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EXHIBIT 10.2
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WARRANT AGREEMENT OF
THE ▇▇▇▇▇▇ ENTERTAINMENT COMPANY
2,400,000 SHARES
Dated as of April 26, 1999
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COMMON STOCK PURCHASE WARRANT
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WARRANT AGREEMENT (the "Agreement") dated as of April 26, 1999 among The
▇▇▇▇▇▇ Entertainment Company, a California corporation (the "Company"), ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, The ▇▇▇▇▇▇▇-▇▇▇▇▇ Company, a California corporation,
▇▇ ▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇ (collectively with any permitted transferee hereunder
the "Holders").
The Company and the Holders hereby agree as follows:
SECTION 1. ISSUANCE OF THE WARRANTS; TRANSFERABILITY AND FORM OF THE
WARRANTS.
1.1 THE WARRANTS. The Company hereby grants to the
Holders, in the individual amounts set forth on
Schedule 1 hereto, (i) an aggregate of 533,332 Common
Stock Purchase Warrants (Series A) (the "Series A
Warrants") each to purchase one share of its common
stock, no par value per share (the "Common Stock");
(ii) an aggregate of 533,332 Common Stock Purchase
Warrants (Series B) (the "Series B Warrants"), each to
purchase one share of the Common Stock; and (iii) an
aggregate of 533,336 Common Stock Purchase Warrants
(Series C) (the "Series C Warrants" and collectively
with the Series A Warrants and the Series B Warrants,
the "Warrants") each to purchase one share of the
Common Stock. In addition, within one year after the
date hereof, the Company will grant to management,
directors or consultants to the Company, as determined
by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (i) an aggregate of 266,666
Series A Warrants, (ii) an aggregate of 266,667 Series
B Warrants and (iii) an aggregate of 266,667 Series C
Warrants. The shares of Common Stock issuable upon
exercise of the Warrant are referred herein as the
"Warrant Shares."
1.2 REGISTRATION. The Warrant Shares constitute
"Shareholder Common Stock" under that certain
Registration Rights Agreement, dated as of April 26,
1999, between the Company and the Holders and,
accordingly, have the benefit of the registration
rights pursuant to that agreement.
1.3 TRANSFER RESTRICTIONS. No Holder may transfer any
Warrant without the prior written consent of the
Company, which consent may be granted or denied in the
sole discretion of the Company, provided that all or a
portion of any Warrant may be transferred to any
family member of a Holder or in connection with estate
planning matters (including by operation of law).
Should such consent be granted, the Warrants so
transferred shall continue
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to be bound by this restriction in the hands of a
subsequent Holder, and the Company shall not be
required to recognize any attempted transfer of the
Warrants in violation of this Agreement.
1.4 TRANSFER - GENERAL. Subject to the terms hereof,
the Warrants shall be transferable only on the books
of the Company maintained at its principal office upon
delivery thereof duly endorsed by the Holder or by his
duly authorized attorney or representative, or
accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of
transfer by an attorney, the original power of
attorney, duly approved, or a copy thereof, duly
certified, shall be deposited and remain with the
Company. In case of transfer by executors,
administrators, guardians or other legal
representatives, duly authenticated evidence of their
authority shall be produced, and may be required to be
deposited and to remain with the Company in its
discretion. Upon any registration of transfer, the
person to whom such transfer is made shall receive a
new Warrant or Warrants as to the portion of the
Warrant transferred, and the Holder of such Warrant
shall be entitled to receive a new Warrant or Warrants
from the Company as to the portion thereof retained.
The Company may require the payment of a sum
sufficient to cover any tax or governmental charge
that may be imposed in connection with any such
transfer.
1.5 FORM OF THE WARRANTS. The form of the Warrants
and of the election to purchase Warrant Shares (the
"Purchase Form") shall be substantially as set forth
respectively in Annex A and B attached hereto. Except
for the exercise price thereof, the Series A Warrants,
the Series B Warrants and the Series C Warrants shall
be identical in all respects. The Warrants shall be
executed on behalf of the Company by its Chairman of
the Board, its Chief Executive Officer, President or
one of its Vice Presidents.
The Warrants shall be dated as of the date of execution
thereof by the Company either upon initial issuance or upon transfer.
SECTION 2. TERM OF THE WARRANTS; EXERCISE OF THE WARRANTS; EXERCISE
PRICE, ETC.
2.1 TERM OF THE WARRANTS. Subject to the terms of this
Agreement, the Holders shall have the right, which
right may be exercised in whole or in part, from time
to time, beginning on the date six months following
the Closing and ending on the date set
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forth in the respective Warrant (the "Expiration
Date"), to purchase from the Company the number of
fully paid and nonassessable Warrant Shares which the
Holder may at the time be entitled to purchase on
exercise of such Warrant. If the last day for the
exercise of the Warrants shall not be a business day,
then the Warrants may be exercised on the next
succeeding business day. As used herein, the term
"Closing" shall mean the date of the closing of the
issuance by the Company of the Warrants.
2.2 VESTING OF THE WARRANTS. The Warrants, other than
the Warrants for ▇▇▇▇▇ ▇▇▇▇▇▇▇, are vested in full and
may be exercised on or after the date hereof in
accordance with the terms of this Agreement and the
Warrants. The Warrants for ▇▇▇▇▇ ▇▇▇▇▇▇▇ vest pursuant
to the terms of his Employment Agreement dated April
7, 1999, by and between the Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
2.3 EXERCISE OF THE WARRANTS. The Warrants may be
exercised upon surrender to the Company, at its
principal office, of the certificate evidencing the
Warrants to be exercised, together with the Purchase
Form on the reverse thereof completed and signed, and
upon payment to the Company, of the Exercise Price (as
defined in and determined in accordance with the
provisions of Sections 2.5 and 6 hereof) for the
number of Warrant Shares in respect of which such
Warrants are then being exercised (such surrender of
Warrants, delivery of the Purchase Form and payment of
the Exercise Price hereinafter called the "Exercise of
the Warrants"). Upon partial exercise, a Warrant
certificate for the unexercised portion shall be
delivered by the Company to the Holder. Payment of the
Exercise Price shall be by delivery of cash, or a
certified or official bank check in the amount of such
Exercise Price.
Subject to Section 3 hereof, upon such surrender of a Warrant
and payment of the Exercise Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written order
of the Holder thereof and in such name or names as the Holders may designate, a
certificate or certificates for the number of Warrant Shares so purchased upon
the exercise of such Warrant, together with cash, as provided in Section 6.3
hereof, in lieu of any fractional Warrant Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such Warrant Shares as of the date of the surrender of
such Warrant and payment of the Exercise Price, as aforesaid.
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2.4 COMPLIANCE WITH GOVERNMENT REGULATIONS. Holders
acknowledge that none of the Warrants or Warrant
Shares have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), and
therefore may be sold or disposed of in the absence of
such registration only pursuant to an exemption from
such registration and in accordance with this
Agreement. The Warrant Shares will bear a legend to
the following effect:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
ARE SUBJECT TO THE WARRANT AGREEMENT, DATED APRIL 26, 1999,
AMONG THE ▇▇▇▇▇▇ ENTERTAINMENT COMPANY, THE ▇▇▇▇▇▇▇-▇▇▇▇▇
COMPANY, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ AND ▇▇▇ ▇▇▇▇▇▇▇ (A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY).
SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS (IF REQUESTED BY THE COMPANY, UPON PROVISION OF
AN OPINION OF COUNSEL IN FORM SATISFACTORY TO THE COMPANY)."
2.5 EXERCISE PRICE. The price per share at which
Warrant Shares shall be purchasable upon exercise of
each Warrant (the "Exercise Price") shall be (i) $9.00
per share of Common Stock in the case of the Series A
Warrants; (ii) $11.00 per share of Common Stock in the
case of the Series B Warrants; and (iii) $12.00 per
share of Common Stock in the case of the Series C
Warrants, in each case subject to adjustment as
provided in Section 6 hereof.
SECTION 3. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants and Warrant
Shares upon the exercise of Warrants. The Company shall not be required to pay
any income tax or taxes resulting from the issuance of the Warrants or any other
tax or taxes which may be payable in respect of any transfer involved in the
issue or delivery of the Warrants or certificates for Warrant Shares.
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SECTION 4. MUTILATED OR MISSING WARRANT. In case any Warrant
certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen
or destroyed, a new Warrant certificate of like tenor and representing an
equivalent right or interest; but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such Warrant
certificate and indemnity or bond, if requested, also reasonably satisfactory to
them. An applicant for such substitute Warrant certificate shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
SECTION 5. RESERVATION OF WARRANT SHARES.
5.1 RESERVATION OF WARRANT SHARES. There have been
reserved, and the Company shall at all times keep
reserved, out of its authorized and unissued shares of
Common Stock, that number of shares of Common Stock
sufficient to provide for the exercise of the
outstanding Warrants. The transfer agent for the
Common Stock and every subsequent transfer agent
("Transfer Agent") for any shares of the Company's
capital stock issuable upon the exercise of any of the
Warrants will be and are hereby irrevocably authorized
and directed at all times until 5:00 p.m. Pacific Time
on the Expiration Date applicable to each Series of
Warrants to reserve such number of authorized shares
as shall be requisite for such purpose. The Company
will keep a copy of this Agreement on file with the
Transfer Agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Company
covenants that all Warrant Shares which may be issued
upon exercise of Warrants will, upon payment in
accordance with this Agreement be validly issued,
fully paid, nonassessable, free of preemptive rights
and free from all taxes, liens, charges, pledges,
mortgages and security interests with respect to the
issue thereof. The Company will supply the Transfer
Agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make
available any cash which may be payable as provided in
Section 6.3 of this Agreement. The Company will
furnish to such Transfer Agent a copy of all notices
of adjustments, and certificates related thereto,
transmitted to each Holder. Any Warrant surrendered in
the exercise of the rights thereby evidenced shall be
canceled by the Company.
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5.2 CANCELLATION OF WARRANTS. In the event the Company
shall purchase or otherwise acquire any Warrants, the
same shall be canceled and retired.
SECTION 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The number and kind of securities purchasable upon the exercise of the Warrants
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter defined.
6.1 MECHANICAL ADJUSTMENTS. The number of Warrant
Shares purchasable upon the exercise of the Warrants
and the Exercise Price shall be subject to adjustment
as follows:
(a) PROHIBITED ACTIONS. So long as any Warrants are
outstanding, then, the Company will not avoid or seek to avoid the
observance or performance of any of the terms of this Agreement or the
Warrants or impair the ability of the Holders to realize the full
intended economic value thereof, but will at all times in good faith
assist in the carrying out of all such terms, and of the taking of all
such action as may be necessary or appropriate in order to protect the
rights of the Holders of the Warrants against dilution or other
impairment.
(b) ADJUSTMENT OF NUMBER OF SHARES. Subject to any
applicable exceptions set forth in Section 6.1(g) below, if and whenever
after the date hereof the Company shall in any manner (i) issue or sell
any shares of its Common Stock for less than Fair Value (as defined in
Section 6.1 (k) below) as determined at the time of such issuance or
sale, or (ii) grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase any options,
warrants, convertible securities, securities and other rights to acquire
from the Company shares of Common Stock ( the "Common Stock
Equivalents"), or issue or sell (whether directly or by assumption in a
merger or otherwise) Common Stock Equivalents, and the price per share
for which Common Stock is issuable upon exercise, conversion or exchange
of such Common Stock Equivalents (determined by dividing (x) the
aggregate amount received or receivable by the Company as consideration
for the issue, sale or grant of such Common Stock Equivalents, plus the
minimum aggregate amount of additional consideration, if any, payable to
the Company upon the exercise, conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Common Stock Equivalents)
shall be less than the Fair Value (after taking into account any
consideration received or receivable by the Company with respect to the
exercise, exchange or conversion of any Common Stock Equivalents) on the
date of such issue, sale or grant, whether or not the rights to
exercise, exchange or convert thereunder are immediately exercisable or
(iii) declare a dividend or make any other distribution upon any stock
of the Company payable in Common Stock or
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Common Stock Equivalents, then (A) the Exercise Price shall be reduced
to a price determined by multiplying the Exercise Price in effect prior
to the adjustment referred to in this Section 6.1 (b) by a fraction, the
numerator of which is an amount equal to the sum of (x) the number of
shares of Common Stock outstanding (including shares of Common Stock
issuable upon conversion of all outstanding shares of Series A Preferred
Stock) immediately prior to such issue, sale, grant, dividend or
distribution, plus (y) (A) the consideration, if any, received or
receivable by the Company upon any such issue or sale, plus, in the case
of Common Stock Equivalents, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise,
conversion or exchange of Common Stock Equivalents divided by (B) the
Fair Value as determined at the time of such issue or sale, and the
denominator of which is the total number of shares of Common Stock
outstanding (including shares of Common Stock issuable upon conversion
of all outstanding shares of Series A Preferred Stock) immediately after
such issue, sale, grant, dividend or distribution, and (B) the number of
shares of Common Stock, taking into account all shares of Common Stock
thereto issued upon exercise of each Warrant, required to be issued by
the Company to the Holders (the "Exercise Quantity") shall be adjusted
to equal the number obtained by dividing (x) the Exercise Price in
effect immediately prior to such issue, sale, grant, dividend or
distribution multiplied by the Exercise Quantity immediately prior to
such issue, sale, grant, dividend or distribution by (y) the Exercise
Price resulting from the adjustment made pursuant to clause (A) above.
(c) RECORD DATE. The record date for the holders of
the Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in shares of Common Stock or
Common Stock Equivalents, or (b) to subscribe for or purchase shares of
Common Stock or Common Stock Equivalents shall be the date determined by
the Board as the record date for such purposes or, if none is
established by the Board, then the record date shall be the effective
date for such action; provided, however, that if such shares are not
actually issued or sold on the applicable issuance or sale date, then
such shares of Common Stock or Common Stock Equivalents shall not be
deemed to have been sold or issued on such record date.
(d) CERTAIN DIVIDENDS. In case the Company shall pay a
dividend or make a distribution generally to the holders of its Common
Stock of shares of its capital stock (other than shares of Common
Stock), evidences of its indebtedness, assets or rights, warrants or
options (excluding (i) dividends or distributions payable in cash out of
the current year's or retained earnings of the Company, (ii)
distributions relating to subdivisions and combinations covered by
Section 6.1 (e), (iii) distributions relating to reclassifications,
changes, consolidations, mergers, sales or conveyances covered by
Section 6.1 (f) and (iv) rights, warrants or options to purchase or
subscribe for shares of Common Stock or Common Stock Equivalents or
other issuances covered by Section 6(b)), then in each such case (A) the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect
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immediately prior to the record date mentioned below by a fraction, the
numerator of which shall be (x) the total number of shares of Common
Stock then outstanding (including shares of Common Stock issuable upon
conversion of all outstanding shares of Series A Preferred Stock)
multiplied by the Fair Value per share of Common Stock on the record
date mentioned below, minus (y) the Fair Value as of such record date of
said shares of stock, evidences of indebtedness or assets so paid or
distributed or of such rights, warrants or options, plus (z) in the case
of rights, warrants or options, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
exercise of such rights, warrants or options, and the denominator of
which shall be the total number of shares of Common Stock then
outstanding (including shares of Common Stock issuable upon conversion
of all outstanding shares of Series A Preferred Stock) multiplied by the
Fair Value per share of Common Stock on the record date mentioned below,
and (B) the Exercise Quantity shall be adjusted to equal the number
obtained by dividing (x) the Exercise Price in effect immediately prior
to such dividend or distribution multiplied by the Exercise Quantity
immediately prior to such dividend or distribution by (y) the Exercise
Price resulting from the adjustment made pursuant to clause (A) above.
Such adjustments shall be made whenever any such dividend is paid or
such distribution is made and shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such dividend or distribution.
In the event of a distribution by the Company of stock of
a subsidiary or securities convertible into or exercisable for such
stock, then in lieu of an adjustment in the Exercise Price, the Holder
of this Warrant, upon the exercise thereof at any time after such
distribution, shall be entitled to receive from the Company, such
subsidiary or both, as the Company shall determine, the stock or other
securities to which such Holder would have been entitled if such Holder
had exercised such Warrant immediately prior thereto, all subject to
further adjustment as provided in this Section 6; provided, however,
that no adjustment in respect of dividends or interest on such stock or
other securities shall be made during the term of the Warrants or upon
the exercise of the Warrants.
(e) SUBDIVISION OR COMBINATION OF SHARES. In case the
Company shall at any time subdivide its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionally reduced
and the number of Warrant Shares purchasable hereunder shall be
proportionately increased. In case the outstanding shares of the Common
Stock of the Company shall be combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall
be proportionately increased, but in no event to greater than the
aggregate Exercise Price of all Warrant Shares in effect on the date
hereof, and the number of Warrant Shares purchasable hereunder shall be
proportionately reduced.
(f) REORGANIZATION, MERGER, ETC. In case of any
capital reorganization, reclassification or similar transaction
involving the capital stock of
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the Company (other than as provided in Section 6.1 (e)), any
consolidation, merger or business combination of the Company with
another corporation, or the sale or conveyance of all or substantially
all of its assets to another corporation, shall be effected in such a
way that holders of the Common Stock shall be entitled to receive stock,
securities, or assets (including cash) with respect to or in exchange
for shares of the Common Stock, then, prior to and as a condition of
such reorganization, reclassification, consolidation, merger, business
combination, sale or conveyance, lawful and adequate provision shall be
made whereby the Holders shall thereafter have the right to receive upon
exercise of the Warrants and in lieu of the Warrant Shares immediately
theretofore purchasable upon the exercise of the Warrants, such shares
of stock, securities or assets (including cash) as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore purchasable upon the exercise of the Warrants
had such reorganization, reclassification, consolidation, merger,
business combination, sale or conveyance not taken place. In any such
case, appropriate provision shall be made with respect to the rights and
interests of the Holders to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the
Exercise Price and of the number of Warrant Shares purchasable upon the
exercise of the Warrants) shall thereafter be applicable, as nearly as
possible in relation to any stock, securities or assets thereafter
deliverable upon the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, business combination, sale or
conveyance unless prior to or simultaneously with the consummation
thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and
sent to each registered Holder, the obligation to deliver to such Holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to receive, and
containing the express assumption by such successor corporation of the
due and punctual performance and observance of every provision of this
Agreement to be performed and observed by the Company and of all
liabilities and obligations of the Company hereunder.
(g) EXCEPTIONS TO ADJUSTMENT. No adjustment will be
made (i) upon the exercise or conversion of any Warrants, options,
subscriptions, convertible notes, convertible debentures, convertible
preferred stock or other convertible securities issued and outstanding
on the date hereof; (ii) upon the grant or exercise of any stock or
options which may hereinafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the
future, or upon grant or exercise of any stock or options to or by any
officer, director, employee, agent, consultant or other entity providing
services to the Company, whether or not under a plan; (iii) upon
conversion of any of the Series A Convertible Preferred Stock; (iv) upon
the issuance of securities in connection with any merger, acquisition or
consolidation, or purchase of assets or business from another person, so
long as the Company is the surviving corporation; (v) upon the issuance
of securities issued as the result of anti-dilution rights
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granted to a third party; (vi) upon the issuance of securities in a
private placement made within six months of the original issuance date
of the Series A Preferred Stock at a discount below the market price
thereof which does not exceed 20%.
(h) TREASURY SHARES. The number of shares of the
Common Stock outstanding at any time shall not include shares owned or
held by or for the account of the Company or any of its subsidiaries,
and the disposition (but not the cancellation) of any such shares shall
be considered an issue or sale of the Common Stock for the purposes of
Section 6.
(i) ADJUSTMENT NOTICES TO HOLDERS. Upon any increase
or decrease in the number of Warrant Shares purchasable upon the
exercise of the Warrants, or upon any adjustment in the Exercise Price,
then, and in each such case, the Company shall promptly deliver written
notice thereof to each Holder, which notice shall state the increased or
decreased number of Warrant Shares purchasable upon the exercise of the
Warrants, setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based. Such notice shall
also contain a certificate of the Company's independent public
accountants as to the correctness of such adjustments and calculations
and to the effect that such adjustments and calculations have been made
in accordance with the terms hereof.
(j) EXERCISE PRICE DEFINED. As used in these Warrants,
the term "Exercise Price" shall mean the purchase price per share
specified in these Warrants until the occurrence of an event specified
in this Section 6 and thereafter shall mean said price, as adjusted from
time to time, in accordance with the provisions of said subsection. No
such adjustment shall be made unless such adjustment would change the
Exercise Price at the time by $.125 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.125 or more.
(k) AIR VALUE DEFINED. Fair Value as of a particular
date shall mean the average of the daily closing prices for the
preceding twenty trading days before the day in question. The closing
price for each day shall be the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, the average of the closing bid and
asked prices as reported by the National Association of Securities
Dealers Automated Quotation System. If such quotations are unavailable,
or with respect to other appropriate security, property, assets,
business or entity, "Fair Value" shall mean the fair value of such item
as determined by mutual agreement reached by the Company and the Holders
constituting a majority of the unexercised shares of Common Stock
issuable under the Warrants (the "Majority of the Holders") or, in the
event the parties are
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unable to agree, an opinion of an independent investment banking firm or
firms in accordance with the following procedure. In the case of any
event which gives rise to a requirement to determine "Fair Value"
pursuant to this Agreement, the Company shall be responsible for
initiating the process by which Fair Value shall be determined as
promptly as practicable, but in any event within sixty (60) days
following such event and if the procedures contemplated herein in
connection with determining Fair Value have not been complied with
fully, then any such determination of Fair Value for any purpose of this
Agreement shall be deemed to be preliminary and subject to adjustment
pending full compliance with such procedures. Upon the occurrence of an
event requiring the determination of Fair Value, the Company shall give
the Holders of the Warrants notice of such event, and the Company and
the Holders shall engage in direct good faith discussions to arrive at a
mutually agreeable determination of Fair Value. In the event the Company
and the Majority of the Holders are unable to arrive at a mutually
agreeable determination within thirty (30) days of the notice, Deloitte
& Touche LLP shall make such determination and render such an opinion.
The determination so made shall be conclusive and binding on the Company
and such Holders. The fees and expenses of the investment banking firm
retained for such purpose shall be equally shared by the Company and the
Holders.
(l) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR
ASSETS. In the event that at any time, as a result of an adjustment made
pursuant to this Section 6, the Holder of these Warrants shall, upon
Exercise of these Warrants, become entitled to receive shares and/or
other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities
or assets shall be subject to adjustment from time to time in a manner
and upon terms as nearly equivalent as practicable to the provisions of
this Section 6.
(m) COMPUTATION OF ADJUSTMENT. If any adjustment to
the number of shares of Common Stock issuable upon the exercise of each
Warrant or any adjustment to the Exercise Price is required pursuant to
Section 6 hereof, the number of shares of Common Stock issuable upon
exercise of each Warrant or the Exercise Price shall be rounded up to
the nearest 1/10th cent or 1/100th Share, as appropriate.
6.2 NOTICE OF ADJUSTMENT. Whenever the number of
Warrant Shares purchasable upon the exercise of the
Warrants or the Exercise Price of such Warrant Shares
is adjusted, as herein provided, the Company shall
mail by first class, postage prepaid, to each Holder
notice of such adjustment or adjustments and shall
deliver to each Holder a copy of a certificate of
either the Board of Directors of the Company or of a
firm of independent public
11
13
accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed
by the Company) setting forth the number of Warrant
Shares purchasable upon the exercise of the Warrants
and the Exercise Price of such Warrant Shares after
such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth
the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the
correctness of such adjustment in the absence of
manifest error.
6.3 FRACTIONAL INTERESTS. No fractional shares or
scrip representing fractional shares shall be issuable
upon an Exercise of Warrants, but on Exercise of
Warrants, the Holders hereof may purchase only a whole
number of shares of Common Stock. The Company shall
make a payment in cash in respect of any fractional
shares which might otherwise be issuable upon Exercise
of these Warrants, calculated by multiplying the
fractional share amount by the closing bid price of
the Company's Common Stock on the Date of Exercise as
reported by the NASDAQ National Market or such other
principal exchange or trading market upon which the
Common Stock is then traded; provided that the
Exercise of multiple Warrants shall be aggregated so
that a cash payment in respect of fractional shares
pursuant to this Section 6.3 shall not be made as to a
total number greater than one for any single Exercise.
6.4 STATEMENT ON THE WARRANTS. Irrespective of any
adjustments in the Exercise Price or the number or
kind of shares purchasable upon the exercise of the
Warrants, the Warrants theretofore or thereafter
issued may continue to express the same price and
number and kind of shares as are stated in the
Warrants initially issuable pursuant to this
Agreement.
SECTION 7. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Holders or its permitted transferees the right to vote or to receive
dividends or to consent to or receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company.
SECTION 8. INSPECTION OF WARRANT AGREEMENT. The Company shall keep
copies of this Agreement and any notices given or received hereunder available
for inspection by the Holders during normal business hours at its principal
office.
SECTION 9. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment
of any subsequent transfer agent for the Common Stock or any other shares of the
Company's capital stock issuable upon the exercise of the Warrants
12
14
the Company will notify the Holders of the name and address of such subsequent
transfer agent.
SECTION 10. NOTICES. Any notice pursuant to this Agreement by any
Holders to the Company, shall be in writing and shall be mailed first class,
postage prepaid, or delivered to the Company at its office at 1999 Avenue of the
Stars, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief Executive
Officer.
Any notice mailed pursuant to this Agreement by the Company to the
Holders shall be in writing and shall be mailed first class, postage prepaid, or
delivered to the Holders at their addresses on the signature page hereto.
Each party hereto may from time to time change the address to which
notices to it are to be delivered or mailed hereunder by notice in writing to
the other party.
SECTION 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to principles of conflict of laws. The parties hereto agree to submit to
the jurisdiction of the Courts of the State of California in any action or
proceeding arising out of or relating to this Agreement.
SECTION 12. SUPPLEMENTS AND AMENDMENTS. The Company and Majority of the
Holders may from time to time supplement or amend this Agreement in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Majority of the Holders may deem necessary or
desirable and which shall not be inconsistent with the provisions of the
Warrants and which shall not adversely affect the interests of the Holders.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company shall bind and inure to the
benefit of its successors and assigns hereunder.
SECTION 14. MERGER OR CONSOLIDATION OF THE COMPANY. So long as the
Warrant remains outstanding, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement, the due and punctual performance and
13
15
observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
SECTION 15. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to confer upon any person other than the Company and the Holders
any legal or equitable right, remedy or claim under this Agreement and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Holders.
SECTION 16. CAPTIONS. The captions of the Sections of this Agreement
have been inserted for convenience only and shall have no substantive effect.
SECTION 17. COUNTERPARTS. This Agreement may be executed in any number
of counterparts each of which when so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
SECTION 18. LIMITATION OF LIABILITY. No provision hereof, in the absence
of affirmative action by any Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of any Holder of a Warrant, shall
give rise to any liability of such Holder for the purchase price of any Common
Stock or as a shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
SECTION 19. WAIVER AND COURSE OF DEALING. No course of dealing or any
delay or failure to exercise any right hereunder on the part of any party
thereto shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of such party.
SECTION 20. WAVIER OF JURY TRIAL. THE COMPANY AND THE HOLDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR FOR ANY COUNTERCLAIM THEREIN.
14
16
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the day, month and year first above written.
THE COMPANY:
THE ▇▇▇▇▇▇ ENTERTAINMENT COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Interim President &
Chief Executive Officer
15
17
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
Signature
Address:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
----------------------------------------
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
Signature
Address:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
----------------------------------------
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
THE ▇▇▇▇▇▇▇-▇▇▇▇▇ COMPANY
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
Signature
Address:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
----------------------------------------
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
16
18
▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
Signature
Address:
----------------------------------------
----------------------------------------
▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇ ▇▇▇▇▇▇▇
----------------------------------------
Signature
Address:
----------------------------------------
----------------------------------------
17
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ANNEX A
Warrant Certificate
Warrant No. ______________ ______________ Shares
[SERIES A] [SERIES B] [SERIES C] COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Time on [April ___, 2005] [April ___, 2006] [April ____, 2007]
THIS CERTIFIES THAT, for value received, _______________, the registered
holder of this [Series A] [Series B] [Series C] Common Stock Purchase Warrant
(the "Warrant") or permitted assigns (the "Holder"), is entitled to purchase
from The ▇▇▇▇▇▇ Entertainment Company, a California corporation (the "Company"),
at any time until 5:00 p.m. Pacific Time on [April ___, 2005] [April ___, 2006]
[April ____, 2007] (the "Expiration Date"), ___________ shares of the common
stock of the Company, no par value per share (the "Common Stock") at a price per
share of [$9.00] [$11.00] [$12.00] (the "Purchase Price"). The number of shares
purchasable upon exercise of this Warrant and the Purchase Price per share shall
be subject to adjustment from time to time as set forth in the Warrant Agreement
referred to below.
This Warrant is issued under and in accordance with a Warrant Agreement,
dated as of April __, 1999, between the Company, the Holder and the other
Holders signatory thereto and is subject to the terms and provisions contained
in the Warrant Agreement, to all of which the Holder of this Warrant by
acceptance hereof consents. A copy of the Warrant Agreement may be obtained for
inspection by the Holder hereof upon written request to the Company.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed and
simultaneous payment of the Exercise Price (subject to adjustment) at the
principal office of the Company in Los Angeles, California. Payment of such
price shall be payable at the option of the Holder hereof in cash or by
certified or official bank check or wire transfer. Terms relating to exercise of
Warrant is set forth more fully in the Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial
exercise, a Warrant Certificate for the unexercised portion shall be delivered
to the Holder. No fractional shares will be issued upon the exercise of this
Warrant but the Company shall pay the cash value of any fraction upon the
exercise of the Warrant. This Warrant is transferable only in limited
circumstances as described in this Warrant Agreement at the office of the
Company in Los Angeles, California, in the manner and subject to the limitations
set forth in the Warrant Agreement.
20
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
ARE SUBJECT TO THE WARRANT AGREEMENT, DATED APRIL 26, 1999, AMONG
THE ▇▇▇▇▇▇ ENTERTAINMENT COMPANY, THE ▇▇▇▇▇▇▇-▇▇▇▇▇ COMPANY,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ AND ▇▇▇ ▇▇▇▇▇▇▇ (A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS (IF
REQUESTED BY THE COMPANY, UPON PROVISION OF AN OPINION OF COUNSEL
IN FORM SATISFACTORY TO THE COMPANY)."
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on such books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of
a stockholder of the Company.
THE ▇▇▇▇▇▇ ENTERTAINMENT COMPANY
By: ____________________________________
Name:
Title:
DATED: As of April 26, 1999
2
21
ANNEX B
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
__________ shares of the stock provided for therein, and tenders herewith
payment of the purchase price in full in the form of cash or by cashier's check
in the amount of $_____________.
The undersigned requests that certificates for such shares be issued in
the name of:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print Name, Address and Social Security No.)
DATED: _____________, ____
Name of Warrant Holder:
________________________________________________________________________________
Address:
________________________________________________________________________________
________________________________________________________________________________
Signature: _____________________________________________________________________
22
Schedule 1
NUMBER OF SHARES OF COMMON STOCK INITIALLY
ISSUABLE UPON EXERCISE OF THE WARRANTS
SERIES A WARRANT INVESTORS MANAGEMENT
---------------- --------- ----------
-----------------------------------------------------------------------------------------------
Holder Shares of Common Stock
-----------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 23,529 133,333
-----------------------------------------------------------------------------------------------
Management, directors or 266,666
consultants to the Company
-----------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 223,530
-----------------------------------------------------------------------------------------------
The ▇▇▇▇▇▇▇-▇▇▇▇▇ Company 129,411
-----------------------------------------------------------------------------------------------
▇▇ ▇▇▇▇▇▇▇ 18,823
-----------------------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇▇▇▇ 4,706
-----------------------------------------------------------------------------------------------
Total 399,999 399,999
-----------------------------------------------------------------------------------------------
SERIES B WARRANT
----------------
-----------------------------------------------------------------------------------------------
Holder Shares of Common Stock
-----------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 23,529 133,333
-----------------------------------------------------------------------------------------------
Management, directors or 266,667
consultants to the Company
-----------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 223,529
-----------------------------------------------------------------------------------------------
The ▇▇▇▇▇▇▇-▇▇▇▇▇ Company 129,412
-----------------------------------------------------------------------------------------------
▇▇ ▇▇▇▇▇▇▇ 18,823
-----------------------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇▇▇▇ 4,706
-----------------------------------------------------------------------------------------------
Total 399,999 400,000
-----------------------------------------------------------------------------------------------
23
SERIES C WARRANT
----------------
-----------------------------------------------------------------------------------------------
Holder Shares of Common Stock
-----------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 23,530 133,334
-----------------------------------------------------------------------------------------------
Management, directors or 266,667
consultants to the Company
-----------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 223,530
-----------------------------------------------------------------------------------------------
The ▇▇▇▇▇▇▇-▇▇▇▇▇ Company 129,412
-----------------------------------------------------------------------------------------------
▇▇ ▇▇▇▇▇▇▇ 18,824
-----------------------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇▇▇▇ 4,706
-----------------------------------------------------------------------------------------------
Total 400,002 400,001
-----------------------------------------------------------------------------------------------