------------------------
Date Signature
Neil Austrian, Vice-President
-------------------------------------
Name/Title
CAP
---
/s/ NEIL AUSTRIAN
-------------------------------------
Signature
Neil Austrian, Vice-President
-------------------------------------
Name/Title
SCP, MANAGEMENT
---------------
/s/ WINSTON J. CHURCHILL
-------------------------------------
Signature
SCP Private Equity Partners, L.P.;
SCP Private Equity Management, L.P.;
Winston J. Churchill, general partner
-------------------------------------
Name/Title
SAFEGUARD
---------
/s/ DONALD R. CALDWELL
-------------------------------------
Signature
Safeguard Capital Management, Inc.;
Donald R. Caldwell, President
SEC 1746(12-91) 11 of 12
<PAGE>
CHURCHILL
---------
/s/ WINSTON J. CHURCHILL
-------------------------------------
Signature
Winston J. Churchill
PLUM
----
/s/ SAMUEL A. PLUM
-------------------------------------
Signature
Samuel A. Plum
SEC 1746(12-91) 12 of 12
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of September 23, 1997, by and among CinemaStar Luxury Theaters, Inc., a
California corporation (the "COMPANY"), Reel Partners, L.L.C., a Delaware
limited liability company ("LENDER"), and CinemaStar Acquisition Partners,
L.L.C., a Delaware limited liability company (the "BUYER").
RECITALS
A. Contemporaneously with the execution of this Agreement, Lender is
loaning to the Company the aggregate principal amount of Three Million
Dollars ($3,000,000) (the "BRIDGE LOAN"), pursuant to the terms and
conditions of that certain Convertible Secured Promissory Note (the "NOTE"),
dated the date hereof, issued to Lender by the Company, which Note is, at the
option of the holder t hereof, convertible into one share of Common Stock (as
hereinafter defined) for each dollar of such Bridge Loan (the "CONVERSION
SHARES"). As part of the Bridge Loan, the Company has issued to Lender (i) a
warrant (the "FIRST BRIDGE WARRANT") to purchase Three Million (3,000,000)
shares of Common Stock, no par value, of the Company (the "COMMON STOCK"),
subject to adjustment and on the terms and conditions set forth in that
certain Warrant to Purchase Common Stock, dated the date hereof, issued to
Lender by the Company (the "FIRST WARRANT SHARES") and (ii) a warrant (the
"SECOND BRIDGE WARRANT") to purchase One Million Five Hundred Thousand
(1,500,000) shares of Common Stock, subject to adjustment and on the terms
and conditions set forth in that certain Warrant to Purchase Common Stock,
dated the date hereof, issued to Lender by the Company (the "SECOND WARRANT
SHARES") which Second Bridge Warrant shall be canceled upon the Closing (as
hereinafter defined) or if this Agreement is terminated by the Company in
connection with SECTION 8(K)(i)(4) hereof.
B. Subject to the terms and conditions herein, Buyer, an affiliate of
Lender, hereby desires to purchase from the Company, and the Company hereby
desires to issue and sell to Buyer, 17,684,464 shares of Common Stock (the
"SHARES"), at a purchase price of eighty four and eight thousand two hundred
and two ten thousandths Cents ($.848202) per share, for an aggregate purchase
price of Fifteen Million and 00/100th Dollars ($15,000,000) and warrants (the
"PURCHASE WARRANT") exercisable for 1,630,624 shares of Common Stock (the
"PURCHASE WARRANT SHARES") at an exercise price of eighty four and eight
thousand two hundred and two ten thousandths Cents ($.848202) per share, for
an aggregate exercise price of One Million Three Hundred Eighty Three
Thousand Ninety Eight and 54/100ths Dollars ($1,383,098.54) (collectively,
the "PURCHASE"). Subsequent to the consummation of the foregoing sale of
shares of Common Stock and Purchase Warrant, subject to the terms and
conditions herein, the Company may issue to Buyer additional shares of Common
Stock (in an amount to be determined as set forth herein) as consideration
for the decreased value of the Shares resulting from certain expenses,
liabilities and operating losses of the Company incurred and/or discovered
and/or disclosed after August 31, 1997 (the "ADJUSTMENT SHARES").
<PAGE>
C. In addition to the issuance of the First Bridge Warrant and the
Second Bridge Warrant to Lender, the Company is issuing to Buyer upon
execution of this Agreement a warrant (the "SIGNING WARRANT") to purchase One
Million (1,000,000) shares of Common Stock, subject to adjustment and on the
terms and conditions set forth in that certain Warrant to Purchase Common
Stock, dated the date hereof, issued to Buyer by the Company (the "SIGNING
WARRANT SHARES") as consideration for Buyer executing and delivering this
Agreement on the date hereof.
AGREEMENTS
In consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows (the Recitals to this Agreement being incorporated herein by this
reference thereto):
1. AUTHORIZATION AND SALE OF SHARES, WARRANT SHARES AND ADJUSTMENT
SHARES.
(a) AUTHORIZATION OF SHARES AND WARRANT SHARES. At or prior to
Closing, the Company shall duly authorize the issuance and sale of the
Shares. At or prior to the Closing, the Company shall have duly authorized
and reserved for issuance the Conversion Shares, the First Warrant Shares,
the Second Warrant Shares, the Signing Warrant Shares, the Purchase Warrant
Shares and the Adjustment Shares (the First Warrant Shares, the Second
Warrant Shares, the Signing Warrant Shares and the Purchase Warrant Shares
may be collectively referred to as the "WARRANT SHARES").
(b) SALE OF SHARES AND PURCHASE WARRANTS. Subject to the
satisfaction of the terms and conditions herein set forth and in reliance
upon the respective representations and warranties of the parties set forth
herein, at the Closing the Company shall issue and sell to Buyer, and Buyer
shall purchase from the Company, the Shares and Purchase Warrant, free and
clear of any liens, taxes, restrictions and charges which result from actions
taken by the Company and other than those imposed in accordance with
applicable laws, for an aggregate purchase price of Fifteen Million One
Thousand and 00/100ths Dollars ($15,001,000) (the "PURCHASE PRICE"), or
$15,000,000 for the Shares and $1,000 for the Purchase Warrant. The number
of Warrant Shares exercisable under the Purchase Warrants is subject to
adjustment and other terms and conditions set forth in the Purchase Warrants.
(c) ISSUANCE OF NOTE, FIRST BRIDGE WARRANT, SECOND BRIDGE WARRANT
AND SIGNING WARRANT. Contemporaneously with the execution of this Agreement,
the Company shall issue and deliver to Lender the Note, the First Bridge
Warrant and the Second Bridge Warrant, and to Buyer the Signing Warrant. The
number of Warrant Shares exercisable under the First Bridge Warrant, the
Second Bridge Warrant and the Signing Warrant is subject to adjustment and
the other terms and conditions set forth in the First Bridge Warrant, the
Second Bridge Warrant and the Signing Warrant, respectively.
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(d) CLOSING. The consummation of the purchase and sale of the
Shares and the Purchase Warrants pursuant to this Agreement (the "CLOSING")
shall take place in the office of Katten Muchin & Zavis, Los Angeles,
California, at a time and date to be agreed upon by the parties, which,
unless otherwise agreed, shall be no later than five (5) business days after
the satisfaction or waiver of the conditions set forth in SECTIONS 5 AND 6
(the "CLOSING DATE").
(e) CLOSING DELIVERIES. At the Closing, (i) Buyer shall pay the
Purchase Price to the Company by wire transfer of immediately available funds
in accordance with the Company's written wire instructions, (ii) the Company
shall deliver to Buyer a certificate in form acceptable to Buyer, duly
executed by the Company and registered in the name of Buyer, representing the
Shares (the "CERTIFICATE"), (iii) the Company shall deliver to Buyer the
Purchase Warrant substantially in the form attached as EXHIBIT 1(e), duly
executed by the Company, and (iv) the parties shall deliver to each other the
other agreements and documents required to satisfy the conditions set forth
in SECTIONS 5 AND 6.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Lender and Buyer as follows,
as of the date hereof and, with respect to Buyer, as of the Closing Date or
as to such other date as expressly provided for herein (provided that the
Company shall be obligated to update Buyer and Lender with respect to any
information of which it becomes aware prior to the Closing which would alter
any such representation or warranty):
(a) ORGANIZATION AND QUALIFICATION. The Company and its
subsidiaries (a complete list of which, along with the record and beneficial
ownership of such subsidiaries, is set forth in SCHEDULE 2(a)) are
corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
by it makes such qualification necessary.
(b) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
Except as set forth on SCHEDULE 2(b), (i) the Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Note, the First Bridge Warrant, the Second Bridge Warrant, the
Signing Warrant and the Purchase Warrant (the First Bridge Warrant, the
Second Bridge Warrant, the Signing Warrant and the Purchase Warrant may be
collectively referred to as the "WARRANTS"), and the Shares, the Warrant
Shares, the Conversion Shares, the Purchase Warrant Shares and the Adjustment
Shares in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Note and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Note and the Warrants, the
reservation for issuance and the issuance of (a) the Warrants Shares issuable
upon exercise of the Warrants and (b) the Conversion Shares issuable upon
conversion of the Note, and the issuance of the Adjustment Shares upon the
determination of the Adjustment Shares, have been duly
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authorized by all necessary corporate action on the part of the Company,
(iii) this Agreement, the Note and the Warrants have been duly and validly
executed and delivered by the Company, and (iv) this Agreement, the Note and
the Warrants constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, and except as
such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies. Notwithstanding anything to the contrary
contained herein, the issuance of the Shares, the Warrant Shares, the
Conversion Shares and the Adjustment Shares will not be authorized for
issuance unless and until the shareholders of the Company approve the
Amendment (as hereinafter defined) and to that extent the Company will not
have the requisite corporate power and authority to issue such Shares,
Warrant Shares, Conversion Shares and Adjustment Shares.
(c) CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (x) 15,000,000 shares of Common Stock, of
which as of the date hereof, 8,019,182 shares are issued and outstanding,
587,500 shares are reserved for issuance pursuant to the Company's stock
option plans, and 6,605,636 shares are reserved for issuance pursuant to
securities exercisable or exchangeable for, or convertible into, shares of
Common Stock, and (y) 100,000 shares of Preferred Stock, of which 25,000 are
designated Series A Convertible Preferred Stock and none of which are issued
and outstanding. Except as disclosed in SCHEDULE 2(c), all of such
outstanding shares have been, or upon issuance will be, validly issued and
are, or will be, fully paid and nonassessable. Except as disclosed in
SCHEDULE 2(c), no shares of Common Stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered by the
Company. Except as disclosed in SCHEDULE 2(c) and except as contemplated
hereunder, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings
or arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the Company or
any of its subsidiaries or options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company or any
of its subsidiaries, (ii) there are no outstanding debt securities, (iii)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act, and (iv) there are no outstanding securities of the
Company or its subsidiaries which contain any redemption or similar
provisions and there are not any contracts, commitments, understandings or
arrangements which the Company or any of its subsidiaries is or may become
bound to redeem a security of the Company or its subsidiaries. Except as
disclosed in SCHEDULE 2(c), there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Note, the Shares, the Warrants, the Warrant Shares, the Conversion Shares
or the Adjustment Shares as described in this Agreement. The Company has
furnished to Buyer true and correct copies of the Company's Articles of
Incorporation, as amended (the "ARTICLES OF INCORPORATION"), and the
Company's By-laws, as amended (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
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(d) ISSUANCE OF SECURITIES. Immediately following the issuance of
the Note and the First Bridge Warrant, the Second Bridge Warrant and the
Signing Warrant, and assuming shareholder approval of the Amendment had been
obtained as of the date hereof, the authorized capital stock of the Company
would consist of 60,000,000 shares of Common Stock, of which 8,019,182 shares
would be issued and outstanding, 587,500 shares would be reserved for
issuance pursuant to the Company's stock option plans, and 17,590,695 shares
would be reserved for issuance pursuant to securities exercisable or
exchangeable for, or convertible into, shares of Common Stock (including
3,000,000 shares of Common Stock reserved for issuance upon conversion of the
Note and 4,500,000 shares reserved for issuance upon exercise of the First
Bridge Warrant and the Second Bridge Warrant and 1,000,000 shares reserved
for issuance upon exercise of the Signing Warrant). Immediately following
the Closing and assuming no exercise of outstanding warrants or options, no
conversion of the Note and no issuance of Adjustment Shares, the authorized
capital stock of the Company will consist of 60,000,000 shares of Common
Stock, of which 25,703,646 shares will be issued and outstanding, 587,500
shares will be reserved for issuance pursuant to the Company's stock option
plans, 19,904,615 shares will be reserved for issuance pursuant to securities
exercisable or exchangeable for, or convertible into, shares of Common Stock
(including 5,630,624 shares reserved for issuance upon exercise of the
Warrants other than the Second Bridge Warrants), and 10,000,000 shares will
be reserved for issuance as Adjustment Shares.
(e) NO CONFLICTS. Except as disclosed in SCHEDULE 2(e), the
execution, delivery and performance of this Agreement, the Note and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the issuance and the reservation for issuance of the Shares, the Warrant
Shares, the Conversion Shares and the Adjustment Shares) will not (i) subject
to shareholder approval of the Amendment, result in a violation of the
Articles of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or,
assuming compliance with the conditions set forth in this Agreement and
subject to the receipt of requisite shareholder approval, result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is
bound or affected. Except as disclosed in SCHEDULE 2(e), neither the Company
nor its subsidiaries is in violation of any term of or in default under the
Articles of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its subsidiaries.
The business of the Company and its subsidiaries is not being conducted, and
shall not be conducted, in violation of any law, ordinance, regulation of any
governmental entity. Except as disclosed in SCHEDULE 2(e), the Company is not
in violation of the listing requirements of the Nasdaq SmallCap Market
("Nasdaq") and does not reasonably anticipate that the Common Stock will be
delisted from Nasdaq in the foreseeable future. Except
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<PAGE>
as disclosed in SCHEDULE 2(e), the Company and its subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing.
(f) NO CONSENT. No consent, approval, order or authorization of,
or registration, declaration or filing with, any government authority or
instrumentality or any private third party is required by or with respect to
the Company in connection with the execution and delivery of this Agreement,
the Note or the Warrants or the consummation of the transactions contemplated
hereby or thereby, except (i) as set forth on SCHEDULE 2(f), (ii) the filing
(the "HSR FILING") of the notification report under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
expiration of any waiting period required thereunder, (iii) the receipt by
the Company of a permit pursuant to California Corporations Code Section
25116 (the "USURY PERMIT") to exempt the issuance to Buyer of the Note, the
First Bridge Warrant and the Second Bridge Warrant from the provisions of
California usury laws (which has been obtained and is in effect as of the
date hereof), (iv) the filing of the Amendment with the California Secretary
of State, (v) the filing of the Proxy Statement (as hereinafter defined) with
the Securities Exchange Commission ("SEC") in accordance with the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), (vi) the filing of a Form
8-K with the SEC with respect to the transactions contemplated hereby, and
(vii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and
state securities laws.
(g) SEC DOCUMENTS. Since February 7, 1995, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934
Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Buyer or its representative
true and complete copies of the SEC Documents as of their respective filing
dates. As of their respective dates, and with respect to the Form 10-KSB
filed with respect to the Company's fiscal year ended March 31, 1997, as of
the date hereof and the date of Closing, the SEC Documents complied and will
comply in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Except as disclosed in SCHEDULE 2(g), as of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto.
(h) FINANCIAL STATEMENTS. Except as disclosed in SCHEDULE 2(h),
the audited, consolidated balance sheets at March 31, 1997, 1996, and 1995 of
the Company and its subsidiaries and their related consolidated statements of
operations, stockholders equity and cash flows, for each of the years then
ended, including the related notes to consolidated financial statements and
auditors' reports thereon (the "CONSOLIDATED FINANCIAL STATEMENTS") provided
to
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Buyer prior to the date hereof: (i) are complete and correct in all material
respects and are consistent with the books and records of the Company and its
subsidiaries; (ii) present fairly on a GAAP (as hereinafter defined) basis
the consolidated financial condition of the Company at the dates thereof and
represent fairly the results of operations and cash flows for each of the
years then ended; and (iii) have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied consistently with respect to
the immediately preceding fiscal year, except as set forth in the notes to
the Consolidated Financial Statements or in the auditors' reports thereon.
The unaudited, consolidated balance sheet at June 30, 1997 of the Company and
its subsidiaries and related consolidated statements of operations and cash
flows for the three (3) months then ended: (i) are complete and correct in
all material respects and are consistent with the books and records of the
Company and its subsidiaries; and (ii) have been prepared in conformity with
GAAP, applied consistently with Consolidated Financial Statements, subject
to normal year-end adjustments.
(i) ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE
2(i), since June 30, 1997, the Company and its subsidiaries have, in all
material respects, conducted their respective businesses in the ordinary
course of business consistent with past custom and practices and have
incurred no material liabilities other than in the ordinary course of
business consistent with past custom and practice and there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company or its subsidiaries, other than the Liabilities, Expenses and
Operating Losses (each as hereinafter defined) set forth on EXHIBIT 4(w).
(j) ABSENCE OF LITIGATION AND ORDERS. Except as disclosed in
SCHEDULE 2(j), there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of
its subsidiaries, threatened against or materially affecting the Company, any
of its subsidiaries or any of their respective assets. Except as disclosed
in SCHEDULE 2(j), there are no outstanding orders, judgments, injunctions,
awards or decrees of any such bodies or entities against the Company or its
subsidiaries.
(k) ARM'S LENGTH TRANSACTIONS. The Company acknowledges and agrees
that Buyer and Lender are acting solely in the capacity of arm's length
purchaser with respect to this Agreement and the transactions contemplated
hereby. The Company further acknowledges that neither Lender nor Buyer is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by Buyer, Lender or any of their representatives
or agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to their respective acquisition of the Note, the
Shares, the Warrants, the Warrant Shares, the Conversion Shares and the
Adjustment Shares. The Company further represents to Buyer and Lender that
the Company's decision to enter into this Agreement has been based on the
independent evaluation by the Company and its representatives.
(l) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Except as disclosed in SCHEDULE 2(l), no material event,
liability, development or circumstance
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has occurred or exists, or is contemplated to occur, with respect to the
Company or its subsidiaries or their respective business, properties,
prospects, operations or financial condition, which has not been publicly
announced to the extent required by applicable state or federal securities
laws and disclosed in writing to the Buyer and Lender other than (i) the
Liabilities, Expenses and Operating Losses set forth on EXHIBIT 4(w); (ii)
obligations under this Agreement and (iii) subject to the provisions of
SECTION 4(s), liabilities or obligations of the Company incurred in the
ordinary course of business and not in excess of $150,000 in the aggregate.
(m) EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its subsidiaries, is any such dispute threatened. None
of the Company's or its subsidiaries' employees is a member of a union and
the Company and its subsidiaries believe that their relations with their
employees are satisfactory. The Company and its subsidiaries have complied
in all material respects with all applicable laws relating to the employment
of labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, social security and other taxes.
(n) INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade
names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. Except as set forth on SCHEDULE
2(n), none of the Company's trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are
expected to expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or
its subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on SCHEDULE 2(n), there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service mark registrations, trade secret or
other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their intellectual
properties.
(o) ENVIRONMENTAL LAWS. The Company and its subsidiaries are (i)
in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval.
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(p) INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are disclosed in SCHEDULE 2(p).
Except as disclosed in SCHEDULE 2(p), neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.
(q) COMPLIANCE WITH LAW. Except for possible violations disclosed
in SCHEDULE 2(q) (to the extent that such violations have occurred), the
business of the Company and its subsidiaries has been and is presently being
conducted so as to comply in all material respects with all applicable
federal, state, local and foreign governmental laws, rules, regulations and
ordinances. Except as disclosed in SCHEDULE 2(q), the Company and its
subsidiaries possess all certificates, authorizations and permits issued by
the appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization or permit.
(r) INTERNAL CONTROLS. Except as disclosed in SCHEDULE 2(r), the
Company maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences and
(v) transactions are recorded as necessary to permit proper accounting to the
Company's film distributors pursuant to the agreements relating thereto. The
Company has in existence and has had in existence at all times since the
Company has been subject to the 1934 Act (i) a policy complying with the
requirements of Section 21A(b)(1)(B) of the 1934 Act and (ii) a policy
complying with the requirements of the Civil Rights Act of 1964, Title VII,
42 U.S.C. Section 2000e ET SEQ. and the California Fair Employment and
Housing Act, Cal. Gov't Code, Section 12,900 ET SEQ.
(s) AGREEMENTS. Attached as SCHEDULE 2(s) is a list which includes
each agreement, lease and instrument (including any and all amendments
thereto) to which the Company and its subsidiaries is a party as of the date
hereof and which is or, immediately following the consummation of the
transactions contemplated by this Agreement, will be, material to the
business, condition or results of operations of the Company, on a
consolidated basis. Except as disclosed in SCHEDULE 2(s), each agreement and
instrument listed therein is in full force and effect and constitutes a
legal, valid and binding obligation of the Company and relevant subsidiary,
and the Company or the relevant subsidiary is not in default or breach in any
material respect of (with or without the giving of notice or the passage of
time) any such material agreement or instrument. To the best of Company's
knowledge, no other person is in default or
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in breach of (with or without the giving of notice of the passage of time) any
such agreement or instrument. The Company has furnished to Buyer true and
correct copies of all items set forth on SCHEDULE 2(s).
(t) TAX STATUS. Except as set forth on SCHEDULE 2(t), the Company
and each of its subsidiaries has timely made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and has timely paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to
the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. No audit or other administrative proceeding or
court proceeding is presently pending with respect to any taxes or tax
returns of the Company or its subsidiaries, and, to the knowledge of the
Company, no such audit or proceeding is threatened.
(u) CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 2(u),
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its subsidiaries (other
than for services as employees, officers and directors, all of which have
been disclosed on SCHEDULE 2(s)), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner. The Company has
furnished to Buyer true and correct copies of all items set forth on SCHEDULE
2(u).
(v) Intentionally omitted.
(w) REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
registration statement (including any amendments or supplements thereto, the
"REGISTRATION STATEMENT"), pursuant to which the Warrants, the Shares,
Warrant Shares, Conversion Shares and/or Adjustment Shares will be registered
with the SEC shall not, at the time the Registration Statement is filed with
the SEC and at the time it becomes effective under the 1933 Act, contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements included therein not misleading.
The proxy statement required in connection with the transactions contemplated
by this Agreement to be sent to the stockholders of the Company in connection
with the meeting of stockholders to be called to approve the Amendment (the
"STOCKHOLDERS' MEETING") (such proxy statement as amended or supplemented is
referred to herein as the "PROXY STATEMENT") shall not, on the date the Proxy
Statement is first mailed to the Company's stockholders, at the time of the
Stockholders' Meeting and at the time of Closing, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or
misleading, or omit to state any material affect necessary
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to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Stockholders' Meeting which has become false
or misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the 1934 Act and the rules and regulations
thereunder. If at any time prior to the Closing any event relating to the
Company, its subsidiaries, or any of their respective affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement, the Company will promptly inform Buyer and Lender.
(x) STOCKHOLDER VOTE. Except as disclosed in SCHEDULE 2(x), no
officer or director of the Company or any of its subsidiaries and no member
of the management of Company has any actual knowledge that any stockholder of
the Company currently intends not to vote to approve of this Agreement and
the transactions contemplated hereby (including approval of the Amendment).
(y) ILLEGAL PAYMENTS. Neither the Company nor any of its
subsidiaries has made or committed to make any payments for illegal political
contributions or made any bribes, kickback payments or other similar illegal
payments to any person or entity.
(z) EMPLOYEE BENEFIT PLANS. Except as set forth in SCHEDULE 2(z),
neither the Company nor any Plan Affiliate (as hereinafter defined) has
maintained, sponsored, adopted, made contributions to or obligated itself to
make contributions to or to pay any benefits or grant rights under or with
respect to any "EMPLOYEE PENSION BENEFIT PLAN" (as defined in Section 3(2) of
ERISA, as hereinafter defined), "EMPLOYEE WELFARE BENEFIT PLAN" (as defined
in Section 3(1) of ERISA), "MULTI-EMPLOYER PLAN" (as defined in Section 3(37)
of ERISA), plan of deferred compensation, medical plan, life insurance plan,
long-term disability plan, dental plan or other plan providing for the
welfare of any of the Company or its subsidiary's employees or former
employees or beneficiaries thereof, personnel policy (including, but not
limited to, vacation time, holiday pay, bonus programs, moving expense,
reimbursement programs and sick leave) excess benefit plan, bonus or
incentive plan (including, but not limited to, stock options, restricted
stock, stock bonus and deferred bonus plans), salary reduction agreement,
change-of-control agreement, employment agreement, consulting agreement or
any other benefit, program or contract (collectively, "EMPLOYEE BENEFIT
PLANS"), whether or not written or pursuant to a collective bargaining
agreement, which could give rise to or result in the Company or such Plan
Affiliate having any debt, liability, claim or obligation of any kind or
nature, whether accrued, absolute, contingent, direct, indirect, known or
unknown, perfected or inchoate or otherwise and whether or not due or to
become due. Correct and complete copies of all Employee Benefit Plans
previously have been furnished to the Buyer. The Employee Benefit Plans are
in substantial compliance with governing documents and agreements and with
applicable laws. As used herein, "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended. As used herein, with respect to any
person (the "FIRST PERSON"), "PLAN AFFILIATE" shall mean any other person or
entity with whom the First Person constitutes or has constituted all or part
of a controlled group, or which would be treated with the First Person as
under common control or whose employees would be treated or have been treated
as employed by the First Person, under Section 414 of the Internal Revenue
Code of 1986, as amended, and any regulations, administrative rulings and
case law interpreting the foregoing.
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(aa) NO MISREPRESENTATION. None of the representations and
warranties of the Company set forth in this Agreement, in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered, or to be delivered, to Buyer or Lender as contemplated by any
provision hereof, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading. To the knowledge of the Company, there is no
material fact which has not been disclosed to Buyer which materially
adversely affects or could reasonably be anticipated to materially adversely
affect its business or the Company's ability to consummate the transactions
contemplated hereby.
(bb) BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of the Company and each of its subsidiaries,
respectively, all of which have been made available to the Buyer and Lender,
are complete and correct in all material respects and have been maintained in
accordance with sound business practices. Without limiting the generality of
the foregoing, the minute books of the Company and each of its subsidiaries,
respectively, contain complete and accurate records of all meetings held of,
and corporate action taken by, the stockholders, the boards of directors, and
committees of the boards of directors of the Company and each of its
subsidiaries, respectively, and no meeting of any such stockholders, board of
directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of the Company and each of
its subsidiaries, respectively.
(cc) CONDITION AND SUFFICIENCY OF ASSETS. To the knowledge of the
Company, the equipment and other tangible personal property used by the
Company and each of subsidiaries, respectively, in the conduct of their
respective business, and the heating, ventilation, and air-conditioning
systems at each of the Company's and each of its subsidiaries', respectively,
facilities, are in good operating condition and repair (ordinary wear and
tear excepted), are adequate for the uses to which they are being put, are
not in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost, and are
sufficient for the continued conduct of the their respective businesses
immediately after the Closing in substantially the same manner as conducted
prior to the Closing.
(dd) RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon the Company or its
subsidiaries or their properties (including, without limitation, their
intellectual properties) which has or could reasonably be expected to have
the effect of prohibiting or materially impairing any material current or
currently proposed business practice of the Company, any acquisition of
material property by the Company or the conduct of business by the Company as
currently conducted or as proposed to be conducted by the Company.
(ee) TITLE. The Company and its subsidiaries have good, valid and
marketable title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its properties and assets (whether real,
personal or mixed, and whether tangible or intangible), necessary for the
conduct of its business, free and clear of any liens or encumbrances except
as reflected in SCHEDULE 2(ae) and except for liens for taxes not yet due and
payable.
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(ff) BROKERS' AND FINDERS' FEES. Except as disclosed in SCHEDULE
2(af), the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
(gg) BANK ACCOUNTS. SCHEDULE 2(ag) attached hereto contains a
complete and accurate list of each bank at which the Company and each of its
subsidiaries, respectively, has an account or safe deposit box, the number of
each such account or box, and the names of all persons authorized to draw on
such accounts or to have access to such boxes.
(hh) CHANGE OF CONTROL PAYMENTS. Except as set forth on SCHEDULE
2(ah), neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director, officer
or employee of the Company or any of its subsidiaries from the Company or any
of its subsidiaries, under any Employee Benefit Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any Employee Benefit
Plan, or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
(ii) BOARD APPROVAL. The Board of Directors of the Company has, on
or prior to the date hereof, unanimously approved this Agreement and the
issuance of the Note, the Shares, the Warrants, the Warrant Shares, the
Conversion Shares and the Adjustment Shares and all of the transactions
contemplated hereby or thereby. Prior to the execution hereof, the Company
has delivered to Buyer and Lender a complete and accurate copy of resolutions
of the Board of Directors relating to the approval of this Agreement and the
transactions contemplated hereby, certified by the Secretary of the Company.
3. LENDER'S AND BUYER'S REPRESENTATIONS AND WARRANTIES.
Each of Buyer and Lender represents and warrants to the Company as
follows, as of the date hereof and as of the Closing Date:
(a) ORGANIZATION AND POWER. Lender is a limited liability company
duly organized, validly existing and in good standing under the laws of
Delaware, and has requisite power to own its properties and to carry on its
business as now being conducted. Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws of Delaware,
and has the requisite power to own its properties and to carry on its
business as now being conducted. SCHEDULE 3(a) contains a complete and
accurate list of each member and "controlling person" of Buyer and each
member and "controlling person" of Lender.
(b) AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of each of Buyer and
Lender and is a valid and binding agreement of each of Buyer and Lender
enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to applicable bankruptcy, insolvency,
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reorganization, moratorium, liquidation and other similar laws relating to,
or affecting generally, the enforcement of applicable creditors' rights and
remedies.
(c) REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by Buyer and Lender for inclusion in the Registration
Statement, as set forth in any writing supplied by Buyer, Lender or any of
their respective legal counsel for the purpose of inclusion in the
Registration Statement, shall not at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act of 1933, as amended (the "1933 ACT"), contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make such statements therein, in light of
the circumstances under which they are made, not misleading. The information
supplied by or concerning Buyer or Lender or their respective agents or
representatives for inclusion in the Proxy Statement, as set forth in any
writing supplied by Buyer, Lender or any of their respective legal counsel
for the purpose of inclusion in the Proxy Statement, shall not, on the date
the Proxy Statement is first mailed to the Company's stockholders, at the
time of the Stockholders' Meeting and on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make such statements therein, in
light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which has become false or misleading.
If at any time prior to the Closing Date any event relating to the Buyer,
Lender or any of their respective affiliates, officers or directors should be
discovered by the Buyer or Lender, which should be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement, the
Buyer or Lender shall promptly inform the Company. Notwithstanding the
foregoing, neither the Buyer nor Lender makes any representation or warranty
with respect to any information supplied by or concerning the Company or its
subsidiaries or any of their respective officers, directors or affiliates
which is contained in any of the foregoing documents.
(d) NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Buyer and the Lender and the consummation by the Buyer and
Lender of the transactions contemplated hereby (including the acceptance of
the Note and the Warrants by Lender and the conversion and/or exercise
thereof) will not (i) result in a violation of the respective Certificate of
Formation or Operating Agreement of the Buyer and the Lender or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Buyer, Lender or any of their
respective subsidiaries is a party, or, assuming compliance with the
conditions set forth in this Agreement, result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Buyer, Lender
or any of their respective subsidiaries or by which any property or asset of
the Buyer, Lender or any of their respective subsidiaries is bound or
affected. Neither the Buyer, Lender nor their respective subsidiaries is in
violation of any term of or in default under their respective charter
documents, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Buyer, Lender or their respective subsidiaries.
The business of the Buyer,
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Lender and their respective subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, ordinance, regulation of any
governmental entity.
(e) NO CONSENT. No consent, approval, order or authorization of,
or registration, declaration or filing with, any government authority or
instrumentality or any private third party is required by or with respect to
the Buyer or Lender in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
(i) the HSR Filing, if any, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state security laws and (iii) the receipt of the
Usury Permit.
(f) NO MISREPRESENTATION. None of the representations and
warranties of the Buyer or Lender set forth in this Agreement, in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered, or to be delivered, to the Company, if any, as contemplated by any
provision hereof, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading.
(g) BROKERS' AND FINDERS' FEES. Except as disclosed in SCHEDULE
2(af), neither the Buyer nor Lender has incurred, nor will either of them
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
(h) INVESTMENT REPRESENTATIONS. Each of Lender and Buyer hereby
represents to the Company that (i) it is acquiring the Note, the Warrants and
the Shares, as applicable, purchased hereunder or acquired pursuant hereto
for its own account with the present intention of holding such securities for
purposes of investment, and that it has no intention of selling such
securities in a public distribution in violation of the federal securities
laws or any applicable state securities laws; and (ii) each of Lender and
Buyer is an "ACCREDITED INVESTOR" as such term is defined under Rule 501 of
the Securities Act of 1933, as amended, is able to bear the economic risk of
an investment in the Note, the Warrants and the Shares being acquired by it,
can afford to sustain a total loss on such investment and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment, and has had the
opportunity to ask questions and receive such answers and information as has
been requested by Lender and Buyer in order to make its investment decision.
(i) FINANCING AVAILABLE. Buyer has sufficient available capital or
binding commitments for such capital to enable it to fulfill its obligations
under this Agreement and to consummate the transactions contemplated hereby.
(j) NO NASD MEMBERSHIP. Except as set forth on SCHEDULE 3(a),
neither Buyer, Lender, any of their respective associates or affiliates, nor
any person appointed as a director pursuant to Section 6(r) of this
Agreement, are (i) members of the National Association of Securities Dealers,
Inc. (the "NASD") or persons associated with a member of the NASD, (ii)
owners of stock or other securities of any NASD member (other than securities
purchased in the
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open market), or (iii) lenders to any NASD member. For purposes of this
subjection (j), the terms "member" and "person associated with a member"
shall have the meanings ascribed to them in the By-Laws of the NASD.
(k) PRIOR LITIGATION OR VIOLATIONS OF LAW. Neither Buyer, Lender,
any person appointed as a director pursuant to Section 6(r) of this
Agreement, nor any partner or member thereof nor any affiliate of any such
person (i) has been convicted in a criminal proceeding during the past five
years, or is the named defendant subject to a criminal proceeding which is
presently pending, (ii) was the subject of any court order, judgment or
decree, not subsequently reversed, suspended or vacated, which permanently or
temporarily enjoined or otherwise limited such person from any of the
following activities: (A) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated by the
Commodity Futures Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance company,
or engaging in or continuing any conduct or practice in connection with such
activity, (B) engaging in any type of business practice, or (c) engaging in
any activity in connection with the purchase or sale of any security of
commodity or in connection with any violation of U.S. or foreign Federal or
State securities laws or U.S. or foreign Federal commodities laws, (iii) has,
during the past five years, been the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any U.S. or
foreign Federal or State authority barring, suspending or otherwise limiting
for more than 60 days such person's right to engage in any of the activities
described in (ii) above or such person's right to be associated with persons
engaged in any such activities, (iv) has, during the past five years, been
found by a court in a civil action or by the SEC or any similar non-U.S.
regulatory authority to have violated any U.S. or non-U.S. Federal or State
securities law and such judgment or finding has not subsequently been
reversed, suspended or vacated, (v) has, during the past five years, been
found by a court in a civil action or by the Commodity Futures Trading
Commission to have violated any Federal commodities law, and such judgment or
finding has not been subsequently reversed, suspended or vacated, (vi) is the
subject of a pending indictment or a conviction within the past ten years of
any crime or offense involving the purchase or sale of a security or arising
out of such person's conduct as an underwriter, broker, dealer or investment
advisor, (vii) is the subject of a pending proceeding for, or the entry
during the past ten years of, a temporary or permanent injunction enjoining
or restraining any such person with respect to conduct or practices in
connection with the purchase or sale of securities, or involving the making
of a false filing with the SEC or any state, or arising out of that person's
conduct as an underwriter, broker, dealer or investment advisor, (viii) is
the subject of an SEC or other non-U.S. regulatory administrative order still
in effect imposing sanctions against such person in connection with the SEC's
or any non-U.S. regulatory agency's authority to regulate the activities of
broker-dealers and investment advisors or the naming of those persons as the
cause of such an order, (ix) is the subject of a postal fraud order entered
within the past five years or to a restraining order or preliminary
injunction relating to postal fraud orders, (x) has been suspended or
expelled from membership in a Canadian or U.S. securities exchange or from a
Canadian or U.S. association of securities dealers because of conduct
inconsistent with just and equitable principles of trade or (xi) is the
subject of any currently effective state administrative enforcement
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order by any state administrator within the past five years in which fraud or
deceit, including, but not limited to misrepresentations, was found.
4. ADDITIONAL AGREEMENTS.
(a) BEST EFFORTS AND FURTHER ASSURANCES. Prior to the Closing,
each of the parties to this Agreement shall each use its best efforts to
effectuate the transactions contemplated hereby and to fulfill and cause to
be fulfilled the conditions to Closing under this Agreement (including
resolution of any litigation prompted hereby). Prior to and after the
Closing, each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform
such other acts and things as may be necessary or desirable for effecting
completely the consummation of the transactions contemplated hereby.
(b) USE OF PROCEEDS. The Company will use the proceeds of the
Bridge Loan as set forth on EXHIBIT 4(b). The Company will use the proceeds
from the sale of the Shares, the First Purchase Warrant and the Second
Purchase Warrant to repay, immediately upon Closing, the Bridge Loan in full;
to make certain capital expenditures related to the development and expansion
of certain theaters; to retire certain indebtedness; for working capital; and
for general corporate purposes.
(c) RESERVATION OF WARRANT SHARES, CONVERSION SHARES AND ADJUSTMENT
SHARES. Prior to the Closing, the Company shall use its best efforts to
obtain shareholder approval to increase the authorized shares of Common Stock
and shall thereafter take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, (i) no less than the
number of shares of Common Stock needed to provide for the issuance of the
Shares, the Warrant Shares and Conversion Shares, and (ii) no less than
10,000,000 shares of Common Stock to provide for the issuance of the
Adjustment Shares.
(d) PROXY STATEMENT/REGISTRATION STATEMENT. As promptly as
practicable after the execution of this Agreement, the Company shall prepare,
and file with the SEC, the Proxy Statement, and the Company shall prepare and
file with the SEC the Registration Statement; provided that it shall not be a
condition to Closing that the Registration Statement shall have been filed
prior to the Closing Date. The Company shall use its best efforts to have
the Registration Statement declared effective as soon after the Closing Date
as practicable and to keep such Registration Statement effective and current
for a period of at least three (3) years. The Proxy Statement shall also
include the recommendations of the Board of Directors of the Company in favor
of the transactions contemplated by this Agreement which shall not be
withdrawn, modified or withheld except in compliance with the fiduciary
duties of the Company's Board of Directors under applicable law.
(e) MEETING OF STOCKHOLDERS. Promptly after the date hereof, the
Company shall take all action necessary in accordance with California law and
the Articles of Incorporation and Bylaws to convene the Stockholders' Meeting
to be held as promptly as practicable, which Stockholders' Meeting shall
occur no later than December 7, 1997. The Company shall prepare and submit
to its stockholders the Proxy Statement in connection with the Stockholders'
Meeting
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in accordance with applicable laws and SEC rules and regulations. If the SEC
shall make written comments to the Proxy Statement, and by reason of such
comments the Company is delayed in releasing a final Proxy Statement for a
period in excess of ten business days (a "DELAYED PROXY"), the date for
stockholder approval shall be extended to January 6, 1998 and the date for
the Closing of the Purchase shall likewise be extended.
(f) LISTING. Prior to the Closing, the Company's Common Stock
shall be listed on Nasdaq and the issuance of the Shares, Warrant Shares,
Conversion Shares and Adjustment Shares shall be listed on Nasdaq upon the
effectiveness of the Registration Statement. Subsequent to the Closing Date,
the Company shall maintain the Common Stock's authorization for quotation on
Nasdaq. The Company shall promptly provide to Buyer and Lender copies of any
notices it receives from Nasdaq regarding the continued eligibility of the
Common Stock for listing on Nasdaq. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this SECTION
4(f).
(g) TRANSACTIONS WITH AFFILIATES. So long as Buyer owns shares of
Common Stock with an aggregate market value equal to or greater than $50,000,
the Company shall not, and shall cause each of its subsidiaries not to, enter
into, amend, modify or supplement, or permit any subsidiary to enter into,
amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any subsidiary's officers, directors, person
who were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or
affiliates or with any individual related by blood, marriage or adoption to
any such individual or with any entity in which any such entity or individual
owns a 5% or more beneficial interest (each a "RELATED PARTY"), except for
(i) employment and other arrangements and benefit programs as set forth in
SCHEDULES 2(s) AND 2(z), (ii) any agreement, transaction, commitment or
arrangement on an arms-length basis on terms no less favorable than terms
which would have been obtainable from a person other than such Related Party,
or (iii) any agreement, transaction, commitment or arrangement which is
approved by a majority of the disinterested directors of the Company.
Notwithstanding the foregoing, the Company agrees that it will, prior to
Closing, terminate, without damage or penalty to the Company, any agreement
with its officers or directors which is not subject to subparagraph (i) above
and involve the payment of money. For purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be
a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(h) CONDUCT OF THE BUSINESS. During the period from the date of
this Agreement and continuing until the Closing, the Company agrees that:
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(i) The Company shall not issue, sell, transfer or
otherwise dispose of or in any way encumber any shares of its capital stock
(other than shares issuable upon exercise of existing options or warrants) or
take any action inconsistent with the approval and consummation of this
Agreement or the transactions contemplated hereby.
(ii) The Company and its subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use all reasonable
efforts to preserve intact its present business organization, keep available
the services of their present officers and employees and preserve their
relationships with clients, customers, suppliers and others having business
dealings with them, to the end that their goodwill and ongoing businesses
shall not be impaired in any material respect at the Closing.
(iii) The Company shall not undertake any action that will
result in a breach, nor will it omit to take any action required in order to
avoid a breach, of its representations, warranties and covenants hereunder.
(iv) The Company shall promptly advise Buyer and Lender
orally and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, could have, a material adverse effect on the Company.
The Company shall promptly make available copies of all filings made with any
state, federal or local governmental entity in connection with this Agreement
and the transactions contemplated hereby.
(i) NO SOLICITATION.
(i) The Company shall immediately cease and cause to be
terminated any existing discussions or negotiations with any persons
conducted heretofore with respect to any merger, financing (other than any
financing in the ordinary course of business consistent with previous
practices not to exceed $100,000 in the aggregate and not involving the
issuance of securities convertible into or exchangeable or exercisable for
equity securities of the Company), consolidation, sale of substantial assets,
sale of shares of capital stock (including without limitation by way of a
tender offer) or similar transaction involving the Company or any of its
subsidiaries, as the case may be (any of the foregoing inquiries or proposals
other than the transactions contemplated hereby arising prior to the date
hereof (whether initiated before or after the date hereof being referred to
as an "ACQUISITION PROPOSAL"). Except for negotiations prior to the date
hereof between the Company and Pacific Concessions, Inc. with respect to
certain bridge financing of which Buyer is aware, from June 20, 1997 through
the date hereof, and from the date hereof until the Closing Date or
termination of this Agreement pursuant to the provisions of SECTION 8(k)(i)
hereof (the "EXCLUSIVITY PERIOD"), the Company has not and shall not,
directly or indirectly, through any of its officers, directors, employees,
representatives or agents, initiate, solicit or encourage the initiation of,
any inquiries or proposals regarding any Acquisition Proposal. Nothing
contained in this SECTION 4(i) shall prevent the Board of Directors of the
Company from considering, negotiating, approving and recommending to the
stockholders of the Company a bona fide Acquisition Proposal, provided that
the Board of Directors determines in good faith (upon advice of independent
counsel) that it is required to do so in order to discharge properly its
fiduciary duties, and provided further that any such action by the Board of
Directors
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will give rise to the obligation of the Company to pay the Break Fee (as
hereinafter defined) in the event the Company completes a transaction with a
party other than Buyer as a result of such Acquisition Proposal.
(ii) The Company shall immediately notify Buyer after
receipt of any Acquisition Proposal, or any modification of or amendment to
any Acquisition Proposal, or any request for non-public information relating
to Company in connection with an Acquisition Proposal or for access to the
properties, books or records of the Company by any person or entity that
informs the Board of Directors of the Company that it is considering making,
or has made, an Acquisition Proposal.
(iii) The Company shall ensure that its officers, directors
and employees and any investment banker or any other representative or
adviser retained by it are aware of the restrictions imposed by this SECTION
4(i).
(iv) The Company shall pay to Buyer a fee (the
"NON-CLOSING BREAK FEE") of $600,000 within ten (10) days of the first to
occur of any of the following (provided that the Closing has not occurred),
which Non-Closing Break Fee is the Buyer's sole remedy with respect to the
following:
(1) if the Closing does not occur other than as a
result of the Buyer's breach of this Agreement.
(v) The Company shall pay to Buyer a fee (the "EXCLUSIVITY
BREAK FEE" and, together with the Non-Closing Break Fee, the "BREAK FEE") of
$800,000 within ten (10) days of the following, which Exclusivity Break Fee is
the Buyer's sole remedy with respect to the following:
(1) if this Agreement is terminated as a result of the
Company's breach of any of the provisions of this SECTION 4(i); or
(2) if on or before the one (1) year anniversary of
the date hereof, the Company consummates a transaction pursuant to an
Acquisition Proposal arising prior to or during the Exclusivity Period with a
party other than Buyer.
(vi) Notwithstanding anything to the contrary contained in
(iv) or (v) above, (1) in no event shall Buyer be entitled to receive both the
Non-Closing Break Fee and the Exclusivity Break Fee, and (2) in addition to any
payment of the Break Fee, nothing in this SECTION 4(i) shall limit (A) Buyer's
right to seek indemnification under SECTION 7 of this Agreement from the Company
with respect to claims made against Buyer by third parties (other than third
parties engaged or retained by Buyer) or (B) Lender's right to seek
indemnification under SECTION 7 of this Agreement from the Company due to a
breach by the Company of the Note, the First Bridge Warrant, the Second Bridge
Warrant or the Signing Warrant or otherwise in connection with the Bridge Loan.
The parties acknowledge that the Break Fee represents the parties best estimate
of what the Buyer's damages will be in the event of the Company's breach
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of the provisions of this SECTION 4(i) but that such damages will be difficult
or impossible to determine at such time and that therefore, subject to the
limitations in this SUBSECTION 4(i)(vi), the Break Fee shall constitute
liquidated damages.
(j) ACCESS. Prior to the Closing, the Company shall afford to Buyer,
Lender, their respective counsel, accountants and other representatives, free
and full access to all of the offices, facilities, properties, equipment,
inventories, books, contracts, commitments, records, customer information, list
of employees and records, and other relevant records of the Company during
normal business hours and shall furnish such persons with all information
(including financial and operating data) concerning the business, assets and
financial condition of the Company as Buyer shall reasonably request, and the
Company shall assist Buyer, Lender, their respective counsel, accountants and
representatives, in their examination of such materials.
(k) CONFIDENTIALITY. Buyer and Lender agree that any information or
material that is obtained from the Company will be used solely by Buyer and
Lender or their respective representatives for the purposes of evaluating the
Company and its business in connection with the transactions contemplated
hereby. Buyer and Lender agree that they will not disclose any information
which it receives from the Company to any third party, except (i) as required by
applicable law or legal process, (ii) as may be consented to in writing by the
Company, (iii) as may be disclosed by Buyer and Lender to their respective
representatives when such representative needs to know such information for the
purposes of preparing for and evaluating the transactions contemplated hereby,
or (iv) after such information has become or is generally available or has been
disclosed to Buyer or Lender from sources other than the Company and not subject
to a confidentiality agreement. Buyer and Lender agree that if the transaction
contemplated hereby is not consummated for any reason, Buyer and Lender shall
return or destroy all materials received from the Company or to the party
furnishing such material.
(l) LEGAL REQUIREMENTS. Prior to the Closing, each of Buyer and the
Company shall take all reasonable actions necessary or desirable to comply
promptly with all legal requirements which may be imposed on them with respect
to the consummation of the transactions contemplated by this Agreement
(including furnishing all information required under the HSR Act and in
connection with approvals of or filings with any governmental authority or
instrumentality, and prompt resolution of any litigation prompted hereby) and
will promptly cooperate with and furnish information to any party hereto
necessary in connection with such requirements imposed upon any of them or their
respective subsidiaries in connection with the consummation of the transactions
contemplated by this Agreement, and will take all reasonable actions necessary
to obtain (and will cooperate with the other parties hereto in obtaining) any
consent, approval, order or authorization of, or any registration, declaration
or filing with, any governmental authority or instrumentality or other public or
private third party required to be obtained or made in connection with the
taking of any action contemplated by this Agreement.
(m) AMENDMENT TO ARTICLES OF INCORPORATION. At or prior to the
Closing, the Company shall adopt and file with the Secretary of State of
California an amendment to its Articles of Incorporation, increasing its
authorized shares of Common Stock to 60,000,000 shares, in form acceptable to
Buyer and Lender (the "AMENDMENT").
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(n) EXPENSES. Subject to the provisions of SECTION 8(k)(ii), all
fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Closing occurs; PROVIDED, HOWEVER, that prior to
the date hereof Buyer had received from the Company, as partial compensation for
such fees and expenses, 75,000 shares of newly-issued Common Stock.
(o) BLUE SKY LAWS. The Company shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Note, the Shares, the Warrants, the
Warrant Shares, the Conversion Shares and the Adjustment Shares pursuant hereto.
Buyer and Lender shall, at the Company's expense, use its commercially
reasonable efforts to assist the Company as may be necessary to comply with
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of the Shares, the Warrants, the Warrant Shares,
the Conversion Shares and the Adjustment Shares pursuant hereto.
(p) Intentionally omitted.
(q) Intentionally omitted.
(r) REDEEMABLE WARRANTS. The Company shall not initiate any actions
with respect to its existing redeemable warrants without the prior written
consent of the Buyer.
(s) PROHIBITED PAYMENTS. Prior to the Closing, except for payments
made in accordance with SCHEDULE 4(s), the Company shall obtain the written
consent of the Buyer prior to making any payment, for indebtedness or otherwise,
in excess of $5,000. Any consent of Buyer required by this Section 4(s) shall
not be unreasonably withheld and any decision by Buyer regarding such consent
shall be made by the close of business on the tenth (10th) business day
following the day on which the Company has received written confirmation that
delivery of such request has been received by Buyer. Failure of Buyer to
approve or deny a request within such time period (provided the notice
provisions have been complied with) shall automatically be deemed an approval of
such request.
(t) DIRECTOR EXPENSES. After the Closing, the Company shall reimburse
any director designated by Buyer, as set forth in SECTION 6(r) hereof or
otherwise, for all reasonable expenses incurred by such directors in executing
their duties as members of the board of directors of the Company, including,
with limitation, travel expenses (provided that any first or business class air
travel must be approved by the Company in advance).
(u) REQUIRED CONSENTS. Prior to the Closing, the Company shall
exercise its commercially reasonable efforts in obtaining any consents or
waivers which the Buyer deems necessary, in its sole and absolute discretion,
for the consummation of the transactions contemplated hereby, including, without
limitation, as may be necessary so as not to result in a default of any material
contract or agreement.
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(v) SEC DOCUMENTS. Prior to and after the Closing, the Company
shall, if requested by Buyer or Lender, amend its most recent SEC Documents, the
Proxy Statement and/or the Registration Statement to reflect such changes as
Buyer reasonably deems necessary or appropriate, to the extent such amendments
relate to items not in existence or not known as of the date hereof. In
addition, Buyer may suggest amendments to such documents, which the Company
shall consider in good faith, if such amendments relate to items in existence
and known as of the date hereof.
(w) ISSUANCE OF ADJUSTMENT SHARES.
(i) For purposes of this Agreement, each of the following terms shall
have the following meaning:
"LIABILITIES" shall mean existing liabilities of the Company
(whether or not contingent, whether or not liquidated in amount and whether
or not disclosed) in existence at the Closing other than liabilities
reflected on EXHIBIT 4(w). Liabilities include without limitation any
liability, damages, costs, losses or expense relating to, arising from or
incurred in connection with any cause of action based on actions or
omissions occurring prior to the Closing regardless of when such cause of
action may be asserted, and all expenditures for assets having a useful
life in excess of one year (whether such expenditure is to be made pursuant
to a contract in force at or before the time of Closing or, while not
contracted for, has been reflected in any budget approved by the Company's
board of directors or any committee thereof) to be used in the operations
of theaters at San Bernardino or Tijuana.
"EXPENSES" shall mean all expenses of the transactions
contemplated by this Agreement to be paid by the Company hereunder,
including, but not limited to, costs of the Registration Statement, the
Proxy Statement, the Stockholder Meeting, the listing of the Shares, the
Warrant Shares, the Conversion Shares and the Adjustment Shares on Nasdaq,
one-half of the HSR Filing fee, legal and accounting fees and expenses,
brokerage fees, the cost of a "fairness opinion" in excess of $50,000, and
the costs of termination of all of the Company's contemplated but not yet
operating sites other than San Bernardino, California and Tijuana, Mexico,
to the extent such costs and expenses exceed $25,000.
"OPERATING CASH FLOW" shall mean all cash flow from operations of
the Company and its subsidiaries, determined in accordance in GAAP, for the
period from August 31, 1997 through Closing, excluding any amounts of the
Bridge Loan proceeds used in the Company's operations during that time.
"THEATER OPERATING LOSSES" shall mean all negative operating cash
flow incurred in connection with the Company's operations in Tijuana,
Mexico and San Bernardino, California, including any costs of termination
of such operations, if any, from the Closing Date to the earlier to occur
of (i) with respect to each such operation, a sale by the Company of such
operation (whether individually or in connection with any other sale of
some or all of the assets or equity interests of the Company) and (ii) the
third
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anniversary of the Closing; provided that, Operating Losses shall be
measured only after the earlier of such events has occurred; and provided
further that, for purposes hereof, Operating Losses shall include any
losses on disposition of assets suffered by the Company in connection with
any sale of either such operation.
With respect to each of the above definitions, if an item is
included in one then it shall not be included in another.
(ii) Intentionally omitted.
(iii) Subsequent to the Closing, the Company shall issue to Buyer, as
set forth in subparagraph (iv) below, additional shares (the "ADJUSTMENT
SHARES") of Common Stock as consideration for the decreased value of the Shares
to account for (w) Liabilities, (X) any negative Operating Cash Flow, (Y)
Expenses incurred and paid after August 31, 1997 and (Z) Theater Operating
Losses (all amounts set forth items (w)-(Z) being collectively referred to as
the "POST-CLOSING ADJUSTMENT AMOUNT").
(iv) The number of Adjustment Shares issued shall be calculated as the
difference, if any, between (i) the quotient obtained by dividing (A)
$15,000,000 by (B) the difference between (t) $.848202 and (u) the quotient
obtained by dividing (1) the amount of the Post-Closing Adjustment Amount by (2)
8,019,182 (such SUBSECTION (B) shall in no event be less than .01) and (ii)
17,684,464. The determination of the Post-Closing Adjustment Amount and the
Adjustment Shares, if any, shall be made from time to time (subject to the
limitation with respect to Operating Losses set forth in the definition thereof)
by the Company upon the delivery of a written request (a "Request") of the
Buyer; provided that Buyer shall have the right to review any such
determination. Any such determination shall be made within five (5) days of the
delivery of the Request therefor and any delivery of Adjustment Shares shall be
made within ten (10) days after the determination of the Adjustment Shares
pursuant to a Request. The members of the Company's Board of Directors that are
not designated by Buyer pursuant to Section 6(r) hereof shall make such
determination. If Buyer and the Company do not agree on the number of
Adjustment Shares to be issued, each party shall, at the Company's expense,
mutually appoint Arthur Andersen & Company or another public accounting firm
mutually agreed to by Buyer and the Company (the "DESIGNATED ACCOUNTANT") to
resolve any disputes; provided that neither the Company, Lender or Buyer or
their respective affiliates shall have engaged such accountants on any matters
involving fees in excess of $100,000. The Designated Accountant shall make the
determination of the correct number of Adjustment Shares within thirty (30) days
of such Designated Accountant's appointment.
(x) UNDISCLOSED EQUITY SECURITIES. In the event that, and whenever,
the representation contained in the fourth sentence of PARAGRAPH 2(c) hereof
proves to have been incorrect as of the Closing due to the existence as of the
Closing Date of securities of the kind described in CLAUSE (i) thereof, Buyer
shall be entitled to receive securities with terms identical to those whose
existence gives rise to such right in an amount such that, following issuance to
Buyer, Buyer shall have that number of shares or other units of such securities
that when divided by the sum of (A) the number of such shares or other units
whose existence gives rise to the
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<PAGE>
adjustment in question and (B) the number of shares or other units of such
securities issued to Buyer, yields a percentage equal to the percentage that the
number of Shares equals to the total number of shares of Common Stock
outstanding following the Purchase of the Shares.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL THE SHARES.
The obligation of the Company hereunder to issue and sell the Shares
and Purchase Warrant at the Closing (and the Adjustment Shares subsequent to the
Closing) is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
(a) Buyer shall have executed this Agreement and delivered the same
to the Company.
(b) Simultaneously with the Closing, Buyer shall have delivered to
the Company the Purchase Price by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of the Buyer shall be true and
correct in all material respects; provided that, such representations and
warranties shall be considered true and correct in all material respects unless
all misrepresentations and breaches of warranty, taken in the aggregate, would
be deemed important (though not necessarily dispositive) by a reasonable,
prudent seller in making a decision whether or not to enter into an agreement to
sell specified securities of the Company, and provided further that in
determining the existence of any misrepresentation or breach of warranty any
qualification for materiality contained in the representation or warranty in
question shall be ignored, and Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date. The Company shall have received a
certificate, executed by the general partner of the Buyer, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably required by the Company.
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect, so long as none of the
foregoing were initiated by the Company.
(e) Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(f) Buyer shall have delivered to the Company a certificate
evidencing the organization and good standing of Buyer and each of its
subsidiaries in the state of such entity's state of organization issued by the
Secretary of State of the state of organization as of a date within
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<PAGE>
ten (10) days of the Closing, and similar certificates of good standing from
each jurisdiction in which such entities are qualified as foreign entities as of
a date within ten (10) days of the Closing.
(g) Buyer shall have delivered to the Company certified copies of its
Certificate of Formation as in effect at the Closing.
(h) The Company's shareholders shall have duly approved the
Amendment, all in accordance with applicable laws and regulatory requirements.
(i) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, promulgated or enforced (and not
repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the Purchase (each
party agreeing, at the Company's expense, to use reasonable best efforts to have
any such order, decree or injunction lifted).
(j) All written consents, assignments, waivers or authorizations
("CONSENTS") other than governmental authorizations, that are required as a
result of the Purchase for the continuation in full force and effect of any
material contracts or leases of the Company shall have been obtained, other than
those Consents the failure of which to obtain would not have a material adverse
effect on the Company.
(k) There shall have been obtained any and all governmental
authorizations, permits, approvals and consents of securities or blue sky
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the Purchase
will be in compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the Company or would be reasonably
likely to subject the Company or any of its directors or officers to substantial
penalties or criminal liability.
(l) Since the date of this Agreement, there must not have been
commenced or threatened against the Company, or against any person or entity
affiliated with the Company, any action or proceeding brought by any entity not
affiliated with the Company (i) involving any challenge to, or seeking damages
or other relief in connection with, any of the transactions contemplated by this
Agreement, or (ii) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of such transactions.
6. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE.
The obligations of Buyer hereunder to purchase the Shares and the
Purchase Warrants at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for Buyer's sole benefit and may be waived by such Buyer at any
time in its sole discretion:
(a) The Company shall have executed this Agreement, the Note and the
Warrants and delivered the same to Buyer or Lender, as applicable.
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(b) Simultaneously with the Closing, the Company shall have delivered
to Buyer the Shares and the Purchase Warrant, each registered in Buyer's name,
or the name of its nominee, free and clear of any liens, taxes, restrictions and
charges.
(c) No proceeding having the effect of suspending the effectiveness
of the Proxy Statement shall have been initiated or threatened in writing by the
SEC. All requests for additional information on the part of the SEC shall have
been complied with to the reasonable satisfaction of Buyer.
(d) The Company's Common Stock shall be authorized for quotation on
Nasdaq and trading in the Common Stock shall not have been suspended by the SEC
or Nasdaq.
(e) The representations and warranties of the Company shall be true
and correct in all material respects; provided that, such representations and
warranties shall be considered true and correct in all material respects unless
all misrepresentations and breaches of warranty, taken in the aggregate, would
be deemed important (though not necessarily dispositive) by a reasonable,
prudent investor in making a decision whether or not to invest in the securities
of the Company, and provided further that in determining the existence of any
misrepresentation or breach of warranty any qualification for materiality
contained in the representation or warranty in question shall be ignored, and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Buyer shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
Buyer.
(f) Buyer shall have received the opinion of the Company's counsel,
dated as of the Closing Date, in substantially the form of EXHIBIT 6(f) and,
subject to Buyer's acceptance in its reasonable discretion, with such
qualifications, exceptions and limitations as are customary in opinions
delivered by seller's counsel under similar circumstances (provided that
exceptions accepted by Buyer in the Company's counsel's opinion delivered to
Lender in connection with the Bridge Loan shall be deemed accepted for purposes
hereof).
(g) This Agreement, and the issuance of the Note, the Shares, the
Warrants, the Warrant Shares, the Conversion Shares and the Adjustment Shares
and the other transactions contemplated hereby, shall have been approved and
authorized by the Company's Board of Directors and, to the extent required, the
Company's shareholders.
(h) The Company shall have delivered to Buyer the Certificate,
registered in Buyer's name, or the name of its nominee, fully paid and
non-assessable, free and clear of any liens, taxes, restrictions and charges.
(i) The Company shall have delivered a certificate evidencing the
incorporation and good standing of the Company and each of its subsidiaries in
the state of such corporation's state of incorporation issued by the Secretary
of State of the state of incorporation as of a date
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within ten (10) days of the Closing, and similar certificates of good standing
from each jurisdiction in which such corporations are qualified as foreign
corporations as of a date within ten (10) days of the Closing.
(j) The Company shall have delivered certified copies of the Articles
of Incorporation and Bylaws, each as in effect at the Closing, and certified
copies of the certificates of incorporation and bylaws for each of the Company's
subsidiaries, each as in effect as of the Closing.
(k) The Company shall have delivered to Buyer such other documents
relating to the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
(l) Since the date of this Agreement, there must not have been
commenced or threatened against Buyer or Lender, or against any person or entity
affiliated with Buyer or Lender, any action or proceeding brought by any entity
not affiliated with Buyer or Lender (i) involving any challenge to, or seeking
damages or other relief in connection with, any of the transactions contemplated
by this Agreement, or (ii) that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with any of such transactions.
(m) Neither the consummation nor the performance of any of the
transactions contemplated by this Agreement by the Company will, directly or
indirectly (with or without notice of lapse of time), materially contravene, or
conflict with, or result in a material violation of, or cause Buyer or Lender or
any person or entity affiliated with Buyer or Lender to suffer any material
adverse consequence under, (i) any applicable legal requirement or order, or
(ii) any legal requirement or order that has been published, introduced or
otherwise formally proposed before any governmental entity or instrumentality.
(n) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect nor shall any other
litigation be in effect against the Company pursuant to which damages in excess
of $500,000 are being sought.
(o) Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(p) Buyer shall have received all written consents, assignments,
waivers, authorizations or other certificates, including, without limitation,
from the Company's lessors, reasonably deemed necessary by Buyer to provide for
the continuation in full force and effect of any and all material contracts and
leases of the Company and for the Company to consummate the transactions
contemplated hereby; PROVIDED, HOWEVER, that it shall not be a condition to
Closing that the Company obtain consents, waivers or authorizations with respect
to (i) defaults under material contracts or leases that will be cured by
application of the proceeds of the sale of the Shares to which Buyer has
consented prior to Closing, or (2) contracts that will be terminated
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upon application of the proceeds of the sale of the Shares to which Buyer has
consented prior to Closing.
(q) The Company will demonstrate to the reasonable satisfaction of
Buyer that it can be released at a cost not to exceed $25,000 in the aggregate
to Buyer or Company from any obligations with respect to its currently or
previously contemplated sites which have never been operated other than San
Bernardino, California and Tijuana, Mexico, without liability or potential
liability to the Company.
(r) Effective upon the Closing, four of the Company's seven directors
shall have been designated by Buyer and elected to the Board of Directors of the
Company, and the Company shall have delivered to Buyer resolutions of the
Company's shareholders (certified by an officer of the Company) evidencing such
election.
(s) The Company shall have delivered to Buyer a certified copy of the
Amendment, duly filed with the Secretary of State of California.
(t) Since August 31, 1997, no material adverse change shall have
occurred with respect to the Company or the operation of its business and no
event or circumstance occurring or existing prior to such time shall be
disclosed or discovered after the date hereof which would constitute a material
adverse change if it had occurred after June 30, 1997; PROVIDED that payment of
the items set forth on EXHIBIT 4(w) shall not be deemed to constitute a basis
for determining the existence of any such material adverse change.
(u) Each of John Ellison, Jr., Russell O. Seheult and Jerry Willits
shall have waived (i) any and all rights of indemnification any of them have or
may have against the Company now or in the future with respect to any actions
taken prior to the date hereof and relating to any violation or alleged
violation by them of Section 16 of the 1934 Act and (ii) any and all rights for
expenses of separate counsel that any of them have or may have against the
Company now or in the future with respect to any actions taken prior to the date
hereof and relating to any violation or alleged violation by them of Rule 10b-5
under the 1934 Act, Section 5 of the 1933 Act or any related federal securities
laws or any similar or related state securities laws, which violation or alleged
violation arise(s) primarily as a result of violations of Section 16 of the 1934
Act.
(v) Intentionally omitted.
(w) Intentionally omitted.
(x) The agreements required to be terminated pursuant to SECTION 4(g)
shall have been terminated without damage or penalty to the Company.
(y) No material default or event of default shall have occurred and
be continuing with respect to the Bridge Loan which would not be cured as a
result of the Closing.
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(z) The Company shall have amended its most recent SEC Documents to
reflect such changes as Buyer shall have reasonably deemed necessary or
appropriate, if any, to the extent permitted to be required by Buyer pursuant to
SECTION 4(v ) hereof.
7. INDEMNIFICATION.
(a) The Company shall defend, protect, indemnify and hold harmless
Buyer, Lender and each other holder of the Notes, the Shares, the Warrants, the
Warrant Shares, the Conversion Shares and/or Adjustment Shares and all of their
officers, directors, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "BUYER INDEMNITEES") from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Buyer Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by any Buyer Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement, the Note or
the Warrants or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in this Agreement, the Warrants, the Note or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Buyer Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Buyer Indemnitees, any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Shares, the Warrant Shares or the Bridge Loan or
the status of Buyer or holder of the Shares, the Warrants, the Warrant Shares or
Adjustment Shares as an investor in the Company. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
(b) Lender and Buyer shall severally defend, protect, indemnify and
hold harmless the Company and its officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (the "COMPANY INDEMNITEE") from and
against any and all Indemnified Liabilities incurred by any Company Indemnitee
as a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by Buyer or Lender in this
Agreement or any other certificate, instrument or document contemplated hereby,
and (b) any breach of any covenant, agreement or obligation of Buyer or Lender
contained in this Agreement or any other certificate, instrument or document
contemplated hereby.
(c) Any party entitled to indemnification under this SECTION 7 (an
"INDEMNIFIED PARTY") shall give written notice to the party from which
indemnification is sought (the "INDEMNIFYING PARTY") of any claim with respect
to which it seeks indemnification within fifteen (15) days of learning of such
claim; provided that the failure of any party entitled to
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indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this SECTION 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, in good faith, defend, settle or otherwise
compromise or pay such action or claim without prior consent of the indemnifying
party and the indemnifying party will be liable for all costs, expenses,
settlement amounts or other losses paid or incurred in connection therewith. In
any event, unless and until the indemnifying party elects in writing to assume
and does so assume the defense of any such claim, proceeding or action, the
indemnified party's costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be losses subject to
indemnification hereunder. To the extent not prejudicial to the interests of
the indemnified party, the indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. Anything in this SECTION 7 to the contrary notwithstanding,
the indemnifying party shall not, without the indemnified party's prior written
consent, settle or comprise any claim or consent to entry of any judgment in
respect thereof which imposes injunctive or other equitable relief against the
indemnified party, which imposes any future obligation on the indemnified party
or which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim. The indemnification required by this
SECTION 7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred. The indemnity agreements
contained herein shall be in addition to:
(i) any cause of action or similar right of the indemnified
party against the indemnifying party or others, and
(ii) any liabilities the indemnifying party may be subject
to pursuant to the law.
(d) The representations and warranties and indemnities provided in
this Agreement shall survive indefinitely and are in no way intended to limit
the Buyer's rights under
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SECTION 4(w) hereof; PROVIDED, HOWEVER, that Buyer shall not be permitted, by
virtue of more than one of this SECTION 7(d) and SECTION 4(w) to receive
compensation with respect of its damages to the extent Buyer has received
adequate recourse under the other such provision; PROVIDED, HOWEVER, that the
applicability of one such section shall not invalidate the applicability of the
other.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.
(b) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, the party for whose benefit such
provision is included shall have the right to determine that such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between the Buyer, Lender, the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
including, without limitation, any documents evidencing or relating to the
Bridge Loan, contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company, Buyer nor Lender makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
(f) NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(1) day after
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deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
CinemaStar Luxury Theaters, Inc.
431 College Boulevard
Oceanside, California 92057
Telephone: 619-630-2011
Facsimile: 619-630-8593
Attention: Chief Executive Officer
With a copy to:
Jeffer, Mangels, Butler & Marmaro, LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
Telephone: 310-203-8080
Facsimile: 310-203-0567
Attention: Joel I. Bennett, Esq.
If to Buyer and/or Lender:
Rust Capital, L.P.
327 Congress Avenue
Suite 200
Austin, Texas 78701
Telephone: 512-476-2995
Facsimile: 512-474-1610
Attention: Jack R. Crosby
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With a copy to:
Katten Muchin & Zavis
1999 Avenue of the Stars
Suite 1400
Los Angeles, CA 90067-6042
Telephone: (310) 788-4400
Facsimile: (310) 788-4471
Attention: Craig D. Crockwell, Esq.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer including by merger or
consolidation. Buyer may assign some or all of its rights hereunder to an
entity or entities under common control with Buyer without the consent of the
Company, PROVIDED, HOWEVER, that any such assignment shall not release Buyer
from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) PUBLICITY. The Company and Buyer shall have the right to approve
before issuance any press releases or any other public statements with respect
to the transactions contemplated hereby; PROVIDED, HOWEVER, that the Company
shall be entitled, without the prior approval of any Buyer, to make any press
release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although Buyer shall be consulted by
the Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof).
(j) FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) TERMINATION.
(i) This Agreement may be terminated at any time prior to
the Closing, whether before or after approval of the matters presented in
connection therewith, by Buyer or the Company:
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(1) by the Buyer, if any fact or series of facts not
known or existing prior to the date hereof become known which, in the aggregate,
could, in the Buyer's reasonable opinion, have a material adverse effect on the
Company or the operation of its business;
(2) by mutual consent;
(3) by the Buyer (A) if there has been a material
breach of any covenant or agreement on the part of the Company set forth in this
Agreement, (B) if any representation or warranty of the Company is not true and
correct in all material respects; provided that, such representations and
warranties shall be considered true and correct in all material respects unless
all misrepresentations and breaches of warranty, taken in the aggregate, would
be deemed important (though not necessarily dispositive) by a reasonable,
prudent investor in making a decision whether or not to invest in the securities
of the Company, and provided further that in determining the existence of any
misrepresentation or breach of warranty any qualification for materiality
contained in the representation or warranty in question shall be ignored, or (c)
if any permanent injunction or other order of a court or other competent
authority preventing the consummation of the sale of the Share shall have become
final and non-appealable;
(4) by the Company (X) if there has been a material
breach of any covenant or agreement on the part of Buyer set forth in this
Agreement, (Y) if any representation or warranty of the Buyer is not true and
correct in all material respects; provided that, such representations and
warranties shall be considered true and correct in all material respects unless
all misrepresentations and breaches of warranty, taken in the aggregate, would
be deemed important (though not necessarily dispositive) by a reasonable,
prudent seller in making a decision whether or not to enter into an agreement to
sell specified securities of the Company, and provided further that in
determining the existence of any misrepresentation or breach of warranty any
qualification for materiality contained in the representation or warranty in
question shall be ignored, or (Z) if any permanent injunction or other order of
a court or other competent authority preventing the consummation of the sale of
the Shares shall have become final or non-appealable; or
(5) by either of Buyer or the Company if the Closing
shall not have been consummated on or before December 7, 1997; PROVIDED THAT,
the party terminating this Agreement shall only be entitled to do so if such
party is not then in default of this Agreement; PROVIDED FURTHER THAT, if there
is a Delayed Proxy, the date for the Closing shall be extended to January 6,
1998.
(ii) Each party's right of termination under this SECTION
8(k) is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to this SECTION 8(k), all
further obligations of the parties under this Agreement will terminate, except
that the obligations in SECTIONS 4(i), 4(k) AND 7 shall survive; PROVIDED,
HOWEVER, that, subject to the liquidated damages provisions of SECTION 4(i), if
this Agreement is terminated by a party because of the breach of this Agreement
by the other party or because one
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<PAGE>
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive any such termination unimpaired and such
party shall be entitled to be reimbursed for its expenses incurred prior to the
date of such termination in connection with the transactions contemplated by
this Agreement.
(l) PLACEMENT AGENT. The Company shall be responsible for the
payment of any fees or commissions payable to The Watley Group, LLC and
represents that no other placement agent's fees or broker's commissions are
payable in connection with or relating to or arising out of the transactions
contemplated hereby as a result of the actions of the Company. The Company
shall pay, and hold Buyer harmless against, any liability, loss or expense
(including, without limitation, attorneys' fees and out of pocket expenses)
arising in connection with any claim contrary to the Company's representation
hereunder.
(m) NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
(n) ARBITRATION.
(i) The parties agree that all disputes, claims and other
matters in controversy arising under this Agreement, or the performance or
breach hereof, shall be submitted to binding arbitration in accordance with the
provisions and procedures of this SECTION 8.
(ii) The arbitration provided for in this SECTION 8 shall
take place in Los Angeles County, California, in accordance with the provisions
of Title 9, Sections 1280 ET SEQ. of the California Code of Civil Procedure,
except as provided to the contrary hereunder. The arbitration shall be held
before and decided by a single neutral arbitrator. The single neutral
arbitrator shall be selected from a list of retired judges of the Superior Court
of the State of California for the County of Los Angeles by a process mutually
agreed upon the parties. If no agreement can be reached as to the process for
selecting the arbitrator or if agreed method fails, the arbitrator shall be
appointed in accordance with the provisions of California Code of Civil
Procedure Section 1281.6.
(iii) The parties shall mutually agree upon the date and
location of the arbitration, subject to the availability of the arbitrator. If
no agreement can be reached as to the date and location of the arbitration, the
arbitrator shall appoint a time and place in accordance with the provisions of
California Code of Civil Procedure Section 1282.2(a)(1), except that the
arbitrator shall give not less than 30 days notice of the hearing unless the
parties mutually agree to shorten time for such notice.
(iv) The parties shall be entitled to undertake discovery in
the arbitration in accordance with the provisions of subsections (a) through (d)
of California Code of Civil Procedure Section 1283.05. In conjunction with
these procedures, the parties shall be entitled to request
36
<PAGE>
and obtain production of documents in discovery in the arbitration in accordance
with the same rights, remedies and procedures, and shall be subject to all of
the same duties, liabilities and obligations as if the subject matter of the
arbitration were pending in a civil action before a Superior Court of the State
of California. The parties hereby agree that any discovery taken hereunder
shall be permitted without first securing leave of the arbitrator and shall be
kept to a reasonable minimum.
(v) The decision of the arbitrator may be confirmed
pursuant to the provisions of California Code of Civil Procedure Section 1285,
and shall not be appealable for any reason, it being understood that a petition
to vacate an award for any of the reasons set forth California Code of Civil
Procedure Section 1286.2 shall not be permitted.
(vi) The details and/or existence of any dispute, claims and
other matters in controversy to be arbitrated hereunder, as well as the
arbitration proceedings themselves and any discovery taken in connection with
the arbitration, shall be kept strictly confidential and shall not be disclosed
or discussed with any third party.
(vii) The arbitrator may award to the prevailing party, if
any, as determined by the arbitrator, part or all of the prevailing party's
costs and fees. "COSTS AND FEES" means all reasonable pre-award expenses of the
arbitration, including the arbitrator's fees, administrative fees, travel
expenses, out-of-pocket expenses such as photocopy, telecopy and telephone
charges, witness fees and attorneys' fees.
(viii) Notwithstanding the foregoing, the Buyer shall be
entitled to specifically enforce its rights and the obligations of the Company
hereunder, provided that such enforcement shall be in accordance with the
arbitration procedures set forth in this SECTION 8(n).
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<PAGE>
IN WITNESS WHEREOF, Buyer, Lender and the Company have caused this Stock
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
CINEMASTAR LUXURY THEATERS, INC.
By:
------------------------------
John Ellison, Jr., President
BUYER:
CINEMASTAR ACQUISITION PARTNERS,
L.L.C.
By:
------------------------------
Neil Austrian, Vice President
LENDER:
REEL PICTURES, L.L.C.
By:
------------------------------
Neil Austrian, Vice President
<PAGE>
FORM OF PURCHASE WARRANT
------------------------
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE
ACT OR THE RULES AND REGULATIONS THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Original Issue: __________ __, 1997
CINEMASTAR LUXURY THEATERS, INC.
WARRANT TO PURCHASE COMMON STOCK
(Without Par Value)
This is to certify that, for value received, CINEMASTAR ACQUISITION
PARTNERS, L.L.C., a Delaware limited liability company, or its registered
assigns (the "Holder") or any subsequent Holder, by acceptance of delivery
hereof, is entitled to purchase, subject to the provisions of this Warrant,
from CINEMASTAR LUXURY THEATERS, INC., a California corporation (the
"Company"), at a price equal to $.____ [THE LESSER OF (i) THE AVERAGE
CLOSING PRICE OF THE COMMON STOCK FOR THE FIVE (5) TRADING DAYS PRIOR TO
THE DATE OF ORIGINAL ISSUE HEREOF AND (ii) THE PER SHARE PURCHASE PRICE IN
THE STOCK PURCHASE AGREEMENT], at any time after the date hereof through
__________ __, 2007 [TEN YEARS FROM THE DATE OF ORIGINAL ISSUE HEREOF], up
to One Million Six Hundred Thirty Thousand Six Hundred and Twenty-Four
(1,630,624) shares of the Common Stock of the Company, no par value
(the "Common Stock"), and any such Holder shall be governed and bound by
all of the covenants, terms and conditions contained herein. The number
of shares of Common Stock to be received upon the exercise of this Warrant
and the price to be paid for a share of Common Stock may be adjusted from
time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise and as adjusted from time to time are
hereinafter sometimes referred to as "Warrant Shares", and the exercise
price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price".
<PAGE>
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time after the date hereof, by presentation
and surrender hereof to the Company at its office at 431 College Boulevard,
Oceanside, California 92057, with the purchase form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares of Common Stock specified in such form. This Warrant is being granted
to the Holder in connection with and as consideration for the consummation of
the transactions contemplated by that certain Stock Purchase Agreement (the
"Purchase Agreement") by and among the Company, Reel Partners, L.L.C. and the
original Holder of this Warrant dated September 23, 1997 pursuant to which
the Holder is making an equity investment in the Company. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder to purchase the balance of the Warrant Shares
purchasable hereunder. Upon receipt by the Company of this Warrant at its
office in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. The covenants and
agreements of the Company under this Warrant shall, as applicable, survive
the exercise hereof.
2. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it shall reserve for
issue and delivery upon exercise of this Warrant such number of shares of its
Common Stock as shall be required for issue and delivery upon exercise of
this Warrant. To the extent that such reserved shares are not sufficient for
purposes of this Warrant, the Company agrees to use its best efforts to
ensure that such reserved shares be available.
(b) No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of
a share called for upon exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the then current
market value of a share of Common Stock, determined as follows:
(i) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for
such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted trading
privileges the current value shall be the mean of the last reported bid and
ask prices reported by the NASDAQ SmallCap Market or the National Quotation
Bureau, Inc., on the last business day prior to the date of the exercise of
this Warrant; or
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and ask prices are not so reported, the current
value shall be an amount, not less than book
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value, determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company, subject to the Holder's consent to such value.
3. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder,
upon presentation and surrender hereof to the Company for other Warrants of
different denominations entitling the Holder hereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Any such exchange shall be made by surrender of this Warrant to the Company
or at the office of its agent, if any, with the assignment form annexed duly
executed. Subject to compliance with the provisions of applicable law, the
Company, without charge to the Holder, shall execute and deliver a new
Warrant in the name of any assignee named in such instrument or assignment,
and this Warrant shall promptly be canceled. This Warrant may be divided or
combined with other Warrants which carry the same rights upon presentation
hereof at the office of the Company or at the office of its agent, if any,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof. The
term "Warrant" as used herein includes any Warrants into which this Warrant
may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed or mutilated shall be
at any time enforceable by anyone.
4. RIGHTS OF THE HOLDER. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.
No provision of this Warrant, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of
the Holder for the warrant purchase price or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
5. ADJUSTMENTS. This Warrant is subject to the following further
provisions:
(a) In case, prior to the expiration of this Warrant by exercise or by
its terms, the Company shall issue any shares of Common Stock as a stock
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then in either of such cases, the Exercise Price
per share of the Warrant Shares purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately reduced, and the
number of Warrant Shares at that time purchasable pursuant to this Warrant
shall be proportionately increased; and conversely, in the event the Company
shall contract the number of outstanding shares of Common Stock by combining
such shares into a smaller number of shares, then, in such case, the Exercise
Price per share of the warrant Shares purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately increased, and the
number of Warrant Shares at the time
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<PAGE>
purchasable pursuant to this Warrant shall be proportionally decreased. Any
dividend paid or distributed upon the Common Stock in stock of any other
class or securities convertible into shares of Common Stock shall be treated
as a dividend paid in Common Stock to the extent that shares of Common Stock
are issuable upon the conversion thereof.
(b) In case, prior to the expiration of this Warrant by exercise or by
its terms, the Company shall be recapitalized by reclassifying its Common
Stock into any other type of stock, or the Company or a successor corporation
shall consolidate or merge with or convey all or substantially all of its or
of any successor corporation's property and assets (a "Sale") to any other
corporation or corporations (any such corporation being included within the
meaning of the term "successor corporation" in the event of any consolidation
or merger of any such corporation with, or the sale of all or substantially
all of the property of any such corporation to another corporation or
corporations), in exchange for stock or securities of a successor
corporation, the Holder of this Warrant shall thereafter have the right to
purchase, upon the terms and conditions and during the time specified in this
Warrant, in lieu of the Warrant Shares theretofore purchasable upon the
exercise of this Warrant, the kind and number of shares of stock and other
securities receivable upon such recapitalization or consolidation, merger or
conveyance by a holder of the number of shares of Common Stock which the
Holder of this Warrant might have purchased immediately prior to such
recapitalization or consolidation, merger or conveyance. The Company agrees
not to undertake a Sale unless the successor corporation shall agree in
writing to give effect to the provisions of this SECTION 5(b).
(c) Except as provided for in SUBSECTION 5(a) hereof, in the event the
Company shall issue additional shares of Common Stock (including additional
shares of Common Stock deemed to be issued as set forth in subdivision (g)
below) without consideration (PROVIDED THAT, for purposes hereof, an issuance
for no consideration shall be deemed to be an issuance for a per share
consideration of $.01), or for a consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such issue,
then the Exercise Price shall be reduced, concurrently with such issue, to a
price equal to: the amount determined by dividing (1) the sum of (x) the
product derived by multiplying the Exercise Price in effect immediately prior
to such issue or sale times the number of fully-diluted shares of Common
Stock deemed outstanding immediately prior to such issue or sale, plus (y)
the consideration, if any, received by the Company upon such issue or sale,
by (2) the number of fully-diluted shares of Common Stock deemed outstanding
immediately after such issue or sale; and the number of Warrant Shares shall
be increased to an amount equal to quotient derived by dividing (i) result of
multiplying the pre-adjustment Exercise Price times the pre-adjustment
Warrant Shares, by (ii) the post-adjustment Exercise Price.
(d) Upon the occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Warrant Shares purchasable pursuant to
this Warrant in accordance with and as required by, the terms of this SECTION
5, the Company shall compute the adjusted Exercise Price and the adjusted
number of Warrant Shares purchasable at such adjusted Exercise Price by
reason of such event in accordance with the provisions of this SECTION 5 and
shall prepare an officer's certificate setting forth such adjusted Exercise
Price and the adjusted number of Warrant Shares and showing in detail the
facts about which such conclusions are based. The Company
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<PAGE>
shall forthwith mail a copy of such certificate to each Holder of this
Warrant at the Holder's address shown in the Company's warrant registry (the
"Warrant Registry"), and thereafter such certificate shall be conclusive and
binding upon such Holder unless contested by such Holder by written notice to
the Company ten (10) days after receipt of the certificate.
(e) In case:
(i) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or any other
distribution in respect of the Common Stock (including cash) pursuant to,
without limitation, any spin-off, split-off or distribution of the Company's
assets; or
(ii) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to subscribe for or purchase any shares of
stock of any class or to receive any other rights; or
(iii) of a classification, reclassification or other reorganization of
the capital stock of the Company, consolidation or merger of the Company with
or into another corporation or conveyance of all or substantially all of the
assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then, and in any such case, the Company shall mail to the Holder of this
Warrant at the Holder's address shown in the Company's Warrant Registry a
notice stating the date or expected date (the "Record Date") on which a
record is to be taken for the purpose of such dividend, distribution or
rights, on which such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up is
to take place, as the case may be. Such notice shall then specify the date
or expected date, if any is to be fixed, as of which holders of Common Stock
of record shall be entitled to participate in said dividend, distribution or
rights, or shall be entitled to exchange shares of Common Stock for
securities or other property deliverable upon such liquidation or winding up,
as the case may be. Such notice shall be provided at least five (5) business
days prior to the Record Date.
(f) In case the Company at any time while this Warrant shall remain
unexpired and unexercised shall dissolve, liquidate or wind up its affairs,
the Holder of this Warrant may receive, upon exercise hereof prior to the
Record Date, in lieu of each share of Common Stock of the Company which it
would have been entitled to receive, the same number of any securities or
assets as may be issuable, distributable or payable upon any such
dissolution, liquidation or winding up with respect to each share of Common
Stock of the Company.
(g) In the event the Company at any time or from time to time after the
date hereof shall issue any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or
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<PAGE>
securities being herein called "Convertible Securities") or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be additional shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date. In addition, if the purchase
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for shares of Common Stock change at any time, the Exercise Price in effect at
the time of such change shall be readjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of Warrant Shares acquirable
hereunder shall be correspondingly readjusted. Upon the expiration of any
Option or the termination of any right to convert or exchange any Convertible
Securities without the exercise of such Option or right, the Exercise Price then
in effect and the number of Warrant Shares acquirable hereunder shall be
adjusted to the Exercise Price and the number of Warrant Shares in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination, never been issued.
(h) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this SECTION 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the Holder against impairment.
6. RESTRICTION ON TRANSFERABILITY.
(a) This Warrant and the shares of the Company issuable upon the exercise
of this Warrant have not been registered under the Securities Act of 1933, as
amended (the "Act"). By acceptance hereof, the Holder covenants, agrees and
represents that:
(i) This Warrant has been acquired for, and such shares, if acquired upon
the exercise of this Warrant, shall be acquired for, investment and may not be
sold, offered for sale, pledged, hypothecated or otherwise transferred, in the
absence of an effective registration statement for such securities under the Act
or an opinion of counsel for the Company to the effect that registration is not
required under the Act, and the Holder has the capacity to protect its interests
in connection with the purchase of this Warrant.
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<PAGE>
(ii) The Holder has had the opportunity to ask questions and receive
answers from the Company about the Company's business and the purchase by Holder
of these securities, and Holder has been given the opportunity to make any
inquiries that Holder may desire of any personnel of the Company concerning the
proposed operation of the Company and has been furnished with all of the
information he has requested. No advertisement has been used in connection with
the offer or sale of this Warrant to the Holder.
(iii) The Holder will not offer, sell, transfer, mortgage, assign or
otherwise dispose of this Warrant or the shares of Common Stock issuable upon
the exercise of this Warrant except pursuant to a registration statement under
the Act and qualification under applicable state securities laws or pursuant to
an opinion of counsel satisfactory to the Company that such registration and
qualification are not required, and that the transaction (if it involves a sale
in the over-the-counter market or on a securities exchange) does not violate any
provision of the Act. The Holder understands that a stop-transfer order will be
placed on the books of the Company respecting this Warrant and any certificates
representing the shares of Common Stock issuable upon the exercise of this
Warrant and that this Warrant and any such certificates shall bear a restrictive
legend and a stop transfer order shall be placed with the transfer agent
prohibiting any such transfer until such time as the securities represented by
such certificates shall have been registered under the Act or shall have been
transferred in accordance with an opinion of counsel for the Company that such
registration is not required; and
(iv) The Holder understands that it must hold the shares issuable upon the
exercise of this Warrant indefinitely unless they are registered under the Act
or an exemption from registration becomes available. Although the Company files
reports pursuant to the Securities Act of 1934 and accordingly makes available
to the public the information required by Rule 144, nothing contained in this
warrant shall, in itself, require the Company to continue to make available to
the public such information.
(b) Each certificate for the shares issued upon the exercise of the
Warrant shall bear a legend in substantially the following form:
"The shares represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of 1933,
as amended (the "Act") and may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred except pursuant to a registration
statement under the Act or an exemption from registration under the Act or
the rules and regulations thereunder."
7. REGISTRATION RIGHTS.
7.1 DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Subject to the terms of this
Agreement, the Holder may, at any time subsequent to the Purchase Agreement
Date, request registration under the Act of all or part of its Warrant Shares on
Form S-1 or Form SB-2 or any similar long-form registration ("Long-Form
Registrations") or, if available, on Form S-2 or S-3 or any similar short-
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<PAGE>
form registration ("Short-Form Registrations"). All registrations requested
pursuant to this SECTION 7.1 are referred to herein as "Demand Registrations."
For purposes hereof, the "Purchase Agreement Date "shall mean the date of the
closing of the transactions contemplated by the Purchase Agreement, or the date
of termination of such Purchase Agreement.
(b) PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Company will
pay all registration expenses for the first two Demand Registrations (whether a
Long-Form Registration or a Short-Form Registration). A registration will not
count as one of the Company paid Demand Registrations until it has become
effective and the holders of Warrant Shares are able to register and are
permitted to sell at least 90% of the Warrant Shares requested to be included in
such registration; PROVIDED, HOWEVER, that in any event the Company will pay all
registration expenses in connection with any registration initiated as a Demand
Registration. In a Demand Registration other than the first two Demand
Registrations, the registration expenses of such registration shall be borne by
the holders of Warrant Shares to be registered thereunder.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to SECTION 7.1(a) above, the holders of Warrant
Shares will be entitled to request an unlimited number of Short-Form
Registrations, PROVIDED, HOWEVER, that the aggregate offering value of the
Warrant Shares requested to be registered in any Short-Form Registration must be
reasonably expected to equal at least $500,000. Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. If a Short-Form Registration is to be an underwritten public
offering, and if the underwriters for marketing or other reasons request the
inclusion in the registration statements of information which is not required
under the Act to be included in a registration statement on the applicable form
for the Short-Form Registration, the Company will provide such information as
may be reasonably requested for inclusion by the underwriters in the Short-Form
Registration.
(d) PRIORITY. The Company will not include in any Demand
Registration any securities which are not Warrant Shares without the written
consent of the Holder. If a Demand Registration is an underwritten public
offering and the managing underwriters advise the Company in writing that in
their opinion the inclusion of the number of Warrant Shares and other securities
requested to be included creates a substantial risk that the price per share of
Common Stock will be reduced, the Company will include in such registration,
prior to the inclusion of any securities which are not Warrant Shares, the
number of Warrant Shares requested to be included which in the opinion of such
underwriters can be sold without creating such a risk.
(e) SELECTION OF UNDERWRITERS. The Holder shall have the right to
select the investment banker(s) and manager(s) to administer any Demand
Registration, subject to the Company's approval which will not be unreasonably
withheld.
(f) COMPANY REGISTRATION. Notwithstanding anything to the contrary
herein, if after September 23, 1997 the Company has filed a registration
statement under the Act with respect to an underwritten offering of shares of
the Common Stock, then any Demand Registration shall be delayed for a period of
90 days following the effective date of such registration statement
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<PAGE>
(or, at the option of the parties requesting such Demand Registration, the
Demand Registration may be withdrawn).
7.2 PARTICIPATION IN REGISTERED OFFERINGS ("PIGGYBACK RIGHTS"). If
the Company at any time or times proposes or is required to register any of its
Common Stock or other equity securities (whether such Common Stock or other
equity securities are owned by the Company or another holder entitled to demand
registration) for public sale for cash under the Act (other than on Forms S-4
and S-8 or similar registration forms), it will at each such time or times give
written notice to the Holder of its intention to do so. Upon the written
request of the Holder given within 20 days after receipt of any such notice, the
Company shall use its best efforts to cause to be included in such registration
any Warrant Shares held by the Holder (or its permitted transferees) and
requested to be registered under the Act and any applicable state securities
laws; PROVIDED, that if such registration is an underwritten public offering and
the managing underwriter advises that less than all of the shares and Warrant
Shares to be registered should be offered for sale so as not materially and
adversely to affect the price or salability of the offering, the Holder and any
other securities holders entitled to piggyback rights with respect to such
registration shall reduce on a pro rata basis the number of their shares of
Common Stock (as if exercised) to be included in the registration statement as
required by the managing underwriter to the extent requisite to permit the sale
or other disposition (in accordance with the intended method of disposition
thereof as aforesaid) by the prospective seller or sellers of the securities so
registered.
8. REGISTRATION ON THE BOOKS OF THE COMPANY. The Company shall keep, or
cause to be kept, at its office at 431 College Boulevard, Oceanside, California
92057, a register in which the Company shall register this Warrant. No transfer
of this Warrant shall be valid unless made at such office and noted on the
Warrant register upon satisfaction of all conditions for transfer. When
presented for transfer or payment, this Warrant shall be accompanied by a
written instrument or instruments of transfer or surrender, in form satisfactory
to the Company, duly executed by the registered Holder or by his duly authorized
attorney. The Company may deem and treat the registered Holder hereof as the
absolute owner of this Warrant for all purposes, and the Company shall not be
affected by any notice to the contrary.
9. GOVERNING LAW. This Warrant has been executed and delivered in the
State of Illinois and shall be construed in accordance with the laws of the
State of California.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
CINEMASTAR LUXURY THEATERS, INC.
By:
------------------------------
John Ellison, Jr., President
Agreed to and Accepted:
CINEMASTAR ACQUISITION PARTNERS, L.L.C.
By:
--------------------------------
Neil Austrian, Vice President
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<PAGE>
EXERCISE FORM
-------------
To:
Dated:
The undersigned, pursuant to the provisions set forth in the attached
warrant, hereby agrees to subscribe for the purchase of _________ shares of
Common Stock represented by this warrant and makes payment herewith in full
therefor at the price per share provided by this warrant.
Print Name
------------------------------
Signature
------------------------------
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED __________________________________________ hereby sells,
assigns and transfers unto
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address _________________________________________________________
the right to purchase Common Stock, represented by this warrant, to the extent
of __________________ shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint ___________________________ attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Signature ___________________________
Date: ________________, 19__
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
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<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE
ACT OR THE RULES AND REGULATIONS THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Original Issue: September 23, 1997
CINEMASTAR LUXURY THEATERS, INC.
WARRANT TO PURCHASE COMMON STOCK
(Without Par Value)
This is to certify that, for value received, CINEMASTAR ACQUISITION
PARTNERS, L.L.C., a Delaware limited liability company, or its registered
assigns (the "Holder") or any subsequent Holder, by acceptance of delivery
hereof, is entitled to purchase, subject to the provisions of this Warrant, from
CINEMASTAR LUXURY THEATERS, INC., a California corporation (the "Company"), at a
price equal to $.848202, at any time after the date hereof through September 23,
2007, up to One Million (1,000,000) shares of the Common Stock of the Company,
no par value (the "Common Stock"), and any such Holder shall be governed and
bound by all of the covenants, terms and conditions contained herein. The
number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for a share of Common Stock may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise and as adjusted from time to time are hereinafter
sometimes referred to as "Warrant Shares", and the exercise price of a share of
Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price".
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time after the date hereof, by presentation and
surrender hereof to the Company at its office at 431 College Boulevard,
Oceanside, California 92057, with the purchase form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of shares of
Common Stock specified in such form. This Warrant is being granted to the
Holder in connection with and as consideration for the execution and delivery of
the Purchase Agreement (defined below). If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares purchasable hereunder.
<PAGE>
Upon receipt by the Company of this Warrant at its office in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. The covenants and agreements of the Company under this Warrant
shall, as applicable, survive the exercise hereof.
2. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it shall reserve for issue
and delivery upon exercise of this Warrant such number of shares of its Common
Stock as shall be required for issue and delivery upon exercise of this Warrant.
(b) No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon exercise hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the then current market
value of a share of Common Stock, determined as follows:
(i) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange the current value shall
be the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted trading
privileges the current value shall be the mean of the last reported bid and ask
prices reported by the NASDAQ SmallCap Market or the National Quotation Bureau,
Inc., on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and ask prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, subject to the
Holder's consent to such value.
3. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of different
denominations entitling the Holder hereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Any such exchange shall
be made by surrender of this Warrant to the Company or at the office of its
agent, if any, with the assignment form annexed duly executed. Subject to
compliance with the provisions of applicable law, the Company, without charge to
the Holder, shall execute and deliver a new Warrant in the name of any assignee
named in such instrument or assignment, and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company or
at the office of its agent, if any, together with a written notice specifying
the names and denominations in which new Warrants are to be issued and signed by
the Holder hereof. The term
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"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
4. RIGHTS OF THE HOLDER. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company. The rights
of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
5. ADJUSTMENTS. This Warrant is subject to the following further
provisions:
(a) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall issue any shares of Common Stock as a stock dividend or
subdivide the number of outstanding shares of Common Stock into a greater number
of shares, then in either of such cases, the Exercise Price per share of the
Warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately reduced, and the number of Warrant Shares
at that time purchasable pursuant to this Warrant shall be proportionately
increased; and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such shares into a smaller
number of shares, then, in such case, the Exercise Price per share of the
warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately increased, and the number of Warrant Shares
at the time purchasable pursuant to this Warrant shall be proportionally
decreased. Any dividend paid or distributed upon the Common Stock in stock of
any other class or securities convertible into shares of Common Stock shall be
treated as a dividend paid in Common Stock to the extent that shares of Common
Stock are issuable upon the conversion thereof.
(b) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall be recapitalized by reclassifying its Common Stock into
any other type of stock, or the Company or a successor corporation shall
consolidate or merge with or convey all or substantially all of its or of any
successor corporation's property and assets (a "Sale") to any other corporation
or corporations (any such corporation being included within the meaning of the
term "successor corporation" in the event of any consolidation or merger of any
such corporation with, or the sale of all or substantially all of the property
of any such corporation to another corporation or corporations), in exchange for
stock or securities of a successor corporation, the Holder of this Warrant shall
thereafter have the right to purchase, upon the terms and conditions and during
the time specified in this Warrant, in lieu of the Warrant Shares theretofore
purchasable upon the
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<PAGE>
exercise of this Warrant, the kind and number of shares of stock and other
securities receivable upon such recapitalization or consolidation, merger or
conveyance by a holder of the number of shares of Common Stock which the Holder
of this Warrant might have purchased immediately prior to such recapitalization
or consolidation, merger or conveyance. The Company agrees not to undertake a
Sale unless the successor corporation shall agree in writing to give effect to
the provisions of this SECTION 5(b).
(c) Except as provided for in SUBSECTION 5(a) hereof, in the event the
Company shall issue additional shares of Common Stock (including additional
shares of Common Stock deemed to be issued as set forth in subdivision (g)
below) without consideration (PROVIDED THAT, for purposes hereof, an issuance
for no consideration shall be deemed to be an issuance for a per share
consideration of $.01), or for a consideration per share less than the Exercise
Price in effect on the date of and immediately prior to such issue, then the
Exercise Price shall be reduced, concurrently with such issue, to a price equal
to:
(i) if such issuance is prior to the Purchase Agreement Date, the
consideration per share at which such additional shares of Common Stock are
issued or deemed issued; and
(ii) if such issuance is after the Purchase Agreement Date, the amount
determined by dividing (1) the sum of (x) the product derived by multiplying the
Exercise Price in effect immediately prior to such issue or sale times the
number of fully-diluted shares of Common Stock deemed outstanding immediately
prior to such issue or sale, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (2) the number of fully-diluted shares of
Common Stock deemed outstanding immediately after such issue or sale;
and the number of Warrant Shares shall be increased to an amount equal to
quotient derived by dividing (i) result of multiplying the pre-adjustment
Exercise Price times the pre-adjustment Warrant Shares, by (ii) the
post-adjustment Exercise Price. For purposes hereof, the "Purchase Agreement
Date" shall mean the date of the closing of the transactions contemplated by the
Stock Purchase Agreement (the "Purchase Agreement") by and among the Company,
the original holder of this Warrant and Reel Partners, L.L.C. dated September
23, 1997, or the date of termination of such Stock Purchase Agreement.
(d) Upon the occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Warrant Shares purchasable pursuant to this
Warrant in accordance with and as required by, the terms of this SECTION 5, the
Company shall compute the adjusted Exercise Price and the adjusted number of
Warrant Shares purchasable at such adjusted Exercise Price by reason of such
event in accordance with the provisions of this SECTION 5 and shall prepare an
officer's certificate setting forth such adjusted Exercise Price and the
adjusted number of Warrant Shares and showing in detail the facts about which
such conclusions are based. The Company shall forthwith mail a copy of such
certificate to each Holder of this Warrant at the Holder's address shown in the
Company's warrant registry (the "Warrant Registry"), and thereafter such
certificate shall be conclusive and binding upon such Holder unless contested by
such Holder by written notice to the Company ten (10) days after receipt of the
certificate.
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<PAGE>
(e) In case:
(i) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or any other distribution in
respect of the Common Stock (including cash) pursuant to, without limitation,
any spin-off, split-off or distribution of the Company's assets; or
(ii) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to subscribe for or purchase any shares of
stock of any class or to receive any other rights; or
(iii) of a classification, reclassification or other reorganization of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation or conveyance of all or substantially all of the assets
of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then, and in any such case, the Company shall mail to the Holder of this Warrant
at the Holder's address shown in the Company's Warrant Registry a notice stating
the date or expected date (the "Record Date") on which a record is to be taken
for the purpose of such dividend, distribution or rights, on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take place, as the case
may be. Such notice shall then specify the date or expected date, if any is to
be fixed, as of which holders of Common Stock of record shall be entitled to
participate in said dividend, distribution or rights, or shall be entitled to
exchange shares of Common Stock for securities or other property deliverable
upon such liquidation or winding up, as the case may be. Such notice shall be
provided at least five (5) business days prior to the Record Date.
(f) In case the Company at any time while this Warrant shall remain
unexpired and unexercised shall dissolve, liquidate or wind up its affairs, the
Holder of this Warrant may receive, upon exercise hereof prior to the Record
Date, in lieu of each share of Common Stock of the Company which it would have
been entitled to receive, the same number of any securities or assets as may be
issuable, distributable or payable upon any such dissolution, liquidation or
winding up with respect to each share of Common Stock of the Company.
(g) In the event the Company at any time or from time to time after the
date hereof shall issue any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible Securities
-5-
<PAGE>
and Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be additional shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date. In addition, if the purchase price provided
for in any Options, the additional consideration, if any, payable upon the
issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for shares
of Common Stock change at any time, the Exercise Price in effect at the time of
such change shall be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold and the number of Warrant Shares acquirable hereunder shall be
correspondingly readjusted. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities
without the exercise of such Option or right, the Exercise Price then in effect
and the number of Warrant Shares acquirable hereunder shall be adjusted to the
Exercise Price and the number of Warrant Shares in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(h) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this SECTION 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the Holder against impairment.
6. RESTRICTION ON TRANSFERABILITY.
(a) This Warrant and the shares of the Company issuable upon the exercise
of this Warrant have not been registered under the Securities Act of 1933, as
amended (the "Act"). By acceptance hereof, the Holder covenants, agrees and
represents that:
(i) This Warrant has been acquired for, and such shares, if acquired upon
the exercise of this Warrant, shall be acquired for, investment and may not be
sold, offered for sale, pledged, hypothecated or otherwise transferred, in the
absence of an effective registration statement for such securities under the Act
or an opinion of counsel for the Company to the effect that registration is not
required under the Act, and the Holder has the capacity to protect its interests
in connection with the purchase of this Warrant.
(ii) The Holder has had the opportunity to ask questions and receive
answers from the Company about the Company's business and the purchase by Holder
of these securities, and Holder has been given the opportunity to make any
inquiries that Holder may desire of any personnel of the Company concerning the
proposed operation of the Company and has been furnished with all of the
information he has requested. No advertisement has been used in connection with
the offer or sale of this Warrant to the Holder.
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(iii) The Holder will not offer, sell, transfer, mortgage, assign or
otherwise dispose of this Warrant or the shares of Common Stock issuable upon
the exercise of this Warrant except pursuant to a registration statement under
the Act and qualification under applicable state securities laws or pursuant to
an opinion of counsel satisfactory to the Company that such registration and
qualification are not required, and that the transaction (if it involves a sale
in the over-the-counter market or on a securities exchange) does not violate any
provision of the Act. The Holder understands that a stop-transfer order will be
placed on the books of the Company respecting this Warrant and any certificates
representing the shares of Common Stock issuable upon the exercise of this
Warrant and that this Warrant and any such certificates shall bear a restrictive
legend and a stop transfer order shall be placed with the transfer agent
prohibiting any such transfer until such time as the securities represented by
such certificates shall have been registered under the Act or shall have been
transferred in accordance with an opinion of counsel for the Company that such
registration is not required; and
(iv) The Holder understands that it must hold the shares issuable upon the
exercise of this Warrant indefinitely unless they are registered under the Act
or an exemption from registration becomes available. Although the Company files
reports pursuant to the Securities Act of 1934 and accordingly makes available
to the public the information required by Rule 144, nothing contained in this
warrant shall, in itself, require the Company to continue to make available to
the public such information.
(b) Each certificate for the shares issued upon the exercise of the
Warrant shall bear a legend in substantially the following form:
"The shares represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of 1933,
as amended (the "Act") and may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred except pursuant to a registration
statement under the Act or an exemption from registration under the Act or
the rules and regulations thereunder."
7. REGISTRATION RIGHTS.
7.1 DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Subject to the terms of this
Agreement, the Holder may, at any time subsequent to Purchase Agreement Date,
request registration under the Act of all or part of its Warrant Shares on Form
S-1 or Form SB-2 or any similar long-form registration ("Long-Form
Registrations") or, if available, on Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registrations"). All registrations requested pursuant
to this SECTION 7.1 are referred to herein as "Demand Registrations."
(b) PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Company will
pay all registration expenses for the first two Demand Registrations (whether a
Long-Form Registration or a Short-Form Registration). A registration will not
count as one of the Company paid Demand Registrations until it has become
effective and the holders of Warrant Shares are
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able to register and are permitted to sell at least 90% of the Warrant Shares
requested to be included in such registration; PROVIDED, HOWEVER, that in any
event the Company will pay all registration expenses in connection with any
registration initiated as a Demand Registration. In a Demand Registration other
than the first two Demand Registrations, the registration expenses of such
registration shall be borne by the holders of Warrant Shares to be registered
thereunder.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to SECTION 7.1(a) above, the holders of Warrant
Shares will be entitled to request an unlimited number of Short-Form
Registrations, PROVIDED, HOWEVER, that the aggregate offering value of the
Warrant Shares requested to be registered in any Short-Form Registration must be
reasonably expected to equal at least $500,000. Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. If a Short-Form Registration is to be an underwritten public
offering, and if the underwriters for marketing or other reasons request the
inclusion in the registration statements of information which is not required
under the Act to be included in a registration statement on the applicable form
for the Short-Form Registration, the Company will provide such information as
may be reasonably requested for inclusion by the underwriters in the Short-Form
Registration.
(d) PRIORITY. The Company will not include in any Demand
Registration any securities which are not Warrant Shares without the written
consent of the Holder. If a Demand Registration is an underwritten public
offering and the managing underwriters advise the Company in writing that in
their opinion the inclusion of the number of Warrant Shares and other securities
requested to be included creates a substantial risk that the price per share of
Common Stock will be reduced, the Company will include in such registration,
prior to the inclusion of any securities which are not Warrant Shares, the
number of Warrant Shares requested to be included which in the opinion of such
underwriters can be sold without creating such a risk.
(e) SELECTION OF UNDERWRITERS. The Holder shall have the right to
select the investment banker(s) and manager(s) to administer any Demand
Registration, subject to the Company's approval which will not be unreasonably
withheld.
(f) COMPANY REGISTRATION. Notwithstanding anything to the contrary
herein, if after September 23, 1997 the Company has filed a registration
statement under the Act with respect to an underwritten offering of shares of
the Common Stock, then any Demand Registration shall be delayed for a period of
90 days following the effective date of such registration statement (or, at the
option of the parties requesting such Demand Registration, the Demand
Registration may be withdrawn).
7.2 PARTICIPATION IN REGISTERED OFFERINGS ("PIGGYBACK RIGHTS"). If
the Company at any time or times proposes or is required to register any of its
Common Stock or other equity securities (whether such Common Stock or other
equity securities are owned by the Company or another holder entitled to demand
registration) for public sale for cash under the Act (other than on Forms S-4
and S-8 or similar registration forms), it will at each such time or times give
written notice to the Holder of its intention to do so. Upon the written
request of the Holder given within 20 days after receipt of any such notice, the
Company shall use its best efforts to cause to be
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included in such registration any Warrant Shares held by the Holder (or its
permitted transferees) and requested to be registered under the Act and any
applicable state securities laws; PROVIDED, that if such registration is an
underwritten public offering and the managing underwriter advises that less than
all of the shares and Warrant Shares to be registered should be offered for sale
so as not materially and adversely to affect the price or salability of the
offering, the Holder and any other securities holders entitled to piggyback
rights with respect to such registration shall reduce on a pro rata basis the
number of their shares of Common Stock (as if exercised) to be included in the
registration statement as required by the managing underwriter to the extent
requisite to permit the sale or other disposition (in accordance with the
intended method of disposition thereof as aforesaid) by the prospective seller
or sellers of the securities so registered.
8. REGISTRATION ON THE BOOKS OF THE COMPANY. The Company shall keep, or
cause to be kept, at its office at 431 College Boulevard, Oceanside, California
92057, a register in which the Company shall register this Warrant. No transfer
of this Warrant shall be valid unless made at such office and noted on the
Warrant register upon satisfaction of all conditions for transfer. When
presented for transfer or payment, this Warrant shall be accompanied by a
written instrument or instruments of transfer or surrender, in form satisfactory
to the Company, duly executed by the registered Holder or by his duly authorized
attorney. The Company may deem and treat the registered Holder hereof as the
absolute owner of this Warrant for all purposes, and the Company shall not be
affected by any notice to the contrary.
9. GOVERNING LAW. This Warrant has been executed and delivered in the
State of Illinois and shall be construed in accordance with the laws of the
State of California.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
CINEMASTAR LUXURY THEATERS, INC.
By:
-------------------------
John Ellison, Jr., President
Agreed to and Accepted:
CINEMASTAR ACQUISITION PARTNERS, L.L.C.
By:
-------------------------------
Neil Austrian, Vice President
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<PAGE>
EXERCISE FORM
-------------
To:
Dated:
The undersigned, pursuant to the provisions set forth in the attached
warrant, hereby agrees to subscribe for the purchase of _________ shares of
Common Stock represented by this warrant and makes payment herewith in full
therefor at the price per share provided by this warrant.
Print Name
----------------------------
Signature
----------------------------
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED __________________________________________ hereby sells,
assigns and transfers unto
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address _________________________________________________________
the right to purchase Common Stock, represented by this warrant, to the extent
of __________________ shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint ___________________________ attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Signature ___________________________
Date: ________________, 19__
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
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<PAGE>
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, QUALIFIES AS AN
EXEMPT TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
CONVERTIBLE SECURED PROMISSORY NOTE
September 23, 1997 $3,000,000
CINEMASTAR LUXURY THEATERS, INC., a California corporation (the "Company"),
hereby promises to pay to the order of REEL PARTNERS, L.L.C., a Delaware limited
liability company (the "Holder"), THREE MILLION DOLLARS ($3,000,000), together
with interest thereon calculated in accordance with the provisions of this Note.
1. PAYMENT OF INTEREST. Interest (computed on the basis of a 360-day
year of twelve 30-day months) shall accrue on a daily basis on the unpaid
principal amount of this Note from time to time outstanding at a per annum rate
of fourteen percent (14%). The Company shall pay to the Holder all accrued
interest hereunder monthly with payments due on the first (1st) day of each
month (each, an "Interest Payment Date"), beginning October 1, 1997. Unless
prohibited under applicable law, any payment due hereunder, including any
accrued interest, which is payable hereunder and which is not paid on the date
on which it is payable, shall bear interest at the same rate at which interest
is then accruing on the principal amount of this Note, plus an additional two
percent (2.0%) for each month such payment remains unpaid. Any accrued interest
which for any reason has not theretofore been paid, shall be paid in full in
immediately available funds on the date on which the final principal payment on
this Note is paid. Interest shall accrue on any principal payment due under
this Note and, to the extent permitted by applicable law, on any interest which
has not been paid on the date on which it is payable, until such time as payment
therefor is actually delivered to the holder of this Note.
2. PAYMENT OF PRINCIPAL ON NOTE.
2.1 SCHEDULED PAYMENT. The Company shall pay the outstanding
principal amount of this Note (PLUS accrued and unpaid interest, if any,
referred to in SECTION 1 above) to the Holder on March 23, 1998 (the "Maturity
Date").
<PAGE>
2.2 PAYMENT ON NON-BUSINESS DAYS. If any payment on this Note
shall become due on a Saturday, Sunday or a bank or legal holiday under the laws
of the State of California, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing any interest due in connection with such payment.
2.3 OPTIONAL AND MANDATORY PREPAYMENT. The principal amount of
this Note may be prepaid in whole or in part (together with all accrued and
unpaid interest thereon) by the Company at its option at any time subsequent to
the Purchase Determination Date (as hereinafter defined) and prior to the
Maturity Date; PROVIDED that written notice of such prepayment is given to the
Holder at least 5 business days prior to repayment. The principal amount of
this Note shall, at the option of the Holder, be subject to mandatory prepayment
(i) immediately prior to any consolidation or merger of the Company with or into
any other corporation or other entity or person, or any other corporate
reorganization in which the Company shall not be the continuing or surviving
entity of such consolidation, merger or reorganization or any transaction or
series of related transactions by the Company in which in excess of fifty
percent (50%) of the Company's voting power is transferred, or a sale of all or
substantially all of the assets of the Company occurs or (ii) upon or subsequent
to the Purchase Determination Date. As used herein, the term "Purchase
Determination Date" means the earlier to occur of (x) the date upon which the
transactions contemplated by that certain Stock Purchase Agreement of even date
herewith by and among the Company, Holder and an affiliate of Holder (the
"Purchase Agreement") are consummated pursuant to the terms thereof and (y) the
date the Purchase Agreement is terminated as a result of the provisions of
Sections 8(k)(i)(1) or (3) of the Purchase Agreement.
3. SECURITY INTERESTS. This Note is secured by and is entitled to all
the benefits under (i) that certain Security Agreement of even date herewith
between the Company and Holder (the "Security Agreement") and (ii) those certain
Leasehold Deeds of Trust of even date herewith from the Company to Holder (the
"Deeds of Trust"). The collateral granted to Holder pursuant to the Security
Agreement and the Deeds of Trust is collectively, the "Collateral."
4. COVENANTS.
4.1 NEGATIVE COVENANTS. Without the prior written consent of
Holder:
(a) The Company shall not declare or pay any dividends
on, or purchase, redeem or acquire its capital stock, return any capital to
holders of capital stock as such, or distribute assets to capital
stockholders as such.
(b) Neither the Company nor any material subsidiary
may consolidate with, merge with or transfer all, or substantially all, of
its properties or assets to another entity (i) prior to the Purchase
Determination Date and (ii) thereafter, unless all amounts outstanding
hereunder shall, at the option of the Holder, be paid in full immediately
prior thereto or concurrently therewith.
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<PAGE>
(c) Except as contemplated by the Purchase Agreement,
neither the Company nor any material subsidiary may incur indebtedness
other than trade payables in the normal course of business.
(d) Neither the Company nor any material subsidiary
may modify or otherwise change or amend its by-laws or Articles of
Incorporation except as contemplated by the Purchase Agreement.
(e) Neither the Company nor any material subsidiary
may modify, amend or alter the terms of any employment agreement with any
management personnel except as contemplated by the Purchase Agreement.
(f) Neither the Company nor any material subsidiary
may enter into any agreement for the settlement of any indebtedness or of
existing or potential litigation except as contemplated by the Purchase
Agreement or except as does not involve the incurrence of any monetary or
material non-monetary obligation for the Company.
(g) Neither the Company nor any material subsidiary
may enter into any contracts, leases or other agreements which have (i) a
term in excess of six (6) months and (ii) a monthly payment obligation in
excess of $5,000.00.
(h) Neither the Company nor any material subsidiary
may take any action which, in the reasonable judgment of Holder,
(i) materially diminishes the value of the Collateral or (ii) impairs the
Company's ability to repay any amounts which may be due and owing
hereunder; provided that no use of the proceeds of this Loan described in
Exhibit 4(b) of the Purchase Agreement and no payment made in accordance
with Schedule 4(s) of the Purchase Agreement shall be deemed a violation of
this covenant.
4.2 AFFIRMATIVE COVENANT. The proceeds of the Loan shall be
used as set forth on Exhibit 4(b) to the Purchase Agreement.
5. EVENTS OF DEFAULT.
5.1 DEFINITION. For purposes of this Note, an Event of Default
shall be deemed to have occurred if, during the period beginning on the date
hereof and ending on the date on which the entire principal balance of and all
accrued and unpaid interest on this Note is paid and/or converted as herein
provided:
(a) the Company fails to pay on any Interest Payment
Date the full amount of interest then accrued and payable with respect to
the Note (and such failure continues for a period of ten days from delivery
of notice thereof);
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<PAGE>
(b) the Company fails to pay when due on the Maturity
Date or the date of a mandatory prepayment under SECTION 2.3 hereof, as the
case may be, the full amount of any principal payment (together with any
accrued and unpaid interest thereon) on the Note;
(c) the Company or any subsidiary makes an assignment
for the benefit of creditors or admits in a filing its inability to pay its
debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Company or any subsidiary bankrupt or insolvent,
or any order for relief with respect to the Company or any subsidiary is
entered under the Bankruptcy Code; or the Company or any subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Company or of any substantial part
of the assets of the Company or any subsidiary, or commences any proceeding
(other than a proceeding for the voluntary liquidation and dissolution of
any subsidiary) relating to the Company or any subsidiary under any
bankruptcy reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the
Company or any subsidiary and either (A) the Company or any such subsidiary
by any act indicates its approval thereof, consent thereto or acquiescence
therein or (B) such petition, application or proceeding is not dismissed
within 60 days;
(d) an Event of Default shall have occurred under
either (i) the Security Agreement or (ii) either Deeds of Trust after
giving effect to notice cures therein; or
(e) the Company or any material subsidiary fails to
comply with any provisions of SECTION 4 hereof.
5.2 CONSEQUENCES OF EVENTS OF DEFAULT. If any Event of Default
under SECTION 5.1(c) above has occurred, then all amounts outstanding under this
Note shall immediately become due and payable, or if any other Event of Default
has occurred the Holder may declare (by written notice delivered to the Company)
all or any portion of the outstanding principal amount of this Note due and
payable and demand immediate payment of all or any portion of the outstanding
principal amount of the Note. If the Holder demands immediate payment of all or
any portion of this Note pursuant to the terms of this SECTION 5.2, the Company
shall pay the Holder the principal amount of this Note requested to be paid plus
accrued interest thereon immediately upon the initial declaration of
acceleration.
6. CONDITIONS OF FUNDING OF LOAN. The Company hereby represents and
warrants that simultaneous with the execution and delivery hereof:
(a) the Company is executing and delivering to Holder
the Purchase Agreement;
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(b) the Company is executing and delivering to Holder
the Security Agreement, the Deeds of Trust and UCC-1 Financing Statements
relating to the Collateral as Holder deems necessary;
(c) the representations and warranties set forth on
EXHIBIT A (which representations and warranties are incorporated herein by
reference thereto as though made herein) and in the Purchase Agreement are
true, complete and correct in all material respects as of the date hereof
and no Event of Default exists as of the date hereof;
(d) the Holder has received an opinion of Jeffer,
Mangels, Butler and Marmaro, LLP, in connection with the transactions
contemplated hereunder; and
(e) the Company has delivered to Holder the First
Bridge Warrant and the Second Bridge Warrant (as such terms are defined in
the Purchase Agreement).
7. CONVERSION.
7.1 VOLUNTARY CONVERSION. The Holder of this Note has the
right, at the Holder's option, at any time prior to payment in full of the
principal balance of this Note, to convert this Note, in accordance with the
provisions of this SECTION 7, in whole or in part, into fully paid and
nonassessable shares of the Common Stock of the Company (the "Stock"). The
number of shares of Stock into which this Note may be converted ("Conversion
Shares") shall be determined by dividing the aggregate principal amount then
outstanding, together with all accrued interest to the date of conversion, by
the Conversion Price in effect at the time of such conversion. The Conversion
Price shall initially be equal to $1.00.
7.2 NO ADJUSTMENT OF CONVERSION PRICE. Any provision herein to
the contrary notwithstanding, no adjustment in the Conversion Price shall be
made in respect of the issuance of additional shares of Common Stock unless the
consideration per share for an additional share of Common Stock issued or deemed
to be issued by the Company is less than the Conversion Price in effect on the
date of, and immediately prior to, such issue.
7.3 DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Company at any time or from time to time after the date hereof shall
issue any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon
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the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be additional shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date. In addition, if the purchase price provided
for in any Options, the additional consideration, if any, payable upon the
issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for shares
of Common Stock change at any time, the Conversion Price in effect at the time
of such change shall be readjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of Conversion Shares acquirable hereunder shall be
correspondingly readjusted. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities
without the exercise of such Option or right, the Conversion Price then in
effect and the number of Conversion Shares acquirable hereunder shall be
adjusted to the Conversion Price and the number of Conversion Shares in effect
at the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination, never been issued.
7.4 ADJUSTMENT OF THE CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. Except as provided for in SECTION 7.5, in
the event the Company shall issue additional shares of Common Stock (including
additional shares of Common Stock deemed to be issued pursuant to SECTION 7.3)
without consideration (PROVIDED that, for purposes hereof, an issuance for no
consideration shall be deemed to be any issuance for a per share consideration
of $.01) or for a consideration per share less than the Conversion Price in
effect on the date of and immediately prior to such issue, then the Conversion
Price shall be reduced, concurrently with such issue to a price equal to:
(i) if such issuance is prior to the Purchase Agreement Date, the
consideration per share at which such additional shares of Common Stock are
issued or deemed issued; and
(ii) if such issuance is after the Purchase Agreement Date, the amount
determined by dividing (1) the sum of (x) the product derived by multiplying the
Conversion Price in effect immediately prior to such issue or sale times the
number of fully-diluted shares of Common Stock deemed outstanding immediately
prior to such issue or sale, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (2) the number of fully-diluted shares of
Common Stock deemed outstanding immediately after such issue or sale.
For purposes hereof, the "Purchase Agreement Date" shall mean the date of the
closing of the transactions contemplated by the Stock Purchase Agreement by and
among the Company, the original holder of this Warrant and CinemaStar
Acquisition Partners, L.L.C. dated September 23, 1997, or the date of
termination of such Stock Purchase Agreement.
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7.5 ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that the Company at
any time or from time to time after the date hereof shall, subject to the
provisions of this Note, declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Conversion
Price in effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that the Company shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Company shall be deemed to have made
a dividend payable in Common Stock in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire Common Stock.
7.6 ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of this Note shall, subject to the
provisions of this Note, be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for in SECTION 7.5 above or a merger or other
reorganization of the Company), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that this Note shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of this Note immediately
before that change.
7.7 NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
SECTION 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holder against
impairment.
7.8 CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this SECTION 7.8,
the Company, at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
Holder a certificate executed by the Company's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Company shall,
upon the written request at any time of Holder, furnish or cause to be furnished
to Holder a like certificate setting
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forth (i) such adjustments and readjustments, (ii) the Conversion Price at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of this Note.
8. NOTICE OF CERTAIN EVENTS. Subject in all cases to the provisions of
this Note, in the event that:
(a) the Company shall declare any cash dividend upon its
Common Stock, or
(b) the Company shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other distribution
to the holders of its Common Stock, or
(c) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class
or other rights, or
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any
subdivision or combination of its outstanding shares of Common Stock, or
consolidation or merger of the Company with, or sale or lease of all or
substantially all of its assets to, another corporation, or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the Holder:
(1) at least 20 days' prior written notice of the date on
which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up; and
(2) in the case of any such reorganization,
reclassification, consolidation, merger, sale, lease, dissolution,
liquidation or winding up, at least 20 days' prior written notice of
the date when the same shall take place.
Such notice in accordance with the foregoing clause (1) shall also
specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the forgoing clause (2) shall
also specify the date on which the
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holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Each such written notice shall be given by
telecopy and promptly followed by first class mail, postage prepaid,
addressed to the Holder at the address of the Holder as shown on the books
of the Company and shall be effective three (3) days after mailing.
9. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it
shall reserve for issuance and delivery upon conversion of this Note such
number of shares of its Common Stock as shall be required for issuance and
delivery upon conversion of this Note. To the extent that such reserved
shares are not sufficient for purposes of this Note, the Company agrees to
use its best efforts to ensure that such reserved shares are available.
The Company hereby agrees that it shall take all such actions as may be
necessary to assure that such Conversion Shares may be so issued without
violation of any applicable law or governmental regulation.
(b) No fractional shares shall be issued upon
conversion of this Note. With respect to any fraction of a share called
for upon conversion of this Note, the Company shall pay to Holder an amount
in cash equal to such fraction multiplied by the then current market value
of a share of Common Stock, determined as follows:
(i) if the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
the current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of
conversion of this Note or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange; or
(ii) if the Common Stock is not listed or admitted to
unlisted trading privileges the current value shall be the mean of the
last reported bid and ask prices reported by the National Quotation
Bureau, Inc., on the last business day prior to the date of the
conversion of this Note; or
(iii) if the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and ask prices are not so
reported, the current value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of
the Company.
10. REGISTRATION. The Holder acknowledges that upon any conversion of
this Note, the Conversion Shares issued to the Holder will not be registered
under the Securities Act of 1933 (the
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"Act"), and may not be transferred except pursuant to an effective registration
under the Act or in a transaction which, in the opinion of counsel reasonably
satisfactory to the Company, qualifies as an exempt transaction under the Act
and the rules and regulations promulgated thereunder. The Holder further
acknowledges receipt of a copy of Section 260.141.11 of the Rules of the
Commissioner of Corporations of California.
11. AMENDMENT AND WAIVER. Except as otherwise expressly provided herein,
the provisions of this Note may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder.
12. CANCELLATION. After all principal and accrued interest at any time
owed on this Note has been paid in full, this Note shall be surrendered to the
Company for cancellation and shall not be reissued.
13. MANNER OF PAYMENT. If any payment of principal or interest on this
Note shall become due on a Saturday, Sunday or a bank or legal holiday under the
laws of the State of California, such payment shall be made on the next
succeeding business day and such extension of time shall in such case be
included in computing interest in connection with such payment. Payments of
principal and interest are to be delivered to the Holder at the address
indicated on the Company's records, to such other address or to the attention of
such other person as specified by prior written notice to the Company or by wire
transfer of immediately available federal funds to an account designated, in
writing, by the Holder.
14. NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new note containing the same terms and conditions and
representing in the aggregate the principal amount of this Note, and any such
new Note will represent such portion of such principal amount as is designated
by the Holder at the time of such surrender. The date the Company initially
issues this Note will be deemed to be the "DATE OF ISSUANCE" of any such new
note regardless of the number of times any new note or notes shall be issued.
15. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note.
16. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of California, without giving effect to provisions thereof
regarding conflict of laws.
17. EXPENSES. If an Event of Default has occurred, the Company shall pay
the Holder all costs and expenses, including reasonable attorney's fees,
incurred by the holder in enforcing its rights hereunder. In addition, if any
dispute shall arise between the parties hereto, the
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Company shall pay the Holder all costs and expenses, including reasonable
attorney's fees, incurred by the Holder in connection with such dispute;
PROVIDED, HOWEVER, that upon resolution of such dispute by means of a judgment,
mediation or arbitration, the prevailing party shall be the party entitled to
receive reimbursement from the other party all reasonable fees and expenses in
connection with such dispute.
18 REGISTRATION RIGHTS.
18.1 DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Subject to the terms of
this Agreement, the Holder may, at any time subsequent to the Closing under
the Purchase Agreement or termination of the Purchase Agreement, whichever
is earlier, request registration under the Act of all or part of its
Registrable Shares (as hereinafter defined) on Form S-1 or Form SB-2 or any
similar long-form registration ("Long-Form Registrations") or, if
available, on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations"). All registrations requested pursuant to this
SECTION 18.1 are referred to herein as "Demand Registrations."
(b) PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The
Company will pay all registration expenses for the first two Demand
Registrations (whether a Long-Form Registration or a Short-Form
Registration). A registration will not count as one of the Company paid
Demand Registrations until it has become effective and the holders of
Registrable Shares are able to register and are permitted to sell at least
90% of the Registrable Shares requested to be included in such
registration; PROVIDED, HOWEVER, that in any event the Company will pay all
registration expenses in connection with any registration initiated as a
Demand Registration. In a Demand Registration other than the first two
Demand Registrations, the registration expenses of such registration shall
be borne by the holders of Registrable Shares to be registered thereunder.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to SECTION 18.1(A) above, the holders of
Registrable Shares will be entitled to request an unlimited number of
Short-Form Registrations, PROVIDED, HOWEVER, that the aggregate offering
value of the Registrable Shares requested to be registered in any
Short-Form Registration must be reasonably expected to equal at least
$500,000. Demand Registrations will be Short-Form Registrations whenever
the Company is permitted to use any applicable short form. If a Short-Form
Registration is to be an underwritten public offering, and if the
underwriters for marketing or other reasons request the inclusion in the
registration statements of information which is not required under the Act
to be included in a registration statement on the applicable form for the
Short-Form Registration, the Company will provide such information as may
be reasonably requested for inclusion by the underwriters in the Short-Form
Registration.
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(d) PRIORITY. The Company will not include in any Demand
Registration any securities which are not Registrable Shares without the
written consent of the Holder. If a Demand Registration is an underwritten
public offering and the managing underwriters advise the Company in writing
that in their opinion the inclusion of the number of Registrable Shares and
other securities requested to be included creates a substantial risk that
the price per share of Common Stock will be reduced, the Company will
include in such registration, prior to the inclusion of any securities
which are not Registrable Shares, the number of Registrable Shares
requested to be included which in the opinion of such underwriters can be
sold without creating such a risk.
(e) SELECTION OF UNDERWRITERS. The Holder shall have the
right to select the investment banker(s) and manager(s) to administer any
Demand Registration, subject to the Company's approval which will not be
unreasonably withheld.
(f) COMPANY REGISTRATION. Notwithstanding anything to the contrary
herein, if after September 23, 1997 the Company has filed a registration
statement under the Act with respect to an underwritten offering of shares
of the Common Stock, then any Demand Registration shall be delayed for a
period of 90 days following the effective date of such registration
statement (or, at the option of the parties requesting such Demand
Registration, the Demand Registration may be withdrawn).
For purposes hereof, "Registrable Shares" means at any time (i) any
shares of Common Stock then outstanding which were issued upon conversion of
this Note; (ii) any shares of Common Stock then issuable upon conversion of this
Note; (iii) any shares of Common Stock then outstanding which were issued as, or
were issued directly or indirectly upon the conversion or exercise of other
securities issued as, a dividend or other distribution with respect or in
replacement of any shares referred to in (i) or (ii); and (iv) any shares of
Common Stock then issuable directly or indirectly upon the conversion or
exercise of the securities which were issued as a dividend or other distribution
with respect to or in replacement of any shares referred to in (i) or (ii);
PROVIDED, HOWEVER, that Registrable Shares shall not include any shares which
have been registered pursuant to the Securities Act or which have been sold to
the public pursuant to Rule 144 of the Commission under the Securities Act.
18.2 PARTICIPATION IN REGISTERED OFFERINGS ("PIGGYBACK RIGHTS"). If
the Company at any time or times proposes or is required to register any of its
Common Stock or other equity securities (whether such Common Stock or other
equity securities are owned by the Company or another holder entitled to demand
registration) for public sale for cash under the Act (other than on Forms S-4
and S-8 or similar registration forms), it will at each such time or times give
written notice to the Holder of its intention to do so. Upon the written
request of the Holder given within 20 days after receipt of any such notice, the
Company shall use its best efforts to cause to be included in such registration
any Registrable Shares held by the Holder (or its permitted transferees) and
requested to be registered under the Act and any applicable state securities
laws; PROVIDED, that if such registration is an underwritten public offering and
the managing underwriter advises that less than all of the shares and
Registrable Shares to be registered should be offered
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for sale so as not materially and adversely to affect the price or salability of
the offering, the Holder and any other securities holders entitled to piggyback
rights with respect to such registration shall reduce on a pro rata basis the
number of their shares of Common Stock (as if converted) to be included in the
registration statement as required by the managing underwriter to the extent
requisite to permit the sale or other disposition (in accordance with the
intended method of disposition thereof as aforesaid) by the prospective seller
or sellers of the securities so registered.
18.3 SECTION SURVIVES. The rights granted to Holder pursuant to this
SECTION 18 shall survive any conversion, in whole or in part, of this Note into
Conversion Shares.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has executed and delivered this Note and
the Holder has accepted this Note as of the date first written above.
CINEMASTAR LUXURY THEATERS, INC.
By:
----------------------------------
John Ellison, Jr., President
Acknowledged and Agreed by Holder in its capacity
as such and not as maker, endorser, guarantor,
accommodation party or otherwise:
REEL PARTNERS, L.L.C.
By:
--------------------------------
Neil Austrian, Vice President
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EXHIBIT A
GENERAL WARRANTIES AND REPRESENTATIONS
1. AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The Company and each of
its subsidiaries, as applicable, has the corporate power and authority to
execute, deliver and perform the Note, the Security Agreement and the Deeds of
Trust, together with all transactions related thereto or contemplated thereby,
to which it is a party, to incur the indebtedness related thereto, and to grant
the security interest to the Holder in the Collateral. Each such entity has
taken all necessary corporate action to authorize its execution, delivery and
performance of such agreements to which it is a party. Except for the consent
of Winick Leasing (a/k/a Creative Capital Leasing, Inc.), no consent, approval
or authorization of, or declaration or filing with, any public authority, and no
consent of any other person, is required in connection with the execution,
delivery and performance of each of such documents, except for those which have
already been duly obtained. Each of such documents has been duly executed and
delivered by each such entity and constitutes the legal, valid and binding
obligation of such entity, enforceable against such entity in accordance with
its terms without defense, setoff or counterclaim, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies.
Except as set forth on the Disclosure Schedules to the Purchase Agreement, the
execution, delivery and performance of each of such agreements by such entity,
as applicable, does not and will not conflict with, or constitute a violation or
breach of, or constitute a default under, or result in the creation or
imposition of any lien upon the property of such person by reason of the terms
of (a) any other contract, mortgage, lien, lease, agreement, indenture or
instrument to which such party is a party or which is binding upon it, (b) any
judgment, law, statute, rule or governmental regulation applicable to such
entity, or (c) the articles of incorporation or by-laws of such entity.
2. VALIDITY AND PRIORITY OF SECURITY INTEREST. The provisions of the
Security Agreement and the Deeds of Trust create a legal and valid lien on all
the Collateral in favor of the Holder and such security interest constitutes
perfected and continuing liens on all of the Collateral, enforceable against the
Holder.
3. PRIORITY. Upon filing of the Deeds of Trust and the applicable UCC-1
Financing Statements, Lender will have (i) a perfected leasehold deed of trust
which is senior to all other liens in the leasehold estate on the lease for the
Company's Mission Marketplace facility and (ii) a perfected junior lien on fixed
assets and equipment located at the Company's Mission Marketplace facility,
junior only to (A) the purchase money lien in favor of Winick Leasing and (B)
the blanket lien in favor of First National Bank, (iii) a perfected leasehold
deed of trust which is junior only to an unperfected lien on the leasehold
estate in favor of First National Bank on the lease for the Company's Mission
Grove facility and (iv) a perfected lien on the fixed assets and equipment
located at the Company's Mission Grove facility, junior only to (A) the first
priority lien in favor of the landlord which secures the lease payments (which
the landlord will not enforce so long as
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the Lender cures any defaults under the lease) and (B) the blanket lien in favor
of First National Bank which is referred to in the description of Mission
Marketplace.
4. ORGANIZATION AND QUALIFICATION. The Company: (i) is duly
incorporated and organized and validly existing and in good standing under the
laws of the State of California; (ii) is qualified to do business as a foreign
corporation and is in good standing in the states in which qualification is
necessary in order for it to own or lease its property and conduct its business;
and (iii) has all requisite power and authority to conduct its business and to
own its property.
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THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE
ACT OR THE RULES AND REGULATIONS THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Original Issue: September 23, 1997
CINEMASTAR LUXURY THEATERS, INC.
WARRANT TO PURCHASE COMMON STOCK
(Without Par Value)
This is to certify that, for value received, REEL PARTNERS, L.L.C., a
Delaware limited liability company, or its registered assigns (the "Holder") or
any subsequent Holder, by acceptance of delivery hereof, is entitled to
purchase, subject to the provisions of this Warrant, from CINEMASTAR LUXURY
THEATERS, INC., a California corporation (the "Company"), at a price equal to
$.848202, at any time after the date hereof through September 23, 2007, up to
Three Million (3,000,000) shares of the Common Stock of the Company, no par
value (the "Common Stock"), and any such Holder shall be governed and bound by
all of the covenants, terms and conditions contained herein. The number of
shares of Common Stock to be received upon the exercise of this Warrant and the
price to be paid for a share of Common Stock may be adjusted from time to time
as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise and as adjusted from time to time are hereinafter sometimes referred to
as "Warrant Shares", and the exercise price of a share of Common Stock in effect
at any time and as adjusted from time to time is hereinafter sometimes referred
to as the "Exercise Price".
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time after the date hereof, by presentation and
surrender hereof to the Company at its office at 431 College Boulevard,
Oceanside, California 92057, with the purchase form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of shares of
Common Stock specified in such form. This Warrant is being granted to the
Holder in connection with and as consideration for that certain Convertible
Secured Promissory Note (the "Note") of even date herewith in the principal
amount of Three Million Dollars ($3,000,000) pursuant to which the Holder is
making the Loan and the Company is agreeing to, among other things, repay the
Loan. If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new
<PAGE>
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares purchasable hereunder. Upon receipt by the Company of this
Warrant at its office in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. The covenants and
agreements of the Company under this Warrant shall, as applicable, survive the
exercise hereof.
2. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it shall reserve for
issue and delivery upon exercise of this Warrant such number of shares of its
Common Stock as shall be required for issue and delivery upon exercise of
this Warrant. To the extent that such reserved shares are not sufficient for
purposes of this Warrant, the Company agrees to use its best efforts to
ensure that such reserved shares be available.
(b) No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon exercise hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the then current market
value of a share of Common Stock, determined as follows:
(i) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange the current value shall
be the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted trading
privileges the current value shall be the mean of the last reported bid and ask
prices reported by the NASDAQ SmallCap Market or the National Quotation Bureau,
Inc., on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and ask prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, subject to the
Holder's consent to such value.
3. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of different
denominations entitling the Holder hereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Any such exchange shall
be made by surrender of this Warrant to the Company or at the office of its
agent, if any, with the assignment form annexed duly executed. Subject to
compliance with the provisions of applicable law, the Company, without charge to
the Holder, shall execute and deliver a new Warrant in the name of any assignee
named in such instrument or assignment, and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other
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Warrants which carry the same rights upon presentation hereof at the office of
the Company or at the office of its agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated
shall be at any time enforceable by anyone.
4. RIGHTS OF THE HOLDER. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company. The rights
of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
5. ADJUSTMENTS. This Warrant is subject to the following further
provisions:
(a) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall issue any shares of Common Stock as a stock dividend or
subdivide the number of outstanding shares of Common Stock into a greater number
of shares, then in either of such cases, the Exercise Price per share of the
Warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately reduced, and the number of Warrant Shares
at that time purchasable pursuant to this Warrant shall be proportionately
increased; and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such shares into a smaller
number of shares, then, in such case, the Exercise Price per share of the
warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately increased, and the number of Warrant Shares
at the time purchasable pursuant to this Warrant shall be proportionally
decreased. Any dividend paid or distributed upon the Common Stock in stock of
any other class or securities convertible into shares of Common Stock shall be
treated as a dividend paid in Common Stock to the extent that shares of Common
Stock are issuable upon the conversion thereof.
(b) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall be recapitalized by reclassifying its Common Stock into
any other type of stock, or the Company or a successor corporation shall
consolidate or merge with or convey all or substantially all of its or of any
successor corporation's property and assets (a "Sale") to any other corporation
or corporations (any such corporation being included within the meaning of the
term "successor corporation" in the event of any consolidation or merger of any
such corporation with, or the sale of all or substantially all of the property
of any such corporation to another corporation
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or corporations), in exchange for stock or securities of a successor
corporation, the Holder of this Warrant shall thereafter have the right to
purchase, upon the terms and conditions and during the time specified in this
Warrant, in lieu of the Warrant Shares theretofore purchasable upon the exercise
of this Warrant, the kind and number of shares of stock and other securities
receivable upon such recapitalization or consolidation, merger or conveyance by
a holder of the number of shares of Common Stock which the Holder of this
Warrant might have purchased immediately prior to such recapitalization or
consolidation, merger or conveyance. The Company agrees not to undertake a Sale
unless the successor corporation shall agree in writing to give effect to the
provisions of this SECTION 5(b).
(c) Except as provided for in SUBSECTION 5(a) hereof, in the event the
Company shall issue additional shares of Common Stock (including additional
shares of Common Stock deemed to be issued as set forth in subdivision (g)
below) without consideration (PROVIDED THAT, for purposes hereof, an issuance
for no consideration shall be deemed to be an issuance for a per share
consideration of $.01), or for a consideration per share less than the Exercise
Price in effect on the date of and immediately prior to such issue, then the
Exercise Price shall be reduced, concurrently with such issue, to a price equal
to:
(i) if such issuance is prior to the Purchase Agreement Date, the
consideration per share at which such additional shares of Common Stock are
issued or deemed issued; and
(ii) if such issuance is after the Purchase Agreement Date, the amount
determined by dividing (1) the sum of (x) the product derived by multiplying the
Exercise Price in effect immediately prior to such issue or sale times the
number of fully-diluted shares of Common Stock deemed outstanding immediately
prior to such issue or sale, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (2) the number of fully-diluted shares of
Common Stock deemed outstanding immediately after such issue or sale;
and, in either case, the number of Warrant Shares shall be increased to an
amount equal to quotient derived by dividing (i) result of multiplying the
pre-adjustment Exercise Price times the pre-adjustment Warrant Shares, by (ii)
the post-adjustment Exercise Price. For purposes hereof, the "Purchase
Agreement Date" shall mean the date of the closing of the transactions
contemplated by the Stock Purchase Agreement (the "Purchase Agreement") by and
among the Company, the original holder of this Warrant and CinemaStar
Acquisition Partners, L.L.C. dated September 23, 1997, or the date of
termination of such Stock Purchase Agreement.
(d) Upon the occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Warrant Shares purchasable pursuant to this
Warrant in accordance with and as required by, the terms of this SECTION 5, the
Company shall compute the adjusted Exercise Price and the adjusted number of
Warrant Shares purchasable at such adjusted Exercise Price by reason of such
event in accordance with the provisions of this SECTION 5 and shall prepare an
officer's certificate setting forth such adjusted Exercise Price and the
adjusted number of Warrant Shares and showing in detail the facts about which
such conclusions are based. The Company shall forthwith mail a copy of such
certificate to each Holder of this Warrant at the Holder's address shown in the
Company's warrant registry (the "Warrant Registry"), and thereafter such
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certificate shall be conclusive and binding upon such Holder unless contested by
such Holder by written notice to the Company ten (10) days after receipt of the
certificate.
(e) In case:
(i) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or any other distribution in
respect of the Common Stock (including cash) pursuant to, without limitation,
any spin-off, split-off or distribution of the Company's assets; or
(ii) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to subscribe for or purchase any shares of
stock of any class or to receive any other rights; or
(iii) of a classification, reclassification or other reorganization of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation or conveyance of all or substantially all of the assets
of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then, and in any such case, the Company shall mail to the Holder of this Warrant
at the Holder's address shown in the Company's Warrant Registry a notice stating
the date or expected date (the "Record Date") on which a record is to be taken
for the purpose of such dividend, distribution or rights, on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take place, as the case
may be. Such notice shall then specify the date or expected date, if any is to
be fixed, as of which holders of Common Stock of record shall be entitled to
participate in said dividend, distribution or rights, or shall be entitled to
exchange shares of Common Stock for securities or other property deliverable
upon such liquidation or winding up, as the case may be. Such notice shall be
provided at least five (5) business days prior to the Record Date.
(f) In case the Company at any time while this Warrant shall remain
unexpired and unexercised shall dissolve, liquidate or wind up its affairs, the
Holder of this Warrant may receive, upon exercise hereof prior to the Record
Date, in lieu of each share of Common Stock of the Company which it would have
been entitled to receive, the same number of any securities or assets as may be
issuable, distributable or payable upon any such dissolution, liquidation or
winding up with respect to each share of Common Stock of the Company.
(g) In the event the Company at any time or from time to time after the
date hereof shall issue any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or
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<PAGE>
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
designed to protect against dilution) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
additional shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date. In addition, if the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for shares of Common
Stock change at any time, the Exercise Price in effect at the time of such
change shall be readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold and the number of Warrant Shares acquirable hereunder shall be
correspondingly readjusted. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities
without the exercise of such Option or right, the Exercise Price then in effect
and the number of Warrant Shares acquirable hereunder shall be adjusted to the
Exercise Price and the number of Warrant Shares in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(h) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this SECTION 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the Holder against impairment.
6. RESTRICTION ON TRANSFERABILITY.
(a) This Warrant and the shares of the Company issuable upon the exercise
of this Warrant have not been registered under the Securities Act of 1933, as
amended (the "Act"). By acceptance hereof, the Holder covenants, agrees and
represents that:
(i) This Warrant has been acquired for, and such shares, if acquired upon
the exercise of this Warrant, shall be acquired for, investment and may not be
sold, offered for sale, pledged, hypothecated or otherwise transferred, in the
absence of an effective registration statement for such securities under the Act
or an opinion of counsel for the Company to the effect that registration is not
required under the Act, and the Holder has the capacity to protect its interests
in connection with the purchase of this Warrant.
(ii) The Holder has had the opportunity to ask questions and receive
answers from the Company about the Company's business and the purchase by Holder
of these securities, and Holder has been given the opportunity to make any
inquiries that Holder may desire of any
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personnel of the Company concerning the proposed operation of the Company and
has been furnished with all of the information he has requested. No
advertisement has been used in connection with the offer or sale of this Warrant
to the Holder.
(iii) The Holder will not offer, sell, transfer, mortgage, assign or
otherwise dispose of this Warrant or the shares of Common Stock issuable upon
the exercise of this Warrant except pursuant to a registration statement under
the Act and qualification under applicable state securities laws or pursuant to
an opinion of counsel satisfactory to the Company that such registration and
qualification are not required, and that the transaction (if it involves a sale
in the over-the-counter market or on a securities exchange) does not violate any
provision of the Act. The Holder understands that a stop-transfer order will be
placed on the books of the Company respecting this Warrant and any certificates
representing the shares of Common Stock issuable upon the exercise of this
Warrant and that this Warrant and any such certificates shall bear a restrictive
legend and a stop transfer order shall be placed with the transfer agent
prohibiting any such transfer until such time as the securities represented by
such certificates shall have been registered under the Act or shall have been
transferred in accordance with an opinion of counsel for the Company that such
registration is not required; and
(iv) The Holder understands that it must hold the shares issuable upon the
exercise of this Warrant indefinitely unless they are registered under the Act
or an exemption from registration becomes available. Although the Company files
reports pursuant to the Securities Act of 1934 and accordingly makes available
to the public the information required by Rule 144, nothing contained in this
warrant shall, in itself, require the Company to continue to make available to
the public such information.
(b) Each certificate for the shares issued upon the exercise of the
Warrant shall bear a legend in substantially the following form:
"The shares represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of 1933,
as amended (the "Act") and may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred except pursuant to a registration
statement under the Act or an exemption from registration under the Act or
the rules and regulations thereunder."
7. REGISTRATION RIGHTS.
7.1 DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Subject to the terms of this
Agreement, the Holder may, at any time subsequent to the Purchase Agreement
Date, request registration under the Act of all or part of its Warrant Shares on
Form S-1 or Form SB-2 or any similar long-form registration ("Long-Form
Registrations") or, if available, on Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registrations"). All registrations requested pursuant
to this SECTION 7.1 are referred to herein as "Demand Registrations."
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<PAGE>
(b) PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Company will
pay all registration expenses for the first two Demand Registrations (whether a
Long-Form Registration or a Short-Form Registration). A registration will not
count as one of the Company paid Demand Registrations until it has become
effective and the holders of Warrant Shares are able to register and are
permitted to sell at least 90% of the Warrant Shares requested to be included in
such registration; PROVIDED, HOWEVER, that in any event the Company will pay all
registration expenses in connection with any registration initiated as a Demand
Registration. In a Demand Registration other than the first two Demand
Registrations, the registration expenses of such registration shall be borne by
the holders of Warrant Shares to be registered thereunder.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to SECTION 7.1(a) above, the holders of Warrant
Shares will be entitled to request an unlimited number of Short-Form
Registrations, PROVIDED, HOWEVER, that the aggregate offering value of the
Warrant Shares requested to be registered in any Short-Form Registration must be
reasonably expected to equal at least $500,000. Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. If a Short-Form Registration is to be an underwritten public
offering, and if the underwriters for marketing or other reasons request the
inclusion in the registration statements of information which is not required
under the Act to be included in a registration statement on the applicable form
for the Short-Form Registration, the Company will provide such information as
may be reasonably requested for inclusion by the underwriters in the Short-Form
Registration.
(d) PRIORITY. The Company will not include in any Demand
Registration any securities which are not Warrant Shares without the written
consent of the Holder. If a Demand Registration is an underwritten public
offering and the managing underwriters advise the Company in writing that in
their opinion the inclusion of the number of Warrant Shares and other securities
requested to be included creates a substantial risk that the price per share of
Common Stock will be reduced, the Company will include in such registration,
prior to the inclusion of any securities which are not Warrant Shares, the
number of Warrant Shares requested to be included which in the opinion of such
underwriters can be sold without creating such a risk.
(e) SELECTION OF UNDERWRITERS. The Holder shall have the right to
select the investment banker(s) and manager(s) to administer any Demand
Registration, subject to the Company's approval which will not be unreasonably
withheld.
(f) COMPANY REGISTRATION. Notwithstanding anything to the contrary
herein, if after September 23, 1997 the Company has filed a registration
statement under the Act with respect to an underwritten offering of shares of
the Common Stock, then any Demand Registration shall be delayed for a period of
90 days following the effective date of such registration statement (or, at the
option of the parties requesting such Demand Registration, the Demand
Registration may be withdrawn).
7.2 PARTICIPATION IN REGISTERED OFFERINGS ("PIGGYBACK RIGHTS"). If
the Company at any time or times proposes or is required to register any of its
Common Stock or other equity securities (whether such Common Stock or other
equity securities are owned by the Company or
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<PAGE>
another holder entitled to demand registration) for public sale for cash under
the Act (other than on Forms S-4 and S-8 or similar registration forms), it will
at each such time or times give written notice to the Holder of its intention to
do so. Upon the written request of the Holder given within 20 days after
receipt of any such notice, the Company shall use its best efforts to cause to
be included in such registration any Warrant Shares held by the Holder (or its
permitted transferees) and requested to be registered under the Act and any
applicable state securities laws; PROVIDED, that if such registration is an
underwritten public offering and the managing underwriter advises that less than
all of the shares and Warrant Shares to be registered should be offered for sale
so as not materially and adversely to affect the price or salability of the
offering, the Holder and any other securities holders entitled to piggyback
rights with respect to such registration shall reduce on a pro rata basis the
number of their shares of Common Stock (as if exercised) to be included in the
registration statement as required by the managing underwriter to the extent
requisite to permit the sale or other disposition (in accordance with the
intended method of disposition thereof as aforesaid) by the prospective seller
or sellers of the securities so registered.
8. REGISTRATION ON THE BOOKS OF THE COMPANY. The Company shall keep, or
cause to be kept, at its office at 431 College Boulevard, Oceanside, California
92057, a register in which the Company shall register this Warrant. No transfer
of this Warrant shall be valid unless made at such office and noted on the
Warrant register upon satisfaction of all conditions for transfer. When
presented for transfer or payment, this Warrant shall be accompanied by a
written instrument or instruments of transfer or surrender, in form satisfactory
to the Company, duly executed by the registered Holder or by his duly authorized
attorney. The Company may deem and treat the registered Holder hereof as the
absolute owner of this Warrant for all purposes, and the Company shall not be
affected by any notice to the contrary.
9. GOVERNING LAW. This Warrant has been executed and delivered in the
State of Illinois and shall be construed in accordance with the laws of the
State of California.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
CINEMASTAR LUXURY THEATERS, INC.
By:
--------------------------------
John Ellison, Jr., President
Agreed to and Accepted:
REEL PARTNERS, L.L.C.
By:
------------------------------
Neil Austrian, Vice President
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<PAGE>
EXERCISE FORM
To:
Dated:
The undersigned, pursuant to the provisions set forth in the attached
warrant, hereby agrees to subscribe for the purchase of _________ shares of
Common Stock represented by this warrant and makes payment herewith in full
therefor at the price per share provided by this warrant.
Print Name
--------------------------
Signature
--------------------------
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED __________________________________________ hereby sells,
assigns and transfers unto
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address _________________________________________________________
the right to purchase Common Stock, represented by this warrant, to the extent
of __________________ shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint ___________________________ attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Signature ___________________________
Date: ________________, 19__
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
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<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE
ACT OR THE RULES AND REGULATIONS THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Original Issue: September 23, 1997
CINEMASTAR LUXURY THEATERS, INC.
WARRANT TO PURCHASE COMMON STOCK
(Without Par Value)
This is to certify that, for value received, REEL PARTNERS, L.L.C., a
Delaware limited liability company, or its registered assigns (the "Holder") or
any subsequent Holder, by acceptance of delivery hereof, is entitled to
purchase, subject to the provisions of this Warrant, from CINEMASTAR LUXURY
THEATERS, INC., a California corporation (the "Company"), at a price equal to
$.848202, at any time after the Determination Date (as defined herein) and
through September 23, 2007, up to One Million Five Hundred Thousand (1,500,000)
shares of the Common Stock of the Company, no par value (the "Common Stock"),
and any such Holder shall be governed and bound by all of the covenants, terms
and conditions contained herein. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for a share
of Common Stock may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise and as adjusted from time
to time are hereinafter sometimes referred to as "Warrant Shares", and the
exercise price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price".
Notwithstanding anything to the contrary contained herein, this Warrant shall be
canceled and be of no force and effect immediately upon the closing of the
transactions contemplated by the Purchase Agreement (as defined herein) or the
termination of the Purchase Agreement by the Company pursuant to Section
8(k)(i)(4) of the Purchase Agreement.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time after the date (the "Determination Date"),
if any, upon which the Purchase Agreement is terminated without the consummation
of the transactions contemplated thereby, provided that such termination was not
a termination by the Company pursuant to Section 8(k)(i)(4) of the Purchase
Agreement; provided further that this Warrant shall be canceled and of no
further force and effect upon the consummation of the transactions contemplated
by the
<PAGE>
Purchase Agreement or if the Purchase Agreement is terminated by the Company
pursuant to Section 8(k)(i)(4) of the Purchase Agreement. This Warrant may be
exercised by presentation and surrender hereof to the Company at its office at
431 College Boulevard, Oceanside, California 92057, with the purchase form
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of shares of Common Stock specified in such form. This Warrant
is being granted to the Holder in connection with and as consideration for that
certain Convertible Secured Promissory Note (the "Note") of even date herewith
in the principal amount of Three Million Dollars ($3,000,000) pursuant to which
the Holder is making the Loan and the Company is agreeing to, among other
things, repay the Loan. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder to purchase the
balance of the Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant at its office in proper form for exercise, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder. The
covenants and agreements of the Company under this Warrant shall, as applicable,
survive the exercise hereof.
2. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it shall reserve for
issue and delivery upon exercise of this Warrant such number of shares of its
Common Stock as shall be required for issue and delivery upon exercise of
this Warrant. To the extent that such reserved shares are not sufficient for
purposes of this Warrant, the Company agrees to use its best efforts to
ensure that such reserved shares be available.
(b) No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon exercise hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the then current market
value of a share of Common Stock, determined as follows:
(i) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange the current value shall
be the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted trading
privileges the current value shall be the mean of the last reported bid and ask
prices reported by the NASDAQ SmallCap Market or the National Quotation Bureau,
Inc., on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and ask prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, subject to the
Holder's consent to such value.
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<PAGE>
3. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of different
denominations entitling the Holder hereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Any such exchange shall
be made by surrender of this Warrant to the Company or at the office of its
agent, if any, with the assignment form annexed duly executed. Subject to
compliance with the provisions of applicable law, the Company, without charge to
the Holder, shall execute and deliver a new Warrant in the name of any assignee
named in such instrument or assignment, and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company or
at the office of its agent, if any, together with a written notice specifying
the names and denominations in which new Warrants are to be issued and signed by
the Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at
any time enforceable by anyone.
4. RIGHTS OF THE HOLDER. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company. The rights
of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
5. ADJUSTMENTS. This Warrant is subject to the following further
provisions:
(a) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall issue any shares of Common Stock as a stock dividend or
subdivide the number of outstanding shares of Common Stock into a greater number
of shares, then in either of such cases, the Exercise Price per share of the
Warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately reduced, and the number of Warrant Shares
at that time purchasable pursuant to this Warrant shall be proportionately
increased; and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such shares into a smaller
number of shares, then, in such case, the Exercise Price per share of the
warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately increased, and the number of Warrant Shares
at the time purchasable pursuant to this Warrant shall be proportionally
decreased. Any dividend paid or distributed upon the Common Stock in stock of
any other class or securities convertible into shares
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<PAGE>
of Common Stock shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon the conversion thereof.
(b) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall be recapitalized by reclassifying its Common Stock into
any other type of stock, or the Company or a successor corporation shall
consolidate or merge with or convey all or substantially all of its or of any
successor corporation's property and assets (a "Sale") to any other corporation
or corporations (any such corporation being included within the meaning of the
term "successor corporation" in the event of any consolidation or merger of any
such corporation with, or the sale of all or substantially all of the property
of any such corporation to another corporation or corporations), in exchange for
stock or securities of a successor corporation, the Holder of this Warrant shall
thereafter have the right to purchase, upon the terms and conditions and during
the time specified in this Warrant, in lieu of the Warrant Shares theretofore
purchasable upon the exercise of this Warrant, the kind and number of shares of
stock and other securities receivable upon such recapitalization or
consolidation, merger or conveyance by a holder of the number of shares of
Common Stock which the Holder of this Warrant might have purchased immediately
prior to such recapitalization or consolidation, merger or conveyance. The
Company agrees not to undertake a Sale unless the successor corporation shall
agree in writing to give effect to the provisions of this SECTION 5(b).
(c) Except as provided for in SUBSECTION 5(a) hereof, the event the
Company shall issue additional shares of Common Stock (including additional
shares of Common Stock deemed to be issued as set forth in subdivision (g)
below) without consideration (PROVIDED THAT, for purposes hereof, an issuance
for no consideration shall be deemed to be an issuance for a per share
consideration of $.01), or for a consideration per share less than the Exercise
Price in effect on the date of and immediately prior to such issue, then the
Exercise Price shall be reduced, concurrently with such issue to a price equal
to:
(i) if such issuance is prior to the Purchase Agreement Date, the
consideration per share at which such additional shares of Common Stock are
issued or deemed issued; and
(ii) if such issuance is after the Purchase Agreement Date, the amount
determined by dividing (1) the sum of (x) the product derived by multiplying the
Exercise Price in effect immediately prior to such issue or sale times the
number of fully-diluted shares of Common Stock deemed outstanding immediately
prior to such issue or sale, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (2) the number of fully-diluted shares of
Common Stock deemed outstanding immediately after such issue or sale;
and, in either case, the number of Warrant Shares shall be increased to an
amount equal to quotient derived by dividing (i) result of multiplying the
pre-adjustment Exercise Price times the pre-adjustment Warrant Shares, by (ii)
the post-adjustment Exercise Price. For purposes hereof, the "Purchase
Agreement Date" shall mean the date of the closing of the transactions
contemplated by the Stock Purchase Agreement (the "Purchase Agreement") by and
among the Company, the original holder of this Warrant and CinemaStar
Acquisition Partners, L.L.C. dated September 23, 1997, or the date of
termination of such Stock Purchase Agreement.
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<PAGE>
(d) Upon the occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Warrant Shares purchasable pursuant to this
Warrant in accordance with and as required by, the terms of this SECTION 5, the
Company shall compute the adjusted Exercise Price and the adjusted number of
Warrant Shares purchasable at such adjusted Exercise Price by reason of such
event in accordance with the provisions of SECTION 5 and shall prepare an
officer's certificate setting forth such adjusted Exercise Price and the
adjusted number of Warrant Shares and showing in detail the facts about which
such conclusions are based. The Company shall forthwith mail a copy of such
certificate to each Holder of this Warrant at the Holder's address shown in the
Company's warrant registry (the "Warrant Registry"), and thereafter such
certificate shall be conclusive and binding upon such Holder unless contested by
such Holder by written notice to the Company ten (10) days after receipt of the
certificate.
(e) In case:
(i) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or any other distribution in
respect of the Common Stock (including cash) pursuant to, without limitation,
any spin-off, split-off or distribution of the Company's assets; or
(ii) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to subscribe for or purchase any shares of
stock of any class or to receive any other rights; or
(iii) of a classification, reclassification or other reorganization of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation or conveyance of all or substantially all of the assets
of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then, and in any such case, the Company shall mail to the Holder of this Warrant
at the Holder's address shown in the Company's Warrant Registry a notice stating
the date or expected date (the "Record Date") on which a record is to be taken
for the purpose of such dividend, distribution or rights, on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take place, as the case
may be. Such notice shall then specify the date or expected date, if any is to
be fixed, as of which holders of Common Stock of record shall be entitled to
participate in said dividend, distribution or rights, or shall be entitled to
exchange shares of Common Stock for securities or other property deliverable
upon such liquidation or winding up, as the case may be. Such notice shall be
provided at least five (5) business days prior to the Record Date.
(f) In case the Company at any time while this Warrant shall remain
unexpired and unexercised shall dissolve, liquidate or wind up its affairs, the
Holder of this Warrant may receive, upon exercise hereof prior to the Record
Date, in lieu of each share of Common Stock of the Company which it would have
been entitled to receive, the same number of any securities
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<PAGE>
or assets as may be issuable, distributable or payable upon any such
dissolution, liquidation or winding up with respect to each share of Common
Stock of the Company.
(g) In the event the Company at any time or from time to time after the
date hereof shall issue any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be additional shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date. In addition, if the purchase price provided
for in any Options, the additional consideration, if any, payable upon the
issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for shares
of Common Stock change at any time, the Exercise Price in effect at the time of
such change shall be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold and the number of Warrant Shares acquirable hereunder shall be
correspondingly readjusted. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities
without the exercise of such Option or right, the Exercise Price then in effect
and the number of Warrant Shares acquirable hereunder shall be adjusted to the
Exercise Price and the number of Warrant Shares in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(h) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this SECTION 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the Holder against impairment.
6. RESTRICTION ON TRANSFERABILITY.
(a) This Warrant and the shares of the Company issuable upon the exercise
of this Warrant have not been registered under the Securities Act of 1933, as
amended (the "Act"). By acceptance hereof, the Holder covenants, agrees and
represents that:
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(i) This Warrant has been acquired for, and such shares, if acquired upon
the exercise of this Warrant, shall be acquired for, investment and may not be
sold, offered for sale, pledged, hypothecated or otherwise transferred, in the
absence of an effective registration statement for such securities under the Act
or an opinion of counsel for the Company to the effect that registration is not
required under the Act, and the Holder has the capacity to protect its interests
in connection with the purchase of this Warrant.
(ii) The Holder has had the opportunity to ask questions and receive
answers from the Company about the Company's business and the purchase by Holder
of these securities, and Holder has been given the opportunity to make any
inquiries that Holder may desire of any personnel of the Company concerning the
proposed operation of the Company and has been furnished with all of the
information he has requested. No advertisement has been used in connection with
the offer or sale of this Warrant to the Holder.
(iii) The Holder will not offer, sell, transfer, mortgage, assign or
otherwise dispose of this Warrant or the shares of Common Stock issuable upon
the exercise of this Warrant except pursuant to a registration statement under
the Act and qualification under applicable state securities laws or pursuant to
an opinion of counsel satisfactory to the Company that such registration and
qualification are not required, and that the transaction (if it involves a sale
in the over-the-counter market or on a securities exchange) does not violate any
provision of the Act. The Holder understands that a stop-transfer order will be
placed on the books of the Company respecting this Warrant and any certificates
representing the shares of Common Stock issuable upon the exercise of this
Warrant and that this Warrant and any such certificates shall bear a restrictive
legend and a stop transfer order shall be placed with the transfer agent
prohibiting any such transfer until such time as the securities represented by
such certificates shall have been registered under the Act or shall have been
transferred in accordance with an opinion of counsel for the Company that such
registration is not required; and
(iv) The Holder understands that it must hold the shares issuable upon the
exercise of this Warrant indefinitely unless they are registered under the Act
or an exemption from registration becomes available. Although the Company files
reports pursuant to the Securities Act of 1934 and accordingly makes available
to the public the information required by Rule 144, nothing contained in this
warrant shall, in itself, require the Company to continue to make available to
the public such information.
(b) Each certificate for the shares issued upon the exercise of the
Warrant shall bear a legend in substantially the following form:
"The shares represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of 1933,
as amended (the "Act") and may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred except pursuant to a registration
statement under the Act or an exemption from registration under the Act or
the rules and regulations thereunder."
7. REGISTRATION RIGHTS.
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<PAGE>
7.1 DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Subject to the terms of this
Agreement, the Holder may, at any time subsequent to the Determination Date,
request registration under the Act of all or part of its Warrant Shares on Form
S-1 or Form SB-2 or any similar long-form registration ("Long-Form
Registrations") or, if available, on Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registrations"). All registrations requested pursuant
to this SECTION 7.1 are referred to herein as "Demand Registrations."
(b) PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Company will
pay all registration expenses for the first two Demand Registrations (whether a
Long-Form Registration or a Short-Form Registration). A registration will not
count as one of the Company paid Demand Registrations until it has become
effective and the holders of Warrant Shares are able to register and are
permitted to sell at least 90% of the Warrant Shares requested to be included in
such registration; PROVIDED, HOWEVER, that in any event the Company will pay all
registration expenses in connection with any registration initiated as a Demand
Registration. In a Demand Registration other than the first two Demand
Registrations, the registration expenses of such registration shall be borne by
the holders of Warrant Shares to be registered thereunder.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to SECTION 7.1(a) above, the holders of Warrant
Shares will be entitled to request an unlimited number of Short-Form
Registrations, PROVIDED, HOWEVER, that the aggregate offering value of the
Warrant Shares requested to be registered in any Short-Form Registration must be
reasonably expected to equal at least $500,000. Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. If a Short-Form Registration is to be an underwritten public
offering, and if the underwriters for marketing or other reasons request the
inclusion in the registration statements of information which is not required
under the Act to be included in a registration statement on the applicable form
for the Short-Form Registration, the Company will provide such information as
may be reasonably requested for inclusion by the underwriters in the Short-Form
Registration.
(d) PRIORITY. The Company will not include in any Demand
Registration any securities which are not Warrant Shares without the written
consent of the Holder. If a Demand Registration is an underwritten public
offering and the managing underwriters advise the Company in writing that in
their opinion the inclusion of the number of Warrant Shares and other securities
requested to be included creates a substantial risk that the price per share of
Common Stock will be reduced, the Company will include in such registration,
prior to the inclusion of any securities which are not Warrant Shares, the
number of Warrant Shares requested to be included which in the opinion of such
underwriters can be sold without creating such a risk.
(e) SELECTION OF UNDERWRITERS. The Holder shall have the right to
select the investment banker(s) and manager(s) to administer any Demand
Registration, subject to the Company's approval which will not be unreasonably
withheld.
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<PAGE>
(f) COMPANY REGISTRATION. Notwithstanding anything to the contrary
herein, if after September 23, 1997 the Company has filed a registration
statement under the Act with respect to an offering of shares of the Common
Stock, then any Demand Registration shall be delayed for a period of 90 days
following the effective date of such registration statement (or, at the option
of the parties requesting such Demand Registration, the Demand Registration may
be withdrawn).
7.2 PARTICIPATION IN REGISTERED OFFERINGS ("PIGGYBACK RIGHTS"). If
the Company at any time or times proposes or is required to register any of its
Common Stock or other equity securities (whether such Common Stock or other
equity securities are owned by the Company or another holder entitled to demand
registration) for public sale for cash under the Act (other than on Forms S-4
and S-8 or similar registration forms), it will at each such time or times give
written notice to the Holder of its intention to do so. Upon the written
request of the Holder given within 20 days after receipt of any such notice, the
Company shall use its best efforts to cause to be included in such registration
any Warrant Shares held by the Holder (or its permitted transferees) and
requested to be registered under the Act and any applicable state securities
laws; PROVIDED, that if such registration is an underwritten public offering and
the managing underwriter advises that less than all of the shares and Warrant
Shares to be registered should be offered for sale so as not materially and
adversely to affect the price or salability of the offering, the Holder and any
other securities holders entitled to piggyback rights with respect to such
registration shall reduce on a pro rata basis the number of their shares of
Common Stock (as if exercised) to be included in the registration statement as
required by the managing underwriter to the extent requisite to permit the sale
or other disposition (in accordance with the intended method of disposition
thereof as aforesaid) by the prospective seller or sellers of the securities so
registered.
8. REGISTRATION ON THE BOOKS OF THE COMPANY. The Company shall keep, or
cause to be kept, at its office at 431 College Boulevard, Oceanside, California
92057, a register in which the Company shall register this Warrant. No transfer
of this Warrant shall be valid unless made at such office and noted on the
Warrant register upon satisfaction of all conditions for transfer. When
presented for transfer or payment, this Warrant shall be accompanied by a
written instrument or instruments of transfer or surrender, in form satisfactory
to the Company, duly executed by the registered Holder or by his duly authorized
attorney. The Company may deem and treat the registered Holder hereof as the
absolute owner of this Warrant for all purposes, and the Company shall not be
affected by any notice to the contrary.
9. GOVERNING LAW. This Warrant has been executed and delivered in the
State of Illinois and shall be construed in accordance with the laws of the
State of California.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
CINEMASTAR LUXURY THEATERS, INC.
By:
-----------------------------------
John Ellison, Jr., President
Agreed to and Accepted:
REEL PARTNERS, L.L.C.
By:
------------------------------
Neil Austrian, Vice President
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<PAGE>
EXERCISE FORM
To:
Dated:
The undersigned, pursuant to the provisions set forth in the attached
warrant, hereby agrees to subscribe for the purchase of _________ shares of
Common Stock represented by this warrant and makes payment herewith in full
therefor at the price per share provided by this warrant.
Print Name
----------------------------
Signature
----------------------------
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ASSIGNMENT FORM
FOR VALUE RECEIVED __________________________________________ hereby sells,
assigns and transfers unto
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address _________________________________________________________
the right to purchase Common Stock, represented by this warrant, to the extent
of __________________ shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint ___________________________ attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Signature ___________________________
Date: ________________, 19__
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
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