EXHIBIT 10.8
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
VICTORY ENTERTAINMENT CORP.
Warrant for the Purchase of Shares of Common Stock,
par value $.001 per share
THIS WARRANT EXPIRES ON MARCH 28, 2003
No. 1 800,000 Shares
THIS CERTIFIES that, for value received, Wardley Investments Limited,
with an address at Havilland Hall, Vaciquiedor, Saint Andrew Guernsey, Channel
Islands GY68TP (including any transferee, the "Holder"), is entitled to
subscribe for and purchase from Victory Entertainment Corp., a Florida
corporation (the "Company"), upon the terms and conditions set forth herein at
any time or from time to time before 5:00 P.M. on March 28, 2003, New York time
(the "Exercise Period") 800,000 shares of the Company's Common Stock, par value
$.001 per share ("Common Stock") at a price (the "Exercise Price") equal to: (i)
$7.00 or if the Company shall cause to become effective a registration statement
to register the Company's securities for public offer and sale (ii) 85% of the
offering price of the securities offered in the Company's initial public
offering. This Warrant is the Warrant or one of the Warrants issued pursuant to
an offering (the "Offering") by the Company of Units, each Unit consisting of a
$50,000 principal amount 12.0% Senior Secured Promissory Note (the "Notes") and
a Common Stock Purchase Warrant to purchase 8,000 shares of Common Stock,
pursuant to a Subscription Agreement, dated February 18, 2000 (the "Agreement").
As used herein the term
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"this Warrant" shall mean and include this Warrant and any Warrant or Warrants
hereafter issued as a consequence of the exercise or transfer of this Warrant in
whole or in part.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period, as to the
whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the "Election to Exercise" attached hereto, duly executed) to the
Company at its office at 1000 Universal Studios Plaza, Building 22A, Orlando,
Florida 32819, or at such other place as is designated in writing by the
Company, together with cash or a certified or bank cashiers check payable to the
order of the Company in an amount equal to the Exercise Price multiplied by the
number of Warrant Shares for which this Warrant is being exercised. Each Warrant
not exercised prior to 5:00 p.m. on March 28, 2003 New York time shall become
null and void and all rights thereunder shall cease as of such time.
2. Upon receipt by the Company of the Warrant, the "Election to
Exercise" and the aggregate Exercise Price for the Warrant Shares, the Holder
shall be deemed to be the holder of record of the Warrant Shares issuable upon
such exercise; provided, however, that if the date of such receipt is a date
upon which the transfer books of the Company are closed, the Holder shall be
deemed to be the record holder on the next succeeding business day on which such
books are open. No later than three (3) business days after each such exercise
of this Warrant, the Company shall issue and cause to be delivered to the Holder
a certificate or certificates for the Warrant Shares issuable upon such
exercise, registered in the name of the Holder or its designee. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the right
of the Holder to purchase the remaining unexercised balance of the Warrant
Shares (or portions thereof) subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a warrant register
(the "Warrant Register") as they are issued. The Company shall be entitled to
treat the registered holder of any Warrant on the Warrant Register as the owner
in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such warrant on the part of any other
person, and shall not be liable for any registration or transfer of Warrants
which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration or
transfer, or with the knowledge of such facts that its participation therein
amounts to bad faith. This Warrant shall be transferable only on the books of
the Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or repre-
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sentative, or accompanied by proper evidence of succession, assignment, or
authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall cause to be delivered a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged at the option of the
Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Warrants to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder.
(b) The Holder acknowledges that he has been advised by the
Company that neither this Warrant nor the Warrant Shares have been registered
under the Act, that this Warrant is being or has been issued and the Warrant
Shares may be issued on the basis of the statutory exemption provided by Section
4(2) of the Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance thereon is based in part upon the representations made by the
original Holder in the original Holder's Subscription Agreement executed and
delivered in accordance with the terms of the Offering (the "Subscription
Agreement"). The Holder acknowledges that he is familiar with the nature of the
limitations imposed by the Act and the rules and regulations thereunder on the
transfer of securities. In particular, the Holder agrees that no sale,
assignment or transfer of this Warrant or the Warrant Shares issuable upon
exercise hereof shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless (i)
the sale, assignment or transfer of this Warrant or such Warrant Shares is
registered under the Act, it being understood that neither this Warrant nor such
Warrant Shares are currently registered for sale and that the Company has no
obligation or intention to so register this Warrant or such Warrant Shares
except as specifically provided herein or in the Subscription Agreement, or (ii)
this Warrant or such Warrant Shares are sold, assigned or transferred in
accordance with all the requirements and limitations of Rule 144 under the Act,
it being understood that Rule 144 is not available at the time of the original
issuance of this Warrant for the sale of this Warrant or such Warrant Shares and
that there can be no assurance that Rule 144 sales will be available at any
subsequent time, or (iii) such sale, assignment, or transfer is otherwise exempt
from registration under the Act.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase Warrant Shares granted pursuant to the
outstanding Warrants, such number of shares of Common Stock as shall, from time
to time, be sufficient therefor. The Company
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covenants that the Warrant Shares, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
5. (a) In case the Company shall at any time after the date this
Warrant is first issued (i) declare a dividend on any class of the outstanding
capital stock of the Company (the "Capital Stock") payable in shares of its
Capital Stock, (ii) subdivide any class of the outstanding Capital Stock, or
(iii) combine any class of the outstanding Capital Stock into a smaller number
of shares, then, in each case, the Exercise Price, and the number of Warrant
Shares issuable upon exercise of this Warrant, in effect at the time of the
record date for such dividend or of the effective date of such subdivision, or
combination, shall be proportionately adjusted so that the Holder after such
time shall be entitled to receive the aggregate number and kind of shares for
such consideration which, if such Warrant had been exercised immediately prior
to such time at the then-current exercise price, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
or combination. Such adjustment shall be made successively whenever any event
listed above shall occur.
Additionally, if the Company at any time shall issue any
shares of Common Stock prior to the exercise of this entire Warrant (other than
(i) issuances in connection with the Company's initial public offering of
securities or (ii) issuances in connection with Sections 5 and 6 of this
Warrant, or (iii) pursuant to options, warrants, or other obligations to issue
shares of Common Stock, outstanding on the date of the issuance of this Warrant;
[(i), (ii) and (iii) above, are hereinafter referred to as the "Existing Option
Obligations"], for a consideration less than the Exercise Price that would be in
effect at the time of such issue, then, and thereafter successively upon each
such issue, the Exercise Price shall be reduced as follows: (i) the number of
shares of Common Stock outstanding immediately prior to such issue shall be
multiplied by the Exercise Price in effect at the time of such issue and the
product shall be added to the aggregate consideration, if any, received by the
Company upon such issue of additional shares of Common Stock; and (ii) the sum
so obtained shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted
exercise price. Except for the Existing Option Obligations and options that may
be issued under any employee incentive stock option and/or any qualified stock
option plan adopted by the Company, for purposes of this adjustment, the
issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Exercise Price upon
the issuance of shares of Common Stock upon exercise of such exercise or
purchase rights.
(b) No adjustment in the Exercise Price shall be required if
such adjustment is less than $.01; provided, however, that any adjustments which
by reason of this Section 5(b) are not required to be made shall be carried
forward and taken into account in any
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subsequent adjustment. All calculations under this Section 5 shall be made to
the nearest cent or to the nearest one-thousandth of a share, as the case may
be.
(c) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(d) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent by
Certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(e) The Company shall not be required to issue fractions of
shares of Common Stock of the Company upon the exercise of this Warrant. If any
fraction of a share would be issuable on the exercise of this Warrant (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of this Warrant.
6. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities. property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance, and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement
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shall provide for adjustments which shall be as nearly equivalent as practicable
to the adjustments in Section 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination. but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value or from no par value to a specified par
value or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of this Warrant solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change, consolidation
or merger by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such reclassification,
change, consolidation, or merger. Thereafter, appropriate provision shall be
made for adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations mergers, sales, leases, or conveyances. The
issuance of any shares or other securities upon the exercise of this Warrant,
and the delivery of certificates or other instruments representing such shares
or other securities, shall be made without charge the Holder for any tax or
other charge in respect of such issuance. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer or
delivery of this Warrant to a person other than, or the issuance and delivery of
any certificate in a name other than that of the registered Holder and the
Company shall not be required to issue or deliver any such certificate unless
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
7. (a) (i) The Company shall register for public resale the Warrant
Shares (the "Registrable Securities") in the initial public offering of the
Company's securities.
(ii) PIGGYBACK REGISTRATION. If, at any time after the completion
of an initial public offering of the Company's securities, the Company proposes
to prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement covering equity or debt securities of the
Company, or any such securities of the Company held by its shareholders (other
than pursuant to Form S-8 or successor form), (for purposes of this
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Section 7, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a holder
(a "Requesting Holder"), made within twenty (20) days after receipt of the
Notice, requesting the Company to include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, effect the registration under the
Securities Act of the Registrable Securities which it has been so requested to
register ("Piggyback Registration"), at the Company's sole cost and expense and
at no cost or expense to the Requesting Holders except as provided in this
Section 7.
With respect to the Piggyback Registration only, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 7 (irrespective of whether any written request for
inclusion of such securities shall have already been made) to elect not to file
any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
(iii) DEMAND REGISTRATION RIGHTS. At any time commencing on the
day following the completion of an initial public offering of the Company's
Securities, and expiring on the fifth anniversary therefrom, the Requesting
Holders of a Majority (as hereinafter defined) in interest of the Registrable
Securities shall have the right to require the Company, at the Company's sole
cost and expense, to prepare, file with the Commission within thirty (30) days
of receiving the Registration Request (as defined herein) and cause to become
effective within sixty (60) days thereafter, on one (1) occasion, a registration
statement on Form S-l, or other appropriate form, and such other documents,
including a prospectus, as may be necessary in order to comply with the
provisions of the Act, to register a public offering and sale, for a period of
not less than eighteen (18) months, of the Registrable Securities by such
Requesting Holders and any other Requesting Holders of the Registrable
Securities who notify the Company within fifteen (15) business days after
receipt of the notice described in this Section 7(a) (iii).
The Requesting Holders shall exercise their right to demand
registration under this section by notice (the "Registration Request"). The
Company covenants and agrees to give notice of any Registration Request under
this section by any Requesting Holders to all other registered holders of
Registrable Securities no later than ten (10) calendar days from the date of the
receipt of any such Registration Request.
For purposes of this section, the term "Majority" means an
amount in excess of fifty percent (50%) of the number of then outstanding
Registrable Securities that (i) are not held by the Company, an affiliate,
director, officer, creditor, employee, or agent thereof or any of their
respective affiliates, members of their family, persons acting as nominees or in
con-
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junction therewith, or (ii) have not been resold to the public pursuant to a
Registration Statement filed with the Commission under the Act or pursuant to an
exemption therefrom.
(b) In the event of a registration pursuant to the provisions
of this Section 7, the Company shall cause the Registrable Securities so
registered to be registered or qualified for sale under the securities and/or
blue sky laws of such jurisdictions as the holder or such holders (the "Eligible
Holders") may reasonably request; provided however, that the Company shall not
by reason of this Section 7(b) be required to qualify to do business in any
state in which it is not otherwise required to qualify to do business or to file
a general consent to service of process.
(c) The Company shall keep effective any registration or
qualification contemplated by this Section 7 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required (but not less than eighteen (18) months) to permit the
Eligible Holders to complete the offer and sale of the Registrable Securities
covered thereby. If the Company fails to keep the Registration Statement
referred to in Section 7 above continuously effective during the requisite
period, then the Company shall promptly update the Registration Statement or
file a new registration statement covering the Registrable Securities remaining
unsold, subject to the terms and provisions hereof. Notwithstanding the
foregoing, the failure of the Company to keep effective any registration
statement contemplated by this Section 7 shall be deemed to be a breach of this
Section 7.
(d) In the event of a registration pursuant to the provisions
of this Section 7, the Company shall furnish to each Eligible Holder such
reasonable number of copies of the registration statement and of each amendment
and supplement thereto (in each case, including all exhibits), such reasonable
number of copies of each prospectus contained in such registration statement and
each supplement or amendment thereto (including each preliminary prospectus),
all of which shall conform to the requirements of the Act and the rules and
regulations thereunder. and such other documents as any Eligible Holder may
reasonably request to facilitate the disposition of the Registrable Securities
included in such registration.
(e) In the event of a registration pursuant to the provision
of this Section 7, the Company and each Eligible Holder shall enter into a
cross-indemnity agreement and a contribution agreement, each in customary form
with each underwriter, if any, and, if requested, enter into an underwriting
agreement containing customary representations, warranties, allocation of
expenses, and customary closing conditions, including, without limitation,
opinions of counsel and accountants' cold comfort letters, with any underwriter
who acquires any Registrable Securities.
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(f) The Company agrees that until all the Registrable
Securities have been sold under a registration statement or pursuant to Rule 144
under the Act it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Registrable Securities to sell such securities under Rule 144.
(g) The Company agrees that each Eligible Holder of
Registrable Securities will suffer damages if the Company fails to fulfill its
obligations under this Section 7 and that ascertaining the extent of such
damages with precision would not be feasible. If the Company breaches this
Section 7, each Eligible Holder shall receive a cash payment equal to the
greater of (i) 10% of the Eligible Holder's aggregate per share Exercise Price
or (ii) 10% of the fair market value of the Common Stock multiplied by the
number of Warrant Shares held or which may be purchased by that Eligible Holder,
for each 30-day delay, or part thereof payable promptly after the expiration of
each 30 day period, in the filing of the registration statement or effective
date of the registration statement, whichever may be applicable. For purposes of
this Section, "fair market value" shall mean the average of the closing bid and
closing asked prices of the Common Stock on the five (5) consecutive trading
days immediately prior to the date of the Company's breach of this Section 7.
8. At any time during the Exercise Period, the Holder may, at its
option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), into
the number of fully paid and non-assessable Warrant Shares determined in
accordance with this Section 8, by surrendering this Warrant at the principal
office of the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrant Shares to be exchanged (the "Notice of Exchange") and the date on which
the Holder requests that such Warrant Exchange occur (the "Exchange Date").
Certificates for the Warrant Shares issuable upon such Warrant Exchange and, if
applicable, a new Warrant of like tenor evidencing the balance of the Warrant
Shares remaining subject to the Holder's Warrant certificate, shall be issued as
of the Exchange Date and delivered to the Holder within five (5) business days
following the Exchange Date. In connection with any Warrant Exchange, the
Holder's Warrant certificate shall represent the right to subscribe for and
acquire (i) the number of Warrant Shares (rounded to the next highest integer)
equal to the product of (A) the number of Warrant Shares as to which the
warrants are being exercised as specified by the Holder in its Notice of
Exchange (the "Total Share Number") multiplied by (y), a fraction, the numerator
of which is the Market Price (as defined herein) of the Common Stock less the
Exercise Price of the Warrant Shares and the denominator of which is the Market
Price per share of Common Stock. Solely for the purposes of this Section 8,
Market Price shall be calculated either (i) on the date on which the form of
election to exercise attached hereto is deemed to have been sent to the Company
or (ii) as the average of the Market Price for each of the five trading days
immediately preceding the Notice Date, whichever of (i) or (ii) results in a
greater Market Price.
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For the purpose of this Section 8, the phrase "Market Price"
at any date shall be deemed to be the (i) last reported sale price on the last
trading day or, in case no such reported sale takes place on such day, the
average last reported sale price for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading, or, (ii) if the Common Stock is
not listed or admitted to trading on any national securities exchange but is
listed or quoted upon the Nasdaq National Market or SmallCap Market (referred to
hereinafter as "NASDAQ"), the closing bid price on the last trading day, or, in
case no such reported bid takes place on such day, the average closing bid price
for the last three (3) trading days, as furnished by NASDAQ or similar
organization if NASDAQ is no longer reporting such information, or (iii) if the
Common Stock is not listed upon a principal exchange or quoted on NASDAQ, but
quotes for the Common Stock are available in the OTC Bulletin Board or "pink
sheets" the closing bid price on the last trading day, or, in case no such bid
takes place on such day, the average closing bid price for the last three (3)
trading days as furnished on the OTC Bulletin Board or any other reliable
reporting service or (iv) in the event the Common Stock is not traded upon a
principal exchange and not listed on NASDAQ and quotes are not available on the
OTC Bulletin Board or any other reliable reporting service, the price as
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it.
9. The shares of Common Stock received upon the exercise of this
Warrant are subject to certain Lock-Up provisions contained in the Subscription
Agreement between the Company and the original Holder of this Warrant.
10. (a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Eligible Holder, its officers,
directors, partners, employees, agents, and counsel, and each person. if any,
who controls any such person within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, from and against any and all loss, liability,
charge, claim, damage, and expense whatsoever (which shall include for all
purposes of this Section 8, without limitation, reasonable attorneys' fees and
any and all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with, or (i) any breach of any representation, warranty, covenant, or agreement
of the Company contained in any of the Warrants, any untrue statement or alleged
untrue statement of a material fact contained (A) in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto relating to the sale of
any of the Registrable Securities, or (B) in any application or other document
or communication (in this Section 8 collectively called an "application")
executed by or on behalf of the Company or based upon written information
furnished by or
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on behalf of the Company filed in any jurisdiction in order to
register or qualify any of the Registrable Securities under the securities or
blue sky laws thereof or filed with the commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to such Eligible
Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto or in any application, as the case may be.
Notwithstanding the foregoing, the Company shall not be responsible for any
failure of Weatherly Securities Corp. ("Weatherly" ) to file, on behalf of the
Company, Blue Sky applications in jurisdictions where Weatherly is offering
Units (as defined in the Subscription Agreement) and where such application is
required by law. The foregoing agreement to indemnify, shall be in addition to
any liability the company may otherwise have, including liabilities arising
under any of the Warrants.
If any action is brought against any Eligible Holder or any of
its officers, directors, partners, employees, agents, or counsel, or any
controlling persons of such person (an "indemnified party") in respect of which
indemnity may be sought against the Company pursuant to the foregoing paragraph,
such indemnified party or parties shall promptly notify the Company in writing
of the institution of such action (but the failure so to notify shall not
relieve the Company from any liability under this Section 8(a) unless the
Company shall have been materially prejudiced by such failure or relieve the
Company from any liability other than pursuant to this Section 8(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action, or the
Company shall not have employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party, or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Company, in any of which events such fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this Section 8
to the contrary, notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld. The Company agrees promptly to notify
the Eligible Holders of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of any Registrable Securities or any preliminary prospectus, prospectus,
-12-
registration statement or amendment or supplement thereto, or any application
relating to any sale of any Registrable Securities.
(b) The Holder agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Registrable Securities held by
the Holder, each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity from
the Company to the Eligible Holders in Section 8(a), but only with respect to
statements or omissions, if any, made in any registration statement, preliminary
prospectus or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or in any application, in reliance upon
and in conformity with written information furnished to the Company with respect
to the Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or an
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 8(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
8(a). Notwithstanding the foregoing or anything to the contrary provided for in
this Warrant, the total aggregate liability of each Holder shall not exceed the
aggregate cash proceeds received by such Holder in connection with the sale of
the Warrant Shares, Warrant Securities and/or any Registrable Security.
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof) but it is found in a final judicial
determination not subject to further appeal, that such indemnification may not
be enforced in such case even though this Warrant expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the Registrable
Securities included in such registration in the aggregate (including for this
purpose any contribution by or on behalf of an indemnified party), as a second
entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which re-
-13-
sulted in such losses, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission or alleged omission relates to information supplied
by the Company or by such Eligible Holders and the parties, relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and the
Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages. and expenses (even if the Eligible Holders and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 8(c). In no case shall any Eligible Holder be
responsible for a portion of the contribution obligation imposed on all Eligible
Holders in excess of its pro rata share based on the number of shares of Common
Stock owned (or which would be owned upon exercise of all Registrable
Securities) by it and included in such registration as compared to the number of
shares of Common Stock owned (or which would be owned upon exercise of all
Registrable Securities) by all Eligible Holders and included in such
registration. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent representation. For purposes of this
Section 8(c), each person, if any, who controls any Eligible Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent, and counsel of each such Eligible
Holder or control person shall have the same rights to contribution as each
Eligible Holder or control person and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the company,
subject in each case to the provisions of this Section 8(c). Anything in this
Section 8(c) to the contrary, notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8(c) is intended to supersede any
right to contribution under the Act, the Exchange Act or otherwise.
11. Unless registered pursuant to the provisions of Section 7
hereof, the Warrant Shares issued upon exercise of the Warrants shall be subject
to a stop transfer order and the certificate or certificates evidencing such
warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST
-14-
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS."
In addition, any Warrants issued upon transfer or any new Warrants
issued shall bear a similar legend.
12. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of any Warrant (and upon surrender of
any Warrant if mutilated) including an affidavit of the Holder thereof that this
Warrant has been lost, stolen, destroyed or mutilated, together with an
indemnity against any claim that may be made against the Company on account of
such lost, stolen, destroyed or mutilated Warrant, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company except as provided in this warrant.
14. This Warrant shall be construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles governing conflicts of law.
15. The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant. or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section 11(G)(ii) of the
Subscription Agreement. Within 30 days after such service, or such other time as
may be mutually agreed upon in
-15-
writing by the attorneys for the parties to such
action or proceeding, the Company shall appear to answer such summons, complaint
or other process.
16. Any or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
deliver, or courier service or delivered (in person or by telecopy, telex or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, (i) if to the Company, at 1000 Universal Studios Plaza, Building
22A, Orlando, Florida 32819, Attention: President, (ii) if to the Holder, at its
address set forth on the first page hereof, or (iii) in either case, to such
other address as the party shall have furnished in writing in accordance with
the provisions of this Section 15. Notice to the estate of any party shall be
sufficient if addressed to the party as provided in this Section 15. Any notice
or other communication given by certified mail shall be deemed given at the time
of certification thereof except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 5 shall be deemed given at the time of receipt
thereof.
17. No course of dealing and no delay or omission on the part of
the Holder in exercising any right or remedy shall operate as a waiver thereof
or otherwise prejudice the Holder's rights, powers or remedies. No right, power
or remedy conferred by this Warrant upon the Holder shall be exclusive of any
other right, power or remedy referred to herein or now or hereafter available at
law, in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
-16-
18. This Warrant may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Warrant, and all future Holders shall be bound thereby.
Dated: March 28, 2000
VICTORY ENTERTAINMENT
CORPORATION
By:
--------------------------------
Name: Michael Gerber
Title: Present and Chief Executive
Officer
- --------------------------------
- ------------------------, Secretary
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns. and transfers unto_________________________ a Warrant to purchase
________________ shares of Common Stock, par value $___ per share, of Victory
Entertainment Corp. (the "Company"), together with all right, title, and
interest therein, and does hereby irrevocably constitute and appoint
_________________ attorney to transfer such Warrant on the books of the Company,
with full power of substitution.
Dated:--------------------------
Signature
--------------------------
Signature Guarantee
--------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
To: Victory Entertainment Corporation
1000 Universal Studies Plaza
Building 22A
Orlando, Florida 32819
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase_______________
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $___________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security or Tax Identification Number)
and, if such number of Warrant shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:--------------------------
Name:
--------------------------
(Print)
Address:-----------------------------------------------------------------------
-------------------------------
(Signature)
-------------------------------
(Signature Guarantee)
-2-
-------------------------------
(Signature Guarantee)
Name:
------------------------------
SUBSCRIPTION AGREEMENT
FOR
PROSPECTIVE SUBSCRIBERS
OF UNITS
VICTORY ENTERTAINMENT CORP.
$5,000,000 MINIMUM - $7,500,000 MAXIMUM
UP TO $7,500,000 UNITS
(EACH UNIT CONSISTING OF A 12.0% SENIOR SECURED PROMISSORY NOTE AND A
COMMON STOCK PURCHASE WARRANT TO PURCHASE 8,000 SHARES OF COMMON STOCK OF
THE COMPANY)
OFFERING PRICE: $50,000 PER UNIT
MINIMUM SUBSCRIPTION: $50,000 (UNLESS WAIVED BY THE COMPANY)
WEATHERLY SECURITIES CORP.
Placement Agent
February 18, 2000
INSTRUCTIONS:
I. Items to be delivered by all Subscribers:
a. One (1) completed and executed Subscription Agreements.
b. One (1) completed and executed Subscriber Questionnaire.
c. Payment in the amount of subscription, by wire transfer of funds
or check. All checks should be made payable to "Victory
Entertainment Corporation
- Escrow Account."
Wire Transfer Instructions:
FOR WIRE INSTRUCTIONS CONTACT:
WEATHERLY SECURITIES CORP.
Telephone: (212) 412-7216
ALL DOCUMENTS SHOULD BE RETURNED TO:
WEATHERLY SECURITIES CORP.
TWO WORLD TRADE CENTER
SUITE 2946
NEW YORK, NEW YORK 10048
TELEPHONE: (212) 412-7216
ATTN: CORPORATE FINANCE DIVISION
THE SECURITIES OFFERED HEREBY MAY ONLY BE OFFERED OR SOLD TO
"ACCREDITED INVESTORS" WHO MEET THE SUITABILITY STANDARDS FOR INVESTMENT AS
EXPRESSED IN THIS SUBSCRIPTION AGREEMENT.
------------------------
AN INVESTMENT MADE IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND
SUITABLE ONLY FOR PERSONS WHO HAVE SUBSTANTIAL FINANCIAL RESOURCES, WHO HAVE NO
NEED FOR LIQUIDITY IN THIS INVESTMENT AND WHO UNDERSTAND OR HAVE BEEN ADVISED
WITH RESPECT TO THE TAX CONSEQUENCES OF, AND RISK FACTORS ASSOCIATED WITH, THIS
INVESTMENT AND WHO ARE ABLE TO BEAR THE SUBSTANTIAL ECONOMIC RISK OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
------------------------
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY
STATE OR OTHER JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED.
------------------------
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS
SUBSCRIPTION AGREEMENT AS LEGAL OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD
CONSULT AND RELY UPON ITS OWN COUNSEL, ACCOUNTANT OR BSUINESS ADVISOR AS TO
LEGAL, TAX, AND RELATED MATTERS CONCERNING ITS INVESTMENT.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR FURNISH ANY
INFORMATION WITH RESPECT OT THE COMPANY OR THE UNITS OTHER THAN THE
REPRESENTATIONS AND INFORMATION SET FORTH IN THIS SUBSCRIPTION AGREEMENT AND ANY
OTHER DOCUMENTS OR OTHER INFORMATION FURNISHED UPON REQUEST OF THE PLACEMENT
AGENT AS DESCRIBED HEREIN.
------------------------
THE COMPANY WILL MAKE AVAILABLE, PRIOR TO THE CONSUMMATION OF THE
OFFERING, TO EACH PROSPECTIVE INVESTOR, ITS PURCHASER REPRESENTATIVE(S), OR
BOTH, THE OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE COMPANY
OR A PERSON ACTING ON ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS
OFFERING, THE COMPANY OR ANY OTHER RELEVANT MATTERS, AND TO OBTAIN ANY
ADDITIONAL INFORMATION, TO THE EXTENT THAT THE COMPANY POSSESSES SUCH
INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE.
------------------------
THIS OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE INITIAL CLOSING DATE
(AS DEFINED HEREIN) AND IS SPECIFICALLY MADE SUBJECT TO THE TERMS DESCRIBED IN
THIS SUBSCRIPTION AGREEMENT. THE COMPANY RESERVES THE RIGHT TO REJECT ANY
SUBSCRIPTION IN WHOLE OR IN PARTO OR TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS
THAN THE AMOUNT OF UNITS SUBSCRIBED FOR BY SUCH INVESTOR.
------------------------
THIS SUBSCRIPTION AGREEMENT HAS BEEN PREPARED BY THE COMPANY SOLELY FOR
THE BENEFIT OF INVESTORS INTERESTED IN THE PROPOSED PRIVATE PLACEMENT OF UNITS.
DISTRIBUTION OF THIS DOCUMENT TO ANY PERSON OTHER THAN SUCH OFFEREE AND THOSE
PERSONS RETAINED TO ADVISE SUCH PERSONS WITH RESPECT THERETO IS UNAUTHORIZED,
AND ANY REPRODUCTION OF THIS DOCUMENT, IN WHOLE OR IN PART, OR THE DIVULGENCE OF
ANY OF ITS CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT OFHTE COMPANY, IS
PROHIBITED.
------------------------
EACH OFFEREE, BY ACCEPTING DELIVERY OF THIS DOCUMENT, AGREES TO RETURN IT
AND ALL RELATED EXHIBITS AND OTHER DOCUMENTS TO THE COMPANY IF: (i) THE OFFERREE
DOES NOT INTEND TO SUBSCRIBE FOR THE PURCHASE OF THE UNITS; (ii) THE OFFEREE'S
SUBSCRIPTION IS NOT ACCEPTED; OR (iii) THE OFFERING IS TERMIANTED.
------------------------
THE OFFERING IS BEING MADE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF SECURITIES WHICH DOES NOT
INVOLVE A PUBLIC OFFERING. EACH PURCHASER OF THE UNITS OFFERED HEREBY, IN MAKING
ITS PURCHASE, WILL BE DEEMED TO HAVE MADE CERTAIN ACKNOWLEDGMENTS,
REPRESENTATIONS, AND AGREEMENTS AS SET FORTH HEREIN. PURCHASERS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISK OF THEIR INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
------------------------
THE INFORMATION CONTAINED HEREIN HAS BEEN PROVIDED BY THE COMPANY AND
OTHER SOURCES IDENTIFIED HEREIN, BUT THERE CAN BE NO ASSURANCE AS TO THE
ACCURACY OR COMPLETENESS OF SUCH INFORMAITON. NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, IS MADE BY THE PLACEMENT AGENT AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMAITON, AND NOTHING CONTAINED HEREIN IS OR SHOULD BE
RELIED UPON AS A PROMISE OR REPRESENTATION BY THE COMPANY OR THE PLACEMENT
AGENT.
------------------------
EACH PROSPECTIVE PURCHASER OF THE UNITS MUST COMPLY WITH ALL APPLICABLE
LAWS AND REGUALTIONS IN FORCE IN ANY JURISDICTION IN CONNECTION WITH THE
SUBSEQUENT OFFER OR SALE OF ANY UNITS PURCHASED PURSUANT TO THIS SUBSCRIPTION
AGREEMENT OR THE COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE WARRANTS. IN
MAKING AN INVESTMENT DECISION, PROSPECTIVE PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS
OF THE IVNESTMENT AND THE RISKS INVOLVED.
------------------------
THIS SUBSCRIPTION AGREEMENT CONTAINS SUMMARIES BELIEVED TO BE ACCURATE IN
ALL MATERIAL RESPECTS AS TO THE TERMS OF CERTAIN DOCUMENTS DESCRIBED HEREIN, BUT
REFERENCE IS HEREBY MADE TO THE ACTUAL DOCUMENTS (COPIES OF WHICH WILL BE MADE
AVAILABLE TO PROSPECTIVE PURCHASERS UPON REQUEST TO THE COMPANY OR THE PLACEMENT
AGENT) FOR COMPLETE INFORMAITON WITH RESPECT THERETO, AND ALL SUCH SUMMARIES ARE
QUALIFIED IN THEIR ENTIRETY BY SUCH REFERENCE.
NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
THESE SECURTITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLVD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRAITON OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
SPECIFIC STATE DISCLOSURES
NEW JERSEY INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE BUREAU OF SECURITIES OF THE STATE OF NEW JERSEY NOR HAS THE BUREAU PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. THE FILING OF THE WITHIN OFFERING DOES
NOT CONSTITUTE APPROVAL OF THE ISSUE OR SALE THEREOF BY THE BUREAU OF
SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
NEW YORK INVESTORS. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THE OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
FLORIDA INVESTORS. THE UNITS HAVE NOT BEEN REGISTERED WITH THE STATE OF
FLORIDA UNDER THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT AND
THEREFORE CANNOT BE RESOLD UNLESS THEY ARE REGISTERED UNDER SAID ACT OR
ARE EXEMPT FROM REGISTRATION UNDER SAID ACT.
PURSUANT TO THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, WHEN SALES ARE
MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE IN FLORIDA MADE PURSUANT TO
SECTION 517.061(11), FLORIDA STATUTES (THE APPLICABLE PROVISION OF THE FLORIDA
SECURITIES AND INVESTOR PROTECTION ACT), SHALL BE VOIDABLE BY THE PURCHASER IN
SUCH SALE EITHER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS
MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW AGENT,
OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO
SUCH PURCHASER, WHICHEVER OCCURS LATER. INVESTORS ARE HEREBY NOTIFIED OF SUCH
PRIVILEGE.
A PURCHASER MAY EXERCISE THIS VOIDING PRIVILEGE WITHIN THE AFORESAID APPLICABLE
THREE-DAY PERIOD BY SENDING A TELEGRAPH, FAX OR LETTER TO THE COMPANY AND
POSTMARKED, PRIOR TO THE END OF THE AFOREMENTIONED THIRD DAY. IN THE EVENT THIS
PRIVILEGE IS EXERCISED, IT WOULD BE PRUDENT TO SEND LETTERS BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED TO THE ABOVE ADDRESS TO EVIDENCE RECEIPT AND TIME OF
MAILING.
INVESTORS IN ALL STATES. THE PRESENCE OF A LEGEND OR NOTICE FOR ANY GIVEN STATE
REFLECTS ONLY THAT A LEGEND OR NOTICE MAY BE REQUIRED BY THAT STATE AND SHOULD
NOT BE CONSTRUED TO MEAN AN OFFER OR SALE MAY BE MADE IN ANY PARTICULAR STATE.
THIS AGREEMENT MAY BE SUPPLEMENTED BY ADDITIONAL STATE LEGENDS OR NOTICES. IF
YOU ARE UNCERTAIN AS TO WHETHER OR NOT OFFERS OR SALES MAY BE LAWFULLY MADE IN
ANY GIVEN STATE, YOU ARE ADVISED TO CONTACT THE COMPANY FOR A CURRENT LIST OF
STATES IN WHICH OFFERS OR SALES MAY BE LAWFULLY MADE.
SUBSCRIPTION AGREEMENT
The undersigned (the "Subscriber") hereby subscribes to purchase from
Victory Entertainment Corp., a Florida corporation (the "Company"), a number of
units (the "Units") set forth on the signature page hereof, for a purchase price
(the "Purchase Price") equal to $50,000 per Unit. Each Unit consists of a
$50,000 principal amount 12.0% Senior Secured Promissory Note (the "Notes") and
a Common Stock Purchase Warrant (a "Warrant" and collectively, the "Warrants")
to purchase 8,000 shares of common stock of the Company, par value $.001 per
share (the "Common Stock"). The Warrants are exercisable for three (3) years and
are convertible into shares of the Company's Common Stock (the "Conversion
Shares") at a conversion price (the "Exercise Price") equal to (i) $7.00 or if
the Company shall cause to become effective a registration statement to register
the Company's securities for public offer and sale (ii) 85% of the offering
price of the securities offered in the Company's initial public offering (the
"IPO").
Each Note earns interest at the rate of 12.0% per annum in cash. The
principal and accrued interest on the Notes are due and payable at the earlier
of (i) the completion of the IPO or (ii) one year from the date of issuance
("Maturity Date"). Interest shall be due and payable at the Company's option,
upon ten (10) days written notice to the Holders, either (a) quarterly on April
1, 2000, July 1, 2000, October 1, 2000 and January 1, 2001 or (b) upon the
Maturity Date. The Notes are redeemable at the option of the Company, at a
redemption price equal to the outstanding principal amount of the Notes plus
accrued and unpaid interest upon 30 days within notice to the Holders without
penalty. The Notes shall be senior to all other debts of the Company and shall
be secured by all of the assets of the Company. The Units, Notes, Warrants and
Conversion Shares are hereinafter collectively referred to as the "Securities."
The Company is offering a minimum of $5,000,000 principal amount of Units
and a maximum of $7,500,000 principal amount of Units through Weatherly
Securities Corp. (the "Placement Agent") (the "Offering"). The terms of the
Offering, the Units, and the Securities, are set forth above and the specific
terms of the Notes and Warrants are set forth in Exhibits A and B attached
hereto (Exhibit A is a form of Note and Exhibit B is a form of Warrant). Each
Subscriber should thoroughly review the form of Note and the form of Warrant.
Section 1. SALE OF UNITS
Subject to the terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, the Company hereby agrees
to issue and sell to the Subscriber and the Subscriber agrees to purchase from
the Company, upon Closing, the Units as described above at a price per Unit of
$50,000. The Company may reject any subscription in whole or in part.
Section 2. ESCROW
The Subscriber acknowledges and agrees that all subscription amounts will
be placed in a non-interest bearing escrow account pending receipt by the
Company of the minimum offering amount of $5,000,000 (the "Minimum Offering
Amount"). Once the Minimum Offering Amount has been subscribed for and accepted
by the Company and the Placement Agent, an initial closing ("Initial Closing")
will be held as soon as practicable. If the Minimum Offering Amount is not
received prior to March 31st then all funds held in escrow shall be returned to
Subscribers without interest or deduction. Assuming the Minimum Offering Amount
is subscribed for and accepted by March 31st (unless extended for up to an
additional 60 days by the Company) and a Closing held, thereafter additional
subscription funds will be placed into the escrow account and additional
closings will be held from time to time up to the sale of an additional
$2,500,000 principal amount of Units (the "Maximum Offering Amount"). Once the
Maximum Offering Amount has been subscribed for and accepted by the Company, a
final closing will be held ("Final Closing").
Section 3. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES
As an inducement to the Company and the Placement Agent to accept the
subscription, the Subscriber represents and warrants as follows:
(A) The Subscriber acknowledges and agrees that the offering and sale of
the Securities is intended to be exempt from registration under the Securities
Act of 1933, as amended (the "Act,") by virtue of Section 4(2) of the Act, and
Regulation D, Rule 506 promulgated thereunder ("Regulation D") and, accordingly,
is being made solely to "accredited" investors as that term is defined in
Regulation D. In accordance therewith and in furtherance thereof, the Subscriber
represents and warrants to and agrees with the Company as follows please check
statements applicable to the Subscriber]:
The Subscriber is an Accredited Investor because the Subscriber is (check
appropriate item):
/ / (i) a bank as defined in Section 3(a)(2) of the Act;
/ / (ii) a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Act;
/ / (iii) a broker or dealer registered pursuant to Section 15 of
the
Securities Exchange Act of 1934 as amended (the
"Exchange Act");
/ / (iv) an insurance company as defined in Section 2(13) of the
Act;
/ / (v) an investment company registered under the Investment
Company Act of 1940, as amended or a business
development company as defined in Section 2(a)(48) of
such act;
/ / (vi) a Small business Investment Company licensed by the U.S.
Small Business Administration under Section 301 (c) or
(d) of the Small Business Investment Act of 19058;
/ / (vii) an employee benefit plan within the meaning of Title I
of the Employee Retirement Income Security Act of 1974,
as amended, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or
if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are
accredited investors;
/ / (viii) a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of
1940, as amended;
/ / (ix) an organization described in Section 501(c)(3) of the
Internal Revenue Code, a corporation, Massachusetts or
similar business trust, or partnership, not formed for
the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
/ / (x) a natural person whose individual net worth or joint net
worth with that person's spouse, at the time of his
purchase exceeds $1,000,000;
/ / (xi) a natural person who had an individual income in excess
of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the
current year;
/ / (xii) a trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii)
of the Act; or
/ / (xiii) an entity in which all of the equity owners are
accredited investors. (If this alternative is checked,
the Subscriber must identify each equity owner and
provide statements signed by each demonstrating how each
qualifies as an accredited investor.)
/ / (xiv) a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality
thereof, for the benefit of its employees, if such plan
has total assets in excess of $5,000,000
/ / (xv) a director or officer of the Company.
(B) The Subscriber hereby represents and warrants that the Subscriber is
acquiring the Securities hereunder for its own account for investment and not
with a view to distribution, and with no present intention of distributing the
Securities or selling the Securities for distribution. The Subscriber
understands that the Securities are being sold to the Subscriber in a
transaction which is exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"). The Subscriber's acquisition of
the Securities shall constitute a confirmation of the foregoing representation
and warranty and understanding thereof.
(C) The Subscriber (or its Purchaser Representative if any) has such
knowledge and experience in financial and business matters as is required for
evaluating the merits and risks of making this investment, and the Subscriber or
its Purchaser Representatives has received such information requested by the
Subscriber concerning the business, management and financial affairs of the
Company in order to evaluate the merits and risks of making this investment.
Further, the Subscriber acknowledges that the Subscriber has had the opportunity
to ask questions of, and receive answers from, the officers of the Company
concerning the terms and conditions of this investment and to obtain information
relating to the organization, operation and business of the Company and of the
Company's contracts, agreements and obligations. No representation or warranty
is made by the Company to induce the Subscriber to make this investment, and any
representation or warranty not made herein or therein is specifically
disclaimed.
(D) The Subscriber is making the foregoing representations and warranties
with the intent that they may be relied upon by the Company in determining the
suitability of the sale of the Securities to the Subscriber for purposes of
federal and state securities laws.
(E) The Subscriber further acknowledges that the Subscriber has been
advised that the Securities being purchased by the Subscriber hereunder have not
been registered under the provisions of the Act and that the Company has
represented to the Subscriber (assuming the veracity of the representations of
the Subscriber made herein and in the purchaser questionnaire of even date) that
the Securities have been offered and sold by the Company in reliance upon an
exemption from registration provided in Section 4(2) of the Act and Regulation
D, Rule 506 thereunder.
(F) In entering into this Agreement and in purchasing the Securities, the
Subscriber further acknowledges that:
(i) The Company has informed the Subscriber that the
Securities have not been offered for sale by means of general
advertising or solicitation.
(ii) The Securities or any interest therein may not be resold
by the Subscriber in the absence of a registration under the
Act and applicable securities laws or exemption from
registration. In particular, the Subscriber is aware that the
Securities will be "restricted securities," as such term is
defined in Rule 144 promulgated under the Securities Act
("Rule 144"), and they may not be sold pursuant to Rule 144,
unless the conditions thereof are met. Other than as set
forth herein, the Company has no obligation to register any
Securities purchased by Subscriber.
(iii) The following legend shall be placed on the
certificate(s) evidencing the Securities:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY
BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO
THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE
MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
(iv) The Company may at any time place a stop transfer order
on its transfer books against the Securities. Such stop order
will be removed, and further transfer of the Securities will
be permitted upon an effective registration of the respective
Securities, or the receipt by the Company of an opinion of
counsel reasonably satisfactory to the Company that such
further transfer may be effected pursuant to an applicable
exemption from registration.
(v) The purchase of the Securities involves risks which the
Subscriber has evaluated, and the Subscriber is able to bear
the economic risk of the purchase of such securities and the
loss of its entire investment.
(G) The Subscriber has completed the accompanying Purchaser Questionnaire
and has delivered it herewith and represents and warrants that it is accurate
and true in all respects and that it accurately and completely sets forth the
financial condition of the Subscriber on the date hereof. The Subscriber has no
reason to expect there will be any material adverse change in its financial
condition and will advise the Company of any such changes occurring prior to the
closing or termination of the Offering.
(H) The Subscriber has carefully evaluated the risks of this investment,
and understands and has relied only on the information provided to it in writing
by the Company relating to this investment.
(I) The Subscriber understands and acknowledges that the Placement Agent
makes no representations or warranties as to the accuracy or completeness of the
information contained herein.
(J) The Subscriber is not subscribing for any of the Securities as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, any seminar or meeting, or any solicitation of a
subscription by a person not previously known to the Subscriber in connection
with investments in securities generally.
(K) The Subscriber has reached the age of majority in the state in which
the Subscriber resides, has adequate means of providing for the Subscriber's
current needs and personal contingencies, is able to bear the substantial
economic risks of an investment in the Securities for an indefinite period of
time, and has no need for liquidity in such investment.
(L) The Subscriber's overall commitment to investments that are not
readily marketable is not, and his acquisition of Securities will not cause such
overall commitment to become, disproportionate to his net worth.
(M) The Subscriber understands that the Company shall have the right to
accept or reject this subscription in whole or in part. Unless this subscription
is accepted in whole or in part by the Company prior to the expiration of the
Offering, this subscription shall be deemed rejected in whole.
(N) It never has been represented, guaranteed or warranted by any broker,
the Company, the Placement Agent, any of the officers, directors, stockholders,
partners, employees or agents of either of the Company or the Placement Agent,
or any other persons, whether expressly or by implication, that:
(i) the Company or the Subscriber will realize any given
percentage of profits and/or amount or type of consideration,
profit or loss as a result of the Company's activities or the
Subscriber's investment in the Company; or
(ii) the past performance or experience of the management of
the Company, or of any other person, will in any way indicate
the predictable results of the ownership of the Securities or
of the Company's activities.
(O) No representations have been made, and no information furnished to the
Subscriber or the Subscriber's advisor(s) in connection with the Offering that
were in any way inconsistent with the information stated herein.
(P) ____________ (insert name of Purchaser Representative: if none leave
blank) has acted as the Subscriber's Purchaser Representative for purposes of
the private placement exemption under the Act. If the Subscriber has appointed a
Purchaser Representative (which term is used herein with the same meaning as
given in Rule 501(h) of Regulation D), the Subscriber has been advised by his
Purchaser Representative as to the merits and risks of an investment in the
Company in general and the suitability of an investment in the Securities for
the Subscriber in particular.
Section 4. INDEMNIFICATION
The Subscriber agrees to indemnify and hold harmless the Company and
Placement Agent, the officers, directors, employees, agents, counsel and
affiliates of the Company and the Placement Agent, and each other person, if
any, who controls the Company, within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended, against any and
all losses, liabilities, claims, damages and all expenses reasonably incurred in
investigating, preparing or defending against any litigation commenced or
threatened or any claim whatsoever arising out of or based upon any false
representation or warranty or breach or failure by the Subscriber to comply with
any covenant or agreement made by the Subscriber herein or in any other document
furnished by the Subscriber to any of the foregoing in connection with this
transaction.
Section 5. BINDING EFFECT OF SUBSCRIPTION
The Subscriber hereby acknowledges and agrees, subject to any applicable
state securities laws that the subscription and application hereunder are
irrevocable, that the Subscriber is not entitled to cancel, terminate or revoke
this Subscription Agreement and that this Subscription Agreement shall survive
the death or disability of the Subscriber and shall be binding upon and inure to
the benefit of the Subscriber and his heirs, executors, administrators,
successors, legal representatives, and assigns. If the Subscriber is more than
one person, the obligations of the Subscriber hereunder shall be joint and
several, and the agreements, representations, warranties, and acknowledgments
herein contained shall be deemed to be made by and be binding upon each
such person and his heirs, executors, administrators, successors, legal
representatives, and assigns.
Section 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, each Subscriber
as follows:
(A) The Company is duly organized, validly existing and in good
standing under the laws of its state of incorporation, with all requisite power
and authority to own, lease, license, and use its properties and assets and to
carry out the business in which it is engaged, except where the failure to have
or be any of the foregoing may not be expected to have a material adverse effect
on the Company's presently conducted businesses. The Company is duly qualified
to transact the business in which it is engaged and is in good standing as a
foreign corporation in every jurisdiction in which its ownership, leasing,
licensing or use of property or assets or the conduct of its business make such
qualification necessary, except where the failure to be so qualified may not be
expected to have a material adverse effect upon the Company's business.
(B) The Company is authorized to issue 50,000,000 shares of Common
Stock, $.001 par value per share and 20,000,000 shares of Preferred Stock, no
par value per share. As of February 1, 2000, there were 10,132,100 shares of
Common Stock outstanding. There will be no shares of Preferred Stock outstanding
on the closing of this offering. On the Initial Closing, the Company shall have
outstanding options, warrants, convertible or derivative securities which are
exercisable into no more than 4,465,866 shares of Common Stock, all of which
have an exercise price of $7.00 per share, except for warrants to purchase
220,000 shares of Common Stock which are exercisable at $0.25 per share.
(C) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement, and to issue, sell and
deliver the Securities. This Agreement has been duly authorized by the Company,
and when executed and delivered by the Company, will constitute the legal, valid
and binding obligation of the Company, enforceable as to the Company in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, arrangement, fraudulent conveyance or transfer,
moratorium or other laws or court decisions, now or hereinafter in effect,
relating to or affecting the rights of creditors generally and as may be limited
by general principles of equity and the discretion of the court having
jurisdiction in an enforcement action (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(D) No consent, authorization, approval, order, license, certificate
or permit of or from, or declaration or filing with, any federal, state, local
or other governmental authority or any court or any other tribunal is required
by the Company for the execution, delivery or performance by the Company of this
Agreement or the execution, issuance, sale or delivery of the Securities, except
for filings under applicable "Blue Sky" laws.
(E) No consent of any party to any contract, agreement, instrument,
lease, license, arrangement or understanding to which the Company is a party or
to which any of its properties or assets are subject is required for the
execution, delivery or performance by the Company of this Agreement, or the
execution, issuance, sale or delivery of the Securities, unless the failure to
obtain such consent will not have a material adverse effect on the Company
and/or the Offering.
(F) The execution, delivery and performance of this Agreement will
not violate, result in a breach of, conflict with (with or without the giving of
notice or the passage of time or both) or entitle any party to terminate or call
a default under any material contract, agreement, instrument, lease, license,
arrangement or understanding or violate or result in a breach of any term of the
certificate of incorporation or by-laws of, or conflict with any law, rule,
regulation, order, judgment or decree binding upon, the Company or to which any
of its operations, businesses, properties or assets are subject which
individually or in the aggregate will not have a material adverse effect upon
the operations, business, properties or assets of the Company.
(G) The Securities, upon delivery to the Subscriber, will be validly
issued, fully paid and non assessable and will not be issued in violation of any
preemptive or other rights of stockholders.
(H) The audited consolidated financial statements for the fiscal
year ended June 30, 1999 (the "Financial Statements") of the Company fairly
present in accordance with generally accepted accounting principles, the
financial position, the results of operations, and the other information with
respect to the Company shown therein at the respective dates and for the
respective periods to which they apply. The Financial Statements have been
prepared in accordance with generally accepted accounting principles and the
applicable rules of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company. There has at no time been a material adverse change in
the financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company from the latest information set
forth in the Financial Statements, except as may be properly described in the
Financial Statements as having occurred or as may potentially occur. The
Company's audit firm, who has certified certain financial statements of the
Company and delivered their report with respect to the Financial Statements, are
independent public accountants as defined by the Act and Exchange Act and
Regulation S-K promulgated thereunder.
(I) All patents, trademarks, copyrights (including pending
applications) and other intellectual property (the "Intellectual Property")
currently owned by the Company and/or any of the Company's subsidiaries shall be
owned by the Company exclusively on the Initial Closing and/or registered solely
in the name of the Company on the Initial Closing. Any and all transfers or
assignments to effectuate the foregoing shall be completed prior to the Initial
Closing. All applications for Intellectual Property submitted after the Initial
Closing on behalf of
the Company and/or its subsidiaries shall be done exclusively in the name of the
Company and all Intellectual Property shall be owned solely by the Company.
Section 7. REGISTRATION RIGHTS
(A) Registrable Securities. As used herein the term "Registrable
Security" means the Conversion Shares as adjusted pursuant to the terms of the
Warrant(s) provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act and disposed of pursuant thereto, (ii) the Company receives an
opinion of counsel, which counsel and opinion are reasonably satisfactory to the
Company, that registration under the Act is no longer required for the immediate
public distribution of such security without limitation or restriction as to
timing or quantity of sales, or (iii) it has ceased to be outstanding. The term
"Registrable Securities" means any and/or all of the securities falling within
the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Security" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Section 7.
(B) (i) Subject to Section 8 hereof, the Company agrees to register
the Registrable Securities for public resale in the initial public offering of
the Company's securities (the "IPO").
(ii) Piggyback Registration. If, at any time after the
completion of an IPO of the Company's securities, the Company proposes to
prepare and file with the Securities and Exchange Commission (the "Commission")
a registration statement covering equity or debt securities of the Company, or
any such securities of the Company held by its shareholders (in any such case,
other than pursuant to Form S-8 or successor form), (for purposes of this
Section 7, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a holder
(a "Requesting Holder"), made within twenty (20) days after receipt of the
Notice, requesting the Company to include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, effect the registration under the
Securities Act of the Registrable Securities which it has been so requested to
register ("Piggyback Registration"), at the Company's sole cost and expense and
at no cost or expense to the Requesting Holders except as provided in this
Section 7.
With respect to the Piggyback Registration, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7 (irrespective of whether any written request for inclusion of such
securities shall have already been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(iii) Demand Registration Rights. At any time commencing on
the day following the completion of an initial public offering of the Company's
Securities; and expiring on the fifth anniversary therefrom, the Requesting
Holders of a Majority (as hereinafter defined) in interest of the Registrable
Securities shall have the right to require the Company, at the Company's sole
cost and expense, to prepare, file with the Commission within thirty (30) days
of receiving the Registration Request (as defined herein) and cause to become
effective within sixty (60) days thereafter, on one (1) occasion, a
registration statement on Form S-l, or other appropriate form, and such other
documents, including a prospectus, as may be necessary in order to comply with
the provisions of the Act, to register a public offering and sale, for a period
of not less than eighteen (18) months, of the Registrable Securities by such
Requesting Holders and any other Requesting Holders of the Registrable
Securities who notify the Company within fifteen (15) business days after
receipt of the notice described in Section 7(B)(iii).
The Requesting Holders shall exercise their right to demand
registration under this section by notice (the "Registration Request"). The
Company covenants and agrees to give notice of any Registration Request under
this section by any Requesting Holders to all other registered holders of
Registrable Securities no later than ten (10) calendar days from the date of
the receipt of any such Registration Request.
For purposes of this section, the term "Majority" means an amount in
excess of fifty percent (50%) of the number of then outstanding Registrable
Securities that (i) are not held by the Company, an affiliate, director,
officer, creditor, employee, or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith, or (ii) have not been resold to the public pursuant to a
Registration Statement filed with the Commission under the Act or pursuant to an
exemption therefrom.
(C) COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The
Company covenants and agrees as follows:
(i) Following the effective date of a Registration Statement,
the Company shall, upon the request of the Requesting Holder, forthwith supply
such reasonable number of copies of the Registration Statement, preliminary
prospectus and prospectus meeting the requirements of the Securities Act, and
other documents necessary or incidental to the public offering of the
Registrable Securities, as shall be reasonably requested by the Requesting
Holder to permit the Requesting Holder to make a public distribution of the
Requesting Holder's Registrable Securities. The obligations of the Company
hereunder with respect to the Requesting Holder's Registrable Securities are
subject to the Requesting Holder's furnishing to the Company such appropriate
information concerning the Requesting Holder, the Requesting Holder's
Registrable Securities and the terms of the Requesting Holder's Offering of such
Registrable Securities as the Company may reasonably request in writing.
(ii) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Section 7 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses;
provided, however, that the Requesting Holder shall be solely responsible for
the fees of any counsel retained by the Requesting Holder in connection with
such registration and any transfer taxes or underwriting discounts, commissions
or fees applicable to the Registrable Securities sold by the Requesting Holder
pursuant thereto.
(iii) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the holders of such
securities, provided that the Company shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction.
(D) ADDITIONAL TERMS.
(i) The Company shall indemnify and hold harmless the
Requesting Holder and each underwriter, within the meaning of the Act, who may
purchase from or sell for the Requesting Holder, any Registrable Securities,
from and against any and all losses, claims, damages and liabilities caused by
any untrue statement of a material fact contained in the Registration Statement,
any other registration statement filed by the Company under the Securities Act
with respect to the registration of the Registrable Securities, any
post-effective amendment to such registration statements, or any prospectus
included therein required to be filed or furnished by reason of this Agreement,
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission based upon information furnished or required to be
furnished in writing to the Company by the Requesting Holder or underwriter
expressly for use therein, which indemnification shall include each person, if
any, who controls either the Requesting Holder or underwriter within the meaning
of the Act and each officer, director, employee and agent of the Requesting
Holder and underwriter; provided, however, that the indemnification in this
Section 7(D)(i) with respect to any prospectus shall not inure to the benefit of
the Requesting Holder or underwriter (or to the benefit of any person
controlling the Requesting Holder or underwriter) on account of any such loss,
claim, damage or liability arising from the sale of Registrable Securities by
the Requesting Holder or underwriter, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Requesting Holder or underwriter by the Company prior to the
subject sale and the subsequent prospectus was not delivered or sent by the
Requesting Holder or underwriter to the purchaser prior to such sale; and
provided further, that the Company shall not be obligated to so indemnify the
Requesting Holder or any such underwriter or other person referred to above
unless the Requesting Holder or underwriter or other person, as the case may be,
shall at the same time indemnify the Company, its directors, each officer
signing the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in the Registration Statement, any registration statement or any
prospectus required to be filed or furnished by reason of this Agreement or
caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, insofar
as such losses, claims, damages or liabilities are caused by any untrue
statement or omission based upon information furnished in writing to the Company
by the Requesting Holder or underwriter expressly for use therein, provided that
such indemnification by the Requesting Holder shall not exceed the aggregate
cash proceeds realized by it in connection with the sale of the Registrable
Securities.
(ii) If for any reason the indemnification provided for in the
preceding section is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, claim, damage, liability or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
(iii) Neither the filing of a Registration Statement by the
Company pursuant to this Agreement nor the making of any request for
prospectuses by the Requesting Holder shall impose upon the Requesting Holder
any obligation to sell the Requesting Holder's Registrable Securities.
(iv) The Requesting Holder, upon receipt of notice from the
Company that an event has occurred which requires a post-effective amendment to
the Registration Statement or a supplement to the prospectus included therein,
shall promptly discontinue the sale of Registrable Securities until the
Requesting Holder receives a copy of a supplemented or amended prospectus from
the Company, which the Company shall provide as soon as practicable after such
notice.
(v) The Company shall keep effective any registration or
qualification contemplated by this Section 7 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application document, and communication for such period of
time as shall be required (but not less than eighteen (18) months) to permit the
holders of the Registrable Securities to complete the offer and sale of the
Registrable Securities covered thereby. If the Company fails to keep the
Registration Statement referred to in Section 7 above continuously effective
during the requisite period, then the Company shall promptly update the
Registration Statement or file a new registration statement covering the
Registrable Securities remaining unsold, subject to the terms and provisions
hereof. Notwithstanding the foregoing, the failure of the Company to keep
effective any registration statement contemplated by this Section 7 shall be
deemed to be a breach of this Section 7.
(vi) The Company agrees that until all the Registrable
Securities have been sold under a registration statement or pursuant to Rule 144
under the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit the holders of the
Registrable Securities to sell such Securities under Rule 144.
(E) The Company and the Subscriber agree that the holders of
Registrable Securities will suffer damages if the Company fails to fulfill its
obligations under this Section 7 and that ascertaining the extent of such
damages with precision would not be feasible. If the Company breaches this
Section 7, each holder of Registrable Securities shall receive a cash payment
equal to the greater of (i) 10% of the Eligible Holder's aggregate per share
Exercise Price or (ii) 10% of the fair market value of the Common Stock
multiplied by the number of Warrant Shares held or which may be purchased by
that Eligible Holder, for each 30-day delay, or part thereof, payable promptly
after the expiration of each 30-day period, in the filing of the registration
statement or effective date of the registration statement, whichever may be
applicable. For purposes of this Section, "fair market value" shall mean the
average of the closing bid and closing asked prices of the Common Stock on the
five (5) consecutive trading days immediately prior to the date of the Company's
breach of this Section 7.
Section 8. LOCK-UP PROVISION
The Subscriber covenants and agrees for the benefit of the Company and the
Placement Agreement to abide by the following terms and conditions, provided,
all officers, directors and affiliates of the Company are subject to at least
the same Lock-Up (as defined herein):
(A) The Subscriber will not, directly or indirectly, offer, sell,
contract to sell, grant any option to purchase, pledge, assign, hypothecate, or
otherwise dispose of, encumber, or transfer all or any portion of the economic
consequences associated with the ownership of any Registrable Security
beneficially owned by the undersigned for a period of 180 days after the date on
which the Commission declares the Registration Statement in connection with the
IPO effective, without the prior written consent of the Company and the
Placement Agent (the "Lock-Up"). Notwithstanding the foregoing, if the average
of the closing prices for the Company's Common Stock during the last twenty
trading days of each measurement period set forth below (each a "Measurement
Period") following the closing date of the IPO, is at least 150% of the offering
price of the securities offered in the IPO, then the designated percentage of
all of the Registerable Securities subject to the Lock-Up outstanding at the
time shall be irrevocably released from such restrictions:
MEASUREMENT PERIOD PERCENTAGE RELEASED
2 months 30%
4 months 60%
6 months All shares not previously released.
In calculating the number of Securities to be released upon any
Measurement Period, the designated percentage shall be multiplied by the sum of
(a) all of the Registerable Securities subject to the Lock-Up and (b) all
Registerable Securities previously released from such restrictions pursuant to
the Lock-Up.
(B) To enable the Placement Agent to enforce the foregoing, the
undersigned hereby consents to the placing of restrictive legends consistent
with the Lock-Up upon the certificates evidencing the Registerable Securities
and to the entry of stop-transfer orders consistent with the Lock-Up on the
books and records of the transfer agent of the Registerable Securities with
respect to any Registerable Securities registered in the name of the undersigned
or beneficially owned by the undersigned. The Company agrees to instruct the
transfer agent to place such legends and enter such stop-transfer orders and not
to transfer any Registerable Securities without the consent of the Placement
Agent as set forth herein.
Section 9. SECURITY INTEREST
At the Closing, the Subscriber shall be granted a security interest
in all of the Company's assets in accordance with a certain Security Agreement,
Copyright Security Agreement, Trademark Security Agreement, and the guaranty of
the Company's obligations by Victory Television, Victory Distribution, Inc.,
Victory Animation Studios, Inc., Lightpoint Entertainment, Inc., Victory
Internet Production, Inc. and VAMPS Production, Inc. (collectively, the
"Security Agreements").
Section 10. WAIVER
The Subscriber has made full and complete inquiry with respect to
any matters of interest in connection with this investment and is fully
satisfied in all respects with his
investment decision, fully understanding and comprehending the significant risks
associated, acknowledges that he has not relied on any specific information
concerning the Company, and understands that the Company and the Placement Agent
have not made any representations regarding the Company or the future
performance of the Company.
Section 11. MISCELLANEOUS
(A) NO WAIVER. Neither this Subscription Agreement nor any
provisions hereof shall be waived, modified, discharged, or terminated except by
an instrument in writing signed by the party against whom any such waiver,
modification, discharge, or termination is sought.
(B) NOTICES. Any notice, demand or other communication which any
party hereto may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a
United States mail box, stamped, registered or certified mail, return receipt
requested, addressed to such address as may be listed on the books of the
Company, or, if to the Company, the Company's executive office at 1000 Universal
Studios Plaza, Building 22A, Orlando, Florida 52819, Attention: President, or
(b) delivered personally a such address.
(C) EXECUTION. This Subscription Agreement may be executed through
the use of separate signature pages or in any number of counterparts, and each
of such counterparts shall, or all purposes, constitute one agreement binding on
all parties, notwithstanding that all parties are not signatories to the same
counterpart.
(D) ENTIRE AGREEMENT. This Subscription Agreement, the Securities
and the Security Agreement contain the entire agreement of the parties with
respect to the subject matter hereof and there are no representations, covenants
or other agreements except as stated or referred to herein, and any
representations or warranties not contained herein are disclaimed.
(E) SEVERABILITV. Each provision of this Subscription Agreement is
intended to be severable from every other provisions, and the invalidity or
illegality of any portion hereof, shall not affect the validity or legality of
the remainder hereof.
(F) NON-ASSIGNABILITV. This Subscription Agreement is not
transferable or assignable by the Subscriber except as may be provided herein.
(G) LAW GOVERNING. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be wholly performed in such state.
(i) The Company irrevocably submits to the non-exclusive
jurisdiction of any New York State or United States federal court sitting in the
Borough of Manhattan, New York City, New York, U.S.A., and any appellate court
from any thereof (the "Specified Courts"), over any suit, action or proceeding
brought by the Placement Agent or by any person who
controls the Placement Agent, or any Subscriber or Holder of a Unit, against it
arising out of or based upon this Subscription Agreement, the Securities, or the
Security Agreements (a "Related Proceeding"). The Company waives any objection
to Related Proceedings in such courts whether on the grounds of venue, residence
or domicile or on the ground that the Related Proceedings have been brought to
an inconvenient forum. Notwithstanding the foregoing, any action based on this
Agreement may be instituted by the Placement Agent or any selling group member,
any Subscriber or Holder of a Unit or by any person who controls the Placement
Agent or any selling group member, any Subscriber or Holder of a Unit in any
competent court in the State of New York.
(ii) Each of the Company and Subsidiaries agrees that service
of all writs, process and summonses in any Related Proceedings brought by the
Placement Agent or any selling group member or by any person who controls the
Placement Agent or any selling group member, or any Subscriber or Holder of a
Unit, against it in any New York State or United States Federal Court sitting in
the Borough on Manhattan, New York City may be made upon Shustak, Jalil &
Heller, 545 Madison Avenue, New York, New York 10022 (the Company's "Process
Agent"). Each of the Company and Subsidiaries represents and warrants that the
Company's Process Agent has agreed to act as its agent for service of process,
and each of the Company and Subsidiaries agrees to take any and all action,
including the filing of any and all documents and instruments, that may be
necessary to continue such appointment in full force and effect as aforesaid. If
the Company' s Process Agent shall cease to act as the Company's agent for
service of process, the Company and Subsidiaries shall appoint without delay
another such agent and notify the Placement Agent and the Subscribers or Holders
of such appointment. With respect to any such action in any New York State or
United States Federal Court in the Borough of Manhattan, New York City, service
of process upon the Company's Process Agent and written notice of such service
to the Company shall be deemed, in every respect, effective service of process
upon the Company.
(H) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Company, the Subscriber, and the Placement Agent and
their respective successors and permitted assigns.
(I) SUBSCRIBER EXPENSES. The Company agrees to pay, at the Initial
Closing, all expenses of the Subscriber, including but not limited to, the
Subscriber's counsel and accounting fees as billed.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
VICTORY ENTERTAINMENT CORPORATION
By
------------------------------------------
Michael Gerber, Chief Executive Officer
Please countersign and return two copies of this Subscription Agreement,
together with the completed Investor Questionnaire to the Company. A
countersigned copy of this Subscription Agreement will be returned to the
Subscriber, together with the Units. For the purpose of having the certificates
prepared, please indicate the exact manner in which the certificates are to be
made out in the space provided for below.
Subscription Amount: $______________
($50,000 minimum)
(unless waived by the Company) FOR INDIVIDUALS:
Dated: _______ __ , 2000 _____________________________
(Print Name)
Dated: ________ __, 2000 _____________________________
(Signature)
FOR CORPORATIONS:
Name of Company
_____________________________
Executive Officer of Company
Dated: ________ __, 2000 ____________________________
Signature of Authorized Trustee
Please countersign and return two copies of this Subscription Agreement,
together with the completed Investor Questionnaire to the Company. A
countersigned copy of this Subscription Agreement will be returned to the
Subscriber, together with the Units. For the purpose of having the certificates
prepared, please indicate the exact manner in which the certificates are to be
made out in the space provided for below.
Subscription Amount: $____________________
($50,000 minimum)
(unless waived by the Company)
FOR PARTNERSHIPS:
______________________________
Name of Partnership
______________________________
Name of Authorized Partner
Dated: _________ __, 2000
______________________________
Signature of Authorized Partner
FOR TRUSTS:
______________________________
Name of Trust
______________________________
Name of Authorized Trustee
Dated: ________ __, 2000 ______________________________
Signature of Authorized
Trustee
Please countersign and return two copies of this Subscription Agreement,
together with the completed Investor Questionnaire to the Company. A
countersigned copy of this Subscription Agreement will be returned to the
Subscriber, together with the ___________. For the purpose of having the
certificates prepared, please indicate the exact manner in which the certificate
is to be made out in the space provided for below.
Subscription Amount: $ _____________
($50,000 minimum)
(unless waived by the Company)
FOR OUALIFIED PENSION PLANS:
______________________________
Name of Qualified Pension Plan
and
______________________________
Name of Authorized Plan Fiduciary
Dated: ________ __, 2000
______________________________________
Signature of Authorized Plan Fiduciary
or
_____________________________________
Name of Authorized Plan Beneficiary
or
Dated: ________ , 2000
_________________________________________
Signature of Authorized Plan Beneficiary