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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): April 8, 1999
Four Media Company
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(Exact name of registrant as specified in its charter)
Delaware 0-21943 95-459940
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(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
2813 West Alameda Avenue
Burbank, California 91505
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(Address of principal executive offices) (Zip Code)
(818) 840-7000
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(Registrant's telephone number, including area code)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
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Four Media Company (the "Company") issued a press release on April 8,
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1999 announcing that the acquisition by Warburg, Pincus Equity Partners, L.P.,
Warburg, Pincus Netherlands Equity Partners I, C.V., Warburg, Pincus Netherlands
Equity Partners II, C.V. and Warburg, Pincus Netherlands Equity Partners III,
C.V. (collectively, "Warburg Pincus") of 10.2 million shares of the Company's
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newly issued and existing common stock, par value $.01 per share (the "Common
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Stock"), had been completed and funded (the "Acquisition"). The press release
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is attached as Exhibit 99.1 hereto and is hereby incorporated by reference.
In the Acquisition, pursuant to a securities purchase agreement with
the Company (the "Securities Purchase Agreement") dated as of January 18, 1999,
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Warburg Pincus acquired approximately 6.6 million newly issued shares of Common
Stock and a warrant to purchase an additional 1.1 million shares of Common Stock
for a total purchase price of $52.7 million. The warrant has an exercise price
of $15.00 per share and is exercisable through April 7, 2006. A copy of the
warrant is attached as Exhibit 99.2 hereto and is incorporated herein by
reference.
Pursuant to the Securities Purchase Agreement, Warburg Pincus has the
right, so long as they beneficially own at least 35% of the then outstanding
shares of Common Stock, to cause the Company to nominate and use its best
efforts to elect individuals designated by Warburg Pincus to be a majority of
the members of the Board of Directors of the Company (the "Board"). The Board
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currently consists of seven members. Warburg Pincus only chose to nominate
three of these seven members; however it retains the right to nominate a
majority of the Board so long as the foregoing ownership threshold is satisfied.
Furthermore, for so long as Warburg Pincus beneficially owns at least 10 % and
less than 35% of the then outstanding shares of the Common Stock, the Company
will continue to be obligated to nominate and use its best efforts to elect
individuals designated by Warburg Pincus as members of the Board, on a
decreasing basis roughly in proportion to such ownership. A copy of the
Securities Purchase Agreement is attached as Exhibit 99.3 hereto and is hereby
incorporated by reference.
In addition, Warburg Pincus acquired approximately 3.1 million shares
of Common Stock beneficially owned by Technical Services Partners, L.P. ("TSP"),
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a limited partnership controlled by Steinhardt Management Company, Inc., for
approximately $23.4 million, pursuant to a stock purchase agreement with TSP
(the "TSP Purchase Agreement") dated as of January 18, 1999. The TSP Purchase
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Agreement is attached as Exhibit 99.4 hereto and is hereby incorporated by
reference.
In addition, Warburg Pincus purchased an additional 498,000 shares of
Common Stock for approximately $4.0 million from the Company's founders,
pursuant to a stock purchase agreement with such founders (the "Founders
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Purchase Agreement") dated as of January 18, 1999. The Founders Purchase
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Agreement is attached as Exhibit 99.5 hereto and is hereby incorporated by
reference.
In connection with the Acquisition, the Company also entered into a
Preferred Stock Conversion and Stockholders Agreement with Fleming US Discovery
Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (collectively,
"Flemings") and Warburg Pincus dated as of January 18, 1999 (the "Conversion
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Agreement"). The Conversion Agreement is attached as Exhibit 99.6 hereto and is
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hereby incorporated by reference. Pursuant to the
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Conversion Agreement, Flemings converted 150,000 shares of preferred stock of
the Company it owned into 2,250,000 Shares of Common Stock. So long as Flemings
owns at least 50% of the shares of Common Stock issued to it pursuant to the
Conversion Agreement (i.e., 1,125,000), it will be entitled to nominate one
individual to the Board and the Company will have to use its reasonable best
efforts to secure the election of such nominee. Pursuant to the foregoing
provision, Flemings nominated one of the seven members of the Board.
In connection with the Acquisition, Warburg Pincus also entered into
(i) a Voting Agreement, dated as of January 18, 1999, with Flemings (the
"Fleming Voting Agreement") and (ii) a Voting Agreement, dated as of January 18,
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1999, with Robert T. Walston, the Company's Chief Executive Officer ("Walston")
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and TSP (the "Walston Voting Agreement"). The Fleming Voting Agreement and the
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Walston Voting Agreement are attached as Exhibits 99.7 and 99.8 hereto and are
hereby incorporated by reference.
Under the terms of the Fleming Voting Agreement, for so long as
Warburg Pincus is entitled to nominate directors to the Board under the
Securities Purchase Agreement, Flemings has agreed to vote all of the shares of
Common Stock owned by it in favor of any nominees of Warburg Pincus for election
to the Board. In exchange for such voting covenant by Flemings, Warburg Pincus
has agreed to vote all of the shares of Common Stock owned by it in favor of
Flemings nominee for election to the Board for so long as Flemings is entitled
to nominate a director to the Board under the Conversion Agreement.
Under the terms of the Walston Voting Agreement, for so long as
Warburg Pincus is entitled to nominate directors to the Board under the
Securities Purchase Agreement, Walston has agreed to vote all of the shares of
Common Stock owned by him in favor of any nominees of Warburg Pincus for
election to the Board. In exchange for such voting covenant by Walston, Warburg
Pincus has agreed to vote all of the shares of Common Stock owned by it in favor
of Walston for election to the Board for so long as he remains the Company's
Chief Executive Officer pursuant to the terms of his employment agreement.
Also in connection with Acquisition, the Company entered into a
Registration Rights Agreement with Flemings dated as of April 8, 1999 (the
"Flemings Registration Rights Agreement"), pursuant to which it granted Flemings
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customary demand and piggyback registration rights with respect to the shares of
Common Stock issued to Flemings under the Conversion Agreement. The Flemings
Registration Rights Agreement is attached as Exhibit 99.9 hereto and is
incorporated herein by reference.
Also in connection with Acquisition, the Company entered into a
Registration Rights Agreement with Warburg Pincus dated as of April 8, 1999 (the
"Warburg Pincus Registration Rights Agreement"), pursuant to which it granted
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Warburg Pincus customary demand and piggyback registration rights with respect
to the shares of Common Stock acquired by Warburg Pincus in the Acquisition.
The Warburg Pincus Registration Rights Agreement is attached as Exhibit 99.10
hereto and is incorporated herein by reference.
The source of Warburg Pincus' consideration for the Acquisition was
working capital.
As a result of the preceding acquisitions, Warburg Pincus acquired
beneficial ownership of approximately 55.7% of the outstanding shares of Common
Stock of the Company.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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7(c) Exhibits
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*99.1 Press Release of the Company, dated April 8, 1999.
*99.2 Common Stock Purchase Warrant issued by the Company to Warburg
Pincus dated April 8, 1999.
99.3 Securities Purchase Agreement dated as of January 18, 1999
between the Company and Warburg Pincus (incorporated by
reference to Exhibit 99.2 of the Company's Current Report on
Form 8-K dated January 18, 1999 and filed with the Securities
and Exchange Commission on January 20, 1999).
99.4 Stock Purchase Agreement dated as of January 18, 1999 between
Warburg Pincus and TSP (incorporated by reference to Exhibit
99.3 of the Company's Current Report on Form 8-K dated January
18, 1999 and filed with the Securities and Exchange Commission
on January 20, 1999).
99.5 Stock Purchase Agreement dated as of January 18, 1999 among
Warburg Pincus and certain founders named therein (incorporated
by reference to Exhibit 99.4 of the Company's Current Report on
Form 8-K dated January 18, 1999 and filed with the Securities
and Exchange Commission on January 20, 1999).
99.6 Preferred Stock Conversion and Stockholders Agreement dated as
of January 18, 1999 among the Company, Flemings and Warburg
Pincus (incorporated by reference to Exhibit 99.5 of the
Company's Current Report on Form 8-K dated January 18, 1999 and
filed with the Securities and Exchange Commission on January 20,
1999).
99.7 Voting Agreement dated as of January 18, 1999 between Warburg
Pincus and Flemings (incorporated by reference to Exhibit 99.6 of
the Company's Current Report on Form 8-K dated January 18, 1999
and filed with the Securities and Exchange Commission on January
20, 1999).
99.8 Voting Agreement dated as of January 18, 1999 among Warburg
Pincus, Walston and TSP (incorporated by reference to Exhibit
99.7 of the Company's Current Report on Form 8-K dated January
18, 1999 and filed with the Securities and Exchange Commission on
January 20, 1999).
*99.9 Registration Rights Agreement between the Company and Flemings
dated as of April 8, 1999.
*99.10 Registration Rights Agreement between the Company and Warburg
Pincus dated as of April 8, 1999.
* Filed herewith.
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SIGNATURE
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 hereunto duly authorized.
Dated: April 23, 1999
FOUR MEDIA COMPANY
By: /s/ William E. Niles
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Name: William E. Niles
Title: Vice President and General Counsel
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EXHIBIT INDEX
*99.1 Press Release of the Company, dated April 8, 1999.
*99.2 Common Stock Purchase Warrant issued by the Company to Warburg
Pincus dated April 8, 1999.
99.3 Securities Purchase Agreement dated as of January 18, 1999
between the Company and Warburg Pincus (incorporated by reference
to Exhibit 99.2 of the Company's Current Report on Form 8-K dated
January 18, 1999 and filed with the Securities and Exchange
Commission on January 20, 1999).
99.4 Stock Purchase Agreement dated as of January 18, 1999 between
Warburg Pincus and TSP (incorporated by reference to Exhibit 99.3
of the Company's Current Report on Form 8-K dated January 18,
1999 and filed with the Securities and Exchange Commission on
January 20, 1999).
99.5 Stock Purchase Agreement dated as of January 18, 1999 among
Warburg Pincus and certain founders named therein (incorporated
by reference to Exhibit 99.4 of the Company's Current Report on
Form 8-K dated January 18, 1999 and filed with the Securities and
Exchange Commission on January 20, 1999).
99.6 Preferred Stock Conversion and Stockholders Agreement dated as
of January 18, 1999 among the Company, Flemings and Warburg
Pincus (incorporated by reference to Exhibit 99.5 of the
Company's Current Report on Form 8-K dated January 18, 1999 and
filed with the Securities and Exchange Commission on January 20,
1999).
99.7 Voting Agreement dated as of January 18, 1999 between Warburg
Pincus and Flemings (incorporated by reference to Exhibit 99.6 of
the Company's Current Report on Form 8-K dated January 18, 1999
and filed with the Securities and Exchange Commission on January
20, 1999).
99.8 Voting Agreement dated as of January 18, 1999 among Warburg
Pincus, Walston and TSP (incorporated by reference to Exhibit
99.7 of the Company's Current Report on Form 8-K dated January
18, 1999 and filed with the Securities and Exchange Commission on
January 20, 1999).
*99.9 Registration Rights Agreement between the Company and Flemings
dated as of April 8, 1999.
*99.10 Registration Rights Agreement between the Company and Warburg
Pincus dated as of April 8, 1999.
* Filed herewith.
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EXHIBIT 99.1
Four Media Company Completes Warburg Pincus Equity Transaction
BURBANK, Calif., April 8 /PRNewswire/-- Four Media Company (Nasdaq: FOUR)
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today announced that the acquisition by Warburg, Pincus Equity Partners, L.P.
and certain affiliates ("Warburg, Pincus") of 10.2 million shares of newly
issued and existing Four Media Company common stock has been completed and
funded. The $52.7 million proceeds from the approximately 6.6 million
newly-issued shares will be used to further the Company's consolidation of the
technical and creative services industry that supports the creation and
distribution of entertainment programming.
In addition to the newly-issued shares, Warburg, Pincus also acquired 3.1
million shares of Four Media Company common stock for approximately $23.4
million from Technical Services Partners, L.P. ("TSP"), a limited partnership
controlled by Steinhardt Partners, L.P. and 498,000 shares for approximately
$4.0 million from certain of the Company's founding shareholders. Warburg,
Pincus also received a warrant to purchase 1.1 million shares at a price of
$15.00 per share.
Commenting on the funding of the Warburg, Pincus investment, Robert T.
Walston, Chairman of the Board and Chief Executive Officer stated, "This is a
significant milestone in the growth of Four Media Company and will enable us to
continue to build shareholder value through the acquisition and integration of
complementary businesses, both domestically and internationally. In addition
to capital, our partnership with Warburg, Pincus provides the company with
access to experience with entertainment-related companies and financial markets
expertise that will further enhance our ability to execute our business plan."
Four Media Company is a leading provider of technical and creative services
to owners, producers and distributors of television programming, feature films
and other entertainment product both domestically and internationally. The
Company's services integrate a variety of systems and processes to enhance the
creation and distribution of entertainment content. Four Media's client base
includes the world's largest entertainment companies. As a result of its
investments and acquisitions, Four Media Company is one of the largest and most
diversified providers of technical and creative services to the entertainment
industry, which enables the Company to offer its customers a single source for
such services.
This press release contains forward-looking statements which are made
pursuant to the Safe-Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Words such as "intends", "believes" and similar expressions
reflecting something other than historical fact are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. These forward-looking statements involve a number of risks and
uncertainties, including the timely development and market acceptance of
products and technologies, successful integration of acquisitions, the ability
to secure additional sources of financing, the ability to reduce operating
expenses and other factors described in the Company's filings with the
Securities and Exchange Commission. The actual results that the Company achieves
may differ materially from any forward-looking statement due to such risks and
uncertainties. The Company undertakes no obligations to revise or update any
forward-looking statements in order to reflect events or circumstances that may
arise after the date of this release.
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EXHIBIT 99.2
WARRANT
THE SECURITIES (THE "SECURITIES") EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL
NOT OFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER (INDIVIDUALLY AND COLLECTIVELY,
A "TRANSFER") THE SECURITIES EVIDENCED HEREBY, EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. IF THE PROPOSED TRANSFER
IS TO BE MADE OTHER THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR ANY STATE OR FOREIGN SECURITIES LAW.
FOUR MEDIA COMPANY
Common Stock Purchase Warrant
FOUR MEDIA COMPANY, a Delaware corporation (the "Company"), hereby
certifies that, for value received, Warburg, Pincus & Co., as nominee, a
Delaware limited partnership (the "Holder"), or permitted assigns, is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
and from time to time during the period beginning on April 8, 1999 and ending
on April 7, 2006, in whole or in part, an aggregate of one million one hundred
thousand (1,100,000) fully paid and non-assessable shares of the Common Stock,
$.01 par value per share, of the Company at a purchase price, subject to the
provisions of Paragraph 3 hereof, of $15.00 per share (the "Purchase Price").
The Purchase Price and the number and character of such shares are subject to
adjustment as provided below, and the term "Common Stock" shall mean, unless the
context otherwise requires, the stock or other securities or property at the
time deliverable upon the exercise of this Warrant. This Warrant is herein
called the "Warrant."
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant shall
be exercised by the holder surrendering this Warrant, with the form of
subscription at the end hereof duly executed by such holder, to the Company at
its principal office, accompanied by payment of an amount (the "Exercise
Payment") equal to the Purchase Price multiplied by the number of shares being
purchased pursuant to such exercise, payable as follows: (i) by payment to the
Company in cash, by certified or official bank check, or by wire transfer of the
Exercise Amount, (ii) by surrender to the Company for cancellation of securities
of the Company having a Market Price
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(as hereinafter defined) on the date of exercise equal to the Exercise Amount;
or (c) by a combination of the methods described in clauses (a) and (b) above.
In lieu of exercising the Warrant, the holder may elect to receive a payment
equal to the difference between (i) the Market Price multiplied by the number of
shares as to which the payment is then being elected and (ii) the exercise price
with respect to such shares, payable by the Company to the Holder only in shares
of Common Stock valued at the Market Price on the date of exercise. For purposes
hereof, the term "Market Price" shall mean the average closing price of a share
of Common Stock for the 15 consecutive trading days preceding such day on the
principal national securities exchange on which the shares of Common Stock or
securities are listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the average of the reported bid and
asked prices during such 15 trading day period in the over-the-counter market as
furnished by the National Quotation Bureau, Inc., or, if such firm is not then
engaged in the business of reporting such prices, as furnished by any member of
the National Association of Securities Dealers, Inc. selected by the Company or,
if the shares of Common Stock or securities are not publicly traded, the Market
Price for such day shall be the fair market value thereof determined jointly in
good faith by the Board of Directors of the Company and the holder of this
Warrant; provided, however, that if such parties are unable to reach agreement
within a reasonable period of time, the Market Price shall be determined in good
faith by the independent investment banking firm selected jointly by the Company
and the holder of this Warrant or, if that selection cannot be made within 15
days, by an independent investment banking firm selected by the American
Arbitration Association in accordance with its rules.
1.1 Partial Exercise. This Warrant may be exercised for less than the full
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number of shares of Common Stock, in which case the number of shares receivable
upon the exercise of this Warrant as a whole, and the sum payable upon the
exercise of this Warrant as a whole, shall be proportionately reduced. Upon any
such partial exercise, the Company at its expense will forthwith issue to the
holder hereof a new Warrant or Warrants of like tenor calling for the number of
shares of Common Stock as to which rights have not been exercised, such Warrant
or Warrants to be issued in the name of the holder hereof or his nominee (upon
payment by such holder of any applicable transfer taxes).
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. Subject to compliance with
applicable law and exchange or Nasdaq National Market requirements, as
applicable, as soon as practicable after the exercise of this Warrant and
payment of the Exercise Payment, and in any event within ten (10) days
thereafter, the Company, at its expense, will cause to be issued in the name of
and delivered to the holder hereof a certificate or certificates for the number
of fully paid and non-assessable shares or other securities or property to which
such holder shall
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be entitled upon such exercise, plus, in lieu of any fractional share to which
such holder would otherwise be entitled, cash in an amount determined in
accordance with Paragraph 3.9 hereof. The Company agrees that the shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been duly exercised, surrendered and payment made for such shares as
aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with this Paragraph 3. Upon each
adjustment of the Purchase Price pursuant to this Paragraph 3, the registered
Holder of this Warrant shall thereafter be entitled to acquire upon exercise, at
the Purchase Price resulting from such adjustment, the number of shares of the
Company's Common Stock obtainable by multiplying the Purchase Price in effect
immediately prior to such adjustment by the number of shares of the Company's
Common Stock acquirable immediately prior to such adjustment and dividing the
product thereof by the Purchase Price resulting from such adjustment.
3.1 Adjustment for Issue or Sale of Common Stock at Less than Market Price.
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Except as provided in Paragraph 3.2 or 3.5 below, if and whenever on or after
the date of issuance hereof the Company shall issue or sell, or shall in
accordance with subparagraphs 3.1(1) to (9), inclusive, be deemed to have issued
or sold, any shares of its Common Stock for a consideration per share less than
the Market Price per share on the date the Company fixes the issuance or sales
price (or shall have been deemed to have fixed the issuance or sales price) of
the subject shares of Common Stock, then forthwith upon such issue or sale (the
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction by the Purchase Price then in effect,
plus (y) the consideration, if any, received by the Company upon
consummation of such Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common Shares
Deemed Outstanding immediately prior to such Triggering Transaction plus
(y) the number of shares of Common Stock issued (or deemed to be issued in
accordance with subparagraphs 3.1(1) to (9)) in connection with the
Triggering Transaction.
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For purposes of this Paragraph 3, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (i) the number of
shares of the Company's Common Stock outstanding at such time, and (ii) the
number of shares of the Company's Common Stock deemed to be outstanding under
subparagraphs 3.1(1) to (9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under this
Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
(such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and
the price per share for which the Common Stock is issuable upon exercise,
conversion or exchange (determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities) shall be less than
the Market Price per share on the date the Company fixes the issuance or
sales price (or shall have been deemed to have fixed the issuance or sales
price) of the subject shares of Common Stock, then the total number of
shares of Common Stock issuable upon the exercise of such Options, or, in
the case of Options for Convertible Securities, upon the conversion or
exchange of such Convertible Securities, shall (as of the date of granting
of such Options) be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. No adjustment of the Purchase
Price shall be made upon the actual issue of such shares of Common Stock or
such Convertible Securities upon the exercise of such Options, except as
otherwise provided in subparagraph (3) below.
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(2) In case the Company at any time shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (x) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Market Price per share on
the date the Company fixes the issuance or sales price (or shall have been
deemed to have fixed the issuance or sales price) of the subject shares of
Common Stock, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold by the Company
for such price per share. No adjustment of the Purchase Price shall be made
upon the actual issue of such Common Stock upon the exchange or conversion
of such Convertible Securities, except as otherwise provided in
subparagraph (3) below.
(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such
change shall forthwith be readjusted to the Purchase Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in any Option
referred to in subparagraph (1) or the rate at which any Convertible
Securities referred to in subparagraphs (1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or by
reason of provisions with respect thereto designed to
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protect against dilution, then in case of the delivery of Common Stock upon
the exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Purchase Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained
had such Option or Convertible Security never been issued as to such Common
Stock and had adjustments been made upon the issuance of the shares of
Common Stock delivered as aforesaid, but only if as a result of such
adjustment the Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration or termination of any Option or the expiration
or termination of any right to convert or exchange any Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
increased to the Purchase Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair value of such consideration
as determined in good faith by the Board of Directors of the Company. In
case any shares of Common Stock, Options or Convertible Securities shall be
issued in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the non-
surviving corporation as shall be attributed by the Board of Directors of
the Company in good faith to such Common Stock, Options or Convertible
Securities, as the case may be.
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(7) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Options or
Convertible Securities, then in such case any Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Paragraph 3.1, in case the Company shall take
a record of the holders of its Common Stock for the purpose of entitling
them (x) to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities, or (y) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of the
granting of such right or subscription or purchase, as the case may be.
3.2 Dividends Not Paid Out of Earnings or Earned Surplus. In the event the
----------------------------------------------------
Company shall declare a dividend upon the Common Stock (other than a dividend
payable in Common Stock) payable otherwise than out of earnings or earned
surplus, determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries (herein referred to as "Liquidating Dividends"), then, as soon
as possible after the exercise of this Warrant, the Company shall pay to the
person exercising such Warrant an amount equal to the aggregate value at the
time of such exercise of all Liquidating Dividends (including but not limited to
the Common Stock which would have been issued at the time of such earlier
exercise and all other securities which would have been issued with respect to
such Common Stock by reason of stock splits, stock dividends, mergers or
reorganizations, or for any other reason). For the purposes of this Paragraph
3.2, a dividend other than in cash shall be considered payable out of earnings
or earned surplus only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors of the Company.
3.3 Subdivisions and Combinations. In case the Corporation shall at any
-----------------------------
time (i) subdivide the outstanding
-7-
<PAGE>
Common Stock or (ii) issue a stock dividend on its outstanding Common Stock, the
Purchase Price in effect immediately prior to such subdivision or dividend shall
be proportionately reduced by the same ratio as the subdivision or dividend. In
case the Corporation shall at any time combine its outstanding Common Stock, the
Purchase Price in effect immediately prior to such combination shall be
proportionately increased by the same ratio as the combination.
3.4 Reorganization, Reclassification, Consolidation, Merger or Sale of
------------------------------------------------------------------
Assets. If any capital reorganization or reclassification of the capital stock
- ------
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder of this Warrant shall have the right to acquire
and receive upon exercise of this Warrant such shares of stock, securities, cash
or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of the Company's Common Stock as would
have been received upon exercise of this Warrant at the Purchase Price then in
effect. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument mailed or delivered to
the holder of this Warrant at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase. If a purchase, tender or exchange offer
is made to and accepted by the holders of more than 50% of the outstanding
shares of Common Stock of the Company, the Company shall not effect any
consolidation, merger or sale with the person having made such offer or with any
Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the holder of this Warrant shall have been given a
reasonable opportunity to then elect to receive upon the exercise of this
Warrant either the stock, securities or assets then issuable with respect to the
Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer. For purposes hereof the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person.
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<PAGE>
3.5 No Adjustment for Exercise of Certain Options, Warrants, Etc. The
-------------------------------------------------------------
provisions of this Section 3 shall not apply to any Common Stock issued,
issuable or deemed outstanding under subparagraphs 3.1(1) to (9) inclusive: (i)
to any person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries in effect on the date of issuance hereof or (ii)
pursuant to options, warrants and conversion rights in existence on the date of
issuance hereof.
3.6 Notices of Record Date, Etc. In the event that:
---------------------------
(1) the Company shall declare any cash dividend upon its Common Stock,
or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other
rights, or
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, including any subdivision or combination
of its outstanding shares of Common Stock, or consolidation or merger of
the Company with, or sale of all or substantially all of its assets to,
another corporation, or
(5) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least ten (10) days' prior written notice of the date on
which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least ten (10) days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (i) shall
also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the
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<PAGE>
holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Each such written notice
shall be given by first class mail, postage prepaid, addressed to the
holder of this Warrant at the address of such holder as shown on the books
of the Company.
Failure to give any notice required by this section (or any defect in
any such notice) shall not affect the validity of the subject transaction.
3.7 Grant, Issue or Sale of Options, Convertible Securities, or Rights. If
------------------------------------------------------------------
at any time or from time to time on or after the date of issuance hereof, the
Company shall grant, issue or sell any Options, Convertible Securities or rights
to purchase property (the "Purchase Rights") pro rata to the record holders of
any class of Common Stock of the Company and such grants, issuances or sales do
not result in an adjustment of the Purchase Price under Paragraph 3.1 hereof,
then the holder of this Warrant shall be entitled to acquire (within thirty (30)
days after the later to occur of the initial exercise date of such Purchase
Rights or receipt by such holder of the notice concerning Purchase Rights to
which such holder shall be entitled under Paragraph 3.6) and upon the terms
applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Stock acquirable
upon exercise of this Warrant immediately before the grant, issuance or
sale of such Purchase Rights; provided that if any Purchase Rights were
distributed to holders of Common Stock without the payment of additional
consideration by such holders, corresponding Purchase Rights shall be
distributed to the exercising holder of this Warrant as soon as possible
after such exercise and it shall not be necessary for the exercising holder
of this Warrant specifically to request delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the number of
shares of Common Stock or the amount of property which such holder could
have acquired upon such exercise at the time or times at which the Company
granted, issued or sold such expired Purchase Rights.
-10-
<PAGE>
3.8 Adjustment by Board of Directors. If any event occurs as to which, in
--------------------------------
the opinion of the Board of Directors of the Company, the provisions of this
Section 3 are not strictly applicable or if strictly applicable would not fairly
protect the rights of the holder of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights as
aforesaid, but in no event shall any adjustment have the effect of increasing
the Purchase Price as otherwise determined pursuant to any of the provisions of
this Section 3 except in the case of a combination of shares of a type
contemplated in Paragraph 3.3 and then in no event to an amount greater than the
Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9 Fractional Shares. The Company shall not issue fractions of shares of
-----------------
Common Stock upon exercise of this Warrant or scrip in lieu thereof. If any
fraction of a share of Common Stock would, except for the provisions of this
Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall in
lieu thereof pay to the person entitled thereto an amount in cash equal to the
current value of such fraction, calculated to the nearest one-hundredth (1/100)
of a share, to be computed based on the Market Price of the Common Stock.
3.10 Officers' Statement as to Adjustments. Whenever the Purchase Price
-------------------------------------
shall be adjusted as provided in Section 3 hereof, the Company shall forthwith
file at each office designated for the exercise of this Warrant, a statement,
signed by either the Chairman of the Board, the President, any Vice President or
Treasurer of the Company, showing in reasonable detail the facts requiring such
adjustment and the Purchase Price that will be effective after such adjustment.
The Company shall also cause a notice setting forth any such adjustments to be
sent by mail, first class, postage prepaid, to the record holder of this Warrant
at his or its address appearing on the stock register. If such notice relates to
an adjustment resulting from an event referred to in Paragraph 3.6, such notice
shall be included as part of the notice required to be mailed and published
under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but 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
holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of
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<PAGE>
this Warrant above the amount payable therefor upon such exercise, and at all
times will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable stock
upon the exercise of this Warrant.
5. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company shall at all times reserve and keep available out of its authorized but
unissued stock, solely for the issuance and delivery upon the exercise of this
Warrant and other similar Warrants, such number of its duly authorized shares of
Common Stock as from time to time shall be issuable upon the exercise of this
Warrant and all other similar Warrants at the time outstanding.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant and
(in the case of loss, theft or destruction) upon delivery of an indemnity
agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default by the Company in the performance of
or compliance with any of the terms of this Warrant are not and will not be
adequate, and that the same may be specifically enforced.
8. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof, title to this
Warrant may be transferred by endorsement (by the holder hereof
executing the form of assignment at the end hereof including guaranty
of signature) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
granted power to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each prior
taker or owner waives and renounces all of his equities or rights in
this Warrant in favor of every such bona fide purchaser, and every
such bona fide purchaser shall acquire title hereto and to all rights
represented hereby.
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<PAGE>
(c) Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder of this Warrant as the
absolute owner hereof for all purposes without being affected by any
notice to the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall not be
entitled to any rights of a shareholder of the Company with respect to
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the Company,
except as provided herein.
(e) The Company shall not be required to pay any Federal or state transfer
tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or
conversion or delivery of certificates for Common Stock in a name
other than that of the registered holder of this Warrant or to issue
or deliver any certificates for Common Stock upon the exercise of this
Warrant until any and all such taxes and charges shall have been paid
by the holder of this Warrant or until it has been established to the
Company's satisfaction that no such tax or charge is due.
9. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants issued
pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock of the Company which may be subscribed for and purchased hereunder.
10. MAILING OF NOTICES, ETC. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last registered holder of this Warrant who shall have furnished an address to
the Company in writing.
11. HEADINGS, ETC. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
12. CHANGE, WAIVER, ETC. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party
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<PAGE>
against which enforcement of the change, waiver, discharge or termination is
sought.
13. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
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<PAGE>
FOUR MEDIA COMPANY
By /s/ Robert T. Walston
-------------------------------------
Name: Robert T. Walston
Title: Chief Executive Officer
Dated: April 8, 1999
Attest:
By /s/ William E. Niles
----------------------------
Name: William E. Niles
Title: Vice President and
General Counsel
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<PAGE>
[To be signed only upon exercise of Warrant]
To Four Media Company:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______ shares of Common Stock of Four Media Company and
herewith makes payment of $______therefor, and requests that the certificates
for such shares be issued in the name of, and be delivered to Warburg, Pincus &
Co., as nominee, whose address is _____________________.
Dated:
- -----------------------------
--------------------------------
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
--------------------------------
Address
- -------------------------------
(Signature Guarantee)
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<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________ the right represented by the within
Warrant to purchase the ________ shares of the Common Stock of Four Media
Company to which the within Warrant relates, and appoints_______________
attorney to transfer said right on the books of Four Media Company with full
power of substitution in the premises.
Dated:
- --------------------------------
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
-----------------------------------
Address
In the presence of
- -------------------------------------
- -------------------------------------
(Signature Guarantee)
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<PAGE>
EXHIBIT 99.9
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of April 8, 1999, among the
investors listed on Schedule I hereto (collectively, the "Investor") and Four
Media Company, a Delaware corporation (the "Company").
R E C I T A L S
---------------
WHEREAS, the Investor has, pursuant to the terms of a Preferred Stock
Conversion and Stockholders Agreement (the "Conversion Agreement"), converted
certain outstanding shares of Series A Convertible Preferred Stock of the
Company into 2,250,000 shares of common stock, par value $.01 per share ("Common
Stock") of the Company (the "Shares"); and
WHEREAS, in connection with the original purchase of the Preferred
Stock, the Investor and the Company entered into the Registration Rights
Agreement, dated as of February 27, 1998 (the "Registration Rights Agreement");
and
WHEREAS, the Company has agreed, as a condition precedent to the
Investor's obligations under the Conversion Agreement, to terminate the
Registration Rights Agreement and to grant the Investor certain registration
rights with respect to the Shares; and
WHEREAS, the Company and the Investor desire to define the
registration rights of the Investor with respect to the Shares on the terms and
subject to the conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement, the following terms have the respective
meanings set forth below:
Commission: shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act;
Exchange Act: shall mean the Securities Exchange Act of 1934, as
------------
amended;
<PAGE>
Holder: shall mean any holder of Registrable Securities;
------
Initiating Holder: shall mean any Holder or Holders who in the
-----------------
aggregate are Holders of more than 50% of the then outstanding Registrable
Securities;
Person: shall mean an individual, partnership, limited liability
------
company, joint-stock company, corporation, trust or unincorporated organization,
and a government or agency or political subdivision thereof;
register, registered and registration: shall mean a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement;
Registrable Securities: shall mean (A) the Shares and (B) any stock
----------------------
of the Company issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Common Stock referred to in clause (A);
provided, however, that the Common Stock referred to in clauses (A) and (B)
shall no longer be deemed Registrable Securities upon the earliest of: (i) such
time as a registration statement with respect to such shares of Common Stock
shall have been declared effective by the Commission and all of the Registrable
Securities registered thereunder shall have been disposed of by the Holders in
accordance with the plan of distribution described in the prospectus forming a
part of such effective registration statement, (ii) the sale of all shares of
Registrable Securities by the Holders pursuant to Rule 144 under the Securities
Act and (iii) the transfer of all shares of Registrable Securities by the
Holders to a transferee or transferees who are not otherwise entitled to
registration rights with respect to such securities.
Registration Expenses: shall mean all expenses incurred by the
---------------------
Company in compliance with Sections 2(a) and (b) hereof, including, without
limitation, all registration and filing fees, listing fees, printing expenses,
fees and disbursements of counsel for the Company, fees and expenses of one
counsel for all the Holders in an amount not to exceed $15,000, blue sky fees
and expenses and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company);
Security, Securities: shall have the meaning set forth in Section
--------------------
2(1) of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as amended;
--------------
and
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<PAGE>
Selling Expenses: shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for each of the Holders other than fees and expenses of
one counsel for all the Holders in an amount not to exceed $15,000 and all stock
transfer taxes related to the Registrable Securities.
Walston Shares: shall mean (A) the 1,432,875 shares of Common Stock
--------------
beneficially owned by Robert T. Walston pursuant to an agreement with Technical
Services Partners, L.P. and (B) any stock of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of, the
Common Stock referred to in clause (A); provided, however, that the Common Stock
referred to in clauses (A) and (B) shall no longer be deemed Registrable
Securities upon the earliest of: (i) such time as a registration statement with
respect to such Common Stock shall have been declared effective by the
Commission and all of the Registrable Securities registered thereunder shall
have been disposed of by the Holders in accordance with the plan of distribution
described in the prospectus forming a part of such effective registration
statement, (ii) the sale of all Registrable Securities by the Holders pursuant
to Rule 144 under the Securities Act and (iii) the transfer of all Registrable
Securities by the Holders to a transferee or transferees who are not otherwise
entitled to registration rights with respect to such securities.
Warburg Registration Rights Agreement: shall mean the Registration
-------------------------------------
Rights Agreement, dated the date hereof, by and between the Company and the
Buyers (as defined in the Conversion Agreement).
Warburg Shares: shall mean the shares of Common Stock defined as
--------------
Registrable Securities in the Warburg Registration Rights Agreement, held at any
time by the Buyers.
2. REGISTRATION RIGHTS
-------------------
(a) Requested Registration.
----------------------
(i) Request for Registration. If the Company shall receive from
------------------------
an Initiating Holder, at any time, a written request that the Company
effect a registration under the Securities Act with respect to all or a
part of the Registrable Securities, the Company will:
(A) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders and the
Other Stockholders (as hereinafter defined) in the event of an
underwritten offering, such notice to provide, in the case of an
underwritten offering, an opportunity for the holders of Warburg
Shares to jointly exercise their request for registration rights with
the Initiating Holder pursuant
-3-
<PAGE>
to Section 2(a)(i) of the Warburg Registration Rights Agreement; and
(B) as soon as practicable, use its reasonable best efforts
to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act) as may be so requested and as is
reasonably necessary to permit or facilitate the sale and distribution
of all or such portion of such Registrable Securities as are specified
in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within 10
business days after written notice from the Company is given under
Section 2 (a)(i)(A) above; provided that the Company shall not be
--------
obligated to effect, or take any action to effect, any such
registration pursuant to this Section 2(a):
(x) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act or applicable rules
or regulations thereunder;
(y) After the Company has effected three (3) such
registrations pursuant to this Section 2(a) and such registrations
have been declared or ordered effective and have remained effective
for a period ending on the earlier of (i) one hundred twenty (120)
days after the date of such effectiveness and (2) the date on which
the sales of such Registrable Securities shall have (A) been made in
accordance with the plan of distribution described in the prospectus
forming a part of such effective registration statement and (B)
closed; provided, however, that in the event that sales of the
securities consistent with the plan of distribution described in the
prospectus forming a part of such effective registration statement
are not permitted by the Commission, or such sales would not be in
accordance with the applicable rules and regulations of the
Commission (as evidenced by written advice of counsel), at any time
during such 120-day period, such 120-day period will be extended by
such number of days during which such sales were not permitted or
-4-
<PAGE>
not in accordance with such applicable rules and regulations; or
(z) If the Registrable Securities requested by all
Holders to be registered pursuant to such request have an
anticipated aggregate public offering price (before any underwriting
discounts and commissions) of less than $9,000,000.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 2(a)(ii) below,
include other securities of the Company which are held by Persons who, by virtue
of agreements with the Company, are entitled to include their securities in any
such registration, including without limitation the Walston Shares ("Other
Stockholders").
The registration rights set forth in this Section 2 may be assigned,
in whole or in part, to any transferee of Registrable Securities (who shall be
bound by all obligations of this Agreement).
The Initiating Holders may, at any time prior to the effective date of
the registration statement relating to any registration effected pursuant to
Section 2(a) of this Agreement, revoke such demand for registration by providing
written notice to the Company, in which event the Initiating Holders shall elect
either (i) that such request is deemed to be a request for registration under
this Section 2(a)(i) or (ii) that such request shall be deemed not to be a
request under this Section 2(a)(i) and, in the case of (ii) above, the
Initiating Holders, and not the Company, shall be responsible for any expenses
incurred by the Company in connection with such withdrawn registration
statement.
(ii) Underwriting. If the Initiating Holders intend to
------------
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 2(a)(i)(A). If Other Stockholders request inclusion in such
underwritten offering, the Holders shall offer to include the securities of such
Other Stockholders in the underwriting on the same terms and conditions as the
Registrable Securities of the Holders (subject to the limitations on sale set
forth herein) and may condition such offer on their acceptance of the further
applicable provisions of this Section 2. The Holders whose shares are to be
included in such registration and the Company shall (together with all Other
Stockholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by the
Initiating Holders and reasonably acceptable to the Company. Notwithstanding any
other provision of this Section 2(a), if the representative advises the Holders
-5-
<PAGE>
in writing that marketing factors require a limitation on the number of shares
to be underwritten, the securities of the Company held by the Initiating Holder
and each Other Stockholder shall be excluded from such registration as follows:
first, securities held by each Other Stockholder (other than Warburg
Shares and shares subject to registration (the "Encore Shares") under that
-------------
certain Registration Rights Agreement dated as of September 15, 1998 (the "Other
-----
Registration Rights Agreement") between the Investors (as defined in the Other
- -----------------------------
Registration Rights Agreement and the Company) to the minimum extent so required
(which may be up to 100% of such securities) by such limitation, such exclusion
to be effected on a pro rata basis (based on the number of shares requested for
inclusion in such registration by such Other Stockholders); and, second, to the
extent that the Company is advised that additional shares must also be excluded
from such registration, securities held by the holders of Warburg Shares and
Encore Shares shall be excluded from such registration to the minimum extent so
required (which may be up to 100% of such securities) by such limitation, such
exclusion to be effected on a pro rata basis (based on the number of shares
requested for inclusion in such registration by the holders of the Warburg
Shares and the holders of the Encore Shares), provided that if the holders of
--------
Warburg Shares have elected to join in such request for registration by notice
to the Company and the Initiating Holders within ten (10) days of the notice
referred to in Section 2(a)(i) hereof, then the foregoing limitation shall be
inapplicable and, instead, securities held by the holders of Warburg Shares, the
Initiating Holders, the holders of the Encore Shares and each Other Stockholder
shall be excluded from such registration as follows: first, securities held by
Other Stockholders and the Encore Shares shall be excluded from such
registration, to the minimum extent so required by such limitation, such
exclusion to be effected on a pro rata basis (based on the number of shares
requested for inclusion in such registration by the holders of the Encore Shares
and all Other Stockholders); and second, securities held by the holders of the
Warburg Shares and the Initiating Holders shall be excluded from such
registration to the minimum extent so required by such limitation, such
exclusion to be effected on a pro rata basis (based on the number of shares
requested for inclusion in such registration by the Initiating Holders and the
holders of the Warburg Shares). No Registrable Securities or any other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Other
Stockholder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company and officers and directors of the
Company may include its or their securities for its or their own account in such
registration if the representative so agrees and
-6-
<PAGE>
if the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
(iii) Right to Defer; General.
-----------------------
Notwithstanding the foregoing, if the Company shall promptly (but in no event
later than five business days) upon receipt of a request for registration
pursuant to Section 2(a) furnish to the Initiating Holders a certificate signed
by the Secretary of the Company stating that, in the good faith judgment of the
Board of Directors of the Company (acting through its Independent Directors (as
defined in the Securities Purchase Agreement, dated January 18, 1999, between
the Company and the Buyers (as defined in the Conversion Agreement)) as set
forth in a duly adopted written resolution, it would materially interfere with a
business or financial transaction of substantial importance to the Company
(other than an underwritten public offering of its securities) for such
registration statement to be filed and it is therefore necessary to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than one hundred thirty-five (135) days
after receipt of the request of the Initiating Holders; provided, however, that
the Company may not utilize this right more than once in any twelve month period
and in no event will the Company be permitted to defer such filing for more than
six (6) months in the aggregate pursuant to Sections 2(a)(iii) and (iv) hereof.
In the event of any deferral pursuant to this Section, the Initiating Holder
may, at its option, promptly upon receipt of notice of such deferral provide
notice to the Company of its intention to withdraw its demand for a registration
pursuant to Section 2(a); provided, however, that upon such withdrawal the
Initiation Holder's withdrawn demand for registration shall not be deemed to
have been a demand for purposes of Section 2(a)(i)(y) of this Agreement.
(iv) Right to Defer; Company Offering.
--------------------------------
Notwithstanding the foregoing, if the Company receives a request for
registration under Section 2(a) of this Agreement, then it may postpone such
request for registration for ninety (90) days in order to file a registration
statement for a primary offering of Common Stock; provided that, in such event,
--------
the Holders may elect by delivering written notice to the Company within ten
(10) days of receipt of notice of such deferral to either (A) postpone such
request for registration, in which event the number of registrations that such
holders may exercise under Section 2(a)(i) hereof shall remain unaffected, (B)
exercise the registration rights granted to them pursuant to Section 2(b)
hereof, in which event the number of registrations that such holders may
exercise under Section 2(a)(i) hereof shall remain unaffected, or (C) exercise a
request for registration under Section 2(a) hereof in which event such holders
shall, notwithstanding the provisions of Section 2(b)(ii) hereof, be treated
pari passu with the Company in all respects.
- ---- -----
-7-
<PAGE>
(b) Company Registration.
--------------------
(i) If the Company shall determine to register any of its equity
securities either for its own account or for the account of Other
Stockholders, other than a registration relating solely to employee benefit
plans or employee stock plans or similar employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction or
similar transaction, including any registration on Form S-4 or S-8 or any
successor form to such form, or a registration on any registration form
which does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company will:
(A) promptly give to each of the Holders a written notice
thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws), such notice to
provide, in the case of an underwritten offering for the account of
holders of Warburg Shares, an opportunity for the Holders to jointly
exercise their rights with the holders of Warburg Shares to a request for
registration pursuant to Section 2(a)(i) hereof; and
(B) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made by the Holders within fifteen (15) days after
receipt of the written notice from the Company described in clause (A)
above, except as set forth in Section 2(b)(ii) below. Such written
request may specify all or a part of the Holders' Registrable Securities.
(ii) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 2(b)(i)(A). In such event, the right of each of
the Holders to registration pursuant to this Section 2(b) shall be
conditioned upon such Holders' participation in such underwriting and the
inclusion of such Holders' Registrable Securities in the underwriting to
the extent provided herein. The Holders whose shares are to be included in
such registration shall (together with the Company and the Other
Stockholders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the representative of
the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other
-8-
<PAGE>
provision of this Section 2(b), if the representative determines that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the a llocation priority
set forth below) limit the number of Registrable Securities to be included
in the registration and underwriting. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and
underwriting shall be allocated in the following manner: the securities of
the Company held by the Initiating Holders and by each Other Stockholder
("Demanding Holders") shall be excluded from such registration and
underwriting as follows: first, securities held by each Other Stockholder
(other than Warburg Shares and Encore Shares) to the minimum extent
required (which may be up to 100% of such securities) by such limitation,
such exclusion to be effected on a pro rata basis (based on the number of
shares requested for inclusion in such registration by such Other
Stockholder; and, second, to the extent that the Company is advised that
additional shares must also be excluded from such registration, securities
held by the holders of Warburg Shares, Encore Shares and the Initiating
Holders shall be excluded from such registration to the minimum extent so
required (which may be up to 100% of such securities) by such limitation,
such exclusion to be effected on a pro rata basis (based on the number of
shares requested for inclusion in such registration by the Initiating
Holders and the holders of the Warburg Shares and the holders of the Encore
Shares), provided that if such registration is a request by the holders of
--------
Warburg Shares pursuant to Section 2(a)(i) of the Warburg Registration
Rights Agreement, then, unless the Initiating Holders have elected to join
in such request for registration by notice to the Company and the holders
of the Warburg Shares within ten (10) days of the notice referred to in
Section 2(b)(i)(A) hereof, such exclusion referred to in "second" above
shall apply only to the Initiating Holders and the holders of the Encore
Shares and not to the holders of Warburg Shares. If any of the Demanding
Holders disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter.
Any Registrable Securities or other securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
(c) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 2 shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of their shares so registered.
(d) Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Section 2,
-9-
<PAGE>
the Company will keep the Holders, as applicable, advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, the Company will:
(i) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use all reasonable commercial
efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration effective for a period of one
hundred twenty (120) days or until the Holders, as applicable, have
completed the distribution described in the registration statement relating
thereto, whichever first occurs;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement, and furnish such
copies thereof to the Holders and any underwriters as they may reasonably
request;
(iii) furnish such number of prospectuses and other documents incident
thereto as each of the Holders, as applicable, from time to time may
reasonably request in order to facilitate the disposition of the
Registrable Securities of such Holder;
(iv) notify each Holder of Registrable Securities covered by such
registration at any time when a prospectus relating thereto is required to
be delivered under the Securities Act when the Company becomes aware of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, whereupon, each
Holder shall immediately cease to use such registration statement or
prospectus for any purpose and, as promptly as practicable thereafter, the
Company shall prepare and file with the Commission, and furnish without
charge to the appropriate Holders and managing underwriters, if any, a
supplement or amendment to such registration statement or prospectus which
will correct such statement or omission or effect such compliance and in
such quantities thereof as the Holders and any underwriters may reasonably
request, after which time the Holders may continue to use such supplemented
or amended registration statement and prospectus as provided herein; and
-10-
<PAGE>
(v) furnish, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to
such securities becomes effective, (1) an opinion, dated as of such date,
of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders participating in such registration,
addressed to the underwriters, if any, and to the Holders participating in
such registration and (2) a letter, dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders
participating in such registration, addressed to the underwriters, if any,
and if permitted by applicable accounting standards, to the Holders
participating in such registration.
(e) Indemnification.
---------------
(i) The Company will indemnify each of the Holders, as applicable,
each of its officers, directors and partners, and each person controlling
each of the Holders, with respect to each registration which has been
effected pursuant to this Section 2, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or the
Exchange Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse
each of the Holders, each of its officers, directors and partners, and each
person controlling each of the Holders, each such underwriter and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred (by one law firm retained by them and
appropriate local counsel) in connection with investigating and defending
any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such
claim,
-11-
<PAGE>
loss, damage, liability or expense arises out of or is based on any untrue
statement or omiss ion based upon written information furnished to the
Company by the Holders (including their respective officers, directors,
partners and controlling persons) or underwriters (including their
controlling persons) and stated to be specifically for use therein.
(ii) Each of the Holders will, if Registrable Securities held by it
are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its
directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who
controls the Company or such underwriter, each Other Stockholder and each
of their officers, directors, and partners, and each person controlling
such Other Stockholder against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other
document made by such Holder, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements by such Holder therein not misleading, and will
reimburse the Company and such Other Stockholders, directors, officers,
partners, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each of the Holders hereunder
shall be limited to an amount equal to the net proceeds to such Holder of
securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this Section 2(e)
(the "Indemnified Party") shall give written notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party receives notice (whether oral or written) of any claim as
to which indemnity may be sought, and shall permit the Indemnifying Party
to assume the defense of any such claim or any litigation resulting
therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be
-12-
<PAGE>
withheld) and the Indemnified Party may participate in such defense at such
party's expense (unless the named parties to any such action or proceeding
(including any impleaded parties) include both the Indemnifying Party and
the Indemnified Party and the Indemnified Party shall have been advised by
counsel in a written opinion that representation of both parties by the
same counsel would be inappropriate due to actual or potential material
differing interests between them, in which case the fees and expenses of
counsel shall be at the expense of the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 2(e) unless the Indemnifying Party is materially
prejudiced thereby. No Indemnifying Party, in the defense of any such claim
or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 2(e) is held
by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense
referred to herein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party hereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or
omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether any action in question,
including 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 by the Indemnified Party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission.
(v) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in
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<PAGE>
connection with any underwritten public offering contemplated by this
Agreement are in conflict with the foregoing provi sions, the provisions in
such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of the Company and Holders is
subject to the condition that, insofar as they relate to any loss, claim,
liability or damage made in a preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Commission at the time
the registration statement in question becomes effective or the amended
prospectus filed with the Commission pursuant to Commission Rule 424(b)
(the "Final Prospectus"), such indemnity or contribution agreement shall
not inure to the benefit of any underwriter or Holder if a copy of the
Final Prospectus was furnished to the underwriter or Holder and was not
furnished to the person asserting the loss, liability, claim or damage at
or prior to the time such action is required by the Securities Act.
(vii) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 2(e) were determined by pro rata
allocation or by other method of allocation which does not take into
account the equitable considerations referred to in Section 2(e)(iv) above.
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 fraudulent misrepresentation.
(f) Information by the Holders. Each of the Holders holding
--------------------------
securities included in any registration shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 2.
(g) Rule 144 Reporting.
------------------
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
to the public without registration, the Company agrees to:
(i) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act ("Rule 144");
(ii) use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act; and
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<PAGE>
(iii) so long as the Holder owns any Registrable Securities, furnish
to the Holder upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so
filed as the Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing the Holder to sell any such
securities without registration.
(h) "Market Stand-Off" Agreement. Each Holder hereby agrees that
----------------------------
following the effective date of any registration effected pursuant to Sections
2(a) and (b) (provided the Holders are given written notice of the offering and
the right to participate therein as provided for in this Agreement), each Holder
shall not, for such reasonable period of time as the managing underwriters shall
require (but in no event longer than 135 days), unless otherwise agreed to by
the managing underwriter(s), directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Registrable Securities included in such
registration (the "Lock-Up Shares"). In addition, each Holder agrees to
acknowledge the undertaking provided for in this Section 2(h) by entering into
customary written "lock-up" agreements with respect to the Lock-Up Shares with
the managing underwriter(s) of the relevant underwriting.
(i) Other Registration Rights. Except as provided in this Agreement
-------------------------
or the Warburg Registration Rights Agreement, or as otherwise consented to in
writing by the 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 registrations initiated by the Company or by a
Demanding Holder with holders of Registrable Securities; provided, however, that
-------- -------
the Registrable Securities shall have priority over Other Securities in any such
registration other than the Encore Shares, (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 reasonable best efforts to obtain agreements from any
holder
-15-
<PAGE>
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
registration effected pursuant to Section 2(a) (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) and (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(b)
hereof. In the case of clause (iii) above, the holders of the Registrable
Securities shall be entitled to the notice provided for in Section 2(a)(i)(a)
hereof.
3. MISCELLANEOUS
-------------
(a) Directly or Indirectly. Where any provision in this Agreement
----------------------
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
(b) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed entirely within such State.
(c) Section Headings. The headings of the sections and subsections of
----------------
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
(d) Notices.
-------
(i) All communications under this Agreement shall be in writing
and shall be delivered by hand or facsimile or mailed by overnight courier
or by registered or certified mail, postage prepaid:
(A) if to the Company, to Four Media Company, 625 Arizona
Avenue, Santa Monica, CA 90401, Attention: William E. Niles, Esq.
(facsimile: (310)587-1277), or at such other address as it may have
furnished in writing to the Investor;
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<PAGE>
(B) if to the Investor, at the address or facsimile number
listed on Schedule I hereto, or at such other address or facsimile
number as may have been furnished the Company in writing.
(iii) Any notice so addressed shall be deemed to be given: if
delivered by hand or facsimile, on the date of such delivery; if mailed by
courier, on the first business day following the date of such mailing; and
if mailed by registered or certified mail, on the third business day after
the date of such mailing.
(e) Reproduction of Documents. This Agreement and all documents
-------------------------
relating thereto, including, without limitation, any consents, waivers and
modifications which may hereafter be executed may be reproduced by the Investor
by any photographic, photostatic, microfilm, microcard, miniature photographic
or other similar process and the Investor may destroy any original document so
reproduced. The parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Investor in the regular course
of business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
(f) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties.
(g) Entire Agreement; Amendment and Waiver. This Agreement
--------------------------------------
constitutes the entire understanding of the parties hereto with respect to the
subject matter described herein and supersedes all prior understanding among
such parties with respect thereto, including without limitation the Registration
Rights Agreement. This Agreement may be amended, and the observance of any term
of this Agreement may be waived, with (and only with) the written consent of the
Company and the Investor.
(h) Severability. In the event that any part or parts of this
------------
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(i) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first set forth above.
FOUR MEDIA COMPANY
By: /s/ Robert T. Walston
------------------------------
Name: Robert T. Walston
Title: Chief Executive Officer
INVESTORS:
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
-18-
<PAGE>
SCHEDULE I
Name and Address
of Investor:
- ------------
FLEMING US DISCOVERY FUND III, L.P.
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
Fleming Capital Management
320 Park Avenue
New York, New York 10022
Attention: Robert L. Burr
Facsimile: 212-508-3928
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<PAGE>
EXHIBIT 99.10
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of April 8, 1999, among the
investors listed on Schedule I hereto (collectively, the "Investor") and Four
Media Company, a Delaware corporation (the "Company").
R E C I T A L S
---------------
WHEREAS, the Investor has, pursuant to the terms of three separate
Stock Purchase Agreements, each dated as of January 18, 1999, by and between (i)
the Company and the Investor, (ii) Technical Services Partners, L.P. ("TSP") and
the Investor and (iii) certain of the Company's current stockholders and the
Investor (collectively, the "Purchase Agreements"), agreed to purchase a total
of 10,200,000 shares (the "Shares") of common stock, par value $0.01 per share,
of the Company (the "Common Stock") and a Warrant to purchase an additional
1,100,000 shares of Common Stock (the "Warrant Shares"); and
WHEREAS, the Investor has, pursuant to the terms of a Voting and
Option Agreement, dated as of January 18, 1999, by and among the Investor, TSP
and the Company (the "Option Agreement"), been granted an irrevocable option to
purchase 1,432,875 shares of Common Stock (the "Option Shares"); and
WHEREAS, the Company has agreed, as a condition precedent to the
Investor's obligations under the Purchase Agreements, to grant the Investor
certain registration rights with respect to the Shares, the Warrant Shares and
the Option Shares; and
WHEREAS, the Company and the Investor desire to define the
registration rights of the Investor with respect to the Shares, the Warrant
Shares and the Option Shares on the terms and subject to the conditions herein
set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement, the following terms have the respective
meanings set forth below:
Commission: shall mean the Securities and Exchange Commission or any
-----------
other federal agency at the time administering the Securities Act;
<PAGE>
Exchange Act: shall mean the Securities Exchange Act of 1934, as
------------
amended;
Flemings Registration Rights Agreement: shall mean the Registration
--------------------------------------
Rights Agreement, dated the date hereof, between the Company and Flemings (as
defined in the Purchase Agreements);
Flemings Shares: shall mean the shares of Common Stock defined as
---------------
Registrable Securities in the Flemings Registration Rights Agreement, held at
any time by Flemings;
Holder: shall mean any holder of Registrable Securities;
------
Initiating Holder: shall mean any Holder or Holders who in the
-----------------
aggregate are Holders of more than 50% of the then outstanding Registrable
Securities;
Person: shall mean an individual, partnership, limited liability
------
company, joint-stock company, corporation, trust or unincorporated organization,
and a government or agency or political subdivision thereof;
register, registered and registration: shall mean a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement;
Registrable Securities: shall mean (A) the Shares, the Warrant Shares
----------------------
and the Option Shares, (B) any additional shares of Common Stock acquired by the
Investor and (C) any stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Common Stock referred to in clause (A); provided, however, that the Common Stock
referred to in clauses (A) and (B) shall no longer be deemed Registrable
Securities upon the earliest of: (i) such time as a registration statement with
respect to such shares of Common Stock shall have been declared effective by the
Commission and all of the Registrable Securities registered thereunder shall
have been disposed of by the Holders in accordance with the plan of distribution
described in the prospectus forming a part of such effective registration
statement, (ii) the sale of all shares of Registrable Securities by the Holders
pursuant to Rule 144 under the Securities Act and (iii) the transfer of all
shares of Registrable Securities by the Holders to a transferee or transferees
who are not otherwise entitled to registration rights with respect to such
securities.
Registration Expenses: shall mean all expenses incurred by the Company
----------------------
in compliance with Sections 2(a) and (b) hereof, including, without limitation,
all registration and filing fees, listing fees, printing expenses, fees and
2
<PAGE>
disbursements of counsel for the Company, fees and expenses of one counsel for
all the Holders in an amount not to exceed $15,000, blue sky fees and expenses
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company);
Security, Securities: shall have the meaning set forth in Section
--------------------
2(1) of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as amended; and
---------------
Selling Expenses: shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for each of the Holders other than fees and expenses of
one counsel for all the Holders in an amount not to exceed $15,000 and all stock
transfer taxes related to the Registrable Securities.
Walston Shares: shall mean (A) the 1,432,875 shares of Common Stock
--------------
beneficially owned by Robert T. Walston pursuant to an agreement with Technical
Services Partners, L.P. and (B) any stock of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of, the
Common Stock referred to in clause (A); provided, however, that the Common Stock
referred to in clauses (A) and (B) shall no longer be deemed Registrable
Securities upon the earliest of: (i) such time as a registration statement with
respect to such shares of Common Stock shall have been declared effective by the
Commission and all of the Registrable Securities registered thereunder shall
have been disposed of by the holder thereof in accordance with the plan of
distribution described in the prospectus forming a part of such effective
registration statement, (ii) the sale of all shares of Registrable Securities by
the holder thereof pursuant to Rule 144 under the Securities Act and (iii) the
transfer of all shares of Registrable Securities by the holder thereof to a
transferee or transferees who are not otherwise entitled to registration rights
with respect to such securities.
2. REGISTRATION RIGHTS
-------------------
(a) Requested Registration.
----------------------
(i) Request for Registration. If the Company shall receive from
------------------------
an Initiating Holder, at any time, a written request that the Company
effect a registration under the Securities Act with respect to all or a
part of the Registrable Securities, the Company will:
(A) promptly give written notice of the proposed
registration, qualification or compliance to
3
<PAGE>
all other Holders and the Other Stockholders (as hereinafter defined)
in the event of an underwritten offering, such notice to provide, in
the case of an underwritten offering, an opportunity for the holders
of Flemings Shares to jointly exercise their request for registration
rights with the Initiating Holder pursuant to Section 2(a)(i) of the
Flemings Registration Rights Agreement; and
(B) as soon as practicable, use its reasonable best efforts
to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act) as may be so requested and as is
reasonably necessary to permit or facilitate the sale and distribution
of all or such portion of such Registrable Securities as are specified
in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within 10
business days after written notice from the Company is given under
Section 2(a)(i)(A) above; provided that the Company shall not be
--------
obligated to effect, or take any action to effect, any such
registration pursuant to this Section 2(a):
(x) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act or applicable rules
or regulations thereunder;
(y) After the Company has effected three (3) such
registrations (or, if the Purchase Agreements have been terminated
for any reason but the Investor has elected to exercise its option
to purchase the Option Shares pursuant to the Option Agreement,
after the Company has effected two (2) such registrations) pursuant
to this Section 2(a) and such registrations have been declared or
ordered effective and have remained effective for a period ending on
the earlier of (i) one hundred twenty (120) days after the date of
such effectiveness and (2) the date on which the sales of such
Registrable Securities shall have closed; provided, however, that in
the event that sales of the securities consistent with the plan of
distribution described in the prospectus forming a part of such
effective
4
<PAGE>
registration statement are not been permitted by the
Commission, or such sales would not be in accordance with the
applicable rules and regulations of the Commission (as evidenced by
written advice of counsel), at any time during such 120-day period,
such 120-day period will be extended by such number of days during
which such sales were not permitted or not in accordance with such
applicable rules and regulations; or
(z) If the Registrable Securities requested by all Holders
to be registered pursuant to such request have an anticipated
aggregate public offering price (before any underwriting discounts
and commissions) of less than $15,000,000.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 2(a)(ii) below,
include other securities of the Company which are held by Persons who, by virtue
of agreements with the Company, are entitled to include their securities in any
such registration, including without limitation the Walston Shares ("Other
Stockholders").
The registration rights set forth in this Section 2 may be assigned,
in whole or in part, to any transferee of Registrable Securities (who shall be
bound by all obligations of this Agreement).
The Initiating Holders may, at any time prior to the effective date of
the registration statement relating to any registration effected pursuant to
Section 2(a) of this Agreement, revoke such demand for registration by providing
written notice to the Company, in which event the Initiating Holders shall elect
either (i) that such request is deemed to be a request for registration under
this Section 2(a)(i) or (ii) that such request shall be deemed not to be a
request under this Section 2(a)(i) and, in the case of (ii) above, the
Initiating Holders, and not the Company, shall be responsible for any expenses
incurred by the Company in connection with such withdrawn registration
statement.
(ii) Underwriting. If the Initiating Holders intend to
------------
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 2(a)(i)(A). If Other Stockholders request inclusion in such
underwritten offering, the Holders shall offer to include the securities of such
Other Stockholders in the underwriting on the same terms and conditions as the
Registrable Securities of the Holders (subject to the limitations on sale set
forth herein) and may condition such offer on their acceptance of the further
applicable provisions of this Section 2. The Holders whose shares are to be
included in such registration and the Company
5
<PAGE>
shall (together with all Other Stockholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Initiating Holders and reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
2(a), if the representative advises the Holders in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
securities of the Company held by the Initiating Holder and each Other
Stockholder shall be excluded from such registration as follows: first,
securities held by each Other Stockholder (other than Flemings Shares and shares
subject to registration (the "Encore Shares") under that Registration Rights
-------------
Agreement dated as of September 15, 1998 (the "Other Registration Rights
-------------------------
Agreement") between the Investors (as defined in the Other Registration Rights
- ---------
Agreement) and the Company) to the minimum extent so required (which may be up
to 100% of such securities) by such limitation, such exclusion to be effected on
a pro rata basis (based on the number of shares requested for inclusion in such
registration by such Other Stockholders); and, second, to the extent that the
Company is advised that additional shares must also be excluded from such
registration, securities held by the holders of Flemings Shares and Encore
Shares shall be excluded from such registration to the minimum extent so
required (which may be up to 100% of such securities) by such limitation, such
exclusion to be effected on a pro rata basis (based on the number of shares
requested for inclusion in such registration by the holders of the Flemings
Shares and the holders of the Encore Shares), provided that if the holders of
--------
Flemings Shares have elected to join in such request for registration by notice
to the Company and the Initiating Holders within ten (10) days of the notice
referred to in Section 2(a)(i) hereof, then the foregoing limitation shall be
inapplicable and, instead, securities held by the holders of Flemings Shares,
the Initiating Holders, the holders of the Encore Shares and each Other
Stockholder shall be excluded from such registration as follows: first,
securities held by Other Stockholders and the Encore Shares shall be excluded
from such registration, to the minimum extent so required by such limitation,
such exclusion to be effected on a pro rata basis (based on the number of shares
requested for inclusion in such registration by the holders of the Encore Shares
and all Other Stockholders); and second, securities held by the holders of the
Flemings Shares and the Initiating Holders shall be excluded from such
registration to the minimum extent so required by such limitation, such
exclusion to be effected on a pro rata basis (based on the number of shares
requested for inclusion in such registration by the Initiating Holders and the
holders of the Flemings Shares). No Registrable Securities or any other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Other
Stockholder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
6
<PAGE>
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company and officers and directors of the
Company may include its or their securities for its or their own account in such
registration if the representative so agrees and if the number of Registrable
Securities and other securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(iii) Right to Defer; General. Notwithstanding the foregoing,
-----------------------
if the Company shall promptly (but in no event later than five business days)
upon receipt of a request for registration pursuant to Section 2(a) furnish to
the Initiating Holders a certificate signed by the Secretary of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company (acting through its Independent Directors (as defined in the Purchase
Agreements) as set forth in a duly adopted written resolution, it would
materially interfere with a business or financial transaction of substantial
importance to the Company (other than an underwritten public offering of its
securities) for such registration statement to be filed and it is therefore
necessary to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than one hundred
thirty-five (135) days after receipt of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right more than once in
any twelve month period and in no event will the Company be permitted to defer
such filing for more than six (6) months in the aggregate pursuant to Sections
2(a)(iii) and (iv) hereof. In the event of any deferral pursuant to this
Section, the Initiating Holder may, at its option, promptly upon receipt of
notice of such deferral provide notice to the Company of its intention to
withdraw its demand for a registration pursuant to Section 2(a); provided,
however, that upon such withdrawal the Initiation Holder's withdrawn demand for
registration shall not be deemed to have been a demand for purposes of Section
2(a)(i)(y) of this Agreement.
(iv) Right to Defer; Company Offering. Notwithstanding the
--------------------------------
foregoing, if the Company receives a request for registration under Section 2(a)
of this Agreement, then it may postpone such request for registration for ninety
(90) days in order to file a registration statement for a primary offering of
Common Stock; provided that, in such event, the Holders may elect by delivering
--------
written notice to the Company within ten (10) days of receipt of notice of such
deferral to either (A) postpone such request for registration, in which event
the number of registrations that such holders may exercise under Section 2(a)(i)
hereof shall remain unaffected, (B) exercise the registration rights granted to
them pursuant to Section 2(b) hereof, in which event the number of registrations
that such holders may exercise under Section 2(a)(i) hereof shall remain
7
<PAGE>
unaffected, or (C) exercise a request for registration under Section 2(a) hereof
in which event such holders shall, notwithstanding the provisions of Section
2(b)(ii) hereof, be treated pari passu with the Company in all respects
---- -----
(b) Company Registration.
--------------------
(i) If the Company shall determine to register any of its equity
securities either for its own account or for the account of Other
Stockholders, other than a registration relating solely to employee benefit
plans or employee stock plans or similar employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction or
similar transaction, including any registration on Form S-4 or S-8 or any
successor form to such form, or a registration on any registration form
which does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company will:
(A) promptly give to each of the Holders a written notice
thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws), such notice to
provide, in the case of an underwritten offering for the account of
holders of Flemings Shares, an opportunity for the Holders to jointly
exercise their rights with the holders of Flemings Shares to a request
for registration pursuant to Section 2(a)(i) hereof; and
(B) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made by the Holders within fifteen (15) days after
receipt of the written notice from the Company described in clause (A)
above, except as set forth in Section 2(b)(ii) below. Such written
request may specify all or a part of the Holders' Registrable Securities.
(ii) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 2(b)(i)(A). In such event, the right of each of
the Holders to registration pursuant to this Section 2(b) shall be
conditioned upon such Holders' participation in such underwriting and the
inclusion of such Holders' Registrable Securities in the underwriting to
the extent provided herein. The Holders whose shares are to be included in
such registration shall (together with the
8
<PAGE>
Company and the Other Stockholders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected for
underwriting by the Company. Notwithstanding any other provision of this
Section 2(b), if the representative determines that marketing factors
require a limitation on the number of shares to be underwritten, the
representative may (subject to the allocation priority set forth below)
limit the number of Registrable Securities to be included in the
registration and underwriting. The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities
that are entitled to be included in the registration and underwriting shall
be allocated in the following manner: the securities of the Company held by
the Initiating Holders and by each Other Stockholder ("Demanding Holders")
shall be excluded from such registration and underwriting as follows:
first, securities held by each Other Stockholder (other than Flemings
Shares and Encore Shares) to the minimum extent required (which may be up
to 100% of such securities) by such limitation, such exclusion to be
effected on a pro rata basis (based on the number of shares requested for
inclusion in such registration by such Other Stockholder); and, second, to
the extent that the Company is advised that additional shares must also be
excluded from such registration, securities held by the holders of Flemings
Shares, Encore Shares and the Initiating Holders shall be excluded from
such registration to the minimum extent so required (which may be up to
100% of such securities) by such limitation, such exclusion to be effected
on a pro rata basis (based on the number of shares requested for inclusion
in such registration by the Initiating Holders and the holders of the
Flemings Shares and the holders of the Encore Shares), provided that if
--------
such registration is a request by the holders of Flemings Shares pursuant
to Section 2(a)(i) of the Flemings Registration Rights Agreement, then,
unless the Initiating Holders have elected to join in such request for
registration by notice to the Company and the holders of the Flemings
Shares within ten (10) days of the notice referred to in Section 2(b)(i)(A)
hereof, such exclusion referred to in "second" above shall apply only to
the Initiating Holders and the holders of the Encore Shares and not to the
holders of Flemings Shares. If any of the Demanding Holders disapproves of
the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
(c) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 2 shall be borne by the Company, and all Selling Expenses shall be borne
by
9
<PAGE>
the Holders of the securities so registered pro rata on the basis of the
number of their shares so registered.
(d) Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Section 2, the Company will keep the
Holders, as applicable, advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company will:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use all reasonable
commercial efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration
effective for a period of one hundred twenty (120) days or until the
Holders, as applicable, have completed the distribution described in the
registration statement relating thereto, whichever first occurs;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement, and furnish such
copies thereof to the Holders and any underwriters as they may reasonably
request;
(iii) furnish such number of prospectuses and other documents
incident thereto as each of the Holders, as applicable, from time to time
may reasonably request in order to facilitate the disposition of the
Registrable Securities of such Holder;
(iv) notify each Holder of Registrable Securities covered by such
registration at any time when a prospectus relating thereto is required to
be delivered under the Securities Act when the Company becomes aware of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, whereupon, each
Holder shall immediately cease to use such registration statement or
prospectus for any purpose and, as promptly as practicable thereafter, the
Company shall prepare and file with the Commission, and furnish without
charge to the appropriate Holders and managing underwriters, if any, a
supplement or amendment to such registration statement or prospectus which
will correct such statement or omission or effect such compliance and in
such quantities thereof as the Holders and any underwriters may reasonably
10
<PAGE>
request, after which time the Holders may continue to use such supplemented
or amended registration statement and prospectus as provided herein; and
(v) furnish, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to
such securities becomes effective, (1) an opinion, dated as of such date,
of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders participating in such registration,
addressed to the underwriters, if any, and to the Holders participating in
such registration and (2) a letter, dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders
participating in such registration, addressed to the underwriters, if any,
and if permitted by applicable accounting standards, to the Holders
participating in such registration.
(e) Indemnification.
---------------
(i) The Company will indemnify each of the Holders, as applicable,
each of its officers, directors and partners, and each person controlling
each of the Holders, with respect to each registration which has been
effected pursuant to this Section 2, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or the
Exchange Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse
each of the Holders, each of its officers, directors and partners, and each
person controlling each of the Holders, each such underwriter and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred (by one law firm retained by
11
<PAGE>
them and appropriate local counsel) in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to
the Company by the Holders (including their respective officers, directors,
partners and controlling persons) or underwriters (including their
controlling persons) and stated to be specifically for use therein.
(ii) Each of the Holders will, if Registrable Securities held by it
are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its
directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who
controls the Company or such underwriter, each Other Stockholder and each
of their officers, directors, and partners, and each person controlling
such Other Stockholder against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other
document made by such Holder, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements by such Holder therein not misleading, and will
reimburse the Company and such Other Stockholders, directors, officers,
partners, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each of the Holders hereunder
shall be limited to an amount equal to the net proceeds to such Holder of
securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this Section 2(e)
(the "Indemnified Party") shall give written notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party receives notice (whether oral or written) of any claim as
to which indemnity may be sought, and shall permit the Indemnifying Party
to assume the defense of any such claim or any litigation resulting
12
<PAGE>
therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the named parties to any such
action or proceeding (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party and the Indemnified Party
shall have been advised by counsel in a written opinion that representation
of both parties by the same counsel would be inappropriate due to actual or
potential material differing interests between them, in which case the fees
and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2(e) unless the Indemnifying Party is
materially prejudiced thereby. No Indemnifying Party, in the defense of any
such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as
an Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 2(e) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of
the Indemnified Party on the other in connection with the statements or
omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether any action in question,
including 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 by the Indemnified Party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission.
13
<PAGE>
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with any underwritten
public offering contemplated by this Agreement are in conflict with the
foregoing provisions, the provisions in such underwriting agreement shall
be controlling.
(vi) The foregoing indemnity agreement of the Company and Holders
is subject to the condition that, insofar as they relate to any loss,
claim, liability or damage made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the
time the registration statement in question becomes effective or the
amended prospectus filed with the Commission pursuant to Commission Rule
424(b) (the "Final Prospectus"), such indemnity or contribution agreement
shall not inure to the benefit of any underwriter or Holder if a copy of
the Final Prospectus was furnished to the underwriter or Holder and was not
furnished to the person asserting the loss, liability, claim or damage at
or prior to the time such action is required by the Securities Act.
(vii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 2(e) were determined by
pro rata allocation or by other method of allocation which does not take
into account the equitable considerations referred to in Section 2(e)(iv)
above. 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 fraudulent misrepresentation.
(f) Information by the Holders. Each of the Holders holding
--------------------------
securities included in any registration shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 2.
(g) Rule 144 Reporting.
------------------
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
to the public without registration, the Company agrees to:
(i) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act ("Rule 144");
14
<PAGE>
(ii) use its reasonable best efforts to file with the Commission in
a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(iii) so long as the Holder owns any Registrable Securities, furnish
to the Holder upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so
filed as the Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing the Holder to sell any such
securities without registration.
(h) "Market Stand-Off" Agreement. Each Holder hereby agrees that
----------------------------
following the effective date of any registration effected pursuant to
Sections 2(a) and (b) (provided the Holders are given written notice of the
offering and the right to participate therein as provided for in this
Agreement), each Holder shall not, for such reasonable period of time as
the managing underwriters shall require (but in no event longer than 135
days), unless otherwise agreed to by the managing underwriter(s), directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise
transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such
period except Registrable Securities included in such registration (the
"Lock-Up Shares"). In addition, each Holder agrees to acknowledge the
undertaking provided for in this Section 2(h) by entering into customary
written "lock-up" agreements with respect to the Lock-Up Shares with the
managing underwriter(s) of the relevant underwriting.
(i) Other Registration Rights. Except as provided in this Agreement
-------------------------
or the Flemings Registration Rights Agreement, or as otherwise consented to in
writing by the 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 registrations initiated by the Company or by a
Demanding Holder with holders of Registrable Securities; provided, however, that
-------- -------
the Registrable Securities shall have priority over Other Securities in any such
registration other than the Encore Shares; (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
15
<PAGE>
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 reasonable 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 registration effected pursuant to Section 2(a) (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) and (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(b) hereof. In the case of clause
(iii) above, the holders of the Registrable Securities shall be entitled to the
notice provided for in Section 2(a)(i)(a) hereof.
3. MISCELLANEOUS
-------------
(a) Directly or Indirectly. Where any provision in this
----------------------
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
(b) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed entirely within such State.
(c) Section Headings. The headings of the sections and
----------------
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(d) Notices.
-------
(i) All communications under this Agreement shall be in
writing and shall be delivered by hand or facsimile or mailed by overnight
courier or by registered or certified mail, postage prepaid:
(A) if to the Company, to Four Media Company, 625
Arizona Avenue, Santa Monica, CA 90401,
16
<PAGE>
Attention: William E. Niles, Esq. (facsimile: (310) 587-1277, or at
such other address as it may have furnished in writing to the
Investor;
(B) if to the Investor, at the address or facsimile
number listed on Schedule I hereto, or at such other address or
facsimile number as may have been furnished the Company in writing.
(iii) Any notice so addressed shall be deemed to be given: if
delivered by hand or facsimile, on the date of such delivery; if mailed by
courier, on the first business day following the date of such mailing; and
if mailed by registered or certified mail, on the third business day after
the date of such mailing.
(e) Reproduction of Documents. This Agreement and all
-------------------------
documents relating thereto, including, without limitation, any consents, waivers
and modifications which may hereafter be executed may be reproduced by the
Investor by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and the Investor may destroy any original
document so reproduced. The parties hereto agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Investor in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
(f) Successors and Assigns. This Agreement shall inure to
----------------------
the benefit of and be binding upon the successors and assigns of each of the
parties.
(g) Entire Agreement; Amendment and Waiver. This Agreement
--------------------------------------
constitutes the entire understanding of the parties hereto with respect to the
subject matter described herein and supersedes all prior understanding among
such parties with respect thereto. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the Investor.
(h) Severability. In the event that any part or parts of
------------
this Agreement shall be held illegal or unenforceable by any court or
administrative body of competent jurisdiction, such determination shall not
effect the remaining provisions of this Agreement which shall remain in full
force and effect.
(i) Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
17
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first set forth above.
FOUR MEDIA COMPANY
/s/ Robert T. Walston
By:__________________________________
Name: Robert T. Walston
Title: Chief Executive Officer
INVESTORS:
WARBURG, PINCUS EQUITY PARTNERS, L.P.
BY: WARBURG, PINCUS & CO.,
GENERAL PARTNER
/s/ David E. Libowitz
BY:__________________________________
NAME: David E. Libowitz
TITLE: Managing Director
WARBURG, PINCUS NETHERLANDS EQUITY
PARTNERS I, C.V.
BY: WARBURG, PINCUS & CO.,
GENERAL PARTNER
/s/ David E. Libowitz
BY: ________________________________
NAME: David E. Libowitz
TITLE: Managing Director
WARBURG, PINCUS NETHERLANDS EQUITY
PARTNERS II, C.V.
BY: WARBURG, PINCUS & CO.,
GENERAL PARTNER
/s/ David E. Libowitz
BY: ________________________________
NAME: David E. Libowitz
TITLE: Managing Director
<PAGE>
WARBURG, PINCUS NETHERLANDS EQUITY
PARTNERS III, C.V.
BY: WARBURG, PINCUS & CO.,
GENERAL PARTNER
/s/ David E. Libowitz
BY: _________________________________
NAME: David E. Libowitz
TITLE: Managing Director
<PAGE>
SCHEDULE I
NAME AND ADDRESS
OF INVESTOR:
- ------------
WARBURG, PINCUS EQUITY PARTNERS, L.P.
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.
466 LEXINGTON AVENUE
NEW YORK, NY 10017
ATTENTION: DAVID E. LIBOWITZ
FACSIMILE: (212) 878-9351
