Exhibit 2
J2 COMMUNICATIONS
SERIES B CONVERTIBLE PREFERRED STOCK
AND
WARRANTS TO PURCHASE COMMON STOCK
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PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
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APRIL 25, 2002
TABLE OF CONTENTS
PAGE NO.
ARTICLE 1. AUTHORIZATION; SALE OF SHARES AND WARRANTS; OPTION GRANT........ 1
Section 1.1 Authorization of the Shares and Warrants........................ 1
Section 1.2 Sale of the Units............................................... 1
Section 1.3 Option to Purchase Additional Units............................. 1
Section 1.4 Shareholder Consent and Information Statement................... 2
Section 1.5 Purchaser Designee.............................................. 3
ARTICLE 2. CLOSING; DELIVERY....................................... 3
Section 2.1 Closing 3
Section 2.2 Delivery........................................................ 3
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........... 4
Section 3.1 Organization and Standing; Articles and Bylaws.................. 4
Section 3.2 Corporate Power; Authority...................................... 4
Section 3.3 Capitalization.................................................. 5
Section 3.4 Validity of the Shares, Option Shares, Conversion
Shares, Warrants and Warrant Shares; No Conflict................ 6
Section 3.5 Financial Information............................................ 6
Section 3.6 SEC Reports...................................................... 6
Section 3.7 Affiliate Arrangements........................................... 7
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF NLAG AND PURCHASERS............... 7
Section 4.1 Organization and Standing........................................ 7
Section 4.2 Power 7
Section 4.3 NLAG Authorization............................................... 7
Section 4.4 Purchaser Authorization.......................................... 7
Section 4.5 Knowledge........................................................ 7
Section 4.6 Investment....................................................... 7
Section 4.7 Resale Restrictions.............................................. 7
Section 4.8 Exemption from the Securities Act................................ 8
Section 4.9 Ownership........................................................ 8
ARTICLE 5. CONDITIONS...................................................... 8
Section 5.1 Conditions to Closing of NLAG and Purchasers..................... 8
Section 5.2 Conditions to Closing of the Company............................ 10
ARTICLE 6. POST-CLOSING COVENANTS.......................................... 12
Section 6.1 Board Actions................................................... 12
Section 6.2 Litigation...................................................... 13
Section 6.3 NASDAQ Listing.................................................. 13
ARTICLE 7. RESTRICTIVE LEGEND.............................................. 13
ARTICLE 8. TERMINATION..................................................... 13
Section 8.1 Grounds For Termination......................................... 13
Section 8.2 Effect of Termination........................................... 14
ARTICLE 9. INDEMNIFICATION................................................. 14
Section 9.1 Indemnification by Company...................................... 14
Section 9.2 Indemnification by Purchasers and NLAG.......................... 14
Section 9.3 Nonexclusive.................................................... 15
Section 9.4 Knowledge....................................................... 15
Section 9.5 Survival........................................................ 15
ARTICLE 10. MISCELLANEOUS................................................... 15
Section 10.1 Governing Law.................................................. 15
Section 10.2 Successors and Assigns......................................... 15
Section 10.3 Entire Agreement; Amendment.................................... 15
Section 10.4 Notices, etc................................................... 15
Section 10.5 Understanding Among Purchasers................................. 16
Section 10.6 Delays or Omissions............................................ 16
Section 10.7 Severability................................................... 16
Section 10.8 Titles and Subtitles........................................... 16
Section 10.9 Counterparts................................................... 16
Section 10.10 Standstill Agreement.......................................... 16
Section 10.11 No Personal Liability of Representatives...................... 17
Section 10.12 Expenses...................................................... 18
SCHEDULES AND EXHIBITS
Schedule of Exceptions
Schedule of Purchasers
Schedule 4.9
Schedule 10.12
Exhibit A Amended and Restated Articles
Exhibit B Form of Opinion of ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇ LLP
Exhibit C NLAG Registration Rights Agreement
Exhibit D Jimirro Employment Agreement
Exhibit E Termination Agreement
Exhibit F Release Agreement
Exhibit G Voting Agreement
Exhibit H Amended and Restated Bylaws
Exhibit I ▇▇▇▇▇▇▇▇▇ Warrant Agreement
Exhibit J GTH Warrant Agreement
Exhibit K Jimirro Security Agreement
Exhibit L-1 Absolute Assignment (▇▇▇ ▇▇▇▇▇▇)
Exhibit L-2 Notice of Assignment (▇▇▇ ▇▇▇▇▇▇)
Exhibit M Jimirro Registration Rights Agreement
Exhibit N Laikin Employment Agreement
Exhibit O Common Stock Warrant
Exhibit P Advisor Note Form
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement"),
dated as of April 25, 2002, is entered into by and among J2 COMMUNICATIONS, a
California corporation (the "Company"), National Lampoon Acquisition Group,
LLC, a California limited liability company ("NLAG"), and those parties set
forth on the Schedule of Purchasers attached hereto (collectively, the
"Purchasers"). The Company, NLAG and the Purchasers (individually, a "Party"
and, collectively, the "Parties") agree as follows:
Article 1. AUTHORIZATION; SALE OF SHARES AND WARRANTS; OPTION GRANT
Section 1.1 Authorization of the Shares and Warrants. Subject to the
approval of the shareholders of the Company becoming effective in accordance
with Section 1.4, the Company has authorized the issuance and sale pursuant
to this Agreement of up to Sixty Four Thousand Five Hundred (64,500) shares
(the "Shares") of its Series B Convertible Preferred Stock, no par value per
share (the "Series B Preferred"), having the preferences and rights set forth
in the Company's proposed Second Amended and Restated Articles of
Incorporation (the "Amended and Restated Articles"), the form of which are
attached hereto as Exhibit A, together with warrants to purchase up to One
Million Eight Hundred Sixteen Thousand Nine Hundred One (1,816,901) shares of
no par value Common Stock of the Company (as hereinafter defined, the "Common
Stock") at a purchase price (subject to adjustment as provided in the Warrant
Agreement) of Three Dollars and Fifty-Five Cents ($3.55) per share until the
second anniversary of the date of issuance thereof and Five Dollars ($5.00)
per share on and after such date (the "Warrants") in accordance with the form
of Common Stock Warrant attached hereto as Exhibit O (the "Warrant
Agreement"). The Shares and the Warrants being sold hereunder are being sold
in units consisting of (a) one Share of Series B Preferred and (b) a Warrant
to purchase 28.169 shares of Common Stock (together, and subject to
adjustment as provided herein or in the Warrant Agreement, a "Unit"). The
number of Units that will be sold at the Closing as contemplated by Section
1.2 hereof will be Thirty-Five Thousand Two Hundred Forty-Four (35,244) Units
(the "Purchased Units") and the remaining Twenty-Nine Thousand Two Hundred
Fifty-Six (29,256) Units (the "Option Units") may be sold in the manner
described in Section 1.3 hereof.
Section 1.2 Sale of the Units. Subject to the approval of the
shareholders of the Company becoming effective in accordance with Section 1.4
and the other terms and conditions hereof, and in reliance upon the
representations, warranties and agreements contained herein, the Company will
issue and sell to each Purchaser, and each Purchaser will purchase from the
Company at the Closing (as hereinafter defined) the number of Units set forth
opposite such Purchaser's name on the Schedule of Purchasers attached hereto
(the "Schedule of Purchasers"), in each case at a purchase price per Unit of
$100.00 and for the aggregate purchase price set forth opposite such
Purchaser's name on the Schedule of Purchasers.
Section 1.3 Option to Purchase Additional Units. Subject to the approval
of the shareholders of the Company becoming effective in accordance with
Section 1.4, the Company has authorized and hereby grants to NLAG, or NLAG's
designees, effective upon the Closing, an option (the "Option") to purchase
from the Company for cash up to all or any of the Option Units for a purchase
price of $100.00 per Unit, subject to adjustment as provided in this Section.
The Option may be exercised in whole or in part at any time, and from time to
time, prior to the earliest of (a) January 25, 2003, or (b) ninety (90) days
after the Company's shares are relisted for trading on the NASDAQ Small Cap
Market or listed on any other national exchange or quotation system. The
Option shall be deemed exercised when the Company has received (i) written
notice of such exercise from NLAG or NLAG's designees and (ii) payment of the
option purchase price for all Option Units as to which this Option is
exercised. Upon (and as a part of) exercise of all or any part of the Option
as provided in this Section, the Company shall promptly issue and deliver to
each purchaser a certificate or certificates for the number of Shares and a
Warrant Agreement for the number of Warrants to be issued upon such exercise.
The Option shall be deemed to be exercised at the close of business on the
date the Option is exercised and the purchaser of the Option Units shall be
treated for all purposes as the record holder of the Shares being purchased
on such date. Holders of Warrants shall have no rights with respect to shares
of Common Stock issuable upon exercise of such Warrants until such Warrants
have been duly exercised pursuant to the terms and conditions thereof. The
Company shall make or provide for such adjustments in the numbers of Option
Units, in the price per Option Unit applicable to the Option, and in the kind
and number of Shares and Warrants covered by the Option, as is equitably
required to prevent dilution or enlargement of the rights of NLAG or its
designees that otherwise would result from any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital
structure of the Company or any other corporate transaction or event having a
similar effect. Upon exercise of all or any part of the Option and before any
Shares or Warrants are issued pursuant to such exercise, the purchasers of
the Option Units (the "Option Purchasers") shall make representations and
warranties to the Company substantially similar to those made by each
Purchaser in Article 4 of this Agreement and agree to indemnify the Company
for breaches thereof pursuant to an indemnity substantially similar to that
contained in Section 9.2 of this Agreement, in each case in a form reasonably
satisfactory to the Company and its legal counsel.
Section 1.4 Shareholder Consent and Information Statement. Concurrently
with the execution of this Agreement, shareholders of the Company entitled to
vote in excess of a majority of the outstanding shares of the Company's
Common Stock have acted by written consent to approve (i) the issuance of the
Units and the Option Units, (ii) the grant of the Option, (iii) the adoption
of the Amended and Restated Articles of the Company (as defined in Section
5), (iv) the adoption of the Amended and Restated Bylaws of the Company (as
defined in Section 5), (v) the Second Amended and Restated 1999 Stock Option,
Deferred Stock and Restricted Stock Plan, which plan was approved by the
Company's Board of Directors on January 30, 2002, (vi) the grant to ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ ("Jimirro") of an option to purchase 400,000 shares of the Company's
Common Stock, which grant was approved by the disinterested members of the
Company's Board of Directors on January 30, 2002 and was made as of such date
(the "Jimirro Option") with vesting subject, among other things, to approval
of the Company's shareholders, and (vii) the terms and the Company's entry
into of the Jimirro Employment Agreement, the Jimirro Security Agreement, the
Jimirro Registration Rights Agreement, and the Jimirro Indemnity Agreement
(each as defined in Section 5) (collectively, the "Shareholder Consent"). The
Shareholder Consent is conditioned upon the consummation of the transactions
contemplated by this Agreement. The Shareholder Consent has been delivered to
the Secretary of the Company. The Shareholder Consent shall become effective
on the date 21 days after the mailing of the Definitive Information Statement
(as defined below) to the shareholders of the Company as provided below. In
connection with the Shareholder Consent, the Company shall prepare and file
an amendment to the preliminary information statement submitted to the
Securities and Exchange Commission (the "SEC") relating to the matters
covered by the Shareholder Consent (the "Preliminary Information Statement
Amendment") with the SEC and shall use its best efforts to respond to
comments of the members of the SEC's staff and to cause a definitive
information statement to be mailed to the Company's shareholders (the
"Definitive Information Statement"), all as soon as reasonably possible;
provided that prior to the filing of each of the Preliminary Information
Statement Amendment and the Definitive Information Statement, the Company
shall consult with NLAG and the Purchasers with respect to such filings and
shall afford NLAG and the Purchasers a reasonable opportunity to comment
thereon. The Company shall promptly notify NLAG and the Purchasers of the
receipt of the comments of the members of the SEC's staff and of any request
from the members of the SEC's staff for amendments or supplements to the
Preliminary Information Statement or the Definitive Information Statement or
for additional information, and will promptly supply NLAG and the Purchasers
with copies of correspondence between the Company or its representatives, on
the one hand, and the SEC or members of the SEC's staff, on the other hand,
with respect to the Preliminary Information Statement, the Definitive
Information Statement or this Agreement. If at any time prior to the
effectiveness of the Shareholder Consent any event should occur which is
required by applicable law to be set forth in an amendment of, or a
supplement to, the Definitive Information Statement, the Company will
promptly inform NLAG and the Purchasers of such event. In such case the
Company will, upon learning of such event, promptly prepare and mail such
amendment or supplement; provided, that prior to such mailing the Company
shall consult with NLAG and the Purchasers with respect to such amendment or
supplement and shall afford NLAG and the Purchasers a reasonable opportunity
to comment thereon. The Company will notify NLAG and the Purchasers at least
24 hours prior to the mailing of the Definitive Information Statement, or any
amendment or supplement thereto, to the shareholders of the Company.
Section 1.5 Purchaser Designee. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, one of the
Purchasers, may allocate the right and obligation to purchase up to 2,500 of
the Units he is obligated to purchase at the Closing to one or more persons
or entities who, prior to or at the Closing, must become a party or parties
to and be bound by (a) this Agreement as a Purchaser or Purchasers, and (b)
all agreements and instruments to be executed and delivered by the Purchasers
as contemplated by this Agreement. This Agreement (including without
limitation Schedule 4.9) and all other agreements and instruments to be
executed and delivered by the Purchasers will be revised as necessary to
accommodate the addition of such new Purchaser(s) and to add appropriate
information as to any such additional Purchasers designated by ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇.
Article 2. CLOSING; DELIVERY
Section 2.1 Closing. The closing of the purchase and issuance of the
Shares and Warrants and the grant of the Option hereunder (the "Closing")
shall be held at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ in Los Angeles at 10 A.M.,
P.S.T., on the business day after all of the conditions to the respective
obligations of the Parties set forth in Article 5 shall have been satisfied
or waived or on such other business day thereafter on or prior to the
Termination Date (as defined below) as may be agreed upon by the Parties (the
"Closing Date"). Each Party shall use commercially reasonable efforts to (i)
take or cause to be taken all actions, and do or cause to be done all things,
which are necessary, proper or advisable to cause any other Party's
conditions set forth in Article 5 to be fully satisfied (but not waived)
(including, without limitation, executing and delivering the documents
provided for therein to which it is a party in the forms attached hereto as
Exhibits) and (ii) consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement.
Section 2.2 Delivery. At the Closing, in addition to each Party making
such deliveries and taking such actions as are required to satisfy its
obligations under Section 2.1 or elsewhere in this Agreement, the Company
will deliver to each of the Purchasers a certificate or certificates and
Warrant Agreement(s) (in definitive form) in such denominations and
registered in each Purchaser's name, as set forth in the Schedule of
Purchasers, representing, respectively, the number of Shares of Series B
Preferred and the number of Warrants to be purchased by each of the
Purchasers from the Company against payment of the purchase price therefor by
wire transfer of immediately available funds, or such other form of payment
as shall be mutually agreed upon by the Purchasers and the Company. As noted
on the Schedule of Purchasers, the purchase price for $450,000 of the Units
to be purchased pursuant to this Agreement has previously been paid to the
Company as fees for extensions of the Letter Agreement, dated March 5, 2001,
among the Company and certain of the Purchasers (the "March Letter
Agreement"). In addition, each of the Purchasers may take credit against the
purchase price owed for such Purchaser's Units for expenses paid directly by
such Purchaser which the Company is obligated to pay under Section 10.12 in
the amounts shown on the Schedule of Purchasers (the "Purchaser Expenses").
The value of the Purchaser Expenses being credited to each Purchaser against
the purchase price for the Units being purchased (or to be purchased) by such
Purchaser shall be the amount set forth next to the name of such Purchaser in
the appropriate section of the Schedule of Purchasers attached hereto. The
amounts of Purchaser Expenses shown on the Schedule of Purchasers have been
approved by the Company and no further approval of such amounts shall be
necessary.
Article 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except to the extent set forth on the Company's Schedule of Exceptions
attached hereto with respect to only those sections of this Agreement
specified therein (the "Schedule of Exceptions"), which Schedule of
Exceptions contains, with respect to each matter disclosed therein, a
specific reference to the representation and warranty to which such matter is
an exception, the Company hereby represents and warrants to NLAG, the
Purchasers and the Option Purchasers as follows:
Section 3.1 Organization and Standing; Articles and Bylaws. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of California. The Company has furnished the Purchasers
with complete and correct copies of its Articles of Incorporation and Bylaws
as in effect immediately prior to the date of this Agreement.
Section 3.2 Corporate Power; Authority. The Company has all requisite
corporate power and authority to enter into this Agreement, the NLAG
Registration Rights Agreement, the Jimirro Registration Rights Agreement, the
Note Termination Agreement, the Termination Agreement, the Release Agreement,
the Jimirro Employment Agreement, the Jimirro Indemnity Agreement, the
Jimirro Security Agreement, and the ▇▇▇ ▇▇▇▇▇▇ Assignment Documents (in each
case, as defined in Article 5) and the Company will have at the Closing Date
all requisite corporate power to issue and sell the Shares and the Warrants,
to issue the Common Stock (as defined in Section 3.3) initially issuable upon
conversion of the Shares and the Option Shares (as defined below) (the
"Conversion Shares") or upon exercise of the Warrants (the "Warrant Shares"),
to grant the Option, to issue the shares of Series B Preferred issuable upon
exercise of the Option (the "Option Shares"), to issue the Warrants issuable
upon the exercise of the Option, and to carry out and perform its obligations
under the terms of this Agreement, the NLAG Registration Rights Agreement,
the Jimirro Registration Rights Agreement, the Note Termination Agreement,
the Termination Agreement, the Release Agreement, the Jimirro Employment
Agreement, the Jimirro Indemnity Agreement, the Jimirro Security Agreement,
each Warrant Agreement and the ▇▇▇ ▇▇▇▇▇▇ Assignment Documents and all other
agreements contemplated hereby to which the Company is to be a party
(collectively, the "Company Relevant Documents"). All corporate action on the
part of the Company, its directors and shareholders necessary for the due
authorization, execution, delivery and performance by the Company of the
Company Relevant Documents, the approval, adoption and filing with the
Secretary of State of the State of California of the Amended and Restated
Articles and the approval and adoption of the Amended and Restated Bylaws and
the consummation of the transactions contemplated herein and therein, and for
the grant of the Option and the due authorization, issuance and delivery of
the Warrants, the Shares, the Option Shares, the Warrant Shares and the
Conversion Shares, has been taken or will be taken prior to the Closing. Each
Company Relevant Document is a legal, valid and binding obligation of the
Company, enforceable in accordance with its respective terms, subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and
other laws of general application affecting enforcement of creditors' rights
generally.
Section 3.3 Capitalization. As of the Closing and immediately
thereafter, the Company's authorized capital stock shall consist of: (a)
15,000,000 shares of Common Stock, no par value per share (the "Common
Stock"), of which 1,382,483 shares shall be issued and outstanding, 1,500,000
shares shall be reserved for issuance upon exercise of stock options,
1,926,929 shares shall be reserved for issuance upon conversion of the Series
B Preferred, and 1,816,901 shares shall be reserved for issuance upon
exercise of the Warrants and (b) 68,406 shares of Series B Preferred, of
which the Purchased Shares shall be issued and outstanding, a number of
shares equal to the number of the Option Units shall be reserved for issuance
upon exercise of the Option, and 3,906 shares shall be reserved for issuance
upon exercise of the warrants contemplated by the ▇▇▇▇▇▇▇▇▇ Warrant Agreement
and the GTH Warrant Agreement (each as defined below). All the aforesaid
issued and outstanding shares are duly authorized and validly issued, fully
paid and nonassessable and have been offered, issued, sold and delivered by
the Company in compliance with all applicable federal and state securities
laws. Except as disclosed on the Schedule of Exceptions and except for the
▇▇▇▇▇▇▇▇▇ Warrant Agreement, the GTH Warrant Agreement, the Option Units and
the Warrants, there are no outstanding (i) preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon
the Company or any subsidiary of the Company for the purchase or acquisition
of any shares of its capital stock, except with respect to the Series B
Preferred in accordance with the provisions of this Agreement and the Amended
and Restated Articles, (ii) phantom equity, equity appreciation or similar
rights which permit the holder thereof to participate in the residual equity
value of, or appreciation in the equity value of, the Company, (iii) any
securities, instruments or rights which permit the holder thereof, under any
circumstances, to vote for the election of members of the Company's Board of
Directors or (iv) any securities, instruments or rights which are, directly
or indirectly, convertible into or exercisable or exchangeable for any of the
securities, instruments or rights described in clause (i), (ii) or (iii)
above. The Administrator (as defined therein) has not elected to cash out by
payment of cash or other property any outstanding stock options, restricted
stock or deferred stock awards under Section 10.1(c) of the Company's 1999
Stock Option, Deferred Stock and Restricted Stock Plan as a result of the
consummation of the transactions contemplated by this Agreement and the other
agreements entered into in connection herewith and there are no outstanding
rights to any such payments on the part of any holders of stock options,
restricted stock or deferred stock awards under such Plan. As of the Closing,
the Board of Directors of the Company has the right under the Rights
Agreement of the Company, dated as of July 15, 1999, as amended (the "Rights
Plan") to redeem all outstanding Rights (as defined therein) without the
approval, consent or waiver of any person or entity. As of the Closing, the
Company has taken all action necessary under the Rights Plan to redeem all
outstanding Rights (as defined therein). As of the Closing, all Rights issued
under the Rights Plan have been redeemed and the Rights Plan terminated, and
the only remaining right of any shareholder of the Company or any person who
held Rights immediately prior to their redemption in connection with the
Rights Plan will be the right to receive the Redemption Price (as defined in
the Rights Plan). No Common Shares or Preferred Shares (each as defined in
the Rights Plan) have been issued or following the redemption of the Rights
and the termination of the Rights Plan will be issuable under the Rights
Plan. Since July 15, 1999, no Trigger Event, Distribution Date or Share
Acquisition Date (each as defined in the Rights Plan) has occurred and at no
time has any person become an Acquiring Person (as defined in the Rights
Plan). The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby or in connection herewith will not
result in or cause (i) a breach of the Rights Plan, (ii) the occurrence of a
Trigger Event, Distribution Date or Share Acquisition Date or (iii) any
person to become an Acquiring Person.
Section 3.4 Validity of the Shares, Option Shares, Conversion Shares,
Warrants and Warrant Shares; No Conflict. The Shares, the Option Shares, the
Conversion Shares, the Warrants and the Warrant Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued,
fully paid and nonassessable, and will be free of any liens, claims,
preemptive rights or any other encumbrances of any kind or nature whatsoever,
except for any applicable restrictions imposed by federal or state securities
laws. The Conversion Shares, the Option Shares and the Warrant Shares have
been duly authorized and validly reserved, are not subject to any preemptive
rights or rights of first refusal and, upon payment of the purchase price
therefor and issuance in conformity with the Amended and Restated Articles,
this Agreement and the applicable Warrant Agreement, as applicable, will be
validly issued, fully paid and nonassessable, and will be free of any liens,
claims, preemptive rights or any other encumbrances of any kind or nature
whatsoever, except for any applicable restrictions imposed by federal or
state securities laws. The execution, delivery and performance by the Company
of each Company Relevant Document will not result in any violation of, or be
in conflict with, or result in a breach of, or constitute a default under,
(a) any term or provision of any state or Federal law or regulation to which
the Company is subject and which are generally applicable to transactions of
the type contemplated by this Agreement, or (b) the Company's Articles of
Incorporation or Bylaws, as amended and restated and in effect on the date
hereof, or (c) any material agreement to which the Company is a party or by
which it is bound, except, in the case of clause (a) and (c) above, for
violations, conflicts, breaches or defaults which would not have a material
adverse effect on the business, operations, properties, financial condition,
assets or liabilities of the Company.
Section 3.5 Financial Information. The audited consolidated financial
statements of the Company and its subsidiaries (including the notes to such
financial statements) included in the Company's Annual Report on Form 10-K
for the year ended July 31, 2001 (the "Form 10-K") and the unaudited interim
financial statements of the Company and it subsidiaries included in the
Company's Quarterly Report on Form 10-Q for the six month period ended
October 31, 2001 (the "Form 10-Q") filed pursuant to the Securities Exchange
Act of 1934, as amended, present fairly the financial condition and operating
results of the Company and it subsidiaries at the dates and for the periods
to which they relate (subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other adjustments
described therein), have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently followed throughout the periods
involved (except as may be indicated therein or in the notes thereto).
Section 3.6 SEC Reports. Other than as specified in the Schedule of
Exceptions, the Form 10-K and Form 10-Q did not, on the dates of their
respective filing, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 3.7 Affiliate Arrangements. Except as set forth in the Schedule
of Exceptions, there are no contractual or other arrangements, whether
written or oral, between the Company, or any subsidiary of the Company, and
any officer or director of the Company or any of their respective spouses or
relatives (or any entity controlled by any such persons).
Article 4. REPRESENTATIONS, WARRANTIES OF NLAG AND PURCHASERS
NLAG, with respect to information about itself only, and each of the
Purchasers, with respect to information about themselves only, represent and
warrant to the Company as follows:
Section 4.1 Organization and Standing. NLAG is a limited liability
company duly organized, validly existing and in good standing under the laws
of the State of California.
Section 4.2 Power. NLAG has all requisite power and authority to enter
into this Agreement, the Release Agreement and all other agreements
contemplated hereby to which NLAG is to be a party (collectively, the "NLAG
Relevant Documents"). Each of the Purchasers has all requisite power and
authority to enter into this Agreement, the Release Agreement and all other
agreements contemplated hereby to which such Purchaser is to be a party
(collectively, the "Purchaser Relevant Documents").
Section 4.3 NLAG Authorization. NLAG has taken, or at the Closing will
have taken, all actions necessary to authorize it (i) to perform all of its
obligations under the NLAG Relevant Documents and (ii) to consummate the
transactions contemplated hereby and thereby. The NLAG Relevant Documents are
legally valid and binding obligations of NLAG enforceable against it in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws of general
application affecting enforcement of creditors' rights generally.
Section 4.4 Purchaser Authorization. Such Purchaser has taken, or at the
Closing will have taken, all actions necessary to authorize it (i) to perform
all of its obligations under the Purchaser Relevant Documents and (ii) to
consummate the transactions contemplated hereby and thereby. The Purchaser
Relevant Documents are legally valid and binding obligations of such
Purchaser enforceable against it in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium
laws and other laws of general application affecting enforcement of
creditors' rights generally.
Section 4.5 Knowledge. Such Purchaser is an "accredited investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act") and has such
knowledge and experience in financial business matters as to be capable of
evaluating the merits and risks of its investment, has no need for liquidity
in its investment and has the ability to bear the economic risks of its
investment.
Section 4.6 Investment. Such Purchaser is acquiring the Shares, the
Option Shares, the Conversion Shares, the Warrants and the Warrant Shares to
be purchased by it for investment for its own account and not with the view
to, or for resale in connection with, any public distribution thereof. Such
Purchaser understands that the Shares, the Option Shares, the Conversion
Shares, the Warrants and the Warrant Shares have not been registered under
the Securities Act or under any state securities laws by reason of a
specified exemption from the registration provisions of the Securities Act
and such state securities laws which depends upon, among other things, the
bona fide nature of such Purchaser's investment intent as expressed herein.
Section 4.7 Resale Restrictions. Such Purchaser acknowledges that the
Shares, the Option Shares, the Conversion Shares, the Warrants and the
Warrant Shares acquired by it must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available.
Section 4.8 Exemption from the Securities Act. The offer and sale by the
Company of the Shares, the Option Shares, the Conversion Shares, the Warrants
and the Warrant Shares to the Purchasers, as contemplated by this Agreement,
qualifies for exemption from the registration requirements of the Securities
Act, without limitation, pursuant to the requirements of Rule 506 promulgated
thereunder insofar as such requirements apply to the purchasers of securities
in a transaction relying on such rule for an exemption from the registration
requirements of the Securities Act.
Section 4.9 Ownership. NLAG and each Purchaser represents and warrants
that except as otherwise provided on Schedule 4.9 attached hereto the number
of Common Shares of the Company reported as beneficially owned by it in the
Schedule 13D/A filed collectively on January 31, 2002 was accurate on the
date of the filing of such schedule and remains accurate as of the date
hereof (or as updated prior to the Closing on account of additional Common
Shares acquired as permitted by Section 10.10).
Article 5. CONDITIONS
Section 5.1 Conditions to Closing of NLAG and Purchasers. Each
Purchaser's obligation to purchase the Units to be purchased by it at the
Closing and NLAG's obligation to sign the Release Agreement are subject to
the fulfillment to their respective satisfaction on or prior to the Closing
of each of the following conditions:
5.1.1 Representations and Warranties Correct. The
representations and warranties made by the Company herein and
pursuant hereto shall have been true and correct in all respects
when made and shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been
made at and as of the Closing Date.
5.1.2 Performance. The Company shall have materially complied
with all covenants, agreements and conditions contained in this
Agreement to be performed or complied with by the Company on or
prior to the Closing and at such time the Company shall not be in
default in the performance of or compliance with any of the
provisions of this Agreement.
5.1.3 No Adverse Proceedings. No action, suit or proceeding
before any court, tribunal, arbitrator, authority, agency,
commission or other instrumentality of the United States or any
state, county, city or other political subdivision ("Governmental
Authority") shall have been commenced, no investigation by any
Governmental Authority shall have been commenced, and no action,
suit or proceeding by any Governmental Authority shall have been
threatened, against any of the Parties, in each case which remains
unresolved wherein an unfavorable judgment, order, decree,
stipulation, ruling, charge or injunction would (i) prevent
consummation of any of the transactions contemplated by this
Agreement, the NLAG Registration Rights Agreement, the Note
Termination Agreement, the Termination Agreement, the Release
Agreement, the Jimirro Employment Agreement, the Jimirro Indemnity
Agreement and the Voting Agreement (each as defined below), or (ii)
cause any of the transactions contemplated by such documents to be
rescinded following consummation (and no such judgment, order,
decree, stipulation, ruling, charge or injunction shall be in
effect).
5.1.4 Definitive Information Statement. Twenty-one (21) days
shall have elapsed since the mailing of the Definitive Information
Statement to the shareholders of the Company.
5.1.5 Opinion of Company's Counsel. Purchasers shall have
received from ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to the Company, an
opinion addressed to the Purchasers, dated the date of the Closing,
and in substantially the form attached as Exhibit B hereto (which
opinion shall provide that each Option Purchaser shall be permitted
to rely thereon).
5.1.6 NLAG Registration Rights Agreement. The Company, NLAG
and the Purchasers shall have duly executed and delivered the NLAG
Registration Rights Agreement substantially in the form of Exhibit
C hereto (the "NLAG Registration Rights Agreement").
5.1.7 Note Termination Agreement. The Company and ▇▇▇▇▇▇▇
shall have entered into the agreement (the "Note Termination
Agreement") substantially in the form attached to the Jimirro
Employment Agreement as Exhibit A thereto.
5.1.8 Jimirro Employment Agreement. The Company and ▇▇▇▇▇▇▇
shall have duly executed and delivered the Amended and Restated
Employment Agreement substantially in the form of Exhibit D hereto
(the "Jimirro Employment Agreement").
5.1.9 Termination Agreement. The Company, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ ("▇▇▇▇▇▇") and ▇▇▇▇ ▇▇▇▇▇▇ ("Skjodt") shall have duly
executed and delivered the Termination Agreement (the "Termination
Agreement"), substantially in the form of Exhibit E hereto,
terminating the March Letter Agreement.
5.1.10 Release Agreement. The Company, NLAG, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Samerian LLP, Diamond Investments, LLC,
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇ Leasing Company, LLC
and ▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have duly executed and delivered the
Mutual Release Agreement substantially in the form of Exhibit F
hereto (the "Release Agreement").
5.1.11 Voting Agreement. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Samerian LLP, Diamond Investments, LLC, ▇▇▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇ Leasing Company, LLC, ▇▇▇▇ ▇.
▇▇▇▇▇▇ and the Purchasers shall have duly executed and delivered
the Voting Agreement substantially in the form of Exhibit G hereto
(the "Voting Agreement").
5.1.12 Amended and Restated Articles. The Amended and Restated
Articles shall have been duly adopted by the Board of Directors and
the shareholders of the Company, shall have been duly filed with
the Secretary of State of the State of California, shall be in full
force and effect and shall not have been amended. 5.1.13 Amended
and Restated Bylaws. The Amended and Restated Bylaws of the
Company, in the form attached hereto as Exhibit H (the "Amended and
Restated Bylaws"), shall have been duly adopted by the Board of
Directors and the shareholders of the Company, shall be in full
force and effect and shall not have been amended.
5.1.14 ▇▇▇▇▇▇▇▇▇ Warrant Agreement. The Company and ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, LLP shall have duly executed and delivered the Warrant
Agreement substantially in the form of Exhibit I hereto (the
"▇▇▇▇▇▇▇▇▇ Warrant Agreement").
5.1.15 GTH Warrant Agreement. The Company and GTH Capital,
Inc. shall have duly executed and delivered the Warrant Agreement
substantially in the form of Exhibit J hereto (the "GTH Warrant
Agreement").
5.1.16 Good Standing Certificate. The Company shall have
delivered to the Purchasers evidence of its good standing as a
domestic corporation in the State of California.
5.1.17 Compliance Certificate. The Company shall certify to
the Purchasers that the conditions in Sections 5.1.1, 5.1.2, 5.1.4,
5.1.12 and 5.1.13 have been satisfied. 5.1.18 Resignations. ▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇ ▇▇ ▇▇▇▇▇ shall have each resigned as Directors of
the Company.
5.1.19 Expenses. Each of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇ LLP and ▇▇▇▇▇▇▇▇▇▇ & Partners,
Inc., and each of the persons who employed those advisors, shall
have acknowledged in writing that all fees incurred by such
advisors through the Closing that are payable by the Company under
Section 10.12 have been paid in full, subject to payment when due
of the amount of the promissory note (and interest thereon) issued
by the Company to any such advisor at Closing in accordance with
Schedule 10.12.
5.1.20 ▇▇▇ ▇▇▇▇▇▇ Assignment Documents. The Company shall have
duly executed and delivered an Absolute Assignment substantially in
the form attached as Exhibit L-1 hereto and the Company and each
applicable account debtor shall have duly executed and delivered a
Notice of Assignment and Irrevocable Direction to Pay and Account
substantially in the form attached as Exhibit L-2 hereto or
otherwise reasonably satisfactory to NLAG, the Company and Jimirro
(collectively, the "▇▇▇ ▇▇▇▇▇▇ Assignment Documents").
Section 5.2 Conditions to Closing of the Company. The
Company's obligations to sell the Units to be purchased by each
Purchaser and to grant the Option at the Closing are subject to the
fulfillment to the their respective satisfaction on or prior to the
Closing Date of the following conditions:
5.2.1 Representations and Warranties Correct. The
representations and warranties made by such Purchaser and NLAG
herein and pursuant hereto shall have been true and correct in all
respects when made and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if
they had been made at and as of the Closing Date.
5.2.2 Performance. Such Purchaser and NLAG shall have
materially complied with all covenants, agreements and conditions
contained in this Agreement to be performed or complied with by
such Purchaser or NLAG on or prior to the Closing and at such time
such Purchaser and NLAG shall not be in default in the performance
of or compliance with any of the provisions of this Agreement.
5.2.3 No Adverse Proceedings. No action, suit or proceeding
before any Governmental Authority shall have been commenced, no
investigation by any Governmental Authority shall have been
commenced, and no action, suit or proceeding by any Governmental
Authority shall have been threatened, against any of the Parties,
in each case which remains unresolved wherein an unfavorable
judgment, order, decree, stipulation, ruling, charge or injunction
would (i) prevent consummation of any of the transactions
contemplated by this Agreement, the Jimirro Employment Agreement,
the Jimirro Indemnity Agreement, the ▇▇▇ ▇▇▇▇▇▇ Assignment
Documents, the Jimirro Security Agreement (as defined below), the
Jimirro Registration Rights Agreement, the Note Termination
Agreement, the Termination Agreement, and the Release Agreement, or
(ii) cause any of the transactions contemplated by such documents
to be rescinded following consummation (and no such judgment,
order, decree, stipulation, ruling, charge or injunction shall be
in effect).
5.2.4 Definitive Information Statement. Twenty-one (21) days
shall have elapsed since the mailing of the Definitive Information
Statement to the shareholders of the Company.
5.2.5 Note Termination Agreement. The Company and ▇▇▇▇▇▇▇
shall have duly executed and delivered the Note Termination
Agreement.
5.2.6 Jimirro Employment Agreement. The Company and ▇▇▇▇▇▇▇
shall have duly executed and delivered the Jimirro Employment
Agreement.
5.2.7 Termination Agreement. The Company, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and
▇▇▇▇▇▇ shall have duly executed and delivered the Termination
Agreement.
5.2.8 Release Agreement. The Company, NLAG, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Samerian LLP, Diamond Investments, LLC,
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇ Leasing Company, LLC
and ▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have duly executed and delivered the
Release Agreement.
5.2.9 Amended and Restated Articles. The Amended and Restated
Articles of the Company shall have been duly adopted by the Board
of Directors and the shareholders of the Company, shall have been
duly filed with the Secretary of State of the State of California,
shall be in full force and effect and shall not have been amended.
5.2.10 Amended and Restated Bylaws. The Amended and Restated
Bylaws of the Company shall have been duly adopted by the Board of
Directors and the shareholders of the Company, shall be in full
force and effect and shall not have been amended.
5.2.11 ▇▇▇▇▇▇▇▇▇ Warrant Agreement. The Company and ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, LLP shall have duly executed and delivered the ▇▇▇▇▇▇▇▇▇
Warrant Agreement.
5.2.12 GTH Warrant Agreement. The Company and GTH Capital,
Inc. shall have duly executed and delivered the GTH Warrant
Agreement.
5.2.13 Jimirro Security Agreement. The Company and ▇▇▇▇▇▇▇
shall have duly executed and delivered the Security Agreement
substantially in the form of Exhibit K hereto (the "Jimirro
Security Agreement").
5.2.14 ▇▇▇ ▇▇▇▇▇▇ Assignment Documents. The Company shall have
duly executed and delivered an Absolute Assignment substantially in
the form attached as Exhibit L-1 hereto and the Company and each
applicable account debtor shall have duly executed and delivered a
Notice of Assignment and Irrevocable Direction to Pay and Account
substantially in the form attached as Exhibit L-2 hereto or
otherwise reasonably satisfactory to NLAG, the Company and Jimirro
(collectively, the "▇▇▇ ▇▇▇▇▇▇ Assignment Documents").
5.2.15 Jimirro Registration Rights Agreement. The Company and
▇▇▇▇▇▇▇ shall have duly executed and delivered the Jimirro
Registration Rights Agreement substantially in the form of Exhibit
M hereto (the "Jimirro Registration Rights Agreement").
5.2.16 Jimirro Indemnity Agreement. The Company and ▇▇▇▇▇▇▇
shall have duly executed and delivered the Indemnity Agreement
attached to the Jimirro Employment Agreement as Exhibit B thereto
(the "Jimirro Indemnity Agreement").
5.2.17 Good Standing Certificate. NLAG shall have delivered to
the Company evidence of its good standing as a limited liability
company in the State of California.
5.2.18 Compliance Certificate. NLAG, as representative of the
Purchasers, shall certify to the Company that the conditions in
Sections 5.2.1 and 5.2.2 have been satisfied.
5.2.19 Expenses. Each of the advisors listed on Schedule
10.12, and each of the persons who employed those advisors, shall
have acknowledged in writing that all fees incurred by such
advisors through the Closing that are payable by the Company under
Section 10.12 have been paid in full, subject to payment when due
of the amount of the promissory note (and interest thereon) issued
by the Company to any such advisor at Closing in accordance with
Schedule 10.12.
Article 6. POST-CLOSING COVENANTS
Each of the Parties agree to use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws, rules and
regulations to cause the following to occur immediately following the
Closing:
Section 6.1 Board Actions.
6.1.1 Appointments. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Skjodt and an
independent director to be designated pursuant to the Voting
Agreement shall be appointed to the Board of Directors of the
Company.
6.1.2 Ratification. The new Board of Directors of the Company
shall ratify the transactions contemplated by this Agreement
(including, without limitation, the documents attached as exhibits
hereto) and all prior actions of the Company's Board of Directors
and officers taken as of the Closing.
6.1.3 Officer Elections. ▇▇▇▇▇▇ shall be elected as Chief
Operating Officer of the Company, reporting solely to the Board of
Directors of the Company as a whole.
6.1.4 Annual Meeting and Record Date. The Board of Directors
shall call the annual meeting (the "Annual Meeting") of the
shareholders of the Company to be held on a date selected by the
Chairman of the Board of Directors, but not later than June 15,
2002. The record date for determining shareholders entitled to vote
at the annual meeting will be a date that is subsequent to but not
later than two days after the Closing. In connection with such
annual meeting the Company will request all record holders of the
Company's voting securities who are nominees for other beneficial
owners to certify as of the record date the number of shares and
addresses of all beneficial owners whose shares are held by such
nominees in accordance with Rules 14b-1(b)(3) and 14b-2(b)(3)
promulgated under the Securities and Exchange Act of 1934.
6.1.5 Laikin Employment Agreement. The new Board of Directors
of the Company shall approve, and the Company and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
shall execute and deliver, the Employment Agreement substantially
in the form of Exhibit N hereto (the "Laikin Employment
Agreement").
Section 6.2 Litigation. The Parties shall use their respective best
efforts to have all outstanding litigation involving the parties dismissed
with prejudice as to all parties thereto.
Section 6.3 NASDAQ Listing. The Company will continue to involve ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ and his counsel in discussions with NASDAQ regarding the possible
appeal of the revocation of the Company's NASDAQ listing and any efforts by
the Company to relist its shares for trading on NASDAQ.
Article 7. RESTRICTIVE LEGEND
Each certificate representing (i) the Shares (including the Option
Shares and the Warrant Shares), (ii) the Conversion Shares or (iii) any other
securities issued in respect of such securities upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act or sold
pursuant to Rule 144 or Regulation A thereunder) be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN EXEMPTION FROM SUCH REGISTRATION UNDER
SAID ACT.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received a written opinion of legal counsel who shall be
reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to
the effect that such legend is not required in order to establish compliance
with any provisions of the Securities Act.
Article 8. TERMINATION
Section 8.1 Grounds For Termination. This Agreement may, by written
notice given prior to or at the Closing, be terminated:
8.1.1 By NLAG, if a breach of any provision of this Agreement
has been committed by the Company and such breach has not been
waived or has not been cured within five days of the date the
Company receives written notice of such breach from NLAG or the
Purchasers;
8.1.2 By the Company, if a breach of any provision of this
Agreement has been committed by NLAG or any of the Purchasers and
such breach has not been waived or has not been cured within five
days of the date the breaching Party receives written notice of
such breach from the Company;
8.1.3 By NLAG, if any of the conditions in Section 5.1 becomes
impossible to satisfy (other than through the failure of NLAG or
the Purchasers to comply with their obligations under this
Agreement);
8.1.4 By the Company, if any of the conditions in Section 5.2
becomes impossible to satisfy (other than through the failure of
the Company to comply with its obligations under this Agreement);
8.1.5 By mutual consent of NLAG, the Company and the
Purchasers; or
8.1.6 By the Company, NLAG or the Purchasers, if the Closing
has not occurred (other than through the failure of any Party
seeking to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before the date thirty (30)
days from the date of this Agreement (the "Termination Date").
Section 8.2 Effect of Termination. Each Party's right of termination
under this Article 8 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 Article 8, all further obligations of the Parties under this Agreement
will terminate; provided, however, that if this Agreement is terminated by a
Party because of the breach of this Agreement by another Party or because one
or more of the conditions to the terminating Party's obligations under this
Agreement is not satisfied as a result of another Party's failure to comply
with its obligations under this Agreement, the terminating Party's right to
pursue its legal remedies against the breaching or failing Party will survive
such termination unimpaired.
Article 9. INDEMNIFICATION
Section 9.1 Indemnification by Company. If the Closing occurs, the
Company hereby agrees to indemnify the Purchasers, NLAG and the Option
Purchasers against and hold them harmless from any and all liabilities,
losses, deficiencies, damages, expenses and costs (including, without
limitation, reasonable counsel fees and costs and expenses incurred in the
investigation, defense or settlement of any claims covered by this indemnity
or incurred in connection with successfully asserting, proving or collecting
indemnity payments pursuant to this Section with respect to matters not
involving defense of third-party claims) accruing from or arising at any time
as a result of or out of (a) any inaccuracies in or breaches of the
representations, warranties, covenants, obligations or agreements made or to
be complied with or performed by the Company pursuant to this Agreement or
(b) any claims made by claimants who are not Parties to this Agreement
alleging facts which, if true, would constitute a breach of or inaccuracy in
a representation or warranty made by such Party herein.
Section 9.2 Indemnification by Purchasers and NLAG. If the Closing
occurs, each of the Purchasers, NLAG and each of the Option Purchasers hereby
severally but not jointly agrees to indemnify the Company against and hold it
harmless from any and all liabilities, losses, deficiencies, damages,
expenses and costs (including, without limitation, reasonable counsel fees
and costs and expenses incurred in the investigation, defense or settlement
of any claims covered by this indemnity or incurred in connection with
successfully asserting, proving or collecting indemnity payments pursuant to
this Section with respect to matters not involving defense of third-party
claims) accruing from or arising at any time as a result of or out of (a) any
inaccuracies in or breaches of the representations, warranties, covenants,
obligations or agreements made or to be complied with or performed by such
Party pursuant to this Agreement or (b) any claims made by claimants who are
not Parties to this Agreement alleging facts which, if true, would constitute
a breach of or inaccuracy in a representation or warranty made by such Party
herein.
Section 9.3 Nonexclusive. The remedies provided in this Article 9 will
not be exclusive of or limit any other remedies that may be available to the
Parties.
Section 9.4 Knowledge. The right to indemnification or other remedy
based upon representations, warranties, covenants, or obligations in this
Agreement will not be affected by any investigation conducted, or any
knowledge acquired (or capable of being acquired), at any time with respect
to the accuracy or inaccuracy of, or compliance with, any such
representation, warranty, covenant, or obligation.
Section 9.5 Survival. The Parties agree that all of their respective
representations and warranties contained in this Agreement shall survive the
Closing (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and shall
continue in full force and effect for a period of eighteen (18) months.
Article 10. MISCELLANEOUS
Section 10.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without giving effect to its
principles or rules of conflicts of laws, to the extent that such principles
or laws would require the application of the law of another jurisdiction.
Section 10.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the successors, heirs, executors and administrators of the
Parties. Except as otherwise expressly provided herein and subject to the
conditions hereof, no Party may assign such Party's rights or obligations
under this Agreement.
Section 10.3 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement among the
parties with regard to the subjects hereof and thereof and supersede any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated, except by a written instrument signed by the
Company, NLAG and the holders of seventy percent (70%) or more of the Common
Stock issued or issuable upon conversion of the Shares, but in no event shall
the obligations of any Purchaser hereunder be increased, except upon such
Purchaser's written consent.
Section 10.4 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified, (ii) when sent
by confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) five days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All notices shall be addressed to the Company at its principal
office, to NLAG at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇, to
each Purchaser at the addresses set forth on the Schedule of Purchasers
attached hereto, or to such other address as the Company, NLAG or each
Purchaser shall have furnished to the other in writing, or if to any other
holder of any Shares or any Common Stock issued upon conversion of Shares, to
such address as such holder shall have furnished the Company in writing, or,
until any such holder so furnishes an address to the Company, then to and at
the address of the last holder thereof who has so furnished an address to the
Company.
Section 10.5 Understanding Among Purchasers. The determination by each
of the Purchasers to purchase the Units pursuant to this Agreement has been
made by such Purchaser independent of the other Purchasers and independent of
any statements or opinions as to the advisability of such purchase or as to
the properties, business, prospects or condition (financial or otherwise) of
the Company which may have been made or given by the other Purchasers or by
any agent or employee of the other Purchasers. In addition, it is
acknowledged by each of the Purchasers that the other Purchasers have not
acted as such Purchaser's agent in connection with making its investment
hereunder and that the other Purchasers will not be acting as such
Purchaser's agent in connection with monitoring such Purchaser's investment
hereunder.
Section 10.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares or Warrants or
the Option, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement, or any waiver on the
part of any holder of any provisions or conditions of this Agreement must be
made in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
Section 10.7 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in the manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or the effectiveness or validity of any
provision in any other jurisdiction, and this Agreement shall be reformed,
construed and enforced in the jurisdiction as if the invalid, illegal or
unenforceable provision had never been contained herein.
Section 10.8 Titles and Subtitles. The titles of the articles, sections
and subsections of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
Section 10.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 10.10 Standstill Agreement. NLAG and each Purchaser agrees that
until the earlier of (a) the Closing Date or (b) five (5) days after the
termination of this Agreement pursuant to Article 8 hereof, other than with
respect to the transactions contemplated by this Agreement, without the prior
written consent of the Company, such Party will not, directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by purchase or otherwise,
any voting securities or direct or indirect rights or options to acquire any
voting securities of the Company exceeding, in the aggregate, on an
as-exercised or as-converted basis if applicable, 50,000 shares of voting
Common Stock of the Company; (ii) except at the specific written request of
the Company, propose to enter into any merger or business combination
involving the Company or to purchase a material portion of the assets of the
Company; (iii) make, or in any way participate, in any "solicitation" of
"proxies" to vote (as such terms are used in the proxy rules of the 1934 Act)
or seek to advise or influence any person with respect to the voting of, any
voting securities of the Company; (iv) solicit or permit any person or entity
to join their "group" (within the meaning of Section 13(d)(3) of the 1934
Act) with respect to any voting securities of the Company; (v) otherwise act,
alone or in concert with others, to seek to control or influence the
management, Board of Directors or policies of the Company (other than in
▇▇▇▇▇▇'▇ fiduciary capacity as a director of the Company); (vi) publicly
announce or refer to any proposal for an extraordinary corporate transaction
involving the Company, or take any action for the purpose of requiring the
Company to make a public announcement regarding the possibility of any such
extraordinary corporate transaction; (vii) disclose any intention, plan or
arrangement inconsistent with the foregoing or advise, assist or encourage
any other persons in connection with the foregoing, or request that the
Company amend or waive any of the terms of this Section 10.10; (viii) sell or
transfer more than one percent (1%) of the total outstanding voting
securities of the Company to any person, entity or "group" (within the
meaning of Section 13(d)(3) of the 1934 Act), or sell or transfer any such
voting securities to any such person, entity or group who or which, after the
consummation of such sale or transfer, would beneficially own more than
fourteen and nine-tenths percent (14.9%) of the total outstanding voting
securities of the Company; or (ix) permit any of such Party's affiliates or
associates or members of such Party's "group" (within the meaning of Section
13(d)(3) of the 1934 Act) to do any of the foregoing. The Parties agree and
acknowledge that the provisions of this Section 10.10 shall be in addition to
the standstill provisions contained in Section 14(a) of the March Letter
Agreement to the extent it is in force (NLAG and the Purchasers assert that
it is not, the Company asserts that it is) and to the extent it binds any of
the Parties (NLAG and the Purchasers take the position that, if it is in
force, it binds only the parties who executed it, the Company takes the
position that the parties who executed the March Letter Agreement are
responsible for causing their affiliates and associates to abide by it);
provided, however, that the right of NLAG and the Purchasers contained in
clause (i) of the first sentence of this Section 10.10 to purchase in the
aggregate 50,000 shares of voting Common Stock shall be deemed to supercede
any restriction to the contrary contained in Section 14(a) of the March
Letter Agreement with respect only to purchases of Common Stock made or
committed to be made prior to the termination of this Agreement; provided,
further, however, that in the event this Agreement is validly terminated,
Section 14(a) of the March Letter Agreement shall apply to the Parties (if it
has remained in force) to the extent such Parties were subject to the
provisions of the March Letter Agreement as if Section 14(a) of the March
Letter Agreement is no longer superceded as described herein with respect to
any purchases of Common Stock committed to be made after the termination of
this Agreement.
Section 10.11 No Personal Liability of Representatives. No officer,
director, principal, attorney, agent or other representative (collectively, a
"Representative") of any Party shall be personally liable for the
representations, warranties, covenants and agreements of such Party contained
in this Agreement and the other agreements and certificates contemplated
hereby or for any action taken on behalf of such Party in connection
therewith. Without limiting the foregoing, no Representative of the Company
shall have any personal liability as a result of executing and delivering
this Agreement, the other Company Relevant Documents and the certificate
provided for in Section 5.1.17 on behalf of the Company. Each Representative
of the Company (including, without limitation, Jimirro) and NLAG shall be a
third-party beneficiary of this Section 10.11.
Section 10.12 Expenses. The Company shall pay all legal, accounting,
advisory and other fees, and other out-of-pocket expenses incurred by the
Company, Jimirro, NLAG and the Purchasers in connection with the transactions
contemplated by this Agreement (including, without limitation, the documents
attached as exhibits hereto), including, without limitation, the proxy
solicitation commenced by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ on or about August 11, 2000, the
March Letter Agreement, and all other matters regarding the Company prior to
the Closing and related litigation. ▇▇▇▇▇▇▇ shall be a third-party
beneficiary of this Section 10.12. Without limiting the foregoing, the
parties agree and acknowledge that, other than advisors who have been paid as
part of the Purchaser Expenses, the advisors listed on Schedule 10.12 are all
of the advisors whose fees the Company is obligated to pay pursuant to this
Section 10.12 and that each of the advisors listed on Schedule 10.12 shall
have had their respective fees paid by the Company on or prior to the
Closing, including, if not paid previously, by wire transfer of immediately
available funds in an amount equal to such advisor's respective "Closing
Cash" amount set forth on Schedule 10.12 and the issuance of the Company's
unsecured one-year promissory notes in the form of Exhibit P attached hereto
in an amount equal to such advisor's respective "Closing Note" amount set
forth on Schedule 10.12, all in connection with and as part of the Closing.
The Purchasers and the Company have approved the amounts listed on Schedule
10.12 and the amounts of Purchaser Expenses listed on the Schedule of
Purchasers attached hereto and no further approval of such amounts shall be
necessary. The amounts listed on Schedule 10.12 may be increased prior to
Closing subject to approval by the Company and the Purchasers, each acting in
good faith with respect thereto.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
J2 COMMUNICATIONS
By:_______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
NATIONAL LAMPOON ACQUISITION GROUP, LLC
By:_______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Managing Member
"PURCHASERS"
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▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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[Designee of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇]
04103.0001 #331148