OPTION AGREEMENT
This Agreement is made this 3rd day of July, 2002
BETWEEN:
ALLIANCE ATLANTIS COMMUNICATIONS INC.,
a corporation incorporated under the laws of Canada ("AACI")
- and -
POINT.360,
a corporation incorporated under the laws of California ("PTSX")
RECITALS:
A. AACI, either itself or through its wholly-owned subsidiaries, owns
all of the issued and outstanding shares of Tattersall Casablanca Sound Inc.
("TCSI") and Calibre Digital Design Inc. ("CDI"), corporations governed by the
laws of the Province of Ontario and Salter Street Digital Limited ("SSDL"), a
corporation currently governed by the laws of the Province of Nova Scotia (SSDL,
TCSI and CDI are referred to the "Optioned Companies").
B. AACI wishes to grant to PTSX an option to purchase all of the issued
and outstanding shares of the Optioned Companies.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement:
"AGREEMENT" means this option agreement, as it may be amended or
supplemented from time to time as provided herein;
"BUSINESS" means, with respect to the Optioned Companies, the business
of providing standard definition and high definition on-line video editing, DVD
authoring, sound and picture editing, sound mixing and design video
post-production, descriptive video, video and audio compression, quality
control, duplication, transcripts, computer generated imaging and other
post-production services and related services;
"NON-DISCLOSURE AGREEMENT" means the non-disclosure agreement entered
into by the parties, dated as of June 6, 2002;
"OPTION DOCUMENTS" means this Agreement, the Warrant, the Registration
Rights Agreement and the Services Agreement;
"PERSON" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or without
share capital, unincorporated association, trustee, trust, executor,
administrator or other legal personal representative, regulatory body or agency,
government or governmental agency, authority or entity however designated or
constituted;
"REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement
entered into between the parties as of the date hereof;
"SERVICES AGREEMENT" means the services agreement entered into between
the parties as of the date hereof;
"SHARE PURCHASE AGREEMENT" means the share purchase agreement
substantially in the form agreed to by the parties, such draft dated for
reference July 3, 2002;
"WARRANT" means the warrant in favour of AACI dated the date hereof; and
"WARRANT SHARES" means the common shares of PTSX issuable upon exercise
of the Warrant.
1.2 CAPITALIZED TERMS
All capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Share Purchase Agreement.
1.3 HEADINGS
The inclusion of headings in this Agreement is for convenience of
reference only and shall not affect the construction or interpretation hereof.
1.4 GENDER AND NUMBER
In this Agreement, unless the context otherwise requires, words
importing the singular include the plural and vice versa and words importing
gender include all genders.
1.5 CURRENCY
Except where otherwise expressly provided, all amounts in this Agreement
are stated and shall be paid in United States currency.
1.6 ENTIRE AGREEMENT
This Agreement and the Option Documents constitutes the entire agreement
between the parties pertaining to the subject matter of this Agreement and the
Option Documents. There are no warranties, conditions, or representations
(including any that may be implied by statute) and there are no agreements in
connection with such subject matter except as specifically set forth or referred
to in this Agreement and the Option Documents. No reliance is placed on any
warranty, representation, opinion, advice or assertion of fact made either prior
to, contemporaneous with, or after entering into this Agreement, or any
amendment or supplement thereto, by any party to this Agreement and the Option
Documents or its directors, officers, employees or agents, to any other party to
this Agreement and the Option Documents or its directors, officers, employees or
agents, except to the extent that the same has been reduced to writing and
included as a term of this Agreement and the Option Documents, and none of the
parties to this Agreement or the Option Documents has been induced to enter into
this Agreement or the Option Documents or any amendment or supplement by reason
of any such warranty, representation, opinion, advice or assertion of fact.
Accordingly, there shall be no liability, either in tort or in contract,
assessed in relation to any such warranty, representation, opinion, advice or
assertion of fact, except to the extent contemplated above.
1.7 WAIVER, AMENDMENT
Except as expressly provided in this Agreement, no amendment or waiver
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any provision of this Agreement shall constitute a
waiver of any other provision nor shall any waiver of any provision of this
Agreement constitute a continuing waiver unless otherwise expressly provided.
1.8 GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the
Province of Ontario and the laws of Canada applicable therein and shall be
treated, in all respects, as an Ontario contract. Any proceeding initiated by
PTSX against AACI involving a dispute under this Agreement shall be conducted in
Toronto, Ontario, Canada, and any proceeding initiated by AACI against PTSX
involving a dispute under this Agreement shall be conducted in Los Angeles,
California, United States.
ARTICLE 2
OPTION
2.1 GRANT OF OPTION
Subject to the terms of this Agreement, AACI hereby grants to PTSX the
sole and exclusive right and option (the "OPTION") to purchase all (but not less
than all) of the issued and outstanding shares of the Optioned Companies (the
"OPTIONED SHARES") at the Purchase Price.
2.2 OPTION CONSIDERATION
In consideration of the grant of the Option, PTSX hereby issues to AACI
the Warrant. AACI shall be entitled to the registration of the Warrant Shares
for resale under the United States Securities Act of 1933, as amended, (the
"SECURITIES ACT") in accordance with the terms of the Registration Rights
Agreement.
2.3 EXERCISE OF OPTION
2.3.1 OPTION PERIOD
PTSX may exercise the Option at any time until 3:00 p.m. (Toronto time)
on December 31, 2002 (the "OPTION PERIOD"), after which the Option shall be void
and neither party shall have any further obligation to the other.
2.3.2 OPTION NOTICE
In order to exercise the Option, PTSX shall deliver written notice (the
"Option Notice") to AACI at or prior to the expiry of the Option Period advising
AACI of its election to exercise the Option. The Option Notice shall constitute
the irrevocable election of PTSX to purchase, and the irrevocable election of
AACI to sell, all (but not less than all) of the Optioned Shares substantially
on the terms of the Share Purchase Agreement. The purchase and sale shall be
completed within 30 days after AACI's receipt of the Option Notice (the "CLOSING
PERIOD"), and in any event, no later than January 31, 2003.
2.3.3 PURCHASE PRICE
The exercise price of the Option shall be satisfied by PTSX paying the
purchase price for the Optioned Companies of the Stated Price, subject to
adjustment in accordance with and as more particularly set out in the Share
Purchase Agreement.
2.4 DISCLOSURE LETTER
Concurrently with the execution and delivery of this Agreement, AACI has
provided to PTSX a draft Disclosure Letter dated June 28, 2002. Within 30 days
from the date of this Agreement, AACI shall deliver to PTSX a completed form of
Disclosure Letter (the "Original Disclosure Letter"), dated as of June 28, 2002.
2.5 TERMINATION
This Agreement shall expire on the later of December 31, 2002 or the
Closing Date (as such Closing Date may be extended pursuant to section 3.2.1),
unless the parties hereto agree otherwise in writing. Upon any such expiry, all
obligations of each of the parties to each other shall terminate, other than
those set out in the Non-Disclosure Agreement, the Warrant and the Registration
Rights Agreement.
2.6 SERVICES AGREEMENT
Concurrently herewith, the parties are entering into the Services
Agreement.
ARTICLE 3
CLOSING
3.1 UPDATED DISCLOSURE LETTERS
3.1.1 Solely for the purpose of determining whether it should exercise
the Option, PTSX may, from time to time prior to the exercise of the Option (but
in any event no more than three times during the term of this Agreement),
request that AACI provide PTSX with a draft Disclosure Letter updating the
Original Disclosure Letter attached pursuant to section 2.4 (an "UPDATED
DISCLOSURE LETTER"). AACI shall use reasonable commercial efforts to provide
PTSX with an Updated Disclosure Letter as soon as possible after the date of
such request, but no later than within 15 days after PTSX's written request
therefor. Any Updated Disclosure Letter delivered hereunder shall be dated as of
the date of PTSX's request.
3.1.2 If an Updated Disclosure Letter differs materially from the final
Disclosure Letter that AACI proposes to attach to the Share Purchase Agreement
at the time that the Share Purchase Agreement is executed and delivered, PTSX
shall have the right to rescind the exercise of the Option and neither party
shall have any liability to the other, whether in tort or in contract or
otherwise, in respect of the Option and this Agreement and this Agreement shall
be deemed to have been terminated.
3.2 RESTRICTIONS ON CLOSING
3.2.1 If the closing of the purchase and sale pursuant to the Option
cannot be consummated during the Closing Period by reason of any applicable
judgment, decree, order, law or regulation that is in effect during the Closing
Period, the Closing Period shall commence on the date on which such restriction
on consummation has expired or been terminated; provided that, in no event shall
any Closing Date be more than 60 days after the date of the Option Notice (the
"DROP DEAD DATE"), and if the Closing Date shall not have occurred by the Drop
Dead Date due to that judgment, decree, order law or regulation, the exercise of
the Option effected on the date of the Option Notice shall be deemed to have
expired and neither party shall have any liability to the other, whether in tort
or in contract or otherwise, in respect of the Option and this Agreement for the
failure to complete the purchase and sale of the Optioned Shares and this
Agreement shall be deemed to have been terminated.
3.2.2 If the restriction on the consummation of the purchase and sale is
due to any condition or action relating to AACI, the Optioned Companies or any
matter under Canadian law, AACI shall use its reasonable commercial efforts to
cause such restriction to be removed, at AACI's sole cost and expense, prior to
the Drop Dead Date.
3.2.3 If the restriction on the consummation of the purchase and sale is
due to any condition or action relating to PTSX or any matter under United
States law, PTSX shall use its reasonable commercial efforts to cause such
restriction to be removed, at PTSX's sole cost and expense, prior to the Drop
Dead Date.
ARTICLE 4
BUSINESS AND AFFAIRS OF THE OPTIONED COMPANIES
4.1 BUSINESS AND AFFAIRS OF THE OPTIONED COMPANIES
Prior to the expiry of the Option Period, AACI shall cause each of the
Optioned Companies to:
4.1.1 operate the Business only in the ordinary course, consistent with
past practice and, to the extent consistent with such operation, use reasonable
efforts to preserve its business organization, including the services of its
officers and employees, and its business relationships with customers, suppliers
and others having business dealings with it;
4.1.2 maintain all its material assets, whether owned or leased, in good
condition and repair and maintain insurance upon all its assets comparable in
amount, scope and coverage to that in effect on the date of this Agreement;
4.1.3 maintain its books, records and accounts in the ordinary course on
a basis consistent with past practice; and
4.1.4 cause senior management of the Optioned Companies or AACI to
consult with senior management of PTSX with respect to major business decisions
regarding the Optioned Companies.
4.2 NEGATIVE COVENANTS
4.2.1 Prior to the expiry of the Option Period, AACI shall not,
voluntarily or involuntarily, sell, transfer, assign, pledge or hypothecate any
shares of the Optional Companies, or any interest therein, or enter into or
contract or agreement with respect to the foregoing, or permit or suffer to
exist any lien, claim, encumbrance or charge of any kind or character with
respect to any shares of the Optioned Companies, except (a) in connection with
AACI's credit facilities or other debt instruments (and which may be removed
prior to Closing), (b) in connection with any internal reorganization, or (c) in
accordance with this Agreement.
4.2.2 Except as expressly provided in this Agreement or with the prior
written consent of PTSX, prior to the expiry of the Option Period, AACI shall
ensure that none of the Optioned Companies:
4.2.2.1 amends its articles, by-laws, constating documents or other
organizational documents, except for SSDL, which may be exported
from the jurisdiction of the Province of Nova Scotia and continued
into either Canada or the Province of Ontario, in AACI's sole
discretion, in which event the Option shall pertain to the shares of
such continued company;
4.2.2.2 amalgamates, merges or consolidates with, or acquires all or
substantially all the shares or assets of, any Person;
4.2.2.3 transfers, leases, licenses, sells or otherwise disposes of
any of its material assets, other than inventory in the ordinary
course of the Business, consistent with past practice; or
4.2.2.4 issues or sells any shares of capital stock or any
securities exchangeable for or convertible into shares of capital
stock or any right to subscribe for or purchase any shares of any of
the Optioned Companies, except as contemplated by the Share Purchase
Agreement, in which case the Option shall apply to all such
additional shares.
4.3 FINANCIAL REPORTING
AACI shall provide to PTSX in respect of the Optioned Companies:
4.3.1 quarterly financial statements within 60 days after each of the
end of June 30, 2002 and September 30, 2002; and
4.3.2 monthly operating statements within 30 days after the end of each
calendar month, ending with the month ending November 30, 2002;
all consistent in form and content with the financial statements
previously provided to PTSX.
4.4 ACCESS AND CONFIDENTIALITY
During the Option Period, AACI shall provide and shall cause each of
Optioned Companies to provide, access to and shall permit PTSX, through its
representatives, to make such investigation of the Business, properties, assets
and records of the Optioned Companies (the "Due Diligence Materials") and of
their respective financial and legal conditions as PTSX deems necessary or
advisable, acting reasonably, to familiarize itself with the Due Diligence
Materials and other matters. Without limiting the generality of the foregoing,
during the Option Period, AACI shall permit PTSX and its representatives,
without interference to the ordinary conduct of the Optioned Companies and
within normal business hours, to have reasonable access to the premises of the
Optioned Companies. In accordance with the terms of the Non-Disclosure
Agreement, during the Option Period PTSX shall and shall cause its
representatives to, keep confidential all information disclosed to it by AACI or
their agents relating to the Optioned Companies, except as otherwise agreed in
writing by AACI.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PARTY
Each of the parties represents, warrants and covenants to the other
that, in respect of each of the Option Documents to which it is a party:
5.1.1 it has the full right, power, legal capacity and authority to
enter into, and perform its obligations under, each of the Option Documents;
5.1.2 each of the Option Documents has been duly executed and delivered
by it and is a valid and binding obligation of it, enforceable in accordance
with its terms, subject to the usual exceptions as to bankruptcy and the
availability of equitable remedies;
5.1.3 all necessary corporate and other actions have been taken by it to
authorize the execution and delivery of the Option Documents and the performance
of its obligations pursuant to the Option Documents; and
5.1.4 it is not subject to any conflicting obligation or any disability
which shall or might prevent it from, or materially interfere with, the
execution and performance of each of the Option Documents and none of the
entering into of each of the Option Documents or the performance by it of any of
its other obligations under each of the Option Documents shall contravene,
breach or result in any default under the articles, by-laws, constating
documents or other organizational documents or resolutions of the shareholders
and directors of it or under any mortgage, lease, agreement, other legally
binding instrument, licence, permit, statute, regulation, order, judgment or
decree of law to which it is a party or by which it may be bound.
5.2 PTSX REPRESENTATIONS, WARRANTIES, AND COVENANTS
PTSX represents, warrants and covenants to AACI that:
5.2.1 it has taken all necessary corporate and other action to authorize
and reserve and to permit it to issue, the Warrant Shares, at all times from the
date hereof until the obligation to deliver common shares in the capital of PTSX
upon the exercise of the Warrant in accordance with its terms;
5.2.2 it has reserved for issuance, upon exercise of the Warrant in
accordance with its terms, shares of common stock in the capital of PTSX
necessary for PTSX to fulfil its obligations under the Warrants;
5.2.3 the shares of common stock in the capital of PTSX to be issued
upon due exercise of the Warrant shall be duly and validly issued, fully paid
and nonassessable, and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of PTSX;
5.2.4 the authorized capital of PTSX consists of (i) 50 million shares
of no par value common stock, of which 9,014,232 have been duly issued and are
outstanding as fully paid and non-assessable shares in the capital of PTSX, and
(ii) 5,000,000 shares of preferred stock of which none are issued and
outstanding. All of PTSX's outstanding shares have been duly and validly issued
and are outstanding as fully paid and non-assessable shares of PTSX. Except for
options to purchase an aggregate of 2,863,752 shares of common stock, which
options have been granted under PTSX's 1996 Incentive Plan and the 2000
Non-Qualified Stock Option Plan, no options, warrants or other rights to
purchase shares or other securities of PTSX and no securities or obligations
convertible into or exchangeable for shares or other securities of PTSX are
outstanding;
5.2.5 since May 15, 2002, being the filing date of PTSX's most recent
quarterly report on Form 10-Q, there has not been any material change in the
financial condition, operations, or prospects of PTSX other than changes in the
ordinary and usual course of business, none of which has been (individually or
collectively) materially adverse;
5.2.6 there is no suit, action, litigation, investigation, claim,
complaint, grievance or proceeding, including appeals and applications for
review, in progress, or, to the knowledge of PTSX, pending or threatened against
PTSX before any Governmental Authority, commission, board, bureau, agency or
arbitration panel which, if determined adversely to PTSX, would, individually or
collectively,
(a) have a Material Adverse Effect on PTSX,
(b) prevent PTSX from delivering the Option Notice; or
(c) prevent PTSX from fulfilling all of its obligations set out in
this Agreement or arising from this Agreement,
and PTSX has no knowledge of any existing ground on which any such
action, suit, litigation or proceeding might be commenced with any reasonable
likelihood of success; and
5.2.7 all reports and other documents ("SEC Reports") filed by the
Purchaser with the Securities and Exchange Commission subsequent to January 1,
2001, when filed, complied as to form and substance in all material respects
with the applicable requirements of U.S. securities laws.
5.3 AACI REPRESENTATIONS, WARRANTIES, AND COVENANTS
AACI represents, warrants, and covenants to PTSX that:
5.3.1 it owns, directly and indirectly, all of the issued and
outstanding shares of the Optioned Companies;
5.3.2 it understands that the offer and sale of the Warrant and the
Warrant Shares are intended to be exempt from registration under the Securities
Act, pursuant to Section 4(2) of the Securities Act and any applicable state
securities or blue sky laws;
5.3.3 the Warrant and the Warrant Shares are or shall be acquired by
AACI for its own account and without a view to the resale or distribution
thereof or any interest therein in violation of under the Securities Act;
5.3.4 it is an "accredited investor" as such term is defined in
Regulation D under the Securities Act;
5.3.5 it has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Warrant and the Warrant Shares and is capable of bearing the
economic risks of such investment;
5.3.6 it has been furnished with a copy of, or has access to, and has
read the documents and reports filed by PTSX with the Securities and Exchange
Commission since January 1, 2000, and has been given the opportunity to ask
questions of, and receive answers from, PTSX concerning the terms and conditions
of the Warrant and the Warrant Shares and other related matters. PTSX has made
available to AACI or its agents all documents and information relating to an
investment in the Warrant and the Warrant Shares requested by or on behalf of
AACI;
5.3.7 it understands that the Warrant and the Warrant Shares have not
been registered under the Securities Act or any state securities laws, and may
not be offered, sold, pledged or otherwise transferred, except in compliance
with the terms of the Warrant and applicable federal and state securities laws;
5.3.8 it understands that the Warrant and the Warrant Shares shall bear
a restrictive legend as set forth on or in the Warrant; and
5.3.9 the Original Disclosure Letter is true and correct as of the date
of the Original Disclosure Letter in all material respects.
ARTICLE 6
GENERAL MATTERS
6.1 NOTICE
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be given by courier. Any such notice or
other communication shall be deemed to have been received on the business day
following the sending, or if delivered by hand shall be deemed to have been
received at the time it is delivered to the applicable address noted below,
either to the individual designated below or to an individual at such address
having apparent authority to accept deliveries on behalf of the addressee.
Notice of change of address shall also be governed by this section. Notices and
other communications shall be addressed as follows:
(a) if to AACI:
Alliance Atlantis Communications Inc.
121 Bloor Street East
Suite 1500
Toronto, Ontario M4W 3M5
Attention: Paul Laberge
Facsimile: 416-966-7517
(b) if to PTSX:
Point.360
7083 Hollywood Boulevard
Suite 200
Hollywood, CA 90028
Attention: Haig Bagerdjian
Facsimile: 323-957-2297
6.2 TIME OF ESSENCE
Time is of the essence of this Agreement.
6.3 ASSIGNMENT AND TRANSFER
6.3.1 ASSIGNMENT
This Agreement shall enure to the benefit of and be enforceable by each
of the parties and their respective permitted successors and assigns. AACI may,
in its sole discretion, assign the benefits of this Agreement, in whole or in
part and in any manner, to any affiliated or related entities or its lenders,
respectively, and agrees to notify PTSX of such assignment. Each party shall
remain primarily liable for its obligations hereunder. This Agreement may not be
assigned by PTSX without the express written consent of AACI.
6.3.2 TRANSFER OF SHARES
PTSX acknowledges and agrees that AACI may, in its sole discretion,
transfer or sell any or all of the Optioned Shares to any affiliated or related
entity; provided that such affiliated or related entities shall, as a condition
to such transfer agree to be bound by all of the terms of this Agreement; and
provided further that such transfer shall not relieve AACI of any of its
obligations or liability under this Agreement, and that such transfer shall not
impair the right of PTSX to exercise the Option.
6.4 COUNTERPARTS
This Agreement may be signed in counterparts and each such counterpart
shall constitute an original document and such counterparts, taken together,
shall constitute one and the same instrument.
6.5 ATTORNEYS' FEES
If any action at law or equity, including an action for declaratory
relief, is brought to enforce or interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
expenses from the other party, which fees and expenses shall be in addition to
any other relief which may be awarded.
6.6 COUNTERPARTS; FACSIMILE SIGNATURES
This Agreement may be executed in two or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other parties, it being understood that both parties need not sign the
same counterpart. If any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature page were an original thereof.
6.7 REMEDIES
In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, PTSX shall be entitled to
specific performance of the Option granted by AACI under this Agreement without
the showing of economic loss and without any bond or other security being
required. AACI agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of any breach by AACI of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
ALLIANCE ATLANTIS COMMUNICATIONS INC.
By: _________________________________
POINT.360
By: _________________________________