<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 1, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
______
Commission file number: 0-21943
______
FOUR MEDIA COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4599440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2813 WEST ALAMEDA AVENUE, BURBANK, CA 91505
(Address of principal executive offices) (Zip code)
818-840-7000
(Registrant's telephone number including area code)
______
Not applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 9,552,502 shares of
Common Stock, $.01 par value, as of March 9, 1998
<PAGE>
FOUR MEDIA COMPANY
Index
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of August 3, 1997
and February 1, 1998........................................... 4
Consolidated Statements of Operations for the
Six Months Ended February 2, 1997 and February 1, 1998 and the
Three Months Ended February 2, 1997 and February 1, 1998....... 5
Consolidated Statements of Cash Flows for the
Six Months Ended February 2, 1997 and February 1, 1998 and the
Three Months Ended February 2, 1997 and February 1, 1998....... 6
Notes to Consolidated Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview....................................................... 10
Three Months Ended February 1, 1998 Compared to
Three Months Ended February 2, 1997............................ 12
Six Months Ended February 1, 1998 Compared to
Six Months Ended February 2, 1997.............................. 13
Liquidity and Capital Resources................................ 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................. 16
Item 2. Changes in Securities.............................. 16
Item 3. Defaults Upon Senior Securities.................... 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information.................................. 16
Item 6. Exhibits and Reports on Form 8-K................... 16
Signatures ................................................... 17
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
3
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FOUR MEDIA COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
AUGUST 3, FEBRUARY 1,
1997 1998
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................... $ 6,089 $ 727
Restricted cash........................ 680 581
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,873 and $996 as of August 3, 1997
and February 1, 1998, respectively.... 18,755 25,466
Inventory.............................. 952 1,181
Prepaid expenses and other current 3,219 3,003
assets................................ -------- --------
Total current assets................... 29,695 30,958
Property, plant and equipment, net...... 93,672 109,314
Deferred taxes.......................... 2,000 2,000
Long-term receivable.................... 4,067 2,972
Other assets............................ 2,803 2,951
-------- --------
Total assets........................... $132,237 $148,195
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and capital lease obligations......... $ 10,559 $ 13,826
Accounts payable....................... 11,080 9,793
Accrued and other liabilities.......... 6,227 3,614
-------- --------
Total current liabilities.............. 27,866 27,233
Long-term debt and capital lease 54,633 71,267
obligations............................ -------- --------
Total liabilities...................... 82,499 98,500
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized, no
shares issued and outstanding........ -- --
Common stock, $.01 par value;
50,000,000 shares authorized,
9,552,502 shares issued and
outstanding as of August 3, 1997
and February 1, 1998................ 96 96
Additional paid-in capital............. 41,650 41,650
Foreign currency translation adjustment (269) (1,230)
Retained earnings...................... 8,261 9,179
-------- --------
Total stockholders' equity............. 49,738 49,695
-------- --------
Total liabilities and stockholders' $132,237 $148,195
equity................................ ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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FOUR MEDIA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------------------------------------------
FEBRUARY 2, FEBRUARY 1, FEBRUARY 2, FEBRUARY 1,
1997 1998 1997 1998
------------ ----------- ------------ ----------------
<S> <C> <C> <C> <C>
Revenues:
Studio................................. $11,404 $16,607 $ 5,447 $ 8,478
Broadcast.............................. 11,575 11,084 6,063 5,502
Television............................. 14,063 25,422 6,979 12,768
Film................................... 984 2,802 590 1,901
------- ------- ------- -------
Total revenues......................... 38,025 55,915 19,078 28,649
------- ------- ------- -------
Cost of services:
Personnel.............................. 14,101 22,274 7,322 11,117
Material............................... 3,394 4,579 1,541 2,325
Facilities............................. 2,612 2,882 1,284 1,466
Other.................................. 4,034 6,653 2,289 3,740
------- ------- ------- -------
Total cost of services................. 24,141 36,388 12,436 18,648
------- ------- ------- -------
Gross profit........................... 13,884 19,527 6,642 10,001
------- ------- ------- -------
Operating expenses:
Sales, general and administrative...... 6,126 7,749 3,017 3,812
Depreciation and amortization.......... 5,617 7,983 2,822 3,967
------- ------- ------- -------
Total operating expenses............... 11,743 15,732 5,839 7,779
------- ------- ------- -------
Income from operations................ 2,141 3,795 803 2,222
Interest expense, net................... 2,412 2,877 1,198 1,529
------- ------- ------- -------
Income (loss) before income tax....... (271) 918 (395) 693
Provision for income tax................ -- -- -- --
------- ------- ------- -------
Net income (loss)..................... $ (271) $ 918 $ (395) $ 693
======= ======= ======= =======
Earnings per common share............... $ (.04) $ 0.10 $ (.06) $ 0.07
======= ======= ======= =======
Earnings per common share - assuming $ (.04) $ 0.09 $ (.06) $ 0.07
dilution............................... ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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FOUR MEDIA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------------------------------------------------
FEBRUARY 2, FEBRUARY 1, FEBRUARY 2, FEBRUARY 1,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (271) $ 918 $ (395) $ 693
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 5,617 7,983 2,822 3,967
Provision for doubtful accounts....... 199 219 102 78
Changes in operating assets and
liabilities:
(Increase) in trade and long term
receivables.......................... (6,848) (5,981) (1,881) (677)
(Increase) decrease in inventory...... 24 (232) (97) (154)
(Increase) decrease in prepaid
expenses and other assets............ (831) (210) 58 1,026
Increase (decrease) in accounts
payable.............................. 1,960 (1,287) (1,241) 143
Increase (decrease) in accrued and
other liabilities.................... 1,017 (2,540) 703 (3,514)
Net cash provided by (used in) -------- -------- -------- --------
operating activities................ 867 (1,130) 71 1,562
Cash flows from investing activities:
Purchases of property, plant and
equipment ........................... (23,632) (16,111) (14,879) (11,327)
Net cash used in investing -------- -------- -------- --------
activities.......................... (23,632) (16,111) (14,879) (11,327)
Cash flows from financing activities:
Proceeds from term loans.............. 24,400 8,100 8,400 8,100
Proceeds from revolving credit
facility............................. 5,111 3,928 3,531 600
Proceeds from equipment notes......... 4,250 5,599 867 3,800
Repayment of equipment notes and
capital lease obligations............ (13,862) (5,321) (1,034) (2,709)
Net cash provided by financing -------- -------- -------- --------
activities.......................... 19,899 12,306 11,764 9,791
Effect of exchange rate changes on cash. (167) (427) (167) (178)
-------- -------- -------- --------
Net increase (decrease) in cash......... (3,033) (5,362) (3,211) (152)
Cash at beginning of period............. 5,312 6,089 5,490 879
-------- -------- -------- --------
Cash at end of period................... $ 2,279 $ 727 $ 2,279 $ 727
======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest ............................ $ 1,539 $ 2,877 $ 542 $ 1,529
Non cash investing and financing
activities:
Capital lease obligations incurred . $ 5,704 $ 9,050 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
FOUR MEDIA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION
Business. Four Media Company (the "Company") is a provider of technical
and creative services to owners, producers and distributors of television
programming, feature films and other entertainment content. The Company's
services integrate and apply a variety of systems and processes to enhance the
creation and distribution of entertainment content.
While the Company believes that it operates in one business segment, which
is providing services to the entertainment industry, the Company has organized
its activities into four divisions: studio, broadcast, television and film. The
studio division, located in Burbank and Universal City, California, manages,
formats and distributes content worldwide. The broadcast division, located in
Burbank and the Republic of Singapore, assembles and distributes television
networks and programming via satellite to viewers in the United States, Canada
and Asia. The television division, located in Burbank, Universal City and Santa
Monica, California, assembles film or video principal photography into a form
suitable for network, syndicated, cable or foreign television. The film
division, located in Santa Monica, digitally creates and manipulates images in
high-resolution formats for use in feature films.
Organization. On February 7, 1997, the Company completed an initial public
offering of 5,000,000 shares of Common Stock, of which 3,077,502 shares were
sold by the Company and 1,922,498 shares were sold by TSP (defined below), as
the selling stockholder. The offering generated approximately $26.7 million of
proceeds to the Company, net of underwriting discounts and related expenses.
On March 10, 1997, AV Acquisition Corp., a wholly owned subsidiary of the
Company, acquired substantially all of the assets of Anderson Film Industries
Corp and Anderson Graphics, LLC. (collectively, "Anderson"). The acquisition
was accounted for under the purchase method of accounting. The purchase price
was allocated at a fair value to current assets of $1.8 million and property,
plant and equipment of $8.7 million. The total transaction cost was $10.5
million, comprised of $7.7 million in payments to secured and unsecured
creditors, $.9 million in assumed capital lease obligations and $1.9 million in
transaction costs. Subsequent to this transaction, AV Acquisition Corp. changed
its name to Anderson Video Company ("AVC").
In August, 1997, the Company's wholly owned subsidiary Dignet Acquisition
Corp. d/b/a Company 3 ("Co3") began operations providing technical and creative
services to the television advertising production segment of the entertainment
industry.
Basis of Presentation. The accompanying consolidated financial statements
of Four Media Company and its subsidiaries for the six and three month periods
ended February 2, 1997 and February 1, 1998 have been prepared in accordance
with generally accepted accounting principles and with the instructions to Form
10-Q and Article 10 of Regulation S-X. These financial statements have not been
audited by independent accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in management's opinion, necessary for
a fair presentation of the financial condition, results of operations and cash
flows
7
<PAGE>
for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year. The August 3, 1997
balance sheet is derived from audited financial statements included in the
Company's Form 10-K.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10-K dated August 3, 1997.
The accompanying financial statements for the three and six months ended
February 2, 1997 and February 1, 1998 are presented on a consolidated basis and
include the accounts of Four Media Company and its wholly owned subsidiaries
4MC-Burbank, Inc., Digital Magic Company, Four Media Company Asia PTE Ltd., AVC
and Co3. All material inter-company accounts and transactions have been
eliminated in consolidation.
2. EARNINGS PER SHARE
Effective with the period ended February 1, 1998, the Company adopted the
earnings per share calculation and disclosure requirements of Financial
Accounting Standards Statement 128. The tables below demonstrate the earnings
per share calculations for the periods presented (in thousands except per share
data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 1, 1998 FEBRUARY 2, 1997
--------------------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income(loss)............... $918 - ($271) -
Basic EPS...................... 918 9,553 $0.10 (271) 6,475 ($0.04)
========= =========
Effects of Dilutive Securities:
Options........................ - 630 - -
---- ------ ----- -----
Diluted EPS.................... $918 10,183 $0.09 ($271) 6,475 ($0.04)
==== ====== ========= ===== ===== =========
Options omitted................ 700 715
====== =====
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 1, 1998 FEBRUARY 2, 1997
----------------------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss).............. $693 - ($395) -
Basic EPS...................... 693 9,553 $0.07 (395) 6,475 ($0.06)
========= =========
Effects of Dilutive Securities:
Options........................ - 643 - -
---- ------ ----- -----
Diluted EPS.................... $693 10,196 $0.07 ($395) 6,475 ($0.06)
==== ====== ========= ===== ===== =========
Options omitted................ 885 715
====== =====
</TABLE>
8
<PAGE>
Options were omitted in 1997 because they would be anti-dilutive. Certain
options were omitted in 1998 because the exercise prices (either $9 or $10)
exceeded the average price during the periods.
3. SUBSEQUENT EVENTS
On February 2, 1998, the Company acquired all the outstanding shares of
capital stock of Visualize, a California corporation d/b/a Pacific Ocean Post
("POP"). The purchase price of the shares was $27,140,000, of which $24,000,000
was paid in cash, and $3,140,000 is represented by promissory notes. Additional
consideration contingent on and related to the amounts of tax refunds or tax
savings may become due upon realization of such benefits. Substantially all of
the cash was provided by 4MC's new $200,000,000 credit facility. In addition,
the Company incurred approximately $3,000,000 in loan fees (on the entire credit
facility) and other costs associated with this acquisition.
The acquisition is accounted for using the purchase accounting method and,
accordingly, the purchase price will be allocated to the assets acquired and
liabilities assumed based on the fair market value of such assets and
liabilities at the date of acquisition.
The following unaudited pro forma summary combines the consolidated results
of operations of the Company and POP as if the acquisition had occurred at the
beginning of fiscal 1997 and 1998 after giving effect to certain adjustments,
including amortization of goodwill, revised depreciation based on estimated fair
market values, utilization of net operating losses, and revised interest expense
based on the terms of the acquisition debt. The pro forma summary does not
necessarily reflect the results of operations as they would have been if the
Company and POP had constituted a single entity during such periods (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
AUGUST 3, 1997 FEBRUARY 1, 1998
-------------- ----------------
<S> <C> <C>
Revenues................................ $122,559 $74,533
Net income.............................. 3,971 48
Earnings per common share............... $ .50 $ .01
Earnings per common share - assuming
dilution............................... $ .46 $ .00
</TABLE>
On February 27, 1998, the Company entered into a financing agreement
representing $200 million in credit facilities from a group of banks. The
facilities include two $75 million term loans and a $50 million revolver. The
facility matures in 2004 and bears interest at LIBOR plus a margin ranging from
1.25% to 2.75%, based upon the Company's leverage ratios. At closing, the
Company borrowed $104 million to refinance most of its then outstanding debt,
fund the POP acquisition (including the refinancing of most of POP's then
outstanding debt) and pay loan fees and other transaction costs. The Company
will incur an extraordinary charge in the third quarter of fiscal 1998 of
approximately $2 million resulting form the early extinguishment of the
Company's and POP's debt.
Also on February 27, 1998, the Company completed a $15 million preferred
equity private placement. The preferred stock does not have any cumulative
preferred dividend requirements and is convertible into the Company's common
stock at $10 per share. These funds were also used by the Company to retire
existing debt.
9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Form 10-Q and within
the Company's Form 10-K dated August 3, 1997. When used in the following
discussion, the words "believes", "anticipates", "intends", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on forward-looking statements, which speak only as
of the date hereof.
OVERVIEW
The Company is a leading provider of technical and creative services to
owners, producers and distributors of television programming, feature films and
other entertainment content. The Company's services integrate and apply a
variety of systems and processes to enhance the creation and distribution of
entertainment content. The Company seeks to capitalize on domestic and
international growth in demand for original entertainment content as well as
from the exploitation of existing television and film libraries without taking
production or ownership risk with respect to any specific television program,
feature film or other content.
The Company's business is divided into studio, broadcast, television and
film divisions. In each of its four business divisions, the Company offers most
of the systems and technical solutions that constitute the processes that are
integral to the creation, enhancement and distribution of entertainment content.
The studio division, located in Burbank and Universal City, California manages,
formats and distributes existing content libraries to end users in the United
States and internationally. The broadcast division, located in Burbank and the
Republic of Singapore, assembles and distributes cable television channels and
programming via satellite to viewers in the United States, Canada and Asia. The
television division, located in Burbank, Universal City and Santa Monica,
California assembles film or video principal photography into a form suitable
for domestic network, syndicated, cable or foreign television. The film
division, located in Santa Monica, digitally creates and manipulates images in
high resolution formats for use in feature films.
The Company believes that EBITDA is an important measure of its financial
performance. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
nonrecurring charges. The Company's investments in new infrastructure, machine
capacity and technology have produced a relatively high depreciation expense and
will remain a significant non-cash charge to earnings. It is the Company's
policy to depreciate equipment and other capitalized items over a period of
three to seven years. EBITDA is calculated before depreciation and amortization
charges and, in businesses with significant non-cash expenses, is widely used as
a measure of cash flow available to pay interest, repay debt, make acquisitions
or invest in capital equipment and new technologies. As a result, the Company
intends to report EBITDA as a measure of financial performance. EBITDA does not
represent cash generated from operating activities in accordance with generally
accepted accounting principles ("GAAP") and should not be considered in
11
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isolation or as a substitute for other measures of performance prepared in
accordance with GAAP. EBITDA does not reflect that portion of the Company's
capital expenditures which may be required to maintain the Company's market
share, revenues and leadership position in its industry. Moreover, not all
EBITDA will be available to pay interest or repay debt. The Company's
presentation of EBITDA may not be comparable to similarly titled measures
reported by other companies.
THREE MONTHS ENDED FEBRUARY 1, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 2,
1997.
Revenues. Total revenues for the three months ended February 1, 1998
increased 50.2% to $28.6 million compared to $19.1 million for the three months
ended February 2, 1997. The revenue increase was attributable primarily to the
factors set forth below.
Studio division revenues for the three months ended February 1, 1998
increased 55.6% to $8.5 million compared to $5.4 million for the three months
ended February 2, 1997. The major component of this increase was the
acquisition of the business of Anderson ($1.3 million) together with increased
professional duplication revenues ($1.0 million) and film-to-tape transfer
revenues ($0.5 million).
Broadcast division revenues for the three months ended February 1, 1998
decreased 9.3% to $5.5 million compared to $6.1 million for the three months
ended February 2, 1997. Revenues from the Company's Singapore operations
decreased 27.7% during the second quarter of fiscal 1998 as a result of the
completion in 1997 of a one year contract with MGM Gold and translation losses
caused by the devaluation of the Singapore dollar. The decrease in revenues
from the Singapore operations was partially offset by a 17.4% increase in
revenues from the Company's domestic broadcast operations, which was the result
of expanded service relationships. Syndication revenue increased 33.2% as a
result of the expansion of capacity resulting from expanded relationships with
certain major studios.
Television division revenues for the three months ended February 1, 1998
increased 82.9% to $12.8 million compared to $7.0 million for the three months
ended February 2, 1997. The revenue increase was primarily the result of the
start-up of the Company's commercial operation ($2.3 million) in the first
quarter of fiscal 1998, the acquisition of Anderson ($1.7 million) and the
completion of the Company's new digital television services facility in Burbank
($1.8 million). The new facility replaces existing analog infrastructure and
equipment, thereby enhancing the competitiveness of the Company's television
operations.
Film revenues for the three months ended February 1, 1998 increased 222.2%
to $1.9 million compared to $.6 million for the three months ended February 2,
1997. The revenue increase was attributable to increased capacity resulting
from several new feature film projects obtained during the period..
Gross Profit. Gross profit for the three months ended February 1, 1998
increased 50.6% to $10.0 million compared to $6.7 million in the three months
ended February 2, 1997 and, as a percentage of revenues, remained constant at
34.9% of revenues.
12
<PAGE>
Sales, General and Administrative Expenses. Sales, general and
administrative expenses for the three months ended February 1, 1998 increased
26.4% to $3.8 million (13.3% of revenues) compared to $3.0 million (15.8% of
revenues) for the three months ended February 2, 1997. The improvement of 2.5%
in sales, general and administrative expenses as a percentage of revenues is a
result of the Company's ability to leverage its existing corporate overhead to
manage expanded domestic operations.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the three months ended February 1, 1998 increased 40.9% to $4.0
million (13.8% of revenues) compared to $2.8 million (14.8% of revenues) in the
three months ended February 2, 1997. The increase in depreciation and
amortization expense is attributable primarily to the $27.7 million of capital
expenditures for equipment made during fiscal 1997.
Interest Expense. Interest expense for the three months ended February 1,
1998 increased 27.6% to $1.5 million (5.3% of revenues) compared to $1.2 million
(6.3% of revenues) in the three months ended February 2, 1997. The increase was
attributable to additional long-term borrowings incurred by the Company to fund
capital expenditures in fiscal 1997 and the first half of fiscal 1998.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA
for the three months ended February 1, 1998 increased 70.7% to $6.2 million
compared to $3.6 million in the three months ended February 2, 1997. The
increase in EBITDA of $2.6 million was the result of contributions from the
television services expansion, Co3 and AVC. See "Liquidity and Capital
Resources" for a discussion of net cash provided by operating activities for the
period.
SIX MONTHS ENDED FEBRUARY 1, 1998 COMPARED TO SIX MONTHS ENDED FEBRUARY 2, 1997.
Revenues. Total revenues for the six months ended February 1, 1998
increased 47.0% to $55.9 million compared to $38.0 million for the six months
ended February 2, 1997. The revenue increase was attributable primarily to the
factors set forth below.
Studio division revenues for the six months ended February 1, 1998
increased 45.6% to $16.6 million compared to $11.4 million for the six months
ended February 2, 1997. The components of the increase were the acquisition of
Anderson ($2.9 million) together with increased film-to-tape transfer ($1.1
million) as a result of the deployment of additional telecine capacity in
response to an increase in demand for film-to-tape transfer services and
increased professional duplication revenues ($1.0 million).
Broadcast division revenues for the six months ended February 1, 1998
decreased 4.2% to $11.1 million compared to $11.6 million for the six months
ended February 2, 1997. Revenues from the Company's domestic broadcast
operations increased 23.8% during the first half of fiscal 1998. This increase
was attributable to commencement of an expanded service relationship with TVN
Entertainment, Inc. Syndication revenue increased 41% as a result of the
expansion of capacity resulting from expanded relationships with certain major
studios. The increase in revenues from domestic broadcast operations was offset
by a reduction in revenues from the Company's Singapore operation, which was the
result of the completion in 1997 of a
13
<PAGE>
one year contract with MGM Gold and translation losses caused by the devaluation
of the Singapore dollar.
Television division revenues for the six months ended February 1, 1998
increased 80.8% to $25.4 million compared to $14.1 million for the six months
ended February 2, 1997. The revenue increase was primarily the result of the
acquisition of Anderson ($4.0 million), the start-up of the Company's commercial
services operation ($4.0 million) in the first quarter of fiscal 1998, and the
completion of the Company's new digital television services facility in Burbank
($2.7 million). The new facility replaces existing analog infrastructure and
equipment, thereby enhancing the competitiveness of the Company's television
operations.
Film division revenues for the six months ended February 1, 1998 increased
184.8% to $2.8 million compared to $1.0 million for the six months ended
February 2, 1997. The revenue increase was attributable to increased resulting
from several new feature film projects obtained during the period.
Gross Profit. Gross profit for the six months ended February 1, 1998
increased 40.6% to $19.5 million (34.9% of revenues) compared to $13.9 million
(36.5% of revenues) in the six months ended February 2, 1997. The reduction of
1.6% in the Company's gross profit as a percent of revenues was attributable
primarily to a 2.8% increase in labor costs mostly in the first quarter of
fiscal 1998, offset by a 1.7% reduction in facility costs.
Sales, General and Administrative Expenses. Sales, general and
administrative expenses for the six months ended February 1, 1998 increased
26.5% to $7.7 million (13.9% of revenues) compared to $6.1 million (16.1% of
revenues) for the six months ended February 2, 1997. The improvement of 2.2% in
sales, general and administrative expenses as a percentage of revenues is a
result of the Company's ability to leverage its existing corporate overhead to
manage expanded domestic and international operations.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the six months ended February 1, 1998 increased 42.1% to $8.0
million (14.3% of revenues) compared to $5.6 million (14.8% of revenues) in the
six months ended February 2, 1997. The increase in depreciation and
amortization expense is attributable primarily to the $27.7 million of capital
expenditures for equipment made during fiscal 1997.
Interest Expense. Interest expense for the six months ended February 1,
1998 increased 19.3% to $2.9 million compared to $2.4 million in the six months
ended February 2, 1997. The increase was attributable to additional long-term
borrowings incurred by the Company to fund capital expenditures in fiscal 1997
and the first half of fiscal 1998.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
the six months ended February 1, 1998 increased 51.8% to $11.8 million compared
to $7.8 million in the six months ended February 2, 1997. The increase in EBITDA
of $4.0 million was the result of contributions from AVC, Co3 and the television
services expansion. See "Liquidity and Capital Resources" for a discussion of
net cash provided by operating activities for the period.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided By (Used In) Operating Activities. The Company's net
cash provided by (used in) operating activities was $1.6 million and ($1.1
million) for the three and six month periods ended February 1, 1998 compared to
$.1 million and $.9 million for the three and six month periods ended February
2, 1997. The increase for the three months ended February 1, 1998 resulted
primarily from increased net income as adjusted for depreciation and
amortization and provision for doubtful accounts, offset by reductions in
accrued and other liabilities. While similar conditions also existed in the six
months ended February 1, 1998, the decrease in accounts payable and accrued and
other liabilities of approximately $3.8 million resulted in net cash used in
operating activities. In the prior six month period ended February 2, 1997,
accounts payable and accrued and other liabilities increased approximately $3.0
million.
Net Cash Provided by (Used In) Financing Activities. The Company's net
cash provided by financing activities was $9.8 million and $12.3 million for the
three and six month periods ended February 1, 1998 compared to $11.8 million and
$19.9 million for the three and six month periods ended February 2, 1997. The
Company obtained $16.0 million in proceeds from a new term loan in the first
quarter of fiscal 1997. The Company obtained a $8.4 million real property
(mortgage) term loan in the second quarter of fiscal 1997 and $8.1 million real
property (mortgage) term loan in the first quarter of fiscal 1998. The Company
obtained additional financing in the form of equipment notes and leases of $4.3
million and $6.0 million in the first six months of 1997 and 1998 respectively,
while repaying $13.9 million and $5.3 million respectively.
On February 27, 1998, the Company entered into a financing agreement
representing $200 million in credit facilities from a group of banks. The
facilities include two $75 million term loans and a $50 million revolver. The
facility matures in 2004 and bears interest at LIBOR plus a margin ranging from
1.25% to 2.75%, based upon the Company's leverage ratios. At closing, the
Company borrowed $104 million to refinance most of its then outstanding debt,
fund the POP acquisition (including the refinancing of most of POP's then
outstanding debt) and pay loan fees and other transaction costs. The Company
will incur an extraordinary charge in the third quarter of fiscal 1998 of
approximately $2 million resulting form the early extinguishment of the
Company's and POP's debt.
Also on February 27, 1998, the Company completed a $15 million preferred
equity private placement. The preferred stock does not have any cumulative
preferred dividend requirements and is convertible into the Company's common
stock at $10 per share. These funds were also used by the Company to retire
existing debt.
The Company believes that anticipated cash flow from operations and amounts
available from the new facility and other financing sources will be sufficient
to meet anticipated working capital and capital expenditure requirements for
several years.
15
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings.................................. No change
Previously reported in the Company's Annual Report
on Form 10-K (File No. [333-13721]).
Item 2. Changes in Securities.............................. None
Item 3. Defaults Upon Senior Securities.................... None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information.................................. None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3. Certificate of Designations of Series A Convertible
Preferred Stock filed with the Delaware Secretary of
State on February 26, 1998.
4.1 Credit Agreement among Four Media Company, the several
lenders from time to time parties thereto, Bank of
America NT&SA, as Syndication Agent, Union Bank of
California, N.A., as Documentation Agent, Societe
Generale, as Co-Agent, and Canadian Imperial Bank of
Commerce as Administrative Agent, dated as of February
27, 1998.
4.2 Preferred Stock Purchase Agreement dated February 5, 1998
between Four Media Company and Fleming US Discovery Fund
III, L.P.
4.3 Stockholders' Agreement dated February 27, 1998 among
Four Media Company, Fleming US Discovery Fund III, L.P.,
Fleming U.S. Discovery Offshore Fund III, L.P., Robert T.
Walston, John Donlon, Gavin Schutz and Robert Bailey.
4.4 Registration Rights Agreement dated February 27, 1998
among Four Media Company, Fleming U.S. Discovery Fund
III, L.P. and Fleming U.S, Discovery Offshore Fund III,
L.P.
27. Financial Data Schedule
b. Reports of Form 8-K........................... None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOUR MEDIA COMPANY
Date: March 17, 1998 By: /s/ Robert T. Walston
--------------------------
Robert T. Walston,
Chief Executive Officer and
Chairman of the Board
By: /s/ Alan S. Unger
----------------------
Alan S. Unger,
Vice President, Chief Financial Officer
17
<PAGE>
EXHIBIT 3
FOUR MEDIA COMPANY
CERTIFICATE OF DESIGNATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151(g) of the Delaware General Corporation Law
The undersigned officer hereby certifies that:
A. He is the duly elected and acting officer of FOUR MEDIA COMPANY, a
Delaware corporation (the "Corporation").
B. On February 5, 1998, the Board of Directors of the Corporation duly
adopted resolutions in order to designate the Series A Preferred Stock (as set
forth in the resolution below).
C. The resolution contained herein has not been modified, altered or amended
and is presently in full force and effect.
RESOLVED, that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article 4.3 of the Certificate of Incorporation
of the Corporation, the Board of Directors hereby fixes and determines the
voting rights, designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
relative rights of the first series of the preferred stock, par value $.01 per
share, which shall be designated as Series A Convertible Preferred Stock (the
"Series A Preferred Stock").
1. Designation. One hundred fifty thousand (150,000) shares of preferred
-----------
stock, par value $.01 per share, of the Corporation are hereby constituted as a
series of the preferred stock designated as "Series A Convertible Preferred
Stock."
2. Dividends.
---------
a) Dividends on Series A Preferred Stock. In the event that the Corporation
-------------------------------------
shall at any time or from time to time declare, order, pay or make a dividend or
other distribution (whether in cash, securities, rights to purchase securities
or other property) on its Common Stock, the holders of shares of the Series A
Preferred Stock shall be entitled to receive from the Corporation, with respect
to each share of Series A Preferred Stock held, a dividend or distribution that
is the same dividend or distribution that would be received by a holder of the
number of shares of Common Stock into which such share of Series A Preferred
Stock is convertible pursuant to the provisions of Section 5 hereof on the
record date for such dividend or distribution (except in the case of the payment
of a stock dividend in shares of its Common Stock
<PAGE>
if a holder of shares of Series A Preferred Stock shall have given notice to the
Corporation (within five (5) business days after such holder's receipt of the
Corporation's notice regarding the stock dividend) of its election to have the
Conversion Price of its shares adjusted in accordance with Section 5(d)(i)
hereof). Any such dividend or distribution shall be declared, ordered, paid or
made on the Series A Preferred Stock at the same time such dividend or
distribution is declared, ordered, paid or made on the Common Stock. Dividends,
if declared, on shares of the Series A Preferred Stock shall accrue and be
cumulative from the Issue Date of such shares.
b) Limitation on Dividends, Repurchases and Redemptions. So long as any
----------------------------------------------------
shares of Series A Preferred Stock shall be outstanding, the Corporation shall
not declare or pay or set apart for payment any dividends or make any other
distributions on any Junior Securities, whether in cash, securities, rights to
purchase securities or other property (other than dividends or distributions
payable in shares of the class or series upon which such dividends or
distributions are declared or paid), nor shall the Corporation or any of its
Subsidiaries purchase, redeem or otherwise acquire for any consideration or make
payment on account of the purchase, redemption or other retirement of any Parity
Securities or Junior Securities, nor shall any monies be paid or made available
for a sinking fund for the purchase or redemption of any Parity Securities or
Junior Securities, unless with respect to all of the foregoing all dividends or
other distributions to which the holders of Series A Preferred Stock shall have
been entitled, pursuant to Section 2(a) hereof, shall have been paid or declared
and a sum of money has been set apart for the full payment thereof.
(c) Pro Rata Payments. In the event that full dividends are not paid or made
-----------------
available to the holders of all outstanding shares of Series A Preferred Stock
and of any Parity Securities and funds available for payment of dividends shall
be insufficient to permit payment in full to holders of all such stock of the
full preferential amounts to which they are then entitled, then the entire
amount available for payment of dividends shall be distributed ratably among all
such holders of Series A Preferred Stock and of any Parity Securities in
proportion to the full amount to which they would otherwise be respectively
entitled.
3. Preference on Liquidation.
-------------------------
(a) Liquidation Preference for Series A Preferred Stock. In the event that
---------------------------------------------------
the Corporation shall liquidate, dissolve or wind up, whether voluntarily or
involuntarily, no distribution shall be made to the holders of shares of Common
Stock or other Junior Securities (and no monies shall be set apart for such
purpose) unless prior thereto, the holders of shares of Series A Preferred Stock
shall have received an amount per share equal to the greater of (i) the sum of
(x) the Liquidation Value, plus (y) all declared but unpaid dividends thereon
through the date of distribution, (ii) ratable distributions determined with
respect to the holders of Series A Preferred Stock and Common Stock on the basis
of the number of shares of Common Stock into which such Series A Preferred Stock
could be converted pursuant to the provisions of Section 5 hereof immediately
prior to such distribution and (iii) the Payment Amount, on a per share basis
(the greater of (i), (ii) and (iii) above is herein referred to as the "Series A
Liquidation Preference"). The "Liquidation Value" means $100 per share with
------------------
respect to the Series A Preferred Stock.
2
<PAGE>
(b) Pro Rata Payments. If, upon any such liquidation, dissolution or other
-----------------
winding up of the affairs of the Corporation, the assets of the Corporation
shall be insufficient to permit the payment in full of the Series A Liquidation
Preference for each share of Series A Preferred Stock then outstanding and the
full liquidating payments on all Parity Securities, then the assets of the
Corporation remaining shall be ratably distributed among the holders of Series A
Preferred Stock and of any Parity Securities in proportion to the full amounts
to which they would otherwise be respectively entitled if all amounts thereon
were paid in full.
(c) Sale Not a Liquidation. Neither the voluntary sale, conveyance, exchange
----------------------
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all the property or assets of the Corporation nor the
consolidation, merger or other business combination of the Corporation with or
into one or more corporations shall be deemed to be a liquidation, dissolution
or winding-up, voluntary or involuntary, of the Corporation.
(d) Notice of Liquidation. Written notice of any liquidation, dissolution or
---------------------
winding up of the Corporation, stating the payment date or dates when and the
place or places where amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than
thirty (30) days prior to any payment date specified therein, to the holders of
record of the Series A Preferred Stock at their respective addresses as shall
appear on the records of the Corporation.
4. Voting.
------
(a) General. In addition to any voting rights provided in the Corporation's
-------
Certificate of Incorporation or by law, the Series A Preferred Stock shall vote
together with the Common Stock as a single class on all actions to be voted on
by the stockholders of the Corporation other than election of directors. Each
share of Series A Preferred Stock shall entitle the holder thereof to such
number of votes per share on each such action as shall equal the number of
shares of Common Stock (including fractions of a share) into which each share of
Series A Preferred Stock is then convertible. The holders of Series A Preferred
Stock shall be entitled to notice of any stockholder's meeting in accordance
with the By-Laws of the Corporation.
(b) Board of Directors. The Corporation shall not, without the written
------------------
consentor affirmative vote of the holders representing at least a majority of
the shares of Series A Preferred Stock then outstanding, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class, increase the maximum number of directors constituting the Board of
Directors to a number in excess of twelve (12).
(c) Election of Directors. So long as either (i) the Fleming Holders own at
---------------------
least 75,000 shares of Series A Preferred Stock or (ii) any Transferee owns at
least 75,000 shares of Series A Preferred Stock and the Corporation consented to
such Transferee (which consent shall not be unreasonably withheld), the holders
of Series A Preferred Stock, consenting or voting (as the case may be) as a
separate class, shall be entitled, but not required, to elect one (1) director
of the Corporation (the "Preferred Director").
3
<PAGE>
Holders of at least a majority of the outstanding shares of Series A Preferred
Stock shall exercise the right to elect a Preferred Director by written notice
to the Corporation, whereupon the Corporation shall call a meeting of the
holders of the Series A Preferred Stock to elect a Preferred Director.
Thereafter, the holders of Series A Preferred Stock, consenting or voting as a
class (as the case may be), shall be entitled to elect a Preferred Director at
any meeting (or in a written consent in lieu thereof) held for the purpose of
electing directors until such time as holders of at least a majority of the
outstanding shares of Series A Preferred Stock shall notify the Corporation in
writing that they no longer wish to exercise their right to elect a Preferred
Director.
At any meeting (or in a written consent in lieu thereof) held for the purpose
of electing directors, (i) the presence in person or by proxy (or the written
consent) of the holders representing a majority of the shares of Series A
Preferred Stock then outstanding shall constitute a quorum of such class for the
election of the Preferred Director; and (ii) the absence of the presence in
person or by proxy (or written consent) of the holders representing less than a
majority of the shares of Common Stock then outstanding shall not affect the
right of a quorum of holders of Series A Preferred Stock to elect the Preferred
Director. Any Preferred Director may be removed with or without cause by, and
shall not be removed except by, the holders representing a majority of the
shares of Series A Preferred Stock then outstanding, present in person or by
proxy and voting at a meeting of stockholders, or of the holders of Series A
Preferred Stock called for that purpose, or by written consent signed by the
holders representing a majority of the shares of Series A Preferred Stock then
outstanding.
A vacancy in the directorship to be held by the Preferred Director shall be
filled only by vote or written consent of the holders of the Series A Preferred
Stock as provided above. Unless otherwise required by the laws of the State of
Delaware, any holder or holders of at least a majority of the outstanding shares
of Series A Preferred Stock shall have the right to call a meeting of the
holders of Series A Preferred Stock of the Corporation for the purpose of
electing a Preferred Director and filling vacancies of Preferred Directors.
5. Conversion. The holders of shares of Series A Preferred Stock shall have
----------
the right o convert all or a portion of such shares into fully paid and
nonassessable shares of Common Stock or any capital stock or other securities
into which such Common Stock shall have been changed or any capital stock or
other securities resulting from a reclassification thereof as follows:
(a) Right to Convert. Subject to and upon compliance with the provisions of
----------------
this Section 5, a holder of shares of Series A Preferred Stock shall have the
right, at the option of such holder, at any time, to convert any or all of such
shares into the number of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion rounded down to the nearest 1/100th of a
share) obtained by dividing the aggregate Liquidation Value of the shares to be
converted, plus all declared but unpaid dividends thereon through the date of
conversion (unless the holder of shares of Series A Preferred Stock being so
converted shall have elected to receive any such dividends in respect of the
shares being converted subsequent to conversion),
4
<PAGE>
by the Conversion Price and by surrender of such shares, such surrender to be
made in the manner provided in paragraph (b) of this Section 5. The Common Stock
issuable upon conversion of the shares of Series A Preferred Stock, when such
Common Stock shall be issued in accordance with the terms hereof, are hereby
declared to be and shall be duly authorized, validly issued, fully paid and
nonassessable Common Stock held by the holders thereof.
(b) Mechanics of Conversion. Each holder of Series A Preferred Stock that
-----------------------
desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the principal office of
the Corporation or of any transfer agent for the Series A Preferred Stock or
Common Stock, accompanied by written notice to the Corporation that such holder
elects to convert the same and stating therein the number of shares of Series A
Preferred Stock being converted and whether all declared and unpaid dividends in
respect of such shares shall be included in the calculation set forth in Section
5(a) hereof, and setting forth the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued if such name
or names shall be different than that of such holder. Thereupon, the Corporation
shall issue and deliver at such office on the second succeeding Business Day
(unless such conversion is in connection with an underwritten public offering of
Common Stock, in which event concurrently with such conversion) to such holder
or on such holder's written order, (i) a certificate or certificates for the
number of validly issued, fully paid and nonassessable full shares of Common
Stock to which such holder is entitled and (ii) if less than the full number of
shares of Series A Preferred Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date of such surrender of the shares to be converted
(except that if such conversion is in connection with an underwritten public
offering of Common Stock, then such conversion shall be deemed to have been
effected upon such surrender) so that the rights of the holder thereof as to the
shares being converted shall cease at such time except for the right to receive
shares of Common Stock and if the holder of the shares being so converted shall
have elected to receive dividends subsequent to such conversion, all accrued and
unpaid dividends in accordance herewith, and the person entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock at such time.
(c) Conditional Conversion. Notwithstanding any other provision hereof, if
----------------------
conversion of any shares of Series A Preferred Stock is to be made in connection
with a public offering of Common Stock or any transaction described in Section
5(d)(vii) hereof, the conversion of any shares of Series A Preferred Stock may,
at the election of the holder thereof, be conditioned upon the consummation of
the public offering or such transaction, in which case such conversion shall not
be deemed to be effective until the consummation of such public offering or
transaction.
5
<PAGE>
(d) Adjustment of the Conversion Price. The Conversion Price shall be
----------------------------------
adjusted from time to time as follows:
(i) Adjustment for Stock Splits and Combinations. If the Corporation at any
--------------------------------------------
time or from time to time after the Issue Date, pays a stock dividend in
shares of its Common Stock, issues any convertible debt securities, effects a
subdivision of the outstanding Common Stock, combines the outstanding shares
of Common Stock, issues by reclassification of shares of its Common Stock any
shares of capital stock of the Corporation, makes a distribution of any of its
assets (other than cash dividends payable out of earnings or retained earnings
in the ordinary course of business) then, in each such case, the Conversion
Price in effect immediately prior to such event shall be adjusted so that each
holder of shares of Series A Preferred Stock shall have the right to convert
its shares of Series A Preferred Stock into the number of shares of Common
Stock which it would have owned after the event had such shares of Series A
Preferred Stock been converted immediately before the happening of such event.
Any adjustment under this Section 5(d)(i) shall become effective retroactively
immediately after the record date in the case of a dividend and distribution
and shall become effective immediately after the effective date in the case of
an issuance, subdivision, combination or reclassification. If the Corporation
pays a stock dividend in shares of its Common Stock and the holders of the
Series A Preferred Stock received such stock dividend pursuant to Section 2(a)
hereof, the Conversion Price shall not be adjusted for such stock dividend
under this Section 5(d)(i).
(ii) Issuance of Additional Shares of Stock. If at any time the Corporation
--------------------------------------
shall (except as hereinafter provided) issue or sell any Additional Shares of
Stock in exchange for consideration in an amount per Additional Share of Stock
less than the Conversion Price in effect immediately prior to such issuance or
sale of Additional Shares of Stock, then the Conversion Price as to the Common
Stock into which the Series A Preferred Stock is convertible immediately prior
to such adjustment shall be adjusted to equal the consideration paid per
Additional Share of Stock. The provisions of this Section 5(d)(ii) shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Section 5(d)(i) or which are dividends or
distributions received by the holders of the Series A Preferred Stock pursuant
to Section 2(a) hereof.
(iii) issuance of Warrants or Other Rights. If at any time the Corporation
------------------------------------
shall in any manner (whether directly or by assumption in a merger in which
the Corporation is the surviving corporation) issue or sell any warrants or
other rights to subscribe for or purchase any Additional Shares of Stock or
any Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the consideration received for
such warrants or other rights or such Convertible Securities shall be less
than the Conversion Price in effect immediately prior to the time of such
issue or sale, then the Conversion Price shall be adjusted as provided in
Section 5(d)(ii). No further adjustments of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such warrants or other rights or upon the actual issue of
such Common Stock upon such conversion or
6
<PAGE>
exchange of such Convertible Securities.
(iv) Superseding Adjustments. If, at any time after any adjustment of the
-----------------------
Conversion Price at which the Series A Preferred Stock is convertible shall
have been made pursuant to Section 5(d)(iii) as a result of any issuance of
warrants, rights or Convertible Securities,
(i) such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire, and all or a portion of
such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the
case may be, shall not have been exercised, or
(ii) the consideration per share for which shares of Stock are issuable
pursuant to such warrants or rights, or the terms of such other
Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per
share upon the occurrence of a specified date or event, then such previous
adjustment shall be rescinded and annulled and the Additional Shares of
Stock which were deemed to have been issued by virtue of the computation
made in connection with the adjustment so rescinded and annulled shall no
longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such rights or
options or other Convertible Securities on the basis of
(iii) treating the number of Additional Shares of Stock or other property,
if any, theretofore actually issued or issuable pursuant to the previous
exercise of any such warrants or rights or any such right of conversion or
exchange, as having been issued on the date or dates of any such exercise
and for the consideration actually received and receivable therefor, and
(iv) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share
for which shares of Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new
adjustment of the Conversion Price at which the Series A Preferred Stock
is convertible shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
(v) Antidilution Adjustments Under Other Securities. Without limiting any
-----------------------------------------------
other rights available hereunder to the holders of the Series A Preferred
Stock, if there is an antidilution adjustment (i) under any Convertible
Securities, whether issued prior to or after the Issue Date, or (ii) under
any rights, options or warrants to purchase Additional Shares of Stock,
whether issued prior to or after the Issue Date which, in either case,
results in a reduction in the exercise or purchase price with respect to
such security or rights or results in an increase in the number of
Additional Shares of Stock obtainable under such Convertible Security,
right, option or warrant, then an adjustment shall be
7
<PAGE>
made to the Conversion Price hereunder. Any such adjustment pursuant to
this Section 5(d)(v) shall be whichever of the following results in a lower
Conversion Price: (A) a reduction in the Conversion Price equal to the
percentage reduction in such exercise or purchase price with respect to
such Convertible Security, right, option or warrant or (B) a reduction in
the Conversion Price which will result in the same percentage increase in
the number of shares of Common Stock available hereunder as the percentage
increase in the number of Additional Shares of Stock available under such
Convertible Security, right, option or warrant. Any such adjustment under
this Section 5(d)(v) shall only be made if it would result in a lower
Conversion Price than that which would be determined pursuant to any other
antidilution adjustment otherwise required hereunder as a result of the
event or circumstance which triggered the adjustment to such Convertible
Security, right, option or warrant, and if an adjustment is made pursuant
to this Section 5(d)(v), such other antidilution adjustment otherwise
required hereunder shall not be made as a result of such event or
circumstance.
(vi) Other Provisions Applicable to Adjustments under this Section. The
-------------------------------------------------------------
following provisions shall be applicable to making adjustments to the
shares of Common Stock into which the Series A Preferred Stock is
convertible and the Conversion Price at which the Series A Preferred Stock
is convertible provided for in this Section 5(d):
(a) Computation of Consideration. To the extent that any
----------------------------
Additional Shares of Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Corporation therefor
shall be the amount of the cash received by the Corporation therefor,
or, if such Additional Shares of Stock or Convertible Securities are
offered by the Corporation for subscription, the subscription price,
or, if such Additional Shares of Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest
or accrued dividends and any compensation, discounts or expenses paid
or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent
that such issuance shall be for a consideration other than cash, then
except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board of Directors of the Corporation. In case any Additional
Shares of Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase such Additional Shares of Stock or
Convertible Securities shall be issued in connection with any merger
in which the Corporation issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Corporation,
of such portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Stock, Convertible
Securities, warrants or other rights, as the
8
<PAGE>
case may be. The consideration for any Additional Shares of Stock
issuable pursuant to any warrants or other rights to subscribe for or
purchase the same shall be the consideration received by the
Corporation for issuing such warrants or other rights plus the
additional consideration payable to the Corporation upon exercise of
such warrants or other rights. The consideration for any Additional
Shares of Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Corporation for
issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Corporation in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any,
payable to the Corporation upon the exercise of the right of
conversion or exchange in such Convertible Securities. In case of the
issuance at any time of any Additional Shares of Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class
of stock other than Common Stock, the Corporation shall be deemed to
have received for such Additional Shares of Stock or Convertible
Securities a consideration equal to the amount of such dividend so
paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
---------------------------
this Section 5(d) shall be made whenever and as often as any event
requiring an adjustment shall occur, except that any adjustment of the
Conversion Price that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the
Common Stock, as provided for in Section 5(d)(i)) up to, but not
beyond the date of exercise if such adjustment either by itself or
with other adjustments not previously made amount to a change in the
Conversion Price of less than $.05. Any adjustment representing a
change of less than such minimum amount (except as aforesaid) which is
postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section
5(d) and not previously made, would result in a minimum adjustment or
on the date of conversion. For the purpose of any adjustment, any
event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
--------------------
Section 5(d), fractional interests in the Common Stock shall be taken
into account to the nearest 1/100th of a share.
(d) Challenge to Good Faith Determination. Whenever the Board of
-------------------------------------
Directors of the Corporation shall be required to make a
determination in good faith of the fair value of any item under this
Section 5(d), such determination may be challenged in good faith by a
holder of Series A Preferred Stock and any dispute shall be resolved
by an investment banking firm of recognized national standing jointly
selected by the Corporation and such holder. The fees of such
investment banker shall be borne by such holder if the Corporation's
calculation is determined to be correct and otherwise by the
Corporation.
9
<PAGE>
(vii) Reorganization, Reclassification, Merger or Consolidation. If
---------------------------------------------------------
the Corporation shall at any time reorganize or reclassify the
outstanding shares of Common Stock (other than a change in par value,
or from no par value to par value, or from par value to no par value,
or as a result of a subdivision or combination) or consolidate with or
merge into another corporation (where the Corporation is not the
continuing corporation after such merger or consolidation), the
holders of Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock in whole or in
part, the same kind and number of shares of stock and other
securities, cash or other property (and upon the same terms and with
the same rights) as would have been distributed to a holder upon such
reorganization, reclassification, consolidation or merger had such
holder converted its Series A Preferred Stock immediately prior to
such reorganization, reclassification, consolidation or merger
(subject to subsequent adjustments under Section 5(d) hereof). The
Conversion Price upon such conversion shall be the Conversion Price
that would otherwise be in effect pursuant to the terms hereof.
Notwithstanding anything herein to the contrary, the Corporation will
not effect any such reorganization, reclassification, merger or
consolidation unless prior to the consummation thereof, the
corporation which may be required to deliver any stock, securities or
other assets upon the conversion of the Series A Preferred Stock shall
agree by an instrument in writing to deliver such stock, cash,
securities or other assets to the holders of the Series A Preferred
Stock. A sale, transfer or lease of all or substantially all of the
assets of the Corporation to another person shall be deemed a
reorganization, reclassification, consolidation or merger for the
foregoing purposes.
(viii) Exceptions to Adjustment of Conversion Price. Anything
--------------------------------------------
herein to the contrary notwithstanding, the Corporation shall not make
any adjustment of the Conversion Price in the case of (i) the issuance
of shares of Common Stock to holders of the Series A Preferred Stock
upon conversion of all or any portion of their shares of Series A
Preferred Stock, (ii) the issuance of securities with an aggregate
Market Value not in excess of $13 million in the transactions
identified in a letter agreement dated February 26, 1998 from the
Corporation to the Fleming Funds, (iii) the issuance of securities
with an aggregate Market Value not in excess of $15 million in other
transactions not described in clause (ii), provided, that, in any such
--------
transaction, shares of Common Stock are issued at a Market Price per
share between $9.00 and $10.00 and (iv) any other issuances of
securities that the Fleming Holders agree in writing shall be exempt
from the adjustment provisions of this Section 5(d).
(ix) Chief Financial Officer's Opinion. Upon each adjustment of the
---------------------------------
Conversion Price, and in the event of any change in the rights of a
holder of Series A Preferred Stock by reason of other events herein
set forth, then and in each such case, the Corporation will promptly
obtain an opinion of the chief financial officer of the Corporation,
stating the adjusted Conversion Price, or specifying the other
10
<PAGE>
shares of the Common Stock, securities or assets and the amount
thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. The Corporation will promptly
mail a copy of such opinion to the holders of Series A Preferred
Stock. If a holder disagrees with such calculation, the Corporation
agrees to obtain within thirty (30) business days an opinion of a firm
of independent certified public accountants selected by the
Corporation's Board of Directors and acceptable to such holder to
review such calculation and the opinion of such firm of independent
certified public accountants shall be final and binding on the parties
and shall be conclusive evidence of the correctness of the computation
with respect to any such adjustment of the Conversion Price.
(x) Corporation to Prevent Dilution. In case at any time or from
-------------------------------
time to time conditions arise by reason of action taken by the
Corporation, which in the good faith opinion of its Board of Directors
or a majority of the holders of the Series A Preferred Stock are not
adequately covered by the provisions of this Section 5(d), and which
might materially and adversely affect the exercise rights of the
holders of the Series A Preferred Stock, the Board of Directors of the
Corporation shall appoint such firm of independent certified public
accountants acceptable to a majority of the holders of the Series A
Preferred Stock, which shall give their opinion upon the adjustment,
if any, on a basis consistent with the standards established in the
other provisions of this Section 5(d), necessary with respect to the
Conversion Price, so as to preserve, without dilution (other than as
specifically contemplated by the Certificate of Incorporation), the
exercise rights of the holders of the Series A Preferred Stock. Upon
receipt of such opinion, the Board of Directors of the Corporation
shall forthwith make the adjustments described therein.
(e) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of Section 5 hereof and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(f) No Fractional Shares Adjustments. No fractional shares shall be
--------------------------------
issued upon conversion of the Series A Preferred Stock. If more than one share
of the Series A Preferred Stock is to be converted at one time by the same
stockholder, the number of full shares issuable upon such conversion shall be
computed on the basis of the aggregate amount of the shares to be converted.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation will pay a cash adjustment in respect of such fractional interest
in an amount equal to the same fraction of the Market Price per share of Common
Stock at
11
<PAGE>
the close of business on the day of conversion which such fractional share of
Series A Preferred Stock would be convertible into on such date.
(g) Shares to be Reserved. The Corporation shall at all times
---------------------
reserve and keep available, out of its authorized and unissued stock, solely for
the purpose of effecting the conversion of the Series A Preferred Stock, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Series A Preferred Stock from time to time
outstanding. The Corporation shall from time to time, in accordance with the
laws of the State of Delaware, increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized but unissued
Common Stock shall be insufficient to permit the conversion in full of the
Series A Preferred Stock.
(h) Taxes and Charges. The Corporation will pay any and all issue
-----------------
or other taxes that may be payable in respect of any issuance or delivery of
shares of Common Stock on conversion of the Series A Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance or delivery of Common Stock
in a name other than that of the Series A Preferred Stock, and no such issuance
or delivery shall be made unless and until the Person requesting such issuance
has paid to the Corporation the amount of such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(i) Accrued Dividends. Upon conversion of any shares of Series A
-----------------
Preferred Stock, the holder thereof shall be entitled to receive any accrued but
unpaid dividends in respect of the shares of Series A Preferred Stock so
converted to the date of such conversion.
(j) Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any shares of Series A Preferred Stock or
of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Preferred Stock in any manner which interferes with the
timely conversion of such shares of Series A Preferred Stock.
6. Redemption
----------
(a) Redemption Price. Any redemption of the Series A Preferred
----------------
Stock pursuant to Section 6(b) shall be at a price per share equal to the
Liquidation Value plus all declared but unpaid dividends thereon through the
redemption date (the "Mandatory Redemption Price"). Any redemption of the Series
A Preferred Stock pursuant to Section 6(d) shall be at a price per share equal
to the Series A Liquidation Preference, except that, for purposes of calculation
of the redemption price under this Section 6(a), clause (ii) of the definition
of Series A Liquidation Preference in Section 3(a) hereof shall provide for the
amount per share such holders would have received if such holders had converted
their shares of Series A Preferred Stock into shares of Common Stock immediately
prior to the Fundamental Change (the "Optional Redemption Price"). The Mandatory
12
<PAGE>
Redemption Price and the Optional Redemption Price shall be paid, at the
election of the Corporation, in cash or shares of Common Stock, provided, that,
(i) for purposes of calculating the number of shares of Common Stock to be
received by each holder of Series A Preferred Stock, each such share of Common
Stock shall be valued at 10% less than the Market Price, and (ii) in the case of
the Optional Redemption Price, if the Corporation's stockholders are receiving
cash for their interests in the Corporation and the Corporation's lenders have
been indefeasibly paid in full in cash, then the Optional Redemption Price shall
be paid in cash. If the Mandatory Redemption Price or the Optional Redemption
Price is paid in shares of Common Stock and issuance of such shares results in
any holder or holders of the Series A Preferred Stock, individually or as a
"group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended) acquiring beneficial ownership of 30% or more of the
outstanding shares of Common Stock of the Corporation having ordinary voting
power in the election of directors, the Corporation shall only issue that number
of shares equal to 29.9% of such outstanding shares of Common Stock (the
"Maximum Ownership") and shall deliver to each holder of record of the shares to
be redeemed a new certificate registered in such holder's name (or the name of
its nominee, if requested by such holder) evidencing the number of shares of
Series A Preferred Stock not redeemed for shares of Common Stock under Section
6(b) hereof or Section 6(d) hereof, as the case may be. If at any time, the
number of shares of Common Stock held by such holder or holders shall fall below
the Maximum Ownership, the holder or holders of shares of Series A Preferred
Stock shall be entitled to have the Corporation redeem the number of shares of
Series A Preferred Stock such that such holder or holders shall hold the Maximum
Ownership, such redemption to be in shares of Common Stock at the Mandatory
Redemption Price or the Optional Redemption Price, as the case may be (such
shares of Common Stock being paid in such redemption shall be distributed among
the holders of Series A Preferred Stock pro rata based upon their total
ownership of shares of Series A Preferred Stock).
For purposes of this Section 6(a), the percentage of the outstanding shares of
Common Stock of the Corporation shall be calculated by using a fraction, (x) the
numerator of which is the number of shares of Common Stock to be issued pursuant
to Section 6(a) and (y) the denominator of which is the number of outstanding
shares of Common Stock on the redemption date or the Repurchase Date (as the
case may be) plus the number of shares of Common Stock to be issued pursuant to
----
Section 6(a).
(b) Mandatory Redemption. Subject to Section 6(a) hereof, the
--------------------
Corporation shall redeem all of the then outstanding shares of Series A
Preferred Stock at the Mandatory Redemption Price on December 31, 2002.
(c) Procedures for Redemption. In the event the Corporation shall
-------------------------
be required to redeem shares of Series A Preferred Stock pursuant to Section
6(b), the Corporation shall give written notice of such redemption by first
class mail, postage prepaid, mailed not less than thirty (30) nor more than
ninety (90) days prior to the redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as the same appears on the stock
records of the Corporation. Each such notice shall state: (i) the
13
<PAGE>
redemption date; (ii) the number of shares of Series A Preferred Stock to be
redeemed; (iii) the Mandatory Redemption Price or Optional Redemption Price, as
the case may be; (iv) the place or places where certificates for such shares are
to be surrendered for payment of the Mandatory Redemption Price or Optional
Redemption Price, as the case may be; (v) that payment will be made upon
presentation and surrender of such Series A Preferred Stock; (vi) the then
current Conversion Price and the date on which the right to convert such shares
of Series A Preferred Stock will expire; (vii) that dividends on the shares to
be redeemed shall cease to accrue following such redemption date; (viii) that
such redemption is mandatory, if pursuant to Section 6(b) and (ix) that
dividends, if any, accrued to and including the date fixed for redemption will
be paid as specified in such notice. Notice having been mailed as aforesaid,
from and after the redemption date, unless the Corporation shall be in default
in the payment of the Mandatory Redemption Price or Optional Redemption Price,
as the case may be (including any accrued and unpaid dividends to (and
including) the date fixed for redemption), (A) dividends on the shares of the
Series A Preferred Stock so called for redemption shall cease to accrue, (B)
such shares shall be deemed no longer outstanding and (C) all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation (i) any moneys payable upon redemption without interest
thereon and (ii) any shares of Series A Preferred Stock and Common Stock
pursuant to Section 6(a) hereof) shall cease.
Upon surrender in accordance with such notice of the certificates for any such
shares so redeemed (properly endorsed or assigned for transfer, if the Board of
Directors shall so require and the notice shall so state), such shares shall be
redeemed by the Corporation at the applicable Mandatory Redemption Price.
Notwithstanding the foregoing, if notice of redemption has been given pursuant
to this Section 6 and any holder of shares of Series A Preferred Stock shall,
prior to the close of business on the third (3rd) Business Day preceding the
redemption date, give written notice to the Corporation pursuant to Section 5(b)
hereof of the conversion of any or all of the shares to be redeemed held by such
holder (accompanied by a certificate or certificates for such shares, duly
endorsed or assigned to the Corporation), then the conversion of such shares to
be redeemed shall become effective as provided in Section 5 hereof.
(d) Redemption at Option of Holder Upon a Fundamental Change.
--------------------------------------------------------
Subject to Section 6(a) hereof, if a Fundamental Change occurs, each holder of
Series A Preferred Stock shall have the right, at the holder's option, to
require the Corporation to repurchase all of such holder's Series A Preferred
Stock, or any portion thereof, on the date (the "Repurchase Date") selected by
the Corporation that is not less than ten (10) nor more than twenty (20) days
after the Final Surrender Date, at a price per share equal to the Optional
Redemption Price. The Corporation agrees that it will not complete any
Fundamental Change unless proper provision has been made to satisfy its
obligations under this Section 6(d).
14
<PAGE>
(e) Notice of Fundamental Change. Within thirty (30) days after the
----------------------------
occurrence of a Fundamental Change, the Corporation shall mail to all holders of
record of the Series A Preferred Stock a notice in the manner and containing the
information set out in Section 6(c), except that, for purposes of this Section
6(e), such notice shall also describe the occurrence of such Fundamental Change
and of the repurchase right arising as a result thereof. To exercise the
repurchase right, a holder of Series A Preferred Stock must surrender, on or
before the date which is, subject to any contrary requirements of applicable
law, thirty (30) days after the date of mailing of the notice from the
Corporation (the "Final Surrender Date"), the certificates representing the
Series A Preferred Stock with respect to which the right is being exercised,
duly endorsed for transfer to the Corporation, together with a written notice of
election.
(f) Election Irrevocable. An election by a holder of Series A
--------------------
Preferred Stock to have the Corporation repurchase shares of Series A Preferred
Stock pursuant to Section 6(d) shall become irrevocable at the close of business
on the relevant Repurchase Date.
7. Shares to be Retired. Any share of Series A Preferred Stock
--------------------
converted, redeemed, repurchased or otherwise acquired by the Corporation shall
be retired and cancelled and shall upon cancellation be restored to the status
of authorized but unissued shares of preferred stock, subject to reissuance by
the Board of Directors as shares of preferred stock of one or more other series
but not as shares of Series A Preferred Stock.
8. Definitions. As used herein, the following terms shall have the
-----------
respective meanings set forth below:
"Additional Shares of Stock" means all shares of Common Stock issued
--------------------------
by the Corporation after the Issue Date, other than (i) Common Stock
to be issued upon conversion of the Series A Preferred Stock, (ii)
1,827,625 shares of Common Stock (subject to an increase on August 1
of each year by a number of shares equal to five percent of the
Corporation's outstanding Common Stock as of such dates) to be issued
pursuant to the Corporation's 1997 Stock Plan, (iii) 700,000 shares of
Common Stock to be issued pursuant to the Corporation's 1997 Director
Option Plan and (iv) 615,125 shares of Common Stock to be issued
pursuant to certain management stock option agreements.
"Affiliate", when used with respect to any Person, means (i) if such
---------
Person is a corporation, any officer or director thereof (other than a
director elected pursuant to Section 4 hereof) and any Person which
is, directly or indirectly, the beneficial owner (by itself or as part
of any group) of more than five percent (5%) of any class of any
equity security (within the meaning of the Securities Exchange Act of
1934, as amended) thereof, and, if such beneficial owner is a
partnership, any general partner thereof, or if such beneficial owner
is a corporation, any Person controlling, controlled by or under
common control with such beneficial owner, or any officer or director
of such beneficial owner or of any corporation occup-
15
<PAGE>
ying any such control relationship, (ii) if such Person is a
partnership, any general or limited partner thereof, and (iii) any
other Person which, directly or indirectly, controls or is controlled
by or is under common control with such Person. For purposes of this
definition, "control" (including the correlative terms "controlling",
"controlled by" and "under common control with"), with respect to any
Person, shall mean possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by
contract or otherwise.
"Business Day" means any day that is not a Saturday, a Sunday or any
------------
day on which banks in the State of New York are authorized or
obligated to close.
"Common Stock" means the Corporation's Common Stock, par value $.01
------------
per share, and shall also include any common stock of the Corporation
hereafter authorized and any capital stock of the Corporation of any
other class hereafter authorized which is not preferred as to
dividends or assets over any other class of capital stock of the
Corporation or which has ordinary voting power for the election of
directors of the Corporation.
"Conversion Price" means the Conversion Price per share of Common
----------------
Stock into which the Series A Preferred Stock is convertible, as such
Conversion Price may be adjusted pursuant to Section 5 hereof. The
initial Conversion Price will be $10.00.
"Convertible Securities" means evidences of indebtedness, shares of
----------------------
preferred stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in
cash or property, for Additional Shares of Stock, either immediately
or upon the occurrence of a specified date or a specified event, other
than the Series A Preferred Stock.
"Designated Entity" means (i) as long as any shares of Series A
-----------------
Preferred Stock are held by any Fleming Holder, Fleming Capital
Management, 320 Park Avenue, NY, NY 10022, attention: Robert L. Burr
and (ii) if no shares of Series A Preferred Stock are held by a
Fleming Holder, the entity designated by the Transferee who holds the
largest number of such shares (in which case such Transferee shall
provide notice to the Corporation of such entity in accordance with
Section 5(d) hereof).
"Final Surrender Date" shall have the meaning set forth in Section
--------------------
6(e).
"Fleming Funds" means Fleming US Discovery Fund III, L.P. and Fleming
-------------
US Discovery Offshore Fund III, L.P.
"Fleming Holders" means (i) the Fleming Funds and (ii) any Affiliate,
---------------
officer or employee of an Affiliate or investment fund managed by an
Affiliate of the Fleming Funds to which the Fleming Funds may
transfer record and/or beneficial ownership of any shares of Series A
Preferred Stock (the "Shares") or any shares of Common Stock obtained
or obtainable upon conversion of the Shares (the "Conversion
Shares"). The
16
<PAGE>
Conversion Shares shall include any capital stock or other securities
into which Conversion Shares are changed and any capital stock or
other securities resulting from or comprising a reclassification,
combination or subdivision of, or a stock dividend on, any Conversion
Shares.
"Fundamental Change" means any of the following events:
------------------
(i) the sale (or functional equivalent of a sale) of all or
substantially all of the asset s of the Corporation;
(ii) any consolidation of the Corporation with, or merger of
the Corporation into, any other person, any merger of another person
into the Corporation or any other business combination involving the
Corporation which results in the holders of the Corporation's stock
immediately prior to giving effect to such transaction owning shares
of capital stock of the surviving corporation in such transaction
representing (x) fifty percent (50%) or less of the total voting
power of all shares of capital stock of such surviving corporation
entitled to vote generally in the election of directors or (y) fifty
percent (50%) or less of the total value of all capital stock of
such surviving corporation, provided, that a fundamental change
--------
shall not include a series of consolidations, mergers or any other
business combinations that, in the aggregate, result in the holders
of the Corporation's stock immediately prior to giving effect to
such transactions owning shares of capital stock of the surviving
corporation in such transaction(s) representing fifty percent (50%)
or less of the total voting power of all shares of capital stock of
such surviving corporation entitled to vote generally in the
election of directors, as long as (i) Robert T. Walston remains the
Chief Executive Officer of the Corporation and (ii) at least one of
John H. Donlon, Gavin W. Schutz and Robert Bailey remain as members
of senior management of the Corporation; or
(iii) the commencement by the Corporation of a voluntary case
under the Federal bankruptcy laws or any other applicable Federal or
state bankruptcy, insolvency or similar law; the consent by the
Corporation to the entry of an order for relief in an involuntary
case under such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its
property; any assignment by the Corporation for the benefit of its
creditors; any admission by the Corporation in writing of its
inability to pay its debts generally as they become due; the entry
of a decree or order for relief in respect of the Corporation by a
court having jurisdiction in the premises in an involuntary case
under Federal bankruptcy laws or any other applicable Federal or
state bankruptcy, insolvency or similar law appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of
its property, or ordering the winding up or liquidation of its
affairs, and on account of any such event the Corporation shall
liquidate, dissolve or wind up; or the liquidation, dissolution or
winding up of the Corporation under any other circumstances.
17
<PAGE>
"Issue Date" means, as to any share of Series A Preferred Stock, the date of
----------
original issuance thereof by the Corporation.
"Junior Securities" mean the Common Stock and any other class of capital stock
- ------------------
or series of preferred stock hereafter created by the Corporation which does
not expressly provide that it ranks senior to or pari passu with the Series A
---- -----
Preferred Stock as to dividends, other distributions, liquidation preference or
otherwise.
"Liquidation Value" shall have the meaning set forth in Section 3(a).
-----------------
"Mandatory Redemption Price" shall have the meaning set forth in Section 6(a).
--------------------------
"Market Price" means, as to any security on the date of determination thereof,
------------
the average of the closing prices of such security's sales on all principal
United States securities exchanges on which such security may at the time be
listed, or, if there shall have been no sales on any such exchange on any day,
the last trading price of such security on such day, or if such there is no such
price, the average of the bid and asked prices at the end of such day, on the
Nasdaq Stock Market, in each such case averaged for a period of twenty (20)
consecutive Business Days prior to the day when the Market Price is being
determined; provided that if such security is listed on any United States
securities exchange the term "Business Days" as used in this sentence means
business days on which such exchange is open for trading. Notwithstanding the
foregoing, with respect to the issuance of any security by the Corporation in an
underwritten public offering, the Market Price shall be the per share purchase
price paid by the underwriters. If at any time such security is not listed on
any exchange or the Nasdaq Stock Market, the Market Price shall be deemed to be
the fair value thereof determined by an investment banking firm of nationally
recognized standing selected by the Board of Directors of the Corporation and
acceptable to holders of a majority of the Series A Preferred Stock, as of the
most recent practicable date when the determination is to be made, taking into
account the value of the Corporation as a going concern, and without taking into
account any lack of liquidity of such security or any discount for a minority
interest.
"Market Value" means the amount obtained by multiplying the Market Price by the
- --------------
number of securities issued.
"Maximum Ownership" shall have the meaning set forth in Section 6(a) hereof.
-----------------
"Optional Redemption Price" shall have the meaning set forth in Section 6(a).
-------------------------
"Parity Securities" mean any class of capital stock or series of preferred stock
- ------------------
hereafter created by the Corporation, with the prior written consent of the
Fleming Holders, which expressly provides that it ranks pari passi with the
---- -----
Series A Preferred Stock as to dividends, other distributions, liquidation
preference or otherwise.
18
<PAGE>
"Payment Amount" means such amount as is necessary to cause the net
--------------
present value to equal zero as of any date of all Cash Inflows and all
Cash Outflows (each as defined below) with respect to the Series A
Preferred Stock being repurchased pursuant to Section 6 or held on the
date of the distribution pursuant to Section 3, as the case may be,
when calculated with an annual interest rate (compounded annually)
equal to twelve percent (12%). "Cash Inflows" as used herein means all
------------
cash payments, including the Payment Amount, received by the holders
of the Series A Preferred Stock as a dividend or distribution with
respect to, or as consideration for the sale of, such Series A
Preferred Stock (whether such payments are received from the
Corporation or any other Person). "Cash Outflows" as used herein means
-------------
the sum of all cash payments made by the holders of the Series A
Preferred Stock to the Corporation to acquire such Series A Preferred
Stock. (For the avoidance of doubt, Cash Inflows and Cash Outflows
with respect to any Series A Preferred Stock not included in the
Series A Preferred Stock being repurchased pursuant to Section 6
hereof as part of the transaction for which the Payment Amount is then
being calculated shall not be included in the Cash Inflows and Cash
Outflows used to make such calculation (for purposes of Section 6
only), and only the Cash Inflows and Cash Outflows with respect to the
Series A Preferred Stock which are then being repurchased pursuant to
Section 6 hereof in the transaction for which the Payment Amount is
then being calculated shall be used in the Cash Inflows and Cash
Outflows used to make such calculation (for purposes of Section 6
only).)
"Person" or "person" shall mean an individual, partnership,
------ ------
corporation, trust, unincorporated organization, joint venture,
government or agency, political subdivision thereof, or any other
entity of any kind.
"Preferred Director" shall have the meaning set forth in Section 4(c).
------------------
"Repurchase Date" shall have the meaning set forth in Section 6(d).
---------------
"Series A Liquidation Preference" shall have the meaning set forth
-------------------------------
in Section 3(a).
"Series A Preferred Stock" shall have the meaning set forth in the
------------------------
resolution paragraph in the preamble.
"Transferees" shall mean any transferee (except for a Fleming Holder)
-----------
of Shares or Conversion Shares (as such terms are defined within the
definition of "Fleming Holders") from a Fleming Holder. Transferees
shall not include a transferee of Shares or Conversion Shares sold in
either a public offering pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), or
pursuant to Rule 144 under the Securities Act.
9. Notices. (a) Except as may otherwise be provided for herein,
-------
all notices referred to herein shall be in writing, and all notices hereunder
shall be deemed to have been given (i) upon receipt, in the case of a notice of
conversion given to the Corporation as contemplated in Section 5(b) hereof or in
the case of a notice of redemption at the holder's option given to the
19
<PAGE>
Corporation as contemplated in Section 6(d) hereof, or (ii) in all other cases,
upon the earlier of (x) receipt of such notice, (y) three Business Days after
the mailing of such notice if sent by registered mail (unless first-class mail
shall be specifically permitted for such notice under the terms hereof) or (z)
the Business Day following sending such notice by overnight courier, in any case
with postage or delivery charges prepaid, addressed: if to the Corporation, to
its offices at 2813 West Alameda Avenue, Burbank, CA 91505, Attention: Robert T.
Walston, or to an agent of the Corporation designated as permitted by the
Certificate of Incorporation, or, if to any holder of the Series A Preferred
Stock, to such holder at the address of such holder of the Series A Preferred
Stock as listed in the stock record books of the Corporation, or to such other
address as the Corporation or holder, as the case may be, shall have designated
by notice similarly given.
(b) The consent (or agreement as described in Section 5(d)(viii)
hereof) of the Fleming Holders shall be deemed obtained if any of the following
conditions are satisfied:
(i) the Fleming Funds are the only holders of Series A Preferred
Stock and the Designated Entity shall have obtained the consent of each Fleming
Fund and shall have given notice to the Corporation to such effect in accordance
with Section 9(a) hereof;
(ii) the Fleming Funds are not the only holders of Series A Preferred
Stock and the Designated Entity shall have obtained the consent of a majority of
the outstanding shares of Series A Preferred Stock held by all Fleming Holders,
and shall have given notice to the Corporation to such effect in accordance with
Section 9(a) hereof; or
(iii) no shares of Series A Preferred Stock are held by a Fleming
Holder and
(iv) the Designated Entity shall have obtained the consent of a
majority of the outstanding shares of Series A Preferred Stock held by all
Transferees, and shall have given notice to the Corporation to such effect in
accordance with Section 9(a) hereof.
IN WITNESS WHEREOF, Four Media Company has caused this
Certificate of Designations to be signed by its Chief Executive Officer and
attested to by its Secretary, all as of the 25 day of February, 1998.
FOUR MEDIA COMPANY
By: /s/ Robert T. Walston
___________________________
Robert T. Walston
Chief Executive Officer
Attest:
By:/s/ Gavin Schutz
----------------------
Name: Gavin W. Schutz
Secretary
20
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
AMONG
FOUR MEDIA COMPANY
The Several Lenders
from Time to Time Parties Hereto
BANK OF AMERICA NT&SA,
AS SYNDICATION AGENT,
UNION BANK OF CALIFORNIA, N.A.,
AS DOCUMENTATION AGENT,
SOCIETE GENERALE,
AS CO-AGENT
and
CANADIAN IMPERIAL BANK OF COMMERCE
AS ADMINISTRATIVE AGENT
DATED AS OF FEBRUARY 27, 1998
================================================================================
<PAGE>
CREDIT AGREEMENT, dated as of February 27, 1998, among FOUR MEDIA
COMPANY, a Delaware corporation (the "Borrower"), the several banks and other
financial institutions from time to time parties to this Agreement (the
"Lenders"), CANADIAN IMPERIAL BANK OF COMMERCE, as issuer of certain letters of
-------
credit (the "Issuer"), CANADIAN IMPERIAL BANK OF COMMERCE, as administrative
------
agent for the Lenders hereunder (in such capacity, the "Administrative Agent"),
--------------------
UNION BANK OF CALIFORNIA, N.A., as documentation agent for the Lenders (the
"Documentation Agent"), BANK OF AMERICA, NT&SA as Syndication agent for the
Lenders hereunder (the "Syndication Agent") and SOCIETE GENERALE as Co-Agent.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower provides post-production technical and creative
services in the areas of film, video, sound and data to owners, producers and
distributors of television programming, feature films and other entertainment
content;
WHEREAS, the Borrower has entered into the Stock Purchase Agreement
dated as of November 14, 1997 (the "Stock Purchase Agreement") among the
------------------------
Borrower and each of the Persons listed on Exhibit A thereto who are all the
---------
shareholders of Visualize, a California corporation doing business under the
fictitious name of POP ("POP"), pursuant to which the Borrower shall acquire all
---
the issued and outstanding shares of capital stock of POP and 80% of the Capital
Stock of POP Animation (the "Acquisition");
-----------
WHEREAS, the Borrower desires that the Lenders provide (a) Revolving
Credit Loans (i) to finance Capital Expenditures by the Borrower and its
Subsidiaries, (ii) to fund working capital for the Borrower and its
Subsidiaries, (iii) to refinance the Santa Monica Indebtedness, (iv) to fund
Letters of Credit in an amount not to exceed $5,000,000 in the aggregate, (v)
to fund Permitted Acquisitions and (vi) to pay transaction fees and expenses
incurred in connection with such Permitted Acquisitions, (b) Term A Loans (i) to
finance a portion of the Acquisition, (ii) to fund Permitted Acquisitions
completed and financed on or prior to July 31, 1998, (iii) to refinance certain
Financing Leases on or prior to July 31, 1998 and (iv) to pay transaction fees
and expenses incurred in connection therewith and (c) Term B Loans (i) to repay
existing Indebtedness and (ii) to finance a portion of the Acquisition;
WHEREAS, the Lenders are willing to make such Loans to the Borrower
subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
-1-
<PAGE>
ARTICLE 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings:
"Acquisition" shall have the meaning ascribed thereto in the recitals.
-----------
"Acquisition Documents" shall mean the collective reference to the
---------------------
Stock Purchase Agreement and each of the other agreements, notes,
guarantees, consents, instruments, certificates and opinions delivered by
the Borrower or any other Person in connection with the acquisition by the
Borrower of all the Capital Stock of POP.
"Adjusted Operating Cash Flow" shall mean, for any period of
----------------------------
determination, an amount equal to the sum of (without duplication) (a)
Operating Cash Flow for such period, plus (b) for any period of
----
determination which occurs after the Acquisition or a Permitted Acquisition
but incorporates fiscal quarters prior thereto, the Operating Cash Flow
attributable to the assets or Capital Stock so acquired (it being
understood that, in calculating such Operating Cash Flow, (i) all
references to the Borrower in the definition thereof (or in any other
defined term contained therein shall be deemed to be references to the
Person or attributable to the assets so acquired) and (ii) such acquisition
shall be deemed to have occurred as of the first day of the fiscal quarter
in which the Acquisition or such Permitted Acquisition is completed), minus
-----
(c) for any period which occurs after a disposition by the Borrower or any
Subsidiary but incorporates fiscal quarters prior thereto the Operating
Cash Flow attributable to the assets or Capital Stock so disposed (it being
understood that, in calculating such Operating Cash Flow, such disposition
shall be deemed to have occurred as of the first day of the fiscal quarter
in which such disposition is completed) plus (d) the amount of identifiable
----
cost savings derived from any Permitted Acquisition which amount is
approved by the Administrative Agent and the Required Lenders; provided
--------
that (i) the aggregate cost savings from all Permitted Acquisitions shall
not exceed $1,500,000 at any one time outstanding and (ii) the amount of
cost savings shall be reduced monthly by 1/12 of the amount thereof
commencing with the first full fiscal month after the closing of such
Permitted Acquisition, plus (e) an amount in respect of contractual rental
----
income from the Borrower's Santa Monica Property equal to $698,000 at the
Closing Date which amount shall be reduced by $58,140 per month until such
amount is reduced to zero; provided that in no event shall the amount of
--------
contractual rental income from the properties of the Borrower and its
Subsidiaries (whether as an addition to Adjusted Operating Cash Flow or as
a component of Operating Cash Flow exceed, in the aggregate (i) $1,100,000
for the fiscal year ending August 2, 1998, (ii) $900,000 for the fiscal
year ending August 1, 1999 and (iii) $500,000 for each fiscal year
thereafter, plus (f) for the period ending January 31, 1998, an amount in
----
respect of non-recurring expenses of POP equal to $1,000,000.
-2-
<PAGE>
"Administrative Agent" shall have the meaning ascribed thereto in the
--------------------
heading hereto and shall include such other Lender or financial institution
as shall have subsequently been appointed as the successor Administrative
Agent pursuant to Section 8.9.
-----------
"Administrative Fee Letter" shall mean the Letter Agreement dated
-------------------------
February 27, 1998, between the Borrower and the Administrative Agent, as
the same may be amended, supplemented or otherwise modified from time to
time.
"Affiliate" shall mean, as to any Person, any other Person which,
---------
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition,
"control" of a Person shall mean the power, directly or indirectly, either
(a) to vote 10% or more of the securities having ordinary voting power for
the election of directors of such Person or (b) to direct or cause the
direction of the management and policies of such Person, whether by
contract or otherwise.
"Agents" shall mean the collective reference to the Administrative
------
Agent, the Syndication Agent and the Documentation Agent.
"Agreement" shall mean this Credit Agreement, as amended, supplemented
---------
or otherwise modified from time to time.
"Alternate Base Rate" shall mean, on any particular date, a rate of
-------------------
interest per annum equal to the higher of:
(a) the rate of interest most recently announced by CIBC-Bank at its
Domestic Lending Office as its prime rate (which rate is not
necessarily intended to be the lowest rate of interest charged by
CIBC-Bank in connection with extensions of credit); and
(b) the Federal Funds Rate for such date plus 0.50%.
"Alternate Base Rate Loans" shall mean Loans the rate of interest
-------------------------
applicable to which is based upon the Alternate Base Rate.
"Anderson Video" shall mean Anderson Video Company, a Delaware
--------------
corporation.
"Anderson Video Guarantee" shall mean the Guarantee of Anderson Video
------------------------
in favor of the Administrative Agent, for the benefit of the Lenders,
substantially in the form of Exhibit J, as the same may be amended,
---------
supplemented or otherwise modified from time to time.
-3-
<PAGE>
"Anderson Video Security Agreement" shall mean the Security Agreement
---------------------------------
between Anderson Video and the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit K, as the same may be
---------
amended, supplemented or otherwise modified from time to time.
"Applicable Margin" shall mean (a) for each Type of Revolving Credit
-----------------
Loan or Term A Loan, the rate per annum set forth under the relevant column
heading opposite the applicable Leverage Ratio:
<TABLE>
<CAPTION>
Alternate Base Eurodollar
Leverage Ratio Rate Loans Rate Loans
- -------------- --------------- -----------
<S> <C> <C>
Greater than or equal to 4.0 to 1.0 1.25% 2.50%
Less than 4.0 to 1.0 but greater than or equal to 3.5 to 1.0 1.00% 2.25%
Less than 3.5 to 1.0 but greater than or equal to 3.0 to 1.0 0.75% 2.00%
Less than 3.0 to 1.0 but greater than or equal to 2.5 to 1.0 0.50% 1.75%
Less than 2.5 to 1.0 0.25% 1.50%
</TABLE>
The Leverage Ratio shall be determined initially on the basis of the
certificate provided pursuant to Section 4.1(m) and subsequently on the
--------------
basis of the most recent certificate delivered by the Borrower pursuant to
Section 5.2(c); provided that if the Borrower fails timely to deliver such
-------------- --------
certificate, without otherwise limiting the rights of the Lenders under
this Agreement, the Leverage Ratio shall be deemed to be greater than 4.0
to 1.0 until such time as such certificate is delivered. Any change in the
Applicable Margin as a result of a change in the Leverage Ratio shall be
effective as of the first day of the fiscal quarter immediately succeeding
the receipt by the Administrative Agent of such certificate setting forth
such change; and
(b) for each Type of Term B Loan, the rate per annum set forth under
the relevant column heading below:
<TABLE>
<CAPTION>
Alternate Base Eurodollar
Leverage Ratio Rate Loans Rate Loans
- -------------- --------------- -----------
<S> <C> <C>
Greater than or equal to 4.0 to 1.0 1.50% 2.75%
Less than 4.0 to 1.0 but greater than or equal to 1.25% 2.50%
3.5 to 1.0
Less than 3.5 to 1.0 but greater than or equal to 1.00% 2.25%
3.0 to 1.0
Less than 3.0 to 1.0 but greater than or equal to 0.75% 2.00%
2.5 to 1.0
Less than 2.5 to 1.0 0.50% 1.75%
</TABLE>
The Leverage Ratio shall be determined initially on the basis of the
certificate provided pursuant to Section 4.1(m) and subsequently on the
--------------
basis of the most recent certificate delivered by the Borrower pursuant to
Section 5.2(c); provided that if the Borrower fails
-------------- --------
-4-
<PAGE>
timely to deliver such certificate, without otherwise limiting the rights
of the Lenders under this Agreement, the Leverage Ratio shall be deemed to
be greater than 4.0 to 1.0 until such time as such certificate is
delivered. Any change in the Applicable Margin as a result of a change in
the Leverage Ratio shall be effective as of the first day of the fiscal
quarter immediately succeeding the receipt by the Administrative Agent of
such certificate setting forth such change.
"Approved Subsidiary" shall mean any Subsidiary all the Capital Stock
-------------------
(in the case of a Wholly-Owned Subsidiary) or at least 80% of the Capital
Stock (in the case of a Majority Owned Subsidiary) of which shall be owned
directly or indirectly by the Borrower or by a Wholly-Owned Subsidiary of
the Borrower; provided that (a) the Required Lenders shall have approved
--------
the formation of such Subsidiary, (b) the Administrative Agent, for the
benefit of the Lenders, shall have received a pledge of all the Capital
Stock of such Subsidiary that is owned by the Borrower or such Wholly-Owned
Subsidiary which pledge shall create a first perfected Lien in such Capital
Stock together with a stock power executed in blank by the Borrower or
such Wholly-Owned Subsidiary, as applicable, which pledge and stock power
shall be satisfactory in all respects to the Administrative Agent, (c) such
Subsidiary shall have entered into an Approved Subsidiary Guarantee and an
Approved Subsidiary Security Agreement, (d) such Subsidiary shall satisfy
such other requirements as the Administrative Agent or the Required Lenders
may specify and (e) the Borrower and its other Subsidiaries shall have
entered into such other agreements and instruments and shall have provided
such opinions and other documents as the Administrative Agent may require.
"Approved Subsidiary Guarantee" shall mean the Approved Subsidiary
-----------------------------
Guarantee substantially in the form of Exhibit W; provided that for
--------- --------
purposes of the definition of "Guarantees" in this Section 1.1, an Approved
-----------
Subsidiary Guarantee shall refer to such form with such changes thereto as
may be approved by the Administrative Agent and executed and delivered by
an Approved Subsidiary, as such executed Guarantee may be amended, modified
or supplemented from time to time.
"Approved Subsidiary Security Agreement" shall mean the Approved
--------------------------------------
Subsidiary Security Agreement substantially in the form of Exhibit X;
---------
provided that for the purposes of the definition of "Security Agreements"
--------
in this Section 1.1, an Approved Subsidiary Security Agreement shall refer
-----------
to such form with such changes thereto as may be approved by the
Administrative Agent and executed and delivered by an Approved Subsidiary,
as such executed Security Agreement may be amended, modified or
supplemented from time to time.
"Assignee" shall have the meaning ascribed thereto in Section 9.6(c).
-------- --------------
"Available Revolving Credit Commitment" shall mean, as to any Lender
-------------------------------------
at any time, an amount equal to the excess, if any, of (a) the amount of
such Lender's Revolving Credit Commitment over (b) the sum of (i) the
aggregate principal amount of all
-5-
<PAGE>
Revolving Credit Loans made by such Lender which are then outstanding, (ii)
such Lender's portion of the Stated Amount of the Letter of Credit then
outstanding and (iii) such Lender's portion of the aggregate amount drawn
under the Letter of Credit (including interest thereon computed in
accordance with Section 2.21(d)) for which the Issuer has not been
---------------
reimbursed.
"Available Term A Loan Commitment" shall mean, as to any Lender at any
--------------------------------
time, an amount equal to the excess, if any, of (a) the amount of such
Lender's Term A Loan Commitment over (b) the aggregate principal amount of
all Term A Loans made by such Lender then outstanding.
"Bailey" shall mean Robert Bailey.
------
"Benefit Plan" shall mean a defined benefit plan as defined in Section
------------
3(35) of ERISA (other than a Multiemployer Plan) in respect of which the
Borrower or any Commonly Controlled Entity is an "employer" as defined in
Section 3(5) of ERISA.
"Borrower" shall have the meaning ascribed thereto in the heading
--------
hereto.
"Borrower Custody Agreement" shall mean the Custody Agreement between
--------------------------
the Borrower and the Administrative Agent, for the benefit of the Lenders,
substantially in the form of Exhibit E, as the same may be amended,
---------
modified or supplemented from time to time.
"Borrower Deed of Trust" shall mean the Deed of Trust, Security
----------------------
Agreement, Financing Statement, Fixture Filing and Assignment of Rents and
Leases of the Borrower in favor of Chicago Title Company as trustee for the
Administrative Agent, for the benefit of the Lenders in the form of Exhibit
-------
NN as the same may be amended, modified or supplemented from time to time.
--
"Borrower Pledge Agreement" shall mean the Pledge Agreement of the
-------------------------
Borrower in favor of the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit F, as the same may be
---------
amended, modified or supplemented from time to time.
"Borrower Supplemental Pledge Agreement" shall mean the Sixty-Five
--------------------------------------
Percent Pledge Agreement of the Borrower in favor of the Administrative
Agent, for the benefit of the Lenders, substantially in the form of Exhibit
-------
G, as the same may be amended, modified or supplemented from time to time.
-
"Borrower Security Agreement" shall mean the Security Agreement
---------------------------
between the Borrower and the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit H, as the same may be
---------
amended, supplemented or otherwise modified from time to time.
-6-
<PAGE>
"Borrowing Date" shall mean any Business Day specified in a notice
--------------
pursuant to Section 2.3 or Section 2.8 as a date on which the Borrower
----------- -----------
requests that the Lenders make Loans hereunder.
"Broadcast Services" shall mean those services (including any
------------------
facilities needed to provide such services) necessary to assemble and
distribute programming via satellite to viewers in the United States,
Canada and Asia including production and promotion, audio (including
dubbing or subtitling, music and effects) assembly, network origination and
uplink and satellite transponders.
"Business" shall have the meaning ascribed thereto in Section 3.16(b).
-------- ---------------
"Business Day" shall mean (a) a day other than a Saturday, Sunday or
------------
other day on which commercial banks in New York City are authorized or
required by law to close and (b) with respect to the date of
(i) making or continuing any Loans as, or converting any Loans
from or into, Eurodollar Loans,
(ii) making any payment or prepayment or principal of or payment
of interest on any portion of the principal amount of any Loans being
maintained as Eurodollar Loans, or
(iii) the Borrower giving any notice (or the number of Business
Days to elapse prior to the effectiveness thereof) in connection with
any matter referred to in the immediately preceding clause (b)(i) or
(b)(ii),
any such day on which dealings in Dollars are also carried on in the
interbank market in London, England.
"Capital Expenditures" of the Borrower and its Subsidiaries shall mean
--------------------
any expenditure in respect of the purchase or other acquisition of
(including any expenditures under any Financing Leases with respect to)
fixed or capital assets of the Borrower or such Subsidiary but shall
exclude (a) Permitted Acquisitions, (b) improvements to real property that
are financed with Permitted Indebtedness under clause (e) of the definition
thereof and (c) any fixed or capital assets purchased or acquired in
connection with normal replacement and maintenance programs that, in
accordance with GAAP, would be properly charged to current operations.
"Capital Stock" shall mean any and all shares, interests,
-------------
participations or other equivalents (however designated) of capital stock
of a corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to purchase
any of the foregoing.
-7-
<PAGE>
"Cash Equivalents" shall mean (a) securities issued or directly and
----------------
fully guaranteed or insured by the United States Government or any agency
or instrumentality thereof having maturities of not more than twelve months
from the date of acquisition, (b) securities issued or directly and fully
guaranteed or insured by any state of the United States of America or any
agency or instrumentality thereof having maturities of not more than twelve
months from the date of acquisition and, at the time of acquisition, having
the highest rating generally obtainable from either S&P or Moody's, (c)
time deposits and certificates of deposit of any Lender or any domestic
commercial bank having capital and surplus in excess of $1,000,000,000, in
each case, having maturities of not more than twelve months from the date
of acquisition, (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (a),
(b) and (c) above entered into with any Lender or any domestic commercial
bank meeting the qualifications specified in clause (c) above and (e)
commercial paper rated at least A-1 or the equivalent thereof by S&P or P-1
or the equivalent thereof by Moody's.
"Catalina Transmission" shall mean Catalina Transmission Corp., a
---------------------
Delaware corporation.
"Catalina Transmission Guarantee" shall mean the Guarantee of Catalina
-------------------------------
Transmission in favor of the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit K as the same may be amended,
---------
modified or supplemented from time to time.
"Catalina Transmission Security Agreement" shall mean the Security
----------------------------------------
Agreement between Catalina Transmission and the Administrative Agent, for
the benefit of the Lenders, substantially in the form of Exhibit L, as the
---------
same may be amended, supplemented or otherwise modified from time to time.
"Certificate of Designation" shall mean the Certificate of
--------------------------
Designations of Series A Convertible Preferred Stock dated as of February
27, 1998.
"Change of Control" shall mean the occurrence of any of the following:
-----------------
(a) Except for the Designated Holders and TSP, any Person or "group"
(within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934) (i) shall have acquired beneficial ownership of 30% or more of
any outstanding class of Capital Stock having ordinary voting power in the
election of directors of the Borrower or (ii) shall obtain the power
(whether or not exercised) to elect a majority of the Borrower's directors;
(b) the Designated Holders, in the aggregate, shall own less than 50%
of the number of shares of Capital Stock of the Borrower of any class held
by such Holders on the Closing Date or any Designated Holder shall own less
than 50% of the number of shares of Capital Stock of the Borrower of any
class held by such Holder on the Closing
-8-
<PAGE>
Date (in each case, without giving effect to any stock split or
distribution of additional shares in respect thereof);
(c) a majority of the persons who comprised the Board of Directors of
the Borrower on the Closing Date shall be replaced, unless such replacement
shall have been approved by at least two-thirds of the Board of Directors
of the Borrower then still in office who either were members of such Board
of Directors on the Closing Date or whose election as a member of such
Board of Directors was previously so approved;
(d) the failure of the Borrower, at all times, to own, directly or
indirectly, all the issued and outstanding Capital Stock of each of its
Wholly-Owned Subsidiaries and not less than 80% of the issued and
outstanding Capital Stock of each of the Majority-Owned Subsidiaries, in
each case, free and clear of all Liens (other than the Lien of any Stock
Pledge Agreement in favor of the Administrative Agent, for the benefit of
the Lenders); or
(e) the Borrower shall be liquidated or dissolved.
"CIBC-Bank" shall mean Canadian Imperial Bank of Commerce, a Canadian
---------
chartered bank, or one or more of its agencies, branches or affiliates in
its or their respective capacity or capacities, as the case may be, as the
Issuer or a Lender or Lenders hereunder.
"Closing Date" shall mean the date on which the conditions precedent
------------
set forth in Section 4.1 shall be satisfied or waived.
-----------
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Collateral" shall mean all assets of the Borrower or any Subsidiary,
----------
now owned or hereafter acquired, upon which a Lien is purported to be
created by any Security Document.
"Commitments" shall mean the collective reference to the Term A Loan
-----------
Commitments, the Term B Loan Commitments and the Revolving Credit
Commitments.
"Commitment Percentage" shall mean, as to any Lender, such Lender's
---------------------
Revolving Credit Commitment Percentage, Term A Loan Commitment Percentage
or Term B Loan Commitment Percentage, as applicable.
"Commitment Transfer Supplement" shall have the meaning ascribed
------------------------------
thereto in Section 9.6(c).
--------------
"Common Stock" shall mean the shares of common stock, $.01 par value
------------
per share, of the Borrower.
-9-
<PAGE>
"Commonly Controlled Entity" shall mean an entity, whether or not
--------------------------
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrower and which is treated as a single employer under Section 414 of the
Code.
"Compliance Certificate" shall have the meaning ascribed thereto in
----------------------
Section 5.2(c).
--------------
"Contractual Obligation" shall mean as to the Borrower or any
----------------------
Subsidiary, any provision of any security issued by the Borrower or such
Subsidiary or of any agreement, instrument or other undertaking to which
either the Borrower or such Subsidiary is a party or by which it or any of
its property is bound.
"Contribution Agreement" shall mean the Contribution Agreement dated
----------------------
as of February 27, 1998 among, Four Media Burbank, Digital Magic, Anderson
Video, Meridian Sound, Catalina Transmission, 4MC3, POP, Ten Moons, Santa
Monica Financial and POP Animation.
"Credit Extension" shall mean the collective reference to (a) any Loan
----------------
by a lender and (b) any participation by a Revolving Credit Lender in a
Letter of Credit.
"Deeds of Trust" shall mean the collective reference to the Borrower
--------------
Deed of Trust and the Four Media Burbank Deed of Trust.
"Default" shall mean any of the events specified in Section 7.1,
------- -----------
whether or not any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"Deferred Note" shall mean the Note dated February 27, 1998, in the
-------------
principal amount of $2,000,000, evidencing deferred purchase price under
the Stock Purchase Agreement which note is subject to reduction pursuant to
the terms of such Agreement and is secured by the Letter of Credit.
"Designated Holders" shall mean the collective reference to Walton,
------------------
Schutz, Bailey and Donlon.
"Digital Magic" shall mean Digital Magic Company, a Delaware
-------------
corporation.
"Digital Magic Guarantee" shall mean the Guarantee of Digital Magic in
-----------------------
favor of the Administrative Agent, for the benefit of the Lenders,
substantially in the form of Exhibit N, as the same may be amended,
---------
modified or supplemented from time to time.
-10-
<PAGE>
"Digital Magic Intellectual Property Security Agreement" shall mean
------------------------------------------------------
the Intellectual Property Security Agreement between Digital Magic and the
Administrative Agent, for the benefit of the Lenders, substantially in the
form of Exhibit N, as the same may be amended, modified or supplemented
---------
from time to time.
"Digital Magic Security Agreement" shall mean the Security Agreement
--------------------------------
between Digital Magic and the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit O, as the same may be
---------
amended, supplemented or otherwise modified from time to time.
"Documentation Agent" shall have the meaning ascribed thereto in the
-------------------
heading hereto.
"Dollars" and "$" shall mean dollars in lawful currency of the United
------- -
States of America.
"Domestic Lending Office" shall mean, initially, the office of each
-----------------------
Lender designated as such in Schedule I (or designated pursuant to a
Commitment Transfer Supplement), and thereafter, such other office of such
Lender, if any, which shall be making or maintaining Alternate Base Rate
Loans as may be designated from time to time by notice from such Lender to
the Borrower and the Administrative Agent.
"Donlon" shall mean John H. Donlon.
------
"Environmental Laws" shall mean any and all foreign, Federal, state,
------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning public health, public
and workplace safety or protection of the environment, as now or may at any
time hereafter be in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"Eurodollar Base Rate" shall mean with respect to each day during each
--------------------
Interest Period pertaining to a Eurodollar Loan, the rate per annum
determined on the basis of the rate for deposits in Dollars for a period
equal to such Interest Period commencing on the first day of such Interest
Period and appearing on Page 3750 of the Telerate screen at or about 11:00
a.m., London time, two Business Days prior to the commencement of such
Interest Period or, if such rate does not appear on such page or otherwise
on such service, such rate shall be determined by reference to such other
publicly available service for displaying eurodollar rates as may be agreed
between the Administrative Agent and the Borrower or, in the absence of
such agreement, the "Eurodollar Base Rate" shall be the rate of interest
per annum equal to the average (rounded upwards, if necessary, to the
-11-
<PAGE>
nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered by CIBC-Bank to prime international
banks in the offshore dollar market at or about 11:00 a.m., New York time,
two Business Days prior to the beginning of such Interest Period for
delivery on the first day of such Interest Period, and in an amount
approximately equal to the amount of CIBC-Bank's Eurodollar Loan and for a
period approximately equal to such Interest Period.
"Eurodollar Loans" shall mean Loans the rate of interest applicable to
----------------
which is based upon the Eurodollar Rate.
"Eurodollar Office" shall mean, initially, the office of each Lender
-----------------
designated as such in Schedule I (or designated pursuant to a Commitment
Transfer Supplement), and thereafter, such other office of such Lender, if
any, which shall be making or maintaining Eurodollar Loans as may be
designated from time to time by notice from such Lender to the Borrower and
the Administrative Agent.
"Eurodollar Rate" shall mean with respect to each day during each
---------------
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula (rounded
upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurodollar Reserve Requirements
"Eurodollar Reserve Requirements" shall mean, for any day as applied
-------------------------------
to a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves) under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board) maintained by a member bank of such System.
"Event of Default" shall mean any of the events specified in Section
---------------- -------
7.1; provided that any requirement for the giving of notice, the lapse of
--- --------
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow" shall mean with respect to any fiscal year,
----------------
Operating Cash Flow for such fiscal year less the sum of (a) regularly
----
scheduled payments of principal of the Term A Loans and the Term B Loans
during such fiscal year, plus (b) optional prepayments of principal of the
----
Term A Loans and Term B Loans during such fiscal year, plus (c) Interest
----
Expense for such fiscal year, plus (d) regularly scheduled payments of
----
principal of other Funded Debt for such fiscal year, plus (e) the excess,
----
if any, of (i) the sum of (x) Revolving Credit Loans outstanding, (y) the
Stated Amount of the Letter of Credit then outstanding and (z) the
aggregate amount drawn under the Letter of Credit
-12-
<PAGE>
(including interest thereon computed in accordance with Section 2.21(d))
----------------
for which the Issuer has not been reimbursed, in each case, as of the first
day of such fiscal year over (ii) the aggregate Revolving Credit
Commitments of the Lenders (after giving effect to any scheduled reductions
of Revolving Credit Commitments provided for herein) as of the last day of
such fiscal year, plus (f) Capital Expenditures permitted under Section
---- -------
6.8 and actually accrued during such fiscal year, plus (g) income taxes
--- ----
paid or payable during such fiscal year, plus (h) the increase if any (or
----
minus the decrease if any) in Working Capital at the conclusion of such
-----
fiscal year over Working Capital at the conclusion of the immediately
preceding fiscal year.
"Expiry Date" shall mean (a) in the case of the POP Letter of Credit,
-----------
August 17, 1999 and (b) in the case of each other Letter of Credit, the
earlier of (i) the one year anniversary of the issuance of such Letter of
Credit and (ii) the Revolving Credit Commitment Termination Date.
"FCC" shall mean the Federal Communications Commission or any other
---
similar or successor agency of the Federal government administering the
Communications Act of 1934 (or any similar or successor statute and the
rules and regulations thereunder).
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
----
successor thereto.
"Federal Funds Rate" shall mean for any particular date, an interest
------------------
rate per annum equal to the interest rate (rounded upward to the nearest
1/16th of 1%) offered in the interbank market to the Administrative Agent
as the overnight Federal Funds Rate at or about 10:00 a.m., New York City
time, on such day (or, if such day is not a Business Day, on the next
preceding Business Day).
"Fee Letter" shall mean the letter dated as of February 27, 1998
----------
between the Borrower and the Administrative Agent as the same may be
amended, supplemented or otherwise modified.
"Financing Lease" shall mean any lease of property, real or personal,
---------------
the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the lessee.
"Fixed Charges" shall mean, with respect to any period, the sum
-------------
(without duplication) of (a) Interest Expense for such period, (b) Capital
Expenditures during such period, (c) income or other taxes actually paid or
payable during such period, (d) regularly scheduled payments of principal
on the Term A Loans and Term B Loans during such period, (e) regularly
scheduled payments of principal on other Funded Debt of the Borrower and
its Subsidiaries during such period and (f) the excess, if any, of (i) the
aggregate amount of (x) Revolving Credit Loans outstanding, (y) the
aggregate Stated
-13-
<PAGE>
Amount of the Letters of Credit then outstanding and (z) the aggregate
drawn under the Letters of Credit (including interest thereon computed in
accordance with Section 2.21(d)) for which the Issuer has not been
---------------
reimbursed, in each case, as of the first day of such period over (ii)
the aggregate Revolving Credit Commitments of the Lenders as of the last
day of such period.
"Fixed Charges Ratio" shall mean, in respect of any period, (a) until
-------------------
the fourth full fiscal quarter following the Closing Date, the ratio of
(i) Adjusted Operating Cash Flow for the period commencing with
the fiscal quarter commencing February 1, 1998 and ending with the
most recently completed full fiscal quarter to
(ii) Fixed Charges during such period
and (b) after such fourth full fiscal quarter, the ratio of
(i) Adjusted Operating Cash Flow for the preceding four
consecutive fiscal quarters to
(ii) Fixed Charges for the preceding four consecutive fiscal
quarters.
"4MC3" shall mean 4MC Company 3, Inc. (formerly Dignet Acquisition
----
Corp.), a Delaware corporation.
"4MC3 Guarantee" shall mean the Guarantee of 4MC3 in favor of the
--------------
Administrative Agent, for the benefit of the Lenders, substantially in the
form of Exhibit P, as the same may be amended, modified or supplemented
---------
from time to time.
"4MC3 Security Agreement" shall mean the Security Agreement between
-----------------------
4MC3 and the Administrative Agent, for the benefit of the Lenders,
substantially in the form of Exhibit Q, as the same may be amended,
---------
supplemented or otherwise modified from time to time.
"Four Media Asia" shall mean Four Media Company Asia PTE Ltd., a
---------------
limited liability company organized under the laws of Singapore.
"Four Media Burbank" shall mean 4MC-Burbank, Inc. a Delaware
------------------
corporation.
"Four Media Burbank Deed of Trust" shall mean the Deed of Trust,
--------------------------------
Security Agreement, Financing Statement, Fixture Filing and Assignment of
Rents and Leases of Four Media Burbank in favor of Chicago Title Company as
trustee for the Administrative Agent, for the benefit of the Lenders in the
form of Exhibit OO as the same may be amended, modified or supplemented
----------
from time to time.
-14-
<PAGE>
"Four Media Burbank Guarantee" shall mean the Guarantee of Four Media
----------------------------
Burbank in favor of the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit R, as the same may be
---------
amended, supplemented or otherwise modified from time to time.
"Four Media Burbank Intellectual Property Security Agreement" shall
-----------------------------------------------------------
mean the Intellectual Property Security Agreement between Four Media
Burbank and the Administrative Agent, for the benefit of the Lenders,
substantially in the form of Exhibit S, as the same may be amended,
---------
modified or supplemented from time to time.
"Four Media Burbank Pledge Agreement" shall mean the Pledge Agreement
-----------------------------------
of Four Media Burbank in favor of the Administrative Agent, for the benefit
of the Lenders, substantially in the form of Exhibit T, as the same may be
---------
amended, modified or supplemented from time to time.
"Four Media Burbank Security Agreement" shall mean the Security
-------------------------------------
Agreement between Four Media Burbank and the Administrative Agent, for the
benefit of the Lenders, substantially in the form of Exhibit U, as the same
---------
may be amended, supplemented or otherwise modified from time to time.
"Fully Diluted Outstanding" shall mean with respect to the
-------------------------
determination of the number of shares of Voting Securities outstanding on
any date, the sum of (a) all shares of Voting Securities outstanding on
such date and (b) all shares of Voting Securities that would be outstanding
if all outstanding rights, warrants or options that may be exercised,
exchanged or converted into Voting Securities were exercised, exchanged or
converted on such date.
"Funded Debt" shall mean, as of any date of determination, the sum of
-----------
all Indebtedness (other than Indebtedness of the type described in clause
(f) and clause (h) of the definition of Indebtedness and without
duplication) of the Borrower and its Subsidiaries.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America consistent with those utilized in preparing the
audited financial statements referred to in Section 3.1 except insofar as
-----------
(a) the Borrower shall have elected (which election shall not have been
required by the American Institute of Certified Public Accountants or any
similar body and shall continue to be effective for subsequent years) with
the concurrence of its independent public accountant, to adopt more
recently promulgated generally accepted accounting principles; and (b) the
Required Lenders shall have consented to such election (it being understood
that such consent may be conditioned upon negotiation of such changes to
this Agreement, including Section 6.1, as the Required Lenders may in their
-----------
sole discretion deem appropriate).
-15-
<PAGE>
"Governmental Authority" shall mean any national government (United
----------------------
States or foreign), any state or other political subdivision thereof and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guarantee Obligation" shall mean as to any Person (the "guaranteeing
-------------------- ------------
person"), any obligation of (a) the guaranteeing person or (b) another
------
Person (including, without limitation, any bank under any letter of credit)
to induce the creation of which the guaranteeing person has issued a
reimbursement, counter-indemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend or
other obligation (the "primary obligation") of any other third Person (the
------------------
"primary obligor") in any manner, whether directly or indirectly,
---------------
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth, liquidity or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect thereof;
provided that the term Guarantee Obligation shall not include endorsements
--------
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good faith.
"Guarantees" shall mean the collective reference to the Digital Magic
----------
Guarantee, the Four Media Burbank Guarantee, the Anderson Video Guarantee,
the Catalina Transmission Guarantee, the 4MC3 Guarantee, the Meridian Sound
Guarantee, the POP Guarantee, the POP Animation Guarantee, the Ten Moons
Guarantee, the Santa Monica Financial Guarantee and, if there are any
Approved Subsidiaries, each Approved Subsidiary Guarantee.
"Guarantors" shall mean the collective reference to Digital Magic,
----------
Four Media Burbank, Anderson Video, Catalina Transmission, 4MC3, Meridian
Sound, POP, POP Animation, Ten Moons at POP, Santa Monica Financial and
each Approved Subsidiary, if any.
-16-
<PAGE>
"Hedging Agreements" shall mean (a) any interest rate protection
------------------
agreement, interest rate future, interest rate option, interest rate swap,
interest rate cap or other interest rate hedge or arrangement under which
the Borrower is a party or a beneficiary and (b) any other agreement or
arrangement designed to limit or eliminate the risk and/or exposure of the
Borrower to fluctuations in currency exchange rates.
"HKSB" will mean Hong Kong Shanghai Banking Corporation Limited.
----
"HKSB Debt" shall mean the Indebtedness of Four Media Asia in favor of
---------
HKSB pursuant to the Agreement for Term Loan Facilities dated February 22,
1995.
"Hollywood Way Property" shall mean the real property and improvements
----------------------
located at 1231 North Hollywood Way, Burbank, California.
"Indebtedness" of any Person at any date shall mean, (a) all
------------
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices), (b) any other indebtedness of such Person which is
evidenced by a note, bond, debenture or similar instrument, (c) all
obligations of such Person under Financing Leases, (d) all obligations of
such Person in respect of outstanding letters of credit, acceptances and
similar obligations issued or created for the account of such Person, (e)
all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof, (f) liabilities arising under Hedging Agreements (other
than interest rate caps) of such Person, (g) all Guarantee Obligations of
such Person and (h) any asserted withdrawal liability of such Person or a
Commonly Controlled Entity to a Plan.
"Insolvency" shall mean with respect to any Multiemployer Plan, the
----------
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent" shall mean pertaining to a condition of Insolvency.
---------
"Intellectual Property" shall have the meaning set ascribed thereto in
---------------------
Section 3.9.
-----------
"Intellectual Property Security Agreements" shall have the collective
-----------------------------------------
reference to (a) the Digital Magic Intellectual Property Security
Agreement, and (b) Four Media Burbank Intellectual Property Agreement.
"Interest Coverage Ratio" shall mean, as of any date of determination,
-----------------------
(a) until the fourth fiscal quarter following the Closing Date, the ratio
of:
-17-
<PAGE>
(i) Operating Cash Flow for the period commencing with the fiscal
quarter commencing February 1, 1998 and ending with the most recently
completed full fiscal quarter, to
(ii) Interest Expense for such period; and
(b) after such fourth fiscal quarter the ratio of:
(i) Operating Cash Flow for the preceding four consecutive fiscal
quarters to
(ii) Interest Expense for such four quarters.
"Interest Expense" shall mean, for any period, the sum of (a) all
----------------
interest in respect of all Funded Debt of the Borrower and its Subsidiaries
accrued or capitalized during such period (whether or not actually paid
during such period), plus (b) the net amounts payable (or minus the net
----
amounts receivable) under Hedging Agreements accrued during such period,
plus (c) all financing or commitment fees in respect of Indebtedness
----
(exclusive of any transaction or "up front" fees incurred in establishing
or entering into any such Hedging Agreement) of the Borrower or any
Subsidiary accrued or capitalized during such period (whether or not
actually paid during such period) but shall exclude any arrangement or
financing fees paid on the Closing Date in respect of the Indebtedness
created under this Agreement.
"Interest Payment Date" shall mean (a) as to any Alternate Base Rate
---------------------
Loan, the last day of each January, April, July and October to occur while
such Loan is outstanding, (b) as to any Eurodollar Loan having an Interest
Period of three months or less, the last day of such Interest Period, and
(c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple thereof, after
the first day of such Interest Period and the last day of such Interest
Period.
"Interest Period" with respect to any Eurodollar Loan shall mean:
---------------
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three, six, nine or, if determined by the
Administrative Agent (in its sole discretion) to be available, twelve
months thereafter, as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be, given with
respect thereto; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three, six, nine or, if determined by the
Administrative Agent (in its sole discretion) to be available, twelve
months thereafter, as selected by the Borrower
-18-
<PAGE>
by irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto;
provided that, the foregoing provisions relating to Interest Periods are subject
- --------
to the following:
(i) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless the
result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Revolving Credit Commitment Termination Date, in the case of the Revolving
Credit Loans, or beyond the date final payment is due on the Term A Loans
or the Term B Loans, as the case may be, shall end on the Revolving Credit
Commitment Termination Date or such date of final payment, as the case may
be;
(iii) any Interest Period pertaining to a Eurodollar Loan
that begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last Business Day of a
calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Loan.
"Issuer" shall have the meaning ascribed thereto in the heading hereto
------
and shall include CIBC-Bank or any other Lender or financial institution
which shall be the issuer of the Letters of Credit hereunder. The Issuer
shall be deemed a Lender for purposes of Section 5.7, Section 5.8(c),
----------- --------------
Article 8 and Article 9 of this Agreement and for purposes of having the
---------
benefit of each of the Guarantees and the Security Documents.
"L/C Fee Letter" shall mean the letter dated as of February 27, 1998,
--------------
between the Borrower and the Issuer, as the same may be amended,
supplemented or otherwise modified from time to time.
"Lenders" shall have the meaning ascribed thereto in the header
-------
hereto.
"Letters of Credit" shall mean the collective reference to (a) the POP
-----------------
Letter of Credit and (b) any other irrevocable standby letter of credit
opened by the Issuer for the account of the Borrower from time to time.
"Leverage Ratio" shall mean, as of any date of determination, the
--------------
ratio of
-19-
<PAGE>
(a) Funded Debt outstanding on such date to
(b) Adjusted Operating Cash Flow for the four fiscal quarter
periods then most recently ended.
"Licenses" shall mean telecommunications licenses issued by the FCC to
--------
the Company or any Subsidiary.
"Lien" shall mean (a) any mortgage, pledge, hypothecation, assignment,
----
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Financing Lease having substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction), (b) any arrangement or agreement which prohibits the
Borrower or any Subsidiary from creating any mortgage, pledge,
hypothecation, deposit arrangement, encumbrance, lien, charge or other
security interest, or from entering into any agreement or arrangement
described in clause (a) of this definition or (c) the sale, assignment,
pledge or transfer for security of any accounts, general intangibles or
chattel paper of the Borrower or any Subsidiary with or without recourse.
"Loan" shall mean any loan made by any Lender pursuant to this
----
Agreement.
"Loan Documents" shall mean this Agreement and each other agreement,
--------------
instrument or certificate executed and delivered to the Administrative
Agent or any Lender pursuant hereto including, without limitation, the
Notes, the Security Documents, the Guarantees, each Letter of Credit, the
Contribution Agreement, the Borrower Custody Agreement, the L/C Fee Letter,
the Fee Letter and the Administrative Fee Letter.
"Loan Parties" shall mean the Borrower, each of its Subsidiaries and
------------
any other Person (other than any of the Agents, the Issuer or any of the
Lenders) which is or becomes a party to a Loan Document.
"Majority-Owned" shall mean as to any Subsidiary, a Subsidiary at
--------------
least 80% of the Capital Stock of each class is owned directly by the
Borrower or one or more Wholly-Owned Subsidiaries.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, operations, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries or (b) the validity or
enforceability of this Agreement, any of the Notes or any of the other Loan
Documents, the Liens created hereunder or thereunder or the rights or
remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
-20-
<PAGE>
"Materials of Environmental Concern" shall mean any gasoline or
----------------------------------
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes, defined
or regulated as such in or under any Environmental Law, including, without
limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Meridian Sound" shall mean Meridian Sound Corp., a Delaware
--------------
corporation.
"Meridian Sound Guarantee" shall mean the Guarantee of Meridian Sound
------------------------
in favor of the Administrative Agent, for the benefit of the Lenders,
substantially in the form of Exhibit V, as the same may be amended,
---------
modified or supplemented from time to time.
"Meridian Sound Security Agreement" shall mean the Security Agreement
---------------------------------
between Meridian Sound and the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit W, as the same may be
---------
amended, supplemented or otherwise modified from time to time.
"Moody's" shall mean Moody's Investors Service, Inc.
-------
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
------------------
as defined in Section 4001(a)(3) of ERISA.
"Net Income" for any period shall mean, net income (or deficit) of a
----------
Person and its Subsidiaries determined on a consolidated basis in
accordance with GAAP.
"Net Disposition Proceeds" shall mean the gross cash proceeds
------------------------
(including any cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise but only as and when
received) received by the Borrower or any Subsidiary from the sale, lease
(other than a lease in the ordinary course of business), transfer or other
disposition of any of its assets less the sum of (a) reasonable selling
expenses paid to non-affiliated third parties, (b) any Indebtedness secured
by a Lien on such asset or property permitted to exist under clauses (e) or
(i) of Section 6.3 to the extent the Borrower is required to make a payment
-----------
with respect thereto and (c) income taxes reasonably estimated to be
actually payable by the Borrower or such Subsidiary with respect to any
gain realized as a result of such sale, lease, transfer or other
disposition and which taxes are payable by the Borrower within two years of
the date of such sale, lease, transfer or other disposition or within two
years of any installment payment with respect thereto.
"Net Insurance Proceeds" shall mean (a) the proceeds (including any
----------------------
proceeds from the termination or unwinding of any interest rate cap) and
awards of compensation received by the Borrower or any Subsidiary from (i)
the damage to or destruction or condemnation of all or any portion of its
assets or property (regardless of whether such compensation is from any
action in tort or contract or otherwise or from any
-21-
<PAGE>
governmental proceeding or action) or (ii) indemnity payments to the
Borrower or any Subsidiary under the Acquisition Documents or under the
agreements and instruments with respect to any Permitted Acquisition less,
in each case, the sum of any costs of collection that are paid to non-
affiliated third parties and, with respect to any indemnity payments under
this clause (ii), less any out-of-pocket costs incurred by the Borrower or
such Subsidiary for which such indemnification is being provided and any
portion of such indemnity payments that is actually applied by the Borrower
or such Subsidiary to repair or replace any asset or correct or remediate
any condition in respect of which such indemnity payment is made and (b)
any amounts received by the Borrower or any Subsidiary as a result or in
respect of the overfunding of a Plan.
"Net Securities Proceeds" shall mean, with respect to any sale of
------------------------
Capital Stock of the Borrower or the exercise by any Person of any right
with respect to such Capital Stock, the excess of (a) gross cash proceeds
received by the Borrower from such sale over (b) all reasonable fees and
expenses with respect to underwriting discounts or commissions, legal,
investment banking and accounting fees and disbursements, printing expenses
and any governmental fees incurred in connection with such sales, in each
case, which are not payable to any Affiliate of the Borrower.
"Non-Excluded Taxes" shall have the meaning ascribed thereto in
------------------
Section 2.18.
------------
"Notes" shall mean the collective reference to the Revolving Credit
-----
Notes, the Term A Notes and the Term B Notes.
"Notice of Borrowing" shall have the meaning ascribed thereto in
-------------------
Section 2.3.
-----------
"Obligations" shall mean the unpaid principal of and interest on
-----------
(including, without limitation, interest accruing after the maturity of the
Loans and interest accruing after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower or any Subsidiary, as applicable, whether or not a
claim for post-filing or post-petition interest is allowed in such
proceeding) the Notes and all other obligations and liabilities of the
Borrower or any Subsidiary, as applicable, to any of the Agents and the
Lenders or any of their respective Affiliates, including any Reimbursement
Obligations and any obligation of the Borrower under any Hedging Agreement
entered into with any Agent, any Lender or any of their respective
Affiliates, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Credit Agreement, the Notes, the other Loan
Documents or any Hedging Agreement with any Agent, any Lender or any of
their respective Affiliates or any other document made, delivered or given
in connection therewith or herewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees and disbursements of counsel to
the Administrative Agent or to the Lenders that are required to be paid by
the Borrower or any Subsidiary, as applicable, pursuant to the terms of the
Credit Agreement, any other
-22-
<PAGE>
Loan Document or any Hedging Agreement with any Agent, any Lender or any of
their respective Affiliates) or otherwise.
"Operating Cash Flow" shall mean, for any period of determination, an
-------------------
amount equal to the sum of (without duplication) (a) Net Income for such
period, after exclusion of (i) all items which should be classified as
extraordinary, all determined in accordance with GAAP and (ii) all
insurance proceeds (other than proceeds of business interruption insurance)
received during such period to the extent, if any, included in Net Income,
plus (b) all amounts deducted in computing such Net Income in respect of
----
(i) Interest Expense (after giving effect to all Hedging Agreements and
payments and receipts thereunder), (ii) noncash amortization expense
(including amortization of financing costs, noncurrent assets and non-cash
charges), (iii) depreciation, (iv) income taxes and (v) all other non-cash
expenses.
"Participant" shall have the meaning ascribed thereto in Section
----------- -------
9.6(b).
------
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA or any successor thereto.
"Permitted Acquisitions" shall mean the acquisition by the Borrower or
----------------------
any Subsidiary of all or substantially all the assets or all the Capital
Stock of any Post Production Company which acquisition shall have been
approved by the Required Lenders; provided, that with respect to any such
--------
acquisition, the Borrower shall have complied with the following
conditions:
(a) Financial Condition. The Borrower shall have delivered to
-------------------
the Administrative Agent and the Lenders financial projections based
upon assumptions acceptable to the Administrative Agent demonstrating
that immediately prior to and after giving effect to the consummation
of such acquisition and the incurrence of the Indebtedness hereunder,
the Borrower will be in compliance with all covenants contained in
this Agreement and, assuming the schedule for the repayment of the
Loans and the reduction of the Revolving Credit Commitment then in
effect, until all the Obligations have been repaid in full.
(b) Due Diligence. The Borrower shall have delivered to the
-------------
Administrative Agent and the Lenders the most recent audited and
unaudited financial statements for the Person whose Capital Stock or
assets are to be acquired, and a pro forma balance sheet of the
--- -----
Borrower as at the closing date for such acquisition adjusted to give
effect (as if such events had occurred on such closing date) to (i)
such acquisition and (ii) any Loans expected to be made by the Lenders
on such Closing Date, together with a certificate of the chief
financial officer of the Borrower to the effect that such pro forma
--- -----
balance sheet presents fairly on a pro forma basis the financial
--- -----
position of the Borrower as at such
-23-
<PAGE>
closing date assuming the events and the assumptions specified in
clauses (i) and (ii) occurred on such date. The Borrower shall provide
the Administrative Agent and the Lenders with such additional
information regarding such acquisition (including historical and
projected revenue and cash flow and purchase price), the assets to be
acquired and all matters relating thereto including, without
limitation, investigations, reviews of operations, assets, litigation,
financial condition and prospects of the business and assets to be
acquired.
(c) Liquidity. After giving effect to such acquisition, the
---------
Available Revolving Credit Commitment shall not be less than
$5,000,000.
(d) Acquisition Documents. The documents in respect of such
---------------------
acquisition shall be in form and substance reasonably satisfactory to
the Administrative Agent. On the closing date for such acquisition,
(i) the Administrative Agent shall have received executed or conformed
copies of such transaction documents, (ii) such transaction documents
shall be in full force and effect and no material term or condition
thereof shall have been amended, modified or waived, (iii) neither the
Borrower nor any other party to such transaction documents shall have
failed to perform any material obligation or covenant required by such
acquisition documents to be performed or complied with by it on or
before such acquisition closing date and (iv) the Administrative Agent
shall have received a certificate from the chief executive or chief
financial officer of the Borrower to the effect set forth in clauses
(i), (ii) and (iii) above.
(e) Acquisition; Closing Documents; Reliance Letters. Such
------------------------------------------------
acquisition shall have been consummated in accordance with the terms
of such transaction documents and as contemplated hereby, and the
Administrative Agent shall have received (i) satisfactory evidence of
any necessary filing of the documents effecting such acquisition, (ii)
copies of all closing documents (including opinions of counsel)
delivered under such transaction documents and (iii) if requested by
the Administrative Agent, letters addressed to the Administrative
Agent from counsel to the Borrower and the other parties to such
acquisition documents, authorizing the Administrative Agent and the
Lenders to rely on the opinions delivered by each such counsel under
such transaction documents to the same extent as if such opinions were
addressed to the Administrative Agent and the Lenders.
(f) Security Interests, UCC Searches and Filings. The
--------------------------------------------
Administrative Agent shall have received satisfactory evidence that
the Administrative Agent (for the benefit of itself and the Lenders)
has a valid and perfected first priority security interest in the
Collateral (including any assets acquired pursuant to such
acquisition), subject only to Liens permitted to exist under Section
-------
6.3(a), (c) and (d). The Borrower shall have delivered to or caused
-------------------
to be delivered to the Administrative Agent executed documents
(including mortgages, financing
-24-
<PAGE>
statements under the UCC, pledge agreements with respect to Capital
Stock (whether or not certificated) and other applicable documents
under the laws of any jurisdiction with respect to the perfection of
Liens) as the Administrative Agent may deem necessary to perfect its
security interests in the Collateral. The Administrative Agent shall
have received certified copies of UCC search reports listing all
effective financing statements that name each seller under such
transaction documents or (to the extent any assets to be acquired or
leased are located in jurisdictions in which the Lenders have not
theretofore filed UCC financing statements listing the Borrower as
debtor) the Borrower, as debtor, together with copies of such
financing statements (none of which shall cover the Collateral except
to the extent evidencing Liens permitted to exist under Section 6.3
-----------
(b), (c) or (e) or Liens terminated on such closing date).
---------------
(g) Documents of the Borrower and other Loan Parties. On or
------------------------------------------------
before the closing date for such acquisition, the Borrower shall
deliver or cause to be delivered to the Administrative Agent the
documents listed below, each, unless otherwise noted, dated such
closing date, duly executed, in form and substance satisfactory to the
Administrative Agent and in quantities designated by the
Administrative Agent:
(i) Officers' Certificate. A certificate executed by a
---------------------
Responsible Officer of the Borrower, (x) setting forth in reasonable
detail the Adjusted Operating Cash Flow and Leverage Ratio of the
Borrower before and after giving effect to such acquisition and (y)
stating that on such closing date, after giving effect to such
acquisition, the Loans outstanding and any Loans to be advanced on
such closing date and the consummation of the transactions
contemplated by such transaction documents: (A) no Default or Event
of Default has occurred and is continuing; (B) no Material Adverse
Effect has occurred since the date of the then most recent audited
financial statements of the Borrower delivered to the Administrative
Agent pursuant to Section 5.1; (C) the representations and warranties
-----------
set forth in Article 3 are true and correct in all material respects
on and as of such date with the same effect as though made on and as
of such date; and (D) the Borrower is in compliance with all the terms
and provisions set forth in this Agreement on its part to be observed
and performed. Each of the foregoing statements shall be true on such
closing date before and after giving effect to such acquisition.
(ii) Mortgages. If required by the Administrative Agent,
---------
mortgages or deeds of trust in form and substance acceptable to the
Administrative Agent covering the Borrower's fee interest in real
property, if any, acquired by it pursuant to such acquisition together
with: (x) evidence that counterparts of such mortgages or deeds of
trust have been recorded in all places to the extent necessary or
desirable, in the judgment of the Administrative Agent, to create a
valid and enforceable first priority lien on each property covered
-25-
<PAGE>
thereby in favor of the Administrative Agent for the benefit of the
Lenders (or in favor of such other trustee as may be required or
desired under local law); (y) Lender's title insurance issued by such
title insurer, on such form, in such amounts and with such exceptions
and exclusions as may be approved by the Administrative Agent; and (z)
an opinion of counsel in the state in which the property is located in
form and substance and from counsel satisfactory to the Administrative
Agent.
(iii) UCC Financing Statements. All Uniform Commercial
------------------------
Code financing statements and other documents of record required to be
filed or recorded in order to perfect the Liens of the Administrative
Agent and the Lenders on the assets to be acquired by the Borrower
pursuant to such acquisition other than with respect to any assets as
to which the Administrative Agent shall determine that the cost of
obtaining a Lien is excessive in relation to the value of such assets.
"Permitted Indebtedness" shall mean the collective reference to (a)
----------------------
the Seller Notes, (b) Indebtedness under the Tokai Loan Agreement, (c) the
Deferred Note, (d) the Financing Leases set forth on Schedule 1.1 and (e)
------------
Indebtedness in an aggregate principal amount not to exceed $20,000,000
which may be incurred by the Borrower and the proceeds of which shall be
utilized for improvements to real property of the Borrower and its
Subsidiaries or to refinance the Santa Monica Property and Hollywood Way
Property; provided that all the foregoing Indebtedness shall be on terms
--------
and conditions acceptable to the Administrative Agent and the Required
Lenders.
"Permitted Preferred Stock" shall mean preferred stock, $.01 par value
-------------------------
per share, of the Borrower which shall be convertible into Common Stock and
shall have such other terms and conditions as shall be acceptable to the
Agent, but which shall not, so long as any of the Obligations are
outstanding, (a) provide for the payment of cash dividends or (b) permit
redemption of all or any portion; provided that the Borrower may redeem all
--------
or any portion of such preferred stock (i) for shares of Common Stock so
long as, after giving effect to any such redemption, the holders of such
preferred stock do not hold in the aggregate 30% or more of the Common
Stock or (ii) with the consent of the Required Lenders, for cash.
"Permitted Preferred Stock Documents" shall mean the collective
-----------------------------------
reference to the Purchase Agreement, the Certificate of Designation, the
Registration Rights Agreement, the Stockholders Agreement and each of the
other agreements, instruments, certificates and opinions delivered by the
Borrower or any other Person in connection with the issuance by the
Borrower of the Permitted Preferred Stock.
"Person" shall mean an individual, partnership, corporation, limited
------
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
-26-
<PAGE>
"Plan" shall mean at a particular time, any employee benefit plan
----
which is covered by ERISA and in respect of which the Borrower is, an
"employer" as defined in Section 3(5) of ERISA, other than a Multiemployer
Plan.
"Pledge Agreements" shall mean the collective reference to the
-----------------
Borrower Pledge Agreement, the Borrower Supplemental Pledge Agreement, the
Four Media Burbank Pledge Agreement and the POP Pledge Agreement.
"Pledged Promissory Notes" shall have the meaning ascribed thereto in
------------------------
the Borrower Pledge Agreement.
"Pledged Stock" shall have the meaning ascribed thereto in the Pledge
-------------
Agreements.
"POP" shall have the meaning set forth in the recitals.
---
"POP Animation" shall mean POP Animation, a California corporation.
-------------
"POP Animation Guarantee" shall mean the Guarantee of POP Animation in
-----------------------
favor of the Administrative Agent, for the benefit of the Lenders,
substantially in the form of Exhibit AA, as the same may be amended,
----------
supplemented or otherwise modified from time to time.
"POP Animation Security Agreement" shall mean the Security Agreement
--------------------------------
between POP Animation and the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit BB, as the same may be
----------
amended, supplemented or otherwise modified from time to time.
"POP Guarantee" shall mean the Guarantee of POP in favor of the
-------------
Administrative Agent, for the benefit of the Lenders, substantially in the
form of Exhibit X, as the same may be amended, supplemented or modified
---------
from time to time.
"POP Letter of Credit" shall mean the Letter Credit dated February 27,
--------------------
1998 in the Stated Amount of $2,000,000 issued in favor William E. Niles of
February 27, 1998 with a stated expiry date of August 17, 1999.
"POP Pledge Agreement" shall mean the Pledge Agreement of POP in favor
--------------------
of the Agent, for the benefit of the Lenders, substantially in the form of
Exhibit Y, as the same may be amended, modified or supplemented from time
---------
to time.
"POP Security Agreement" shall mean the Security Agreement between POP
----------------------
and the Administrative Agent, for the benefit of the Lenders, substantially
in the form of Exhibit Z, as the same may be amended, supplemented or
---------
modified from time to time.
-27-
<PAGE>
"Post Production Assets" shall mean equipment, facilities,
----------------------
intellectual property and other assets that, in the ordinary course of
business, are used and useful in providing the post production technical
creative services offered by a Post Production Company.
"Post Production Company" shall mean any Person principally engaged in
-----------------------
providing post production technical creative services to owners, producers
and distributors of television programming, feature film and other
entertainment content including Studio Services, Broadcast Services,
Television Services and Visual Effects Services.
"Properties" shall have the meaning ascribed thereto in Section
---------- -------
3.16(a).
-------
"Purchase Agreement" shall mean the Preferred Stock Purchase Agreement
------------------
dated as of February 5, 1998 between the Borrower and Fleming US Discovery
Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P.
"Register" shall have the meaning ascribed thereto in Section 9.6(d).
-------- --------------
"Registration Rights Agreement" shall mean the Registration Rights
-----------------------------
Agreement dated as of February 27, 1998 among the Borrower, Fleming US
Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P.
"Regulation U" shall mean Regulation U of the Board of Governors of
------------
the Federal Reserve System as in effect from time to time.
"Reimbursement Obligations" shall mean the obligation of the Borrower
-------------------------
to reimburse the Issuer and the Revolving Credit Lenders for all amounts
drawn under the Letters of Credit and any other amounts under Section 2.21.
------------
"Reorganization" shall mean with respect to any Multiemployer Plan,
--------------
the condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in section
----------------
4043(c) of ERISA other than those events for which the notice requirement
has been waived under applicable regulations.
"Required Lenders" at any time shall mean Lenders whose Commitment
----------------
Percentages aggregate at least 66%.
"Requirement of Law" as to any Person shall mean the certificate of
------------------
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other
-28-
<PAGE>
Governmental Authority, in each case, applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
"Responsible Officer" shall mean the chairman of the board of
-------------------
directors or the chief executive officer of such Person or, with respect to
financial matters, the chief financial officer of such Person.
"Revenues" for any period of determination, shall mean total revenues
--------
of the Borrower and its Subsidiaries during such period from Studio
Services, Broadcast Services, Television Services and Visual Effects
Services; provided that (i) with respect to any Permitted Acquisition,
--------
"Revenues" shall include only those total revenues attributable to the
Capital Stock or assets so acquired commencing with the date such
acquisition is completed and (ii) with respect to any disposition,
"Revenues" shall include only those total revenues attributable to the
assets or Capital Stock so disposed up to the date such disposition is
completed.
"Revolving Credit Commitment" shall mean, as to any Lender, the
---------------------------
obligation of such Lender to make Revolving Credit Loans to the Borrower in
an aggregate principal amount at any one time outstanding not to exceed the
amount set forth under the heading "Revolving Credit Commitments" opposite
such Lender's name on Schedule I, as such amount may be reduced from time
to time pursuant to this Agreement. At the date of this Agreement, the
aggregate amount of the Revolving Credit Commitment is equal to
$50,000,000.
"Revolving Credit Commitment Percentage" shall mean, as to any Lender,
--------------------------------------
at any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the aggregate Revolving Credit Commitments.
"Revolving Credit Commitment Period" shall mean the period from and
----------------------------------
including the date hereof to, but not including, the Revolving Credit
Commitment Termination Date or such earlier date on which the Revolving
Credit Commitments shall terminate as provided herein.
"Revolving Credit Commitment Termination Date" shall mean January 31,
--------------------------------------------
2004.
"Revolving Credit Lenders" shall mean the collective reference to all
------------------------
Lenders (other than the Issuer) having Revolving Credit Commitments or
holding outstanding Revolving Credit Loans or participating interests in
any Letter of Credit.
"Revolving Credit Loans" shall have the meaning ascribed thereto in
----------------------
Section 2.1.
-----------
"Revolving Credit Note" shall have the meaning ascribed thereto in
---------------------
Section 2.2.
-----------
-29-
<PAGE>
"S&P" shall mean Standard & Poor's Rating Group.
---
"Santa Monica Indebtedness" shall mean the Indebtedness under the Loan
-------------------------
Agreement dated as of November 28, 1997 between the Borrower and Tokai.
"Santa Monica Property" shall mean the collective reference to the
---------------------
properties located 1631 9th Street and 1020 Colorado Avenue, Santa Monica,
California.
"Santa Monica Financial" shall mean Santa Monica Financial, Inc. a
----------------------
California corporation.
"Santa Monica Financial Guarantee" shall mean the Guarantee of Santa
--------------------------------
Monica Financial in favor of the Administrative Agent, for the benefit of
the Lenders, substantially in the form of Exhibit CC, as the same may be
----------
amended, supplemented or otherwise modified from time to time.
"Santa Monica Financial Security Agreement" shall mean the Security
-----------------------------------------
Agreement between Santa Monica Financial and the Administrative Agent, for
the benefit of the Lenders, substantially in the form of Exhibit DD, as the
----------
same may be amended, supplemented or otherwise modified from time to time.
"Schutz" shall mean Gavin W. Schutz.
------
"SEC Reports" shall mean the collective reference to any registration
-----------
statements filed under the Securities Act of 1933 or reports filed from
time to time under the Securities Exchange Act of 1934, in each case, with
the Securities Exchange Commission.
"Security Agreements" shall mean the collective reference to the
-------------------
Borrower Security Agreement, the Digital Magic Security Agreement, the Four
Media Burbank Security Agreement, the Anderson Video Security Agreement,
the Catalina Transmission Security Agreement, the 4MC3 Security Agreement,
the Meridian Sound Security Agreement, the POP Security Agreement, the POP
Animation Security Agreement, the Ten Moons Security Agreement, the Santa
Monica Financial Security Agreement and, if there are any Approved
Subsidiaries, each Approved Subsidiary Security Agreement.
"Security Documents" shall mean the collective reference to the Pledge
------------------
Agreements, the Security Agreements, the Intellectual Property Security
Agreements, the Deeds of Trust, and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any asset or
assets of the Borrower or any Subsidiary to secure the obligations and
liabilities of the Borrower under the Notes and/or under any of the other
Loan Documents or to secure any guarantee by such Subsidiary of any such
obligations and liabilities.
-30-
<PAGE>
"Seller Notes" shall mean (a) the Note dated February 2, 1998 issued
------------
by the Borrower pursuant to the Stock Purchase Agreement in favor of Alan
Kozlowski in the principal amount of $840,000, (b) the Note dated February
2, 1998 issued by the Borrower pursuant to the Stock Purchase Agreement in
favor of Jerry Kramer in the principal amount of $300,000 and (c) any other
Indebtedness issued by the Borrower or any Subsidiary in connection with a
Permitted Acquisition; provided that the principal amount and all terms of
--------
such other Indebtedness shall be approved by the Required Lenders.
"Significant Subsidiary" shall mean any of Four Media Asia, Four Media
----------------------
Burbank, Digital Magic, 4MC3, Anderson Video, Meridian Sound, Catalina
Transmission, POP, POP Animation, Santa Monica Financial, Ten Moons and any
Approved Subsidiary that is designated as a "Significant Subsidiary" by the
Administration Agent.
"Single Employer Plan" shall mean any Plan which is covered by Title
--------------------
IV of ERISA, but which is not a Multiemployer Plan.
"Solvent" shall mean, with respect to the Borrower or any Subsidiary
-------
(a) the property of the Borrower or such Subsidiary, at fair valuation,
will exceed the debts of the Borrower or such Subsidiary, as the case may
be, (b) the Borrower or such Subsidiary will be able to pay its debts as
such debts become absolute and matured, and (c) the Borrower or such
Subsidiary will have, as of such date, sufficient capital with which to
conduct its business. For purposes of this definition, "debt" means
"liability on a claim" and "claim" means (i) any right to payment, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (ii) any right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
"Stated Amount" of a Letter of Credit shall mean the total amount
-------------
available to be drawn under such Letter of Credit upon the issuance
thereof.
"Stock Purchase Agreement" shall have the meaning ascribed thereto in
------------------------
the recitals.
"Stockholders Agreement" shall mean the Stockholders Agreement dated
----------------------
as of February 27, 1998 among Walston, Donlon, Schutz, Bailey, Fleming US
Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P.
"Studio Services" shall mean services to manage, format and distribute
---------------
for television programming, feature films and other entertainment content
including, without limitation, archiving original elements and working
masters, restoring and preserving
-31-
<PAGE>
damaged films or other entertainment content, creating working masters from
original elements, duplicating and formatting masters and creating
submasters and other similar operations.
"Subsidiary" of a Person shall mean a corporation, partnership or
----------
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the occurrence of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless the context
otherwise requires, all references to Subsidiaries are to Subsidiaries of
the Borrower.
"Syndication Agent" shall have the meaning ascribed thereto in the
-----------------
heading hereto.
"Television Services" shall mean the technical and creative services
-------------------
required to conform original film or video principal photography to a
broadcast-ready product including, without limitation, developing
negatives, converting negatives to videotape and/or digital format, offline
editing to determine programming content, creating music, sound effects and
visual effects and assembly, formatting and duplication of the source
material into final form.
"Ten Moons" shall mean 10 Moons at POP, Inc., a California
---------
corporation.
"Ten Moons Guarantee" shall mean the Guarantee of Ten Moons in favor
-------------------
of the Administrative Agent, for the benefit of the Lenders, substantially
in the form of Exhibit EE, as the same may be amended, supplemented or
----------
otherwise modified from time to time.
"Ten Moons Security Agreement" shall mean the Security Agreement
----------------------------
between Ten Moons and the Administrative Agent, for the benefit of the
Lenders, substantially in the form of Exhibit FF, as the same may be
----------
amended, supplemented or otherwise modified from time to time.
"Term A Loans" shall have the meaning ascribed thereto in Section
------------ -------
2.6(a).
------
"Term A Loan Commitment" shall mean, with respect to each Lender, the
----------------------
amount set forth under the heading "Term A Loan Commitments" opposite such
Lender's name on Schedule I, as such amount may be reduced from time to
time pursuant to this Agreement. As of the date of the Agreement, the
aggregate amount of the Term A Loan Commitment is $75,000,000.
"Term A Loan Commitment Percentage" shall mean, as to any Lender, at
---------------------------------
any time, the percentage which such Lender's Term A Loan Commitment then
constitutes of
-32-
<PAGE>
the aggregate Term A Loan Commitments (or, at any time after the Term A
Loan Commitments shall have expired or terminated, the percentage which the
aggregate principal amount of such Lender's Term A Loans then outstanding
constitutes of the aggregate principal amount of the Term A Loans then
outstanding).
"Term A Loan Commitment Period" shall mean the period from and
-----------------------------
including the date hereof to and including the Term A Loan Commitment
Termination Date or such earlier date on which the Term A Loan Commitment
shall terminate as provided herein.
"Term A Loan Commitment Termination Date" shall mean July 31, 1998.
---------------------------------------
"Term A Note" shall have the meaning ascribed thereto in Section
----------- -------
2.7(a).
------
"Term B Loans" shall have the meaning ascribed thereto in Section
------------ -------
2.6(b).
------
"Term B Loan Commitment" shall mean, with respect to each Lender, the
----------------------
amount set forth under the heading "Term B Loan Commitments" opposite such
Lender's name on Schedule I, as such amount may be reduced from time to
time pursuant to this Agreement. As of the date of this Agreement the
aggregate amount of the Term B Loan Commitment is $75,000,000.
"Term B Loan Commitment Percentage" shall mean, as to any Lender, at
---------------------------------
any time, the percentage which such Lender's Term B Loan Commitment then
constitutes of the aggregate Term B Loan Commitments (or, at any time after
the Term B Loan Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's Term B
Loans then outstanding constitutes of the aggregate principal amount of the
Term B Loans then outstanding).
"Term B Note" shall have the meaning ascribed thereto in Section
----------- -------
2.7(b).
------
"Term Loans" shall mean the collective reference to the Term A Loans
----------
and the Term B Loans.
"Tokai Bank" shall mean Tokai Bank of California, a California banking
----------
corporation.
"Tokai Guarantees" shall mean the collective reference to (a) the
----------------
Continuing Guaranty dated as of December 5, 1996 of Four Media Burbank in
favor of Tokai Bank as amended by First Amendment of Term Loan Agreement,
Secured Promissory Note and Guarantee dated as of February 23, 1998 and (b)
the Continuing Guaranty dated as of December 5, 1996 of Digital Magic in
favor of Tokai Bank as amended by First Amendment of Term Loan Agreement,
Secured Promissory Note and Guarantee dated as of February 23, 1998.
-33-
<PAGE>
"Tokai Loan Agreement" shall mean the Term Loan Agreement dated
--------------------
December 5, 1996 between the Borrower and Tokai Bank as amended by First
Amendment of Term Loan Agreement, Secured Promissory Note and Guarantee
dated as of February 23, 1998 pursuant to which Tokai Bank has made loans
to the Borrower in a principal amount not to exceed $8,400,000 which
Indebtedness is secured by the Tokai Mortgages and guaranteed by the Tokai
Guarantees.
"Tokai Mortgages" shall mean the collective reference to (a) Deed of
---------------
Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as
of December 5, 1996 among the Borrower, North American Title Company, as
trustee, and Tokai Bank as beneficiary relating to the Hollywood Way
Property and (b) Absolute Assignment of Leases and Rents dated as of
December 5, 1996 of the Borrower in favor of Tokai Bank relating to the
Hollywood Way Property as amended by Amendment of Deed of Trust and
Absolute Assignment of Leases and Rents dated as of February 23, 1998.
"Tranche" shall mean the collective reference to Eurodollar Loans, the
-------
then current Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Transferee" shall have the meaning ascribed thereto in Section
---------- -------
9.6(f).
"TSP" shall mean Technical Service Partners, L.P., a Delaware limited
---
partnership controlled by Michael H. Steinhardt.
"TVN" shall mean TVN Entertainment Corporation.
---
"TVN Agreement" shall mean an agreement between TVN and the Borrower
-------------
to be entered into on or after the date hereof pursuant to which the
Borrower will provide post-production technical creative services in
connection with the development and implementation of TVN's "end to end"
digital satellites television programming and delivery system which
agreement shall be for a term of not less than five years, shall provide
for the Borrower to receive an agreed upon return above the Borrower's
capital expenditures in connection with providing such services and which
agreement shall be acceptable to the Administrative Agent and the Required
Lenders.
"Type" shall mean as to any Loan, its nature as an Alternate Base Rate
----
Loan or a Eurodollar Loan.
"Uniform Customs" shall mean the Uniform Customs Practice for
---------------
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended, supplemented or modified
from time to time.
"Visual Effects Services" shall mean the services utilized to create
-----------------------
special visual effects for feature films and television including, without
limitation, digital creation and
-34-
<PAGE>
manipulation of images in high resolution formats for integration into
feature films as well as television applications.
"Voting Securities" shall mean any class of Capital Stock of the
-----------------
Borrower or any Subsidiary, as applicable, pursuant to which the holders
thereof have the general voting power under ordinary circumstances to vote
for the election of directors (irrespective of whether or not at the time
any other class will have or might have voting power by reason of the
occurrence of any contingency).
"Walston" shall mean Robert T. Walston.
-------
"Wholly-Owned" shall mean as applied to any Subsidiary, a Subsidiary
------------
all the outstanding shares of Capital Stock (other than director's
qualifying shares if required by law) of which are at the time owned,
directly or indirectly, by the Borrower.
"Working Capital" shall mean, as of the date of determination thereof,
---------------
the excess, if any, of (a) the current assets (other than cash and Cash
Equivalents) of the Borrower and its Subsidiaries determined in accordance
with GAAP, over (b) the current liabilities (other than the current portion
of long-term Indebtedness) of the Borrower and its Subsidiaries determined
in accordance with GAAP.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have their respective defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein, in the Notes and in any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and any Subsidiary not defined in Section 1.1 and accounting terms
-----------
partly defined in Section 1.1, to the extent not defined, shall have the
-----------
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Article, Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Lender severally agrees to make revolving credit loans
("Revolving Credit Loans") to the Borrower from time to time during the
----------------------
Revolving Credit Commitment Period in an
-35-
<PAGE>
aggregate principal amount at any one time outstanding not to exceed such
Lender's Revolving Credit Commitment. During the Revolving Credit Commitment
Period, the Borrower may use the Revolving Credit Commitments by borrowing,
prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all
in accordance with the terms and conditions hereof.
(b) Subject to the last sentence of Section 2.3, the Revolving Credit
-----------
Loans may from time to time be (i) Eurodollar Loans, (ii) Alternate Base Rate
Loans or (iii) a combination thereof, as determined by the Borrower and notified
to the Administrative Agent in accordance with Section 2.3 and Section 2.10;
----------- ------------
provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after
- --------
the day that is one month prior to the Revolving Credit Commitment Termination
Date.
2.2 Revolving Credit Notes. The Revolving Credit Loans made by each
----------------------
Lender shall be evidenced by a promissory note of the Borrower, substantially in
the form of Exhibit A, with appropriate insertions as to payee, date and
---------
principal amount (a "Revolving Credit Note"), payable to the order of such
---------------------
Lender and in a principal amount equal to the lesser of (a) the amount of the
initial Revolving Credit Commitment of such Lender and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Lender. Each Lender
is hereby authorized to record the date, Type and amount of each Revolving
Credit Loan made by such Lender, each continuation thereof, each conversion of
all or a portion thereof to another Type, the date and amount of each payment or
prepayment of principal thereof and, in the case of Eurodollar Loans, the length
of each Interest Period with respect thereto, on the schedule annexed to and
constituting a part of its Revolving Credit Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded
----- -----
absent manifest error. Each Revolving Credit Note shall (i) be dated the
Closing Date, (ii) be stated to mature on the Revolving Credit Commitment
Termination Date and (iii) provide for the payment of interest in accordance
with Section 2.12.
------------
2.3 Procedure for Revolving Credit Borrowing. The Borrower may
----------------------------------------
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day; provided that the Borrower shall give the
--------
Administrative Agent an irrevocable notice substantially in the form of Exhibit
-------
D-1 (a "Notice of Borrowing") (which notice must be received by the
- --- -------------------
Administrative Agent prior to 10:00 a.m., New York City time, (a) three Business
Days prior to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be Eurodollar Loans initially, or (b) one Business
Day prior to the requested Borrowing Date, otherwise), specifying (i) the amount
to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing
is to be of Eurodollar Loans, Alternate Base Rate Loans or a combination thereof
and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the
amounts of such Eurodollar Loans and the lengths of the initial Interest Periods
therefor. Each borrowing under the Revolving Credit Commitments shall be in an
amount equal to (x) in the case of Alternate Base Rate Loans, $1,000,000 or a
whole multiple of $100,000 in excess thereof (or, if the then Available
Revolving Credit Commitments are less than $1,000,000, such lesser amount) and
(y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of $100,000
in excess thereof. Upon receipt of any such notice from the
-36-
<PAGE>
Borrower, the Administrative Agent shall promptly notify each Lender thereof.
Each Lender will make the amount of its Revolving Credit Commitment Percentage
of each borrowing available to the Administrative Agent for the account of the
Borrower at the office of the Administrative Agent specified in Section 9.2
-----------
prior to 11:00 a.m., New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the Administrative
Agent in the manner specified by the Borrower in such Notice of Borrowing in the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
Notwithstanding anything to the contrary contained herein, Revolving Credit
Loans, if any, made on the Closing Date must be Alternate Base Rate Loans.
2.4 Commitment Fees; Administrative Fee. (a) The Borrower agrees to
-----------------------------------
pay to the Administrative Agent for the account of each Lender who is providing
Revolving Credit Loans a commitment fee for the period from and including the
first day of the Revolving Credit Commitment Period to the Revolving Credit
Commitment Termination Date, computed at the rate of 0.50% per annum on the
average daily amount of the Available Revolving Credit Commitment of such
Lender, payable quarterly in arrears on the last day of each January, April,
July and October and on the Revolving Credit Commitment Termination Date or such
earlier date as the Revolving Credit Commitments shall reduce or terminate as
provided herein, commencing on the first of such dates to occur after the date
hereof.
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender who is providing Term A Loans a commitment fee for the
period from and including the first day of the Term A Loan Commitment Period to
the Term A Loan Commitment Termination Date, computed at the rate of 0.50% per
annum on the average daily amount of the Available Term A Loan Commitment of
such Lender, payable quarterly in arrears on the last day of each January and
April and on the Term A Loan Commitment Termination Date or such earlier date as
the Term A Loan Commitment shall reduce or terminate as provided herein,
commencing on the first of such dates to occur after the date hereof.
(c) The Borrower agrees to pay to the Administrative Agent, for its
own account, for services rendered by the Administrative Agent, an annual
administrative fee in the amounts and at the times referred to in the
Administrative Fee Letter.
2.5 Optional and Mandatory Termination or Reduction of Revolving
------------------------------------------------------------
Credit Commitments. (a) The Borrower shall have the right, upon not less than
- ------------------
five Business Days' notice to the Administrative Agent, to terminate the
Revolving Credit Commitments or, from time to time, to reduce the amount of the
Revolving Credit Commitments. Any such reduction shall be in an amount equal to
$1,000,000 or a whole multiple of $100,000 in excess thereof and shall be
applied pro rata to all scheduled reductions of the Revolving Credit Commitment
set forth in Section 2.5(b) to reduce permanently the Revolving Credit
--------------
Commitments then in effect; provided that no such termination or reduction shall
--------
be permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans made on the effective date thereof, the
-37-
<PAGE>
aggregate principal amount of the Revolving Credit Loans then outstanding would
exceed the Revolving Credit Commitments then in effect. Any reduction of the
Revolving Credit Commitments shall be accompanied by payment in full of all
accrued commitment fees on the amount so reduced to and including the date of
such reduction and, to the extent any Revolving Credit Loans are prepared in
connection with such reduction, shall be accompanied by payment in full of all
accrued interest thereon, to and including the date of such prepayment, together
with any additional amounts owing pursuant to Section 2.19 and any outstanding
------------
fees and expenses due and owing. The Administrative Agent agrees to promptly
notify the Lenders of any notice of reduction or termination received by the
Administrative Agent.
(b) The aggregate amount of the Revolving Credit Commitments shall be
permanently reduced on each date by the amount set forth below opposite each
such date:
<TABLE>
<CAPTION>
Maximum Commitment
Date Amount of Reduction After Reduction
---- ------------------- ------------------
<S> <C> <C>
April 30, 2000 $2,500,000 $47,500,000
July 31, 2000 2,500,000 45,000,000
October 31, 2000 2,500,000 42,500,000
January 31, 2001 2,500,000 40,000,000
April 30, 2001 2,500,000 37,500,000
July 31, 2001 2,500,000 35,000,000
October 31, 2001 2,500,000 32,500,000
January 31, 2002 2,500,000 30,000,000
April 30, 2002 2,500,000 27,500,000
July 31, 2002 2,500,000 25,000,000
October 31, 2002 4,000,000 21,000,000
January 31, 2003 4,000,000 17,000,000
April 30, 2003 4,000,000 13,000,000
July 31, 2003 4,000,000 9,000,000
October 31, 2003 4,500,000 4,500,000
January 31, 2004 4,500,000 0
</TABLE>
; provided that if the Revolving Credit Commitments then in effect are less than
--------
the amount contemplated by the foregoing schedule, an appropriate adjustment
shall be made to the reduction in the Revolving Credit Commitments on January
31, 2004 and, if necessary, to the other reductions set forth above in inverse
order of reduction and (ii) in any event, the Revolving Credit Commitments shall
be reduced to zero on the Revolving Credit Commitment Termination Date.
2.6 Term A Loans; Reduction of Term A Loan Commitment; Term B Loans.
---------------------------------------------------------------
(a) Subject to the terms and conditions hereof, each Lender severally agrees to
make term loans ("Term A Loans") to the Borrower, from time to time, during the
------------
Term A Loan Commitment Period in an amount not to exceed the amount of the Term
A Loan Commitment of such Lender then in effect. The Term A Loans may from time
to time be (a) Eurodollar Loans, (b) Alternate
-38-
<PAGE>
Base Rate Loans or (c) a combination thereof, as determined by the Borrower and
set forth in a notice to the Administrative Agent in accordance with Section 2.8
-----------
and Section 2.10;provided that (i) no Term A Loans shall be made until the
------------
Term B Loan Commitment has been fully drawn hereunder, (ii) the Borrower shall
draw not more than $33,000,000 of the Term A Loan Commitments on the Closing
Date (iii) any draw on the Term A Loan Commitment after the Closing Date in
respect of Permitted Acquisitions shall require the consent of the Required
Lenders and (iv) Term A Loans made on the Closing Date must be Alternate Base
Rate Loans.
(b) The Borrower shall have the right, upon not less than five
Business Days' notice to the Administrative Agent, to reduce any portion of the
Term A Loan Commitments in excess of $33,000,000. Any such reduction shall be
in an amount equal to $1,000,000 or a whole multiple of $100,000 in excess
thereof and shall be accompanied by payment in full of all accrued commitment
fees on the amount so reduced to and including the date of such reduction. The
Administrative Agent agrees to promptly notify the Lenders of any notice of
reduction received by the Administrative Agent.
(c) Subject to the terms and conditions hereof, each Lender severally
agrees to make term loans ("Term B Loans") to the Borrower on the Closing Date
------------
in an amount not to exceed the amount of the Term B Loan Commitment of such
Lender then in effect. The Term B Loans may from time to time be (a) Eurodollar
Loans, (b) Alternate Base Rate Loans or (c) a combination thereof, as determined
by the Borrower and set forth in a notice to the Administrative Agent in
accordance with Section 2.8 and Section 2.10; provided that Term B Loans made on
----------- ------------ --------
the Closing Date must be Alternate Base Rate Loans.
2.7 Term A Notes and Term B Notes. (a) The Term A Loan made by each
-----------------------------
Lender shall be evidenced by a promissory note of the Borrower, substantially in
the form of Exhibit B (a "Term A Note"), with appropriate insertions therein as
--------- -----------
to payee, date and principal amount, payable to the order of such Lender and in
a principal amount equal to the aggregate unpaid principal amount of all Term A
Loans made by such Lender. Each Lender is hereby authorized to record the date,
Type and amount of each Term A Loan made by such Lender, each continuation
thereof, each conversion of all or a portion thereof to another Type, the date
and amount of each payment or prepayment of principal thereof and, in the case
of Eurodollar Loans, the length of each Interest Period with respect thereto, on
the schedule annexed to and constituting a part of its Term A Note, and any such
recordation shall constitute prima facie evidence of the accuracy of the
----- -----
information so recorded absent manifest error. The Term A Note of each Lender
(i) shall be dated the Closing Date, (ii) shall be payable on the last day of
each January, April, July and October commencing on April 30, 2000, each of
which payments shall be in an amount equal to such Lender's Term A Loan
Commitment Percentage of the amount set forth below opposite each such date:
<TABLE>
<CAPTION>
Date Amount
----- ------
<S> <C>
April 30, 2000 $3,750,000
July 31, 2000 3,750,000
</TABLE>
-39-
<PAGE>
<TABLE>
<S> <C>
October 31, 2000 3,750,000
January 31, 2001 3,750,000
April 30, 2001 3,750,000
July 31, 2001 3,750,000
October 31, 2001 3,750,000
January 31, 2002 3,750,000
April 30, 2002 3,750,000
July 31, 2002 3,750,000
October 31, 2002 6,000,000
January 31, 2003 6,000,000
April 30, 2003 6,000,000
July 31, 2003 6,000,000
October 31, 2003 6,750,000
January 31, 2004 6,750,000
</TABLE>
; provided that if the aggregate amount of Term A Loans made by the Lenders is
--------
less than the amount contemplated by the foregoing amortization schedule, an
appropriate pro rata adjustment shall be made to the amount due to each Lender
--- ----
on each scheduled payment date and (iii) shall provide for the payment of
interest in accordance with Section 2.12.
------------
(b) The Term B Loan made by each Lender shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit C (a "Term
--------- ----
B Note"), with appropriate insertions therein as to payee, date and principal
- ------
amount, payable to the order of such Lender and in a principal amount equal to
the Term B Loan of such Lender. Each Lender is hereby authorized to record the
date, Type and amount of the Term B Loan made by such Lender, the date and
amount of each payment or prepayment of principal of its Term B Loan, each
continuation thereof, each conversion of all or a portion thereof to another
Type and, in the case of Eurodollar Loans, the length of each Interest Period
with respect thereto, on the schedule annexed to and constituting a part of its
Term B Note, and any such recordation shall constitute prima facie evidence of
----- -----
the accuracy of the information so recorded absent manifest error. The Term B
Note of each Lender (i) shall be dated the Closing Date, (ii) shall be payable
on the last day of each January, April, July and October commencing on April 30,
1998, each of which payments shall be in an amount equal to such Lender's Term B
Loan Commitment Percentage of the amount set forth below opposite each such
date,
<TABLE>
<CAPTION>
Date Amount
- ---- ------
<S> <C>
April 30, 1998 $ 187,500
July 31, 1998 187,500
October 31, 1998 187,500
January 31, 1999 187,500
April 30, 1999 187,500
July 31, 1999 187,500
October 31, 1999 187,500
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
January 31, 2000 187,500
April 30, 2000 187,500
July 31, 2000 187,500
October 31, 2000 187,500
January 31, 2001 187,500
April 30, 2001 187,500
July 31, 2001 187,500
October 31, 2001 187,500
January 31, 2002 187,500
April 30, 2002 187,500
July 31, 2002 187,500
October 31, 2002 187,500
January 31, 2003 187,500
April 30, 2003 187,500
July 31, 2003 187,500
October 31, 2003 187,500
January 31, 2004 187,500
April 30, 2004 187,500
July 31, 2004 70,312,500
</TABLE>
and (iii) shall provide for the payment of interest in accordance with Section
-------
2.12.
- ----
2.8 Procedures for Term A Loan and Term B Loan Borrowing.
----------------------------------------------------
(a) The Borrower shall give the Administrative Agent a Notice of
Borrowing (which notice must be received by the Administrative Agent prior to
10:00 a.m., New York City time, one Business Day prior to the Borrowing Date)
requesting that, on the Closing Date, the Lenders make the Term B Loans and, to
the extent the Term B Loan Commitment is fully utilized, Term A Loans in an
amount not to exceed $33,000,000 on the Closing Date (which Loans must be
Alternate Base Rate Loans) and specifying the amount to be borrowed. Upon
receipt of such notice, the Administrative Agent shall promptly notify each
Lender thereof. Not later than 11:00 a.m., New York City time, on the Closing
Date, each Lender shall make available to the Administrative Agent, at the
Administrative Agent's office specified in Section 9.2, the amount of such
-----------
Lender's pro rata share of the Term B Loans and Term A Loans, if any, in
immediately available funds. The Administrative Agent shall on such date make
available, in the manner specified by the Borrower in Notice of Borrowing, the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent. It is
understood that Term B Loans shall be made in only one drawing on the Closing
Date and that Term A Loans may not be made unless and until all the Term B Loans
have previously been or are concurrently being drawn.
(b) The Borrower may borrow under the Term A Loan Commitment during
the Term A Loan Commitment Period on any Business Day; provided that the
--------
Borrower shall give the
-41-
<PAGE>
Administrative Agent a Notice of Borrowing (which notice must be received by the
Administrative Agent prior to 11:00 a.m., New York City time, not less than (a)
three Business Days prior to the requested Borrowing Date if all or any part of
the Term A Loans are to be Eurodollar Loans or (b) one Business Day prior to the
requested Borrowing Date, otherwise) specifying (i) the amount to be borrowed,
(ii) the requested Borrowing Date, (iii) whether the borrowing is to be of
Eurodollar Loans, Alternate Base Rate Loans or a combination thereof and (iv) if
the borrowing is to be entirely or partly of Eurodollar Loans, the amount of
such Type of Loan and the length of the initial Interest Periods therefor. Each
borrowing under the Term A Loan Commitment shall be in an amount equal to
$1,000,000 or a whole multiple of $100,000 in excess thereof. Not later than
12:30 p.m., New York City time, on the Borrowing Date requested by the Borrower,
each Lender that has undrawn amounts under its Term A Loan Commitment shall make
the amount of its pro rata share of the Term A Loans available to the
Administrative Agent at the office of the Administrative Agent specified in
Section 9.2 in immediately available funds. Such borrowing will then be made
- -----------
available to the Borrower by the Administrative Agent in the manner specified by
the Borrower in such Notice of Borrowing in the aggregate of the amounts made
available to the Administrative Agent by the Lender and in like funds as
received by the Administrative Agent. The Term A Loan Commitment shall be
reduced to zero on the Term A Loan Commitment Termination Date.
2.9 Optional and Mandatory Prepayments. (a) Subject to Section
---------------------------------- -------
2.19, the Borrower may, at any time and from time to time prepay the Loans, in
whole or in part, without premium or penalty, upon at least five Business Days'
irrevocable written notice to the Administrative Agent, specifying the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans,
Alternate Base Rate Loans or a combination thereof, and, if of a combination
thereof, the amount allocable to each. Upon receipt of any such notice, the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with any amounts payable pursuant to
Section 2.19, accrued interest to such date on the amount prepaid and any
- ------------
outstanding fees and expenses then due and owing. Partial prepayments of the
Revolving Credit Loans shall be applied to the Revolving Credit Loans but shall
not reduce the Revolving Credit Commitments unless the Borrower so specifies in
its written notice to the Administrative Agent in which case the Revolving
Credit Commitments shall be reduced in the manner set forth in Section 2.5(a).
--------------
Partial prepayments of the Term Loans shall be applied first, pro rata, to all
-----
scheduled installments of principal of the Term A Loans and the Term B Loans in
the inverse order of their scheduled maturities and second, if the Term A Loans
------
and Term B Loans shall have been repaid in full, to the Revolving Credit Loans
(with a concomitant pro rata reduction in the scheduled reductions of the
Revolving Credit Commitments); provided that any optional prepayment of the
--------
Revolving Credit Loans shall not reduce the Revolving Credit Commitments unless
the Borrower so specifies in its written notice to the Administrative Agent.
Amounts prepaid on account of the Term A Loans and the Term B Loans or to reduce
the Revolving Credit Commitments may not be reborrowed. Partial prepayments
shall be in an aggregate principal amount of $1,000,000 or a whole multiple of
$100,000 in excess thereof.
-42-
<PAGE>
(b) With respect to any fiscal year of the Borrower, commencing with
the fiscal year ending July 31, 1999, not later than 120 days after the end of
each fiscal year, the Borrower shall prepay an amount equal to 50% of the Excess
Cash Flow for such fiscal year which prepayment shall be applied first, pro
-----
rata, to all scheduled installments of principal of the Term A Loans and the
Term B Loans and second, if the Term A Loans and Term B Loans have been repaid
------
in full, to the Revolving Credit Loans (with a concomitant pro rata reduction in
the scheduled reductions of the Revolving Credit Commitments). Each prepayment
of the Loans pursuant to this Section 2.9(b) shall be accompanied by payment in
--------------
full of all accrued interest thereon, to and including the date of such
prepayment, together with any additional amounts owing pursuant to Section 2.19
------------
and any outstanding fees and expenses due and owing.
(c) If, in any fiscal year, the Borrower receives any Net Disposition
Proceeds in excess of $2,000,000 in the aggregate, the Borrower shall, within
three Business Days, deliver such excess to the Administrative Agent (together
with a certificate in reasonable detail setting forth the calculation of such
Net Disposition Proceeds) for application in the manner set forth in the next
sentence. Any Net Disposition Proceeds shall be applied first, pro rata to all
----- --- ----
scheduled installments of principal of the Term A Loans and Term B Loans, and
second, if the Term A Loans and Term B Loans have been repaid in full to the
- ------
Revolving Credit Loans (with a concomitant pro rata reduction in the scheduled
reductions of the Revolving Credit Commitments).
(d) The Borrower shall deliver to the Administrative Agent any Net
Insurance Proceeds within three Business Days of the receipt thereof for
application in the manner set forth in the next sentence; provided that the
--------
Borrower, by written notice to the Administrative Agent delivered within such
three Business Day period (together with a certificate in reasonable detail
setting forth the calculation of such Net Insurance Proceeds), may elect to
defer applying such Proceeds in such manner if and only if (i) concurrent with
such notice, such deferred proceeds are applied to repay the Revolving Credit
Loans (with a concomitant temporary reduction in the Revolving Credit
Commitments), and (ii) within 180 days after receipt by the Administrative Agent
of such deferred proceeds, the Borrower, subject to Section 2.5 and Section 2.9
----------- -----------
(a), (b), (c), and (e), shall obtain Revolving Credit Loans for purposes of
- --- --- --- ---
acquiring replacement Post Production Assets, (it being understood that (A) upon
expiration of such 180 day period, any portion of such deferred proceeds that
has not been utilized by the Borrower as a Revolving Credit Loan to acquire
replacement Post Production Assets shall be applied in accordance with the next
succeeding sentence, (B) subject to Section 2.5 and Section 2.9 (a), (b), (c),
----------- ----------- --- --- ---
and (e), (1) the Revolving Credit Commitments, upon each disbursement of such
---
deferred proceeds as a Revolving Credit Loan for purposes of acquiring
replacement Post Production Assets, shall be restored by the amount of such
disbursement and (2) upon application of such proceeds in accordance with the
next succeeding sentence and subject to the limitations set forth therein, to
the extent not previously done, the Revolving Credit Commitments shall be
restored and (C) if any Default shall occur during such 180 day period, the
Administrative Agent may, in its discretion, and shall, if directed by the
Required Lenders, apply such deferred proceeds as a mandatory prepayment in
accordance with the next sentence and the Borrower shall be deemed to have
requested Revolving Credit Loans in an amount equal to such deferred proceeds
(as such amount
-43-
<PAGE>
may have been reduced hereunder) and, in the case of any mandatory prepayment,
such Revolving Credit Loans shall be made regardless of the failure of the
Borrower to satisfy the conditions set forth in Section 4.2). Any Net
-----------
Insurance Proceeds shall be applied as follows: first, pro rata to scheduled
-----
installments of principal of Term A Loans and Term B Loans in inverse order of
maturity and second, if the Term A Loans and Term B Loans have been repaid in
------
full, to the Revolving Credit Loans (with a concomitant reduction in the
scheduled reductions of the Revolving Credit Commitments in inverse order of
maturity).
(e) Subject to Section 2.19, the Borrower shall concurrently with the
------------
receipt of any Net Securities Proceeds, pay to the Administrative Agent an
amount equal to such Net Securities Proceeds; provided, that so long as no Event
--------
of Default shall have occurred which is continuing (i) with respect to any
issuance of up to $15,000,000 of Permitted Preferred Stock on or prior to July
31, 1998, the Borrower shall apply the Net Securities Proceeds from such
issuance to prepay its indebtedness for borrowed money (other than, if the
Borrower so elects, the Loans) and (ii) with respect to any issuance after July
31, 1998, the Borrower shall apply the lesser of (x) 50% of any Net Securities
Proceeds and (y) any portion of such Net Securities Proceeds that remains after
the Borrower prepays an amount of the Loans such that, after giving effect to
such payments, the Leverage Ratio shall not exceed 3.50 to 1.00. So long as no
Event of Default shall have occurred which is continuing, any prepayment of Net
Securities Proceeds may be applied at the election of the Borrower to repay
Revolving Credit Loans (without a concomitant reduction in the Revolving Credit
Commitments), to repay Term A Loans and Term B Loans (in each case, pro rata to
all scheduled installments of principal) or to repay Revolving Credit Loans
(with a pro rata concomitant reduction in the scheduled reductions of the
Revolving Credit Commitments). If an Event of Default shall have occurred and
be continuing, all Net Securities Proceeds shall be applied as determined by the
Administrative Agent (or as directed by the Lenders).
(f) If, after giving effect to any reduction of the Revolving Credit
Commitments required under Section 2.5, (i) the sum of (x) the outstanding
-----------
aggregate principal amount of the Revolving Credit Loans, (y) the aggregate
Stated Amount of the Letters of Credit then outstanding and (z) any amounts
drawn under any Letters of Credit (including interest thereon computed in
accordance with Section 2.21(d)) for which the Issuer has not been reimbursed
---------------
exceeds (ii) the aggregate amount of the Revolving Credit Commitments (as so
reduced), on the date of such reduction, the Borrower shall prepay an aggregate
principal amount of the Revolving Credit Loans, and deliver cash collateral for
the Stated Amount of the Letter of Credit outstanding and any amount drawn under
the Letter of Credit for which the Issuer has not been reimbursed, in an
aggregate amount equal to such excess.
(g) Each prepayment of Term A Loans, Term B Loans and Revolving Credit
Loans pursuant to this Section 2.9 shall be accompanied by payment in full of
-----------
all accrued interest thereon, to and including the date of such prepayment,
together with any additional amounts owing pursuant to Section 2.19 and any
------------
outstanding fees and expenses then due and owing.
2.10 Conversion and Continuation Options. (a) The Borrower may
-----------------------------------
elect from time to time to convert Eurodollar Loans to Alternate Base Rate Loans
by giving the
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Administrative Agent prior irrevocable notice of such election substantially in
the form of Exhibit D-2 (a "Notice of Conversion") (which notice must be
----------- --------------------
received by the Administrative Agent by at least 10:00 a.m., New York City time,
two Business Days prior to such election); provided that any such conversion
--------
of Eurodollar Loans may be made only on the last day of an Interest Period with
respect thereto. The Borrower may elect from time to time to convert Alternate
Base Rate Loans to Eurodollar Loans by giving the Administrative Agent prior
irrevocable notice of such election (which notice must be received by the
Administrative Agent by at least 10:00 a.m., New York City time, three Business
Days prior to such election). Any such notice of conversion to Eurodollar Loans
shall specify the length of the initial Interest Period or Interest Periods
therefor. Upon receipt of any such notice, the Administrative Agent shall
promptly notify each Lender thereof. All or any part of the outstanding
Eurodollar Loans and Alternate Base Rate Loans may be converted as provided
herein; provided that (i) no Loan may be converted into a Eurodollar Loan when
--------
any Default has occurred and is continuing and (ii) no Loan may be converted
into a Eurodollar Loan after the date that is one month prior to the Revolving
Credit Commitment Termination Date (in the case of conversions of Revolving
Credit Loans), the date of the final installment of principal of the Term A
Loans or the date of payment of principal of the Term B Loans, as the case may
be.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Administrative Agent, in accordance with the applicable provisions
of the term "Interest Period" set forth in Section 1.1 of the length of the next
-----------
Interest Period to be applicable to such Loans; provided that no Eurodollar Loan
--------
may be continued as such (i) when any Default has occurred and is continuing or
(ii) after the date that is one month prior to the Revolving Credit Commitment
Termination Date (in the case of continuations of Revolving Credit Loans), the
date of the final installment of principal of the Term A Loans or the date of
payment of principal of the Term B Loans, as the case may be, and provided,
--------
further, that if the Borrower shall fail to give any required notice as
- -------
described above in this paragraph, or, if such continuation is not permitted
pursuant to the preceding proviso, such Loans shall be automatically converted
to Alternate Base Rate Loans on the last day of such then expiring Interest
Period. The Administrative Agent agrees to notify the Lenders of any notice of
continuation referred to herein received by the Administrative Agent.
2.11 Maximum Amounts of Tranches. All borrowings, conversions
---------------------------
and continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and shall be made pursuant to such elections
so that, after giving effect thereto, the aggregate principal amount of the
Loans comprising each Tranche shall be equal to $1,000,000 or a whole multiple
of $100,000 in excess thereof. There shall never be more than six Tranches at
any one time outstanding.
2.12 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for the
first day of such Interest Period (subject to daily
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<PAGE>
adjustments, if any, required by changes in the Eurocurrency Reserve
Requirements) plus the Applicable Margin.
(b) Each Alternate Base Rate Loan shall bear interest at a rate per
annum equal to the Alternate Base Rate plus the Applicable Margin.
(c) In the event an Event of Default has occurred and is continuing,
the Loans shall bear interest at a rate per annum equal to the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section (assuming that, for purposes of calculating such rate, the Leverage
Ratio shall be deemed to be in excess of 4.0 to 1.0) plus 2% from the date of
occurrence of such Event of Default until the date such Event of Default is
cured or waived (after as well as before judgment). In addition, should any
interest on such Loans or any commitment fee or other amount (other than
principal) payable hereunder not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
(to the extent permitted by law in the case of interest on interest) at a rate
per annum which is the rate described in Section 2.12(b) plus 2%, in each case,
---------------
from the date of such non-payment until such amount is paid in full (after as
well as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date; provided that interest accruing pursuant to Section 2.12(c) shall be
-------- ---------------
payable from time to time on demand.
2.13 Computation of Interest and Fees. (a) Commitment fees and
--------------------------------
Alternate Base Rate interest shall be calculated on the basis of a 365/366 day
year and Eurodollar Rate interest shall be calculated on the basis of a 360-day
year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the Alternate Base Rate or the Eurocurrency Reserve Requirements shall
become effective as of the opening of business on the day on which such change
becomes effective. The Administrative Agent shall as soon as practicable notify
the Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent, at the request of the Borrower, shall deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.12(a).
---------------
2.14 Inability to Determine Interest Rate. If prior to the first
------------------------------------
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by reason
of circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such Interest Period, or
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<PAGE>
(b) the Administrative Agent shall have received notice from the
Required Lenders that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to such
Lenders (as conclusively certified by such Lenders) of making or maintaining
their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given, (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Alternate Base Rate Loans, (y) any Loans that
were to have been converted on the first day of such Interest Period to
Eurodollar Loans shall be continued as Alternate Base Rate Loans and (z) any
outstanding Eurodollar Loans shall be converted, on the first day of such
Interest Period, to Alternate Base Rate Loans. Until such notice has been
withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made
or continued as such, nor shall the Borrower have the right to convert Alternate
Base Rate Loans to Eurodollar Loans.
2.15 Pro Rata Treatment and Payments; Funding Reliance. (a) Each
-------------------------------------------------
borrowing by the Borrower from the Lenders hereunder, each payment by the
Borrower on account of any commitment fee hereunder and any reduction of the
Revolving Credit Commitments or the Term A Loan Commitments of the Lenders shall
be made pro rata according to the respective Revolving Credit Commitments, Term
--- ----
A Loan Commitments or Term Loan B Commitments of the Lenders. Each payment
(including each prepayment) by the Borrower on account of principal of and
interest on the Loans or any Letter of Credit shall (except as may be required
as a result of Section 2.16) be made pro rata according to the respective
------------
Revolving Credit Commitment Percentages, Term Loan A Commitment Percentages or
Term Loan B Commitments Percentages, as applicable. All payments (including
prepayments) to be made by the Borrower hereunder and under the Notes, whether
on account of principal, interest, fees or otherwise, or on account of any
Letter of Credit, shall be made without setoff or counterclaim and shall be made
prior to 12:00 noon, New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the Administrative
Agent's office specified in Section 9.2, in Dollars and in immediately available
-----------
funds. The Administrative Agent shall distribute such payments to the Lenders
promptly upon receipt in like funds as received. If any payment hereunder
(other than payments on the Eurodollar Loans) becomes due and payable on a day
other than a Business Day, such payment shall be extended to the next succeeding
Business Day, and, with respect to payments of principal and interest thereon,
shall be payable at the then applicable rate during such extension. If any
payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day (and, with respect to payments of principal and interest thereon,
shall be payable at the then applicable rate during such extension) unless the
result of such extension would be to extend such payment into another calendar
month, in which event such payment shall be made on the immediately preceding
Business Day.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make
available to the Administrative Agent
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<PAGE>
the amount that would constitute its applicable Commitment Percentage of such
borrowing, the Administrative Agent may assume that such Lender is making such
amount available to the Administrative Agent, and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower a corresponding
amount. If such amount is not made available to the Administrative Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Rate for the period until such Lender
makes such amount immediately available to the Administrative Agent. A
certificate of the Administrative Agent submitted to any Lender with respect to
any amounts owing under this Section shall be conclusive in the absence of
manifest error. If such Lender's applicable Commitment Percentage of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to Alternate Base Rate Loans hereunder, on demand, from the
Borrower.
2.16 Illegality. Notwithstanding any other provision herein, if
----------
the adoption of or any change in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Alternate Base Rate Loans to Eurodollar Loans shall forthwith be
canceled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if
any, shall be converted automatically to Alternate Base Rate Loans on the
respective last days of the then current Interest Periods with respect to such
Loans or within such earlier period as required by law. If any such conversion
of a Eurodollar Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, the Borrower shall pay to such
Lender such amounts, if any, as may be required pursuant to Section 2.19.
------------
2.17 Requirements of Law. (a) If the adoption of or any change
-------------------
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note or any Eurodollar Loan made by it,
or change the basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes covered by Section 2.18 and changes
------------
in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
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<PAGE>
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower, shall
promptly pay such Lender, upon its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount receivable. If
any Lender becomes entitled to claim any additional amounts pursuant to this
Section, it shall promptly notify the Borrower, through the Administrative
Agent, of the event by reason of which it has become so entitled. A certificate
as to any additional amounts payable pursuant to this Section submitted by such
Lender, through the Administrative Agent, to the Borrower shall be conclusive in
the absence of manifest error. This covenant shall survive the termination of
this Agreement and the payment of the Obligations hereunder.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof has or shall have the effect of
reducing the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such change or compliance
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, after submission by such Lender to the Borrower (with a
copy to the Administrative Agent) of a written request therefor, the Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction. This covenant shall survive the termination of
this Agreement and the payment of the Obligations hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
-----
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent or any Lender
as a result of a present or former connection between the Administrative Agent
or such Lender and the jurisdiction of the Governmental Authority imposing such
tax or any political subdivision or taxing authority thereof or therein (other
than any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or the Notes). If any such non-
excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
------------------
payable to the Administrative Agent or any Lender hereunder or under the Notes,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all
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<PAGE>
Non-Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement and the Notes; provided
--------
that the Borrower shall not be required to increase any such amounts payable to
any Lender that is not organized under the laws of the United States of America
or a state thereof if such Lender fails to comply with the requirements of
paragraph (b) of this Section. Whenever any Non-Excluded Taxes are payable by
the Borrower, as promptly as possible thereafter, the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or fails to remit to
the Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure. The
covenants in this Section shall survive the termination of this Agreement and
the payment of the Notes and payment of the Obligations hereunder.
(b) Each Lender shall:
(i) deliver to the Borrower and the Administrative Agent (A) in
the case of a Lender that is not organized under the laws of the United
States or any State thereof, either (x) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or successor applicable
form, as the case may be, or, (y) if such Lender is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and intends to claim exemption
from U.S. Federal withholding tax under Section 871(h) or Section 881(c) of
the Code with respect to payments of "portfolio interest", a Form W-8, or
any subsequent versions thereof or successors thereto together with a
certificate executed by such Lender representing that (1) such Lender is
not a bank for purposes of Section 881(c) of the Code, is not a 10 percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Borrower and is not a controlled foreign corporation related to the
Borrower (within the meaning of Section 864(d)(4) of the Code), claiming
complete exemption from U.S. Federal withholding tax on payments of
interest by the Borrower under this Agreement and the other Loan Documents
and (2) that the Lender has received in replacement of any Note held by or
assigned to it, a QFL Note in accordance with this Section 2.18, and (B) in
------------
the case of any other Lender, an Internal Revenue Service Form W-8 or W-9,
as applicable, or successor applicable form, as the case may be;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the Borrower
or the Administrative Agent;
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<PAGE>
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Lender or a
Participant pursuant to Section 9.6 shall, upon the effectiveness of the related
-----------
transfer, be required to provide all the forms and statements required pursuant
to this Section; provided that, in the case of a Participant, such Participant
--------
shall furnish all such required forms and statements to the Lender from which
the related participation shall have been purchased.
(c) Any Lender that is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code and satisfies the requirements of Section
-------
2.18(b)(i)(A)(y), (a "Qualified Foreign Lender") shall upon receipt of the
- ----------------
written request of the Administrative Agent or the Borrower and may, upon its
own written request to the Administrative Agent, exchange any Note held by or
assigned to it for a qualified foreign lender Note ( a "QFL Note"). A QFL Note
shall be in the form of the Revolving Credit Note, Term A Loan Note or Term B
Note, as applicable, but shall contain the following legend,"This Note is a QFL
Note, and as such, ownership of the obligation represented by such QFL Note may
be transferred only in accordance with Section 2.18 of the Credit Agreement."
Any QFL Note issued in replacement of any existing Note pursuant to this Section
shall be (i) dated the Closing Date, (ii) issued in the name of the entity in
whose name such existing Note was issued and (iii) issued in the same principal
amount as such existing Note. Any Note replaced pursuant to this Section is
sometimes referred to herein as a "Replaced Note".
(d) The Borrower agrees that, upon the request of or delivery of a
request to a Qualified Foreign Lender pursuant to paragraph (c) of this Section,
it shall execute and deliver a QFL Note to the Administrative Agent in
replacement of the Replaced Note surrendered in connection with such request
conforming to the requirements of this paragraph. Each Qualified Foreign Lender
shall surrender its Note in connection with any replacement pursuant to this
Section 2.18. Upon receipt by the Administrative Agent, in connection with any
- ------------
replacement, of a QFL Note and the existing Note to be replaced by such QFL Note
in accordance with this paragraph, the Administrative Agent shall forward the
QFL Note to the Lender which has surrendered its Note for replacement by such
QFL Note and shall forward the surrendered Note to the Company marked
"canceled". Once issued, QFL Notes (i) shall be deemed to and shall be "Notes"
for all purposes under the Loan Documents, (ii) may not be exchanged for Notes
which are not QFL Notes, notwithstanding anything to the contrary in the Loan
Documents and (iii) shall at all times thereafter be QFL Notes, including,
without limitation, following any transfer or assignment thereof.
(e) Notwithstanding anything to the contrary in the Loan Documents,
the QFL Notes are registered obligations as to both principal and interest with
the Borrower and transfer of
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<PAGE>
the obligations underlying such QFL Note may be effected only by surrender of
the QFL Note to the Borrower and either reissuance by the Borrower of such QFL
Note to the transferee or issuance by the Borrower of a new QFL Note to the
transferee. A QFL Note shall only evidence the Lender's or an assignee's right,
title and interest in and to the related obligation, and in no event is a QFL
Note to be considered a bearer instrument or obligation. This Section 2.18 shall
------------
be construed so that the obligations underlying the QFL Notes are at all times
maintained in "registered form" within the meaning of Sections 871(h)(2) and
881(c)(3) of the Code.
2.19 Indemnity. The Borrower agrees to indemnify each Lender and
---------
to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in payment when
due of the principal amount of or interest on any Eurodollar Loan, (b) default
by the Borrower in making a borrowing of, conversion into or continuation of
Eurodollar Loans after the Borrower has given a notice requesting the same, (c)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof or (d) the making of a prepayment or conversion of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto including, without limitation, in each case, any such loss or expense
arising from the redeployment of funds obtained by it or from fees payable to
terminate the deposits from which such funds were obtained. This covenant shall
survive the termination of this Agreement and the payment of the Obligations
hereunder.
2.20 Discretion of Lender as to Manner of Funding.
--------------------------------------------
Notwithstanding any other provisions of this Agreement, each Lender shall be
entitled to fund and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood that for the purposes of this Agreement
all determinations hereunder shall be made assuming each Lender had actually
funded and maintained each Eurodollar Loan through the purchase of deposits of
Dollars in the eurocurrency interbank market having a maturity corresponding to
each Loan's Interest Period and bearing an interest rate equal to the Eurodollar
Rate for such Interest Period.
2.21 Letter of Credit. (a) Subject to the terms and conditions
----------------
hereof, and in reliance on the agreements set forth in clauses (c) and (e)
hereof, from time to time, on any Business Day, the Issuer agrees to issue
Letters of Credit for the account of the Borrower in such form as may be
approved from time to time by the Issuer; provided that (i) the sum of the
--------
aggregate face amount of all Letters of Credit outstanding and the aggregate
amount drawn under all Letters of Credit for which the Issuer has not been
reimbursed at any time shall not exceed $5,000,000 and (ii) the sum of the
Revolving Credit Loans, the aggregate face amount of all Letters of Credit
outstanding and the aggregate amount drawn under all Letters of Credit for
which the Issuer has not been reimbursed shall not, at any time, exceed the
Revolving Credit Commitment (as reduced from time to time pursuant to Section
-------
2.5 and Section 2.9).
- --- -----------
(b) Each Letter of Credit (i) shall be opened pursuant to a written
request from the Borrower on the Issuer's then current form of application for
letter of credit which application shall be completed to the satisfaction of the
Issuer and shall be delivered to the Issuer together with such other
certificates, documents and other instruments and information as the Issuer may
reasonably request, (ii) shall be denominated in U.S. dollars, (iii) shall be
governed by the
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Uniform Customs and, to the extent not inconsistent therewith, the laws of the
state of New York and (iv) shall expire on the Expiry Date. The Issuer shall not
at any time be obligated to issue any Letter of Credit if such issuance would
conflict with, or cause the Issuer or any Revolving Credit Lender to exceed any
limits imposed by an applicable Requirement of Laws.
(c) The Issuer agrees to allot and does allot, to itself and each
Revolving Credit Lender and, to induce the Issuer to issue the Letter of Credit,
each Revolving Credit Lender severally and irrevocably agrees to take and does
hereby take for its own account and risk an undivided participating interest in
a percentage equal to such Revolving Credit Lender's Revolving Credit Commitment
Percentage of the Issuer's Obligations.
(d) The Borrower agrees (i) to reimburse the Issuer forthwith upon its
demand for any payment made by the Issuer under a Letter of Credit and (ii) to
pay interest on any unreimbursed portion of any such payment from the date of
such payment until reimbursement in full thereof at a rate per annum equal to
(A) prior to the date which is one Business Day after the day on which
reimbursement from the Borrower for such payment is due, the rate which would
then be payable on any outstanding Alternate Base Rate Loans which are not
overdue and (B) thereafter, the rate which would then be payable on any
outstanding Alternate Base Rate Loans which are overdue. In addition to the
foregoing, the Borrower shall reimburse the Issuer for any taxes, fees, charges
or other costs or expenses incurred by the Issuer in connection with such
payment. All payments hereunder shall be made to the Issuer at its address for
notices specified herein in Dollars in immediately available funds.
(e) (i) In the event that the Issuer makes a payment under a Letter
of Credit and is not reimbursed in full therefor forthwith, upon demand of the
Issuer referred to in Section 2.21(d), the Issuer shall promptly make demand for
---------------
such any amount for which it has not received reimbursement upon each Lender.
Each Revolving Credit Lender unconditionally and irrevocably agrees that
forthwith upon its receipt of any such demand for reimbursement, such Revolving
Credit Lender shall transfer to the Issuer, in immediately available funds, an
amount equal to such Revolving Credit Lender's pro rata share of the
--- ----
unreimbursed portion of such payment; provided that, if such demand is made
--------
prior to 12:00 noon, New York City time, on a Business Day, such Revolving
Credit Lender shall make such payment to the Issuer prior to the end of such
Business Day and otherwise such Revolving Credit Lender shall make such payment
on the next succeeding Business Day. Whenever, at any time after the Issuer has
made a payment under a Letter of Credit and has received from any Revolving
Credit Lender such Revolving Credit Lender's pro rata share of the unreimbursed
--- ----
portion of such payment, the Issuer receives any reimbursement on account of
such unreimbursed portion or any payment of interest on account thereof, the
Issuer shall distribute to such Receiving Credit Lender its pro rata share
--- ----
thereof; provided that in the event that the receipt by the Issuer of such
--------
reimbursement or such payment of interest (as the case may be) is required to be
returned, such Revolving Credit Lender will return to the Issuer any portion
thereof previously distributed by the Issuer to such Revolving Credit Lender.
(ii) Upon the occurrence and during the continuation of any Event of
Default under Section 7.1(e) or Section 7.1(f) or, with notice from the
-------------- --------------
Administrative Agent, upon
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<PAGE>
the occurrence of any other Event of Default that is continuing (x) an amount
equal to the outstanding Letters of Credit shall, without demand upon or notice
to the Borrower, be deemed to have been paid or disbursed by the Issuer upon
such Letters of Credit (notwithstanding that such amount may not in fact have
been paid or disbursed); and (y) without further notice in the case of an Event
of Default under Section 7.1(e) or Section 7.1(f) or, in the case of any other
-------------- --------------
Event of Default that has occurred and is continuing, upon notice by the
Administrative Agent to the Borrower of its Obligations hereunder, the Borrower
shall be immediately obligated to reimburse the Issuer for the amount deemed to
have been paid or disbursed by the Issuer. Any amount so payable by the Borrower
shall be deposited by the Borrower in cash with the Administrative Agent and
held as collateral security for the Obligations in connection with any Letter of
Credit issued by the Issuer. The Borrower hereby grants to the Administrative
Agent, for the benefit of the Issuer and the Revolving Credit Lenders, a
security interest in such cash collateral to secure all Obligations of the
Borrower under this Agreement and the other Loan Documents. Amounts held in such
cash collateral account shall be applied by the Administrative Agent to the
payments of drafts drawn under any Letter of Credit, and the unused portion
thereof after all Letters of Credit shall have expired or been fully drawn upon,
if any, shall be applied to repay other Obligations. After all Letters of Credit
shall have expired or been fully drawn upon, all Reimbursement Obligations shall
have been fully satisfied and all other Obligations shall have been paid in
full, the balance, if any, in such cash collateral account shall be returned to
the Borrower. The Borrower shall execute and deliver to the Administrative
Agent, for the account of the Issuer, such further documents and instruments as
the Administrative Agent may request to evidence the creation and perfection of
the security interest in such cash collateral account.
(f) The Borrower shall pay to the Administrative Agent for the pro
rata account of the Issuer and the Revolving Credit Lenders in respect of each
Letter of Credit a fee in an amount equal to the Applicable Margin then in
effect for Eurodollar Loans (calculated on the basis of the actual number of
days elapsed over a 360-day year) multiplied by the Stated Amount of the Letter
of Credit, such fee to be payable (i) on the date of issuance of such Letter of
Credit (for the period from the date of issuance to the earlier of the Expiry
Date of such Letter of Credit and the immediately succeeding Interest Payment
Date), (ii) thereafter, quarterly in arrears on each Interest Payment Date for
each quarter prior to such Expiry Date.
(g) The Borrower agrees to pay to the Issuer, for its own account,
for services rendered by the Issuer, a fee in the amount and at the times
referred to in the L/C Fee Letter. The Borrower shall also pay or reimburse the
Issuer for such normal and customary costs and expenses as are incurred or
charged by the Issuer on issuing, effecting payment under, amending or otherwise
administering any Letter of Credit.
(h) The Reimbursement Obligations of the Borrower with respect to the
Letter of Credit related thereto shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following: (i) the existence
of any claim, set-off, defense or other right which the Borrower may have at any
time against any beneficiary, or any transferee, of such Letter of Credit (or
any Persons for whom any such beneficiary or any such transferee may be acting),
the
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<PAGE>
Administrative Agent, the Issuer, any Lender or any other Person, whether in
connection with this Agreement or the transactions contemplated herein, or any
unrelated transaction; (ii) any statement or any other document presented under
such Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect; (iii) payment by the Issuer under such Letter of Credit against
presentation of a draft or certificate which does not comply with the terms of
such Letter of Credit or any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing (provided, that such payment by
--------
the Issuer or such circumstance or happening does not constitute gross
negligence or willful misconduct of the Issuer).
(i) To the extent that any provisions of any application for the
opening of a Letter of Credit is inconsistent with the provisions of this
Section 2.21, the provisions in this Section shall apply.
- ------------
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent, each Agent, the Issuer and the
Lenders to enter into this Agreement, the Issuer to issue the Letter of Credit
and the Lenders to make the Loans, the Borrower hereby represents and warrants
to the Administrative Agent, the Syndication Agent, the Documentation Agent, the
Issuer and each Lender that:
3.1 Financial Condition. (a) The consolidated balance sheets of the
-------------------
Borrower as of July 31, 1994, July 30, 1995, August 3, 1996 and August 3, 1997
and the related statements of operations, stockholders equity and cash flows for
the fiscal year ended on such date, reported on by Coopers & Lybrand L.L.P.
copies of which have heretofore been furnished to each Lender, are complete and
correct in all material respects and present fairly the financial condition of
the Borrower and its Subsidiaries as at such date, and the results of its
operations and its stockholders equity and cash flows for each of the fiscal
years then ended. The unaudited consolidated balance sheet of the Borrower and
its Subsidiaries as at October 31, 1997 and the related unaudited statements of
operations, stockholders equity and cash flows for the three-month period ended
on such date, certified by a Responsible Officer of the Borrower, copies of
which have heretofore been furnished to each Lender, are complete and correct in
all material respects and present fairly the financial condition of the Borrower
and its Subsidiaries as at such date, and the results of its operations and its
stockholders equity and cash flows for the three-month period then ended
(subject to normal year-end audit adjustments). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants or Responsible Officer, as the case may
be, and as disclosed therein).
(b) The balance sheets of Four Media Asia as of August 3, 1996 and
August 3, 1997 and the related statements of operations, stockholders equity and
cash flows for the fiscal year ended on such date, reported on by Coopers &
Lybrand L.L.P. copies of which have heretofore been furnished to each Lender,
are complete and correct in all material respects and present fairly the
financial condition of Four Media Asia as at such date, and the results of its
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<PAGE>
operations and its stockholders equity and cash flows for each of the fiscal
years then ended. The unaudited balance sheet of Four Media Asia as at October
31, 1997 and the related unaudited statements of operations, stockholders equity
and cash flows for the three-month period ended on such date, certified by a
Responsible Officer of the Borrower, copies of which have heretofore been
furnished to each Lender, are complete and correct in all material respects and
present fairly the financial condition of Four Media Asia as at such date, and
the results of its operations and its stockholders equity and cash flows for the
three-month period then ended (subject to normal year-end audit adjustments).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein).
(c) The POP financial statements referred to in Section 10.7 of the
Stock Purchase Agreement, copies of which have heretofore been provided to each
Lender, present fairly the financial condition of the business, operations and
assets of POP and Animation as at the respective dates thereof and the results
of operations, cash flows and stockholders' equity for the fiscal periods then
ended.
(d) The pro forma balance sheet of the Borrower (the "Pro Forma
--- ----- ---------
Balance Sheet") is the balance sheet of the Borrower as at the Closing Date
- -------------
adjusted to give effect (as if such events had occurred on the Closing Date) (i)
to the Acquisition, (ii) to the repayment of the Borrower's existing
Indebtedness that is to be repaid on the Closing Date and (iii) to the Loans
expected to be made by the Lenders on the Closing Date. The Pro Forma Balance
Sheet, together with the notes thereto, presents fairly on a pro forma basis the
--- -----
financial position of the Borrower as at the Closing Date assuming that the
events and the assumptions specified in the preceding sentence had actually
occurred on such date.
(e) Except as set forth in Schedule 3.1(e), neither the Borrower nor
---------------
any of its Subsidiaries has, at the date of the Pro Forma Balance Sheet referred
to above, any material Guarantee Obligation, contingent liability or liability
for taxes, or any long-term lease or unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the foregoing statements or in
the notes thereto. Except as set forth in Schedule 3.1(e), during the period
---------------
from August 3, 1997 to and including the date hereof there has been no sale,
transfer or other disposition by the Borrower of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material in relation
to the financial condition of the Borrower at such date.
(f) All balance sheets, all statements of operations and stockholders
equity and of cash flows and all other financial information which shall
hereafter be furnished by or on behalf of the Borrower to the Administrative
Agent or any Lender for the purposes of, or in connection with, this Agreement
or any transaction contemplated hereby have been or will be prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as disclosed therein) and do or will present fairly (subject to normal
year-end adjustment in the case of
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<PAGE>
financial statements for any fiscal quarter) the financial condition of the
Borrower as at the dates thereof and the results of their operations and their
stockholders equity and cash flows for the periods then ended.
(g) The seven-year business forecast of the Borrower and its
Subsidiaries calculated for the period commencing August 1997 to and including
July 2004, prepared by a Responsible Officer of the Borrower (and presented on a
consolidated and segment by segment basis) all as set forth in Schedule 3.1(g)
---------------
have been prepared in good faith and utilizing reasonable assumptions. The
Borrower has no reason to believe such business forecast and projections are
materially incorrect or misleading in any material respect.
3.2 No Change. Except as set forth in Schedule 3.2, since August 3,
--------- ------------
1997 (a) there has been no development or event which has had or could
reasonably be expected to have a Material Adverse Effect and (b) no dividends or
other distributions have been declared, paid or made upon the Capital Stock of
the Borrower nor has any of the Capital Stock of the Borrower been redeemed,
retired, purchased or otherwise acquired for value by the Borrower.
3.3 Corporate Existence; Compliance with Law. Each of the Borrower
----------------------------------------
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification except to the extent that the failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect and (d) is in compliance with all Requirements of Law (other than
any Requirements of Law relating to environmental matters which are the subject
of and addressed by the representations and warranties set forth in Section
-------
3.16) except to the extent that the failure to comply therewith could not
reasonably be expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. Each of
-------------------------------------------------------
the Borrower and its Subsidiaries has the corporate power and authority, and the
legal right, to make, deliver and perform the Loan Documents to which it is a
party and to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. The Borrower has appropriate power and
authority to borrow hereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions set forth in this Agreement
and in the Notes. Except as set forth in Schedule 3.4, no consent or
------------
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of the Loan Documents to which the Borrower or any Subsidiary is
a party other than any of the foregoing that, if not obtained, could not
reasonably be expected to have a Material Adverse Effect. On the Closing Date,
each Lender and the Administrative Agent shall have received complete and
current copies of all consents, authorizations and filings listed on Schedule
--------
3.4. This Agreement has been, and each other Loan Document to which it is a
- ---
party will be, duly
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<PAGE>
executed and delivered on behalf of the Borrower and each Subsidiary. This
Agreement constitutes, and each other Loan Document to which the Borrower or any
Subsidiary, as the case may be, is a party when executed and delivered will
constitute, a legal, valid and binding obligation of the Borrower or such
Subsidiary, as the case may be, enforceable against the Borrower or such
Subsidiary, as the case may be, in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of the
------------
Loan Documents to which the Borrower or any Subsidiary is a party, the
borrowings by the Borrower hereunder and the use of the proceeds thereof will
not violate any Requirement of Law or Contractual Obligation of the Borrower or
any Subsidiary, will not accelerate or result in the acceleration of any payment
obligations of the Borrower and will not result in, or require, the creation or
imposition of any Lien on any of the respective properties or revenues of the
Borrower or any Subsidiary pursuant to any such Requirement of Law or
Contractual Obligation other than as contemplated by the Security Documents.
3.6 No Material Litigation. Except as set forth in Schedule 3.6, no
---------------------- ------------
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower or any
Subsidiary, threatened by or against the Borrower or any Subsidiary or against
any of the respective properties or revenues of the Borrower or any Subsidiary
(a) with respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably be expected to
have a Material Adverse Effect.
3.7 No Default. Neither the Borrower nor any Subsidiary is in
----------
default under, or with respect to, any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Except as set forth in Schedule
---------------------------- --------
3.8, each of the Borrower and its Subsidiaries has good record and marketable
- ---
title in fee simple to, or a valid leasehold interest in, all its real property,
and good title to, or a valid leasehold interest in, all its other property.
None of such property is subject to any Lien except as permitted by Section 6.3.
-----------
3.9 Intellectual Property. Each of the Borrower and its Subsidiaries
---------------------
owns, or is licensed to use, all trademarks, tradenames, copyrights, technology,
know-how, processes, logos and insignia necessary for the conduct of its
business as currently conducted except for those which the failure to own or
license could not reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). No claim has been asserted and is pending by any
---------------------
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does either
the Borrower or any such Subsidiary know of any valid basis for any such claim.
The use of such Intellectual Property by the Borrower and its Subsidiaries does
not infringe on the rights of any Person, except for such claims and
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<PAGE>
infringements that, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.10 No Burdensome Restrictions. No Requirement of Law or
--------------------------
Contractual Obligation of the Borrower or any Subsidiary could reasonably be
expected to have a Material Adverse Effect.
3.11 Taxes. Each of the Borrower and its Subsidiaries has filed
-----
or caused to be filed all tax returns which, to the knowledge of the Borrower
and its Subsidiaries, are required to be filed and has paid all taxes shown to
be due and payable on said returns or on any assessments made against it or any
of its property and all other taxes, fees or other charges imposed on it or any
of its property by any Governmental Authority (other than any tax, fee or other
charge the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Borrower or such
Subsidiary, as the case may be); and, except as set forth in Schedule 3.11, no
-------------
tax Lien has been filed, and, to the knowledge of the Borrower no claim is being
asserted, with respect to any such tax, fee or other charge.
3.12 Federal Regulations. No part of the proceeds of any Loans
-------------------
and no part of the Letter of Credit will be used for "purchasing" or "carrying"
any "margin stock" within the respective meanings of each of the quoted terms
under Regulation U of the Board of Governors of the Federal Reserve System as
now and from time to time hereafter in effect or for any purpose which violates
the provisions of the Regulations of such Board of Governors. If requested by
any Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U.
3.13 ERISA. Neither the Borrower nor any Subsidiary maintains or
-----
contributes to any Plan other than those listed on Schedule 3.13. Except as
-------------
disclosed in Schedule 3.13, neither the Borrower nor any Subsidiary maintains,
-------------
contributes to or has any material obligation with respect to, any welfare plan
(as defined in Section(3)(1) of ERISA) which provides benefits to employees
after termination of employment other than as required by Part 6 of Title I of
ERISA or similar state laws regarding continuation of benefits. Except as
disclosed on Schedule 3.13, each Plan has complied and is in compliance in all
-------------
material respects with the applicable provisions of ERISA and the Code. Neither
the Borrower nor any Subsidiary has breached any of the responsibilities,
obligations or duties imposed on it by ERISA, the Code, or regulations
promulgated thereunder with respect to any Plan, which breach could have a
Material Adverse Effect. Neither the Borrower, nor any Subsidiary nor any
fiduciary of any Plan who is an officer or an employee of the Borrower or any
Subsidiary has engaged in a nonexempt prohibited transaction described in
Section 406 of ERISA or 4975 of the Code with respect to a Plan which could have
a Material Adverse Effect. With respect to any employee benefit plan (as
defined in Section 3(3) of ERISA) currently or formerly maintained or
contributed to by any Commonly Controlled Entity, no liability exists and no
event has occurred which could subject Borrower or any Subsidiary to any
liability. Except as disclosed on Schedule 3.13, neither the Borrower nor
-------------
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<PAGE>
any Subsidiary has maintained, contributed to, or had an obligation to
contribute to any Multiemployer Plan or any Single Employer Plan, at any time
during the six years prior to the date on which this representation is made or
deemed made. Except as disclosed on Schedule 3.13, neither the Borrower nor
-------------
any Subsidiary has any material obligation to make any payment to any employee
pursuant to any existing employment contract or arrangement. The Borrower has
given to the Administrative Agent copies of all the following: each Single
Employer Plan and related trust agreement (including all amendments to such Plan
and trust) in existence or committed to as of the Effective Date and the most
recent summary plan description, actuarial report, determination letter issued
by the IRS and Form 5500 (including all schedules thereto) filed in respect of
each existing Single Employer Plan; a listing of all the Multiemployer Plans
with the aggregate amount of the most recent annual contributions required to be
made by the Borrower or any Subsidiary to each such Multiemployer Plan, the most
recent information which has been provided to the Borrower or any Subsidiary
regarding withdrawal liability under any Multiemployer Plan and the collective
bargaining agreement pursuant to which such contribution is required to be made.
Except as disclosed in Schedule 3.13, neither the Borrower nor any Subsidiary
-------------
has liability, direct or indirect, contingent or otherwise, under Section 4201
or 4204 or 4212(c) of ERISA. Neither the Borrower nor any Subsidiary has any
outstanding liability in respect of (i) a failure to make a required
contribution or payment to a Multiemployer Plan or (ii) a complete or partial
withdrawal under Section 4203 or 4205 of ERISA from such a plan. If the
Borrower, its Subsidiaries and its Commonly Controlled Entities were to withdraw
from all Multiemployer Plans to which any of them is a party, the aggregate
withdrawal liability would not exceed $50,000 in the aggregate.
3.14 Holding Company; Investment Company Act; Other Regulations.
----------------------------------------------------------
Neither the Borrower nor any Subsidiary is a "holding company", a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. Neither the Borrower nor any Subsidiary is an "investment company" or
a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended. Neither the Borrower nor any
Subsidiary is subject to regulation under any Federal or state statute,
regulation, decree or order which limits its ability to incur Indebtedness or
conditions such ability upon any act, approval or consent of any Governmental
Authority.
3.15 Purpose of Loans. The proceeds of the Revolving Credit
----------------
Loans shall be utilized (a) to finance Capital Expenditures by the Borrower and
its Subsidiaries, (b) to fund working capital for the Borrower and its
Subsidiaries, (c) to fund the Letters of Credit (d) to refinance, on an interim
basis, the Santa Monica Indebtedness, (e) to fund Permitted Acquisitions and (e)
to pay transaction fees and expenses incurred in connection with such Permitted
Acquisitions. The proceeds of the Term A Loans shall be utilized (i) to finance
a portion of the Acquisition, (ii) to fund Permitted Acquisitions completed and
financed on or prior to July 31, 1998 in an amount not to exceed $35,000,000 in
the aggregate, (iii) to pay transaction fees and expenses incurred in connection
with the transactions contemplated under clauses (i) and (ii) above and (iv) to
refinance the Financing Leases set forth in Schedule 1.1 in an amount not to
------------
exceed $13,000,000. The proceeds of the Term B Loans shall be utilized (x) to
repay existing
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Indebtedness and (y) to finance a portion of the Acquisition. The POP Letter of
Credit shall be issued to support financial obligations of the Borrower in
connection with the Acquisition.
3.16 Environmental Matters. Except as set forth on Schedule
--------------------- --------
3.16:
(a) The facilities and properties owned, leased or operated by the
Borrower and its Subsidiaries (the "Properties") do not contain, and have not
----------
previously contained, any materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a violation of, or (ii) could
reasonably be expected to give rise to liability under, any Environmental Law.
(b) The Properties and all operations at the Properties are in
compliance in all material respects with all applicable Environmental Laws, and
there is no contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business operated by the
Borrower and its Subsidiaries (the "Business") which could materially interfere
--------
with the continued operation of any of the Properties or materially impair the
fair saleable value thereof.
(c) Neither the Borrower nor any Subsidiary has received any notice of
violation, alleged violation, non-compliance, liability or potential liability
regarding environmental matters or compliance with Environmental Laws with
regard to any of the Properties or the Business, nor does the Borrower or any
Subsidiary have knowledge or reason to believe that any such notice will be
received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from any of the Properties in violation of, or in a manner or to a
location which could reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could reasonably be expected to give rise
to liability under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be named as
a party with respect to any of the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to any of the Properties or the Business.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from any of the Properties, or arising from or
related to the operations of the Borrower or any Subsidiary in connection with
any of the Properties or otherwise in connection with the Business, in violation
of or in amounts or in a manner that could reasonably give rise to liability
under Environmental Laws.
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3.17 Acquisition. Schedule 3.17 sets forth the terms of the
----------- -------------
Acquisition, including all material steps to be taken in connection therewith
(including the sources and uses of funds) upon completion of the Acquisition.
3.18 Capitalization of Borrower. As of the Closing Date, the
--------------------------
authorized Capital Stock of the Borrower consists of (a) 50,000,000 shares of
Common Stock of which, as of January 31, 1998, 9,552,502 are issued and
outstanding and (b) 5,000,000 shares of Preferred Stock $.01 par value per share
of which, as of the Closing Date, 150,000 shares have been designated as Series
A Convertible Stock, are issued and outstanding. Except for the Permitted
Preferred Stock and as set forth in Schedule 3.18, there are no outstanding
-------------
subscriptions, options, warrants, calls, puts, rights (including preemptive
rights) or any other agreements or commitments of any nature with respect to
such Capital Stock of the Borrower. No Person has or will have any preemptive
rights to subscribe for any additional Capital Stock of the Borrower. All the
Borrower's issued and outstanding Capital Stock has been issued in compliance in
all material respects with all applicable Federal and state securities laws and
regulations.
3.19 Subsidiaries. On the Closing Date, the Borrower's only
------------
Subsidiaries are Digital Magic, Four Media Asia, Four Media Burbank, Anderson
Video, Catalina Transmission, 4MC3 and Meridian Sound and, after giving effect
to the Acquisition, POP, Ten Moons, Santa Monica Financial and POP Animation.
The authorized issued and outstanding Capital Stock of each Subsidiary is set
forth in Schedule 3.19. Except as set forth in Schedule 3.19, all the issued
------------- -------------
and outstanding Capital Stock of each Subsidiary is owned beneficially by the
Borrower and of record by either the Borrower or Four Media Burbank, in each
case, free and clear of all liens, options or rights of others except as
provided in the Pledge Agreements. There are no outstanding subscriptions,
options, warrants, calls, put rights (including preemptive rights) or any other
agreements or commitments of any nature with respect to the Capital Stock of any
Subsidiary. No person has or will have any preemptive rights to subscribe for
any additional Capital Stock of any Subsidiary.
3.20 Labor Matters. Except as set forth in Schedule 3.20,
------------- -------------
neither the Borrower nor any Subsidiary is a party to any collective bargaining
agreements. There are no strikes, lockouts or, except as set forth in Schedule
--------
3.20, other labor disputes pending or, to the Borrower's knowledge, threatened
- ----
against the Borrower or any Subsidiary which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. The hours
worked and payments made to employees of the Borrower and its Subsidiaries have
not been in violation of the Fair Labor Standards Act of 1938, as amended, or
any other applicable Requirement of Law, except to the extent such violations
could not, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect. Except as set forth in Schedule 3.20, all material
-------------
payments due from the Borrower or any Subsidiary, as applicable, on account of
wages and employee health and welfare insurance and other benefits have been
paid or accrued as a liability on the books of the Borrower, or such Subsidiary,
as applicable.
3.21 Insurance. All policies of insurance of any kind or nature
---------
maintained by or issued to the Borrower, including, without limitation, policies
of life, fire, theft, earthquake,
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business interruption, product liability, public liability, property damage,
other casualty, employee fidelity, worker's compensation, employee health and
welfare, title, property and liability insurance, are in full force and effect
in all material respects and are of a nature and provide such coverage as is
sufficient and as is customarily carried by companies of similar size and
character.
3.22 Acquisition Documents. (a) The Borrower has delivered to
---------------------
the Lenders and the Administrative Agent true, complete and correct copies of
each of the Acquisition Documents (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto, if any)
and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been consented to by the Lenders and no consent or waiver has been
granted by the Borrower thereunder. Each of the Acquisition Documents has been
duly executed and delivered by the Borrower and each other party thereto and is
a legal, valid and binding obligation of the Borrower and each other party
thereto enforceable, in all material respects, in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the rights of creditors generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
(b) The representations and warranties the Borrower and each other
party to the Acquisition Documents are true and correct in all material respects
on the Closing Date as if made on and as of such date (disregarding, for
purposes of this Agreement, any references in such representations to the phrase
"the Seller's knowledge" and "by which we are aware" (or words of similar
import). Such representations and warranties, together with the definitions of
all defined terms used therein, are by this reference deemed incorporated herein
mutatis mutandis, and each Lender is entitled to rely on the accuracy of such
- ------- --------
representations and warranties.
(c) Each party to the Acquisition Documents has complied in all
material respects with all terms and provisions contained therein on its part to
be observed and the Acquisition has been duly consummated in accordance with the
terms of the Acquisition Documents.
3.23 Security Documents. (a) Each Security Agreement is
------------------
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in all right, title
and interest of the Loan Party which is party thereto in the collateral
described therein except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law). When
financing statements have been filed in the offices in the jurisdictions listed
in Schedule 3.23, each such Security Agreement shall, except as set forth
-------------
therein and except for Liens contemplated under Section 6.3(e) and Section
-------------- -------
6.3(g), constitute a fully perfected first Lien on, and security interest in,
- ------
all right, title and interest of such Loan Party in the collateral described
therein as to which a security interest may be perfected by filing a financing
statement.
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<PAGE>
(b) Except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law), each Pledge Agreement
is effective to create in favor of the Administrative Agent, for the benefit of
the Lenders, a legal, valid and enforceable security interest in the Pledged
Stock and the proceeds thereof and, when stock certificates representing such
Pledged Stock have been delivered to the Administrative Agent, such Pledge
Agreement shall constitute a fully perfected first Lien on, and security
interest in, all right, title and interest of the Borrower thereto in the
pledged securities and the proceeds thereof described therein subject to
continuous possession of the pledged securities by the Administrative Agent.
(c) Except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law), each Deed of Trust is
effective to grant to the Administrative Agent, for the benefit of the Lenders,
a legal, valid and enforceable mortgage lien on all the right, title and
interest of the Borrower, in the mortgaged property described therein. When
such Deed of Trust has been duly recorded in the appropriate filing office in
the county in which the subject real property is located and the mortgage
recording fees and taxes in respect thereof are paid, such Deed of Trust shall
constitute a fully perfected lien on, and security interest in, such mortgaged
property, subject to the encumbrances and exceptions to title noted in the title
policies delivered to the Administrative Agent pursuant to Section 4.1(y) and
--------------
when a financing statement has been filed in the governmental office for the
state and county named in the schedule to such Deed of Trust, such Deed of Trust
shall also create a legal, valid, enforceable and perfected security interest
in, all right, title and interest of the Borrower in all real and personal
property which is the subject of such Deed of Trust (as to which a security
interest may be perfected by filing a financing statement or recording a
mortgage), subject to the encumbrances and exceptions to title noted in the
title insurance policies delivered to the Administrative Agent pursuant to
Section 4.1(y).
- --------------
3.24 Accuracy and Completeness of Information. All information,
----------------------------------------
reports and other papers and data with respect to the Borrower or any
Subsidiary (in each case, prior to and after giving effect to the Acquisition)
(other than projections) furnished to the Lenders by the Borrower or any
Subsidiary, on behalf of the Borrower or any Subsidiary, or contained in any of
the Borrower's SEC Reports were, at the time furnished, complete and correct in
all material respects, or have been subsequently supplemented by other
information, reports or other papers or data, to the extent necessary to give
the Lenders a true and accurate knowledge of the subject matter in all material
respects. All projections with respect to the Borrower or any Subsidiary,
furnished by the Borrower, were prepared and presented in good faith by the
Borrower based upon facts and assumptions that the Borrower believes to be
reasonable in light of current and foreseeable conditions, it being recognized
by the Lenders that such projections as to future events are not to be viewed as
facts and that actual results during the period or periods covered by any such
projections may differ from the projected results. No document furnished or
statement made in writing to the Lenders by or on behalf of the Borrower or any
Subsidiary in connection with the negotiation, preparation or execution of this
Agreement and no information contained in a statement made in the Borrower's SEC
Reports contains any untrue statement of a material fact, or
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<PAGE>
omits to state any such material fact necessary in order to make the statements
contained therein not misleading, in either case which has not been corrected,
supplemented or remedied by subsequent documents furnished or statements made in
writing to the Lenders. There is no fact known to the Borrower or any Subsidiary
which has, or could reasonably be expected to have, a Material Adverse Effect.
3.25 Leaseholds, Permits, etc. Each of the Borrower and its
------------------------
Subsidiaries possesses or has the right to use, all leaseholds, easements,
franchises and permits and all authorizations and other rights which are
material to and necessary for the conduct of its business. Except for such
noncompliance with the foregoing which could not reasonably be expected to have
a Material Adverse Effect, all the foregoing are in full force and effect, and
each of the Borrower and its Subsidiaries is in substantial compliance with the
foregoing without any known conflict with the valid rights of others. No event
has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such leasehold, easement,
franchise, license or other right, which termination or revocation, considered
as a whole, could reasonably be expected to have a Material Adverse Effect.
3.26 Solvency. On the Closing Date, after giving effect to the
--------
Acquisition, and on each date on which borrowings are made hereunder each of the
Borrower and its Subsidiaries is Solvent.
3.27 Licenses. All Licenses which are directly or indirectly
--------
owned by the Borrower or any of its subsidiaries are owned, beneficially and of
record, by Catalina Transmission. The Borrower and its Subsidiaries hold all
Licenses necessary for the operation of their business. Each such License has
been duly issued by the FCC, are held by Catalina Transmission and are in full
force and effect. The Borrower and its Subsidiaries are in compliance in all
material respects with all the provisions of each License.
ARTICLE 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of each Lender to
---------------------------
make the initial Loan requested to be made by it and of the Issuer to issue the
Letter of Credit is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loan on the Closing Date, of the following
conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a counterpart for each Lender, (ii) for the account of each
Lender, a Revolving Credit Note, Term A Note and Term B Note conforming to the
requirements hereof and executed by a duly authorized officer of the Borrower,
(iii) the Pledge Agreements, executed and delivered by an authorized officer of
the Loan Party thereto, with a counterpart or a conformed copy for each Lender,
(iv) the Security Agreements, executed and delivered by a duly authorized
officer of the Loan Party thereto, with a counterpart or a conformed copy for
each Lender, (v) the Intellectual Property
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<PAGE>
Security Agreements, executed and delivered by a duly authorized officer of the
Loan Party thereto, with a counterpart or conformed copy for each Lender (vi)
the Deeds of Trust, executed and delivered by a duly authorized officer of the
Borrower, (vii) the Guarantees, executed and delivered by a duly authorized
officer of each Guarantor, (viii) the Contribution Agreement, executed and
delivered by a duly authorized officer of each Guarantor, (ix) the Borrower
Custody Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a counterpart for each Lender, (x) the Fee Letter, executed and
delivered to the Administrative Agent by a duly authorized officer of the
Borrower, (xi) the Administrative Fee Letter, executed and delivered to the
Administrative Agent by a duly authorized officer of the Borrower, the L/C Fee
Letter and (xii) the Letter of Credit executed by the Issuer.
(b) Corporate Proceedings of the Borrower. The Administrative Agent
-------------------------------------
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative Agent, of
the Board of Directors of the Borrower authorizing (i) the execution, delivery
and performance of this Agreement, the Notes and the other Loan Documents to
which it is a party, (ii) the borrowings contemplated hereunder and (iii) the
execution, delivery and performance of the Acquisition Documents and all closing
documents delivered in connection therewith, certified by the Secretary or an
Assistant Secretary of the Borrower as of the Closing Date, which certificate
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded and shall be in form and substance satisfactory
to the Administrative Agent.
(c) Borrower Incumbency Certificates. The Administrative Agent shall
--------------------------------
have received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of the Borrower executing any Loan Document, any Acquisition Document
and any related documents, satisfactory in form and substance to the
Administrative Agent, executed by the Chief Executive Officer or an Vice
President and the Secretary or an Assistant Secretary of the Borrower.
(d) Corporate Proceedings of the Subsidiaries. The Administrative
-----------------------------------------
Agent shall have received, with a counterpart for each Lender, a copy of the
resolutions of the Board of Directors of each Subsidiary authorizing the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party certified by the Secretary or an Assistant
Secretary of such Subsidiary, as of the Closing Date, which certificate shall
state that the resolutions thereby certified have not been amended, modified,
revoked or rescinded and shall be in form and substance satisfactory to the
Administrative Agent.
(e) Subsidiary Incumbency Certificate. The Administrative Agent shall
---------------------------------
have received, with a counterpart for each Lender, a certificate of each
Subsidiary, dated the Closing Date, as to the incumbency and signature of the
officers of each Subsidiary executing any Loan Document, Acquisition Document
and any related documents satisfactory in form and substance to the
Administrative Agent, executed by the President or any Vice President and the
Secretary or an Assistant Secretary of such Subsidiary.
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<PAGE>
(f) Corporate Documents. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, true and complete copies of the
charter documents of the Borrower and each of Subsidiaries, certified as of the
Closing Date as complete and correct copies thereof by the Secretary or an
Assistant Secretary of the Borrower and such Subsidiary, as the case may be.
(g) Consents, Licenses and Approvals. The Administrative Agent shall
--------------------------------
have received, with a counterpart for each Lender, a certificate of a
Responsible Officer of the Borrower (i) attaching copies of all consents,
authorizations and filings referred to in Schedule 3.4, and (ii) stating that
------------
such consents, licenses and filings are in full force and effect, and each such
consent, authorization and filing shall be in form and substance satisfactory to
the Administrative Agent.
(h) Closing Fees and Expenses. The Administrative Agent shall have
-------------------------
received the fees to be received on the Closing Date referred to in the Fee
Letter and the Administrative Fee Letter and the reimbursement of all costs and
expenses (including the fees and expenses of counsel to the Administrative
Agent) and the Issuer shall have received the fees to be received on the Closing
Date refereed to in the L/C Fee Letter.
(i) Legal Opinions. The Administrative Agent shall have received,
--------------
with a counterpart for each Lender, the executed legal opinions of counsel to
the Borrower substantially in the form of Exhibit Y covering such matters
---------
incident to the transactions contemplated by this Agreement as the
Administrative Agent may reasonably require.
(j) Acquisition Documents; Certificate. The Administrative Agent
----------------------------------
shall have received, with copies for each Lender, true and correct copies of
each of the Acquisition Documents including all schedules and exhibits thereto
and side letters affecting the terms thereof or otherwise delivered in
connection therewith together with all closing documents, opinions and
certificates executed in connection therewith (including a copy of the
Notification and Report Form in respect of the Acquisition furnished to the
Department of Justice and the Federal Trade Commission pursuant to the Hart-
Scott-Rodino Antitrust Improvements Act of 1976), all of which shall be in full
force and effect. The Acquisition Documents shall not have been amended,
supplemented or otherwise modified since the date thereof, except as may have
been consented to in writing by the Lenders. The Acquisition Documents shall be
accompanied by a certificate, dated the Closing Date, of a Responsible Officer
of the Borrower to such effect. The transactions described in the Acquisition
Documents shall have been consummated in all material respects in accordance
with the terms and provisions thereof and the Borrower and each other party to
the Acquisition Documents shall be in material compliance with all the terms of
the Acquisition Documents to which it is a party and the Administrative Agent
shall have received, with a copy for each Lender, a certificate of a Responsible
Officer of the Borrower certifying that the only condition to the consummation
of the Acquisition remaining to be satisfied under the Acquisition Documents
(which condition shall be satisfied substantially simultaneously with the making
of the initial Loans) is the delivery of funds sufficient to pay the
consideration under the Acquisition Documents.
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<PAGE>
(k) Opinions Relating to Acquisition Documents. The Administrative
------------------------------------------
Agent shall have received, with a counterpart for each Lender, a copy of the
legal opinions referred to in Sections 8.2(c) and 8.3(c) of the Stock Purchase
Agreement (together, if such opinion does not permit the Administrative Agent
and the Lenders to rely thereon, with letters from counsel rendering such
opinions permitting the Administrative Agent and the Lenders to rely thereon as
if such opinions were addressed to the Administrative Agent and the Lenders
directly), with such additional opinions covering such other matters relating to
the Acquisition as the Administrative Agent may reasonably require.
(l) Corporate Structure. The Administrative Agent and the Lenders
-------------------
shall be satisfied with the legal arrangements among the Borrower and its
Subsidiaries, including any tax and cost sharing agreements and arrangements.
(m) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a closing certificate of the
Borrower substantially in the form of Exhibit Z, dated the Closing Date.
---------
(n) Financial Information; Projections. The Administrative Agent
----------------------------------
shall have received, with copies for each Lender, (i) each of the financial
statements referred to in Section 3.1, (ii) the Borrower's report on Form 10-K
-----------
for the year ended August 3, 1997 and Borrower's report on Form 10-Q for the
fiscal quarter ended October 31, 1997 and (iii) the seven-year business forecast
of the Borrower and its Subsidiaries (on a consolidated and segment by segment
basis) in form substance satisfactory to the Administrative Agent and the
Lenders.
(o) Pledged Stock; Stock Powers; Pledged Promissory Notes. The
-----------------------------------------------------
Administrative Agent shall have received (i) certificates representing the
Pledged Stock pursuant to the Pledge Agreements, together with an undated stock
power executed in blank for each such certificate and an acknowledgment of and
consent to each such Pledge Agreement by the Borrower and (ii) Pledged
Promissory Notes pursuant to the Borrower Pledge Agreement, together with an
undated endorsement executed by the Borrower in blank for each such Note.
(p) Filings, Registrations and Recordings. All filings, registrations
-------------------------------------
and recordings listed in Schedule 4.1(p) shall have been properly filed,
---------------
registered or recorded in each jurisdiction listed in Schedule 4.1(p). Any
---------------
documents (including, without limitation, financing statements) required to be
filed under any of the Security Documents in order to create, in favor of the
Administrative Agent, a perfected security interest in the collateral thereunder
shall have been properly filed in each office in each jurisdiction listed in the
Security Agreement, and such filings are the only ones required in order to
create in favor of the Administrative Agent for the benefit of the Lenders a
perfected Lien on the respective collateral described therein in the
jurisdictions listed on Schedule 4.1(p). The Administrative Agent shall have
---------------
received evidence reasonably satisfactory to it of each such filing,
registration or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto.
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<PAGE>
(q) Insurance. The Administrative Agent shall have received evidence
---------
satisfactory to it of the existence of the insurance required hereunder and
pursuant to the Security Documents and the Administrative Agent for the benefit
of the Lenders, shall have been named as loss payee under each insurance policy
maintained by the Borrower (other than worker's compensation, public liability,
employee benefits and welfare insurance).
(r) Sources and Uses. The Administrative Agent shall have received,
----------------
with a copy for each Lender, a schedule of sources and uses substantially in the
form of Schedule 4.1(r), setting forth the application of the proceeds of the
---------------
Loans made on the Closing Date and the other amounts received or paid in
connection with the Acquisition and the financing thereof, such schedule to be
certified by a Responsible Officer of the Borrower.
(s) Lien Searches. The Administrative Agent shall have received (i)
-------------
lien searches with respect to the assets of the Borrower under such names and in
such jurisdictions as the Administrative Agent shall have requested and the
results of such lien searches shall be in form and substance satisfactory to the
Administrative Agent and (ii) without limiting the foregoing, evidence
satisfactory to the Administrative Agent of the filing of (x) duly executed
financing statements on form UCC-3, and (y) a duly executed discharge of the
liens held by HKSB which secure the HKSB Debt and/or any other actions necessary
or, in the opinion of the Administrative Agent, desirable to terminate any
existing liens created with respect to the assets of the Borrower.
(t) Indebtedness. Immediately after the consummation of the
------------
Acquisition, the Borrower shall have only the Indebtedness listed on Schedule
--------
4.1. The Administrative Agent shall have received signed payoff letters from
- ---
each Person who on the Closing Date is a lender to either the Borrower or POP
and which Indebtedness is not listed on Schedule 4.1 (including from HKSB with
------------
respect to the HKSB Debt) evidencing that such Indebtedness has been repaid in
full.
(u) Environmental Survey. The Administrative Agent shall have
--------------------
received, with a counterpart for each Lender, the results of an environmental
survey performed by KTR Environmental Services, Inc. on the Properties of the
Borrower and the Lenders shall be in form and substance satisfied with the
results of such survey.
(v) No Material Adverse Effect. Since August 3, 1997, no Material
--------------------------
Adverse Effect shall have occurred.
(w) Tokai Indebtedness. The Tokai Loan Agreement, the Tokai
------------------
Guarantees and the Tokai Mortgages as modified (a) to amend the Tokai Guarantees
and (b) to extend the term of the Indebtedness under the Tokai Loan Agreement
shall be acceptable to the Administrative Agent and the Lenders.
(x) Deeds of Trust. The Administrative Agent shall have received the
--------------
Deeds of Trust, fully executed and delivered by the Borrower, in recordable form
and otherwise in a form acceptable to the Administrative Agent.
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<PAGE>
(y) Title Insurance Policies. The Administrative Agent shall have
------------------------
received, in respect of the real property which is subject to the Deeds of
Trust, mortgagee's title policies or marked-up unconditional binders dated the
Closing Date in an amount not less than $13,000,000 in the aggregate. Each such
policy (i) shall be in an amount satisfactory to the Administrative Agent; (ii)
shall ensure that the Deed of Trust insured thereby creates a valid first lien
on the real property covered by the such Deed of Trust, free and clear of all
defects and encumbrances except such as are acceptable to the Administrative
Agent; (iii) shall name the Administrative Agent, for the benefit of the
Lenders, as the insured thereunder; (iv) shall be in the form of ALTA Loan
Policy -1970 or such other similar form acceptable to the Administrative Agent;
and (v) shall contain such endorsements as the Administrative Agent may request.
The Administrative Agent shall also have received evidence that all premiums in
respect of such policies have been paid.
(z) Surveys. The Administrative Agent shall have received a current
-------
survey of the Santa Monica Property, showing all improvements thereon and
meeting all ALTA requirements, certified to Administrative Agent and prepared by
a registered California land surveyor.
(aa) Recordation. All mortgages and other liens existing with
-----------
respect to the properties that are subject to a Deed of Trust or another
Security Document in favor of Administrative Agent, shall have been released of
record.
(ab) Adjusted Operating Cash Flow. The Borrower shall have
----------------------------
demonstrated to the Administrative Agent and the Lenders that, on a pro forma
basis, after giving effect to the Acquisition, the Borrower shall have Adjusted
Operating Cash Flow of not less than $32,000,000.
4.2 Conditions to Each Loan. The agreement of each Lender to make
-----------------------
any Loan requested to be made by it on any date (including, without limitation,
its initial Loan) and of the Issuer to issue the Letter of Credit is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Borrower and each other Loan Party in or pursuant to the
Loan Documents shall be true and correct in all material respects on and as of
such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the Credit Extension
requested to be made on such date.
(c) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the other Loan Documents and the
Acquisition Documents shall be satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received such
other documents, instruments and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
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<PAGE>
Each borrowing by the Borrower hereunder and the request by the Borrower to the
Issuer to issue the Letter of Credit shall constitute a representation and
warranty by the Borrower as of the date of such Loan or the issuance of the
Letter of Credit that the conditions contained in this Section 4.2 have been
-----------
satisfied.
ARTICLE 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note remains outstanding and unpaid or any Obligation is owing to
any Lender, the Issuer or the Administrative Agent hereunder, the Borrower shall
and shall cause each of its Subsidiaries to:
5.1 Financial Statements. Furnish to each Lender:
--------------------
(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrower, a copy of the consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as at the end
of such year and the related statements of operations, stockholders equity and
cash flows for such year, setting forth in each case in comparative form the
figures as of the end of and for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out of the
scope of the audit, by Coopers & Lybrand L.L.P. or other independent certified
public accountants of nationally recognized standing;
(b) as soon as available, but in any event within 120 days after the
end of each fiscal year of Four Media Asia, a copy of the balance sheet of Four
Media Asia as at the end of such year and the related statements of operations,
stockholders equity and cash flows for such year, setting forth in each case in
comparative form the figures as of the end of and for the previous year,
reported on without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by Coopers & Lybrand L.L.P.
or other independent certified public accountants of nationally recognized
standing;
(c) as soon as available, but in any event not later than 45 days
after the end of each quarterly period for each of the first three fiscal
quarters of each fiscal year of the Borrower, the unaudited consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as at the end
of such quarter and the related unaudited statements of operations, stockholders
equity and cash flows of the Borrower and its Subsidiaries for such quarter and
the portion of the fiscal year through the end of such quarter and setting forth
in each case in comparative form the figures from the budget for such fiscal
year furnished to the Lenders pursuant to Section 5.2(d) and the actual figures
--------------
for the corresponding date or period in the previous year, certified by a
Responsible Officer as being fairly stated in all material respects (subject to
normal year-end audit adjustments); and
(d) as soon as available, but in any event not later than 45 days
after the end of each quarterly period for each of the first three fiscal
quarters of each fiscal year of Four Media
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<PAGE>
Asia, the unaudited balance sheet of Four Media Asia as at the end of such
quarter and the related unaudited statements of operations, stockholders equity
and cash flows of Four Media Asia for such quarter and the portion of the fiscal
year through the end of such quarter and setting forth in each case in
comparative form the figures from the budget for such fiscal year furnished
to the Lenders pursuant to Section 5.2(d) and the actual figures for the
--------------
corresponding date or period in the previous year, certified by a Responsible
Officer as being fairly stated in all material respects (subject to normal year-
end audit adjustments);
(e) as soon as available, but in any event not later than 45 days
after the end of each fiscal month of the Borrower, the unaudited consolidated
and consolidating balance sheet of the Borrower and its Subsidiaries as at the
end of such month and the related unaudited statements of operations,
stockholders equity and cash flows of the Borrower and it Subsidiaries for such
month and the portion of the fiscal year through the end of such month, setting
forth in each case in comparative form the figures for the comparable period
from the budget for such fiscal year furnished to the Lenders pursuant to
Section 5.2(d) and the actual figures for the corresponding date or period in
- --------------
the previous year, certified by a Responsible Officer as being fairly stated in
all material respects (subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 Certificates; Other Information. Furnish to each Lender:
-------------------------------
(a) concurrently with the delivery of the financial statements
referred to in Section 5.1(a), a certificate of the independent certified public
--------------
accountants reporting on such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of any Default or Event
of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in Section 5.1(a), Section 5.1(b) and Section 5.1(c), a certificate
-------------- -------------- --------------
of a Responsible Officer of the Borrower, stating that, during the period
covered by such financial statements, the Borrower and each of its Subsidiaries,
or Four Media Asia, as the case may be, during such period has observed or
performed all its covenants and other agreements, and satisfied every condition,
contained in this Agreement and in each other Loan Document to which it is a
party to be observed, performed or satisfied by it, and that such Officer has
obtained no knowledge of any Default or Event of Default except as specified in
such certificate;
(c) concurrently with the delivery of the financial statements
referred to in Section 5.1(a) and Section 5.1(c), a certificate of a Responsible
-------------- --------------
Officer of the Borrower, substantially in the form of Exhibit AA hereto (the
----------
"Compliance Certificate"), showing (i) compliance by the Borrower and its
- -----------------------
Subsidiaries with the covenants contained in Section 6.1 and Section 6.8 and
----------- -----------
(ii) to the extent not otherwise required to be delivered pursuant to Section
-------
5.1 and
- ---
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<PAGE>
Section 5.2, statements of Operating Cash Flow and Adjusted Operating Cash Flow
- -----------
for the periods covered by such covenants with respect to which compliance is to
be demonstrated in such Compliance Certificate, and a computation of the Capital
Expenditures of the Borrower and its Subsidiaries made during such period and
during the portion of the fiscal year through the end of the period covered by
such Compliance Certificate;
(d) not later than 30 days after the end of each fiscal year of the
Borrower, a copy of the projections by the Borrower of the operating budget and
cash flow budget of the Borrower and its Subsidiaries for the succeeding fiscal
year set forth on a monthly basis and on an annual basis through August 2004
together with a narrative description setting forth the assumptions upon which
such projections are based, such projections to be accompanied by a certificate
of a Responsible Officer to the effect that such projections have been prepared
on the basis of sound financial planning practices and that such Responsible
Officer has no reason to believe that such projections are incorrect or
misleading in any material respect or that such assumptions are not reasonable;
(e) within five days after the same are sent, copies of all financial
statements and reports which the Borrower generally sends to its stockholders,
and within five days after the same are filed, copies of all financial
statements and reports which the Borrower may make to, or file with, the
Securities and Exchange Commission or any successor or analogous Governmental
Authority;
(f) promptly upon receipt thereof, copies of all substantive
management letters and other substantive material reports which are submitted to
the Borrower or any of its Subsidiaries by its independent accountants in
connection with any annual or interim audit of the books of the Borrower or such
Subsidiary made by such accountants;
(g) promptly upon any issuance by the Borrower of Capital Stock or any
transfer of shares of the Borrower's Capital Stock by any Person who owns at
least 5% of any class of the Capital Stock of the Borrower, a certificate of a
Responsible Officer of the Borrower notifying the Administrative Agent of such
transfer;
(h) promptly upon completion or receipt thereof, a copy of all
notices, documents or other instruments delivered under the Acquisition
Documents;
(i) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
----------------------
or before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, including all material taxes imposed upon it or
upon its income or profits or in respect of its property, except where the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower or any of its
Subsidiaries, as the case may be.
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<PAGE>
5.4 Maintenance of Existence. Renew and keep in full force and
------------------------
effect its corporate existence, take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of its business except to the extent such failure to maintain could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect and comply
with all Contractual Obligations and Requirements of Law except to the extent
that failure to comply therewith could not, in the aggregate, be reasonably
expected to have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. Keep all property useful and
----------------------------------
necessary in its business in good working order and condition, maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but including
in any event public liability, business interruption, storm damage and
earthquake) as are usually insured against in the same general areas by
companies engaged in the same or a similar business and name the Administrative
Agent, for the benefit of the Lenders, as loss payee under each such policy
(other than (a) worker's compensation, public liability, employee benefits and
welfare insurance, (b) so long as the obligations secured by the Tokai Bank
Mortgages are outstanding, property insurance on the Hollywood Way Property);
and furnish to each Lender, upon request, full information as to the insurance
carried including certified copies of policies and certificates of insurance
from the Borrower's insurance broker, or such other recognized insurance broker
reasonably acceptable to the Required Lenders. If the Borrower or any
Subsidiary receives any Net Insurance Proceeds (other than workmen's
compensation, public liability, employee benefits and welfare insurance) the
Borrower shall promptly, and, in any event, within three Business Days after
receipt thereof, deliver such Net Insurance Proceeds to the Administrative Agent
for application in accordance with Section 2.9(d).
--------------
5.6 Inspection of Property; Books and Records; Discussions. Keep
------------------------------------------------------
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit after
reasonable notice representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with their independent certified public accountants.
5.7 Notices. Promptly after the Borrower knows or has reason to know
-------
thereof, and, in any event, within 5 days thereof with respect to any notice
under clause (a) or 10 days with respect to any other notice under this Section,
give notice to the Administrative Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any Subsidiary or (ii) litigation, investigation
or proceeding which may exist at any
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<PAGE>
time between the Borrower or any Subsidiary and any Governmental Authority,
which in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any
Subsidiary in which the amount involved is $100,000 or more and is not covered
by insurance or in which injunctive or similar relief is sought;
(d) any material labor dispute to which the Borrower or any Subsidiary
may become a party and which involves any group of employees, any strikes or
walkouts relating to any of its plants or facilities and the expiration or
termination of any labor contract to which the Borrower or any Subsidiary is a
party or by which the Borrower or such Subsidiary is bound; and
(e) any development or event which could reasonably be expected to
have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
5.8 Environmental Laws. (a) Comply in all material respects, and
------------------
ensure compliance in all material respects by all tenants and subtenants, if
any, with all applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants,
if any, obtain and comply in all material respects with and maintain, any and
all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws except to the extent that failure to do so could
not be reasonably expected to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not be
reasonably expected to have a Material Adverse Effect.
(c) Defend, indemnify and hold harmless each Agent and the Lenders,
and their respective parents, subsidiaries, affiliates, employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or nature
known or unknown, contingent or otherwise, arising out of, or in any way
relating to the violation of, noncompliance with or liability under any
Environmental Laws applicable to the operations of the Borrower, any of its
Subsidiaries, or the Properties, or any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
reasonable attorney's and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses, except to the extent that
any of the foregoing arise out of
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<PAGE>
the gross negligence or willful misconduct of the party seeking indemnification
therefor. This indemnity shall continue in full force and effect regardless of
the termination of this Agreement.
5.9 Interest Rate Protection. Within 60 days after the Closing Date,
------------------------
enter into and maintain one or more Hedging Agreements in an aggregate notional
principal amount not less than 50% of the aggregate outstanding amount of the
Indebtedness of the Borrower on the Closing Date and, within 30 days after the
end of each fiscal quarter thereafter, enter into and maintain additional
Hedging Agreements such that the aggregate notional principal amount of all
Hedging Agreements on such thirtieth date is not less than 50% of the aggregate
outstanding amount of the Indebtedness of the Borrower as of the end of such
fiscal quarter; provided that (i) any such Hedging Agreement shall be
--------
satisfactory to the Administrative Agent, (ii) no Hedging Agreement other than a
Hedging Agreement with any Agent or any Lender shall create a Lien on or be
secured by the assets of the Borrower or any of their respective Subsidiaries
and (iii) the Borrower shall not be required to maintain any such Hedging
Agreements after the third annual anniversary of entering into such Agreements,
so long as the Leverage Ratio of the Borrower and its Subsidiaries is less than
2.00 to 1.00.
5.10 ERISA. (a) Establish, maintain and operate all Plans to
-----
comply in all material respects with the applicable provisions of ERISA, the
Code, and all other applicable laws, and the regulations and interpretations
thereunder and the respective requirements of the governing documents for such
Plans;
(b) Within ten days after receipt by the Borrower or any Subsidiary of
any unfavorable determination letter from the IRS regarding the qualification of
a Plan under Section 401(a) of the Code, and promptly following the request of
the Administrative Agent for any favorable determination letters, provide the
Administrative Agent and the Lenders with copies of each such letter;
(c) Within ten days after the filing thereof, provide Administrative
Agent and the Lenders with copies of any annual report (IRS Form 5500 series)
with respect to a Single Employer Plan, including Schedule B thereto;
(d) Within ten days after the Borrower or any Subsidiary knows or has
reason to know that a non-exempted prohibited transaction (defined in Sections
406 of ERISA and 4975 of the Code) has occurred, a statement of the chief
financial officer of such Borrower or such Subsidiary describing such
transaction and the action which Borrower or such Subsidiary, as applicable, has
taken, is taking or proposes to take with respect thereto;
(e) Within ten days after the filing thereof, provide the
Administrative Agent and the Lender with copies of each actuarial report for any
Single Employer Plan and each actuarial report and annual report received from
any Multiemployer Plan;
(f) Within ten days after the occurrence thereof, notification of any
material increase in the benefits of any existing Single Employer Plan or the
establishment by Borrower or
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<PAGE>
any Subsidiary of any new Single Employer Plan or the commencement of
contributions by Borrower or any Subsidiary to any Single Employer Plan to which
the Borrower or such Subsidiaries was not previously contributing; and
(g) Within ten days after the Borrower, any Subsidiary or any Commonly
Controlled Entity knows or has reason to know thereof: (i) the occurrence of
any Reportable Event with respect to any Benefit Plan or Multiemployer Plan, a
failure to make any required contribution to a Benefit Plan or Multiemployer
Plan, the creation of any Lien in favor of the PBGC or a Benefit Plan or
Multiemployer Plan or any withdrawal from, or the receipt of notice with respect
to the termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the receipt of notice from the PBGC or
any Multiemployer Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Benefit Plan or Multiemployer Plan.
5.11 Use of Proceeds. The proceeds of the Loans shall be
---------------
utilized only for the respective purposes set forth in Section 3.15.
------------
5.12 TVN Note. The Borrower shall use its best efforts to
--------
obtain, within 60 days after the Closing Date, a note from TVN, in form and
substance acceptable to the Administrative Agent, evidencing the obligations of
TVN to pay the amounts set forth in the letter of from TVN to the Borrower dated
August 19, 1997.
5.13 Further Assurances. From time to time hereafter, execute
------------------
and deliver, or cause to be executed and delivered, such additional instruments,
certificates or documents, and take all such actions, as the Administrative
Agent or the Lenders may reasonably request (including any actions contemplated
under such Section 16 of the Four Media Burbank Pledge Agreement, Section 17 of
the Four Media Burbank Security Agreement and Section 17 of the Catalina
Security Agreement), for the purposes of implementing or effectuating the Loan
Documents, or of more fully perfecting, preserving or renewing the rights of the
Lenders with respect to the Collateral (or with respect to any additions thereto
or replacements or proceeds thereby or with respect to any other property or
assets hereafter acquired by the Borrower which may be deemed to be part of the
Collateral) pursuant hereto or thereto.
ARTICLE 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note remains outstanding and unpaid or any Obligation is owing to
any Lender, the Issuer or the Administrative Agent hereunder, Borrower shall not
and shall cause that each Subsidiary shall not:
6.1 Financial Condition Covenants.
-----------------------------
(a) Interest Coverage. On the last day of any fiscal quarter of the
-----------------
Borrower, permit the Interest Coverage Ratio to be less than the ratio set forth
opposite such period below:
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<PAGE>
<TABLE>
<CAPTION>
Period Interest Coverage Ratio
------ -----------------------
<S> <C>
2/1/98 - 7/30/98 2.00 to 1.00
7/31/98 - 7/30/99 2.50 to 1.00
7/31/99 - 7/30/00 3.00 to 1.00
7/31/00 and thereafter 4.00 to 1.00
</TABLE>
(b) Fixed Charge Coverage. Permit the Fixed Charges Ratio to be less
---------------------
than the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Fixed Coverage
------ --------------
<S> <C>
7/31/98 - 10/31/98 1.00 to 1.00
11/1/98 - 7/30/99 1.10 to 1.00
7/31/99 - 7/30/00 1.20 to 1.00
7/31/00 - 4/30/04 1.30 to 1.00
</TABLE>
(c) Leverage Ratio. Permit the Leverage Ratio during any period to
--------------
exceed the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Leverage Ratio
------ --------------
<S> <C>
Closing Date - 7/30/99 4.00 to 1.00
7/31/99 - 1/30/00 3.75 to 1.00
1/31/00 - 7/30/00 3.50 to 1.00
7/31/00 - 1/30/01 3.00 to 1.00
1/31/01 - 7/30/01 2.75 to 1.00
7/31/01 - 1/30/02 2.50 to 1.00
1/31/02 and thereafter 2.00 to 1.00
</TABLE>
(d) Adjusted Operating Cash Flow. At any time, permit Adjusted
----------------------------
Operating Cash Flow of the Borrower and its Subsidiaries to be less than
$32,000,000.
6.2 Limitation on Indebtedness. Create, incur, assume or suffer to
--------------------------
exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement or under any
Hedging Agreement;
(b) Indebtedness of the Borrower or any Subsidiary (including
Financing Leases) incurred to finance the purchase price of equipment, fixtures
and other similar property of the Borrower in an amount not to exceed $2,000,000
at any one time outstanding;
(c) Guarantees by the Subsidiaries of Indebtedness permitted under
clause (a) or clause (b) of this Section 6.2;
-----------
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<PAGE>
(d) the Tokai Guarantees;
(e) Indebtedness in respect of loans from the Borrower to any
Subsidiary and by any Subsidiary to the Borrower and other Subsidiaries;
provided that any such intercompany loans shall be subordinated on the terms set
- --------
forth in Exhibit BB; and
----------
(f) Permitted Indebtedness.
6.3 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its properties, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) inchoate Liens for taxes, assessments or governmental charges or
levies or Liens for taxes, assessments, governmental charges or levies not yet
due or which are being contested in good faith by appropriate proceedings;
provided that adequate reserves with respect thereto are maintained on the books
- --------
of the Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) statutory Liens of carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not overdue for a period of more than 60 days or which are
being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation; deposits securing
liability to insurance carriers under insurance or self-insurance arrangements;
and deposits to secure true leases in the ordinary course;
(d) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and landlords' Liens
which, in the aggregate, are not substantial in amount and which do not in any
case materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the Borrower;
(e) Liens securing Indebtedness permitted under Section 6.2(b)
--------------
(including financing statements filed in connection with Financing Leases
permitted under Section 6.2(b); provided that such Liens shall extend only to
-------------- --------
the equipment, fixtures and other similar property so financed (and improvements
or attachments thereto) and the proceeds thereof;
(f) any attachment or judgment Lien not constituting an Event of
Default under Section 7.1(h);
--------------
(g) Liens created pursuant to the Security Documents;
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<PAGE>
(h) Liens arising from filing UCC financing statements for
precautionary purposes relating solely to true leases of personal property
permitted under this Agreement under which the Borrower is a lessee;
(i) Liens existing on the date hereof and set forth in Schedule
--------
6.3(i).
6.4 Limitation on Guarantee Obligations. Create, incur, assume or
-----------------------------------
suffer to exist any Guarantee Obligation other than (a) the Guarantees, (b) the
Tokai Guarantees, (c) Guarantees permitted under Section 6.2(c) and (d)
--------------
guarantees by the Borrower of performance by its Subsidiaries under service
agreements entered into in the ordinary course of business and consistent with
industry standards.
6.5 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all its property, business or
assets, or make any material change in its present method of conducting business
except:
(a) any Subsidiary may be merged or consolidated with or into the
Borrower (provided that the Borrower shall be the continuing or surviving
corporation) or any Subsidiary of the Borrower may be merged or consolidated
with or into any one or more Wholly-Owned Subsidiaries of the Borrower;
(b) any Wholly-Owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all its assets (upon voluntary liquidation or otherwise) to
the Borrower or any other Wholly-Owned Subsidiary of the Borrower; and
(c) any Wholly-Owned Subsidiary of the Borrower may enter into any
merger or consolidation necessary to effect a Permitted Acquisition.
6.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
----------------------------
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, any Capital Stock, receivables and fee or
leasehold interests), whether now owned or hereafter acquired, in each case, in
one transaction or a series of transactions to any Person, except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business;
(b) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the compromise or
collection thereof;
(c) sales of property, business or assets (other than Capital Stock)
to the Borrower or any Wholly-Owned Subsidiary;
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<PAGE>
(d) any sale or disposition permitted under Section 6.5(b);
--------------
(e) the issuance of options to acquire Capital Stock in accordance
with the terms of the Borrower's 1997 Stock Plan and 1997 Amended and Restated
Director Stock Plan;
(f) the issuance of Permitted Preferred Stock, issued on or prior to
July 31, 1998, in an amount not to exceed $15,000,000; and
(h) subject to Section 2.9(e) and any restrictions contained in the
--------------
Communications Act of 1934, as amended, the issuance of Common Stock of the
Borrower;
6.7 Limitation on Dividends. Declare or pay any dividend on, or make
-----------------------
any payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of, any shares of any class of Capital Stock of the Borrower or any warrants or
options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower.
6.8 Limitation on Capital Expenditures. Make or commit to make (by
----------------------------------
way of the acquisition of securities of a Person or otherwise) any Capital
Expenditures exceeding, in the aggregate, (a) in the period commencing February
1, 1998 and ending August 2, 1998, $9,000,000 which amount shall be increased to
$17,000,000 in the aggregate if the Borrower enters into the TVN Agreement, and
(b) in each fiscal year thereafter, 8% of the Borrower's Revenues for the
immediately preceding four fiscal quarters; provided that (a) the foregoing
--------
limits shall not include (i) Permitted Acquisitions, (ii) capital expenditures
for improvements to real property utilizing funds which constitute Permitted
Indebtedness under clause (e) of the definition thereof and (iii) expenditures
for the restoration, replacement or rebuilding of Post Production Assets for
which the Borrower or any Subsidiary has received and is utilizing Net Insurance
Proceeds and (b) the maximum amount of Capital Expenditures permitted to be made
by the Borrower and its Subsidiaries in any fiscal year shall be increased by
the amount of Capital Expenditures that the Borrower was permitted to make in
the immediately prior fiscal year (commencing with the fiscal year ending August
2, 1998) as set forth above but failed to expend in such year (the "Carryover
---------
Amount") (it being understood that (i) Capital Expenditures shall be deemed to
- ------
have been spent as follows: first, amounts attributable to the present fiscal
-----
year and second, any Carryover Amount and (ii) the Carryover Amount for the
------
fiscal year ending August 2, 1998 (to be utilized in the fiscal year ending
August 1, 1999) shall include, if the Borrower enters into the TVN Agreement on
or prior to August 2, 1998, any portion of the additional $8,000,000 that was
available for Capital Expenditures during such year but was not utilized).
6.9 Limitation on Investments, Loans and Advances. Make any advance,
---------------------------------------------
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
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<PAGE>
(a) any extension of trade credit in the ordinary course of business
and investments in customer accounts or notes receivable for inventory sold or
services rendered in the ordinary course of business and consistent with past
practice;
(b) any investment in Cash Equivalents;
(c) Capital Expenditures permitted under Section 6.8;
-----------
(d) any investment by the Borrower in its Wholly-Owned Subsidiaries
and Majority-Owned Subsidiaries and any investment by any Subsidiary in the
Borrower or any Wholly-Owned Subsidiary or Majority Owned Subsidiary;
(e) investments received in connection with the bankruptcy of
suppliers and customers or received pursuant to a plan of reorganization of any
supplier or customer, in each case, in settlement of delinquent obligations or
disputes with such suppliers or customers.
(f) any Hedging Agreements that the Borrower is required to enter into
pursuant to Section 5.9; and
-----------
(g) deposits permitted under Section 6.3(c).
--------------
6.10 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement or (b) in the
ordinary course of the Borrower's business and (c) upon fair and reasonable
terms no less favorable to the Borrower, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person which is not an
Affiliate.
6.11 Limitation on Sales and Leasebacks. Enter into any
----------------------------------
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary.
6.12 Limitation on Changes in Fiscal Year. Permit the fiscal
------------------------------------
year of the Borrower to end other than on the Sunday closest to July 31.
6.13 Limitation on Negative Pledge Clauses.
-------------------------------------
(a) Enter into with any Person any agreement and other than (i) this
Agreement or (ii) any Lien permitted under or Financing Leases permitted by this
Agreement (in which case, any prohibition or limitation shall be effective only
against the assets financed thereby) which prohibits or limits the ability of
the Borrower or any Subsidiary to create, incur, assume or suffer
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to exist any Lien upon any of its property, assets or revenues, whether now
owned or hereafter acquired; and
(b) enter into any agreement or arrangement which prohibits, limits or
restricts the rights or ability of any Subsidiary to declare or pay any
dividends in cash or property or to make loans or advances or other payments of
any nature or to make any distributions or transfers of its assets in each case
to the Borrower or any other Person as to which such Subsidiary is a Subsidiary.
6.14 Limitation on Lines of Business.
-------------------------------
(a) Enter into any business, except for those customarily engaged in
by a Post Production Company; and
(b) Permit Catalina Transmission to incur any material liabilities
(other than the Catalina Transmission Guarantee executed by it) or to engage in
any business or activities other than the holding of Licenses.
6.15 New Subsidiaries. Create or permit to exist any Subsidiary
----------------
other than Digital Magic, Four Media Asia, Four Media Burbank, Anderson Video,
Catalina Transmission, 4MC3, Meridian Sound , POP, POP Animation, Santa Monica
Financial, Ten Moons at POP and Approved Subsidiaries.
6.16 Management. Each of Robert Walston, Gavin Schutz, Robert
----------
Bailey and John Donlan shall be employed by the Borrower to manage the Borrower
and shall devote their full business time to the business and affairs of the
Borrower or, if any the foregoing is not so employed, the Borrower shall have
replaced such person within 60 days of his departure and such replacement shall
so devote his full business time and shall be acceptable to the Required
Lenders.
6.17 Amendments to Material Agreements. (a) Enter into or
---------------------------------
consent to any amendment of or waive any rights under the Stock Purchase
Agreement, the Deferred Note, the Seller Notes, the Financing Leases set forth
in Schedule 1.1, the Tokai Loan Agreement, the Tokai Mortgages, the Tokai
------------
Guarantees, the Purchase Agreement and the Certificate of Designations which
restrict or diminish in any material respect any right or benefit enjoyed with
respect to any of the foregoing by the Borrower, any Subsidiary, the
Administrative Agent or the Lenders or which would adversely affect the rights
of the Administrative Agent and the Lenders under the Loan Documents or the
Liens of the Administrative Agent and the Lenders created thereby.
(b) Amend, modify or alter the terms of any Permitted Indebtedness,
including any acceleration, extension or renewal of such Indebtedness, any
increase in the principal amount of, or interest rate on, such Indebtedness,
grant any additional or replacement security to the lender of such Indebtedness
or modify any of the covenants or defaults in a manner which restrict or
diminish in any material respect any right enjoyed with respect to any of the
foregoing by the Borrowers, any Subsidiary, the Administrative Agent or the
Lenders or which would adversely
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affect the Administrative Agent and the Lenders under this Agreement and the
Loan Documents or adversely affect the Liens of the Administrative Agent and the
Lenders created hereunder and thereunder.
ARTICLE 7. EVENTS OF DEFAULT
7.1 If any of the following events shall occur and be continuing:
(a) (i) The Borrower shall fail to pay any principal of any Note when
due in accordance with the terms thereof or hereof; or (ii) the Borrower shall
fail to pay any Reimbursement Obligation with respect to the Letter of Credit or
deposit cash collateral pursuant to Section 2.21 when due in accordance with the
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terms thereof or (iii) the Borrower shall fail to pay any interest on any Note,
or any other amount payable hereunder, within three days after any such interest
or other amount becomes due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any other Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement furnished
by it at any time under or in connection with this Agreement or any such other
Loan Document shall prove to have been incorrect in any material respect on or
as of the date made or deemed made;
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in Article 6, Section 5.7
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or Section 5.9 hereof, clauses (b) and (c) of Section 5 and Section 9 of each
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Pledge Agreement or clauses (h), (i), (j) and (p) of Section 5 of each Security
Agreement; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this Agreement or
any other Loan Document, and such default shall continue unremedied for a period
of 30 days; or
(e) The Borrower or any Subsidiary shall (i) default in any payment
(regardless of amount) of principal of or interest on any Indebtedness having an
aggregate principal amount in excess of $2,000,000 (other than the Notes) or in
the payment (regardless of amount) of any Guarantee Obligation in excess of
$2,000,000 beyond the period of grace (not to exceed 30 days), if any, provided
in the instrument or agreement under which such Indebtedness or Guarantee
Obligation was created or (ii) default in the observance or performance of any
other agreement or condition relating to any such Indebtedness or Guaranteed
Obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness of such Guaranteed Obligation (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice, if required, such
Indebtedness to become due prior to its stated maturity; or
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(f) (i) The Borrower or any Subsidiary shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets, or the
Borrower or any Subsidiary shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower or any
Subsidiary, any case, proceeding or other action referred to in clause (i) above
which (A) results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded for a period
of 60 days; or (iii) there shall be commenced against the Borrower or any
Subsidiary any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the Borrower or
any Subsidiary shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) the Borrower or any Subsidiary shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could reasonably be
expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any Subsidiary involving in the aggregate a liability (to the extent
not covered by third-party insurance as to which the insurer has acknowledged
coverage) of $2,000,000 or more and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 30 days from
the entry thereof; or
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(i) (x) Any of the Security Documents shall cease, for any reason, to
be in full force and effect, or the Borrower or any other Loan Party which is a
party to any of the Security Documents shall so assert, (y) the Lien created by
any of the Security Documents shall cease to be enforceable and of the same
effect and priority purported to be created thereby or (z) the Administrative
Agent shall not have, for any reason whatsoever, a valid and perfected first
security interest for the benefit of the Lenders in the Collateral, subject only
to Liens permitted under Section 6.3; or
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(j) Any Guarantee shall, for any reason other than the satisfaction in
full of all the Obligations and termination of this Agreement, cease to be in
full force and effect or shall be declared to be null and void, or any Guarantor
shall deny that it has any further liability, including with respect to future
advances by the Lenders, under its Guarantee or any Guarantor gives notice to
such effect; or
(k) A Change of Control shall occur; or
(l) An "event of default" or a "termination event" (as each such term
is defined in any Hedging Agreement) shall occur with respect to the Borrower;
or
(m) An event shall exist or occur which has a Material Adverse Effect;
or
(n) The Borrower shall request the release of the Capital Stock of
Four Media Asia which is subject to the Borrower Custody Agreement; or
(o) The Borrower or any of its Significant Subsidiaries shall cease
commercial operations for a period of seven consecutive days;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the Notes shall immediately become due and payable, and (B) if
such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Commitments to
be terminated forthwith, whereupon the Commitments shall immediately terminate;
and (ii) with the consent of the Required Lenders, the Administrative Agent may,
or upon the request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes to be
due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
ARTICLE 8. THE AGENT
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8.1 Appointment. Each Lender hereby irrevocably designates and
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appoints Canadian Imperial Bank of Commerce as Administrative Agent of such
Lender, Bank of America NT&SA as a Syndication Agent and Union Bank of
California, N.A. as Documentation Agent under this Agreement and the other Loan
Documents. Each Lender hereby irrevocably authorizes Canadian Imperial Bank of
Commerce, as the Administrative Agent for such Lender, to serve as security
trustee for each Lender, to take such action on behalf of each Lender under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to the Administrative
Agent by the terms of this Agreement and the other Loan Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, no Agent shall have any
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against any Agent.
8.2 Delegation of Duties. The Administrative Agent may execute any
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of their duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. No Agent and no officer, director,
----------------------
employee, agent, attorney-in-fact or Affiliate of an Agent shall be (i) liable
for any action lawfully taken or omitted to be taken by it or such Person under
or in connection with this Agreement or any other Loan Document (except for its
own gross negligence or willful misconduct) or (ii) responsible in any manner to
any of the Lenders for any recitals, statements, representations or warranties
made by the Borrower, any other Loan Party or any officer or any of them
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by any Agent under or in connection with, this Agreement or any other Loan
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or the Notes or any other Loan Document or for
any failure of the Borrower or any other Loan Party to perform its obligations
hereunder or thereunder. None of the Agents shall be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or any other
Loan Document, or to inspect the properties, books or records of the Borrower or
any of its Subsidiaries.
8.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected
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by the Administrative Agent. The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes unless a written notice
of assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the Notes and the other Loan
Documents in accordance with a request of the Required Lenders, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Notes.
8.5 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
unless the Administrative Agent has received notice from a Lender or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that unless and until the
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Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
8.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
----------------------------------------
acknowledges that no Agent or any officer, director, employee, agent, attorney-
in-fact or Affiliate of any Agent has made any representations or warranties to
it and that no act by any Agent hereafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any representation or
warranty by such Agent or any other Agent to any Lender. Each Lender represents
to the Agents that it has, independently and without reliance upon any Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and its Subsidiaries made its own decision to make its Loans hereunder
and enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and its Subsidiaries. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder or furnished to the Administrative Agent for the account of, or with a
counterpart or copy for, each Lender, no Agent shall have any duty or
responsibility to provide any Lender with any credit or other information
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concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower or any of its
Subsidiaries which may come into the possession of any Agent or any officer,
director, employee, agent, attorney-in-fact or Affiliate of any Agent.
8.7 Indemnification. The Lenders agree to indemnify each of the
---------------
Administrative Agent, the Syndication Agent and the Documentation Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective aggregate Commitment Percentages in effect on the date on which
indemnification is sought under this Section (or, if indemnification is sought
after the date upon which the Commitments shall have terminated and the Loans
shall have been paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against any such Agent in any way
relating to or arising out of this Agreement, any of the other Loan Documents or
any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by
such Agent under or in connection with any of the foregoing; provided that no
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Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from such Agent's gross negligence or
willful misconduct. The agreements in this Section shall survive the payment of
the Obligations hereunder.
8.8 Agent in Its Individual Capacity. Each Agent and its Affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower as though such Agent were not an Agent hereunder and
under the other Loan Documents. With respect to Credit Extensions made or
renewed by it and any Note issued to it, each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
8.9 Successor Agent. The Administrative Agent may resign as
---------------
Administrative Agent upon 10 days' notice to the Lenders. If the Administrative
Agent shall resign or be terminated, as the case may be, as Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
a successor agent, whereupon such successor agent shall succeed to the rights,
powers and duties of the Administrative Agent, and the term "Administrative
Agent" shall mean such successor agent effective upon such appointment and
approval, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Notes. After the Administrative Agent's
resignation or termination, as Administrative Agent, the provisions of this
Section shall inure to the benefit of the Administrative Agent, as to any
actions taken or omitted to be taken by it while it was the Administrative
Agent, under this Agreement and the other Loan Documents.
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ARTICLE 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any Note or any
----------------------
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section. The Required Lenders may, or, with the written consent of the Required
Lenders, the Administrative Agent may, from time to time, (a) enter into with
the Borrower written amendments, supplements or modifications hereto or any
other Loan Documents to which the Borrower is a party for the purpose of adding
any provisions to or changing in any manner the rights of the Lenders or of the
Borrower hereunder or thereunder; (b) enter into with any other Loan Party
written amendments, supplements or modifications to the Loan Documents to which
such other Loan Party is a party for the purpose of adding provisions to such
other Loan Documents or changing in any manner the rights of the Lenders or such
other Loan Party thereunder or (c) waive, on such terms and conditions as the
Required Lenders or the Administrative Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement, the Notes or the
other Loan Documents or any Default or Event of Default and its consequences;
provided that no such waiver and no such amendment, supplement or modification
- --------
(i) shall reduce the amount or extend the scheduled date of maturity of any Note
or of any installment thereof, or reduce the stated rate of any interest or fee
payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's Commitments,
in each case, without the consent of all the Lenders, or (ii) shall amend,
modify or waive any provision of this Section, Section 2.9(b) (or the definition
--------------
of Excess Cash Flow), Section 2.9(c) (or the definition of Net Disposition
--------------
Proceeds), Section 2.9(d) (or the definition of Net Insurance Proceeds), Section
-------------- -------
2.9(e) (or the definition of Net Securities Proceeds) or any other provision of
- ------
this Agreement or any other Loan Document which specifically by its terms
requires the approval or consent of all the Lenders or reduce the percentage
specified in the definition of Required Lenders, or consent to the assignment or
transfer by the Borrower or any other Loan Party of any of its rights and
obligations under this Agreement, the Notes and the other Loan Documents or
release all or any substantial portion of the Collateral, in each case, without
the written consent of all the Lenders, (iii) shall increase the Stated Amount
of the Letter of Credit without the consent of the Issuer, (iv) adversely affect
the interest, rights or obligations of the Issuer, without the consent of the
Issuer or (v) amend, modify or waive any provision of Article 8 without the
---------
written consent of any then Agent. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Borrower, the Lenders, the Agents and all future holders of
the Notes. In the case of any waiver, the Borrower, the Lenders and the Agents
shall be restored to their former position and rights hereunder and under the
outstanding Notes and any other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing, but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
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respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or, in
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the case of notice by mail, when received, or, in the case of telecopy notice,
when received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in Schedule I in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Notes:
The Borrower: Four Media Company
2813 West Alameda Avenue
Burbank, California 91505-455
Attn: Chief Executive Officer
Telecopy: previously delivered
With Copies to: Greenberg Glusker Fields Claman & Machtinger
LLP
1900 Avenue of the Stars
Suite 2100
Los Angeles, California
Attention: Jill A. Cossman, Esq.
Telecopy: previously delivered
The Administrative Agent: Canadian Imperial Bank of Commerce
425 Lexington Avenue
New York, New York 10017
Attention: Media Group
Telecopy: previously delivered
With copies to: Canadian Imperial Bank of Commerce
425 Lexington Avenue
New York, New York 10017
Attention: Agency Services, Loan Underwriting
and Distribution
Telecopy: previously delivered
The Issuer: Canadian Imperial Bank of Commerce
425 Lexington Avenue
New York, New York 10017
Attention: Mary Beth Ross
Telecopy: previously delivered
;provided that any notice, request or demand to or upon the Administrative
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Agent or the Lenders pursuant to Section 2.3, Section 2.5, Section 2.8, Section
----------- ----------- ----------- -------
2.9, Section 2.10 or Section 2.15 shall not be effective until received.
- --- ------------ ------------
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall
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any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the Notes and the
making of the Loans hereunder.
9.5 Payment of Expenses and Taxes; Indemnification. The Borrower,
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agrees (a) to pay or reimburse the Administrative Agent for all its reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification to,
this Agreement, the Notes and the other Loan Documents and any other documents
prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the fees and disbursements of counsel to the Administrative
Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all
its costs and expenses incurred in connection with the negotiation of any
restructuring or "work-out," whether or not consummated, and the enforcement or
preservation of any rights under this Agreement, the Notes, the other Loan
Documents and any such other documents, including, without limitation, the fees
and disbursements of counsel to the Administrative Agent and to each Lender, and
(c) to pay, and indemnify and hold harmless each Lender and the Administrative
Agent from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the Notes,
the other Loan Documents and any such other documents, and (d) to pay, and
indemnify and hold harmless each Lender and the Administrative Agent (including
each of their respective parents, subsidiaries, officers, directors, employees,
agent and affiliates) from and against, any and all other claims, demands,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, settlements, expenses or disbursements of whatever kind or nature arising
from, in connection with or with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the Notes, the
other Loan Documents, the Acquisition Documents or any other documents or the
use of the proceeds of the Loans in connection with the Acquisition or any other
purpose (all the foregoing in this clause (d), collectively, the "indemnified
liabilities"); provided that the Borrower shall have no obligation hereunder to
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the Administrative Agent or any Lender with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of the Administrative
Agent or such Lender. The agreements in this Section 9.5 shall survive
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repayment of the Obligations hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a) This
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Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the
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Administrative Agent, all future holders of the Notes and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
------------
owing to such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder and under the other Loan
Documents; provided that (i) any such sale of participating interests must be in
--------
a minimum amount equal to the lesser of (A) $1,000,000 and (B) the aggregate
Commitments of such Lender then in effect, and (ii) after giving effect to any
such sale, such Lender must have either (x) retained at least $1,000,000 of
Commitments not subject to any participating interests or (y) sold participating
interests to Participants in all its Loans and Commitments. In the event of any
such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Note for
all purposes under this Agreement and the other Loan Documents, and the Borrower
and the Administrative Agent shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. The Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of setoff
in respect of its participating interest in amounts owing under this Agreement
and any Note to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under this Agreement or any Note; provided
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that, in purchasing such participating interest, such Participant shall be
deemed to have agreed to share with the Lenders the proceeds thereof as provided
in Section 9.7(a) as fully as if it were a Lender hereunder. The Borrower also
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agrees that each Participant shall be entitled to the benefits of Section 2.17,
------------
Section 2.18 and Section 2.19 with respect to its participation in the
- ------------ ------------
Commitments and the Loans outstanding from time to time as if it were a Lender;
provided that, in the case of Section 2.18, such Participant shall have complied
- -------- ------------
with the requirements of said Section and provided, further, that no Participant
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shall be entitled to receive any greater amount pursuant to any such Section
than the transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent of the
Borrower (so long as no Event of Default shall have occurred which is
continuing) and the Administrative Agent (which consent in each case shall not
be unreasonably withheld), to an additional bank or financial institution (an
"Assignee") all or any part of its rights and obligations under this Agreement
- ---------
and the Notes pursuant to a Commitment Transfer Supplement, substantially in the
form of Exhibit CC (a "Commitment Transfer Supplement") executed by such
---------- ------------------------------
Assignee such assigning Lender (and, in the case of an Assignee that is not then
a Lender or an affiliate thereof, by the Borrower (so long as no Event of
Default shall have occurred which is continuing) and the Administrative Agent)
and delivered to
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<PAGE>
the Administrative Agent for its acceptance and recording in the Register;
provided that (i) any such assignment must be in a minimum amount equal to the
- --------
lesser of (x) $5,000,000 (or such lesser amount as may be acceptable to the
Administrative Agent and the Borrower (so long as no Event of Default shall have
occurred which is continuing) and (y) the aggregate Commitments and outstanding
Loans of such Lender then in effect, and (ii) after giving effect to any such
assignment, such Lender shall have either (x) sold all its rights and
obligations hereunder and under the Notes or (y) retained at least $1,000,000 of
the aggregate Commitments. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Commitment Transfer Supplement, (1) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Commitment Transfer Supplement, have
the rights and obligations of a Lender hereunder with a Commitment as set forth
therein and (2) the assigning Lender thereunder, to the extent provided in such
Commitment Transfer Supplement, shall be released from its obligations under
this Agreement (and, in the case of a Commitment Transfer Supplement covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such assigning Lender shall cease to be a party hereto;
provided that the provisions of Section 2.17, Section 2.18, Section 2.19 and
- -------- ------------ ------------
Section 9.5 shall continue to benefit such assigning Lender to the extent
- ------------ -----------
required by such Sections).
(d) The Administrative Agent shall maintain, at its address referred
to in Section 9.2 a copy of each Commitment Transfer Supplement delivered to it
-----------
and a register (the "Register") for the recordation of the names and addresses
--------
of the Lenders and the Commitments of, and principal amount of the Loans owing
to, each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as the owner of the Loan recorded therein for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by
an assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Administrative
Agent) together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall promptly accept such
Commitment Transfer Supplement and, on the effective date determined pursuant
thereto, shall record the information contained therein in the Register and give
notice of such acceptance and recordation to the Lenders and the Borrower. On
or prior to such effective date, the Borrower, at its own expense, shall execute
and deliver to the Administrative Agent (in exchange for the Revolving Credit
Note, Term A Note or Term B Note of the assigning Lender) a new Revolving Credit
Note, Term A Note or Term B Note, as the case may be, to the order of such
Assignee in an amount equal to the Revolving Credit Commitment, Term A Loan or
Term B Loan, as the case may be, assumed by such Assignee pursuant to such
Commitment Transfer Supplement and, if the assigning Lender has retained a
Revolving Credit Commitment, Term A Loan or Term B Loan hereunder, a new
Revolving Credit Note, Term A Note or Term B Note, as the case may be, to the
order of the assigning Lender in an amount equal to the Revolving Credit
Commitment, Term A Loan or Term B Loan, as the case may be, retained
-94-
<PAGE>
by it hereunder. Such new Notes shall be dated the Closing Date and shall
otherwise be in the form of the Notes replaced thereby.
(f) The Borrower authorizes each Lender to disclose to any Participant
or Assignee (each, a "Transferee") and any prospective Transferee, any and all
----------
financial information in such Lender's possession concerning the Borrower and
their respective Affiliates which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or which has been delivered to
such Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and their respective Affiliates prior to
becoming a party to this Agreement.
(g) Nothing herein shall prohibit any Lender from pledging or
assigning any Note to any Federal Reserve Bank in accordance with applicable
law.
9.7 Adjustments; Setoff. (a) If any Lender (a "Benefitted Lender")
------------------- -----------------
shall at any time receive any payment of all or part of its Credit Extensions,
or interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by setoff, pursuant to events or proceedings of
the nature referred to in Section 7.1(f), or otherwise), in a greater proportion
--------------
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Credit Extensions, or interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of each such other Lender's Loans, or shall provide
such other Lenders with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such benefitted Lender to share the
excess payment or benefits of such collateral or proceeds ratably with each of
the Lenders; provided that if all or any portion of such excess payment or
--------
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
(b) No Lender shall set off against any deposits or other sums at any
time credited or due from the Lenders to the Borrower and only the
Administrative Agent may apply any such deposit or other sum to or set them off
against the Obligations.
9.8 Confidentiality. Each Lender agrees to exercise all reasonable
---------------
efforts (consistent with its customary methods for keeping information
confidential) to keep any information delivered or made available by the
Borrower or any Subsidiary confidential from anyone other than persons employed
or retained by such Lender who are or are expected to become engaged in
evaluating, approving, structuring or administering the Loans; provided, that
--------
nothing herein shall prevent any Lender from disclosing such information (a) to
any Affiliate of such Lender or to any other Lender, (b) upon the order of any
court or administrative agency, (c) upon the request or demand of any regulatory
agency or authority having jurisdiction over such Lender, (d) that has been
publicly disclosed, (e) in connection with any litigation relating to the Loans,
this Agreement or any transaction contemplated hereby to which any Loan Party,
any Lender or the Administrative Agent may be a party, (f) to the extent
reasonably required in connection with the exercise of any remedy hereunder, (g)
to such Lender's legal counsel and
-95-
<PAGE>
independent auditors and (h) to any actual or proposed participant or assignee
of all or any part of its Loans hereunder, if such other Person, prior to such
disclosure, agrees, in writing, for the benefit of the Borrower to comply with
the provisions of this Section 9.8.
-----------
9.9 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
9.10 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.11 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof or thereof not expressly
set forth or referred to herein or in the other Loan Documents.
9.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS
-------------
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF
OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK.
9.13 Submission To Jurisdiction; Waivers. The Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
-96-
<PAGE>
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Borrower, as
the case may be, at its address set forth in Section 9.2 or at such other
-----------
address of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing contained herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.
9.14 Acknowledgments. The Borrower hereby acknowledges that:
---------------
(a) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower or any Subsidiary arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between the Administrative Agent and the Lenders, on the one hand,
and the Borrower, on the other hand, in connection herewith or therewith is
solely that of creditor and debtor; and
(b) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among, the Borrower, any Subsidiary and the Lenders.
9.15 Waivers of Jury Trial. THE BORROWER, THE AGENTS AND THE
---------------------
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
-97-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
FOUR MEDIA COMPANY
/s/ Robert T. Walston
By:_________________________
Name: Robert T. Walston
Title: CEO
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
/s/ Harold Birk
By:_________________________
Name: Harold Birk
Title: Executive Director
CIBC Oppenheimer Corp., as Agent
BANK OF AMERICA NT&SA ,
as Syndication Agent
/s/ Matthew J. Koenig
By:__________________________
Name: Matthew J. Koenig
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
as Documentation Agent
/s/ Lena Bryant
By:_________________________
Name: Lena Bryant
Title:
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<PAGE>
SOCIETE GENERALE,
as Co-Agent
/s/ J. Blaine Shaum
By:__________________________
Name: J. Blaine Shaum
Title: Regional Manager
CANADIAN IMPERIAL BANK OF COMMERCE
as Issuer
/s/ Harold Birk
By:__________________________
Name: Harold Birk
Title: Executive Director
CIBC Oppenheimer Corp., as Agent
LENDERS:
CIBC INC.
/s/ Harold Birk
By:_________________________
Name: Harold Birk
Title: Executive Director
CIBC Oppenheimer Corp., as Agent
BANK OF AMERICA, NT & SA
/s/ Matthew J. Koenig
By:_________________________
Name: Matthew J. Koenig
Title: Vice President
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<PAGE>
UNION BANK OF CALIFORNIA, N.A.
/s/ Lena Bryant
By:__________________________
Name: Lena Bryant
Title:
SOCIETE GENERALE
/s/ JP Blaine Shaum
By:__________________________
Name: JP Blaine Shaum
Title: Regional Manager
-100-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1. DEFINITIONS................................................................... 2
1.1 Defined Terms...................................................................... 2
1.2 Other Definitional Provisions...................................................... 34
ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS............................................... 34
2.1 Revolving Credit Commitments....................................................... 34
2.2 Revolving Credit Notes............................................................. 35
2.3 Procedure for Revolving Credit Borrowing........................................... 35
2.4 Commitment Fees; Administrative Fee................................................ 36
2.5 Optional and Mandatory Termination or Reduction of Revolving Credit Commitments.... 36
2.6 Term A Loans; Reduction of Term A Loan Commitment; Term B Loans.................... 37
2.7 Term A Notes and Term B Notes...................................................... 38
2.8 Procedures for Term A Loan and Term B Loan Borrowing............................... 40
2.9 Optional and Mandatory Prepayments................................................. 41
2.10 Conversion and Continuation Options................................................ 43
2.11 Maximum Amounts of Tranches........................................................ 44
2.12 Interest Rates and Payment Dates................................................... 44
2.13 Computation of Interest and Fees................................................... 45
2.14 Inability to Determine Interest Rate............................................... 45
2.15 Pro Rata Treatment and Payments; Funding Reliance.................................. 46
2.16 Illegality......................................................................... 47
2.17 Requirements of Law................................................................ 47
2.18 Taxes.............................................................................. 48
2.19 Indemnity.......................................................................... 49
2.20 Discretion of Lender as to Manner of Funding....................................... 49
2.21 Letter of Credit................................................................... 50
ARTICLE 3. REPRESENTATIONS AND WARRANTIES................................................ 52
3.1 Financial Condition................................................................ 52
3.2 No Change.......................................................................... 54
3.3 Corporate Existence; Compliance with Law........................................... 54
3.4 Corporate Power; Authorization; Enforceable Obligations............................ 55
3.5 No Legal Bar....................................................................... 55
3.6 No Material Litigation............................................................. 55
3.7 No Default......................................................................... 55
3.8 Ownership of Property; Liens....................................................... 56
3.9 Intellectual Property.............................................................. 56
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.10 No Burdensome Restrictions......................................................... 56
3.11 Taxes.............................................................................. 56
3.12 Federal Regulations................................................................ 56
3.13 ERISA.............................................................................. 56
3.14 Holding Company; Investment Company Act; Other Regulations......................... 57
3.15 Purpose of Loans................................................................... 57
3.16 Environmental Matters.............................................................. 58
3.17 Acquisition........................................................................ 59
3.18 Capitalization of Borrower......................................................... 59
3.19 Subsidiaries....................................................................... 59
3.20 Labor Matters...................................................................... 59
3.21 Insurance.......................................................................... 60
3.22 Acquisition Documents.............................................................. 60
3.23 Security Documents................................................................. 60
3.24 Accuracy and Completeness of Information........................................... 61
3.25 Leaseholds, Permits, etc........................................................... 62
3.26 Solvency........................................................................... 62
3.27 Licenses........................................................................... 62
ARTICLE 4. CONDITIONS PRECEDENT.......................................................... 62
4.1 Conditions to Initial Loans........................................................ 62
4.2 Conditions to Each Loan............................................................ 67
ARTICLE 5. AFFIRMATIVE COVENANTS......................................................... 68
5.1 Financial Statements............................................................... 68
5.2 Certificates; Other Information.................................................... 69
5.3 Payment of Obligations............................................................. 70
5.4 Maintenance of Existence........................................................... 70
5.5 Maintenance of Property; Insurance................................................. 71
5.6 Inspection of Property; Books and Records; Discussions............................. 71
5.7 Notices............................................................................ 71
5.8 Environmental Laws................................................................. 72
5.9 Interest Rate Protection........................................................... 73
5.10 ERISA.............................................................................. 73
5.11 Use of Proceeds.................................................................... 74
5.12 Further Assurances................................................................. 74
ARTICLE 6. NEGATIVE COVENANTS............................................................ 74
6.1 Financial Condition Covenants...................................................... 74
6.2 Limitation on Indebtedness......................................................... 75
6.3 Limitation on Liens................................................................ 75
6.4 Limitation on Guarantee Obligations................................................ 76
6.5 Limitation on Fundamental Changes.................................................. 76
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.6 Limitation on Sale of Assets....................................................... 77
6.7 Limitation on Dividends............................................................ 77
6.8 Limitation on Capital Expenditures................................................. 78
6.9 Limitation on Investments, Loans and Advances...................................... 78
6.10 Limitation on Transactions with Affiliates......................................... 79
6.11 Limitation on Sales and Leasebacks................................................. 79
6.12 Limitation on Changes in Fiscal Year............................................... 79
6.13 Limitation on Negative Pledge Clauses.............................................. 79
6.14 Limitation on Lines of Business.................................................... 79
6.15 New Subsidiaries................................................................... 79
6.16 Management......................................................................... 80
6.17 Amendments to Material Agreements.................................................. 80
ARTICLE 7. EVENTS OF DEFAULT............................................................. 80
7.1...................................................................................... 80
ARTICLE 8. THE AGENT..................................................................... 83
8.1 Appointment........................................................................ 83
8.2 Delegation of Duties............................................................... 83
8.3 Exculpatory Provisions............................................................. 83
8.4 Reliance by Administrative Agent................................................... 84
8.5 Notice of Default.................................................................. 84
8.6 Non-Reliance on Agents and Other Lenders........................................... 84
8.7 Indemnification.................................................................... 85
8.8 Agent in Its Individual Capacity................................................... 85
8.9 Successor Agent.................................................................... 86
ARTICLE 9. MISCELLANEOUS................................................................. 86
9.1 Amendments and Waivers............................................................. 86
9.2 Notices............................................................................ 87
9.3 No Waiver; Cumulative Remedies..................................................... 88
9.4 Survival of Representations and Warranties......................................... 88
9.5 Payment of Expenses and Taxes; Indemnification..................................... 88
9.6 Successors and Assigns; Participations and Assignments............................. 89
9.7 Adjustments; Setoff................................................................ 91
9.8 Confidentiality.................................................................... 91
9.9 Counterparts....................................................................... 92
9.10 Severability....................................................................... 92
9.11 Integration........................................................................ 92
9.12 Governing Law...................................................................... 92
9.13 Submission To Jurisdiction; Waivers................................................ 92
9.14 Acknowledgments.................................................................... 93
9.15 Waivers of Jury Trial.............................................................. 93
</TABLE>
<PAGE>
Page
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<PAGE>
Page
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-vi-
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Term A Note
Exhibit C - Form of Term B Note
Exhibit D-1 - Form of Notice of Borrowing
Exhibit D-2 - Form of Notice of Conversion
Exhibit E - Borrower Custody Agreement
Exhibit F - Form of Borrower Pledge Agreement
Exhibit G - Form of Borrower Supplemental Pledge Agreement
Exhibit H - Form of Borrower Security Agreement
Exhibit I - Form of Anderson Video Guarantee
Exhibit J - Form of Anderson Video Security Agreement
Exhibit K - Form of Catalina Transmission Guarantee
Exhibit L - Form of Catalina Transmission Security Agreement
Exhibit M - Form of Digital Magic Guarantee
Exhibit N - Form of Digital Magic Intellectual Property Security Agreement
Exhibit O - Form of Digital Magic Security Agreement
Exhibit P - Form of 4MC3 Guarantee
Exhibit Q - Form of 4MC3 Security Agreement
Exhibit R - Form of Four Media Burbank Guarantee
Exhibit S - Four Media Burbank Intellectual Property Security Agreement
Exhibit T - Form of Four Media Burbank Pledge Agreement
Exhibit U - Form of Four Media Burbank Security Agreement
Exhibit V - Form of Meridian Sound Guarantee
Exhibit W - Form of Meridian Sound Security Agreement
Exhibit X - Form of POP Guarantee
Exhibit Y - Form of POP Pledge Agreement
Exhibit Z - Form of POP Security Agreement
Exhibit AA - Form of POP Animation Guarantee
Exhibit BB - Form of POP Animation Security Agreement
Exhibit CC - Form of Santa Monica Financial Guarantee
Exhibit DD - Form of Santa Monica Financial Security Agreement
Exhibit EE - Form of Ten Moons Guarantee
Exhibit FF - Form of Ten Moons Security Agreement
Exhibit GG - Form of Approved Subsidiary Guarantee
Exhibit HH - Form of Approved Subsidiary Security Agreement
Exhibit II - Form of Legal Opinion
Exhibit JJ - Form of Closing Certificate
Exhibit KK - Form of Compliance Certificate
Exhibit LL - Subordination Terms
Exhibit MM - Form of Commitment Transfer Supplement
Exhibit NN - Form of Borrower Deed of Trust
Exhibit OO - Form of Four Media Burbank Deed of Trust
</TABLE>
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<PAGE>
EXHIBIT 4.2
Page
----
- --------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
dated
February 5, 1998
between
FOUR MEDIA COMPANY
and
FLEMING US DISCOVERY FUND III, L.P.
- --------------------------------------------------------------------------------
<PAGE>
Page
____
PREFERRED STOCK PURCHASE AGREEMENT
dated
February 5, 1998
between
FOUR MEDIA COMPANY
and
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK 1
SECTION 2. THE CLOSING 2
SECTION 3. DEFINITIONS 2
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 15
4.1. Corporate Existence, Power and Authority. 15
4.2. Capital Stock. 16
4.3. Subsidiaries. 17
4.4. Business. 17
4.5. No Defaults or Conflicts. 18
4.6. Disclosure Materials; Other Information 18
4.7. Litigation. 20
4.8. Taxes. 20
4.9. ERISA and Other Employee Benefits 20
4.10. Legal Compliance. 22
4.11. Outstanding Securities 22
4.12. Intellectual Property and Other Rights. 23
4.13. Permits, Licenses and Approvals. 23
4.14. Labor Matters. 23
4.15. Properties. 24
4.16. Suppliers and Customers. 25
4.17. Environmental Compliance. 25
4.18. Certain Agreements. 26
4.19. Offering of Shares. 26
4.20. SEC Reports. 27
4.21. Solvency. 27
4.22. Indebtedness. 28
4.23. Use of Proceeds. 28
4.24. Other Names. 28
4.25. Brokers. 28
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 29
5.1. Corporate Power and Authority 29
5.2. Investment Intent 29
5.3. Brokers. 29
SECTION 6. RESTRICTIONS ON TRANSFER 30
SECTION 7. INFORMATION AS TO THE COMPANY 30
7.1. Financial Information. 30
7.2. Communication with Accountants. 33
7.3. Inspection. 33
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<C> <S> <C>
7.4. Notices. 33
SECTION 8. AFFIRMATIVE COVENANTS 35
8.1. Maintenance of Existence, Properties and Franchises; Compliance with Law; Taxes; Insurance. 35
8.2. Office for Payment, Exchange and Registration; Location of Office; Notice of Change of Name or Office. 36
8.3. Fiscal Year. 36
8.4. Environmental Matters. 36
8.5. Reservation of Shares. 37
8.6. Securities Exchange Act Registration. 37
8.7. Delivery of Information for Rule 144A Transactions. 37
8.8. Further Assurances. 38
8.9. Issuances of Additional Shares of Series A Convertible Preferred Stock. 38
8.10. Public Announcements. 38
8.11. Consents and Approvals. 38
8.12. Registration Rights. 39
SECTION 9. NEGATIVE COVENANTS 39
9.1. No Dilution or Impairment; No Changes in Capital Stock. 39
9.2. Indebtedness. 40
9.3. Consolidation, Merger and Sale. 40
9.4. No Change in Business. 41
9.5. Restricted Payments; Investments. 41
9.6. Sale of Substantial Portion of Assets; Subsidiaries. 41
9.7. Affiliate Loans and Guaranties. 42
9.8. Transactions with Affiliates. 42
9.9. No Restrictions on Dividends. 43
9.10. Private Placement Status. 43
9.11. Maintenance of Public Market. 43
9.12. Amendments to Charter; By-Laws 44
9.13. Issuances and Purchases Prior to the Closing Date. 44
SECTION 10. CONDITIONS TO PURCHASER'S OBLIGATIONS 44
10.1. Certificate of Designations; Stockholders Agreement; Registration Rights Agreement 44
10.2. Certificates for Shares. 44
10.3. Accuracy of Representations and Warranties. 45
10.4. Compliance with Agreements. 45
10.5. Officers Certificates. 45
10.6. Proceedings. 45
10.7. Legality; Governmental and Other Authorization. 45
10.8. No Material Adverse Change. 46
10.9. Opinion of Counsel. 46
10.10. Additional Purchases of Shares. 46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
10.11. Credit Agreement. 46
10.12. Acceptance of Agent for Service of Process. 46
10.13. Other Documents and Opinions. 46
SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS 46
SECTION 12. EXPENSES 47
SECTION 13. DIRECT PAYMENTS 49
SECTION 14. AMENDMENTS AND WAIVERS 50
SECTION 15. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT 50
SECTION 16. NOTICES, OTHER COMMUNICATIONS AND CONSENTS 51
SECTION 17. MISCELLANEOUS 52
</TABLE>
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT is dated as of February 5, 1998
between Four Media Company, a Delaware corporation (the "Company", and the
-------
Purchaser listed on the signature page of this Agreement (the "Purchaser").
----------
W I T N E S S E T H :
-------------------
WHEREAS, the Company desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase from the Company, shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Convertible
--------------------
Preferred Stock"), all upon the terms and provisions hereinafter set forth;
- ----------------
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK
(a) The Company agrees to sell to the Purchaser and, subject to the terms and
conditions hereof and in reliance upon the representations and warranties
of the Company contained herein or made pursuant hereto, the Purchaser
agrees to purchase from the Company on the Closing Date specified in
Section 2 hereof, the number of shares of Series A Convertible Preferred
Stock set forth opposite the Purchaser's name on Schedule 1 hereto. The
shares of Series A Convertible Preferred Stock being acquired under this
Agreement and by the other Purchaser under the other Stock Purchase
Agreement (as hereinafter defined) are collectively referred to herein as
the "Shares", containing rights and privileges as more fully set forth in
-------
the Certificate of Designations of the Company in the form attached hereto
as Exhibit A (the "Certificate of Designations").
----------------------------
(b) The aggregate purchase price to be paid to the Company by the Purchaser for
the Shares to be purchased by the Purchaser pursuant to this Agreement
shall be the amount set forth opposite the Purchaser's name on Schedule 1
hereto. No further payment shall be required from the Purchaser for the
Shares. The parties further acknowledge and agree that the Shares do not
constitute "preferred stock" as that term is used in Section 305(b)(4) of
the Code and Treasury Regulation (S) 1.305-5(a) and agree not to take any
position inconsistent with the characterization of the Shares as common
stock for purposes of Section 305 of the Code on any Tax Return or before
any Taxing Authority.
(c) The Shares are being sold to the purchasers listed on Schedule 1 hereto
(the "Purchasers") pursuant to this Agreement and the other Series A
-----------
Convertible Preferred Stock Purchase Agreement (all such agreements
collectively, as from time to time assigned, supplemented or amended or as
the terms thereof may be waived, the "Stock Purchase Agreements"). All
--------------------------
Stock Purchase Agreements shall be dated the date hereof and shall be
identical except as to the
<PAGE>
identities of the respective Purchasers. The sale of Shares to each
Purchaser under each Stock Purchase Agreement is to be a separate sale, and
no Purchaser shall have any liability under any Stock Purchase Agreement
other than the Stock Purchase Agreement to which it is a party.
(d) The Company will use the proceeds from the sale of the Shares, together
with other funds it will receive on the Closing Date, to fund acquisitions
and for working capital and general corporate purposes (including, without
limitation, refinancing of Indebtedness set forth on Schedule 2 hereto).
SECTION 2. THE CLOSING
(a) Subject to the terms and conditions hereof, the closing of the purchase and
sale of the Shares to be purchased by the Purchaser (the "Closing") will
--------
take place at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue,
New York, New York at 10:00 A.M., New York City time, on the date as shall
be mutually agreed to by the Company and the Purchaser, but in any event no
later than March 31, 1998. Such time and date are herein referred to as
the "Closing Date".
-------------
(b) Subject to the terms and conditions hereof, on the Closing Date (i) the
Company will deliver to the Purchaser a certificate registered in the
Purchaser's name (or the name of its nominee, if any, as specified on
Schedule 1 hereto) evidencing the number of Shares set forth opposite the
Purchaser's name on Schedule 1 and (ii) upon the Purchaser's receipt
thereof, the Purchaser will deliver to the Company a certified or official
bank check (or wire transfer) in an amount equal to the aggregate purchase
price (as specified in Section 1(b) hereof) for the Shares to be purchased
by the Purchaser payable to the order of the Company in federal or other
immediately available funds.
SECTION 3. DEFINITIONS
(a) For purposes of this Agreement, the following definitions shall apply (such
definitions to be equally applicable to both the singular and plural forms
of the terms defined):
"Adjusted Operating Cash Flow" means, for any period of determination, an amount
-----------------------------
equal to the sum of (without duplication) (a) Operating Cash Flow for such
period plus (b) for any period of determination which occurs after an
acquisition but incorporates fiscal quarters prior thereto, the Operating Cash
Flow attributable to the assets or capital stock so acquired (it being
understood that, in calculating such Operating Cash Flow, (i) all references to
the Company and the definition thereof (or in any other defined term contained
therein) shall be deemed to be references to the Person or attributable to the
assets so acquired and (ii) such acquisition shall be deemed to have occurred as
of the first day of such period of determination), minus (c) for any period
which occurs after a disposition by the Company but incorporates fiscal quarters
prior thereto, the Operating Cash Flow attributable to the assets or capital
stock so disposed (it being understood that, in calculating such Operating Cash
Flow, such disposition shall be deemed to have occurred as of the first day of
such period of determination), plus (d) the amount of
<PAGE>
identifiable cost savings derived from any such acquisition which amount is
reasonably approved by the Fleming Holders; provided that the amount of cost
savings will be reduced by one-twelfth of the amount thereof commencing with the
first full fiscal month after the closing of such acquisition.
"Affiliate", when used with respect to any Person, means (i) if such Person is a
- -----------
corporation, any officer or director thereof (other than a director elected
pursuant to Section 4 of the Certificate of Designations) and any Person which
is, directly or indirectly, the beneficial owner (by itself or as part of any
group) of more than five percent (5%) of any class of any equity security
(within the meaning of the Securities Exchange Act) thereof, and, if such
beneficial owner is a partnership, any general partner thereof, or if such
beneficial owner is a corporation, any Person controlling, controlled by or
under common control with such beneficial owner, or any officer or director of
such beneficial owner or of any corporation occupying any such control
relationship, (ii) if such Person is a partnership, any general or limited
partner thereof, and (iii) any other Person which, directly or indirectly,
controls or is controlled by or is under common control with such Person. For
purposes of this definition, "control" (including the correlative terms
"controlling", "controlled by" and "under common control with"), with respect to
any Person, shall mean possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
The holding of Shares (or of Conversion Shares obtained upon conversion of
Shares), and the rights under any Stock Purchase Agreement or under the
Certificate of Designations, the Stockholders' Agreement or the Registration
Rights Agreement (or the exercise of any such rights, including, without
limitation, nominating a director to the Board (or Board committee) of the
Company and Subsidiaries or sending an observer to Board (or Board committee)
meetings of the Company and Subsidiaries), shall not cause a Purchaser to be
deemed to be an "Affiliate" of the Company or of any Subsidiary. For purposes
of Sections 9.7 and 9.8 hereof, the term "Affiliate" shall not include any
Subsidiary of the Company.
"Agreement" means this Preferred Stock Purchase Agreement (together with
- -----------
exhibits and schedules) as from time to time assigned, supplemented or amended
or as the terms hereof may be waived.
"Alternative Transaction" has the meaning set forth in Section 12(d) hereof.
- -------------------------
"Benefit Plan" means any Plan, existing at the Closing Date or prior thereto,
- --------------
established or to which contributions have at any time been made by the Company
or any Subsidiary, or any predecessor of any of the foregoing, or under which
any employee, former employee or director of the Company or any Subsidiary or
any beneficiary thereof is covered, is eligible for coverage or has benefit
rights.
"Board" or "Board of Directors" means with respect to any Person which is a
- ------- -------------------
corporation, a business trust or other entity, the board of directors or other
group, however, designated, which is charged with legal responsibility for the
management of such Person, or any committee of such board of directors or group,
however designated, which
<PAGE>
is authorized to exercise the power of such board or group in respect of the
matter in question. The term "Board" or "Board of Directors" when used herein
------ ------------------
without reference to any particular Person means the Board or Board of Directors
of the Company.
"Business Day" means any day other than a Saturday, Sunday or any day on which
- --------------
banks in the State of New York are authorized or obligated to close.
"Capitalized Leases" means any lease to which the Company or a Subsidiary is
- --------------------
party as lessee, or by which it is bound, under which it leases any property
(real, personal or mixed) from any lessor other than the Company or a
Subsidiary, and which is required to be capitalized in accordance with generally
accepted accounting principles consistently applied. The value of Capitalized
Leases, as of the time of any determination thereof, shall mean the sum of the
then present values, determined as hereinafter provided, of future obligations
of lessees under then existing Capitalized Leases. To compute the value of any
Capitalized Lease, values of leases required to be capitalized in accordance
with generally accepted accounting principles shall be computed in accordance
with such principles.
"Certificate of Designations" has the meaning set forth in Section 1(a) hereof.
- -----------------------------
"Closing" has the meaning set forth in Section 2(a) hereof.
--------
"Closing Date" has the meaning set forth in Section 2(a) hereof.
-------------
"Code" means the Internal Revenue Code of 1986, as amended from time to time,
-----
and the regulations and interpretations thereunder.
"Commission" means the Securities and Exchange Commission and any other similar
-----------
or successor agency of the federal government administering the Securities Act
or the Securities Exchange Act.
"Common Stock" means the Company's Common Stock, par value $.01 per share, and
-------------
shall also include any common stock of the Company hereafter authorized and any
capital stock of the Company of any other class hereafter authorized which is
not preferred as to dividends or assets over any other class of capital stock of
the Company or which has ordinary voting power for the election of directors of
the Company.
"Company" means Four Media Company, a Delaware corporation, its successors and
- ---------
assigns.
"Consolidated" or "consolidated", when used with reference to any financial term
- -------------- -------------
in this Agreement, means the aggregate for the Company and its Subsidiaries of
the amounts signified by such term for all such Persons, with intercompany items
eliminated, and, with respect to net worth, after eliminating the portion of net
worth properly attributable to minority interests, if any, in the capital of any
such Person (other than in the capital of the Company) and otherwise as
determined in accordance with generally accepted accounting principles
consistently applied (except as otherwise expressly provided herein).
<PAGE>
"Conversion Share" or "Conversion Shares" means the shares of the Company's
- ------------------ ------------------
Common Stock obtained or obtainable upon conversion of Shares and shall also
include any capital stock or other securities into which Conversion Shares are
changed and any capital stock or other securities resulting from or comprising a
reclassification, combination or subdivision of, or a stock dividend on, any
Conversion Shares. In the event that any Conversion Shares are sold either in a
public offering pursuant to a registration statement under the Securities Act or
pursuant to a Rule 144 Transaction, then the transferees of such Conversion
Shares shall not be entitled to any benefits under this Agreement with respect
to such Conversion Shares and such Conversion Shares shall no longer be
considered to be "Conversion Shares" for purposes of any consent or waiver
provision of this Agreement.
"Credit Agreement" means the Credit Agreement between the Company and Canadian
-----------------
Imperial Bank of Commerce (or one or more of its Affiliates), as Agent, and a
group of lenders.
"Designated Entity" has the meaning specified in Section 16(a) hereof.
- -------------------
"Disclosure Material" has the meaning specified in Section 4.6(a) hereof.
- ---------------------
"Environmental Laws" means all federal, state, local, foreign, civil and
- --------------------
criminal laws, statutes, ordinances, orders, codes, Environmental Permits,
rules, policies, and regulations and common law relating to the protection of
the environment and human health or relating to the handling, use, generation,
treatment, storage, transportation or disposal of Hazardous Materials, including
but not limited to the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
(S) 6901 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq.;
------ ------
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. (S) 9601 et seq.; the Federal Water Pollution Control Act, 33
------
U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; the
------ ------
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et seq.; The
------
Occupational Safety and Health Act, 29 U.S.C. (S) 651; the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. (S) 136y et seq.; and the Oil Pollution
------
Act of 1990, 33 U.S.C. (S) 2701 et seq., all as may be amended or superseded
------
from time to time.
"Environmental Lien" has the meaning set forth in Section 4.17 hereof.
- --------------------
"Environmental Permits" means all permits, licenses, approvals, authorizations
----------------------
or consents required by any Governmental Authority under any applicable
Environmental Law and includes any and all orders, consent orders or binding
agreements issued or entered into by a Governmental Authority under any
applicable Environmental Law.
"ERISA" means Employee Retirement Income Security Act of 1974, as amended.
------
"ERISA Affiliate" means each "person" (as defined in Section 3(9) of ERISA)
----------------
which is under "common control" with the Company or any of its Subsidiaries
(within the meaning of Section 414(b), (c), (m) or (o) of the Code).
<PAGE>
"Fee" has the meaning set forth in Section 12(d) hereof.
----
"Fleming Funds" means Fleming US Discovery Fund III, L.P. and Fleming US
- ---------------
Discovery Offshore Fund III, L.P.
"Fleming Holders" means (i) the Fleming Funds and (ii) any Affiliate, officer or
- -----------------
employee of an Affiliate or investment fund managed by an Affiliate of the
Fleming Funds to which the Fleming Funds may transfer record and/or beneficial
ownership of the Shares or the Conversion Shares.
"Funded Debt" means, as of any date of determination, without duplication, the
- -------------
sum of all Indebtedness (other than Indebtedness consisting of the Company's
Guaranty of any obligation of a Subsidiary or a Subsidiary's Guaranty of any
obligation of any other Subsidiary or of the Company) of the Company and its
Subsidiaries; provided, however, that with respect to non-wholly owned
-------- -------
Subsidiaries, no Indebtedness of such Subsidiary shall be included except to the
extent included in the consolidated financial statements of the Company.
"Governmental Authority" means any federal, state, or local governmental agency
- ------------------------
or authority (including regulatory authority) having jurisdiction over the
Company or any of its Subsidiaries or any of its respective assets or
businesses.
"Guaranty" means (i) any guaranty or endorsement of the payment or performance
- ----------
of, or any contingent obligation in respect of, any indebtedness or other
obligation of any other Person, (ii) any other arrangement whereby credit is
extended to one obligor (directly or indirectly) on the basis of any promise or
undertaking of another Person (a) to pay the indebtedness of such obligor, (b)
to purchase an obligation owed by such obligor, (c) to purchase or lease assets
(or to provide funds, goods or services) under circumstances that would enable
such obligor to discharge one or more of its obligations or (d) to maintain the
capital, working capital, solvency or general financial condition of such
obligor, in each case whether or not such arrangement is disclosed in the
balance sheet of such other Person or is referred to in a footnote thereto and
(iii) any liability as a general partner of a partnership in respect of
indebtedness or other obligations of such partnership; provided, however, that
-------- -------
the term "Guaranty" shall not include (1) endorsements for collection or deposit
in the ordinary course of business, (2) obligations of the Company or its
Subsidiaries which would constitute Guaranties solely by virtue of the
continuing liability of a Person which has sold assets subject to liabilities
for the liabilities which were assumed by the Person acquiring the assets,
unless such liability is required to be carried on the consolidated balance
sheet of the Company, (3) with respect to the preceding clause (d), any such
arrangement for the maintenance of the capital, working capital, solvency or
general financial condition of a Subsidiary of the Company or (4) any
performance guaranty entered into in the ordinary course of business. The
amount of any Guaranty and the amount of indebtedness resulting from such
Guaranty shall be the maximum amount of the guarantor's potential obligation in
respect of such Guaranty.
"Hazardous Materials" means any petroleum, petroleum hydrocarbons, petroleum
- ---------------------
waste or petroleum products, underground storage tanks, asbestos or asbestos-
containing materials, pesticides, lead and lead-containing materials, urea
formaldehyde insulation and polychlorinated
<PAGE>
biphenyls (PCBs), ionizing and non-ionizing radiation including radon and
electromagnetic frequency radiation; and any chemicals, materials, substances or
wastes in any amount or concentration which are now or hereafter "hazardous
substances," "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants"
or words of similar import, under any Environmental Law.
"Indebtedness" of any Person means, without duplication, as of any date as of
-------------
which the amount thereof is to be determined, (i) all obligations of such Person
to repay money borrowed (including, without limitation, all notes payable and
drafts accepted representing extensions of credit, all obligations under letters
of credit, all obligations evidenced by bonds, debentures, notes or other
similar instruments and all obligations upon which interest charges are
customarily paid), (ii) all Capitalized Leases in respect of which such Person
is liable as lessee or as the guarantor of the lessee, (iii) all monetary
obligations which are secured by any Lien (except for statutory liens) existing
on property owned by such Person whether or not the obligations secured thereby
have been incurred or assumed by such Person, (iv) all conditional sales
contracts and similar title retention debt instruments under which such Person
is obligated to make payments, (v) all Guaranties by such Person and (vi) all
contractual obligations (whether absolute or contingent) of such Person to
repurchase goods sold and distributed. "Indebtedness" shall not include,
however, (1) Indebtedness of the Company to any of its wholly-owned Subsidiaries
or Indebtedness of any wholly-owned Subsidiary to the Company or to another
wholly-owned Subsidiary, and (2) any unfunded obligations in any employee
pension benefit plan (as defined in ERISA) of the Company or of any Subsidiary.
For purposes of this Agreement, the value of Indebtedness at any time shall be
determined as follows with respect to Indebtedness under each of the foregoing
respective categories in this definition: (a) with respect to the preceding
clause (i), the value of such Indebtedness shall be the then principal amount
of, any then accrued interest on and (without duplication) any amounts then due,
with respect to such Indebtedness; (b) with respect to the preceding clause
(ii), the value of such Indebtedness shall be determined as provided in the
definition herein of "Capitalized Leases"; (c) with respect to the preceding
clause (iii), the value of such Indebtedness shall be the then principal amount
of, any then accrued interest on and (without duplication) any amounts then due,
with respect to such secured monetary obligations; (d) with respect to the
preceding clause (iv), the value of such contracts and instruments shall be
computed by discounting, to the date of determination, at an assumed interest
rate of eight percent (8%) per annum, the minimum amount of future rental
payments that will be due under the related documentation, including rental
payments that may be due during extensions which are at the other party's
option, but excluding any amounts in respect of insurance on, taxes on and/or
maintenance of the properties subject to such contracts or instruments (provided
that such amounts are owed and paid only to the extent actually incurred); (e)
with respect to the preceding clause (v), the value of such Guaranties shall be
determined as provided in the last sentence of the definition herein of
"Guaranty"; and (f) with respect to the preceding clause (vi), the value of such
repurchase obligations at any time shall be the maximum amount which would be
payable if all then outstanding potential repurchase obligations became due.
<PAGE>
"Investment" means, with respect to any Person, (i) any loan, advance or
- ------------
extension of credit by such Person to, and any contributions to the capital of,
any other Person, (ii) any Guaranty by such Person, (iii) any interest in any
capital stock, equity interest or other securities of any other Person, (iv) any
transfer or sale of property of such Person to any other Person other than upon
full payment, in cash, of not less than the agreed sale price or the fair value
of such property, whichever is higher and (v) any commitment or option to make
an Investment if, in the case of an option, the consideration therefor exceeds
$10,000, and any of the foregoing under clauses (i) through (v) shall be
considered an Investment whether such Investment is acquired by purchase,
exchange, merger or any other method; provided, that the term "Investment" (1)
--------
shall not include an Investment in the Company or in a wholly-owned Subsidiary,
(2) shall not include current trade and customer accounts receivable and
allowances, provided they relate to goods furnished in the ordinary course of
business and are given in accordance with the customary practices of the Company
or a Subsidiary, (3) shall not include temporary investments of excess cash of
the Company or of any Subsidiary in any of the following: (A) investment grade
obligations maturing within one year of their issuance which as to principal and
interest constitute direct obligations of, or obligations guaranteed by, the
United States of America, (B) negotiable certificates of deposit of banks or
trust companies which are organized under the laws of the United States of
America or any state thereof and which have capital and surplus of at least
$500,000,000, (C) commercial paper which is rated not less than prime-one or A-1
or their equivalents by Moody's Investor Service, Inc. or Standard & Poor's
Corporation or their successors, (D) any repurchase agreement secured by any one
or more of the foregoing and (E) money market funds primarily investing in any
of the foregoing securities and sponsored by or affiliated with nationally
recognized brokerage or investment advisory firms, (4) shall not include
Investments of the Company or any Subsidiary existing on the date hereof and
disclosed on Schedule 3 hereto, (5) shall not include the Company's Guaranty of
any obligation of a wholly-owned Subsidiary and (6) shall not include a
Subsidiary's Guaranty of any obligation of any other Subsidiary or of the
Company.
"Leverage Ratio" shall mean, as of any date of determination, the ratio of (a)
---------------
Funded Debt outstanding on such date to (b) Adjusted Operating Cash Flow for the
four fiscal quarter period then most recently ended.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
- ------
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same effect as any of the foregoing,
any assignment or other conveyance of any right to receive income and any
assignment of receivables with recourse against the assignor), any filing of a
financing statement as debtor under the Uniform Commercial Code or any similar
statute and any agreement to give or make any of the foregoing.
"Operating Cash Flow" shall mean, for any period of determination, an amount
- ---------------------
equal to the sum of (without duplication) (a) net income for such period, after
deduction of all items which should be classified as extraordinary, all as
determined in accordance with generally accepted accounting principles, plus (b)
all amounts deducted in computing such net income in respect of (i) interest
expense, (ii) non-cash amortization expense (including amortization of financing
<PAGE>
costs, non-current assets and non-cash charges), (iii) depreciation, (iv) income
taxes and (v) all other non-cash expenses.
"Outside Directors" means those directors on the Company's Board of Directors at
------------------
any time who are not otherwise Affiliates of or employed by the Company;
provided, however, that for purposes of this definition the term Affiliate shall
- -------- -------
not include Shimon Topor and Edward Kirtman.
"Outstanding" or "outstanding" means, when used with reference to the Shares or
- ------------- ------------
the Conversion Shares as of a particular time, all Shares or Conversion Shares
theretofore duly issued except (i) Shares and Conversion Shares theretofore
reported as lost, stolen, mutilated or destroyed or surrendered for transfer,
exchange or replacement, in respect of which new or replacement Shares or
Conversion Shares have been issued by the Company, (ii) Shares and Conversion
Shares theretofore cancelled by the Company and (iii) Shares and Conversion
Shares registered in the name of, as well as Shares and Conversion Shares owned
beneficially by, the Company, any Subsidiary or any of their Affiliates. For
purposes of the preceding sentence, in no event shall "Affiliates" include (x)
the persons which are identified as "Purchasers" on Schedule 1 hereto or (y) any
Affiliates of any such persons.
"Pension Plan" means any "employee pension benefit plan" as defined in Section
- --------------
3(2) of ERISA.
"Person" or "person" means an individual, corporation, partnership, firm,
- -------- -------
association, joint venture, trust, unincorporated organization, government,
governmental body, agency, political subdivision or other entity.
"Plan" means any bonus, incentive compensation, deferred compensation, pension,
-----
profit sharing, retirement, stock purchase, stock option, stock ownership, stock
appreciation rights, phantom stock, leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health, accident, disability,
workmen's compensation or other insurance, severance, separation or other
employee benefit plan, practice, policy or arrangement of any kind, whether
written or oral, or whether for the benefit of a single individual or more than
one individual including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of ERISA.
"Preferred Stock" means any class of the capital stock of a corporation (whether
----------------
or not convertible into any other class of such capital stock) which has any
right, whether absolute or contingent, to receive dividends or other
distributions of the assets of such corporation (including, without limitation,
amounts payable in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of such corporation), which right is superior to the
rights of another class of the capital stock of such corporation. "Preferred
Stock" includes, without limitation, the Series A Convertible Preferred Stock.
"Purchaser" means the person who accepts and agrees to the terms hereof as
----------
indicated by such person's signature (as "the undersigned Purchaser") on the
execution page of this Agreement, together with its successors and assigns.
<PAGE>
"Purchasers" has the meaning set forth in Section 1(c) hereof, together with
- ------------
their respective successors and assigns.
"Registration Rights Agreement" means the Registration Rights Agreement, dated
------------------------------
as of the Closing Date, among the Company and each of the Purchasers.
"Restricted Payment" means (i) every payment in connection with the redemption,
- --------------------
purchase, retirement or other acquisition by or on behalf of the Company or any
Subsidiary of any shares of the Company's or a Subsidiary's capital stock (as
defined below), whether or not owned by the Company or any Subsidiary, (ii)
every payment to or on behalf of any Affiliate of the Company or any Affiliate
of any Subsidiary on account of or with respect to any lease arrangements, and
(iii) every payment by or on behalf of the Company or any Subsidiary (whether as
repayment or prepayment of principal or as interest or otherwise) on or with
respect to any obligation to repay money borrowed owing to any Affiliate of the
Company or of any Subsidiary; provided, however, (a) that the restrictions of
-------- -------
the foregoing clause (i) shall not apply to any payment in respect of capital
stock of the Company to the extent payable in shares of the capital stock of the
Company, (b) that none of the foregoing clauses shall apply to any payments from
a Subsidiary to the Company or from a Subsidiary to a wholly-owned Subsidiary,
(c) that none of the foregoing clauses shall apply to any purchases by the
Company from a Subsidiary or from any other holder of additional capital stock
of such Subsidiary, (d) that none of the foregoing clauses shall apply to any
payments, distributions or other transfers or actions on or with respect to the
Shares or the Conversion Shares or to the Purchasers (or holders of Shares or
the Conversion Shares) under the Stock Purchase Agreements and (e) that none of
the foregoing clauses shall apply to any transaction permitted under Section 9.8
hereof. For purposes of this definition, "capital stock" shall also include
warrants and other rights and options to acquire shares of capital stock
(whether upon exercise, conversion, exchange or otherwise). For purposes of
clauses (ii) and (iii) of this definition, "Affiliate" shall not include any
Subsidiary of the Company.
"Rule 144" means (i) Rule 144 under the Securities Act as such Rule is in effect
--------
from time to time and (ii) any successor rule, regulation or law, as in effect
from time to time.
"Rule 144A" means (i) Rule 144A under the Securities Act as such Rule is in
----------
effect from time to time and (ii) any successor rule, regulation or law, as in
effect from time to time.
"Rule 144 Transaction" means a transfer of Conversion Shares (A) complying with
- ----------------------
Rule 144 as such Rule is in effect on the date of such transfer (but not
including a sale other than pursuant to "brokers' transactions" as defined in
clauses (1) and (2) of paragraph (g) of such Rule as in effect on the date
hereof) and (B) occurring at a time when Conversion Shares are registered
pursuant to Section 12 of the Securities Exchange Act.
"SEC Reports" has the meaning set forth in Section 4.20 hereof.
------------
"Securities Act" means the Securities Act of 1933, as amended, and the rules,
- ----------------
regulations and interpretations thereunder.
<PAGE>
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------------------
and the rules, regulations and interpretations thereunder.
"Series A Convertible Preferred Stock" means the Company's Series A Convertible
- --------------------------------------
Preferred Stock, par value $.01 per share, which will have the rights, powers
and privileges on the Closing Date as more fully set forth in the Certificate of
Designations.
"Shares" has the meaning set forth in Section 1(a) hereof. In the event that
-------
any Shares are sold either in a public offering pursuant to a registration
statement under Section 5 of the Securities Act or pursuant to a Rule 144
Transaction, then the transferees of such Shares shall not be entitled to any
benefits under this Agreement with respect to such Shares and such Shares shall
no longer be considered to be "Shares" for purposes of any consent or waiver
provision of this Agreement.
"Solvent" has the meaning set forth in Section 4.21(b) hereof.
- ---------
"Stock Purchase Agreements" has the meaning set forth in Section 1(c) hereof.
--------------------------
"Stockholders' Agreement" means the Stockholders' Agreement, dated as of the
------------------------
Closing Date, among the Company, the Purchasers, Robert T. Walston and certain
directors of the Company.
"Subsidiary", with respect to any Person, means any corporation, association or
- ------------
other entity of which more than 50% of the total voting power of shares of stock
or other equity interests (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof is, at the
time as of which any determination is being made, owned or controlled, directly
or indirectly, by such Person or one or more of its Subsidiaries, or both. The
term "Subsidiary" or "Subsidiaries" when used herein without reference to any
----------- -------------
particular Person means a Subsidiary or Subsidiaries of the Company.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross income,
----- ------
gross receipts, net proceeds, sales, use, ad valorem, value added, franchise,
----------
bank shares, withholding, payroll, employment, excise, property, alternative or
add-on minimum, environmental or other taxes, assessments, duties, fees, levies
or other governmental charges of any nature whatsoever, whether disputed or not,
together with any interest, penalties, additions to tax or additional amounts
with respect thereto.
"Tax Returns" means any returns, reports or statements (including any
------------
information returns) required to be filed for purposes of a particular Tax.
"Taxing Authority" means any governmental agency, board, bureau, body,
- ------------------
department or authority of any United States federal, state or local
jurisdiction, or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Transferees" means any transferee (except for a Fleming Holder) of Shares or
- -------------
Conversion Shares from a Fleming Holder. Transferees shall not include a
transferee of Shares or
<PAGE>
Conversion Shares sold in either a public offering pursuant to a registration
statement under the Securities Act or pursuant to a Rule 144 Transaction.
(b) For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Section
or other subdivision;
(ii) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles consistently applied (except as otherwise provided herein);
(iii) all computations provided for herein, if any, shall be made in accordance
with generally accepted accounting principles consistently applied (except as
otherwise provided herein);
(iv) any uses of the masculine, feminine or neuter gender shall also be deemed
to include any other gender, as appropriate;
(v) all references herein to actions by the Company or any Subsidiary, such as
"create", "sell", "transfer", "dispose of", etc., mean such action whether
voluntary or involuntary, by operation of law or otherwise;
(vi) the exhibits and schedules to this Agreement shall be deemed a part of this
Agreement;
(vii) each of the representations and warranties of the Company contained in
Section 4 hereof is separate and is not limited, qualified or modified by the
existence, wording or satisfaction of any other representation or warranty of
the Company in Section 4 or otherwise;
(viii) each of the covenants of the Company contained in Sections 7, 8 and 9
hereof or otherwise contained in any Stock Purchase Agreement, the Certificate
of Designations, the Stockholders' Agreement or the Registration Rights
Agreement is separate and is not limited or satisfied by the existence, wording
or satisfaction of any other covenant of the Company in Section 7, 8 or 9 or
otherwise; and
(ix) all references herein (in covenants or otherwise) to any action(s) which
are to be taken (or which are prohibited from being taken) by any Person,
the Company or any Subsidiary shall apply to such Person, the Company or
such Subsidiary, as the case may be, whether such action is taken directly
or indirectly.
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows as of the date
hereof and as of the Closing Date:
4.1. Corporate Existence, Power and Authority.
----------------------------------------
(a) Each of the Company and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Company and each Subsidiary is duly qualified,
licensed and authorized to do business and is in good standing in each
jurisdiction in which it owns or leases any property or in which the
conduct of its business requires it to so qualify or be so licensed, except
for such jurisdictions where the failure to so qualify or be so licensed
would not have a material adverse effect on the Company's assets,
properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects on a consolidated basis.
(b) No proceeding has been commenced looking toward the dissolution or merger
of the Company or any Subsidiary or the amendment of its respective
certificate of incorporation (other than the Certificate of Designations)
or any comparable document with respect to any Subsidiary organized under
the laws of a jurisdiction outside the United States. Neither the Company
nor any Subsidiary is in violation in any respect of its certificate of
incorporation or by-laws (or any comparable document with respect to any
Subsidiary organized under the laws of a jurisdiction outside the United
States).
(c) Each of the Company and each Subsidiary has all requisite power, authority
(corporate and other) and legal right to own or to hold under lease and to
operate the properties it owns or holds and to conduct its business as now
being conducted.
(d) The Company has all requisite power, authority (corporate and other) and
legal right to execute, deliver, enter into, consummate the transactions
contemplated by and perform its obligations under (i) the Stock Purchase
Agreements, including, without limitation, the issuance by the Company of
the Shares and the Conversion Shares as contemplated herein and therein and
in the Certificate of Designations, (ii) the Stockholders' Agreement and
(iii) the Registration Rights Agreement. The execution, delivery and
performance of the Stock Purchase Agreements, the Stockholders' Agreement
and the Registration Rights Agreement by the Company (including, without
limitation, the issuance by the Company of the Shares and the Conversion
Shares as contemplated herein and therein and in the Certificate of
Designations) have been duly authorized by all required corporate and other
actions. The Stock Purchase Agreements have been duly executed and
delivered by the Company and constitute, and upon execution and delivery of
each of the Stockholders' Agreement and the Registration Rights Agreement
will constitute, the legal, valid and binding obligations of the Company
enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to the rights of creditors generally.
4.2. Capital Stock.
-------------
<PAGE>
(a) The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, par value $.01 per share, and (ii) 5,000,000 shares
of Preferred Stock, $.01 par value per share, of which after giving effect
to the Certificate of Designations, 150,000 shares have been designated as
Series A Convertible Preferred Stock. On the date hereof, there are
outstanding (i) no shares of Preferred Stock and (ii) 9,552,502 shares of
Common Stock. On the Closing Date, after giving effect to the issuance of
Shares contemplated by the Stock Purchase Agreements, 150,000 shares of
Series A Convertible Preferred Stock will be outstanding. All of such
outstanding shares are, or on the Closing Date will be, duly authorized,
validly issued and outstanding, fully paid and non-assessable. The shares
of the Company's Common Stock issuable upon conversion of the Series A
Convertible Preferred Stock will be, when issued in accordance with the
terms of the Series A Convertible Preferred Stock, duly authorized, validly
issued, fully paid and non-assessable. Except as provided in the
Stockholders' Agreement, none of the shares of the Company's capital stock
which will be outstanding at the Closing (i) were or will be subject to
preemptive rights when issued or (ii) provide the holders thereof with any
preemptive rights with respect to any issuances of capital stock.
(b) The only shares of the Company's Common Stock reserved for issuance by the
Company are (i) shares of Common Stock to be issued upon conversion of the
Shares and (ii) 1,827,625 shares of Common Stock (subject to an increase on
August 1 of each year by a number of shares equal to five percent of the
Company's outstanding Common Stock as of such dates) to be issued pursuant
to the Company's 1997 Stock Plan, 700,000 shares of Common Stock to be
issued pursuant to the Company's 1997 Director Option Plan and 615,125
shares of Common Stock to be issued pursuant to certain management stock
option agreements existing on the date hereof.
(c) Except as referred to in Section 4.2(b), there are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements
or plans under which the Company may become obligated to issue, sell or
transfer shares of its capital stock or other securities.
(d) Except as disclosed on Exhibit B hereto and as provided in the Registration
Rights Agreement, there are and will be no outstanding registration rights
with respect to any capital stock of the Company or of any Subsidiary,
which (in either case) will be outstanding on the Closing Date, or any
capital stock referred to in Section 4.2(b) or 4.2(c) or in the last
sentence of Section 4.3(b) below.
(e) Except as contemplated by this Agreement, the Stockholders' Agreement or
the Certificate of Designations, there are no voting agreements, voting
trusts, proxies or other agreements or understandings with respect to the
voting of any capital stock of the Company or any Subsidiary.
(f) Except as disclosed on Exhibit B hereto and as provided in the Certificate
of Designations, there are no anti-dilution protections or other adjustment
provisions in existence with respect to any capital stock of the Company or
any Subsidiary or any capital stock referred to in Section 4.2(b) or 4.2(c)
or in the last sentence of Section 4.3(b) below.
<PAGE>
(g) The Certificate of Designations has been duly adopted by the Company. Upon
filing of the Certificate of Designations with the Secretary of State of
Delaware, the Certificate of Designations will be fully effective as an
amendment to the Company's certificate of incorporation and the Shares will
have all of the rights, priorities and terms set forth in the Certificate
of Designations.
(h) Those persons who own, directly or indirectly, more than 5% of the
Company's outstanding Common Stock are as follows: Robert Walston,
Technical Services Partners, L.P., Shimon Topor, Edward Kirtman and Mellon
Bank.
4.3. Subsidiaries.
------------
(a) The only Subsidiaries of the Company are those set forth on Exhibit B
hereto. Such Subsidiaries are owned as set forth on Exhibit B hereto.
Neither the Company nor any Subsidiary has any Investments in any other
Person, except as described on Exhibit B hereto.
(b) All outstanding shares of capital stock of the Subsidiaries have been duly
authorized and validly issued and are fully paid and, except with respect
to Four Media Company Asia Pte. Ltd., non-assessable and, except as
disclosed on Exhibit B hereto, are owned beneficially and of record by the
Company free and clear of all Liens, options or claims of any kind. Except
as disclosed on Exhibit B hereto, there are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements
or plans under which any Subsidiary may become obligated to issue, sell or
transfer shares of its capital stock or other securities.
(c) Except as described on Exhibit B hereto, there are no restrictions (whether
by charter, agreement, instrument, statute (other than the applicable state
corporation law), rule, regulation, judgment, decree, order or otherwise)
that may affect or limit the ability of any Subsidiary to pay dividends to
the Company of such Subsidiary's earnings (as reported in financial
statements prepared under generally accepted accounting principles
consistently applied).
4.4. Business.
--------
The Company and its Subsidiaries are engaged primarily in the business of
providing technical and creative services to owners, creators, producers and
distributors of television programming, feature films and other entertainment
product both domestically and internationally. Neither the Company nor any of
its Subsidiaries currently engages in, or has any intention of engaging in, any
other business, except for any business which is an expansion of, or related to,
its existing business.
4.5. No Defaults or Conflicts.
------------------------
(a) Except as disclosed on Exhibit B hereto, neither the Company nor any of its
Subsidiaries is in violation or default in any material respect (and is not
in monetary default in any respect regarding any Indebtedness) under any
indenture, agreement or instrument to which it is a party or by which it or
its properties may be bound. Neither the Company nor any Subsidiary is in
<PAGE>
default under any material order, writ, injunction, judgment or decree of
any court or other governmental authority or arbitrator(s).
(b) The execution, delivery and performance by the Company of the Stock
Purchase Agreements, the Stockholders' Agreement and the Registration
Rights Agreement and any of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Shares and the
Conversion Shares as contemplated herein and therein and in the Certificate
of Designations and the adoption of the Certificate of Designations as an
amendment to the Company's certificate of incorporation) do not and will
not (i) violate or conflict with, with or without the giving of notice or
the passage of time or both, any provision of (A) the respective
certificates of incorporation or by-laws of the Company or any of its
Subsidiaries (or with respect to any Subsidiary organized under the laws of
a jurisdiction outside the United States, the respective comparable
documents under the laws of such jurisdiction) or (B) any law, rule,
regulation or order of any federal, state, county, municipal or other
governmental authority, or any judgment, writ, injunction, decree, award or
other action of any court or governmental authority or arbitrator(s), or
any agreement, indenture or other instrument applicable to the Company or
any of its Subsidiaries or any of their respective properties, (ii) result
in the creation of any Lien upon any of the Company's or any Subsidiary's
properties, assets or revenues, (iii) except as disclosed on Exhibit B
hereto, require the consent, waiver, approval, order or authorization of,
or declaration, registration, qualification or filing with, any Person
(whether or not a governmental authority and including, without limitation,
any shareholder approval), or (iv) cause antidilution clauses of any
outstanding securities to become operative or give rise to any preemptive
rights. No provision referred to in the preceding clause (i) materially
adversely affects or will materially adversely affect the assets,
properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a
consolidated basis or the ability of the Company to perform its obligations
under the Stock Purchase Agreements, the Certificate of Designations, the
Stockholders' Agreement, the Registration Rights Agreement or any of the
transactions contemplated hereby or thereby.
4.6. Disclosure Materials; Other Information.
---------------------------------------
(a) The Company has previously furnished to the Purchaser the materials
described on Schedule 4 hereto (the "Disclosure Material"). The audited
--------------------
and unaudited financial statements contained in the SEC Reports fairly
present the consolidated financial condition of the Company as of the
respective dates thereof and the consolidated results of the operations of
the Company for such periods and have been prepared in accordance with
generally accepted accounting principles consistently applied, except that
any such unaudited statements may omit notes and may be subject to year-end
adjustment.
(b) Since August 3, 1997, except as disclosed on Exhibit B hereto, (i) the
business of the Company and the Subsidiaries has been conducted in the
ordinary course and (ii) there has been no material adverse change in the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a
consolidated basis. Since November 2, 1997, there have been no material
liabilities of the Company or any Subsidiary which would be required to be
provided for in a consolidated balance sheet of the Company as of either
such date prepared in accordance with generally accepted accounting
<PAGE>
principles consistently applied, other than (i) liabilities provided for in
the financial statements referred to in Section 4.6(a), (ii) liabilities
listed on Exhibit B hereto or (iii) liabilities incurred in the ordinary
course of business. Since November 2, 1997, no amount or property has
directly or indirectly been declared, ordered, paid, made or set aside for
any Restricted Payment nor has any such action been agreed to.
(c) Except for liabilities (i) incurred in the ordinary course of business or
(ii) disclosed on Exhibit B hereto, since November 2, 1997, there have been
no material liabilities, contingent or otherwise, of the Company or the
Subsidiaries that have not been disclosed in the financial statements
referred to in Section 4.6(a) or otherwise disclosed in the Disclosure
Material.
(d) The financial projections included in the Disclosure Material conform with
the internal operating forecasts of the Company and its Subsidiaries and
were based on reasonable assumptions when made and have been prepared in
good faith.
(e) None of the Disclosure Material (except for any projections included
therein) contained or contains a false or misleading statement of a
material fact; the Disclosure Material and the SEC Reports, taken together,
do not omit to state any material fact necessary in order to make the
statements made in such documents, in light of the circumstances under
which they were made, not misleading.
(f) There is no fact known to the Company or any of the Subsidiaries which is
not in either the Disclosure Material or the SEC Reports and which
materially and adversely affects, or in the future might materially and
adversely affect, the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of
the Company on a consolidated basis.
4.7. Litigation.
----------
Except as disclosed on Exhibit B hereto, there is no action, suit, proceeding,
investigation or claim pending or, to the knowledge of the Company or the
Subsidiaries, threatened in law, equity or otherwise before any court,
administrative agency or arbitrator which (i) questions the validity of the
Stock Purchase Agreements, the Certificate of Designations, the Stockholders'
Agreement, the Registration Rights Agreement, the Shares or the Conversion
Shares or any action taken or to be taken pursuant hereto or thereto, (ii) might
adversely affect the right, title or interest of any Purchaser to the Shares or
the Conversion Shares or (iii) might result in a material adverse change in the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a consolidated
basis.
<PAGE>
4.8. Taxes.
-----
Each of the Company and each Subsidiary has duly and timely filed all Tax
Returns required to be filed by it, and each such Tax Return correctly and
completely reflects the Tax liability and all other information required to be
reported thereon. Each of the Company and each Subsidiary has paid or caused to
be paid all Taxes (whether or not reflected on such Tax Returns) that are due
and payable. The provision for Taxes due by the Company and its Subsidiaries in
the most recent financial statement included in the SEC Reports is sufficient
for all unpaid Taxes, being current Taxes not yet due and payable, of the
Company and its Subsidiaries, as of the end of the period covered by such
financial statement, and as of the Closing Date, such provision, as adjusted for
the passage of time through the Closing Date, will be sufficient for the then-
accrued and unpaid Taxes not yet due and payable of the Company and its
Subsidiaries. Except as disclosed on Exhibit B hereto, no Tax Returns of the
Company or any Subsidiary have ever been audited by any Taxing Authority, there
is no dispute concerning any Tax liability of the Company or any Subsidiary
either threatened, claimed or raised by any Taxing Authority, and the Company
does not expect any Taxing Authority to assess additional Taxes against or in
respect of it or any Subsidiary for any past period. The Company and each
Subsidiary has withheld and paid, or, if not yet due for payment, set aside in
accounts for such purposes, all Taxes required to have been withheld in
connection with amounts paid or owing to any employee, creditor, independent
contractor or other third party. Except as disclosed on Exhibit B hereto, the
Company and its Subsidiaries have no liability for Taxes of any Person other
than the Company and its Subsidiaries (i) as a transferee or successor, (ii) by
contract, or (iii) otherwise. There are no applicable Taxes payable by the
Company or any Subsidiary in connection with the execution and delivery of the
Stock Purchase Agreements, the Stockholders' Agreement or the Registration
Rights Agreement or the issuance by the Company of the Shares or the Conversion
Shares.
4.9. ERISA and Other Employee Benefits.
---------------------------------
(a) The Company's "employee benefit plans" within the meaning of Section 3(3)
of ERISA are listed in Exhibit B, and copies of all documentation relating
to such plans have been delivered or made available to Purchasers
(including copies of written plans, written descriptions of oral plans,
summary plan descriptions, trust agreements, the three most recent annual
returns, employee communications, and IRS determination letters).
(b) Each Benefit Plan has at all times been maintained and administered in all
material respects in accordance with its terms and with the requirements of
all applicable law, including ERISA and the Code, and each Benefit Plan
intended to qualify under section 401(a) of the Code has at all times since
its adoption been so qualified, and each trust which forms a part of any
such plan has at all times since its adoption been tax-exempt under section
501(a) of the Code.
(c) No Benefit Plan has incurred any "accumulated funding deficiency" within
the meaning of section 302 of ERISA or section 412 of the Code, and the
"amount of unfunded benefit liabilities" within the meaning of section
4001(a)(18) of ERISA does not exceed zero with respect to any Benefit Plan
subject to Title IV of ERISA.
<PAGE>
(d) No "reportable event" (within the meaning of section 4043 of ERISA) has
occurred with respect to any Benefit Plan or any Plan maintained by an
ERISA Affiliate since the effective date of said section 4043.
(e) No Benefit Plan is a multiemployer plan within the meaning of section 3(37)
of ERISA.
(f) No direct, contingent or secondary liability has been incurred or is
expected to be incurred by the Company or any Subsidiary under Title IV of
ERISA to any party with respect to any Benefit Plan, or with respect to any
other Plan presently or heretofore maintained or contributed to by any
ERISA Affiliate.
(g) Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred
any liability for any tax imposed under section 4971 through 4980B of the
Code or civil liability under section 502(i) or (l) of ERISA.
(h) No benefit under any Benefit Plan, including, without limitation, any
severance or parachute payment plan or agreement, will be established or
become accelerated, vested or payable by reason of any transaction
contemplated under this Agreement.
(i) None of the Company's "employee benefit plans" within the meaning of
Section 3(3) of ERISA provides health or death benefit coverage beyond the
termination of an employee's employment, except as required by Part 6 of
Subtitle B of Title I of ERISA or section 4980B of the Code or any State
laws requiring continuation of benefits coverage following termination of
employment.
(j) No suit, action or other litigation (excluding claims for benefits incurred
in the ordinary course of plan activities) has been brought or, to the
knowledge of the Company or any Subsidiary, threatened against or with
respect to any of the Company's "employee benefit plans" within the meaning
of Section 3(3) of ERISA, and there are no facts or circumstances known to
the Company or any Subsidiary that could reasonably be expected to give
rise to any such suit, action or other litigation.
(k) All contributions to Benefit Plans that were required to be made under such
Benefit Plans have been made, and all benefits accrued under any unfunded
Benefit Plan have been paid, accrued or otherwise adequately reserved in
accordance with generally accepted accounting principles, all of which
accruals under unfunded Benefit Plans are as disclosed in Exhibit B, and
each of the Company and each Subsidiary has performed all material
obligations required to be performed under all Benefit Plans.
(l) The execution, delivery and performance of the Stock Purchase Agreements,
the Stockholders' Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby
(including, without limitation, the offer, issue and sale by the Company,
and the purchase by the Purchaser of the Shares and the Conversion Shares)
will not involve any "prohibited transaction" within the meaning of ERISA
or the Code.
<PAGE>
4.10. Legal Compliance.
----------------
(a) Each of the Company and each Subsidiary has complied with all applicable
laws, rules, regulations, orders, licenses, judgments, writs, injunctions,
decrees or demands, except to the extent that failure to so comply would
not materially adversely affect the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis.
(b) There are no adverse orders, judgments, writs, injunctions, decrees or
demands of any court or administrative body, domestic or foreign, or of any
other governmental agency or instrumentality, domestic or foreign,
outstanding against the Company or any Subsidiary.
4.11. Outstanding Securities.
----------------------
All securities (as defined in the Securities Act) of each of the Company and the
Subsidiaries have been offered, issued, sold and delivered in compliance with,
or pursuant to exemptions from, all applicable federal and state laws, and the
rules and regulations of federal and state regulatory bodies governing the
offering, issuance, sale and delivery of securities.
4.12. Intellectual Property and Other Rights.
--------------------------------------
Each of the Company and each Subsidiary owns or possesses all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights and
copyrights (each of which is listed on Exhibit B hereto), and all rights and
privileges with respect to any of the foregoing, as are necessary for the
conduct of its business as now being conducted and as proposed to be conducted.
To the best of the Company's knowledge, the rights of (and use by) each of the
Company and each Subsidiary with respect to such or any other patents, patent
rights, trademarks, trademark rights, trade names, trade name rights or
copyrights do not conflict with or infringe any rights of others in a manner
which might materially and adversely affect the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company on a consolidated basis, and no such claim of conflict
or infringement has been asserted by any Person.
4.13. Permits, Licenses and Approvals.
-------------------------------
Each of the Company and each Subsidiary owns and holds all franchises, licenses,
permits, consents, approvals and other authority, governmental or otherwise
(each of which is listed on Exhibit B hereto), and all rights and privileges
with respect to any of the foregoing, as are necessary for the conduct of its
business as now being conducted and as proposed to be conducted, except to the
extent that failure to so own or hold is not reasonably likely to materially
adversely affect the assets, properties, liabilities, business, affairs, results
of operations, condition (financial or otherwise) or prospects of the Company on
a consolidated basis. Neither the Company nor any Subsidiary is in default in
any material respect under any of such franchises, licenses, permits, consents,
approvals or other authority. To the best of the Company's knowledge, the
rights of (and use by) each of the Company and each Subsidiary with respect to
such or any other franchise, license, permit, consent, approval or other
authority do not
<PAGE>
conflict with or infringe any rights of others in a manner which might
materially and adversely affect the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company on a consolidated basis, and no such claim of conflict or
infringement has been asserted by any Person.
4.14. Labor Matters.
-------------
(a) Each of the Company and each Subsidiary has good relationships with its
employees and has not had and does not expect any substantial labor
problems. Neither the Company nor any Subsidiary has any knowledge as to
any intentions of any key employee or any group of employees to leave the
employ of the Company or any Subsidiary. Except as set forth on Exhibit B
hereto: (i) the employees of the Company and each Subsidiary are not and
have never been represented by any labor union, and no collective
bargaining agreement is binding and in force against the Company or any
Subsidiary or currently being negotiated by the Company or any Subsidiary;
(ii) there are no pending or threatened representation campaigns, elections
or proceedings or questions concerning union representation involving any
employees of the Company or any Subsidiary; (iii) neither the Company nor
any Subsidiary has any knowledge of any activities or efforts of any labor
union or organization (or representatives thereof) to organize any
employees of the Company or any Subsidiary, nor of any demands for
recognition or collective bargaining, nor of any strikes, slowdowns, work
stoppages or lock-outs of any kind, or threats thereof, by or with respect
to any employees of the Company or any Subsidiary or any actual or claimed
representatives thereof, and no such activities, efforts, demands, strikes,
slowdowns, work stoppages or lock-outs occurred during the 24-month period
preceding the date hereof; (iv) neither the Company nor any Subsidiary has
engaged in, admitted committing or been held in any administrative or
judicial proceeding to have committed any unfair labor practice under the
National Labor Relations Act, as amended; (v) neither the Company nor any
Subsidiary is involved in any industrial or trade dispute or any dispute or
negotiations regarding a claim of material importance with any labor union
or organization; and (vi) there are no controversies, claims, demands or
grievances of material importance pending or, so far as the Company or any
Subsidiary is aware, threatened, between the Company or any Subsidiary and
any of their respective employees or any actual or claimed representative
thereof.
(b) The Company and each of its Subsidiaries has at all times complied with all
applicable federal, state, and local laws, rules and regulations respecting
employment, wages, hours, compensation, benefits, occupational health and
safety, and payment and withholding of taxes in connection with employment,
except to the extent that failure to so comply would not materially
adversely affect the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of
the Company on a consolidated basis. Except as set forth on Exhibit B
hereto, there are no claims, complaints or legal or administrative
proceedings pending or, so far as the Company or any Subsidiary is aware,
threatened, against the Company or any Subsidiary before any federal, state
or municipal court or governmental agency, or any federal, sate or
municipal taxing authority involving or relating to any past or present
employee(s) or applicant(s) for employment of the Company or any
Subsidiary, or relating to any acts, omissions or practices of the Company
or any Subsidiary relating to employment, compensation or benefits.
Neither the Company nor any Subsidiary is party to or bound by any court or
administrative order, judgment, decree or ruling of any kind respecting the
employment,
<PAGE>
compensation or benefits of any employees or prospective employees of the
Company or any Subsidiary.
4.15. Properties.
----------
Each of the Company and each Subsidiary has good and marketable title to its
real property, all of which is disclosed on Exhibit B hereto, and good and
marketable title to each of its other properties, in each case subject to
covenants, conditions, restrictions, easements and agreements which do not
prevent the use of the properties for their intended purposes. Certain real
property used by the Company or the Subsidiaries in the conduct of their
respective businesses is held under lease (as identified on Exhibit B hereto),
and neither the Company nor any Subsidiary is aware of any pending or threatened
claim or action by any lessor of any such property to terminate any such lease.
All such leases are valid and in full force and effect, and none of such leases
is in default. None of the properties owned or, to the best of the Company's
knowledge, leased by the Company or any Subsidiary is subject to any Liens which
could materially and adversely affect the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company on a consolidated basis.
4.16. Suppliers and Customers.
-----------------------
(a) Each of the Company and each Subsidiary has adequate sources of supply for
its business as currently conducted and as proposed to be conducted. Each
has good relationships with all of its material sources of supply of goods
and services and each does not anticipate any material problem with any
such material sources of supply.
(b) Neither the Company nor any Subsidiary has any knowledge that the customer
base of the Company and its Subsidiaries might materially decrease.
4.17. Environmental Compliance.
------------------------
Except as disclosed on Exhibit B hereto:
(a) there is no Hazardous Material on, about, under or in, any property, real
or personal, in which the Company or any Subsidiary has any interest in an
amount or concentration which is reasonably likely to result in a material
adverse effect on the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of
the Company on a consolidated basis.
(b) there is no (and has not been any) off-site use, handling, storage or
disposal or on-site use, handling, storage or disposal of Hazardous
Material at or from any locations currently or formerly owned, leased,
operated or occupied by the Company or any Subsidiary as a result of which
use, handling, storage or disposal is reasonably likely to have a material
adverse effect on the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of
the Company on a consolidated basis.
<PAGE>
(c) neither the Company nor any Subsidiary has received any verbal or written
notice, citation, subpoena, summons, complaint or other correspondence or
communication from any person with respect to the presence of Hazardous
Material upon, into, beneath, or emanating from or affecting any of the
real property (including improvements) currently or formerly owned or
occupied by the Company or any Subsidiary that could reasonably result in a
material liability to the Company or any Subsidiary.
(d) there has been no intentional or unintentional, gradual or sudden, release,
disposal or discharge upon, into or beneath the real property (including
improvements) currently or formerly owned or occupied by the Company or any
Subsidiary that has caused or is causing soil or groundwater contamination
which is reasonably likely to have a material adverse effect on the assets,
properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a
consolidated basis.
(e) the Company and its Subsidiaries are in compliance with all applicable
Environmental Laws and the terms and conditions of all Environmental
Permits, except to the extent that failure to so comply is not reasonably
likely to materially adversely affect the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis.
(f) to the best knowledge of the Company and its Subsidiaries after reasonable
inquiry, there are no Liens arising under or pursuant to any Environmental
Law ("Environmental Liens") relating to any real property (including
improvements thereon) currently owned by the Company or any Subsidiary.
(g) there are no (i) underground storage tanks, (ii) polychlorinated biphenyl
containing equipment or (iii) asbestos-containing materials at any site
currently owned, operated or leased by the Company or any Subsidiary,
except to the extent that the presence of any such tanks, equipment or
materials at any such site is not reasonably likely to have a material
adverse effect on the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of
the Company on a consolidated basis.
4.18. Certain Agreements.
------------------
To the best of the knowledge of the Company and its Subsidiaries, (i) except as
disclosed on Exhibit B hereto, neither the Company nor its Subsidiaries is a
party to, or bound by (nor is any of its properties affected by), any
commitment, contract or agreement, any term of which materially adversely
affects, or in the future would reasonably be expected to materially adversely
affect, the assets, properties, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a consolidated
basis and (ii) neither the Company nor its Subsidiaries is a party to any
contract or agreement with any Affiliate of the Company or of any Subsidiary,
the terms of which are less favorable to the Company or such Subsidiary, as the
case may be, than those which might have been obtained, at the time such
contract or agreement was entered into, from a person who was not such an
Affiliate.
4.19. Offering of Shares.
------------------
<PAGE>
None of the Company, any Subsidiary, any agent or any other person acting on its
behalf, directly or indirectly, (i) offered any of the Shares or any similar
security of the Company (A) by any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) or (B)
for sale to or solicited offers to buy any thereof from, or otherwise approached
or negotiated with respect thereto with, any person other than the Purchasers
and not more than five (5) other institutional investors each of which the
Company reasonably believed was an "accredited investor" within the meaning of
Regulation D under the Securities Act or (ii) has done or caused to be done (or
has omitted to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Shares within the
provisions of Section 5 of the Securities Act or the filing, notification or
reporting provisions of any state securities laws.
4.20. SEC Reports.
-----------
The Company has filed all proxy statements, reports and other documents required
to be filed by it under the Securities Exchange Act. The Company has furnished
the Purchaser with copies of (i) its Annual Report on Form 10-K for the fiscal
year ended August 3, 1997, (ii) its Quarterly Reports on Form 10-Q for the
fiscal quarters ended February 2, 1997, May 4, 1997 and November 2, 1997 and
(iii) its Proxy Statement dated December 1, 1997 (collectively, the "SEC
---
Reports"). Each SEC Report was in substantial compliance with the requirements
- --------
of its respective form and none of the SEC Reports, nor the financial statements
(and the notes thereto) included in the SEC Reports, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.21. Solvency.
--------
(a) The Company is and, immediately after giving effect to the sale of the
Shares and the consummation of the other transactions contemplated hereby
(including, without limitation, to the incurrence of other Indebtedness on
the Closing Date), will be, Solvent.
(b) For purposes of this Section 4.21, the term "Solvent" means that:
---------
(i) the assets of the Company, at a fair valuation, exceed the total
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of the Company;
(ii) based on current projections, which are based on underlying assumptions
which provide a reasonable basis for the projections and which reflect the
Company's judgment based on present circumstances of the most likely set of
conditions and the Company's most likely course of action for the period
projected, the Company believes it has sufficient cash flow to enable it to
pay its debts as they mature; and
(iii) the Company has sufficient capital to engage in its anticipated business.
<PAGE>
(c) For purposes of this Section 4.21, the "fair valuation" of the assets of
the Company shall be determined on the basis of the amount which may be
realized within a reasonable time, either through collection or sale of
such assets at the regular market value, and the "regular market value"
shall be the amount which could be obtained for the property within such
period by a capable and diligent businessman from an interested buyer who
is willing to purchase under ordinary selling conditions.
4.22. Indebtedness.
------------
Schedule 2 hereto sets forth (i) the amount of all Indebtedness of the Company
or any Subsidiary outstanding, (ii) a brief description, if any, with respect to
such Indebtedness and (iii) a brief identification of the primary agreement
governing such Indebtedness. The Company will make available, upon request of
the Purchaser, a complete and correct copy of each such instrument or agreement
(including all amendments, supplements or modifications thereto). No monetary
default or any material default exists with respect to or under any such
Indebtedness or any instrument or agreement relating thereto and no event or
circumstance exists with respect thereto that (with notice or the lapse of time
or both) could give rise to such a default.
4.23. Use of Proceeds.
---------------
The Company will use the proceeds realized from the sale of the Shares to fund
acquisitions and for working capital and general corporate purposes. No portion
of such proceeds will be used for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying, within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System, as amended from time to time,
any "margin stock" as defined in said Regulation U, or any "margin stock" as
defined in Regulation G of the Board of Governors of the Federal Reserve System,
as amended from time to time, or for the purpose of purchasing, carrying or
trading in securities within the meaning of Regulation T of the Board of
Governors of the Federal Reserve System, as amended from time to time, or for
the purpose of reducing or retiring any indebtedness which both (i) was
originally incurred to purchase any such margin stock or other securities and
(ii) was directly or indirectly secured by such margin stock or other
securities. None of the assets of the Company or any Subsidiary includes any
such "margin stock". Neither the Company nor any Subsidiary has any present
intention of acquiring any such "margin stock".
4.24. Other Names.
-----------
The businesses previously or presently conducted by the Company and the
Subsidiaries have not been conducted under any corporate, trade or fictitious
name, other than those names listed on Exhibit B hereto.
4.25. Brokers.
-------
No broker, finder or investment banker or other party is entitled to any
brokerage, finder's or other similar fee or commission in connection with any
Stock Purchase Agreement, the Stockholders' Agreement, the Registration Rights
Agreement or the Certificate of Designations
<PAGE>
or any of the transactions contemplated hereby or thereby, based upon
arrangements made by or on behalf of the Company or any of its Subsidiaries or
Affiliates.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
5.1. Corporate Power and Authority.
-----------------------------
The Purchaser has all requisite power, authority and legal right to execute,
deliver, enter into, consummate the transactions contemplated by and perform its
obligations under this Agreement, the Stockholders' Agreement and the
Registration Rights Agreement. The execution, delivery and performance of this
Agreement, the Stockholders' Agreement and the Registration Rights Agreement by
the Purchaser have been duly authorized by all required corporate and other
actions. This Agreement has been duly executed and delivered by the Purchaser
and constitutes, and upon execution and delivery of each of the Stockholders'
Agreement and the Registration Rights Agreement will constitute, the legal,
valid and binding obligations of the Purchaser enforceable against the Purchaser
in accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to the rights of
creditors generally.
5.2. Investment Intent.
-----------------
The Purchaser is capable of evaluating the risk of its investment in the Shares
being purchased by it and is able to bear the economic risk of such investment.
The Purchaser is purchasing the Shares to be purchased by it for its own account
for investment and not with a present view to any distribution thereof in
violation of applicable securities laws; provided, however, that subject to
-------- -------
Section 6(b) hereof, the Purchaser may transfer record and/or beneficial
ownership of the Shares or the Conversion Shares to one or more Affiliates,
officers or employees of Affiliates or investment funds managed by Affiliates of
the Purchaser or to any other Person. It is understood that the disposition of
the Purchaser's property shall at all times be within the Purchaser's control.
If the Purchaser should in the future decide to dispose of any of its Shares or
Conversion Shares, it is understood that it may do so only in compliance with
the Securities Act, applicable securities laws and this Agreement. The
Purchaser is an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
5.3. Brokers.
-------
No broker, finder or investment banker or other party is entitled to any
brokerage, finder's or other similar fee or commission in connection with any
Stock Purchase Agreement, the Stockholders' Agreement, the Registration Rights
Agreement or the Certificate of Designations or any of the transactions
contemplated hereby or thereby, based upon arrangements made by or on behalf of
the Purchaser or any of its Subsidiaries or Affiliates.
<PAGE>
SECTION 6. RESTRICTIONS ON TRANSFER
(a) The Purchaser agrees that it will not sell, dispose of, or otherwise
transfer any Shares or Conversion Shares unless such Shares or Conversion
Shares have been registered under the Securities Act and, to the extent
required, under any applicable state securities laws, or pursuant to an
applicable exemption from such registration requirements. The Company may
endorse on all Share certificates a legend stating or referring to such
transfer restrictions; provided, that no such legend shall be endorsed on
--------
any Share certificates which, when issued, are no longer subject to the
restrictions of this Section 6(a).
(b) The Fleming Holders, on an aggregate basis, shall not sell or otherwise
transfer any of its Shares to more than five (5) Persons.
SECTION 7. INFORMATION AS TO THE COMPANY
The Company covenants and agrees as follows:
7.1. Financial Information.
---------------------
(a) The Company will maintain, and cause each Subsidiary to maintain, a system
of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in
accordance with generally accepted accounting principles consistently
applied.
(b) So long as any of the Shares remain outstanding, the Company will deliver
to each holder of Shares and Conversion Shares the following (except that
with respect to (i) any Fleming Holder, the Company shall deliver the
following to the Designated Entity only, and (ii) any Transferee, the
Company shall deliver to each such holder only the documents that are
provided to its public stockholders and all other documents shall be
provided to the Designated Entity only):
(i) as soon as practicable but not later than five (5) Business Days after
their issuance, and in any event within ninety (90) days after the close of
each fiscal year of the Company, (A) a consolidated balance sheet of the
Company and its Subsidiaries as of the end of such fiscal year and (B)
consolidated statements of operations, stockholders' equity and cash flows
of the Company and its Subsidiaries for such fiscal year, in each case
setting forth in comparative form the corresponding figures for the
preceding fiscal year, all such balance sheets and statements to be in
reasonable detail and certified without qualification by Coopers & Lybrand
L.L.P. or any "Big Six" independent public accounting firm selected by the
Company, and such statements shall be accompanied by a management analysis
of any material differences between the results for such fiscal year and
the corresponding figures for the preceding year;
(ii) as soon as practicable and in any event within forty-five (45) days after
the end of each month, (A) a consolidated balance sheet of the Company and
its Subsidiaries as of the end of such month and (B) consolidated
statements of operations, stockholders' equity and cash flows of the
Company and its Subsidiaries for the portion of the fiscal year ended with
the end of such
<PAGE>
month, in each case in reasonable detail, certified by the Chief
Financial Officer or the President of the Company and setting forth in
comparative form the corresponding figures for the comparable period one
year prior thereto (subject to normal year-end adjustments);
(iii) as soon as practicable, copies (A) of all financial statements, proxy
material or reports sent to the Company's or any Subsidiary's
stockholders, (B) of any public press releases and (C) of all reports or
registration statements filed with the Commission pursuant to the
Securities Act or the Securities Exchange Act;
(iv) as soon as practicable and in any event within forty-five (45) days after
the close of each of the first three (3) fiscal quarters of the Company,
(A) a consolidated balance sheet of the Company and its Subsidiaries as
of the end of such fiscal quarter, (B) consolidated statements of
operations, stockholders' equity and cash flows of the Company and its
Subsidiaries for the portion of the fiscal year ended with the end of
such quarter, in each case in reasonable detail, certified by the Chief
Financial Officer, Chief Executive Officer or the President of the
Company and setting forth in comparative form the corresponding figures
for the comparable period one year prior thereto (subject to normal year-
end adjustments), together with a management analysis of any material
differences between such results and the corresponding figures for such
prior period and (C) a certificate of the Chief Financial Officer, Chief
Executive Officer or the President certifying the Company's compliance
with the covenants contained in Section 9 of this Agreement;
(v) as soon as practicable and without duplication of any of the above items,
any other materials furnished to holders of the Company's capital stock
or Indebtedness, including, without limitation, any compliance
certificates furnished in respect of such Indebtedness; and
(vi) as soon as practicable, such other information as may reasonably be
requested by a holder of Shares or Conversion Shares.
(c) The Company will deliver to each member of the Company's Board of
Directors and each observer to the Company's Board of Directors appointed
pursuant to Section 3(a) of the Stockholders' Agreement, as soon as
practicable (and in the case of (iii), prior to the end of each fiscal
year) and without duplication of any of the items listed below, the
following:
(vii) copies of any annual, special or interim audit reports or management or
comment letters with respect to the Company or its Subsidiaries or their
operations submitted to the Company by independent public accountants;
(viii) copies of summary financial information prepared on a quarterly basis
regarding the Company on a consolidated basis as presented to the Board
and any other summary financial information otherwise prepared;
(ix) copies of the annual budget and business plan for the next fiscal year;
(x) copies of all formal communications, from time to time, to directors of
the Company (including without limitation all information furnished to
such directors in connection with such
<PAGE>
communications), and copies of minutes of meetings of the Board of
Directors (and of any executive committees thereof) of the Company;
(xi) notice of default under any material agreement, contract or other
instrument to which the Company or any of its Subsidiaries is a party or
by which any of them is bound;
(xii) notice of any action or proceeding which has been commenced or threatened
against the Company or any of its Subsidiaries and which, if adversely
determined, would have, individually or in the aggregate, a material
adverse effect on the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of
the Company on a consolidated basis; and
(xiii) copies of all filings made with the Commission.
(d) All such financial statements referred to in this Section 7.1 shall be
prepared in accordance with generally accepted accounting principles
consistently applied (except for any change in accounting principles
specified in the accompanying certificate and except that any interim
financial statements may omit notes and may be subject to normal year-end
adjustments).
(e) Without limiting the foregoing provisions of this Section 7.1, the
Company agrees that, if requested in writing by any holder of Shares or
Conversion Shares or the Designated Entity, as the case may be, it will
not deliver to such holder or entity (until otherwise instructed by such
holder or entity) (x) any non-public information or non-public materials
regarding the Company or any Subsidiary (whether described in this
Section 7.1 or otherwise) and (y) any information (whether or not
included in clause (x)) which such holder or entity specifies that it
does not want to receive. The Company shall comply with any such request
with respect to each such Purchaser, any subsequent holders of Shares or
Conversion Shares acquired directly or indirectly (through one or more
transfers) from such Purchaser and the Designated Entity, until
instructed otherwise by the then holder of such Shares or Conversion
Shares or the Designated Entity.
7.2. Communication with Accountants.
------------------------------
The Company (on behalf of itself and each of its Subsidiaries) hereby authorizes
the Purchaser to communicate directly with the independent certified public
accountants for the Company or any Subsidiary and authorizes such accountants to
disclose to the Purchaser any and all financial statements and any other
information of any kind that they may have with respect to the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company or any Subsidiary;
provided, however, that the Purchaser shall not communicate directly with such
- -------- -------
accountants unless (i) the Company or any Subsidiary is in default or violation
in any material respect of any provision of this Agreement, the Stockholders'
Agreement, the Registrations Rights Agreement or the Certificate of Designations
or (ii) the Purchaser wishes to discuss any matter contained in any document
described in Section 7.1(c)(i) hereof. The Company shall deliver a letter
addressed to such accountants instructing them to comply with the provisions of
this Section 7.2.
7.3. Inspection.
----------
<PAGE>
The Company will permit each holder of a Share or a Conversion Share and any
authorized representative of such holder to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine their respective
books and records and to discuss with their officers their books and records and
the assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company or any
Subsidiary, all at such reasonable times and as often as may be reasonably
requested.
7.4. Notices.
-------
So long as at least 50,000 Shares remain outstanding, the Company will give
notice to the Designated Entity promptly after it learns (other than by notice
from all of the holders of the Shares) of the existence of any of the following:
(a) any monetary default or any material default under any Indebtedness (or
under any indenture, mortgage or other agreement relating to any
Indebtedness) which Indebtedness is in an aggregate principal amount
exceeding $100,000 (or the equivalent thereof in other currencies) in
respect of which the Company or any Subsidiary is liable;
(b) any action or proceeding which has been commenced or threatened against the
Company or any of its Subsidiaries and which, if adversely determined,
would have, individually or in the aggregate, a material adverse effect on
the assets, properties, liabilities, business, affairs, results of
operations, condition (financial or otherwise) or prospects of the Company
on a consolidated basis or the ability of the Company to perform its
obligations under the Stock Purchase Agreements, the Stockholders'
Agreement, the Registration Rights Agreement or the Certificate of
Designations;
(c) any dispute which may exist between the Company or any of its Subsidiaries
and any governmental regulatory body which may, individually or in the
aggregate, materially adversely affect the normal business operations of
the Company or any of its Subsidiaries or the assets, properties,
liabilities, business, affairs, results of operations, condition (financial
or otherwise) or prospects of the Company on a consolidated basis or the
ability of the Company to perform its obligations under the Stock Purchase
Agreements, the Stockholders' Agreement, the Registration Rights Agreement
or the Certificate of Designations; and
(c) if any (i) "reportable event" (as such term is described in Section 4043(c)
of ERISA) has occurred; or (ii) "accumulated funding deficiency" (within
the meaning of Section 412(a) of the Code) has been incurred with respect
to a Pension Plan maintained or contributed to (or required to be
maintained or contributed to) by the Company or any ERISA Affiliate that is
subject to the funding requirements of ERISA and the Code or that an
application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including any
required installment payments) or an extension of any amortization period
under Section 412 of the Code, in each case with respect to such a Pension
Plan; or (iii) Pension Plan maintained or contributed to (or required to be
maintained or contributed to) by the Company or any ERISA Affiliate has
been terminated, reorganized, petitioned or declared insolvent under Title
IV of ERISA; or (iv) Pension Plan maintained or contributed to (or required
to be
<PAGE>
maintained or contributed to) by the Company or any ERISA Affiliate has an
unfunded current liability giving rise to a lien under ERISA or the Code;
or (v) proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Pension Plan maintained or
contributed to (or required to be maintained or contributed to) by the
Company or any ERISA Affiliate; or (vi) of the Company or its ERISA
Affiliates will or may incur any liability (including any contingent or
secondary liability) to or on account of the termination or withdrawal from
a Pension Plan maintained or contributed to (or required to be maintained
or contributed to) by the Company or any ERISA Affiliate; or (vii)
"prohibited transaction" (as such term is defined in Section 406 of ERISA
or Section 4975 of the Code) in connection with an "employee benefit plan"
(as defined in Section 3(3) of ERISA), maintained or contributed to (or
required to be maintained or contributed to) by the Company or any ERISA
Affiliate.
Such notice (i) with respect to (a), shall specify the nature and period of
existence of any such default and what the Company proposes to do with respect
thereto and (ii) with respect to (b), (c) or (d), shall specify the nature of
any such matter referred to in such clause, what action the Company or any
Subsidiary proposes to take with respect thereto and what action any other
relevant Person is taking or proposes to take with respect thereto.
SECTION 8. AFFIRMATIVE COVENANTS
The Company covenants and agrees as follows:
8.1. Maintenance of Existence, Properties and Franchises; Compliance with Law;
-------------------------------------------------------------------------
Taxes; Insurance.
- ----------------
The Company will, and will cause each Subsidiary to:
(a) maintain their respective corporate existence, rights and other franchises
in full force and effect; provided, that the Company may terminate the
--------
corporate existence of any Subsidiary, or permit the termination or
abandonment of rights or other franchises, if in the opinion of the Company
it is no longer in the Company's best interests to maintain such existence,
rights or other franchises and such termination or abandonment will not be
prejudicial to the holders of the Shares;
(b) carry on its business and operations substantially in the manner carried on
as of the date hereof and engage in activities or transactions consistent
with the Company's current business and acquisition strategy;
(c) maintain their respective tangible assets in good repair, working order and
condition so far as necessary or advantageous to the proper carrying on of
their respective businesses;
(d) comply with all applicable laws and with all applicable orders, rules,
rulings, certificates, licenses, regulations, demands, judgments, writs,
injunctions and decrees, provided, that such compliance shall not be
--------
necessary so long as (i) the applicability or validity of any such law,
order, rule, ruling, certificate, license, regulation, demand, judgment,
writ, injunction or decree
<PAGE>
shall be contested in good faith by appropriate proceedings and (ii)
failure to so comply will not have a material adverse effect on the assets,
properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a
consolidated basis;
(e) pay promptly when due all Taxes imposed upon its properties, assets or
income and all claims or indebtedness (including, without limitation,
vendor's, workmen's and like claims) which might become a lien upon such
properties or assets; provided, that payment of any such Tax shall not be
--------
necessary so long as (i) the applicability or validity thereof shall be
contested in good faith by appropriate proceedings and a reserve, if
appropriate, shall have been established with respect thereto and (ii)
failure to make such payment will not have a material adverse effect on the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a
consolidated basis; and
(f) keep adequately insured, by financially sound and reputable insurers of
nationally recognized stature, all its properties of a character
customarily insured by entities similarly situated, against loss or damage
of the kinds and in amounts customarily insured against by such entities
and with such deductibles or coinsurance as is customary.
8.2. Office for Payment, Exchange and Registration; Location of Office; Notice
-------------------------------------------------------------------------
of Change of Name or Office.
- ---------------------------
(a) So long as any of the Shares is outstanding, the Company will maintain an
office or agency where Shares may be presented for redemption, exchange,
conversion or registration of transfer as provided in this Agreement. Such
office or agency initially shall be the office of the Company specified in
Section 16 hereof, subject to Section 8.2(b).
(b) The Company shall give each holder of Shares at least twenty (20) days'
prior written notice of any change in (i) the name of the Company as then
in effect or (ii) the location of the office of the Company required to be
maintained under this Section 8.2.
8.3. Fiscal Year.
-----------
If the Company determines to change the fiscal year of the Company and its
Subsidiaries for tax, accounting and any other purposes, the Company shall give
written notice to the Designated Entity at least sixty (60) days prior to the
effective date of such change.
<PAGE>
8.4. Environmental Matters.
---------------------
(a) The Company and each Subsidiary shall comply in all material respects, and
ensure compliance in all material respects by, all tenants and subtenants,
if any, with all applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and ensure that all tenants and
subtenants, if any, obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws except to the extent that
failure to do so could not be reasonably expected to have a material
adverse effect on the assets, properties, liabilities, businesses, affairs,
results of operations, condition (financial or otherwise) or prospects of
the Company on a consolidated basis.
(b) The Company and each Subsidiary shall conduct and complete all
investigations, studies, sampling and testing, and all remedial, removal
and other actions required under Environmental Laws and promptly comply in
all material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws except to the extent
that the same are being contested in good faith by appropriate proceedings
and the pendency of such proceedings could not be reasonably expected to
have a material adverse effect on the assets, properties, liabilities,
businesses, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis.
(c) The Company will defend, indemnify and hold harmless each current, former
and future holder of Shares or Conversion Shares, and its parents,
subsidiaries, affiliates, employees, agents, officers, directors,
stockholders, partners, representatives and assigns, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs
and expenses of whatever kind or nature known or unknown, contingent or
otherwise, arising out of, or in any way relating to the violation of,
noncompliance with or liability under any Environmental Laws applicable to
the operations of the Company, any of its Subsidiaries, or their
properties, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses, except to the extent
that any of the foregoing arise out of the gross negligence or willful
misconduct of the party seeking indemnification therefor. This indemnity
shall continue in full force and effect regardless of the termination of
this Agreement and any payment, conversion or transfer of Shares.
8.5. Reservation of Shares.
---------------------
There have been reserved, and the Company shall at all times keep reserved,
free from preemptive rights, out of its authorized Common Stock a number of
shares of Common Stock sufficient to provide for the exercise of the
conversion rights provided in Section 5 of the Certificate of Designations.
8.6. Securities Exchange Act Registration.
------------------------------------
(a) The Company will maintain effective a registration statement (containing
such information and documents as the Commission shall specify and
otherwise complying with the
<PAGE>
Securities Exchange Act), under Section 12(b) or Section 12(g), whichever
is applicable, of the Securities Exchange Act, with respect to the Common
Stock of the Company, and the Company will file on time such information,
documents and reports as the Commission may require or prescribe for
companies whose stock has been registered pursuant to such Section 12(b) or
Section 12(g), whichever is applicable.
(b) The Company will, upon the request of any holder of Shares, make whatever
other filings with the Commission, or otherwise make generally available to
the public such financial and other information, as any such holder may
deem reasonably necessary or desirable in order to enable such holder to be
permitted to sell Shares pursuant to the provisions of Rule 144.
8.7. Delivery of Information for Rule 144A Transactions.
--------------------------------------------------
If a holder of Shares proposes to transfer any such Shares pursuant to Rule 144A
under the Securities Act (as in effect from time to time), the Company agrees to
provide (upon the request of such holder or the prospective transferee) to such
holder and (if requested) to the prospective transferee any financial or other
information concerning the Company and its Subsidiaries which is required to be
delivered by such holder to any transferee of such Shares pursuant to such Rule
144A.
8.8. Further Assurances.
------------------
The Company will from time to time, upon the request of the Designated Entity,
promptly and duly execute and deliver any and all such further instruments and
documents as the Designated Entity may reasonably deem necessary or desirable to
obtain the full benefits of (i) the obligations of the Company under this
Agreement and (ii) the other rights and powers herein granted. Upon the
instructions from time to time of the Designated Entity, the Company shall
execute and cause to be filed any document or filing presented to the Company in
proper form for signing or filing, in each case as the Designated Entity may
reasonably deem necessary or desirable in light of the Company's obligations
under this Agreement, and the Company shall pay or cause to be paid any filing
or other fees in connection therewith.
8.9. Issuances of Additional Shares of Series A Convertible Preferred Stock.
----------------------------------------------------------------------
The Company will not sell more than $15,000,000 in shares of Series A
Convertible Preferred Stock or, from the date hereof through the Closing Date,
sell any shares of any other series of convertible Preferred Stock, unless both
of the following conditions are satisfied:
(i) the identity of the purchasers of such shares of Preferred Stock is
approved by the Fleming Holders (which approval shall not be unreasonably
withheld); and
(ii) the conversion price of such shares of Preferred Stock is not lower than
the initial conversion price of the Shares under the Certificate of
Designations.
8.10. Public Announcements.
--------------------
<PAGE>
The Company shall not issue any press release or make any public statement
regarding the purchase of the Shares or this Agreement without the prior written
consent of the Fleming Holders, except as required by law (in which case the
Company will use its best efforts to advise the Fleming Holders prior to making
such disclosure).
8.11. Consents and Approvals.
----------------------
The Company shall use its best efforts to obtain prior to the Closing Date all
consents, authorizations and approvals under all statutes, laws, ordinances,
regulations, rules, judgments, decrees and orders of any court or governmental
agency, board, bureau, body, department or authority or of any other Person
required to be obtained by the Company in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions provided for hereby.
8.12. Registration Rights.
-------------------
If the Company grants piggyback registration rights to any holder of its
securities (other than Technical Services Partners, L.P. (or any of its
partners) or a holder of the Shares), such holder's piggyback registration
rights shall be expressly subordinated to the piggyback registration rights
granted to the holders of the Shares pursuant to the Registration Rights
Agreement.
SECTION 9. NEGATIVE COVENANTS
The Company covenants and agrees that without the prior written consent of the
Fleming Holders (or in the case of Sections 9.1(d) and 9.4, (i) the written
consent of a majority of the Board of Directors, including the director elected
pursuant to Section 4 of the Certificate of Designations or (ii) if the holders
of the Series A Convertible Preferred Stock have not exercised their right to
elect such director, the written consent of a majority of the Board of Directors
and the written consent of the Fleming Holders):
9.1. No Dilution or Impairment; No Changes in Capital Stock.
------------------------------------------------------
The Company will not, by amendment of its certificate of incorporation or
through any consolidation, merger, reorganization, transfer of assets,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Stock
Purchase Agreements, the Certificate of Designations, the Registration Rights
Agreement or the Stockholders' Agreement. The Company will at all times in good
faith assist in the carrying out of all such terms, and in the taking of all
such action, as may be necessary or appropriate in order to protect the rights
of the holders of Shares (as such rights are set forth in the Stock Purchase
Agreements, the Certificate of Designations, the Registration Rights Agreement
and the Stockholders' Agreement) against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not issue any
shares or class or series of equity or equity-linked security, the equity of
which is senior to, or pari passu with, the Series A Convertible Preferred Stock
as to dividend payments or amounts payable in the event of liquidation or
winding up of the Company, (b) except as set forth in Section 9.9 hereof, will
not enter into any agreement or instrument which would restrict or otherwise
materially adversely
<PAGE>
affect the ability of the Company to perform its obligations under the Stock
Purchase Agreements, the Stockholders' Agreement, the Registration Rights
Agreement or the Certificate of Designations, (c) will not amend its certificate
of incorporation or by-laws in any manner which would impair or reduce the
rights of the Preferred Stock, including, without limitation, an amendment which
would alter or change the powers, privileges or preferences of the holders of
the Series A Convertible Preferred Stock (including, without limitation,
changing the Certificate of Designations after any Shares have been called for
redemption), (d) except as otherwise provided in the Certificate of
Designations, will not redeem, repurchase or otherwise acquire, either directly
or indirectly through any of its Subsidiaries, any shares of capital stock of
the Company or any of its Subsidiaries or any other rights or options to
subscribe for or purchase any capital stock of the Company or any other
securities convertible into or exchangeable for capital stock of the Company,
(e) will not permit the par value or the determined or stated value of any
shares of Common Stock receivable upon the conversion of the Shares to exceed
the amount payable therefor upon such conversion, (f) will take all such action
as may be necessary or appropriate in order that the Company may at all times
validly and legally issue duly authorized, fully paid and nonassessable shares
of the Common Stock free from all taxes, Liens and charges with respect to the
issue thereof, upon the conversion of the Shares from time to time outstanding,
(g) will not take any action which results in any adjustment of the current
conversion price under the Certificate of Designations if the total number of
shares of the Common Stock (or other securities) issuable after the action upon
the conversion of all of the then outstanding Shares would exceed the total
number of shares of Common Stock (or other securities) then authorized by the
Company's certificate of incorporation and available for the purpose of issuance
upon such conversion, (h) will not have any authorized Common Stock (and will
not issue any Common Stock) other than its existing authorized Common Stock,
$.01 par value per share, and (i) will not amend its certificate of
incorporation to change any terms of its Common Stock.
9.2. Indebtedness.
------------
Neither the Company nor any Subsidiary will (i) permit the Leverage Ratio to
exceed 6.00 to 1.00 as of the time of any incurrence of new Indebtedness by the
Company or any Subsidiary, (ii) enter into any amendment or modification to the
Credit Agreement as in effect on the Closing Date or (iii) enter into any
agreement, amendment or modification with respect to any Indebtedness, which
agreement, amendment or modification under clause (ii) or (iii) restricts or
prohibits (or was intended primarily to restrict or prohibit) the Company from
making any payments under, or otherwise performing, the Stock Purchase
Agreements; provided, however, that clause (i) of this paragraph shall be
-------- -------
inoperative and of no force or effect as long as the Credit Agreement existing
on the Closing Date (or an amendment, extension, renewal or refinancing with
Canadian Imperial Bank of Commerce serving as agent thereunder or as a lender
with a continued commitment of no less than $15,000,000) is in effect.
9.3. Consolidation, Merger and Sale.
------------------------------
<PAGE>
Neither the Company nor any Subsidiary will (or agree to): (a) wind up,
liquidate or dissolve its affairs (except that a wholly-owned Subsidiary can be
wound-up, dissolved and liquidated into another wholly-owned Subsidiary or into
the Company), (b) sell, lease, transfer or otherwise dispose of all or
substantially all of its assets to any other Person (except that a wholly-owned
Subsidiary can sell, lease, transfer or otherwise dispose of all or
substantially all of its assets to another wholly-owned Subsidiary or to the
Company) or (c) effect a merger or consolidation if the Company is not the
surviving corporation from such merger or consolidation (except for a reverse
triangular merger or a forward triangular merger in which a Subsidiary of the
Company merges with another entity (other than the Company)).
9.4. No Change in Business.
---------------------
Neither the Company nor any of its Subsidiaries will change substantially the
character of its business as conducted on the date hereof or on the Closing Date
and as proposed to be conducted as represented in Section 4.4 hereof and
described in the Disclosure Material.
9.5. Restricted Payments; Investments.
--------------------------------
(a) Subject to paragraph (b) of this Section 9.5, neither the Company nor any
of its Subsidiaries will declare or make or permit to be declared or made:
(i) any Restricted Payment; or
(ii) any Investment.
(b) The provisions of this Section 9.5 shall not apply to any Investment or any
Restricted Payment by the Company or any of its Subsidiaries in connection
with the Company's or any of its Subsidiaries' acquisition of interests in
complementary businesses (by merger, consolidation, acquisition of stock or
assets, joint venture, partnership or limited liability company) consistent
with its acquisition growth strategy and past practice.
9.6. Sale of Substantial Portion of Assets; Subsidiaries.
---------------------------------------------------
After the Closing Date, neither the Company nor any Subsidiary will sell,
transfer, lease or otherwise dispose of any assets, including, without
limitation, any capital stock of any Subsidiary, to any Person (other than (i)
to the Company or to a wholly-owned Subsidiary and (ii) assets consisting of
inventory being disposed of in the ordinary course of business) to the extent
the aggregate assets so sold, transferred, leased or disposed of:
(a) during the twelve (12) month period ending on such sale, transfer, lease or
disposition (i) had an aggregate book value equal to twenty-five percent
(25%) or more of the aggregate book value of the consolidated total assets
of the Company and its Subsidiaries at the end of the most recent fiscal
quarter preceding such sale, transfer, lease or disposition or (ii)
accounted for twenty-five percent (25%) or more of the consolidated
revenues of the Company and its Subsidiaries as shown on the consolidated
income statement of the Company for the most recent fiscal quarter or the
then preceding fiscal year; or
<PAGE>
(b) during the period from the Closing Date through such sale, transfer, lease
or disposition (i) had an aggregate book value equal to twenty-five percent
(25%) or more of the aggregate book value of the consolidated total assets
of the Company and its Subsidiaries at the end of the most recent fiscal
quarter preceding such sale, transfer, lease or disposition or (ii)
accounted for twenty-five percent (25%) or more of the consolidated
revenues of the Company and its Subsidiaries over the Company's fiscal
periods beginning after the Closing Date and ending at the end of the most
recent fiscal quarter as shown on the consolidated income statements of the
Company for such periods.
9.7. Affiliate Loans and Guaranties.
------------------------------
Neither the Company nor any Subsidiary may incur or permit to exist any of the
following:
(a) any obligation of the Company or of any Subsidiary to repay money borrowed
owing to (i) any Affiliate of the Company or (ii) any Affiliate of any
Subsidiary; or
(b) any obligation, to any Person, which obligation is assumed or guaranteed by
the Company or a Subsidiary and which is an obligation of (i) any Affiliate
of the Company or (ii) any Affiliate of any Subsidiary (excluding, in the
case of this clause (b), any obligation of the Company or of a Subsidiary
which is not owed to an Affiliate of the Company or to an Affiliate of a
Subsidiary).
This Section 9.7 shall not apply to (1) any obligations under the Stock Purchase
---
Agreements or with respect to the Shares, (2) any loans, advances or Guarantees
referred to in clause (1) of the proviso to the definition of "Investment"
contained in Section 3 hereof, (3) Indebtedness identified on Schedule 2 hereto,
or (4) any transactions permitted under Section 9.8 hereof.
9.8. Transactions with Affiliates.
----------------------------
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, enter into any transaction or agreement (including, without
limitation, the purchase, sale, distribution, lease or exchange of any property
or the rendering of any service) with any Affiliate of the Company, unless such
transaction or agreement (a) is approved by a majority of the Outside Directors
on the Board of Directors, and (b) is on terms that are no less favorable to the
Company or such Subsidiary, as the case may be, than those which might be
obtained at the time of such transaction from a Person who is not such an
Affiliate; provided, however, that this Section 9.8 shall not limit, or be
-------- -------
applicable to, (i) employment arrangements with (and general salary and benefits
compensation for) any individual who is a full-time employee of the Company or
any Subsidiary if such arrangements are approved by a majority of the Outside
Directors on the Board of Directors; (ii) the payment of reasonable and
customary regular fees to directors of the Company who are not employees of the
Company; and (iii) transactions such as Silverhammer, Company 10, Company 3,
Plant Production, Medialab and other transactions similar to any of the above.
9.9. No Restrictions on Dividends.
----------------------------
<PAGE>
Neither the Company nor any Subsidiary will create (or permit to exist) any
consensual restrictions (whether by agreement or otherwise) that may affect or
limit the ability of any Subsidiary to pay dividends or to make other
distributions of any or all of its assets to the Company or to any Subsidiary,
except (i) as disclosed in Section 4.3(c) of Exhibit B hereto or (ii) as
provided in the security agreement or pledge agreement entered into in
connection with (x) the Credit Agreement (or an amendment, extension, renewal or
refinancing with Canadian Imperial Bank of Commerce serving as agent thereunder
or as a participant with a continued commitment of no less than $25,000,000) or
(y) any other senior credit facility.
9.10. Private Placement Status.
------------------------
Neither the Company nor any agent nor other Person acting on the Company's
behalf will do or cause to be done (or will omit to do or to cause to be done)
any act which act (or which omission) would result in bringing the issuance or
sale of the Shares or the Conversion Shares within the provisions of Section 5
of the Securities Act or the filing, notification or reporting requirements of
any state securities law (other than in accordance with a registration and
qualification of Conversion Shares pursuant to the Registration Rights
Agreement).
9.11. Maintenance of Public Market.
----------------------------
The Company will not proceed with a program of acquisition of its Common Stock,
initiate a corporate reorganization or recapitalization or undertake a
consolidation or merger or authorize, consent to or take any action which would
have the effect of:
(a) removing the Company from registration with the Commission under the
Securities Exchange Act with respect to the Company's Common Stock;
(b) requiring the Company to make a filing under Section 13(e) of the
Securities Exchange Act;
(c) reducing substantially or eliminating the public market for shares of
Common Stock of the Company;
(c) causing a delisting of the Company's Common Stock as a National Market
Security on the NASDAQ Stock Market (unless such stock is delisted as a
result of being listed on a national securities exchange); or
(d) if any shares of the Company's Common Stock are at any time listed on a
national exchange, causing a delisting of such stock from such exchange.
9.12. Amendments to Charter; By-Laws.
------------------------------
The Company will not amend its certificate of incorporation or by-laws.
<PAGE>
9.13. Issuances and Purchases Prior to the Closing Date.
-------------------------------------------------
From the date hereof through the Closing Date, the Company will not, and will
not permit any Subsidiary to, (a) issue or agree to issue any capital stock or
any securities exercisable for, or convertible or exchangeable into, capital
stock, except as disclosed on Exhibit B hereto or (b) purchase, redeem or
otherwise acquire any of its capital stock; provided, however, that this Section
-------- -------
9.13 shall not limit, or be applicable to, (i) the transactions contemplated by
the Stock Purchase Agreements, including any issuance of capital stock in
connection with the transactions contemplated by Sections 9.1 and 9.11 hereof
and (ii) grants of options or issuances of Common Stock to officers, directors,
employees or consultants of the Company pursuant to the current terms of the
Company's 1997 Stock Plan, the Company's 1997 Director Option Plan and certain
management stock option agreements existing on the date hereof.
SECTION 10. CONDITIONS TO PURCHASER'S OBLIGATIONS
The Purchaser's obligation to purchase Shares hereunder is subject to
satisfaction of the following conditions at the Closing (any of which may be
waived by the Purchaser):
10.1. Certificate of Designations; Stockholders' Agreement; Registration Rights
-------------------------------------------------------------------------
Agreement.
- ---------
(a) The certificate of incorporation of the Company shall have been duly
amended by the filing of the Certificate of Designations in the form of
Exhibit A hereto.
(b) The Company, the Purchasers, Robert T. Walston and certain directors of the
Company shall have entered into a Stockholders' Agreement substantially in
the form of Exhibit C hereto.
(c) The Company shall have entered into a Registration Rights Agreement with
the Purchasers substantially in the form of Exhibit D hereto.
10.2. Certificates for Shares.
-----------------------
The Purchaser shall concurrently receive the certificates for Shares
contemplated by Section 2(b) hereof.
10.3. Accuracy of Representations and Warranties.
------------------------------------------
The representations and warranties of the Company contained in this Stock
Purchase Agreement or in any certificate or document delivered pursuant hereto
shall be correct and complete on and as of the Closing Date with the same effect
as though made on and as of the Closing Date (after giving effect to the
transactions contemplated by this Agreement).
10.4. Compliance with Agreements.
--------------------------
The Company shall have performed and complied in all material respects with all
agreements, covenants and conditions contained in the Stock Purchase Agreements
and any other document
<PAGE>
contemplated hereby or thereby which are required to be performed or complied
with by the Company on or before the Closing Date.
10.5. Officers' Certificates.
----------------------
The Purchaser shall have received a certificate dated the Closing Date and
signed by the President or Chief Executive Officer and by the Secretary or the
Treasurer of the Company, to the effect that the conditions of Sections 10.1(a),
10.3, 10.4, 10.7 and 10.8 have been satisfied.
10.6. Proceedings.
-----------
All corporate and other proceedings in connection with the transactions
contemplated by the Stock Purchase Agreements, and all documents incident
thereto, shall be in form and substance satisfactory to the Purchaser and its
counsel, and the Purchaser shall have received all such originals or certified
or other copies of such documents as the Purchaser or its counsel may reasonably
request.
10.7. Legality; Governmental and Other Authorization.
----------------------------------------------
The purchase of and payment for the Shares shall not be prohibited by any law or
governmental order, rule, ruling, regulation, release, interpretation or opinion
applicable to the Purchaser and shall not subject the Purchaser to any penalty,
tax, liability or other onerous condition. Any necessary consents, approvals,
licenses, permits, orders and authorizations of, and any filings, registrations
or qualifications with, any governmental or administrative agency or other
Person, with respect to the transactions contemplated by the Stock Purchase
Agreements shall have been obtained or made and shall be in full force and
effect. The Company shall have delivered to the Purchaser, upon its reasonable
request setting forth what is required, factual certificates or other evidence,
in form and substance satisfactory to the Purchaser and its counsel, to enable
the Purchaser to establish compliance with this condition.
10.8. No Material Adverse Change.
--------------------------
There shall have been no material adverse change in the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis since August 3,
1997.
10.9. Opinion of Counsel.
------------------
The Purchaser shall have received an opinion, dated the Closing Date and
addressed to the Purchasers, of Greenberg Glusker Fields Claman & Machtinger
LLP, counsel for the Company, which opinion shall be in form and substance
satisfactory to the Purchaser and its counsel and shall be to the effect set
forth in Exhibit E hereto.
<PAGE>
10.10. Additional Purchases of Shares.
------------------------------
The sale and purchase of the Shares by each Fleming Fund (for an aggregate
purchase price of not less than $15,000,000) pursuant to each Stock Purchase
Agreement shall be consummated concurrently.
10.11. Credit Agreement.
----------------
The Company shall have entered into the Credit Agreement which permits the
Company to draw up to approximately $200,000,000 upon the terms and conditions
contained in the term sheet attached as Exhibit F hereto.
10.12. Acceptance of Agent for Service of Process.
------------------------------------------
CT Corporation System shall have accepted its appointment as the Company's agent
in New York to receive service of process pursuant to Section 17(i) hereof.
10.13. Other Documents and Opinions.
----------------------------
The Purchaser shall have received such other documents and opinions, in form and
substance satisfactory to the Purchaser and its counsel, relating to matters
incident to the transactions contemplated hereby as the Purchaser may reasonably
request.
SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) The representations, warranties, covenants and agreements of the Company
and the Purchaser contained in this Agreement, the Stockholders' Agreement,
the Registration Rights Agreement or in any document or certificate
delivered pursuant hereto or thereto or in connection herewith shall
survive, and shall continue in effect following, the execution and delivery
of the Stock Purchase Agreements, the Stockholders' Agreement, the
Registration Rights Agreement, the closings hereunder and thereunder, any
investigation at any time made by the Purchaser or on its behalf or by any
other Person, the issuance, sale and delivery of the Shares, any
disposition thereof and any payment, conversion or cancellation of the
Shares; provided, however, that Section 9.1 and Sections 9.9 through 9.13
-------- -------
shall terminate upon conversion of all of the Shares and Sections 9.2
through 9.8 shall terminate upon conversion of more than 100,000 Shares.
All statements contained in any certificate or other document delivered by
or on behalf of the Company pursuant hereto shall constitute
representations and warranties by the Company hereunder.
(b) The Company agrees to indemnify and hold the Purchaser harmless from and
against and will pay to the Purchaser the full amount of any loss, damage,
liability or expense (including amounts paid in settlement and attorneys'
fees and expenses) to the Purchaser resulting either directly or indirectly
from any breach of the representations, warranties, covenants or agreements
of the Company contained in any Stock Purchase Agreement, or in the
Stockholders' Agreement,
<PAGE>
the Registration Rights Agreement or any other document or certificate
delivered pursuant hereto or thereto or in connection herewith or
therewith.
SECTION 12. EXPENSES
(a) Whether or not the transactions herein contemplated are consummated, the
Company will pay (i) the costs, fees and expenses of the Company and its
counsel in connection with the Stock Purchase Agreements, the Certificate
of Designations, the Stockholders' Agreement and the Registration Rights
Agreement and the issuance of the Shares and the Conversion Shares and the
furnishing of all opinions by counsel for the Company, (ii) the fees and
expenses of Morgan, Lewis & Bockius LLP in connection with the Stock
Purchase Agreements, the Certificate of Designations, the Stockholders'
Agreement and the Registration Rights Agreement and the transactions
contemplated hereby and thereby (whether or not a closing occurs hereunder
and if a closing occurs the Company will make such payment on the Closing
Date); provided, however, that (x) such fees and expenses shall not exceed
-------- -------
$95,000 without the approval of the Company and (y) in the event that the
Closing does not occur (other than as a result of a breach by the Company
of its obligations to the Fleming Holders), the Company shall pay 50% of
such fees and expenses upon the termination of negotiations between the
Company and the Fleming Holders, (iii) the fees and expenses of counsel to
the Purchasers in connection with any amendments to or modifications or
waivers of any provisions of the Stock Purchase Agreements, the Certificate
of Designations, the Stockholders' Agreement or the Registration Rights
Agreement or in connection with any other agreements between the Purchasers
and the Company and (iv) the fees and expenses (including attorneys' fees
and expenses) of any holder of Shares or Conversion Shares in enforcing its
rights against the Company if the Company defaults in its obligations
hereunder, under the Certificate of Designations, the Stockholders'
Agreement or the Registration Rights Agreement.
(b) In addition to all other sums due hereunder or provided for in this
Agreement, the Company shall pay to the Purchaser or its agents,
respectively, an amount sufficient to indemnify such persons (net of any
Taxes on any indemnity payments) against all reasonable costs and expenses
(including reasonable attorneys' fees and expenses and reasonable costs of
investigation) and damages and liabilities incurred by the Purchaser or its
agents pursuant to any investigation or proceeding against any or all of
the Company, the Purchasers, or their agents, arising out of or in
connection with the Stock Purchase Agreements, the Stockholders' Agreement,
the Registration Rights Agreement, or purchase of the Shares (or any
transaction contemplated hereby or thereby or any other document or
instrument executed herewith or therewith or pursuant hereto or thereto),
whether or not the transactions contemplated by this Agreement are
consummated, which investigation or proceeding requires the participation
of the Purchaser or its agents or is commenced or filed against the
Purchaser or its agents because of the Stock Purchase Agreements, the
Stockholders' Agreement, the Registration Rights Agreement, the purchase of
the Shares or any of the transactions contemplated hereby or thereby (or
any other document or instrument executed herewith or therewith or pursuant
hereto or thereto), other than any investigation or proceeding in which it
is finally determined that there was gross negligence or willful misconduct
on the part of the Purchaser or its agents which was not taken by them in
reliance upon any of the Company's representations, warranties, covenants
<PAGE>
or agreements in the Stock Purchase Agreements, the Stockholders'
Agreement, the Registration Rights Agreement or in any other documents or
instruments contemplated hereby or thereby or executed herewith or
therewith or pursuant hereto or thereto. The Company shall assume the
defense, and shall have its counsel represent the Purchaser and such
agents, in connection with investigating, defending or preparing to defend
any such action, suit, claim or proceeding (including any inquiry or
investigation); provided, however, that the Purchaser, or any such agent,
-------- -------
shall have the right (without releasing the Company from any of its
obligations hereunder) to employ its own counsel and either to direct its
own defense or to participate in the Company's defense, but the fees and
expenses of such counsel shall be at the expense of such person unless (i)
the employment of such counsel shall have been authorized in writing by the
Company in connection with such defense, (ii) the Company shall not have
provided its counsel to take charge of such defense or (iii) the Purchaser,
or such agent of the Purchaser, shall have concluded that there may be
defenses available to it or them which are different from or additional to
those available to the Company, then in any of such events referred to in
clauses (i), (ii) or (iii) such counsel fees and expenses (but only for one
counsel for the Purchaser and its agents) shall be borne by the Company.
Any settlement of any such action, suit, claim or proceeding shall require
the consent of both the Company and such indemnified person (neither of
which shall unreasonably withhold its consent).
(c) The Company agrees to pay, or to cause to be paid, all documentary, stamp
and other similar Taxes levied under the laws of the United States of
America, any state or local Taxing Authority thereof or therein or any
other applicable jurisdiction in connection with the issuance and sale of
the Shares and the execution and delivery of the Stock Purchase Agreements,
the Stockholders' Agreement, the Registration Rights Agreement and any
other documents or instruments contemplated hereby or thereby and any
modification of the Certificate of Designations, the Stockholders'
Agreement, the Registration Rights Agreement or the Stock Purchase
Agreements or any such other documents or instruments and will hold the
Purchaser harmless without limitation as to time against any and all
liabilities with respect to all such Taxes.
(c) In the event that the Closing does not occur, the Company shall pay a fee
of $1 million (the "Fee") to the Fleming Holders if (i) a bona fide
Alternative Transaction is publicly commenced, publicly disclosed, or
publicly proposed by the Company at any time on or after the date of this
Agreement and (ii) thereafter on or prior to April 3, 1998, (x) such
Alternative Transaction is consummated or (y) there is consummated any
transaction whether or not commenced, publicly disclosed or publicly
proposed by the Company, that would constitute an Alternative Transaction;
provided, however, that the Company shall not be obligated to pay the Fee
-------- -------
if, prior to the Company consummating any such Alternative Transaction, the
Fleming Holders have instructed the Company in writing that they do not
wish to proceed with the transactions contemplated by this Agreement. The
Fee payable pursuant to this Section 12(d) shall be paid within one
business day following the consummation of any such Alternative
Transaction. As used herein, "Alternative Transaction" means any of (i) a
transaction or series of transactions pursuant to which any person (or
group of persons) other than Fleming Holders or any of its Subsidiaries or
any Affiliate of any thereof (a "Third Party") acquires or would acquire
more than (x) 5% of the shares of outstanding Common Stock (including the
right to acquire such shares of Common Stock in the future as a holder of
convertible Preferred Stock, debt
<PAGE>
securities, warrants, or any other security), whether from the Company or
pursuant to a tender offer or exchange offer, or (y) 50,000 shares of
Preferred Stock of the Company, or (ii) any other transaction pursuant to
which any Third Party acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of
Subsidiaries of the Company and any entity surviving any merger or business
combination including any of them) of the Company or any of its
Subsidiaries having a fair market value equal to more than 35% of the fair
market value of all the assets of the Company and its Subsidiaries, taken
as a whole, immediately prior to such transaction; provided, however, that
-------- -------
"Alternative Transaction" shall not include the Company's issuance of any
of its capital stock, or negotiating with a Third Party regarding the
issuance of any of its capital stock, in payment (in whole or in part) of
the assets or stock of such Third Party.
(d) The obligations of the Company under this Section 12 shall survive the
Closing hereunder and any termination of the Stock Purchase Agreements.
SECTION 13. DIRECT PAYMENTS
As long as the Purchaser or any institutional holder which is a direct or
indirect transferee (as a result of one or more transfers) from the Purchaser
shall be the holder of any Shares, the Company will make all redemption
payments, liquidation payments and other distributions by wire transfer to the
Purchaser's or such other holder's (or its nominee's) account at any bank or
trust company, notwithstanding any contrary provision herein or in the Company's
certificate of incorporation with respect to the place of payment. The
Purchaser has provided an address on Schedule 1 hereto for payments by wire
transfer, and such address may be changed for the Purchaser or any subsequent
holder by notice to the Company. All such payments shall be made in U.S.
dollars and in federal or other immediately available funds.
SECTION 14. AMENDMENTS AND WAIVERS
(a) The terms and provisions of this Agreement may be amended, waived, modified
or terminated only with the written consent of the Fleming Holders;
provided, however, that no such amendment, waiver, modification or
-------- -------
termination shall change this Section 14(a) without the written consent of
the holders of all the Shares and Conversion Shares then outstanding.
(b) The Company agrees that all holders of Shares and Conversion Shares shall
be notified by the Company in advance of any proposed amendment, waiver,
modification or termination, but failure to give such notice shall not in
any way affect the validity of any such amendment, waiver, modification or
termination. In addition, promptly after obtaining the written consent of
the holders as herein provided, the Company shall transmit a copy of any
amendment, waiver, modification or termination which has been adopted to
all holders of Shares and Conversions Shares then outstanding, but failure
to transmit copies shall not in any way affect the validity of any such
amendment, waiver, modification or termination.
<PAGE>
SECTION 15. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT
(a) Subject to Section 6 hereof, at any time at the request of any holder of
Shares to the Company at its address provided under Section 16 hereof, the
Company at its expense (except for any transfer tax arising out of the
exchange) will issue and deliver to or upon the order of the holder in
exchange therefor a new certificate or certificates in such amount or
amounts as such holder may request in the aggregate representing the number
of Shares represented by such surrendered certificates, and registered in
the name of such holder or as such holder may direct.
(b) Any Share certificate which is converted into Conversion Shares in whole or
in part shall be cancelled by the Company, and no new Share certificates
shall be issued in lieu of any Shares which have been converted into
Conversion Shares. The Company shall issue a new certificate with respect
to any Shares which were not converted into Conversion Shares and were
represented by a certificate which was converted in part.
(c) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Share certificate and, in the case of any
such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory to the Company (if requested by the Company and
unsecured in the case of the Purchaser or an institutional holder), or in
the case of any such mutilation, upon surrender of such Share certificate
(which surrendered Share certificate shall be cancelled by the Company),
the Company will issue a new Share certificate, of like tenor in lieu of
such lost, stolen, destroyed or mutilated Share certificate as if the lost,
stolen, destroyed or mutilated Share certificate were then surrendered for
exchange.
SECTION 16. NOTICES, OTHER COMMUNICATIONS AND CONSENTS
(a) All notices, requests, demands, consents and other communications hereunder
shall be in writing and shall be delivered by hand or shall be sent by
telex or telecopy (confirmed by registered, certified or overnight mail or
courier, postage and delivery charges prepaid), (i) if to the Company, to
Four Media Company, 2813 West Alameda Avenue, Burbank, California 91505,
Attention: Robert T. Walston, with a copy to Greenberg Glusker Fields
Claman & Machtinger LLP, 1900 Avenue of the Stars, Suite 2100, Los Angeles,
California 90067, Attention: Jill A. Cossman, Esq. or (ii) if to the
Purchaser or any Fleming Holder, to Fleming Capital Management, 320 Park
Avenue, New York, NY 10022, Attention: Robert L. Burr (as may be modified
from time to time as provided in Section 16(b) hereof, the "Designated
----------
Entity"), with a copy to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New
-------
York, NY 10178-0060, Attention: David W. Pollak, Esq., or at such other
address as a party may from time to time designate as its address in
writing to the other party to this Agreement. Whenever any notice is
required to be given hereunder, such notice shall be deemed given and such
requirement satisfied only when such notice is delivered or, if sent by
telex or telecopier, when received.
(b) Except as provided in Section 7.1(b), all notices and other communications
hereunder shall be deemed given to all holders of the Shares when given to
the Designated Entity in
<PAGE>
accordance with Section 16(a) hereof. If no Shares are held by a Fleming
Holder, the Transferee who holds the largest number of Shares shall appoint
a new Designated Entity and shall give written notice to the Company of
such action in accordance with Section 16(a) hereof.
(c) The consent of the Fleming Holders shall be deemed obtained if any of the
following conditions are satisfied: (i) the Fleming Funds are the only
holders of the Shares and the Designated Entity shall have obtained the
consent of each Fleming Fund and shall have given notice to the Company to
such effect in accordance with Section 16(a) hereof; (ii) the Fleming
Funds are not the only holders of the Shares and the Designated Entity
shall have obtained the consent of the holders of a majority of the
outstanding Shares held by all Fleming Holders, and shall have given notice
to the Company to such effect in accordance with Section 16(a) hereof; or
(iii) no Shares are held by a Fleming Holder and the Designated Entity
shall have obtained the consent of the holders of a majority of the
outstanding Shares held by the Transferees, and shall have given notice to
the Company to such effect in accordance with Section 16(a) hereof.
SECTION 17. MISCELLANEOUS
(a) The Stock Purchase Agreements, and, upon the Closing hereunder, the
Stockholders' Agreement, the Registration Rights Agreement and the
Certificate of Designations, together with any further agreements entered
into by the Purchaser and the Company at the Closing hereunder, contain the
entire agreement between the Purchaser and the Company, and supersede any
prior oral or written agreements, commitments, terms or understandings,
regarding the subject matter hereof.
(b) Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by applicable law, the
parties hereby waive any provision of law which may render any provision
hereof prohibited or unenforceable in any respect.
(c) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, whether so
expressed or not; provided, that the Company may not assign any of its
--------
rights, duties or obligations under this Agreement, except with the
Purchaser's written consent.
(d) In addition to any assignment by operation of law and subject to Section
6(b) of this Agreement, the Purchaser may assign, in whole or in part, any
or all of its rights (and/or obligations) under this Agreement to any
transferee of any or all of its Shares or Conversion Shares, and (unless
such assignment expressly provides otherwise) any such assignment shall not
diminish the rights the Purchaser would otherwise have under this Agreement
or with respect to any remaining Shares or Conversion Shares held by the
Purchaser.
<PAGE>
(e) No course of dealing and no delay on the part of any party hereto in
exercising any right, power, or remedy conferred by this Agreement shall
operate as a waiver thereof or otherwise prejudice such party's rights,
powers and remedies. No single or partial exercise of any right, power or
remedy conferred by this Agreement shall preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
(f) The headings and captions in this Agreement are for convenience of
reference only and shall not define, limit or otherwise affect any of the
terms or provisions hereof.
(g) This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York (other than any conflict of laws rule which
might result in the application of the laws of any other jurisdiction).
(h) This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same instrument, and all signatures need not appear on any one counterpart.
(i) THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT, SUBJECT TO THE PURCHASER'S ELECTION, ALL ACTIONS
OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS,
THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES
OR THE CONVERSION SHARES MAY BE LITIGATED IN SUCH COURTS. THE COMPANY
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT,
THE CERTIFICATE OF DESIGNATIONS, THE STOCKHOLDERS' AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT, THE SHARES OR THE CONVERSION SHARES. THE
COMPANY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, AND SUCH OTHER
PERSONS AS MAY HEREAFTER BE SELECTED BY THE COMPANY AND WHICH IRREVOCABLY
AGREE IN WRITING TO SO SERVE AS ITS AGENT, TO RECEIVE ON ITS BEHALF SERVICE
OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING
HEREBY ACKNOWLEDGED BY THE COMPANY TO BE EFFECTIVE AND BINDING SERVICE IN
<PAGE>
EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY
REGISTERED MAIL TO THE COMPANY AT THE ADDRESS OF THE COMPANY PROVIDED
HEREUNDER EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE PURCHASER TO
BRING PROCEEDINGS OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE COMPANY IN THE
COURTS OF ANY OTHER JURISDICTION.
(j) THE COMPANY AND THE PURCHASER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE STOCKHOLDERS'
AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR THE CONVERSION
SHARES, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION. THE COMPANY AND THE PURCHASER ALSO WAIVE ANY BOND OR SURETY
OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF
THE PURCHASER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO
THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON
LAW AND STATUTORY CLAIMS. THE COMPANY AND THE PURCHASER FURTHER WARRANT
AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT, THE CERTIFICATE OF
DESIGNATIONS, THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS
AGREEMENT, THE SHARES OR THE
<PAGE>
CONVERSION SHARES. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
FOUR MEDIA COMPANY
By /S/ Robert T. Walston
Name: Robert T. Walston
Title: Chief Executive Officer
Accepted and Agreed to as of the
date first above written by the
undersigned Purchaser:
FLEMING US DISCOVERY FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY, LLC, its
general partner
By: /S/ Robert L. Burr
-----------------------------
Robert L. Burr, member
<PAGE>
<TABLE>
<CAPTION>
Page
----
Schedule 1
to the Preferred
Stock Purchase Agreement
Aggregate Share
Name of Purchaser Number of Shares Purchase Price
- ------------------------------------------------------------- ---------------
<S> <C> <C>
Fleming US Discovery Fund III, L.P. 129,280 $12,928,000
- --------------------------------------------------------------------------------
Fleming US Discovery Offshore Fund III, L.P. 20,720 $ 2,072,000
- --------------------------------------------------------------------------------
</TABLE>
(a) address for communications:
Fleming Capital Management
320 Park Avenue
New York, NY 10022
Attention: Robert L. Burr
(b) address for payments by
wire transfer:
Fleming US Discovery Fund III, L.P.
Chase Manhattan Bank
ABA # 021000021
A/C: Robert Fleming Inc.
A/C # 400-470551
A/C: Fleming US Discovery Fund III, L.P.
Fleming US Discovery Offshore Fund III, L.P.
Citibank, N.A.
ABA # 021000089 / Chips UID# 0008 / Swift Code - CITIUS33
A/C # 10921671
A/C: The Bank of Bermuda Limited, Hamilton, Bermuda
Chips UID# 005584
Swift Code: BBDA BM HM
A/C: Fleming US Discovery Offshore Fund III, L.P.
A/C # 0246769
<PAGE>
EXHIBIT 4.3
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT is dated as of February 27, 1998, among Four
Media Company, a Delaware corporation (the "Company"), Robert T. Walston
-------
("Walston"), John H. Donlon ("Donlon"), Gavin W. Schutz ("Schutz"), Robert
------- ------ ------
Bailey ("Bailey"), Fleming US Discovery Fund III, L.P. and Fleming US Discovery
------
Offshore Fund III, L.P. (collectively, the "Fleming Funds"). The Fleming Funds,
-------------
any Fleming Holder and any Transferee are collectively referred to herein as the
"Investor Group" and, individually, an "Investor".
-------------- --------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the terms of the Preferred Stock Purchase Agreements,
dated as of February 5, 1998, between the Company and each of the Fleming Funds
(the "Stock Purchase Agreements"), the Fleming Funds have purchased 150,000
-------------------------
shares of the Company's Series A Convertible Preferred Stock, par value $.01 per
share (the "Series A Preferred Stock");
------------------------
WHEREAS, Walston beneficially owns approximately 15% of the outstanding shares
of the Company's Common Stock, par value $.01 per share (the "Common Stock")
------------
(such shares, along with any shares of Common Stock or other equity securities
of the Company that Walston may subsequently acquire, the "Walston Shares");
--------------
WHEREAS, it is a condition precedent to the Company's and the Fleming Funds'
respective obligations to consummate the transactions contemplated by the Stock
Purchase Agreements that the parties hereto shall have entered into this
Agreement; and
WHEREAS, each of Walston, Donlon, Schutz, Bailey, the Company and the Fleming
Funds desires to enter into this Agreement to regulate certain aspects of their
relationship;
NOW, THEREFORE, in consideration of the arguments and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Rights of Inclusion (Tag-Along Rights).
-------------------------------------
(a) In the event Walston proposes to Transfer any Walston Shares (the
"Transferor Shares") to any Person (the "Buyer"), as a condition to such
----------------- -----
Transfer, Walston shall cause the Buyer to offer (the "Inclusion Offer") to
---------------
purchase from each Investor, at each such Investor's option, up to that number
of Investor Shares determined in accordance with Section 1(b) on the same terms
and conditions as are applicable to the Transferor Shares (including any
consideration to be received by Walston in the form of bonuses, consulting fees,
noncompetition payments, pursuant to employment arrangements or similar
arrangements), except that each Investor shall not be required to provide any
representation, warranty or other undertaking other than with respect to its
ownership of, and authority to Transfer, the Investor Shares owned by it free of
any liens or encumbrances. Walston shall provide prompt written notice to each
Investor (the "Inclusion Notice") setting forth all the terms and conditions of
----------------
the Inclusion Offer, and each
<PAGE>
Investor may accept the Inclusion Offer in whole or in part by providing a
written notice of acceptance with respect to Investor Shares owned by it to
Walston within twenty (20) days of delivery of the Inclusion Notice to it (the
"Acceptance Notice").
-----------------
(b) Each Investor shall have the right to sell, pursuant to the Inclusion
Offer, Investor Shares representing the same percentage of all Investor Shares
owned by it as the Transferor Shares are of all Walston Shares (such percentage
shall be calculated on the basis that all shares of Series A Preferred Stock
owned by each Investor have been converted into shares of Common Stock at the
current conversion price per share under Section 5 of the Certificate of
Designations); provided, however, that if no Investor elects to exercise such
right, Walston shall nonetheless be entitled to Transfer all of the Transferor
Shares described in the Inclusion Notice. In the event the number of Investor
Shares for which the Investor Group elects to exercise such right, along with
the Transferor Shares and any other shares of the Company to be sold by other
stockholders pursuant to any similar rights granted to such other stockholders,
exceed the number of shares which the Buyer is willing to purchase, the number
of shares to be Transferred to the Buyer by each transferor shall be reduced so
that each transferor is entitled to Transfer the same percentage of its shares
included in its Acceptance Notice as each other transferor. If an Investor
elects to exercise such right, such Investor may, in its sole discretion,
determine the composition of the Investor Shares (i.e., the number of the shares
of Series A Preferred Stock and Common Stock to be included in the Investor
Shares) to be Transferred by it to the Buyer pursuant to the Inclusion Offer. In
the event that any Investor chooses to include any shares of Series A Preferred
Stock in the Investor Shares to be Transferred by it to the Buyer pursuant to
the Inclusion Offer, any such Investor shall, prior to or simultaneously with
such Transfer, convert such shares of Series A Preferred Stock into shares of
Common Stock so that each Investor Transfers only Common Stock to the Buyer.
(c) Walston shall have ninety (90) days, commencing on the date of the
Inclusion Notice, in which to Transfer, on behalf of himself and the Investor
Group up to the number of shares covered by the Inclusion Offer (including the
Transferor Shares) to the Buyer. The terms of such Transfer, including, without
limitation, price and form of consideration, shall be as set forth in the
Inclusion Notice. If at the end of such ninety (90) day period Walston has not
completed the Transfer of the Transferor Shares and the Investor Shares (if any)
proposed to be Transferred, Walston may not proceed with such Transfer or any
other Transfer without first giving a new Inclusion Notice pursuant to the
provisions of this Section 1.
(d) If Walston is able to complete the Transfer of the Transferor Shares
and the Investor Shares (if any) proposed to be Transferred within such ninety
(90) day period, at the closing thereof, each Investor shall deliver to the
Buyer a certificate or certificates representing the Investor Shares owned by it
to be Transferred pursuant to the Inclusion Offer, free and clear of all liens
and encumbrances, and the Buyer shall pay to each such Investor the purchase
price for the Investor Shares so Transferred pursuant to this Section 1 and
shall furnish such other evidence of the completion of such Transfer and the
terms thereof as may be reasonably requested by the Investor Group.
<PAGE>
(e) The provisions of this Section 1 shall not apply to any Transfer or
proposed Transfer by Walston of Walston Shares which represents twenty-five
percent (25%) or less of the Walston Shares held by Walston on the date hereof
if such Transfer or proposed Transfer by Walston of Walston Shares, together
with all other Transfers by Walston of Walston Shares on or prior to the date of
such Transfer, represent fifty percent (50%) or less of the Walston Shares held
by Walston on the date hereof, with Walston Shares held by Walston on the date
hereof to be appropriately adjusted to reflect any stock split, stock dividend,
recapitalization or similar event; provided, however, that each Transfer of
-------- -------
Walston Shares that takes place within one year of any other Transfer to the
same Person or any Affiliate of such Person shall be aggregated for purposes of
such twenty-five percent (25%) threshold.
2. Preemptive Rights.
------------------
(a) Subject to Section 2(c) below, the Company hereby grants to each
Investor a right of first refusal to purchase its Pro Rata portion of any
Capital Stock which the Company may, from time to time, propose to issue. If
Capital Stock is issued as part of an issuance of other securities, such right
of first refusal shall extend to such securities as a unit.
(b) In the event the Company proposes to issue Capital Stock, it shall give
each Investor written notice (a "Preemption Notice") of its intention to do so.
-----------------
The Preemption Notice shall set forth the anticipated price (which shall be
payable solely in cash) and the general terms upon which the Company proposes to
issue the Capital Stock. Each Investor shall have thirty (30) days from the date
the Preemption Notice is given to agree to purchase all or any portion of its
Pro Rata share of such Capital Stock for the anticipated price and upon the
terms specified in the Preemption Notice by giving written notice to the Company
stating therein the quantity of Capital Stock it wishes to purchase.
(c) The provisions of this Section 2 shall not apply to the following
issuances by the Company: (i) shares of Common Stock issued to employees,
officers, directors or consultants of the Company pursuant to the Company's 1997
Stock Plan, the Company's 1997 Director Option Plan and other similar plans
approved by the Company's Board of Directors after the date hereof; (ii) 615,125
shares of Common Stock to be issued pursuant to certain management stock option
agreements; (iii) shares issued by the Company in connection with any merger,
acquisition, business combination, joint venture, partnership or limited
liability company; and (iv) shares issued in a single transaction for a purchase
price less than $500,000 and a purchase price equal to or greater than the
current Conversion Price (as defined in Section 5 of the Certificate of
Designations); provided, however, that the aggregate purchase price of all such
transactions shall not exceed $1,500,000.
(d) The provisions of this Section 2 shall terminate as to each share of
Series A Preferred Stock upon its conversion into Common Stock.
<PAGE>
3. Board Observer Rights; CommitteesERROR! BOOKMARK NOT DEFINED..
-------------------------------------------------------------
(a) So long as any shares of Series A Preferred Stock are outstanding, the
Fleming Holders (or if no shares of Series A Preferred Stock are held by a
Fleming Holder, any Transferee consented to by the Company (which consent
shall not be unreasonably withheld) (the "Permitted Transferee")), shall have
--------------------
the right to have one (1) representative (the "Fleming Observer") attend and
----------------
participate in meetings of the Company's Board of Directors, or any committee
thereof, and the Company shall permit the Fleming Observer to attend and
participate in all such meetings as an observer. The Fleming Observer shall not
have the right to vote on any matter presented to the Board or any committee
thereof. The Company shall give the Fleming Observer written notice of each
meeting of the Board of Directors or any committee thereof and all written
materials and other information given to the Company's directors and committee
members in the same manner and at the same time such notices, materials and
other information are given to the directors and committee members. The Company
shall reimburse the Fleming Observer for travel and other expenses in connection
with such meetings to the same extent that the Company reimburses its directors
and committee members. If the Board of Directors or any committee thereof
proposes to take any action by written consent in lieu of a meeting, the Company
shall give written notice thereof to the Fleming Observer prior to the effective
date of such consent describing the nature and substance of such action.
(b) The Fleming Holders or the Permitted Transferee, as the case may be,
shall not exercise their rights with respect to the Fleming Observer provided in
Section 3(a) during such time that the holders of the Series A Preferred Stock
have elected a director to the Company's Board of Directors (or have waived
their right to so elect a director) pursuant to Section 4 of the Company's
Certificate of Designations with respect to the Series A Preferred Stock (the
"Investor Director").
-----------------
(c) So long as any shares of Series A Preferred Stock are outstanding, each
of Walston, Donlon, Schutz and Bailey acknowledges that the parties to this
Agreement desire that the Investor Director be appointed to the Compensation and
Audit Committees of the Company's Board of Directors and at each time the
Company's Board of Directors appoints committee members, agrees to use its best
efforts and take any other action necessary or appropriate to ensure such
appointment; provided, however, that the agreements of this paragraph (c) shall
terminate upon the Fleming Holders' or the Permitted Transferee's delivery of a
written notice to each of Walston, Donlon, Schutz and Bailey to the effect that
the Investor Director need not be appointed to the aforesaid committees.
4. Definitions.
-----------
As used herein, the following terms shall have the respective meanings set
forth below:
"Acceptance Notice" shall have the meaning set forth in Section 1(a) hereof.
-----------------
<PAGE>
"Affiliate" shall have the meaning given it in in Section 3 of the Stock
---------
Purchase Agreements.
"Bailey" shall have the meaning set forth in the first paragraph hereof.
------
"Board" or "Board of Directors" shall have the meaning given it in Section 3
----- ------------------
of the Stock Purchase Agreements.
"Buyer" shall have the meaning set forth in Section 1(a) hereof.
-----
"Capital Stock" means the Common Stock (including, without limitation, any
-------------
Common Stock issuable upon conversion of the Series A Preferred Stock), Series A
Preferred Stock and any other class of equity security which the Company may
issue and any securities or other rights convertible, exchangeable or
exercisable for or into any Capital Stock.
"Certificate of Designations" shall have the meaning given it in Section 1(a)
---------------------------
of the Stock Purchase Agreements.
"Common Stock" shall have the meaning set forth in the second WHEREAS clause
------------
hereof.
"Company" shall have the meaning set forth in the first paragraph hereof.
-------
"Donlon" shall have the meaning set forth in the first paragraph hereof.
------
"Fleming Funds" shall have the meaning set forth in the first paragraph
-------------
hereof.
"Fleming Holders" shall have the meaning given it in Section 3 of the Stock
---------------
Purchase Agreements.
"Fleming Observer" shall have the meaning set forth in Section 3(a) hereof.
----------------
"Fully Diluted Basis" means, with respect to the calculation of the number of
-------------------
shares of Capital Stock, as of each date of determination thereof, (i) all
shares of Capital Stock outstanding at the time of determination and (ii) all
shares of Capital Stock issuable upon the exchange, exercise or conversion of
any security or other right (other than any Capital Stock) then outstanding
which is exchangeable, exercisable or convertible into Capital Stock.
"Inclusion Notice" shall have the meaning set forth in Section 1(a) hereof.
----------------
"Inclusion Offer" shall have the meaning set forth in Section 1(a) hereof.
---------------
"Investor" shall have the meaning set forth in the first paragraph hereof.
--------
"Investor Director" shall have the meaning set forth in Section 3(b) hereof.
-----------------
<PAGE>
"Investor Group" shall have the meaning set forth in the first paragraph
--------------
hereof.
"Investor Shares" means all Series A Preferred Stock and Common Stock owned by
---------------
the Investor Group.
"Permitted Transferee" shall have the meaning set forth in Section 3(a)
--------------------
hereof.
"Person" means an individual, corporation, partnership, firm, association,
------
joint venture, trust, unincorporated organization, governmental body, agency,
political subdivision or other entity.
"Preemption Notice" shall have the meaning set forth in Section 2(b) hereof.
-----------------
"Pro Rata" means with respect to a stockholder, in proportion to the number of
--------
shares of Capital Stock on a Fully Diluted Basis owned by such stockholder.
"Schutz" shall have the meaning set forth in the first paragraph hereof.
------
"Series A Preferred Stock" shall have the meaning set forth in the first
------------------------
WHEREAS clause hereof.
"Stock Purchase Agreements" shall have the meaning set forth in the first
-------------------------
WHEREAS clause hereof.
"Transfer" means, with respect to any security, any direct or indirect sale,
--------
transfer, assignment, hypothecation, pledge or any other disposition of such
security or any interest therein.
"Transferee" shall have the meaning given it in Section 3 of the Stock
----------
Purchase Agreements.
"Transferor Shares" shall have the meaning set forth in Section 1(a) hereof.
-----------------
"Walston" shall have the meaning set forth in the first paragraph hereof.
-------
Walston Shares" shall have the meaning set forth in the second WHEREAS clause
--------------
hereof.
Miscellaneous.
-------------
(a) In the event of a breach by any party to this Agreement of its
obligations under this Agreement, any party injured by such breach, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary
<PAGE>
damages, for breach of any such provision will be inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
(b) Except as otherwise provided herein, no modification, amendment or
waiver of any provision of this Agreement will be effective against any party
hereto unless such modification, amendment or waiver is approved in writing by
all parties hereto. The failure of any party to enforce any of the provisions of
this Agreement will in no way be construed as a waiver of such provisions and
will not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
(c) All covenants and agreements in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
(d) All notices, requests and other communications hereunder must be in
writing and will be deemed to have been duly given only if delivered personally
or by facsimile transmission or sent by nationally recognized overnight courier
service to the parties at the following addresses or facsimile numbers:
(i) If to an Investor, to:
the address indicated on Schedule 1 to the Stock Purchase
Agreements.
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: David W. Pollak, Esq.
(ii) If to the Company, to:
Four Media Company
2813 West Alameda Avenue
Burbank, CA 91505
Facsimile No.: 818-540-7143
Attn: Robert T. Walston
with a copy to:
Greenberg Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, CA 90067
Facsimile No.: (310) 553-0687
Attn: Jill A. Cossman, Esq.
<PAGE>
(iii) If to Walston, to:
(iv) If to Donlon, to:
(v) If to Schutz, to:
(vi) If to Bailey, to:
All such notices, requests and other communications will (x) if delivered
personally to the address as provided in this Section 5(d), be deemed given upon
delivery, (y) if delivered by facsimile transmission to the facsimile number as
provided in this Section 5(d), be deemed given upon receipt and (z) if delivered
by nationally recognized overnight courier service in the manner described above
to the address as provided in this Section 5(d), be deemed given on the business
day following the day it was sent (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section 5(d)). Any
party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other parties hereto.
(e) The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.
(f) If any provision of this Agreement is held to be illegal, invalid or
unenforceable, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (iii) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom and (iv) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
(g) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to a contract executed and
performed in such State without giving effect to the conflicts of laws
principles thereof.
<PAGE>
(h) This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Stockholders'
Agreement as of the date first written above.
FOUR MEDIA COMPANY
By: /s/ Robert T. Walston
-------------------------
Name: Robert T. Walston
Title: CEO
/s/ Robert T. Walston
------------------------------
Robert T. Walston
/s/ John H. Donlon
------------------------------
John H. Donlon
/s/ Gavin W. Schutz
------------------------------
Gavin W. Schutz
/s/ Robert Bailey
------------------------------
Robert Bailey
FLEMING US DISCOVERY FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY, LLC,
its general partner
By: /s/ Robert L. Burr
--------------------------
Robert L. Burr, member
<PAGE>
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY, LLC,
its general partner
By: /s/ Robert L. Burr
--------------------------
Robert L. Burr, member
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
dated
February 27, 1998
among
Four Media Company,
Fleming US Discovery Fund III, L.P.,
and
Fleming US Discovery Offshore Fund III, L.P.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I............................................................... 1
DEMAND REGISTRATIONS............................................... 1
1.1 Requests for Registration.................................. 1
1.2 Limitations on Demand Registrations........................ 2
1.3 Effective Registration Statement........................... 2
1.4 Priority on Demand Registrations........................... 3
1.5 Selection of Underwriters.................................. 3
1.6 Other Registration Rights.................................. 3
ARTICLE II.............................................................. 4
OTHER REGISTRATIONS................................................ 4
2.1 Right to Piggyback.......................................... 4
2.2 Priority on Primary Registrations........................... 4
2.3 Priority on Secondary Registrations......................... 5
2.4 Other Registrations......................................... 5
ARTICLE III............................................................. 6
REGISTRATION PROCEDURES............................................ 6
ARTICLE IV.............................................................. 9
REGISTRATION EXPENSES.............................................. 9
4.1 Company's Fees and Expenses................................. 9
4.2 Fees of Counsel to Holders.................................. 9
ARTICLE V...............................................................10
UNDERWRITTEN OFFERINGS.............................................10
5.1 Demand Underwritten Offerings...............................10
5.2 Incidental Underwritten Offerings...........................10
ARTICLE VI..............................................................11
INDEMNIFICATION....................................................11
6.1 Indemnification by the Company..............................11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.2 Indemnification by Holders................................. 12
6.3 Indemnification Procedures................................. 12
6.4 Indemnification of Underwriters............................ 13
6.5 Contribution............................................... 13
6.6 Timing of Indemnification Payments......................... 14
ARTICLE VII............................................................ 14
RULE 144.......................................................... 14
ARTICLE VIII........................................................... 15
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS....................... 15
ARTICLE IX............................................................. 15
MERGERS, ETC...................................................... 15
ARTICLE X.............................................................. 15
DEFINITIONS....................................................... 15
ARTICLE XI............................................................. 17
MISCELLANEOUS..................................................... 17
11.1 No Inconsistent Agreements................................. 17
11.2 Adjustments Affecting Registrable Securities............... 17
11.3 Remedies................................................... 17
11.4 Amendments and Waivers..................................... 18
11.5 Successors and Assigns..................................... 18
11.6 Notices.................................................... 18
11.7 Headings................................................... 20
11.8 Gender..................................................... 20
11.9 Invalid Provisions......................................... 20
11.10 Governing Law.............................................. 20
11.11 Counterparts............................................... 20
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is dated as of February 27, 1998, among
Four Media Company, a Delaware corporation (the "Company"), Fleming US Discovery
-------
Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (collectively,
the "Fleming Funds"). The Fleming Funds, any Fleming Holder and any Transferee
-------------
are collectively referred to herein as the "Investors" and, individually, an
---------
"Investor". Capitalized terms used and not otherwise defined herein have the
- ---------
respective meanings ascribed thereto in Article X.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, simultaneously herewith, the Fleming Funds have purchased an
aggregate of 150,000 shares of Preferred Stock pursuant to the terms of the
Stock Purchase Agreements;
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Stock Purchase Agreements that the Company and the Fleming
Funds enter into this Agreement whereby the Company shall grant, and the
Investors shall obtain, the rights relating to the registration of the
Registrable Securities under the Securities Act, as set forth in this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEMAND REGISTRATIONS
--------------------
I.1 Requests for Registration. Subject to Section 1.2, at any time and from
--------------------------
time to time on or after the date hereof, the Fleming Holders may request
registration under the Securities Act of all or part of their Registrable
Securities (i) on Form S-1 or any similar long-form registration ("Long-Form
---------
Demand Registrations"), or (ii) on Form S-3 or any similar short-form
- --------------------
registration ("Short-Form Demand Registrations") if the Company qualifies to use
-------------------------------
such short form (and the Company will use its best efforts to make short-form
registration statements available for the sale of Registrable Securities).
Thereafter, the Company will use its best efforts to promptly effect the
registration of such Registrable Securities under the Securities Act on the form
requested by the holder or holders making such registration request. All
registrations requested pursuant to this Section 1.1 are referred to herein as
"Demand Registrations". Upon receipt of a request for a Demand Registration,
- ---------------------
the Company will give prompt written notice (in any event within three (3)
Business Days after its receipt of such request) of the request for a Demand
Registration to all holders of Registrable Securities not making such request
and will include in such Demand Registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within ten (10) days after the receipt of the Company's notice. The holders of
the Registrable Securities making any such registration request may, at any time
prior to the effective date of the registration statement relating to any
1
<PAGE>
Demand Registration, revoke such Demand Registration request by providing
written notice to the Company.
I.2 Limitations on Demand Registrations. (a) The holders of the Registrable
-----------------------------------
Securities shall be entitled to (i) two (2) Long-Form Demand Registrations,
provided, that each such Long-Form Demand Registration shall be for Registrable
- --------
Securities with an aggregate Market Value of not less than $7.5 million, and
(ii) any number of Short-Form Demand Registrations; provided, that any such
--------
Short-Form Demand Registration shall be for Registrable Securities with an
aggregate Market Value of not less than $1 million.
(b) The Company shall be entitled to postpone for a reasonable period of time
not to exceed forty-five (45) days the filing of any registration statement
otherwise required to be prepared and filed by it if, at the time it receives a
Demand Registration request, the Board of Directors of the Company determines,
in its reasonable good faith judgment, that such registration would materially
interfere with a business or financial transaction of substantial importance to
the Company (other than an underwritten public offering of its securities),
including, without limitation, any such transaction involving a material
acquisition, consolidation, merger or corporate reorganization then pending or
proposed by its Board of Directors involving the Company, and the Company
promptly gives the holders of the Registrable Securities written notice of such
determination, containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay; provided, however,
-------- -------
that the Company shall not be entitled to postpone filing a registration
statement in response to a Demand Registration for the twelve (12) months
following the expiration of such forty-five day period. In the event the filing
of any registration statement is postponed pursuant to this paragraph, the
holder or holders of the Registrable Securities making a registration request
shall have the right to withdraw such Demand Registration request by giving
written notice to the Company within thirty (30) days after receipt of the
notice of postponement (and, in the event of such withdrawal, the right of the
holders of the Registrable Securities to such Demand Registration shall be
reinstated).
I.3 Effective Registration Statement. A Demand Registration requested
--------------------------------
pursuant to Section 1.1 of this Agreement shall not be deemed to have been
effected (i) unless a registration statement with respect thereto has become
effective, (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Securities and Exchange Commission (the "SEC") or other governmental agency
---
or court for any reason, and the Registrable Securities covered thereby have not
been sold, or (iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied by reason of (x) a failure by or inability of the
Company to satisfy any thereof, or (y) the occurrence of an event outside the
control of the holders of Registrable Securities. In addition, a Demand
Registration requested pursuant to Section 1.1 of this Agreement shall not
deemed to have been effected if holders of Registrable Securities are not able
to register and sell at least 66-2/3% of the amount of Registrable Securities
requested to be included in such registration; provided, however, that in no
-------- -------
case shall the holders of the Registrable Securities be entitled to more than
one additional Long-Form
2
<PAGE>
Demand Registration as a result of the inability to register and sell such
percentage of Registrable Securities.
I.4 Priority on Demand Registrations. The Company will not include in any
--------------------------------
Demand Registration any securities which are not Registrable Securities without
the written consent of the Fleming Holders. If other securities are permitted
to be included in a Demand Registration which is an underwritten offering and
the managing underwriters advise the Company in writing that in their opinion
the number of Registrable Securities exceeds the number of Registrable
Securities which can be sold in such offering within a price range acceptable to
the Fleming Holders, the Company will include in such registration prior to the
inclusion of any securities which are not Registrable Securities the number of
Registrable Securities requested to be included which in the opinion of such
underwriters can be sold, pro rata among the respective holders on the basis of
the amount of Registrable Securities requested to be offered thereby.
I.5 Selection of Underwriters. The Fleming Holders will have the right to
-------------------------
select the underwriters and the managing underwriters to administer a Demand
Registration and such underwriters and managing underwriters shall be reasonably
acceptable to the Company.
I.6 Other Registration Rights. Except as provided in this Agreement or as
-------------------------
otherwise consented to in writing by the Fleming Holders, the Company will not
grant to any Person the right to request the Company to register any equity
securities of the Company, or any securities convertible, exchangeable or
exercisable for or into such securities ("Other Securities"), other than (i)
----------------
piggyback registration rights entitling the holder thereof to participate in
Company-initiated registrations with holders of Registrable Securities;
provided, however, that the Registrable Securities shall have priority over
- -------- -------
Other Securities in any such Company-initiated registration, (ii) registration
rights granted in connection with the Company's acquisition of a complementary
business through a pooling of interests transaction; provided, however, that (x)
-------- -------
the Company is required to grant such rights in order to account for any such
acquisition as a pooling of interests transaction, (y) such rights or the
agreement or instrument granting such rights will not restrict or otherwise
adversely affect the ability of the Company to perform its obligations under
this Agreement and (z) the Company shall use its best efforts to obtain
agreements from any holder or holders who receive such rights to the effect that
such holders will enter into lock-up agreements if requested to do so by any
underwriter in any Demand Registration (except that the Company shall not be
obligated to take such action if it would prevent the subject acquisition from
being accounted for as a pooling of interests), (iii) registration rights
granted in connection with the Company's acquisition of a complementary business
through a purchase transaction (which could be in the form of demand
registration rights or the Company's agreement to file a registration statement
for securities delivered as consideration in such purchase transaction (a
"Purchase Registration")); provided, however, that (x) such rights or the
-------- -------
agreement or instrument granting such rights will not restrict or otherwise
adversely affect the ability of the Company to perform its obligations under
this Agreement and (y) the holders of the Registrable Securities shall have the
right to piggyback on any Purchase Registration and the priority of securities
to be included in any such registration shall be governed by Section 2.3(b)
hereof and (iv) registration rights granted to Technical Services Partners, L.P.
or any of its partners (collectively, "Steinhardt"). In the case of clause
(iii) of this
3
<PAGE>
Section 1.6, the holders of the Registrable Securities shall be entitled to the
notice provided for in Section 2.1 hereof.
ARTICLE II
OTHER REGISTRATIONS
-------------------
II.1 Right to Piggyback. Whenever the Company proposes to register any of
------------------
its securities under the Securities Act (other than pursuant to a Demand
Registration), and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
----------------------
will give prompt written notice (in any event within three (3) Business Days
after its receipt of notice of any exercise of other demand registration rights)
to all holders of Registrable Securities of its intention to effect such a
registration and will include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within ten (10) days after the receipt of the Company's notice.
II.2 Priority on Primary Registrations. If a Piggyback Registration is an
---------------------------------
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities and any securities held by Steinhardt
requested to be included in such registration, provided, that if the managing
--------
underwriters in good faith determine that a lower number of securities should be
included, then the Company shall be required to include in the underwriting only
that lower number of securities, and the holders of Registrable Securities who
have requested registration and Steinhardt shall participate in the underwriting
pro rata based upon their total ownership, on a fully diluted basis, of any such
securities requested to be included in such registration and (iii) third, other
securities requested to be included in such registration; provided, however,
-------- -------
that for two years from the date of this Agreement the securities Steinhardt
proposes to sell shall be second in priority (i.e., such securities shall be
included before the Registrable Securities).
II.3 Priority on Secondary Registrations. (a) Subject to paragraph (b) of
-----------------------------------
this Section 2.3, if a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities requested to be included therein by the
holders requesting such registration, (ii) second, the Registrable Securities
and any securities held by Steinhardt requested to be included in such
registration, provided, that if the managing underwriters in good faith
--------
determine that a lower number of securities should be included, then the Company
shall be required to include in the underwriting only that lower number of
securities, and the holders of Registrable Securities who have requested
registration and Steinhardt shall participate in the underwriting pro rata based
upon their total ownership, on a fully diluted basis, of any such
4
<PAGE>
securities requested to be included in such registration and (iii) third, other
securities requested to be included in such registration; provided, however,
-------- -------
that for two years from the date of this Agreement the securities Steinhardt
proposes to sell shall be second in priority (i.e., such securities shall be
included before the Registrable Securities).
(b) If a Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Company's securities and is a Purchase Registration,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, the Company will include
in such registration (i) first, the securities requested to be included therein
by the holders requesting such registration and the Registrable Securities and
the securities held by Steinhardt requested to be included in such registration,
provided, that if the managing underwriters in good faith determine that a lower
- --------
number of securities should be included, then the Company shall be required to
include in the underwriting only that lower number of securities, and the
holders requesting such registration, the holders of Registrable Securities who
requested to be included in such registration and Steinhardt shall participate
in the underwriting pro rata based upon their total ownership, on a fully
diluted basis, of any such securities requested to be included in such
registration and (ii) second, other securities requested to be included in such
registration pursuant to piggyback rights. The Company hereby agrees that
whenever it grants piggyback rights to any holder of its securities such
holder's piggyback rights will be expressly subordinated to the piggyback rights
granted to the holders of the Registrable Securities under this Article II.
II.4 Other Registrations. If the Company has previously filed a registration
-------------------
statement for a Long-Form Demand Registration with respect to Registrable
Securities pursuant to Article I of this Agreement or pursuant to this Article
II, and if such previous registration has not been withdrawn or abandoned, the
Company will not file or cause to be effected any other registration of any of
its equity securities or securities convertible, exchangeable or exercisable for
or into its equity securities under the Securities Act (except on Form S-4 or S-
8 or any successor form), whether on its own behalf or at the request of any
holder or holders of such securities other than the holders of the Registrable
Securities, until a period of at least six (6) months elapsed from the effective
date of such previous registration.
ARTICLE III
REGISTRATION PROCEDURES
-----------------------
Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible or,
in the case of clause (q) below, will not:
(a) promptly prepare and file with the SEC a registration statement with
respect to such Registrable Securities (such registration statement to
include all information which the
5
<PAGE>
holders of the Registrable Securities to be registered thereby shall reasonably
request) and use its best efforts to promptly cause such registration statement
to become effective, provided that at least five days before filing a
--------
registration statement or prospectus or any amendments or supplements thereto,
the Company will (i) furnish to counsel selected by the Fleming Holders, copies
of all such documents proposed to be filed, and the Company shall not file any
such documents to which such counsel shall have reasonably objected on the
grounds that such document does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations thereunder,
and (ii) notify each holder of Registrable Securities covered by such
registration statement of (x) any request by the SEC to amend such registration
statement or amend or supplement any prospectus or (y) any stop order issued or
threatened by the SEC, and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered;
(b) (i) promptly prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than 180 days (except that such 180-day period shall be extended (x)
by the length of any period that a stop order or similar proceeding is in effect
which prohibits the distribution of the Registrable Securities, and (y) by the
number of days during the period from and including the date on which each
seller of Registrable Securities shall have received a notice delivered pursuant
to clause (f) below until the date when such seller shall have received a copy
of the supplemented or amended prospectus contemplated by clause (f) below), and
(ii) comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) as soon as reasonably possible furnish to each seller of Registrable
Securities, without charge, such number of conformed copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus and
prospectus supplement and, in each case, including all exhibits) and such other
documents as such seller may reasonably request, all in conformity with the
requirements of the Securities Act, in order to facilitate the disposition of
the Registrable Securities owned by such seller;
(d) use its best efforts promptly to register or qualify the Shares under such
other securities or blue sky laws of such jurisdictions as any seller thereof
shall reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect and to do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller, provided, however, that the Company
-------- -------
will not be required to (i) qualify generally to do business as a foreign
corporation in any jurisdiction where it would not otherwise be required to
qualify but for this clause (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
6
<PAGE>
(e) furnish to each seller of Registrable Securities a signed copy, addressed
to such seller (and the underwriters, if any) of an opinion of counsel for the
Company or special counsel to the selling stockholders, dated the effective date
of such registration statement (and, if such registration statement includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and substance to
counsel selected by the Fleming Holders, covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel delivered to
the underwriters in underwritten public offerings, and such other legal matters
as the seller (or the underwriters, if any) may reasonably request;
(f) promptly notify each seller of Registrable Securities, at a time when a
prospectus relating to the Shares is required to be delivered under the
Securities Act, of the Company's becoming aware that the prospectus included in
such registration statement, as then in effect, contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and, at the request of any such
seller, promptly prepare and furnish such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made;
(g) cause all of the Shares to be listed on each securities exchange on which
similar securities issued by the Company are then listed or, if there shall then
be no such listing, to be accepted for quotation as a National Market Security
on The NASDAQ Stock Market;
(h) provide a transfer agent and registrar for all of the Shares not later than
the effective date of such registration statement;
(i) enter into such customary arrangements and take all such other actions as
the Fleming Holders or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of the Shares;
(j) make available for inspection by any seller of Registrable Securities, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(k) cause the Company's officers to make presentations to potential purchasers
of the Shares, as reasonably requested by any seller of Registrable Securities
or any underwriter
7
<PAGE>
participating in any disposition pursuant to such registration statement in
connection with one (1) Long-Form Demand Registration;
(l) subject to other provisions hereof, use its best efforts to cause the Shares
to be registered with or approved by such other governmental agencies or
authorities or self-regulatory organizations as may be necessary to enable the
sellers thereof to consummate the disposition of the Shares;
(m) use its best efforts to obtain a "comfort" letter, dated the effective date
of such registration statement (and, if such registration includes an
underwritten offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified the
Company's financial statements, addressed to each seller, and to the
underwriters, if any, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and with
respect to events subsequent to the date of such financial statements, as are
customarily covered in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and such other financial matters as
such seller (or the underwriters, if any) may reasonably request;
(n) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC and make available to its securityholders, in each case
as soon as practicable, an earnings statement covering a period of at least
twelve months, beginning after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(o) permit any holder of Registrable Securities, which holder, in the sole
judgment exercised in good faith of such holder, might be deemed to be a
controlling person of the Company (within the meaning of the Securities Act or
the Exchange Act), to participate in the preparation of any registration
statement covering such holder's Registrable Securities and to include therein
material, furnished to the Company in writing, which in the reasonable judgment
of such holder should be included and which is reasonably acceptable to the
Company;
(p) use every reasonable effort to obtain the lifting at the earliest possible
time of any stop order suspending the effectiveness of any registration
statement or of any order preventing or suspending the use of any prospectus;
(q) at any time file or make any amendment to a registration statement, or any
amendment of or supplement to a prospectus (including amendments of the
documents incorporated by reference into the prospectus), of which each seller
of Registrable Securities or the managing underwriters shall not have previously
been advised and furnished a copy or to which the sellers of Registrable
Securities, the managing underwriters, or counsel for such sellers or for the
underwriters shall reasonably object; and
(r) make such representations and warranties (subject to appropriate disclosure
exceptions) to sellers of Registrable Securities and the
underwriters, if any, in form,
8
<PAGE>
substance and scope as are customarily made by issuers to underwriters and
selling holders, as the case may be, in underwritten public offerings of
substantially the same type.
ARTICLE IV
REGISTRATION EXPENSES
---------------------
IV.1 Company's Fees and Expenses. All expenses incident to the Company's
---------------------------
performance of or compliance with this Agreement, including without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and expenses for listing or quoting the Shares on each securities exchange
or The NASDAQ Stock Market on which similar securities issued by the Company are
then listed or quoted, and fees and disbursements of counsel for the Company,
any transfer agent and all independent certified public accountants,
underwriters (excluding discounts and selling commissions) and other Persons
retained by the Company in connection with any Demand Registration or any
Piggyback Registration (all such expenses being herein called "Registration
------------
Expenses"), will be paid by the Company.
- ---------
IV.2 Fees of Counsel to Holders. In connection with each registration
--------------------------
hereunder, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the Fleming Holders.
ARTICLE V
UNDERWRITTEN OFFERINGS
----------------------
V.1 Demand Underwritten Offerings. If requested by the underwriters for any
-----------------------------
underwritten offerings of Registrable Securities pursuant to a Demand
Registration, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to the Fleming Holders and the underwriters, and to contain
such representations and warranties by the Company and such other terms as are
generally included in agreements of this type, including, without limitation,
indemnities customarily included in such agreements. The holders of Registrable
Securities to be distributed by such underwriters may be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. The Company shall cooperate with any such
holder of Registrable Securities in order to limit any representations or
warranties to, or agreements with, the Company or the underwriters to be made by
such holder only to those representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
9
<PAGE>
V.2 Incidental Underwritten Offerings. If the Company at any time proposes
---------------------------------
to register any of its securities under the Securities Act as contemplated by
Article II of this Agreement and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Article II of this Agreement, arrange
for such underwriters to include all the Registrable Securities to be offered
and sold by such holder, subject to the limitations set forth in Article II
hereof, among the securities to be distributed by such underwriters. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to the underwriting agreement between the Company and such
underwriters, and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. The Company shall cooperate with any such
holder of Registrable Securities in order to limit any representations or
warranties to, or agreements with, the Company or the underwriters to be made by
such holder only to those representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
ARTICLE VI
INDEMNIFICATION
---------------
VI.1 Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the extent permitted by law, each of the holders of any
Registrable Securities covered by any registration statement prepared pursuant
to this Agreement, each other Person, if any, who controls such holder within
the meaning of the Securities Act or the Exchange Act, and each of their
respective directors, general partners and officers, as follows:
(i) against any and all loss, liability, claim, damage and expense arising
out of or based upon an untrue statement or alleged untrue statement of a
material fact contained in any registration statement (or any amendment or
supplement thereto), including all documents incorporated therein by
reference, or in any preliminary prospectus or prospectus (or any amendment
or supplement thereto) or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense to the
extent of the aggregate amount paid in settlement of any litigation,
investigation or proceeding by any governmental agency or body, commenced
or threatened, or of any claim whatsoever based upon any such untrue
statement or omission or any such alleged untrue statement or omission, if
such settlement is effected with the written consent of the Company; and
10
<PAGE>
(iii) against any and all expense incurred by them in connection
with investigating, preparing or defending against any litigation,
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement
or omission or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under clause (i) or (ii) above;
provided, that this indemnity does not apply to any loss, liability, claim,
- --------
damage or expense to the extent arising out of an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any holder expressly for use in the preparation of any registration statement
(or any amendment or supplement thereto), including all documents incorporated
therein by reference, or in any preliminary prospectus or prospectus (or any
amendment or supplement thereto); and provided further, that the Company will
-------- -------
not be liable to any holder under the indemnity agreement in this Section 6.1,
with respect to any preliminary prospectus or the final prospectus or the final
prospectus as amended or supplemented, as the case may be, to the extent that
any such loss, liability, claim, damage or expense of such controlling Person or
holder results from the fact that such holder sold Registrable Securities to a
Person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final prospectus or of the final
prospectus as then amended or supplemented, whichever is most recent, if the
Company has previously and timely furnished copies thereof to such holder. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or any such director, officer, general
partner, or other controlling person and shall survive the transfer of such
securities by such seller.
VI.2 Indemnification by Holders. In connection with any registration
--------------------------
statement in which a holder of Registrable Securities is participating, each
such holder agrees to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 6.1 of this Agreement), to the extent
permitted by law, the Company and its directors, officers and controlling
Persons, and their respective directors, officers and general partners, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such holder, specifically stating that it is for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company, or such
holder, as the case may be, or any of their respective directors, officers,
controlling Persons or general partners and shall survive the transfer of such
securities by such holder. The obligations of each holder of Registrable
Securities pursuant to this Section 6.2 are to be several and not joint;
provided, that, with respect to each claim pursuant to this Section 6.2, each
- --------
such holder's maximum liability under this Section shall be limited to an amount
equal to the net proceeds actually received by such holder (after deducting any
underwriting discount and expenses) from the sale of Registrable Securities
being sold pursuant to such registration statement or prospectus by such holder.
11
<PAGE>
VI.3 Indemnification Procedures. Promptly after receipt by an indemnified
--------------------------
party hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in Section 6.1 or Section 6.2 of this
Agreement, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, that the failure of any indemnified party
--------
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under Section 6.1 or Section 6.2 of this Agreement except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, unless in such indemnified party's judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, in which case the indemnifying party shall not be liable for the
fees and expenses of (i) more than one counsel for all holders of Registrable
Securities, selected by the Fleming Holders, or (ii) more than one counsel for
the Company in connection with any one action or separate but similar or related
actions. An indemnifying party who is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels. The indemnifying party will not, without the
prior written consent of each indemnified party, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such indemnified party or any Person who controls such indemnified party
is a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such indemnified
party from all liability arising out of such claim, action, suit or proceeding.
Notwithstanding anything to the contrary set forth herein, and without limiting
any of the rights set forth above, in any event any party will have the right to
retain, at its own expense, counsel with respect to the defense of a claim.
VI.4 Indemnification of Underwriters. The Company and each holder of
-------------------------------
Registrable Securities requesting registration shall provide for the foregoing
indemnity in any underwriting agreement with respect to any required
registration or other qualification of securities under any Federal or state law
or regulation of any governmental authority other than the Securities Act.
VI.5 Contribution. If the indemnification provided for in Sections 6.1 and
------------
6.2 of this Agreement is unavailable or insufficient to hold harmless an
indemnified party under such Sections, then each indemnifying party shall
contribute to the amount paid or payable to such indemnified party as a result
of the losses, claims, damages or liabilities referred to in Section 6.1 or
Section 6.2 of this Agreement in such proportion as is appropriate to reflect
the relative fault
12
<PAGE>
of the indemnifying party on the one hand, and the indemnified party on the
other, in connection with statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations, including, without limitation, the relative benefits
received by each party from the offering of the securities covered by such
registration statement, the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted
and the opportunity to correct and prevent any statement or omission. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this Section 6.5 were to be
determined by pro rata or per capita allocation (even if the underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this Section 6.5. The amount paid to an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 6.5 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim (which shall be limited as
provided in Section 6.3 of this Agreement if the indemnifying party has assumed
the defense of any such action in accordance with the provisions thereof) which
is the subject of this Section 6.5. Promptly after receipt by an indemnified
party under this Section 6.5 of notice of the commencement of any action against
such party in respect of which a claim for contribution may be made against an
indemnifying party under this Section 6.5, such indemnified party shall notify
the indemnifying party in writing of the commencement thereof if the notice
specified in Section 6.3 of this Agreement has not been given with respect to
such action; provided, that the omission to so notify the indemnifying
--------
party shall not relieve the indemnifying party from any liability which it may
otherwise have to any indemnified party under this Section 6.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. The Company and each holder of Registrable Securities agrees with
each other and the underwriters of the Registrable Securities, if requested by
such underwriters, that (i) the underwriters' portion of such contribution shall
not exceed the underwriting discount and (ii) the amount of such contribution
shall not exceed an amount equal to the net proceeds actually received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, liabilities, claims, damages or expenses of the indemnified
parties relate. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
VI.6 Timing of Indemnification Payments. The indemnification required by
----------------------------------
this Article VI shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
13
<PAGE>
ARTICLE VII
RULE 144
--------
The Company covenants that it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information), and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemption provided by (i) Rule 144 or Rule 144A under the Securities Act,
as such Rules may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
ARTICLE VIII
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
-------------------------------------------
No Person may participate in any underwritten registration hereunder unless
such Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements and
consistent with the provisions of this Agreement.
ARTICLE IX
MERGERS, ETC.
-------------
The Company shall not, directly or indirectly, enter into any merger,
consolidation, or reorganization in which the Company shall not be the surviving
corporation unless the proposed surviving corporation shall, prior to such
merger, consolidation, or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Securities" shall be deemed to be references to the
securities that the Investors or the holders of Registrable Securities would be
entitled to receive in exchange for Registrable Securities under any such
merger, consolidation, or reorganization.
ARTICLE X
DEFINITIONS
-----------
As used in this Agreement, the following defined terms shall have the meanings
set forth below:
14
<PAGE>
"Business Day" means a day other than Saturday, Sunday or any day on which
------------
banks in the State of New York are authorized or obligated to close.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
------------
"Designated Entity" means (i) as long as any Registrable Securities are held
-----------------
by any Fleming Holder, Fleming Capital Management, 320 Park Avenue, NY, NY
10022, attention: Robert L. Burr and (ii) if no Registrable Securities are held
by any Fleming Holder, the entity designated by the Transferee who holds the
largest number of Registrable Securities (in which case such Transferee shall
provide notice to the Company of such entity in accordance with Section 11.6(a)
hereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fleming Holders" shall have the meaning given it in Section 3 of the Stock
---------------
Purchase Agreements.
"Market Value" means, on a per share basis, the average closing price of the
------------
Company's Common Stock on the Nasdaq Stock Market, or the securities exchange on
which the Common Stock is then listed, for the 20 consecutive trading days
ending with the second trading day immediately preceding the date a request for
Demand Registration is received by the Company. For purposes of calculating the
Market Value of shares of Preferred Stock, such shares shall be converted into
shares of Common Stock at the current Conversion Price per share under Section 5
of the Certificate of Designations. If at any time such security is not listed
on any exchange or the Nasdaq Stock Market, the Market Value shall be deemed to
be the fair value thereof determined by an investment banking firm of nationally
recognized standing selected by the Board of Directors of the Corporation and
reasonably acceptable to the Fleming Holders, as of the most recent practicable
date as of which the determination is to be made, taking into account the value
of the Corporation as a going concern, and without taking into account any lack
of liquidity of such security or any discount for a minority interest.
"Person" means any individual, corporation, partnership, association, trust or
------
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Preferred Stock" means the Company's Series A Convertible Preferred Stock,
---------------
par value $.01 per share, which Preferred Stock is convertible into shares of
Common Stock.
"Registrable Securities" means (i) any shares of Common Stock issued or
----------------------
issuable upon conversion of the Preferred Stock purchased by the Investors
pursuant to the Stock Purchase Agreements and (ii) any securities issued or
issuable with respect to the Common Stock referred to in clause (i) by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have (x) been effectively registered under the
Securities Act and disposed of in accordance
15
<PAGE>
with the registration statement covering them or (y) been transferred pursuant
to Rule 144 (or any similar rule then in force) under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Shares" means the shares of Registrable Securities registered on the
------
registration statement filed with the SEC in connection with any Demand
Registration or any Piggyback Registration.
"Stock Purchase Agreements" means, collectively, the separate Preferred Stock
-------------------------
Purchase Agreements, dated as of February 5, 1998, between the Company and each
of the Fleming Funds.
"Transferees" shall have the meaning given it in Section 3 of the Stock
-----------
Purchase Agreements.
ARTICLE XI
MISCELLANEOUS
-------------
XI.1 No Inconsistent Agreements. The Company will not hereafter enter into
--------------------------
any agreement with respect to its securities which is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.
XI.2 Adjustments Affecting Registrable Securities. The Company will not
--------------------------------------------
effect or permit to occur any combination, subdivision or reclassification of
any of its securities which would adversely affect the ability of the holders of
Registrable Securities to include Registrable Securities in a registration
undertaken pursuant to this Agreement or which, to the extent within its
control, would adversely affect the marketability of such Registrable Securities
in any such registration (including, without limitation, effecting a stock split
or a combination of shares).
XI.3 Remedies. In the event of a breach by any party to this Agreement of
--------
its obligations under this Agreement, any party injured by such breach, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The parties agree that the provisions of this Agreement
shall be specifically enforceable, it being agreed by the parties that the
remedy at law, including monetary damages, for breach of any such provision will
be inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
XI.4 Amendments and Waivers. Except as otherwise provided herein, no
----------------------
modification, amendment or waiver of any provision of this Agreement will be
effective against the Company or any holder of Registrable Securities, unless
such modification, amendment or waiver is approved in writing by the Company and
the Fleming Holders. The failure of any party to enforce any of the provisions
of this Agreement will in no way be construed as a waiver
16
<PAGE>
of such provisions and will not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
XI.5 Successors and Assigns. All covenants and agreements in this Agreement
----------------------
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of the
Investors or the holders of Registrable Securities are also for the benefit of,
and enforceable by, any subsequent holder of Registrable Securities.
XI.6 Notices. (a) Subject to Section 11.6(b) hereof, all notices, requests
-------
and other communications hereunder must be in writing and will be deemed to have
been duly given only if delivered personally or by facsimile transmission or
sent by nationally recognized overnight courier service to the parties at the
following addresses or facsimile numbers:
(i) If to an Investor or a holder of Registrable Securities, to:
Fleming Capital Management
320 Park Avenue
NY, NY 10022
Facsimile No.: 21112-508-3928
Attn: Robert L. Burr
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: David W. Pollak, Esq.
(ii) If to the Company, to:
Four Media Company
2813 West Alameda Avenue
Burbank, California 91505
Facsimile No.: 818-840-7143
Attn: Robert T. Walston
with a copy to:
Greenberg Glusker Fields Claman
& Machtinger LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, California 90067
Facsimile No.: (310) 553-0687
Attn: Jill A. Cossman, Esq.
17
<PAGE>
All such notices, requests and other communications will (x) if delivered
personally to the address as provided in this Section 11.6(a), be deemed given
upon delivery, (y) if delivered by facsimile transmission to the facsimile
number as provided in this Section 11.6(a), be deemed given upon receipt and (z)
if delivered by nationally recognized overnight courier service in the manner
described above to the address as provided in this Section 11.6(a), be deemed
given on the Business Day following the day it was sent (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this Section
11.6(a)). Any party may from time to time change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
(b) So long as any Fleming Holder holds any Registrable Securities, all notices
and other communications hereunder shall be deemed given to all holders of the
Registrable Securities when given to the Designated Entity in accordance with
Section 11.6(a) hereof. The consent, selection, request, acceptance, choice,
approval and other similar terms used in this Agreement (collectively, the
"Consent") of the Fleming Holders shall be deemed obtained if any of the
following conditions are satisfied: (i) the Fleming Funds are the only holders
of the Registrable Securities and the Designated Entity shall have obtained the
Consent of each Fleming Fund and shall have given notice to the Company to such
effect in accordance with Section 11.6(a) hereof; (ii) the Fleming Funds are not
the only holders of the Registrable Securities and the Designated Entity shall
have obtained the Consent of the holders of a majority of the Registrable
Securities held by all Fleming Holders, and shall have given notice to the
Company to such effect in accordance with Section 11.6(a) hereof; or (iii) no
Registrable Securities are held by a Fleming Holder and the Designated Entity
shall have obtained the Consent of the holders of a majority of the Registrable
Securities held by the Transferees, and shall have given notice to the Company
to such effect in accordance with Section 11.6(a) hereof; provided,
--------
however, that if the Consent relates to a particular Demand Registration or
- -------
Piggyback Registration or otherwise only involves or affects certain holders of
the Registrable Securities, only the Registrable Securities of the holders so
participating in such registration or so involved or affected shall be included
in the Consent required by clause (iii) of this paragraph.
XI.7 Headings. The headings used in this Agreement have been inserted for
--------
convenience of reference only and do not define or limit the provisions hereof.
XI.8 Gender. Whenever the pronouns "he" or "his" are used herein they shall
------
also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable.
Words in the singular shall be read and construed as though in the plural and
words in the plural shall be construed as though in the singular in all cases
where they would so apply.
XI.9 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable, and if the rights or obligations of any party
hereto under this Agreement will not be materially and adversely affected
thereby, (i) such provision will be fully severable, (ii) this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, (iii) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or
18
<PAGE>
unenforceable provision or by its severance herefrom and (iv) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
XI.10 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York applicable to a contract
executed and performed in such State without giving effect to the conflicts of
laws principles thereof.
XI.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
Four Media Company
By: /s/ Robert T. Walston
----------------------------------------
Name: Robert T. Walston
Title: CEO
FLEMING US DISCOVERY FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY, LLC,
its general partner
By: /s/ Robert L. Burr
-----------------------------
Robert L. Burr, member
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY, LLC,
its general partner
By: /s/ Robert L. Burr
-----------------------------
Robert L. Burr, member
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED INCOME STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> AUG-03-1997 AUG-03-1997
<PERIOD-START> NOV-03-1997 AUG-04-1997
<PERIOD-END> FEB-01-1998 FEB-01-1998
<CASH> 1,308 1,308
<SECURITIES> 0 0
<RECEIVABLES> 26,462 26,462
<ALLOWANCES> 996 996
<INVENTORY> 1,181 1,181
<CURRENT-ASSETS> 3,003 3,003
<PP&E> 146,826 146,826
<DEPRECIATION> 37,512 37,512
<TOTAL-ASSETS> 148,195 148,195
<CURRENT-LIABILITIES> 27,233 27,233
<BONDS> 0 0
0 0
0 0
<COMMON> 41,746 41,746
<OTHER-SE> 7,949 15,732
<TOTAL-LIABILITY-AND-EQUITY> 148,195 148,195
<SALES> 28,649 55,915
<TOTAL-REVENUES> 28,649 55,915
<CGS> 18,648 36,388
<TOTAL-COSTS> 18,648 36,388
<OTHER-EXPENSES> 7,779 7,779
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,529 2,877
<INCOME-PRETAX> 693 918
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 693 918
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 693 918
<EPS-PRIMARY> 0.07 0.10
<EPS-DILUTED> 0.07 0.09
</TABLE>
