<PAGE>
As filed with the Securities and Exchange Commission on February 5, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as Permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FOUR MEDIA COMPANY
---------------------------------------------
(Name of Registrant as Specified In Its Charter)
---------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)( 2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO OF FOUR MEDIA COMPANY]
FOUR MEDIA COMPANY
2813 West Alameda Avenue
Burbank, California 91505
February , 1999
To Our Stockholders:
You are cordially invited to attend the special meeting of stockholders of
Four Media Company, a Delaware corporation (the "Company"), to be held at
on March , 1999 at 9:00 a.m. local time.
At the special meeting, you will be asked to approve a group of related
proposals that provide for, among other things, the issuance and sale of
shares (and a warrant to purchase shares) of the Company's common stock to
Warburg, Pincus Equity Partners, L.P. (and certain affiliated entities)
pursuant to a securities purchase agreement. The Company's Board of Directors
has approved the securities purchase agreement, the warrant and certain
related transaction documents and believes it is in the best interests of the
Company and its stockholders to consummate the transactions contemplated
therein. The Board of Directors recommends that stockholders vote FOR the
proposals to be considered at the special meeting.
The enclosed Notice of Special Meeting and Proxy Statement contain details
concerning the issuance and sale of the Company's common stock and the other
matters to come before the special meeting. We urge you to read and consider
these documents carefully. Whether or not you plan to attend the special
meeting, please be sure to indicate your vote, sign and date the enclosed
proxy card and return it in the enclosed envelope as soon as possible for
receipt prior to the special meeting. This will assure that your shares will
be represented at the special meeting and voted in accordance with your
wishes. Your vote is important, regardless of the number of shares that you
own.
Sincerely,
Robert T. Walston
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
FOUR MEDIA COMPANY
2813 West Alameda Avenue
Burbank, California 91505
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on March , 1999
----------------
To the Stockholders of Four Media Company:
A special meeting of stockholders (the "Special Meeting") of Four Media
Company, a Delaware corporation (the "Company"), will be held on March ,
1999 at 9:00 a.m. local time at for the following purposes:
1. To consider and vote upon the following proposals (collectively, the
"Proposals") described more fully in the accompanying Proxy Statement which
provide for:
(i) Proposal One: Approval of the issuance to 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") of (A)
6,582,607 shares of the common stock of the Company, par value $.01 per
share (the "Common Stock"), (B) a warrant to purchase 1,100,000 additional
shares of Common Stock and (C) the shares of Common Stock issuable upon the
exercise of such warrant, in each case, pursuant to the terms of the
Securities Purchase Agreement dated as of January 18, 1999 among the
Company and Warburg.
(ii) Proposal Two: Approval of an amendment to the Company's 1997 Stock
Plan (the "Stock Plan") to (A) increase the number of shares of Common
Stock authorized for issuance under the Stock Plan from 2,621,464 shares to
6,271,464 shares, (B) change the annual increase in the maximum number of
shares authorized for issuance thereunder from five percent of the number
of shares of Common Stock outstanding to 650,000 shares and (C) modify the
annual stock option award limits for Robert T. Walston, Jeffrey J.
Marcketta and John H. Donlon, the Company's Chief Executive Officer,
President and Chief Administrative Officer and President--Broadcast,
Syndication and Marketing, respectively; and
(iii) Proposal Three: Ratification of the election of seven directors of
the Company, who will be divided into three classes, the initial terms of
which will expire in 2000, 2001 and 2002.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The effectiveness of each of the Proposals is conditioned upon, among other
things, the approval of all of the Proposals. Accordingly, failure of the
stockholders to approve any one or more of the Proposals will result in the
ineffectiveness of all of the Proposals.
Only stockholders of record at the close of business on February , 1999
are entitled to notice of, and to vote at, the Special Meeting and at any
adjournments or postponements thereof. For ten days prior to the Special
Meeting, a complete list of stockholders entitled to vote at the Special
Meeting will be available for examination by any stockholder for any purpose
germane to the Special Meeting during ordinary business hours at the principal
executive offices of Four Media Company located in Burbank, California.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF EACH
OF THE PROPOSALS.
By order of the Board of Directors,
Robert T. Walston
Chief Executive Officer and
Chairman of the Board of Directors
Burbank, California
February , 1999
Whether or not you plan to attend the Special Meeting in person, you are
requested to sign, date and promptly mail the enclosed proxy card in the
postage-paid envelope provided so that your stock may be represented at the
Special Meeting. If you have returned your proxy card and attend the Special
Meeting, you may revoke your proxy and vote in person on all matters submitted
at the Special Meeting.
2
<PAGE>
FOUR MEDIA COMPANY
2813 West Alameda Avenue
Burbank, California 91505
(818) 840-7000
----------------
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
To Be Held on March , 1999
9:00 a.m.
BACKGROUND
On January 18, 1999, Four Media Company, a Delaware corporation (the
"Company"), certain affiliates of the Company and 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, the "Purchasers") entered into
definitive agreements which provide for, among other things, the sale to the
Purchasers of 10.2 million shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), comprised of approximately 6.6 million
shares to be issued by the Company for $52.7 million and approximately 3.6
million shares to be sold by certain affiliates of the Company for
approximately $27.4 million (the "Transaction").
Pursuant to the Securities Purchase Agreement dated January 18, 1999 (the
"Company Purchase Agreement"), the Purchasers will acquire, subject to, among
other things, receipt of stockholder, regulatory and bank approval,
approximately 6.6 million newly issued shares of Common Stock from the Company
for $52.7 million, and will receive a warrant (the "Warrant") to purchase an
additional 1.1 million shares of Common Stock at an exercise price of $15.00
per share. These newly issued shares, together with the shares issuable upon
exercise of the warrant (the "Issuance"), represent approximately % (and
approximately %, including the 3.6 million shares to be acquired from
certain affiliates of the Company) of the outstanding Common Stock as of
February , 1999 (the "Record Date").
Under National Association of Securities Dealers, Inc. ("NASD") Rule
4310(c)(25)(H), companies that are listed on the Nasdaq National Market must
obtain stockholder approval prior to issuing shares of common stock (or shares
exercisable or convertible into common stock) where such issuance would result
in a change of control of the company. Accordingly, because the Issuance will
result in a change of control of the Company, the Company must seek
stockholder approval for the Issuance.
In connection with the Transaction, (i) Robert T. Walston, the Company's
Chief Executive Officer ("Mr. Walston"), (ii) Jeffrey J. Marcketta, the
Company's newly named President and Chief Administrative Officer ("Mr.
Marcketta"), (iii) John H. Donlon, the Company's President--Broadcast,
Syndication and Marketing ("Mr. Donlon"), (iv) Gavin W. Schutz, the Company's
Vice President and Chief Technology Officer ("Mr. Schutz") and (v) Robert
Bailey, the Company's Vice President and Director of Marketing ("Mr. Bailey")
entered into new employment agreements (the "Employment Agreements") with the
Company, in the cases of Messrs. Walston, Donlon, Schutz and Bailey, effective
concurrently with the closing of the Transaction and, in the case of Mr.
Marcketta, effective as of January 1, 1999. Under the terms of the Employment
Agreements and subject to the approval by the Company's stockholders of
certain amendments to the Company's 1997 Stock Plan (the "Stock Plan") to,
among other things, increase the number of shares available for issuance
thereunder, the Company will grant (i) Mr. Walston an option to purchase
2,500,000 shares of Common Stock at an exercise price of $8.00 per share
(which is the same price per share paid to the Company by the Purchasers),
(ii) Mr. Donlon an option to purchase 200,000 shares of Common Stock at an
exercise price of $8.00 per share, (iii) Mr. Schutz an option to purchase
150,000 shares of Common Stock at an exercise price of $8.00 per share and
(iv) Mr. Bailey an option to purchase 150,000 shares of Common Stock at an
exercise price of $8.00 per share. Under the terms of Mr. Marcketta's
employment agreement, he received a grant of an option to purchase 500,000
shares of Common Stock at an exercise price of $8.00 per share. Only a portion
of the grant to Mr. Marcketta (equal to the number of shares in excess of the
annual award limit under the Stock Plan (i.e., 325,000)) is subject to
stockholder approval because there were sufficient shares available under the
Stock Plan
1
<PAGE>
to make such grant. In order to accommodate the Company's new issuance of
options to the foregoing officers, the Company is seeking stockholder approval
of an amendment to the Stock Plan whereby the number of shares subject to
option grants is increased and the foregoing grants are exempted from the
current annual award limit.
After the closing of the Transaction, the Purchasers will have 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 the Purchasers to constitute a majority of the
members of the Company's Board of Directors (the "Board"). Effective upon the
closing of the Transaction and in order to implement the Purchasers' right to
nominate and elect a majority of the Board, a new Board will be elected.
Accordingly, the Company is requesting that stockholders ratify the election
of such new Board.
In connection with the Transaction, on January 18, 1999, the Purchasers
also entered into (i) a Voting Agreement (the "Fleming Voting Agreement") with
the Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund
III, L.P. (collectively, the "Fleming Funds"), (ii) a Voting Agreement (the
"Walston Voting Agreement") with Mr. Walston and Technical Services Partners,
L.P. ("TSP") and (iii) a Voting and Option Agreement with TSP (the "TSP Voting
Agreement," and together with the Fleming Voting Agreement and the Walston
Voting Agreement, the "Voting Agreements"). Under the terms of the Voting
Agreements, the Fleming Funds and TSP (including Mr. Walston's shares) have
agreed to support the Transaction and to vote against any competing
transactions that may arise. Under the terms of the relationship between TSP
and Mr. Walston, TSP has the right to vote Mr. Walston's shares. To the extent
that Mr. Walston acquires new shares of Common Stock prior to the Record Date,
he will vote them in support of the Transaction and against any competing
transactions that may arise. See "Certain Relationships and Related
Transactions--Mr. Walston/TSP Relationship." The Voting Agreements (but not
the option granted by TSP described below) will terminate in the event the
Company Purchase Agreement is terminated.
The Fleming Funds, TSP and Mr. Walston beneficially owned as of the Record
Date, in the aggregate, approximately % of the outstanding shares of Common
Stock. Accordingly, as a result of the Voting Agreements, the votes
represented by these shares will be sufficient to constitute a quorum and to
approve the Proposals (as defined below).
Furthermore, in the TSP Voting Agreement, TSP granted the Purchasers an
option to purchase approximately 3.1 million shares of Common Stock
(representing approximately % of the outstanding shares of the Common
Stock as of the Record Date) for approximately $23.4 million. The option is
exercisable upon the occurrence of certain events causing the termination of
the Company Purchase Agreement.
The Company's Board has scheduled a Special Meeting of Stockholders to be
held at on March , 1999 at 9:00 a.m. local time, or any adjournment
thereof. The Board has sent you this Proxy Statement to solicit your proxy to
vote on your behalf at the Special Meeting. Only stockholders of record on the
Record Date will be entitled to notice of and to vote at the Special Meeting.
The Board is first sending this Proxy Statement and the accompanying form of
proxy to stockholders on or about February , 1999.
At the Special Meeting, stockholders will be asked to consider and vote
upon the following proposals (the "Proposals"):
. Approval of the issuance to the Purchasers of (A) 6,582,607 shares of
Common Stock, (B) the Warrant to purchase 1,100,000 shares (subject to
certain antidilution adjustments) of Common Stock and (C) the shares of
Common Stock issuable upon the exercise of the Warrant, in each case
pursuant to the Company Purchase Agreement;
. Approval of an amendment to the Stock Plan to (A) increase the number of
shares of Common Stock authorized for issuance thereunder from 2,621,464
shares to 6,271,464 shares, (B) change the annual increase in the
maximum number of shares authorized for issuance thereunder from five
percent of the number of shares of Common Stock outstanding to 650,000
shares and (C) modify the annual stock option award limits for Messrs.
Walston, Marcketta and Donlon as described herein; and
. Ratification of the election of seven directors of the Company, who will
be divided into three classes, the initial terms of which will expire in
2000, 2001 and 2002;
Stockholders will also be asked to consider and vote upon such other
business as may properly come before the Special Meeting or any adjournment
thereof.
2
<PAGE>
GENERAL INFORMATION
Voting Securities
Only stockholders of record as of the close of business on the Record Date
will be entitled to vote at the Special Meeting and any adjournment thereof.
As of the Record Date, there were shares of Common Stock issued
and outstanding and record holders of Common Stock. In addition, as of
the Record Date, there were 150,000 shares of Series A Convertible Preferred
Stock, par value $.01 per share (the "Series A Shares"), issued and
outstanding, all of which were held by the Fleming Funds. The Series A Shares
are entitled to vote on an "as converted" basis, meaning such shares will be
entitled to cast 1,500,000 votes based on the current conversion price in
effect relating to the Series A Shares.
Stockholders may vote in person or by proxy. Each stockholder of record as
of the Record Date is entitled to one vote for each share of Common Stock held
at the Special Meeting (including 1,500,000 votes represented by the Series A
Shares). The Company's bylaws (the "Bylaws") provide that a majority of all of
the shares of stock entitled to vote, whether present in person or represented
by proxy, will constitute a quorum for the transaction of business at the
Special Meeting. The affirmative vote of a majority of the shares represented
at the Special Meeting and entitled to vote is required to approve each of the
Proposals. Executive officers and directors of the Company (other that Mr.
Walston) who owned, in the aggregate, as of the Record Date, % of the
outstanding Common Stock have indicated an intention to vote in favor of the
Proposals. In addition, the Fleming Funds, TSP and Mr. Walston beneficially
owned as of the Record Date, in the aggregate, approximately % of the
outstanding shares of Common Stock. Accordingly, as a result of the Voting
Agreements, the votes represented by these shares will be sufficient to
constitute a quorum and to approve the Proposals.
The effectiveness of each of the Proposals is conditioned upon, among other
things, the approval or ratification, as applicable, of all of the Proposals.
Accordingly, failure of the stockholders to approve any one or more of the
Proposals will result in the ineffectiveness of all of the Proposals.
Solicitation of Proxies
The Company will bear the cost of soliciting proxies. In addition, the
Company will solicit stockholders by mail through its regular employees and
will request banks and brokers, and other custodians, nominees and
fiduciaries, to solicit their customers who have stock of the Company
registered in the names of such persons and will reimburse them for their
reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors and others to solicit proxies, personally or by telephone,
without additional compensation. The Company has retained US Trust Stock
Transfer Corporation to act as information agent in connection with the
solicitation of proxies. The fees to be paid to such firm for such services
are expected to be approximately $2,500, plus reasonable out-of-pocket costs
and expenses.
Voting and Revocation of Proxies
All shares of Common Stock and Series A Shares represented by a proxy
properly signed and received at or prior to the Special Meeting, unless
subsequently revoked, will be voted in accordance with the instructions
thereon. If no choice is indicated on the proxy, the shares of Common Stock
and Series A Shares represented by such proxy will be voted in favor of all of
the Proposals.
Only shares affirmatively voted in favor of a Proposal (including properly
executed proxies not containing voting instructions) will be counted as
favorable votes for such Proposal. The failure to submit a proxy (or to vote
in person) or the abstention from voting will have the same effect as a vote
against such Proposal. Under Delaware law, shares represented by proxies that
reflect abstentions or "broker non-votes" (i.e., shares held by a broker or
nominee which are represented at the Special Meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular
Proposal) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum for the transaction of all
business. Because shares with respect to which stockholders abstain are deemed
to be present and entitled to vote, abstentions as to any of
3
<PAGE>
the Proposals will have the same effect as votes against such Proposals.
Broker non-votes, however, will be treated as not voted for purposes of
determining approval of the Proposals and will not be counted as votes for or
against such Proposals. Proxy holders may, in their discretion, vote shares to
adjourn the Special Meeting to solicit additional proxies in favor of such
Proposals. However, shares of Common Stock and Series A Shares with respect to
which a proxy is signed and returned indicating a vote against any Proposal
will not be so voted to adjourn. A stockholder giving a proxy has the power to
revoke his or her proxy, at any time prior to the time it is voted, by
delivering to the Secretary of the Company a written instrument revoking the
proxy or a duly executed proxy with a later date, or by attending the Special
Meeting and voting in person.
The Board is not currently aware of any business to be acted upon at the
Special Meeting other than as described herein. If, however, other matters are
properly brought before the Special Meeting, the persons appointed as proxies
will have discretion to vote or act thereon according to their best judgment,
subject to applicable rules of the Securities and Exchange Commission (the
"SEC") or Delaware law.
Security Ownership of Certain Beneficial Owners and Management
The following table contains information as of December 31, 1998 regarding
the ownership of Common Stock by (i) all persons who, to the knowledge of the
Company, were the beneficial owners of 5% or more of the outstanding shares of
Common Stock, (ii) each director and director nominee of the Company, (iii)
the Chief Executive Officer and the four other most highly compensated
executive officers of the Company as of such date whose salary and bonus for
the year ended August 2, 1998 exceeded $100,000 and (iv) all current executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned(1)
-----------------
Number Percent
--------- -------
Name of Beneficial Owners
- -------------------------
<S> <C> <C>
Technical Service Partners, L.P.(2)........................... 4,552,502 43.9
Robert T. Walston(3).......................................... 1,432,875 13.8
John H. Donlon(4)(5).......................................... 148,384 1.4
Lawrence Chernoff(5).......................................... 144,620 1.4
Gavin W. Schutz(5)(6)......................................... 121,406 1.2
Robert Bailey(5)(7)........................................... 121,406 1.2
James Conlon.................................................. -- --
Shimon Topor(2)(5)(8)(9)...................................... 4,552,502 43.9
Edward Kirtman(2)(5)(8)(9).................................... 4,552,502 43.9
Fleming US Discovery Fund III, L.P.
and Fleming US Discovery Offshore
Fund III, L.P.(10)........................................... 1,500,000 14.5
Paul Bricault(5)(9)........................................... -- --
William Amon(9)............................................... -- --
Thomas Wertheimer(5)(9)....................................... -- --
Sidney Lapidus(11)............................................ -- --
David E. Libowitz(11)......................................... -- --
William C. Scott(11).......................................... -- --
Jeffrey J. Marcketta(11)...................................... -- --
Eytan Shapiro(11)............................................. -- --
All directors and executive officers as a group
(11 persons)(9)(12).......................................... 5,088,318 49.1
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of Common Stock subject
to options held by that person that are currently exercisable or
exercisable within 60 days of
4
<PAGE>
December 31, 1998 at a price less than or equal to the market price are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table
has sole voting and investment power with respect to the shares set forth
opposite such stockholder's name.
(2) TSP is a limited partnership the general partner of which is Technical
Services Holdings Inc. ("Holdings"), a corporation, all of the voting
capital stock of which is owned by Steinhardt Partners, L.P. The non-
voting capital stock of Holdings is owned by Institutional Partners,
L.P., S.P. International S.A., and Steinhardt Overseas Fund, Ltd. The
managing general partner of Steinhardt Partners, L.P. is Michael
Steinhardt. The principal business address of Steinhardt Partners, L.P.
and Messrs. Steinhardt, Topor and Kirtman is 650 Madison Avenue, New
York, New York 10022.
(3) Mr. Walston's address is c/o Four Media Company, 2813 West Alameda
Avenue, Burbank, California 91505. In connection with a 1993 acquisition
of shares of Common Stock by TSP, Mr. Walston was granted a profit
interest in TSP equal to 10% of the excess, if any, by which the
distributions (in cash or in kind) from TSP exceed the partners' total
investment in TSP plus a return of 9% per annum. As a result of his
profit interest in TSP, Mr. Walston beneficially owns 1,432,875 shares of
Common Stock.
(4) Represents 148,384 shares issuable upon exercise of vested options.
(5) Effective upon the closing of the Transaction, Messrs. Donlon, Chernoff,
Schutz, Bailey, Topor, Kirtman, Bricault and Wertheimer will resign from
their positions as directors of the Company.
(6) Represents 121,406 shares issuable upon exercise of vested options.
(7) Represents 121,406 shares issuable upon exercise of vested options.
(8) These shares are owned by TSP. Messrs. Topor and Kirtman are executive
officers of the general partner of TSP, and general partners of
Steinhardt Partners, L.P., the owner of all the voting capital stock of
Holdings. Neither Mr. Topor nor Mr. Kirtman own any shares of Common
Stock directly, but may be considered the beneficial owner of the
securities listed above. However, Messrs. Topor and Kirtman disclaim
beneficial ownership of such shares.
(9) Excludes 100,000 shares of Common Stock issuable upon exercise of stock
options granted pursuant to the Company's 1997 Director Option Plan to
each of Messrs. Topor, Kirtman, Bricault, Wertheimer and Amon.
(10) Represents the number of shares of Common Stock into which 150,000 Series
A Shares currently may be converted. Such information is based on a joint
statement on Schedule 13G filed by (i) Fleming US Discovery Fund III,
L.P. (the "US Fund"), (ii) Fleming US Discovery Offshore Fund III, L.P.
(the "Offshore Fund"), (iii) Fleming US Discovery Partners, L.P.
("Fleming Partners"), the general partner of the US Fund and a general
partner of the Offshore Fund, (iv) Fleming US Discovery, LLC
("Discovery"), the general partner of Fleming Partners, (v) Robert
Fleming, Inc. ("RFI"), investment advisor to the US Fund and Offshore
Fund (collectively, the "Funds"), and (vi) Robert Fleming Holdings, Ltd,
the indirect parent of RFI. The principal business address of the Fleming
entities is 320 Park Avenue, New York, NY 10036.
(11) Messrs. Lapidus, Libowitz, Scott, Marcketta and Shapiro were each
nominated for election to the Board in connection with the Transaction.
(12) Includes 391,196 shares issuable upon exercise of vested options.
5
<PAGE>
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons
who own more than ten percent of the Common Stock, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and
greater than ten percent stockholders are required by regulation of the SEC to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of forms furnished to the Company and written
representations from certain of the directors and officers that no form is
required to be filed, the Company believes that no director, officer or
beneficial owner of more than ten percent of the Common Stock failed to file
on a timely basis reports required pursuant to Section 16(a) of the Exchange
Act with respect to the fiscal year ended August 2, 1998.
Use of Proceeds from the Transaction
The Company entered into the Transaction because it believed that the
Transaction provided it with its most attractive opportunity to access desired
capital. The Company will use the proceeds from the Purchasers' equity
investment in the Company to enhance its ability to serve and support
customers in the process of creating and distributing entertainment
programming and to continue to make strategic acquisitions, as well as for
other general corporate purposes.
Legal Proceedings
In ATS Acquisition Corp., Inc. v. National Labor Relations Board ("NLRB")
Case No. 31-CA-20089, the NLRB, joined by the International Alliance of
Theatrical stage employees ("IATSE"), argued that the Company should have
bargained with IATSE as a labor law "successor" following the sale of the
assets of Compact Video Services ("Compact") to the Company in August 1993.
The Company refused to bargain with IATSE, contending that only a broad,
company-wide bargaining unit was appropriate. In a decision issued in July
1996, the NLRB ordered the Company to bargain with IATSE on a prospective
basis with regard to certain of the Compact bargaining unit employees. Since
the NLRB's orders are not self-executing, the NLRB sought enforcement of its
order in the United States Court of Appeals. On October 27, 1997, the Ninth
Circuit Court of Appeals (the "Ninth Circuit") enforced the NLRB's order and
the Company has commenced bargaining with IATSE. However, the National Labor
Relations Act does not require the Company to compromise its position in
collective bargaining. Moreover, the Ninth Circuit and the NLRB confirmed the
Company's position that it lawfully implemented its own wages, benefits and
working conditions when it acquired the assets owned by Compact in 1993 and
denied the union's request for backpay. The NLRB's bargaining order,
therefore, provides for no backpay liability to the Company.
In Compact Video Services v. National Labor Relations Board, Case NO. 31-
CA-20104, the NLRB and IATSE argued that Compact should have timely bargained
with IATSE over the effects of the sale of Compact's assets to the Company.
Compact lost the original case, which was ultimately enforced by the Ninth
Circuit, and owes certain former Compact employees backpay. The amount of
backpay varies depending upon numerous legal arguments. While not named in the
underlying proceeding, the Company has been named in the compliance phase as a
"labor law" successor to Compact. The NLRB and IATSE contend that the Company
purchased Compact with knowledge of Compact's failure to bargain with IATSE
over the effects of the 1993 asset sale, and, therefore, the Company should be
jointly and severally liable with Compact for the backpay. The Company
believes it has substantial legal and factual defenses in its favor regarding
the issue of successor liability and has asserted those defenses. The Company
intends to vigorously defend itself against the imposition of any successor
liability associated with an award of damages assessed against Compact in the
underlying proceedings.
In addition, the Company is subject from time to time to litigation arising
in the ordinary course of its business, and the Company believes that there is
no litigation pending (including the NLRB/IATSE matters referred to above)
that would have a material adverse effect on the Company's results of
operations or financial condition.
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PROPOSALS
In connection with the Transaction, stockholders are being asked to
consider and vote upon the following Proposals:
(i) Proposal One: Approval of the issuance to the Purchasers of (A)
6,582,607 shares of Common Stock, (B) the Warrant to purchase 1,100,000
additional shares of Common Stock and (C) the shares of Common Stock
issuable upon the exercise of the Warrant, in each case pursuant to the
terms of the Company Purchase Agreement.
(ii) Proposal Two: Approval of an amendment to the Stock Plan to (A)
increase the number of shares authorized for issuance under the Stock Plan
from 2,621,464 shares to 6,271,464 shares, (B) change the annual increase
in the maximum number of shares authorized for issuance from five percent
of the number of shares of Common Stock outstanding to 650,000 shares and
(C) modify the annual stock option award limits for Messrs. Walston,
Marcketta and Donlon, as described herein; and
(iii) Proposal Three: Ratification of the election of seven directors of
the Company, who will be divided into three classes, the initial terms of
which will expire in 2000, 2001 and 2002.
PROPOSAL 1
APPROVAL OF ISSUANCE OF COMMON STOCK AND A WARRANT UNDER THE
COMPANY PURCHASE AGREEMENT
At the Special Meeting stockholders are being asked to vote upon and
approve the issuance to the Purchasers pursuant to the terms of the Company
Purchase Agreement of:
. 6,582,607 shares of Common Stock at a price per share of $8.00;
. the Warrant to purchase up to 1,100,000 shares (subject to certain
antidilution adjustments) of Common Stock at an exercise price of $15.00
per share (subject to certain antidilution adjustments); and
. the shares of Common Stock issuable upon exercise of the Warrant.
The terms of the Company Purchase Agreement, the Warrant and the related
agreements with the Purchasers are summarized below.
Description of Transaction
On January 18, 1999, the Company entered into agreements relating to, among
other things: (i) the issuance by the Company to the Purchasers of 6,582,607
shares of Common Stock and a Warrant to purchase up to 1,100,000 shares of
Common Stock, (ii) the sale by TSP of 3,119,627 shares of Common Stock to the
Purchasers, (iii) the sale by John H. Donlon, Gavin W. Schutz, Robert Bailey
and the Estate of John H. Sabin (the "Founders") of 497,766 shares of Common
Stock to the Purchasers, (iv) the conversion by the Fleming Funds of all of
the Series A Shares owned by them, representing all of the Company's issued
and outstanding shares of preferred stock, into an aggregate of 2,250,000
shares of Common Stock; (v) registration rights relating to the Common Stock
acquired by the Purchasers and the Fleming Funds, (vi) the voting by the
Fleming Funds, Mr. Walston and TSP of their shares of Common Stock in favor of
the Proposals and (vii) the Employment Agreements of Messrs. Walston,
Marcketta, Donlon, Schutz and Bailey.
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The following descriptions of the various Transaction documents are only
summaries thereof and are qualified in their entirety by reference to such
documents which are attached hereto or in the Company's Current Report on Form
8-K filed with the SEC on January 20, 1999 (the "8-K").
Company Purchase Agreement
General. The Company Purchase Agreement, a copy of which is attached as
Annex A to this Proxy Statement, provides for the Company to issue, and the
Purchasers to purchase, 6,582,607 shares of Common Stock (the "Company
Shares") and for the Company to issue a Warrant to purchase 1,100,000 shares
of Common Stock and to reserve for issuance the shares of Common Stock
issuable upon exercise of the Warrant. Subject to the terms and conditions of
the Company Purchase Agreement, the Company will sell the Company Shares and
the Warrant to the Purchasers for an aggregate cash purchase price of
$52,660,856 (based upon a purchase price of $8.00 per share).
The Closing Date. The closing of the sale, purchase and issuance of the
Company Shares and the Warrant will take place at 10:00 a.m., New York City
time, on the third business day after all of the conditions set forth in the
Company Purchase Agreement have been satisfied or waived, or at such other
date as the Purchasers and the Company agree to in writing (the "Closing
Date"). See "Closing Conditions."
Representations and Warranties. Subject to the following paragraph, the
Company Purchase Agreement contains various representations and warranties of
the Company to the Purchasers, relating to, among other things: (i) the due
organization and valid existence of the Company and its subsidiaries and
related corporate matters; (ii) the capitalization of the Company and its
subsidiaries; (iii) the due authorization, execution, delivery and performance
of the Company Purchase Agreement and certain related documents (the
"Transaction Documents"); (iv) the absence of any requirement on the part of
the Company or any of its subsidiaries to obtain any consent or approval from
any Person or Governmental Entity (each as defined in the Company Purchase
Agreement) in connection with the Transaction; (v) the absence of defaults or
violations of the Certificate of Incorporation of the Company (the
"Certificate of Incorporation") or Bylaws or any order, judgment, rule or
regulation of any Governmental Entity with jurisdiction over the Company; (vi)
the absence of any default or violation of any indenture, note, credit
agreement, loan document, lease, license or other agreement of the Company;
(vii) the accuracy of the Company's SEC filings and its financial statements;
(viii) the absence of undisclosed liabilities; (ix) the absence of violations
of any laws, ordinances, or governmental rules or regulations; (x) the absence
of any undisclosed pending or threatened litigation; (xi) the absence of any
pending or threatened labor strike, dispute, slowdown, stoppage or lockout and
compliance with all applicable laws respecting employment and employment
practices; (xii) the absence of any violations of or liabilities under the
Employee Retirement Income Security Act of 1974, as amended, or the Internal
Revenue Code of 1986, as amended (the "Code"), with respect to any employee
plan or pension plan to which the Company is obligated to contribute; (xiii)
the representation that all FCC Licenses (as defined in the Company Purchase
Agreement) are in full force and effect; (xiv) good and marketable title in
fee simple to all real property owned by the Company or its subsidiaries and
valid and existing leases or subleases for all property leased by the Company
or its subsidiaries; (xv) the valid right to use, free and clear of all liens
and other encumbrances or claims, all of the intellectual property necessary
for the conduct of the business of the Company or any of its subsidiaries;
(xvi) the absence of malfunctions relating to year 2000 matters; (xvii) the
accurate, complete and timely filings of all tax returns required by
applicable law to be filed by the Company and the payment of all taxes due;
(xviii) the approval by the Board of the Transaction so as to render
inapplicable the limitations on business combinations contained in Section 203
of the Delaware General Corporation Law and any other applicable state take-
over statutes; (xix) the existence of insurance in sufficient amounts covering
the Company, its subsidiaries and their respective properties; (xx) the
absence of transactions by the Company or its subsidiaries with related
parties; (xxi) the absence of agreements among stockholders of the Company to
act in concert with respect to their voting or holding of Company securities;
(xxii) the absence of interests of the Company, its subsidiaries, officers and
directors in the Company's competitors; (xxiii) the exemption from the
registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Securities Act") of the offer, issuance and sale of
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the Company Shares, the Warrant and the shares of Common Stock issuable upon
exercise of the Warrant; (xxiv) the absence of claims for brokerage
commissions or finder's fees or similar compensation in connection with the
transactions contemplated by the Transaction Documents; (xxv) the absence of
false statements in this Proxy Statement; (xxvi) the advisability of the
Transaction and the recommendation of the Board relating thereto; (xxvii) the
Company's receipt of the written fairness opinion of Houlihan Lokey Howard &
Zukin ("Houlihan Lokey"); (xxviii) that the Company is not a United States
real property holding corporation within the meaning of Section 897(c)(2) of
the Code; and (xxix) that to the Company's knowledge, the representations and
warranties of (a) TSP in the TSP Voting Agreement, (b) Mr. Walston and TSP,
respectively, in the Walston Voting Agreement and (c) Fleming Funds in the
Fleming Voting Agreement are, in each such case, true and correct in all
material respects.
The foregoing representations and warranties are subject, in certain cases,
to specified exceptions and qualifications, including without limitation,
those exceptions that are disclosed to the Purchasers in the written schedules
delivered by the Company to the Purchasers pursuant to the Company Purchase
Agreement. In many instances the representations and warranties given by the
Company are subject to the qualification that the applicable representation or
warranty would not fail to be true and correct unless it would have a Material
Adverse Effect. For purposes of the Company Purchase Agreement, "Material
Adverse Effect" means any material adverse effect on the business, assets,
liabilities, properties (including intangible properties) or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a
whole.
The Company Purchase Agreement also includes certain representations and
warranties by the Purchasers, including representations and warranties
regarding: the due organization, good standing and authority of each Purchaser
to execute and deliver the Transaction Documents and to consummate the
transactions contemplated therein; the absence of conflict between the
execution, delivery and performance of the Transaction Documents with the
Purchasers' Certificates of Limited Partnership and the Partnership Agreements
(as defined in the Company Purchase Agreement) or with any other agreements of
the Purchasers; the receipt of all required consents and approvals for the
transactions contemplated; and representations that the Purchasers are
"accredited investors" (as defined in Rule 501(a) of the Securities Act) who
are not acquiring the Company Shares and the Warrant with a view to resale,
transfer or distribution, without prejudice to the Purchasers' right at all
times to sell or otherwise dispose of all or any part of such securities under
a registration under the Securities Act or under an exemption from said
registration available under the Securities Act.
Conduct of the Business Pending the Closing. The Company has agreed that,
except as contemplated by the Transaction Documents, unless the Purchasers
will otherwise agree in writing, the Company will and will cause its
subsidiaries to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as previously conducted, and
will, and will cause its subsidiaries to, use their reasonable best efforts to
preserve intact their present business organizations, keep available the
services of their present officers and employees and preserve their
relationships with customers, suppliers and others having business dealings
with them. The Company has agreed to, and will cause its subsidiaries to,
maintain insurance coverage consistent with prior practice, maintain and keep
its properties and equipment in good repair and working order, and perform its
obligations under all contracts and commitments.
Subject to the following paragraph, the Company has further agreed that,
among other things, it will not, nor will it permit any of its subsidiaries
to: (i) sell, pledge or transfer or agree to sell, pledge or transfer any
capital stock owned by it; (ii) amend its charter or other organizational
documents; (iii) split, combine or reclassify its outstanding capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of capital stock, or declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property; (iv) directly or indirectly redeem, purchase or otherwise acquire or
agree to redeem, purchase or otherwise acquire any shares of its capital
stock; (v) issue, deliver, sell or encumber or agree to issue, deliver, sell
or encumber any additional shares of, or stock appreciation rights or rights
of any kind to acquire any shares of, its capital stock of any class, or any
options, rights or warrants to acquire, or securities convertible into, shares
of capital stock; (vi) acquire, lease, or dispose or agree to acquire, lease
or dispose of any capital assets or any other assets; (vii) incur additional
indebtedness or encumber or grant
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a security interest in any asset or enter into any transaction; (viii) incur
any liability or obligation, or contribute any asset, to a subsidiary of the
Company; (ix) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof material to the Company and its subsidiaries
taken as a whole; (x) adopt, enter into, terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan
agreement, trust, fund or other arrangement for the benefit or welfare of any
director, officer or current or former employee; (xi) increase in any manner
the compensation or fringe benefits of any director, officer or employee
except for normal increases in the ordinary course of business; (xii) pay any
benefit not provided under any existing plan or arrangement; (xiii) grant any
awards or make any payments under any bonus, incentive, performance or other
compensation plan or arrangement or employee benefit plan; (xiv) take any
action to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement or
employee benefit plan; (xv) make any investments in non-investment grade
securities; (xvi) make any change in its accounting policies or procedures;
(xvii) make any material tax election or settle any tax claim or assessment;
or (xviii) adopt, enter into, amend or terminate any contract, agreement,
commitment or arrangement to do any of the foregoing.
The foregoing covenants are subject, in certain cases, to specified
exceptions and qualifications, including without limitation, those exceptions
that are disclosed to the Purchasers in the written schedules delivered by the
Company to the Purchasers pursuant to the Company Purchase Agreement.
Takeover Proposals. The Company Purchase Agreement limits the Company's
ability to negotiate a Takeover Proposal (as defined below) with any third
party. The Company must notify the Purchasers immediately, but in any event
within 24 hours, if any proposals, inquiries or expressions of interest are
received by, any information is requested from, or any negotiations or
discussions are sought to be initiated or continued with the Company or its
representatives, in each case in connection with any Takeover Proposal or the
possibility or consideration by a third party of making a Takeover Proposal
("Takeover Proposal Interest") indicating, in connection with such notice, the
name of the Person indicating such Takeover Proposal Interest and the terms
and conditions of any proposals or offers. The Company Purchase Agreement
provides that the Company may not (i) initiate, solicit or encourage, or take
any action to facilitate (including by furnishing information) the making of,
any offer or proposal which constitutes or is reasonably likely to lead to any
Takeover Proposal; (ii) enter into any agreement with respect to any Takeover
Proposal; or (iii) in the event of an unsolicited Takeover Proposal for the
Company, engage in negotiations or discussions with, or provide any
information or data to any Person (subject to certain express exceptions)
relating to any Takeover Proposal, except in connection with a Superior
Proposal.
As used in the Company Purchase Agreement, "Takeover Proposal" means any
tender or exchange offer involving the Company, any proposal for a merger,
consolidation or other business combination involving the Company, any
proposal or offer to acquire in any manner a greater than 15% equity interest
in, or a significant portion of the business or assets of, the Company (other
than immaterial or insubstantial assets or inventory in the ordinary course of
business or assets held for sale), any proposal or offer with respect to the
Company or any proposal or offer with respect to any other transaction similar
to any of the foregoing with respect to the Company other than pursuant to the
transactions to be effected pursuant to the Purchase Agreements.
Notwithstanding the foregoing restrictions on solicitation, prior to the
Closing Date, the Company may furnish information concerning its business,
properties or assets to any Person pursuant to appropriate confidentiality
agreements, and may negotiate and participate in discussions and negotiations
with such Person concerning a Superior Proposal (provided that the Company
will not agree to any exclusive right to negotiate with the Company).
As used in the Company Purchase Agreement, the term "Superior Proposal"
refers to such transaction that takes place after the date of the Company
Purchase Agreement by an entity or group, without any action prohibited by the
Company Purchase Agreement having been taken by the Company or any of its
officers,
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directors, employees, investment bankers, attorneys, accountants or other
agents, and that is a bona fide written proposal submitted to the Company and
relating to any such transaction that the Board determines, in good faith,
after receiving written advice from a nationally recognized investment banking
firm, is more favorable to the Company and its stockholders than the
transactions contemplated by the Company Purchase Agreement and which is not
conditioned upon receiving additional financing not fully committed at such
time. To be considered a Superior Proposal, a Takeover Proposal must also be
such that in the opinion of the Board, after receiving advice from outside
legal counsel to the Company, the failure to provide such information or
access or to engage in such discussions or negotiations with the entity or
group which has submitted such a transaction for the Board's consideration
would cause the Board to breach its fiduciary duties to the Company's
stockholders under applicable law.
The Company further agrees that neither the Board nor any committee thereof
will (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to the Purchasers, the approval or recommendation by the Board or any
such committee of the Transaction Documents; (ii) approve or recommend, or
propose to approve or recommend, any Takeover Proposal; or (iii) enter into
any agreement with respect to any Takeover Proposal, except in connection with
a Superior Proposal.
Within one business day following a determination by the Board, in good
faith, after receiving written advice from a nationally recognized investment
banking firm, that a bona fide written Takeover Proposal is a Superior
Proposal, the Company will notify the Purchasers of the receipt of such
proposal. The Company will promptly provide to the Purchasers any nonpublic
information regarding the Company provided to any other party which was not
previously provided to the Purchasers. Upon the advice of Company's outside
counsel, the Board may inform the Company's stockholders that it no longer
believes that the transactions contemplated by the Company Purchase Agreement
are advisable and that it no longer recommends approval (a "Subsequent
Determination"), but only after the fifth business day following Purchaser's
receipt of written notice advising the Purchasers that the Board has received
a Superior Proposal specifying the material terms and conditions of such
Superior Proposal (including a copy thereof with all accompanying
documentation), identifying the Person making such Superior Proposal and
stating that it intends to make a Subsequent Determination. After providing
such notice, the Company will provide a reasonable opportunity to the
Purchasers to make such adjustments in the terms and conditions of the Company
Purchase Agreement and/or any of the Transaction Documents as would enable the
Board to proceed with its recommendation to its stockholders without a
Subsequent Determination.
At any time after five business days following notification to the
Purchasers of the Company's intent to make a Subsequent Determination and if
the Company is otherwise in compliance with the Company Purchase Agreement,
the Board may terminate the Company Purchase Agreement and enter into an
agreement with respect to a Superior Proposal, provided that the Company will,
concurrently with terminating the Company Purchase Agreement, pay or cause to
be paid to the Purchasers the Termination Fee/Expense Reimbursement (defined
in "Effect of Termination" below). Provided that the Company Purchase
Agreement has not previously been terminated in accordance with its terms, the
Company is required to submit the Proposals to the Company's stockholders,
whether or not the Board makes a Subsequent Determination.
Additional Covenants of the Parties. The Company Purchase Agreement also
contains certain additional covenants of the parties including covenants
relating to, among other things, (i) access by the Purchasers to all
financial, operating and other data and information of the Company and
adherence by the Purchasers to the Confidentiality Agreement, dated March 10,
1998, between Warburg, Pincus Ventures, L.P. and the Company; (ii) the
preparation by the Company and filing with the SEC of this Proxy Statement and
the making of all necessary filings applicable to the Purchasers and the
Company under the Securities Act, the Exchange Act, applicable blue sky and
similar securities laws; (iii) the convening by the Company of a meeting of
holders of its capital stock for the purpose of considering and taking actions
to approve the Proposals; (iv) the preparation and filing by the Company and
the Purchasers of notifications under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in connection with the
transactions contemplated under the Company Purchase Agreement; (v) the filing
by the Company, its subsidiaries and the Purchasers of
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all necessary applications with the FCC for obtaining FCC Approval (each as
defined in the Company Purchase Agreement); (vi) maintenance by the Company of
liability insurance coverage with respect to each of the Company's and its
subsidiaries' respective directors and officers; (vii) restrictions upon the
resale of the Company Shares, the Warrant or the Common Stock issuable upon
exercise of the Warrant; (viii) provisions for board nominees and independent
directors providing that for so long as the Purchasers own beneficially
(within the meaning of Rule 13d-3 under the Exchange Act) at least 35% of the
then outstanding shares of Common Stock, the Company will nominate and use its
best efforts to elect and to cause to remain as directors on the Board such
number of individuals as the Purchasers may designate as will constitute a
majority of the Board; and for so long as the Purchasers own beneficially 30%
or more but less than 35% of the then outstanding shares of Common Stock, the
Company will nominate and use its best efforts to elect and to cause to remain
as directors on the Board the greater of (a) three individuals as designated
by the Purchasers and (b) such number of individuals as the Purchasers may
designate not exceeding the product (rounded upward or downward to the nearest
whole number) obtained by multiplying the number of seats on the Board by the
quotient obtained by dividing (1) the number of shares of Common Stock then
owned by the Purchasers by (2) the total number of shares of Common Stock then
outstanding (the "Applicable Percentage"); and for so long as the Purchasers
own beneficially 20% or more but less than 30% of the then outstanding shares
of Common Stock, the Company will nominate and use its best efforts to elect
and to cause to remain as directors on the Board the greater of (x) two
individuals as designated by the Purchasers and (y) the product (rounded
upward or downward to the nearest whole number) obtained by multiplying the
number of seats on the Board by the Applicable Percentage; and for so long as
the Purchasers own beneficially 10% or more but less than 20% of the then
outstanding shares of Common Stock, the Company will nominate and use its best
efforts to elect and to cause to remain as directors on the Board the greater
of (I) one individual as designated by the Purchasers and (II) the product
(rounded upward or downward to the nearest whole number) obtained by
multiplying the number of seats on the Board by the Applicable Percentage;
(ix) the making of a Section 338(h)(10) election, if determined to be in the
Company's best interests, in respect of the Company's acquisition of MSCL,
Inc. on September 15, 1998; and (x) the Company's use of its reasonable best
efforts to have a new agreement with TVN Entertainment Corporation executed on
terms reasonably satisfactory to the Purchasers.
Closing Conditions.
All Parties. Pursuant to the Company Purchase Agreement, the respective
obligations of each of the Company and the Purchasers to effect the
transactions contemplated by the Company Purchase Agreement are subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions: (i) the Proposals will have been approved and adopted by the
requisite vote of the stockholders; (ii) the Company will have obtained FCC
Approval; provided, however, that the Company and the Purchasers may, by
mutual agreement prior to Closing, agree to effect the transactions
contemplated by the Company Purchase Agreement upon the adoption of decisions
by the FCC or its bureaus for the transfer of control of the FCC Licenses to
the Purchasers whether or not any appeal or request for reconsideration or
review of any such decisions is pending or the time for filing such appeal or
request or for any sua sponte action by the FCC with similar effect has
expired; (iii) any waiting period or extension thereof under the HSR Act
applicable to the transactions contemplated by the Transaction Documents will
have expired or been terminated; (iv) a Company incentive bonus plan will have
been approved by the Board; and (v) no preliminary or permanent injunction or
other order by any federal or state court in the United States which prevents
the consummation of the transactions contemplated by the Company Purchase
Agreement will have been issued and remain in effect.
Purchaser Closing Conditions. The obligations of the Purchasers to effect
the transactions contemplated by the Company Purchase Agreement are subject to
the satisfaction on or prior to the Closing Date of the following additional
conditions, any one or more of which may be waived in writing by the
Purchasers: (i) the representations and warranties of the Company, without
regard to any Material Adverse Effect qualification or any other materiality
qualification contained in any such representation and warranty, will be true
and correct in all respects on and as of the Closing Date, with the same force
and effect as if made on and as of the Closing Date, unless the failure of
such representations and warranties to be true and correct would not
reasonably be
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expected to result in, individually or in the aggregate, a Material Adverse
Effect upon the Company, materially impair the Company's ability to consummate
the transactions contemplated under the Transaction Documents or materially
delay such transactions or impose a material limitation on the ability of the
Purchasers to effectively acquire, hold or exercise any rights of ownership
with respect to the Company Shares, the Warrant or the Common Stock issuable
upon exercise of the Warrant; (ii) the Company has performed or complied with
in all material respects all agreements, conditions and covenants required by
the Transaction Documents to be performed or complied with by it on or before
the Closing Date, unless, solely with respect to the covenants described under
"--Conduct of the Business Pending the Closing" above, the failure to comply
of such would not reasonably be expected to result in, individually or in the
aggregate, a Material Adverse Effect upon the Company, materially impair the
Company's ability to consummate the transactions contemplated under the
Transaction Documents or materially delay such transactions or impose a
material limitation on the ability of the Purchasers to effectively acquire,
hold or exercise any rights of ownership with respect to the Company Shares,
the Warrant or the Common Stock issuable upon exercise of the Warrant; (iii)
the Purchasers will have received a certificate, dated the Closing Date,
signed by each of the President and the Chief Executive Officer of the
Company, certifying that the foregoing conditions (i) and (ii) have been
fulfilled; (iv) all permits, consents, authorizations, approvals, waivers,
registrations, qualifications, designations and declarations required of the
Company pursuant to the Company Purchase Agreement will have been timely
obtained and all filings and notices will have been submitted, unless such
failures to obtain or submit would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect upon the Company,
materially impair the Company's ability to consummate the transactions
contemplated under the Transaction Documents or materially delay such
transactions or impose a material limitation on the ability of the Purchasers
to effectively acquire, hold or exercise any rights of ownership with respect
to the Company Shares, the Warrant or the Common Stock issuable upon exercise
of the Warrant; (v) the Purchasers will have received from legal counsel to
the Company an opinion, dated the Closing Date, as to certain specified
matters; (vi) the Company and the Purchasers will have executed the
Purchasers' Registration Rights Agreement (as defined below); (vii) the
options and irrevocable proxies granted by Walston, the Fleming Funds and TSP,
respectively, pursuant to the Voting Agreements will be in full force and
effect and none of the parties thereto (other than the Purchasers or any of
their Affiliates) will be in material breach thereof; (viii) the transactions
contemplated by the Preferred Stock Conversion and Stockholders Agreement (the
"Conversion Agreement") and the Stock Purchase Agreement, dated as of January
18, 1999, by the Purchasers and TSP (the "TSP Purchase Agreement") will be
consummated concurrently with the consummation of the transactions
contemplated by the Company Purchase Agreement; (ix) the Credit Agreement (as
defined in the Company Purchase Agreement) will have been amended on terms
reasonably acceptable to the Purchasers; (x) neither the Board nor any
committee thereof will have amended, modified, rescinded or repealed the
approval by the Board of the Company Purchase Agreement and the transactions
contemplated thereby pursuant to which the limitations on business
combinations contained in Section 203 of the Delaware General Corporation Law
were rendered inapplicable, and neither the Board nor any committee thereof
will have adopted any other resolutions in connection with the Company
Purchase Agreement and the transactions contemplated thereby inconsistent with
such approval of the transactions contemplated thereby; (xi) the Lock-up
Agreements (as defined in the Company Purchase Agreement) will have been
terminated by all parties thereto; and (xii) the Company will have entered
into employment agreements with certain key employees of the Company, other
than the living Founders, on terms reasonably acceptable to the Purchasers.
Company Closing Conditions. The obligations of the Company to effect the
transactions contemplated by the Company Purchase Agreement are subject to the
satisfaction of the following additional conditions on or before the Closing
Date, any one or more of which may be waived in writing by the Company: (i)
the representations and warranties of the Purchasers, without regard to any
Material Adverse Effect or any other materiality qualification contained in
any such representation or warranty, will be true and correct on and as of the
Closing Date, with the same force and effect as if made on and as of the
Closing Date, unless the failure of such representations and warranties to be
true and correct would not reasonably be expected to result in, individually
or in the aggregate, a Material Adverse Effect on the ability of the
Purchasers to consummate the transactions contemplated under the Transaction
Documents or materially delay such transactions; (ii) the
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Purchasers will have performed and complied in all material respects with all
agreements, conditions and covenants contained in the Transaction Documents
which are required to be performed or complied with by them prior to or on the
Closing Date; and (iii) the Company will have received a certificate from the
Purchasers, dated the Closing Date, signed by a duly authorized representative
of the Purchasers, certifying that the foregoing conditions (i) and (ii) have
been fulfilled.
Termination. The Company Purchase Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the Proposals by the
requisite vote of the stockholders at the Company Vote: (i) by mutual written
consent of the Board and the Purchasers; (ii) by the Purchasers if any of the
conditions set forth above under "the Purchasers Closing Conditions" have not
been satisfied or waived by the Purchasers at such time as such condition is
no longer capable of satisfaction, including the failure to obtain any
required approval of the Company's stockholders, or by the Company if any of
the conditions set forth above under "Company Closing Conditions" have not
been satisfied or waived by Company at such time as such condition is no
longer capable of satisfaction, including the failure to obtain any required
approval of the Company's stockholders; (iii) by either the Company or the
Purchasers if any Governmental Entity will have issued a final permanent and
unappealable order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by the Company Purchase Agreement; (iv) by the
Purchasers if, without any material breach by the Purchasers of their
obligations under the Transaction Documents, the transaction contemplated by
the Company Purchase Agreement will not have been consummated on or before
June 30, 1999 (the "Expiration Date"), unless the sole reason for the failure
to consummate the transactions contemplated by the Company Purchase Agreement
by such date is the nonfulfillment of conditions with respect to FCC Approval,
in which case the Expiration Date will be extended to September 30, 1999 (the
"Extended Expiration Date"); (v) by the Company if, without any material
breach by Company of their obligations under the Transaction Documents, the
transaction contemplated by the Company Purchase Agreement will not have been
consummated on or before the Expiration Date or the Extended Expiration Date,
if applicable; (vi) by the Company if (a) there will be a material breach of
any of the Purchasers' representations, warranties or covenants in any of the
Transaction Documents, which breach cannot be or has not been cured within 10
days of the receipt of written notice thereof or (b) to allow the Company to
enter into an agreement in accordance with a Superior Proposal, provided that
the Company makes simultaneous payment to the Purchasers of the Termination
Fee/Expense Reimbursement in immediately available funds; (vii) by the
Purchasers if there has been a material breach of any of the Company's
representations, warranties, covenants or agreements set forth in any of the
Transaction Documents, which breach cannot be or has not been cured within 10
days of the receipt of written notice thereof; (viii) by the Purchasers, if
the Board will withdraw, modify or change its recommendation or approval in
respect of the Company Purchase Agreement or the Proposals in a manner adverse
to the Purchasers, or the Board will have recommended any proposal other than
by the Purchasers in respect of a Takeover Proposal, or the Company will have
exercised a right with respect to a Superior Proposal and will, directly or
through its representatives, continue discussions with any third party
concerning such Takeover Proposal for more than 15 business days after the
receipt of such Takeover Proposal, or a Takeover Proposal that is publicly
disclosed will have been commenced or communicated to the Company which
contains a proposal as to price and the Company will not have rejected such
proposal within 15 business days from the date such takeover proposal was
communicated to the Company, or any Person or group other than the Purchasers
or their respective subsidiaries or Affiliates (as defined in the Company
Purchase Agreement) will have become the beneficial owner of more than 15% of
the outstanding shares of Common Stock, provided, however, that with regard to
a Person that owns more than 15% of the outstanding shares of Common Stock on
the date of the Company Purchase Agreement, the provision will be triggered by
such Person becoming the beneficial owner of an additional 5% of the
outstanding shares of Common Stock (either on a primary of fully diluted
basis); or (ix) by the Purchasers if the Company or its representatives take
any actions in violation of the Company's obligations under the Company
Purchase Agreement with regard to acquisition proposals, solicitation or the
withdrawal of Board recommendation.
Effect of Termination. If (a) the Purchasers will have terminated the
Company Purchase Agreement pursuant to subsection (viii) or subsection (ix)
under "Termination" above, (ii) the Purchasers will have terminated this
Agreement pursuant to subsection (vii) under "Termination" above and following
the date of
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the Company Purchase Agreement but prior to such termination there will have
been a Takeover Proposal Interest or (iii) the Company will have terminated
the Company Purchase Agreement pursuant to subsection (vi)(b) under
"Termination" above, then in any such case the Company will pay simultaneously
with such termination if pursuant to subsection (vi)(b) under "Termination"
above and promptly, but in no event later than two business days after the
date of such termination or event if pursuant to subsections (vii), (viii) or
(ix) under "Termination" above, to the Purchasers (A) a termination fee of
$2,250,000 and (B) reimbursement of up to $750,000 of actual and documented
costs and expenses incurred by the Purchasers in connection with the
transactions contemplated by the Transaction Documents (the "Termination
Fee/Expense Reimbursement") which amounts will be payable by wire transfer of
immediately available funds to such account as the Purchasers may designate in
writing to the Company.
Any election by the Company to pay, or by the Purchasers to receive, the
Termination Fee/Expense Reimbursement will constitute full settlement of any
and all liabilities of the Company for damages under the Company Purchase
Agreement in respect of a termination of such Agreement pursuant to a section
thereof giving rise to the payment of a Termination Fee/Expense Reimbursement
and will be the sole measure of damages with respect thereto.
Expenses. If the transactions contemplated by the Company Purchase
Agreement are consummated, the Company will pay to the Purchasers (a) the
lesser of (x) $500,000 or (y) the total of all costs, fees and expenses
incurred by the Purchasers in connection with the Transaction Documents (the
"Purchasers' Expenses"), plus (b) in the event that the Purchasers' Expenses
exceed $500,000, 50% of any such excess, provided that the Company's
reimbursement obligations will in no event exceed $1,000,000. Such monies will
be payable on the Closing Date by wire transfer of immediately available funds
to such account as the Purchasers may designate in writing to the Company.
Recovery of Fees. Any party to the Company Purchase Agreement who obtains a
final judgment in a court of competent jurisdiction for the payment of damages
by another party thereto for a breach of the Company Purchase Agreement will
be entitled to recover reasonable attorneys' fees and court costs incurred in
connection with the obtaining of such judgment.
Amendment. The Company Purchase Agreement may be amended by the parties at
any time before or after approval thereof by the stockholders of the Company,
but, after such approval, no amendment will be made which materially adversely
affects the rights of such stockholders, without the further approval of such
stockholders voting as specified in the Company Purchase Agreement. The
Company Purchase Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties to the Company Purchase
Agreement.
TSP Purchase Agreement
General. The TSP Purchase Agreement, a copy of which is attached as Exhibit
99.3 to the 8-K, provides that TSP will sell to the Purchasers 3,119,627
shares of Common Stock (the "TSP Shares") for an aggregate cash purchase price
of $23,397,203 (based upon a purchase price of $7.50 per share).
The Closing Date. The closing of the sale and purchase will take place at
10:00 a.m., New York City time, on the third business day after all of the
conditions set forth in the TSP Purchase Agreement have been satisfied or
waived, or at such other date as the Purchasers and TSP will agree to in
writing, in any such case simultaneously with the closing of the transactions
contemplated by the Company Purchase Agreement (the "TSP Closing Date"). See
"--Closing Conditions of the Parties" and "--Additional Closing Conditions of
the Purchasers."
Representations and Warranties. The TSP Purchase Agreement contains various
representations and warranties of TSP to the Purchasers relating to, among
other things: (i) the due organization, valid existence and good standing of
TSP; (ii) the due authorization, execution, delivery and performance of the
TSP Purchase
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Agreement and the TSP Voting Agreement (the "TSP Transaction Documents");
(iii) the beneficial ownership by TSP and its good title to all of the TSP
Shares free and clear of any mortgage, pledge, hypothecation, rights of
others, claim, security interest, charge, encumbrance, title defect, title
retention agreement, voting trust agreement, interest, option, lien, charge or
similar restriction or limitation; (iv) the exclusive power of TSP to vote the
TSP Shares and, pursuant to an agreement with Mr. Walston, the 1,432,875
shares beneficially owned by Mr. Walston (the "Walston Shares"); (v) no
beneficial ownership by TSP, directly or indirectly, of any securities of the
Company other than the TSP Shares and the Walston Shares, and no option,
warrant or other right of TSP to acquire other shares, and no obligation or
right of TSP to vote any shares other than the Walston Shares; (vi) the
absence of defaults that would result in the creation of liens on any of the
TSP Shares and the absence of violations of TSP's Certificate of Limited
Partnership or Partnership Agreement, or of any contract, commitment,
agreement, understanding, arrangement or restriction of any kind to which TSP
is a party, or any order, judgment, rule or regulation of any Governmental
Entity with jurisdiction over TSP; (vii) the absence of violations of laws in
connection with the execution, delivery and performance by TSP of the TSP
Purchase Agreement; (viii) disclosure in the SEC Reports or in the Company
Purchase Agreement of all agreements, contracts, transfers of assets or
liabilities or other commitments or transactions, whether or not entered into
in the ordinary course of business, to or by which the Company or any of its
subsidiaries on the one hand, and TSP or any of its affiliates on the other
hand, are or have been a party or are otherwise bound or affected, that are
currently pending or in effect or involve continuing liabilities and
obligations material to the Company or any of its subsidiaries taken as a
whole; (ix) the inapplicability of Section 5 of the Securities Act to the sale
of the TSP Shares; and (x) the absence of any claims for brokerage commissions
or finder's fees or similar compensation in connection with the transactions
contemplated by the TSP Purchase Agreement based on any arrangement made by or
on behalf of TSP.
The foregoing representations and warranties are subject, in certain cases,
to specified exceptions and qualifications, including, without limitation,
those exceptions that are disclosed to the Purchasers in the written schedules
delivered by TSP to the Purchasers pursuant to the TSP Purchase Agreement.
The TSP Purchase Agreement also contains certain representations and
warranties by the Purchasers relating to, among other things: the due
organization, good standing and authority of each Purchaser to execute and
deliver the TSP Transaction Documents to which it is a party and to consummate
the transactions contemplated therein; the absence of conflict between the
execution, delivery and performance of the TSP Purchase Agreement with the
Purchasers' Certificates of Limited Partnership and the Partnership Agreements
or with any other agreements of the Purchasers; the receipt of all required
consents and approvals for the transactions contemplated; and representations
that the Purchasers are acquiring the TSP Shares for their own accounts for
investment and not with a view towards the resale, transfer or distribution
thereof, without prejudice to the Purchasers' right at all times to sell or
otherwise dispose of all or any part of such securities under a registration
under the Securities Act or under an exemption from said registration
available under the Securities Act.
Covenants of the Parties. The TSP Purchase Agreement provides that (i) TSP
will perform and comply with all agreements and covenants contained in the TSP
Voting Agreement which are required to be performed or complied with by TSP
prior to or on the TSP Closing Date; (ii) during the term of the TSP Purchase
Agreement, TSP will not tender into any tender or exchange offer or otherwise
sell, transfer, pledge, assign, hypothecate or otherwise dispose of, or
encumber with any Lien, any of the TSP Shares, acquire any shares of Common
Stock or other securities of the Company, deposit the TSP Shares into a voting
trust, enter into a voting agreement or arrangement with respect to the TSP
Shares or grant any proxy or power of attorney with respect to the TSP Shares
or enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect acquisition or sale, transfer, pledge,
assignment, hypothecation or other disposition of any interest in or the
voting of any shares of Common Stock or any other securities of the Company;
(iii) if required under the HSR Act, the Purchasers will use their best
efforts to file as soon as practicable notifications under the HSR Act, in
connection with the transactions contemplated in the TSP Purchase Agreement
and to respond as promptly as practicable to all inquiries and requests
received from any State Attorney General or other Governmental Entity in
connection with antitrust matters relating to the transactions contemplated by
this TSP Purchase Agreement;
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<PAGE>
and (iv) each party will promptly give notice to the other party upon becoming
aware of the occurrence or impending or threatened occurrence, of any event
which would cause any of its representations or warranties to be untrue on the
TSP Closing Date or cause a breach of any covenant and will use its best
efforts to prevent or promptly remedy the same.
Closing Conditions of the Parties. The obligations of the Purchasers and of
TSP to effect the transactions contemplated by the TSP Purchase Agreement are
generally similar to the obligations of the Purchasers and of the Company to
effect the transactions contemplated by the Company Purchase Agreement
discussed under "--Company Purchase Agreement--Closing Conditions" above.
Additional Closing Conditions of the Purchasers. The obligations of the
Purchasers to effect the transactions contemplated by the TSP Purchase
Agreement are further subject to the following waivable conditions: the
Purchasers will have received from legal counsel to TSP an opinion, dated the
TSP Closing Date, as to certain specified matters; and the transactions
contemplated by the Company Purchase Agreement will be consummated
concurrently on the TSP Closing Date.
Termination. The events giving rise to the termination of the TSP Purchase
Agreement are generally similar to the events discussed under "--Company
Purchase Agreement--Termination" above.
Effect of Termination. In the event of termination of the TSP Purchase
Agreement, written notice thereof will forthwith be given to the other parties
specifying the provision pursuant to which such termination is made, and the
TSP Purchase Agreement will forthwith become null and void and there will be
no liability (except for willful breaches) on the part of the Purchasers or
TSP or their respective officers, directors or partners.
Recovery of Fees. Any party to the TSP Purchase Agreement who obtains a
final judgment in a court of competent jurisdiction for the payment of damages
by another party thereto for a breach of the TSP Purchase Agreement will be
entitled to recover reasonable attorneys' fees and court costs incurred in
connection with the obtaining of such judgment.
Amendment. The TSP Purchase Agreement may be amended by the parties thereto
by an instrument in writing signed on behalf of each of the parties to the TSP
Purchase Agreement.
Founders Purchase Agreement
General. The Stock Purchase Agreement dated January 18, 1999 (the "Founders
Purchase Agreement"), a copy of which is attached as Exhibit 99.4 to the 8-K,
provides for the Founders to exercise on the Closing Date their stock options
(the "Options") to acquire an aggregate of 497,766 shares of Common Stock (the
"Founders Shares") and to sell those shares to the Purchasers for an aggregate
cash purchase price of $3,982,128 (based upon a purchase price of $8.00 per
share).
The Closing Date. The closing of the sale and purchase will take place at
10:00 a.m., New York City time, on the third business day after all of the
conditions set forth in the Founders Purchase Agreement have been satisfied or
waived, or at such other date as the Purchasers and the Founders will agree to
in writing, in any such case simultaneously with the closing of the
transactions contemplated by the Company Purchase Agreement and the TSP
Purchase Agreement (the "Founders Closing Date"). See "--Closing Conditions of
the Parties and--Additional Closing Conditions of the Purchasers."
Representations and Warranties. The Founders Purchase Agreement contains
various representations and warranties of each Founder to the Purchasers
relating to, among other things: (i) the requisite power and authority to
execute and deliver the Founders Purchase Agreement and the Founders
Employment Agreements (as defined below and, together with the Founders
Purchase Agreement, the "Founders Transaction Documents") and to consummate
the transactions contemplated in the Founders Transaction Documents by each of
the Founders, and, if not an individual, the taking of all necessary action to
authorize the execution, delivery and performance of
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<PAGE>
the Founders Transaction Documents; (ii) the beneficial ownership by each of
the Founders of and possession of good title to, all of the Founders Shares
designated in the Founders Purchase Agreement as being owned by such Founder,
free and clear of any mortgage, pledge, hypothecation, rights of others,
claim, security interest, charge, encumbrance, title defect, title retention
agreement, voting trust agreement, interest, option, lien, charge or similar
restriction or limitation; (iii) direct or indirect beneficial ownership by
such Founder of any securities of the Company is limited to the Founders
Shares and Options and does not include any option, warrant or other right to
acquire any securities of the Company that are or may by their terms become
entitled to vote or any securities that are convertible or exchangeable into
or exercisable for any securities of the Company that are or may by their
terms become entitled to vote, nor is such Founder subject to any contract,
commitment, arrangement, understanding or relationship (whether or not legally
enforceable), other than the Founders Purchase Agreement, that allows or
obligates him or it to vote or acquire any securities of the Company; (iv) the
exclusive power of such Founder to vote the Founders Shares listed next to his
or its name in the Founders Purchase Agreement and the representation that no
proxy has been granted to any other Person to vote such Founders Shares; (v)
the due execution, delivery and performance of the Founders Purchase Agreement
by such Founder; (vi) the absence of defaults that would result in the
creation of liens on any of the Founders Shares and the absence of violations
of any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which the Founder is a party, or any injunction,
judgment, writ, decree, order or ruling applicable to such Founder; (vii) that
Section 5 of the Securities Act will not be applicable to the sale of the
Founders Shares; and (viii) the absence of any claims for brokerage
commissions or finder's fees or similar compensation in connection with the
transactions contemplated by the Founders Purchase Agreement based on any
arrangement made by or on behalf of the Founder.
The Founders Purchase Agreement also includes certain representations and
warranties by the Purchasers, including representations and warranties
regarding: the due organization, good standing and authority of each Purchaser
to execute and deliver the Founders Purchase Agreement and the related
agreements and to consummate the transactions contemplated therein; the
absence of conflict between the execution, delivery and performance of the
Founders Purchase Agreement with the Purchasers' Certificate of Limited
Partnership and the Partnership Agreement or with any other agreements of the
Purchasers; the receipt of all required consents and approvals for the
transactions contemplated; and representations that the Purchasers are
acquiring the Founders Shares for their own accounts for investment and not
with a view towards the resale, transfer or distribution thereof, without
prejudice to the Purchasers' right at all times to sell or otherwise dispose
of all or any part of such securities under a registration under the
Securities Act or under an exemption from said registration available under
the Securities Act.
The foregoing representations and warranties are subject, in certain cases,
to specified exceptions and qualifications, including, without limitation,
those exceptions that are disclosed to the Purchasers in the written schedules
delivered by the Founders to the Purchasers pursuant to the Founders Purchase
Agreement.
Covenants of the Parties. The Founders Purchase Agreement provides that (i)
the Founders will not exercise the Options until Closing, provided, that
simultaneous with the Closing, the Founders will exercise the Options in full;
(ii) during the term of the Founders Purchase Agreement, the Founders will not
tender into any tender or exchange offer or otherwise sell, transfer, pledge,
assign, hypothecate or otherwise dispose of, or encumber with any Lien (as
defined in the Founders Purchase Agreement), any of the Options or the
Founders Shares, acquire any shares of Common Stock or other securities of the
Company, deposit the Founders Shares into a voting trust, enter into a voting
agreement or arrangement with respect to the Founders Shares or grant any
proxy or power of attorney with respect to the Founders Shares or enter into
any contract, option or other arrangement or undertaking with respect to the
direct or indirect acquisition or sale, transfer, pledge, assignment,
hypothecation or other disposition of any interest in or the voting of any
shares of Common Stock or any other securities of the Company; (iii) if
required under the HSR Act, the Purchasers will use their best efforts to file
as soon as practicable notifications under the HSR Act in connection with the
transactions contemplated in the Founders Purchase Agreement and to respond as
promptly as practicable to all inquiries and requests received from any State
Attorney General or other Governmental Entity in connection with antitrust
matters relating to
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<PAGE>
the transactions contemplated by the Founders Purchase Agreement; and (iv)
each party will promptly give notice to the other party upon becoming aware of
the occurrence or impending or threatened occurrence, of any event which would
cause any of its representations or warranties to be untrue on the Founders
Closing Date or cause a breach of any covenant and will use its best efforts
to prevent or promptly remedy the same.
Closing Conditions of the Parties. The obligations of the Purchasers and of
the Founders to effect the transactions contemplated by the Founders Purchase
Agreement are generally similar to the obligations of the Purchasers and of
the Company to effect the transactions contemplated by the Company Purchase
Agreement discussed under "--Company Purchase Agreement--Closing Conditions"
above.
Additional Closing Condition of the Purchasers. The obligations of the
Purchasers to effect the transactions contemplated by the Founders Purchase
Agreement are further subject to the following waivable condition: the
transactions contemplated by the Company Purchase Agreement and the Founders
Purchase Agreement will be consummated concurrently on the Founders Closing
Date.
Termination. The events giving rise to the termination of the Founders
Purchase Agreement are generally similar to the events discussed under "--
Company Purchase Agreement--Termination" above.
Effect of Termination. In the event of termination of the Founders Purchase
Agreement, written notice thereof will forthwith be given to the other parties
specifying the provision pursuant to which such termination is made, and the
Founders Purchase Agreement will forthwith become null and void and there will
be no liability (except for willful breaches) on the part of the Purchasers or
the Founders or their respective officers, directors or partners.
Recovery of Fees. Any party to the Founders Purchase Agreement who obtains
a final judgment in a court of competent jurisdiction for the payment of
damages by another party thereto for a breach of the Founders Purchase
Agreement will be entitled to recover reasonable attorneys' fees and court
costs incurred in connection with the obtaining of such judgment.
Amendment. The Founders Purchase Agreement may be amended by the parties
thereto by an instrument in writing signed on behalf of each of the parties to
the Founders Purchase Agreement.
Warrant
General. The Warrant, a copy of which is attached as Annex B to this Proxy
Statement and incorporated by reference herein, when exercised, will entitle
the holder thereof to receive up to 1,100,000 shares of Common Stock (the
"Warrant Shares"), at an exercise price of $15.00 per share, subject to
adjustment (the "Exercise Price"). The number of Warrant Shares purchasable
upon exercise of the Warrant and the Exercise Price are subject to adjustment
as described below under "--Adjustments." As of the Record Date, assuming the
Warrant was issued and exercisable, the Purchasers would be entitled to
purchase shares of Common Stock representing approximately % of the Common
Stock (in addition to the % of Common Stock then owned by the Purchasers) on
a fully diluted basis (assuming exercise of all outstanding warrants, options
and conversion of all Series A Shares). The Warrant will be exercisable at any
time on or after the Closing Date (the "Issue Date"). Unless exercised, the
Warrant will automatically expire on the seventh anniversary of the Issue Date
(the "Expiration Date").
The Warrant may be exercised by a holder thereof by surrendering to the
Company the Warrant, with the form of subscription at the end thereof executed
by such holder, together with payment of the Exercise Price equal to the
Purchase Price (as defined in the Warrant) multiplied by the number of shares
being purchased pursuant to such exercise. Payment of the Exercise Price may
be made (i) in cash, by certified or official bank check, or by wire transfer,
(ii) by surrender to the Company for cancellation of securities of the Company
having a Market Price (as defined below) on the date of exercise equal to the
Exercise Price or (iii) by a combination of the methods described in clauses
(i) and (ii) above. In lieu of exercising the Warrant, the holder may elect to
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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. The Warrant may be exercised for less than the
full number of shares of Common Stock, in which case the number of shares
receivable upon the exercise of the Warrant as a whole, and the sum payable
upon the exercise of the Warrant as a whole, is proportionately reduced. If
the holder exercises the Warrant in part, a new warrant certificate will be
issued for the remaining number of Warrant Shares. As soon as practicable
after the exercise of the Warrant and payment of the Exercise Price, and in
any event within ten days thereafter, the Company, at its expense, will cause
to be issued in the name of and deliver to the holder a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such holder is entitled upon exercise. No
fractional Warrant Shares will be issued upon exercise of the Warrant.
Instead, the Company will pay to the holder of the Warrant at the time of
exercise an amount in cash equal to the current value of such fraction to be
computed based on the Market Price of the Common Stock.
Anti-Dilution Provisions and Other Adjustments. The number of Warrant
Shares purchasable upon exercise of Warrant and the Exercise Price will be
subject to adjustment in certain events occurring after the Issue Date,
including: (i) the issue or sale of Common Stock for consideration per share
less than Market Price per share on the date the Company fixes the issuance or
sales price, (ii) subdivisions of outstanding Common Stock or issuances of
stock dividends on the outstanding Common Stock by the Company, (iii) the
grant, issuance or sale of any options, convertible securities or rights to
purchase property to all holders of Common Stock or (iv) certain other events
that could have the effect of depriving a holder of the Warrant of the benefit
of all or a portion of the purchase rights evidenced by the Warrant.
In the event the Company declares a dividend upon the Common Stock payable
otherwise than out of earnings or earned surplus (a "Liquidating Dividend"),
then, as soon as possible after the exercise of the Warrant, the Company will
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.
The Warrant will not be subject to adjustment in the event Common Stock is
issued, issuable or deemed outstanding 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 as of the date of the Warrant's issuance or pursuant to option,
warrants and conversion rights in existence on the date of the Warrant's
issuance.
"Market Price" means 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 will be the fair market value thereof
determined jointly in good faith by the Board and the holder of the Warrant;
provided, however, that if such parties are unable to reach agreement within a
reasonable period of time, the Market Price will be determined in good faith
by the independent investment banking firm selected jointly by the Company and
the holder of the 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.
In the case of 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 the
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<PAGE>
assets of the Company to another corporation (individually, an "Event"), then,
as a condition of such Event, the holder of the Warrant has the right to
acquire and receive upon exercise of the Warrant such shares of stock,
securities, cash or other property issuable or payable (as part of the Event)
with respect to or in exchange for such number of outstanding shares of Common
Stock as would have been received upon exercise of the Warrant at the Exercise
Price then in effect. Any such Event will not occur until any successor
corporation (other than the Company) assumes the foregoing obligations by
written instrument. Furthermore, in the event that any such Event is made to
and accepted by more than 50% of the outstanding shares of Common Stock, then
such Event will not occur unless, prior to such Event's consummation, the
holder of the Warrant is given a reasonable opportunity to then elect to
receive upon exercise of the Warrant either the stock, securities or assets
then issuable or previously issued with respect to the Common Stock in
accordance with such offer.
Reservation of Shares. The Company will at all times reserve and keep
available out of its authorized but unissued stock, solely for issuance and
delivery upon the exercise of the Warrant, such number of its duly authorized
shares of Common Stock as from time to time will be issuable upon the exercise
of the Warrant and all other similar Warrants at the time outstanding.
Conversion Agreement
The Conversion Agreement, a copy of which is attached as Exhibit 99.5 to
the 8-K, provides for the conversion by the Fleming Funds on the Closing Date
(the "Conversion") of all 150,000 shares of the Series A Shares owned by them
into an aggregate of 2,250,000 shares of Common Stock (subject to appropriate
adjustments for stock splits, dividends and combinations and other similar
recapitalizations) and the issuance by the Company to the Fleming Funds of the
2,250,000 shares of Common Stock in respect of such Conversion. As of the date
hereof, the Series A Shares are convertible into 1,500,000 shares of Common
Stock.
Under the terms of the Conversion Agreement, each of the Fleming Funds
waives any and all of its rights, benefits and claims under the Certificate of
Designation of Series A Convertible Preferred Stock (the "Certificate of
Designation") and any other document or agreement, to any and all adjustments
to the Conversion Price (as defined in the Certificate of Designation) to
which it would or may otherwise have been or be (now or in the future)
entitled as a result of the execution, delivery and performance of the
Transaction Documents. Furthermore, each of the Fleming Funds waives any and
all of its rights, benefits and claims under the Preferred Purchase
Agreements, the Stockholders' Agreement, the Registration Rights Agreement (as
those terms are defined in the Conversion Agreement) and any other agreement
to which the Company and the Fleming Funds are parties to which it would or
may otherwise have been or be (now or in the future) entitled as a result of
the execution, delivery and performance of the Transaction Documents,
including without limitation preemptive rights and registration rights with
respect to the issuance of the Company Shares and the Warrant to the
Purchasers, and hereby consents to the execution, delivery and performance of
the Transaction Documents; provided, however, that the foregoing waiver will
be null and void ab initio on and after the date the Conversion Agreement is
terminated.
For so long as the Fleming Funds own at least 50% of the shares of Common
Stock that are issued to them under the Conversion Agreement, then (i) subject
to and in accordance with certain other terms and conditions in the Conversion
Agreement, in the event that either Mr. Walston or the Purchasers (together
with Mr. Walston, the "Transferors" and each a "Transferor") propose to
transfer any shares of Common stock owned by them (the "Transferor Shares") to
any person (the "Transferee"), as a condition to such transfer, the
Transferor(s) will cause the Transferee to offer (the "Inclusion Offer") to
purchase from each of the Fleming Funds, at each such Fleming Fund's option,
up to that number of shares of Common stock (the "Inclusion Shares") owned by
such Fleming Fund on the same terms and conditions as are applicable to the
Transferor Shares (including any consideration to be received by the
Transferor(s) in the form of bonuses, consulting fees, noncompetition
payments, pursuant to employment arrangements or similar arrangements), except
that neither Fleming Fund will be required to provide any representation,
warranty or other undertaking other than with respect to its ownership of, and
authority to transfer, the Inclusion Shares owned by it free of any liens or
encumbrances (which will, in any event, include customary organizational
representations with respect to each of the Fleming Funds,
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customary representations with respect to required consents and customary
representations with respect to all of the other matters represented by the
Fleming Funds in Sections 2.1 and 2.2 of the Conversion Agreement), (ii) from
and after the Closing Date, the Fleming Funds will, collectively, have the
right, but not the obligation, to nominate via written notice, in the
aggregate, one individual (the "Nominee") reasonably acceptable to the Company
to stand for election to the Board. The Company (A) will cause such Nominee to
be nominated for election to the Board (x) at each annual meeting of
stockholders of the Company (or any special meeting of stockholders convened
for the purpose (which need not be the sole purpose) of electing directors) or
(y) in connection with any solicitation of written consents by the Company
undertaken for the purpose (which need not be the sole purpose) of electing
directors and (B) will use its reasonable best efforts to secure the election
of such Nominee and (iii) the Company will provide to the Fleming Funds,
generally as soon as practicable, a consolidated monthly balance sheet of the
Company and its subsidiaries; consolidated statements of operations,
stockholders' equity and cash flows of the Company and its subsidiaries for
the portion of the fiscal year ended with the end of such month; any other
materials furnished to the Company's lenders under the Credit Agreement;
copies of any special or interim audit reports or management or comment
letters with respect to the Company or its subsidiaries; and copies of the
annual budget and business plan of the Company.
The Conversion Agreement will terminate upon the termination of the Company
Purchase Agreement or such later date as all parties thereto agree.
Registration Rights Agreements
The Company will also enter into separate Registration Rights Agreements on
the Closing Date with (i) the Purchasers (the "Purchasers' Registration Rights
Agreement") and (ii) the Fleming Funds (the "Fleming Registration Rights
Agreement" and together with the Purchasers' Registration Rights Agreement,
collectively, the "Registration Rights Agreements"). Under the terms of the
Registration Rights Agreements, both the Purchasers and the Fleming Funds have
three demand registrations, except that, in the case of the Purchasers, if the
Purchase Agreements have been terminated, but the Purchasers have,
nonetheless, elected to exercise their option to purchase the Option Shares
pursuant to the Option Agreement (as those terms are defined in the
Registration Rights Agreements), then the Purchasers will be entitled to only
two demand registrations. Additionally, the Company is not obligated to effect
a demand registration if the Registrable Securities (as defined in the
Registration Rights Agreements) requested by all such holders of Registrable
Securities ("holders") demanding that their Registrable Securities be
registered pursuant to such request have an anticipated aggregate public
offering price (before any underwriting discounts and commissions) of less
than, in the case of the Purchasers, $15,000,000, and, in the case of the
Fleming Funds, $9,000,000. Pursuant to the Registration Rights Agreements, the
Purchasers and the Fleming Funds are also entitled to unlimited "piggyback"
registration rights to include their Registrable Securities, subject to
certain limitations, in certain registrations initiated by the Company for its
own account or pursuant to the foregoing requests, or otherwise.
Except as provided in the Registration Rights Agreements, or unless
otherwise consented to in writing by the holders, in the Registration Rights
Agreements the Company agrees that it will not grant to any person or entity
registration rights with respect to any equity securities of the Company, or
any securities convertible, exchangeable or exercisable for or into such
securities, other than "piggyback" registration rights subordinate to the
registration rights granted to the holders under the Registration Rights
Agreements and other registration rights granted, subject to certain
limitations, in connection with the Company's acquisition of a complementary
business. Pursuant to the Registration Rights Agreements, the Company will
have the right, which it may utilize once every 12 month period, to defer
requests for registration for a period not to exceed 135 days if such
registration would materially interfere with a business or financial
transaction of substantial importance to the Company (other than an
underwritten public offering of its securities). The Company also has the
right to postpone requests for registrations for up to 90 days in order to
file a registration statement for a primary offering of its Common Stock;
provided, however, that in such event the holders requesting such registration
have the option of continuing to exercise its request for registration, in
which event such request will continue to be treated as a demand registration
for such holders and they will be treated pari passu with the Company in such
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registration in all respects. The Company's rights to postpone a request for
registrations as described above will be limited to an aggregate period per
request which does not exceed six months. The Registration Rights Agreements
contain customary indemnification and contribution provisions relating to the
exercise by the holders of their registration rights thereunder.
Voting Agreements
The Voting Agreements, copies of which are attached as Exhibits 99.6, 99.7
and 99.8 to the 8-K, provide that the Fleming Funds and TSP will vote or cause
to be voted all of their respective shares of the Common Stock (including, in
the case of TSP, Mr. Walston's shares) (a) in favor of the Proposals and the
transactions contemplated thereby and (b) against (i) any Takeover Proposal,
(ii) any action or agreement that would result in a breach in any respect of
any covenant, agreement, representation or warranty of the Company under the
Company Purchase Agreement and (iii) the following actions (other than the
other transactions contemplated by the Company Purchase Agreement): (x) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its subsidiaries; (y) a sale,
lease or transfer of a substantial amount of assets of the Company or one of
its subsidiaries, or a reorganization, recapitalization, dissolution or
liquidation of the Company or its Subsidiaries; (z) (A) any change in a
majority of the persons who constitute the Board as of January 18, 1999; (B)
any change in the present capitalization of the Company or any amendment of
the Certificate of Incorporation or Bylaws of the Company, as amended through
the date hereof; (C) any other material change in the Company's corporate
structure or business; or (D) any other action that, in the case of each of
the matters referred to in clauses (iii)(A), (B) and (C) is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or
adversely affect the transactions contemplated by this Agreement and the
Company Purchase Agreement.
Under the terms of the relationship between TSP and Mr. Walston, TSP has
the right to vote Mr. Walston's shares. To the extent that Mr. Walston
acquires new shares of Common Stock prior to the Record Date, he will vote
them in support of the Transaction and against any competing transactions that
may arise. See "Certain Relationships and Related Transactions--Mr.
Walston/TSP Relationship."
As discussed above, the Fleming Funds, TSP and Mr. Walston beneficially
owned as of the Record Date, in the aggregate, approximately % of the
outstanding shares of Common Stock. Accordingly, as a result of the Voting
Agreements, the votes represented by these shares will be sufficient to
constitute a quorum and to approve the Proposals.
Furthermore, the Fleming Funds, Mr. Walston and TSP have also agreed that
they will not, directly or indirectly, (i) solicit, initiate or encourage
submission of proposals or offers from any Person relating to, or that could
reasonably be expected to lead to, a sale or transfer of any of the shares of
Common Stock or a Takeover Proposal or (ii) participate in any negotiations or
discussions regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any other Person to do
or seek a sale or transfer of any of the shares of Common Stock or a Takeover
Proposal. The Fleming Funds, Mr. Walston and TSP have further agreed to advise
the Purchasers immediately in writing of the receipt of request for
information or any inquiries or proposals relating to a sale or transfer of
any of the shares of Common Stock or a Takeover Proposal.
For so long as the Purchasers are entitled to nominate directors to the
Board under the Company Purchase Agreement, Walston has agreed to vote all of
the shares of Common Stock owned by him, whether owned on the Closing Date or
thereafter, in favor of any nominees of the Purchasers for election to the
Board. In exchange for such voting covenants by Mr. Walston, the Purchasers
have agreed to vote all of the shares of Common Stock owned by them, whether
on the Closing Date or thereafter, in favor of Mr. Walston for election to the
Board for so long as he remains the Company's Chief Executive Officer pursuant
to the terms of his new employment agreement.
For so long as the Purchasers are entitled to nominate directors to the
Board under the Company Purchase Agreement, the Fleming Funds have agreed to
vote all of their shares of Common Stock owned by them, whether
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owned on the Closing Date or thereafter, in favor of any nominees of the
Purchasers for election to the Board. In exchange for such voting covenants by
the Fleming Funds, the Purchasers agreed to vote all of the shares of Common
Stock owned by them, whether on the Closing Date or thereafter, in favor of
the Fleming Funds's nominee for election to the Board for so long as the
Fleming Funds are entitled, pursuant to the Conversion Agreement, to designate
a director for election to the Board.
The Voting Agreements (but not the option granted to TSP described below)
will terminate upon the earliest to occur of (i) the termination of the
Company Purchase Agreement, (ii) the Closing Date, (iii) the mutual agreement
of the Fleming Funds, the Company, Mr. Walston and/or the Purchasers, as the
case may be, to so terminate and (iv) the Expiration Date (or, if applicable,
the Extended Expiration Date).
In the TSP Voting Agreement, TSP granted the Purchasers an irrevocable
option to purchase for cash all of the approximately 3.1 million shares of
Common Stock beneficially owned by TSP (representing approximately % of the
outstanding shares of Common Stock as of the Record Date) at a price equal to
$7.50 per share (the "Per Share Amount"). In the event of stock dividends,
stock splits, recapitalizations, combinations, exchanges of shares or the
like, the Per Share Amount and the Exercise Price will be appropriately
adjusted. The Purchasers may exercise the option, in whole but not in part,
after the occurrence of the following "Trigger Events:" (a) the Company
Purchase Agreement is terminated under circumstances that could entitle the
Purchasers to the Termination Fee/Expense Reimbursement (as defined in Section
10.2(b) of the Company Purchase Agreement), (b) a tender or exchange offer for
some or all of the shares of Common Stock has been publicly proposed to be
made or has been made by another person, or (c) it has been publicly disclosed
or the Purchasers have otherwise learned that (i) any person or "group" (as
defined in Section 13(d)(3) of the Exchange Act), other than the Purchasers,
has acquired or proposed to acquire beneficial ownership of more than 20% of
any class or series of capital stock of the Company (including the Common
Stock), through the acquisition of stock, the formation of a group or
otherwise, or has been granted any option, right or warrant, conditional or
otherwise, to acquire beneficial ownership of more than 20% of any class or
series of capital stock of the Company other than as disclosed in a Schedule
13D or 13G on file with the SEC on December 31, 1998, (ii) any such person or
group which, prior to December 31, 1998, had filed a Schedule 13D or 13G with
the SEC has acquired or proposed to acquire beneficial ownership of additional
shares of any class or series of capital stock of the Company, through the
acquisition of stock, the formation of a group or otherwise, constituting 5%
or more of any such class or series, or has been granted any option, right or
warrant, conditional or otherwise, to acquire beneficial ownership of
additional shares of any class or series of capital stock of the Company
(including the Common Stock) constituting 5% or more of any such class or
series; (iii) any person (other than the Purchasers) has filed a Notification
and Report Form under the HSR Act, or made a public announcement reflecting an
intent to acquire the Company or any assets or securities of the Company; or
(iv) any person or group (other than the Purchasers) has entered into or
offered to enter into a definitive agreement or an agreement in principle with
respect to a merger, consolidation or other business combination with the
Company.
The option under the TSP Voting Agreement will terminate upon the earliest
to occur of: (i) the consummation of the transactions contemplated by the
Company Purchase Agreement, (ii) the termination of the Company Purchase
Agreement other than upon or during the continuance of a Trigger Event; or
(iii) September 30, 1999 (or if, at the expiration of such period the option
cannot be exercised by reason of any applicable judgment, decree, order, law
or regulation, ten business days (as defined in the Company Purchase
Agreement) after such impediment to exercise has been removed or has become
final and not subject to appeal, but in no event later than December 31,
1999).
Opinion of Financial Advisor to the Company
Houlihan Lokey was engaged by the Company to render an opinion to the Board
as to the fairness of the Transaction from a financial point of view to the
Company and the public stockholders of the Company. On January 18, 1999,
Houlihan Lokey delivered its written opinion (the "Houlihan Lokey Opinion")
addressed to the Board to the effect that, as of the date of such opinion, and
based upon and subject to the assumptions,
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limitations and qualifications set forth in the Houlihan Lokey Opinion, the
Transaction is fair, from a financial point of view, to the Company and the
public stockholders of the Company.
A COPY OF THE HOULIHAN LOKEY OPINION IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT AND INCORPORATED BY REFERENCE HEREIN. THE COMPANY'S STOCKHOLDERS ARE
URGED TO READ THE HOULIHAN LOKEY OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW BY
HOULIHAN LOKEY. THE HOULIHAN LOKEY OPINION WAS PREPARED FOR THE BOARD AND IS
DIRECTED ONLY TO THE FAIRNESS OF THE TRANSACTION, TO THE COMPANY AND THE
PUBLIC STOCKHOLDERS OF THE COMPANY AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING.
Nasdaq Approval Requirement
Under NASD Rule 4310(c)(25)(H), companies that are listed on the Nasdaq
National Market must obtain stockholder approval prior to issuing shares of
common stock (or shares exercisable or convertible into common stock) where
such issuance would result in a change of control of the company. Accordingly,
because the Transaction will result in a change of control of the Company, the
Company must seek stockholder approval for such Transaction.
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 1 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 1 AND EACH OF THE OTHER PROPOSALS.
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PROPOSAL 2
AMENDMENT TO THE COMPANY'S 1997 STOCK PLAN
General
The Company established the Stock Plan, a copy of which is attached as
Annex D to this Proxy Statement and incorporated by reference herein, to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees and consultants
of the Company and its subsidiaries and to promote the success of the
Company's business. The Stock Plan provides for the granting to employees
(including officers and employee directors) of incentive stock options,
nonstatutory stock options and stock purchase rights ("SPRs"). A total of
1,650,000 shares of Common Stock was initially reserved for issuance under the
Stock Plan. Beginning in 1997, on August 1 of each year, such number was
increased by a number of shares equal to five percent of the Company's
outstanding Common Stock as of such date. As of the date of this Proxy
Statement, 2,621,464 shares are authorized for issuance under the Stock Plan.
Subject to stockholder approval of this Proposal 2, the Stock Plan will be
amended as follows:
. the number of shares authorized for issuance under the Stock Plan will
be increased to 6,271,464 shares;
. the annual increase in the number of shares authorized for issuance
under the Stock Plan will be changed from five percent of the number of
shares of Common Stock outstanding to 650,000 shares; and
. the stock option award limit under the Plan will be modified with
respect to Messrs. Walston, Marcketta and Donlon to allow for the grant
of options to such individuals in the amount of 2,500,000, 500,000 and
200,000 shares, respectively. See "Amendment to the Stock Plan" below.
The Stock Plan is administered by the Board or a committee designated by
the Board (the "Administrator") which is authorized to select from among the
eligible participants the individuals to whom options and SPRs are to be
granted and to determine the number of shares to be subject thereto and the
terms and conditions thereof. The Administrator is also authorized to adopt,
amend and rescind rules relating to the administration of the Stock Plan.
Options and SPRs granted under the Stock Plan are not generally transferable
by the optionee except by will or by the laws of descent and distribution, and
are exercisable during the lifetime of the optionee only by such optionee.
Generally, options granted under the Stock Plan must be exercised within
thirty days of the end of an optionee's status as an employee of the Company,
or within twelve months after such optionee's termination by death or
disability, but in no event later than the expiration of the option term. The
exercise price of all incentive and nonstatutory stock options granted under
the Stock Plan is determined by the Administrator. With respect to any owner
of 10% or more of the Company's outstanding capital stock ( a "10%
Stockholder"), the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value of the grant date. The exercise
price of the incentive stock options for all other employees must be no less
than 100% of the fair market value per share on the grant date. The maximum
term of an option granted under the Stock Plan may not exceed ten years from
the date of the grant (five years in the case of an incentive stock option
granted to a 10% Stockholder). In the case of SPRs, unless the Administrator
determines otherwise, the Company will have a repurchase option exercisable
upon the voluntary or involuntary termination of the purchaser's employment
with the Company for any reason (including death of disability). Such
repurchase option lapses at a rate determined by the Administrator. The
purchase price for shares repurchased by the Company is the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to the Company.
Amendment to the Stock Plan
On January 17, 1999, the Board approved, subject to stockholder approval,
an amendment to the Stock Plan (the "Amendment"), a copy of which is attached
as Annex E to this Proxy Statement and incorporated by
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reference herein, to increase the maximum aggregate number of shares of Common
Stock authorized for issuance thereunder from 2,621,464 to 6,271,464 (the
"Available Shares"). The Board also approved a change to the annual increase
of the maximum number of shares authorized for issuance under the Stock Plan
from five percent of the number of shares of Common Stock outstanding to
650,000 shares. Such annual increase would occur on January 1 of each year,
beginning January 1, 2000.
With respect to option grants under the Stock Plan, the Amendment provides
that, of the Available Shares, a maximum of 3,200,000 shares may be subject to
Special Options (as defined below) granted pursuant to certain new employment
agreements. For purposes of the Amendment, "Special Options" means options
granted to Messrs. Walston, Marcketta and Donlon (collectively, the
"Executives"), pursuant to those certain employment agreements, dated as of
January 1, 1999, between the Company and each of the Executives.
The Amendment also exempts the Special Options from the annual award limit
of 175,000 shares for the Company's 1999 fiscal year.
Certain Federal Income Tax Consequences
The tax consequences of the Stock Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the Stock Plan, and is intended for general
information only. The discussion is based on the Code, regulations thereunder,
rulings, and decisions now in effect, all of which are subject to change
either prospectively or retroactively. The summary does not discuss all
aspects of federal income taxation that may be relevant to a particular
participant in light of his or her personal investment circumstances. In
addition, the tax consequences described below are subject to the limitations
of Section 162(m) of the Code ("Section 162(m)"), as discussed in further
detail below. Alternative minimum tax and state and local income taxes are not
discussed. The following tax information summary is not tax advice. EACH
PARTICIPANT SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF PARTICIPATION IN THE STOCK PLAN.
Nonstatutory Stock Options. For federal income tax purposes, an optionee
generally will not realize taxable income on the grant of a nonstatutory stock
option under the Stock Plan, but will realize ordinary income, and the Company
generally will be entitled to a deduction, upon the exercise of a nonstatutory
stock option. The amount of income generally realized (and the amount
generally deductible by the Company) will be equal to the excess, if any, of
the fair market value of the shares on the date of exercise over the aggregate
exercise price paid for the shares. An optionee's initial basis for the stock
for purposes of determining his or her gain or loss upon a subsequent
disposition of the shares generally will be the amount paid for such shares
plus the amount of ordinary income realized as a result of the exercise of the
option, and any subsequent gain or loss will generally be taxable as capital
gain or loss.
The tax consequences resulting from the exercise of a nonstatutory stock
option through the surrender of already-owned shares of Common Stock are
uncertain. In published rulings, the Internal Revenue Service (the "IRS") has
taken the position (i) that to the extent an equivalent number of shares is
acquired upon such exercise, the optionee will realize no gain and the
optionee's basis in the shares acquired will equal the optionee's basis in the
surrendered shares, and (ii) that to the extent any additional shares are
acquired upon such exercise, the optionee will realize ordinary income in the
amount of their then fair market value taxable under the rules described above
(as if no amount had been paid for such shares) and the optionee's basis in
the additional shares will equal such fair market value.
Incentive Stock Options. An optionee generally will not realize taxable
income upon either the grant or exercise of an incentive stock option, and the
Company will not be allowed a deduction for federal income tax purposes;
however, the amount by which the fair market value of the shares on the date
of exercise exceeds the exercise price will be an "item of tax preference" for
the optionee. Generally, upon the sale or other taxable disposition of the
shares of Common Stock acquired upon exercise of an incentive stock option,
the optionee will realize income taxable as capital gains in an amount equal
to the excess, if any, of the amount realized in
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such disposition over the option exercise price, provided that no disposition
of the shares has taken place within either (a) two years from the date of
grant of the incentive stock option or (b) one year from the date of exercise.
If the shares of Common Stock are sold or otherwise disposed of before the end
of the one-year and two-year periods specified above, the difference between
the incentive stock option exercise price and the fair market value of the
shares on the date of exercise generally will be taxable as ordinary income;
the balance of the amount realized from such disposition, if any, generally
will be taxed as capital gain. If the shares of Common Stock are disposed of
before the expiration of the one-year and two-year periods and the amount
realized is less than the fair market value of the shares at the date of
exercise, the optionee's ordinary income generally is limited to the excess,
if any, of the amount realized in such disposition over the option exercise
price paid. If the shares of Common Stock are disposed of before the
expiration of the one-year and two-year holding periods specified above, the
Company (or other employer corporation) generally will be entitled to a tax
deduction with respect to an incentive stock option only to the extent the
optionee has ordinary income upon the sale or other disposition of the shares
of Common Stock.
The tax consequences resulting from the exercise of an incentive stock
option through the surrender of already-owned shares of Common Stock are
uncertain. In published rulings and proposed regulations, the IRS has taken
the position that generally the optionee will realize no income upon such
stock-for stock exercise, regardless of whether the shares were acquired upon
the exercise of a nonstatutory stock option or a statutory stock option (e.g.,
an incentive stock option). However, if an optionee surrenders shares of
Common Stock acquired upon the exercise of an incentive stock option and such
surrendered shares have not been held for the required holding periods
specified above, the optionee may realize ordinary income under the rules
described above. Thus, with respect to a stock-for-stock exercise, (i) to the
extent an equivalent number of shares is acquired by the optionee upon the
exercise of an incentive stock option, the optionee's basis in such number of
shares will equal the optionee's basis in the surrendered shares increased by
any ordinary income realized by the optionee, and (ii) to the extent any
additional shares are acquired upon such exercise, the optionee's basis in
such additional shares will be zero. Any sale or other disposition of such
acquired shares within the one-year or two-year periods specified above will
be viewed as a disposition of the shares with the lowest basis first.
Stock Purchase Rights. Unless an election is made under Section 83(b) of
the Code, no taxable income will be realized by a participant and no tax
deduction will be available to the Company upon the grant of an SPR or the
purchase of restricted stock ("Restricted Stock") pursuant to such SPR.
However, any dividends received by the participant with respect to shares of
Restricted Stock will be treated as compensation taxable to the participant as
ordinary income and the Company generally will be entitled to a corresponding
deduction for compensation expense for any dividends paid prior to the
termination of the restrictions on the shares. Upon the termination of the
restrictions on the Restricted Stock, the participant will realize taxable
income, and the Company generally will be entitled to a corresponding
deduction for compensation expense, in an amount equal to the excess of the
then fair market value of the shares over the amount paid for them. If an
election is made under Section 83(b) of the Code, the participant will realize
ordinary income at the date of issuance in an amount equal to the excess of
the fair market value of the shares at that date over the purchase price, and
the Company will be entitled to a deduction in the same amount.
Section 162(m) Limitation. In general, under Section 162(m), income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid in 1994 and thereafter) for certain executive
officers exceeds $1,000,000 (less the amount of any "excess parachute
payments" as defined in Section 280G of the Code) in any taxable year of the
corporation. However, under Section 162(m), the deduction limit does not apply
to certain "performance-based compensation" which is paid based upon the
attainment of objective financial performance goals which are established by
an independent compensation committee pursuant to business criteria, the
material terms of which are adequately disclosed to, and approved by,
stockholders of the corporation and which meets certain other requirements. In
addition, under a special rule for stock options, stock options will satisfy
the "performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the
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compensation is based solely on an increase in the stock price after the grant
date (i.e., the option exercise price is equal to or greater than the fair
market value of the stock subject to the award on the grant date).
The Company has attempted to structure the Stock Plan in such a manner that
the remuneration attributable to stock options and SPRs granted thereunder
will not be subject to the $1,000,000 limitation. The Company has not,
however, requested a ruling from the IRS or an opinion of counsel regarding
this issue. This discussion will neither bind the IRS nor preclude the IRS
from adopting a contrary position.
The Company recommends that participants under the Stock Plan consult their
personal tax advisors with respect to the tax aspects of option and SPR grants
and exercises and the subsequent disposition of shares purchased on exercise
of options or SPRs.
Amended Plan Benefits
The following table sets forth the benefits which will be received by each
of the persons set forth below upon the effectiveness of the Amendment and the
Employment Agreements.
NEW PLAN BENEFITS
(Four Media Company 1997 Stock Plan, as amended)
<TABLE>
<CAPTION>
Number of Units
(Options to
Dollar Value Purchase Shares
Name and Position ($)(A) of Common Stock)
----------------- ------------ ----------------
<S> <C> <C>
Robert T. Walston
Chairman & Chief Executive Officer.... 2,500,000
Jeffrey J. Marcketta
President & Chief Administrative
Officer............................... 500,000
John H. Donlon
President--Broadcast, Syndication and
Marketing............................. 200,000(B)
Gavin W. Schutz
Vice President & Chief Technology
Officer............................... 150,000(C)
Robert Bailey
Vice President & Director of
Marketing............................. 150,000(D)
Executive Group.......................... 3,500,000
Non-Executive Director Group............. -- --
Non-Executive Officer Employee Group..... -- --
</TABLE>
- --------
(A) Based upon the difference between the exercise prices of such options and
the value of the underlying shares of Common Stock as of the Record Date.
(B) Does not include options to purchase 44,515 shares of Common Stock
previously granted to the executive. See "Executive Compensation--Option
Exercises and Fiscal 1998 Year-End Values."
(C) Does not include options to purchase 36,422 shares of Common Stock
previously granted to the executive. See "Executive Compensation--Option
Exercises and Fiscal 1998 Year-End Values."
(D) Does not include options to purchase 36,422 shares of Common Stock
previously granted to the executive. See "Executive Compensation--Option
Exercises and Fiscal 1998 Year-End Values."
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 2 AND EACH OF THE OTHER PROPOSALS.
29
<PAGE>
PROPOSAL 3
ELECTION OF DIRECTORS
At the Special Meeting, stockholders are being asked to consider and vote
upon the ratification of the election of seven directors of the Company who
will be divided into three classes, the initial terms of which will expire in
2000, 2001 and 2002. After the expiration of the initial terms, directors for
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve thereafter for
three years.
The following table sets forth information concerning the persons who are
expected to serve as directors of the Company following consummation of the
Transaction.
<TABLE>
<CAPTION>
Term
Name Principal Occupation Age Expires
---- -------------------- --- -------
<C> <S> <C> <C>
Sidney Lapidus(1)........... Managing Director of an affiliate 61 2002
of the Purchasers
David E. Libowitz(1)........ Managing Director of an affiliate 36 2002
of the Purchasers
William C. Scott(1)......... Chief Executive Officer and 63 2000
Chairman of the Board
of Panavision Inc.
Robert T. Walston........... Chief Executive Officer 40 2002
Jeffrey J. Marcketta........ President and Chief Administrative 43 2001
Officer
William Amon................ Senior Tax Partner with Deloitte & 49 2000
Touche
Eytan Shapiro(2)............ General Partner and director of an 39 2001
affiliate of the
Fleming Funds
</TABLE>
- --------
(1) Messrs. Lapidus, Libowitz and Scott were nominated for election by the
Purchasers. Under the Company Purchase Agreement, the Purchasers are
entitled to nominate a majority of the Board. However, the Purchasers have
elected to only nominate three people at this time.
(2) Mr. Shapiro was nominated for election to the Board by the Fleming Funds
pursuant to the Conversion Agreement.
Ratification of the above named persons as directors of the Company is
subject to the affirmative vote of a majority of the shares present in person
or represented by proxy and entitled to vote at the Special Meeting.
Biographical Information
Class I Directors (Initial Terms Expire 2000)
William C. Scott was the Chairman and Chief Executive Officer of Panavision
Inc. from 1988 until December 31, 1998. From 1972 until 1987, Mr. Scott was
President and Chief Operating Officer of Western Pacific Industries Inc., a
company listed on the New York Stock Exchange. Prior to 1972, Mr. Scott was a
Group Vice President of Cordura Corporation (a business information company)
for three years, a Vice President of Booz Allen & Hamilton Inc. (a management
consulting firm) for five years and an owner/operator of several small
businesses for eight years. Currently, Mr. Scott is non-executive Chairman of
Telecast Communications, Ltd. Mr. Scott is also a director of Panavision Inc.
and Edison Control Corporation.
William Amon is a Senior Tax Partner with Deloitte & Touche LLP's Los
Angeles practice and has served as a Director of the Company since December
1997. He is an adjunct professor of tax at the Golden Gate University Masters
of Tax Program and a frequent speaker on issues effecting corporate taxation
and merger and acquisition transactions. A member of the California Bar
Association, the American Bar Association, and the American Institute of
Certified Public Accountants, he is also a subcommittee member of the American
Bar Association tax committee for affiliated corporations and a member of the
Los Angeles International Tax Forum. He was recently selected as one of North
America's Top Tax Advisers for 1998/99 by the International Tax Review.
30
<PAGE>
Class II Directors (Initial Terms Expire 2001)
Jeffrey J. Marcketta has worked for ten years as an executive in the
entertainment services industry. For nearly six years, Mr. Marcketta served as
the Executive Vice President and Chief Financial Officer of Panavision Inc.
For two years before that, Mr. Marcketta was the President of Panavision
Europe based in London, England where he was responsible for the general
management and expansion of Panavision's European operations. During the
preceding two years he served as Vice President of Corporate Development
assisting the CEO in the restructuring and nationalization of Panavision's
worldwide business operations. Before joining Panavision, Mr. Marcketta worked
for Ernst & Young LLP for almost ten years, the last three of which were spent
as a principal in the Mergers and Acquisition Consulting Group of the New York
office.
Eytan Shapiro is a general partner of Fleming US Discovery Fund III, L.P.
and a Director of Fleming Capital Management. Mr. Shapiro joined the Fleming
group in 1985, initially employed by Jardine Fleming; he transferred to
Fleming Capital Management in February 1992.
Class III Directors (Initial Terms Expire 2002)
Sidney Lapidus is a Managing Director of E.M. Warburg, Pincus & Co., LLC
("EMW LLC"), an affiliate of the Purchasers. Mr. Lapidus has been associated
with EMW LLC or its predecessor since 1967. Mr. Lapidus serves on the board of
directors of Caribiner International, Lennar Corporation, Knoll, Inc., Grubb &
Ellis Company, Journal Register Company and Information Holdings, Inc., as
well as several privately held companies.
David E. Libowitz is a Managing Director of EMW LLC and has been associated
with EMW LLC or its predecessor since 1991. Mr. Libowitz serves on the board
of directors of Caribiner International and Information Holdings, Inc.
Robert T. Walston is the founder of the Company and has served as its
Chairman and Chief Executive Officer since August 1993. From 1991 until he
founded the Company, Mr. Walston served as a Vice President and Director of
Steinhardt Group, Inc. where he directed the firm's sourcing and financial
analysis of acquisitions of middle market companies. From 1988 to 1991, Mr.
Walston was a Vice President of Dean Witter Reynolds, Inc. where he worked on
merger and acquisition assignments and debt and equity offerings. Mr. Walston
received a BBA from Baylor University and an MBA from the University of Texas
at Austin.
Proxies will be voted for or against the nominees in accordance with the
specifications marked thereon. If no such specification is made, proxies will
be voted in favor of the nominees. Management knows of no reason why any of
the nominees should be unable or unwilling to serve. However, if any
nominee(s) should for any reason be unable or unwilling to serve, proxies will
be voted for the election of such other person(s) for the office of director
as management may recommend in the place of such nominee(s).
Board and Committee Meetings
During the fiscal year ended August 2, 1998, the Board held four meetings
and took action by unanimous written consent six times. No director serving on
the Board in fiscal year 1998 attended fewer than 75% of such meetings of the
Board and the Committee on which he serves.
The Company's Compensation Committee reviews and approves the compensation
and benefits for the Company's executive officers, administers the Company's
stock option and other benefit plans and makes recommendations to the Board
regarding such matters. The Compensation Committee is currently comprised of
Messrs. Kirtman, Wertheimer and Amon. Upon consummation of the Transaction,
the Compensation Committee is expected to be comprised of Messrs. Libowitz and
Shapiro. During the fiscal year ended August 2, 1998, the Compensation
Committee held no meetings and took action by unanimous written consent two
times.
31
<PAGE>
The Company's Audit Committee recommends the selection of auditors for the
Company and reviews the results of the audits and other reports and services
provided by the Company's independent auditors. The Audit Committee is
currently comprised of Messrs. Topor, Bricault and Amon. Upon consummation of
the Transaction, the Audit Committee is expected to be comprised of Messrs.
Libowitz, Scott and Amon. During the fiscal year ended August 2, 1998, the
audit committee held two telephonic meetings.
Compensation of Directors
The Company's non-employee directors are not paid a fee for attending board
or committee meetings; however, all directors are reimbursed for reasonable
expenses incurred in attending such meetings.
In addition, the Company's 1997 Director Option Plan (the "Director Plan")
provides for an automatic grant of an option to purchase 100,000 shares of
Common Stock to each non-employee director upon his becoming a non-employee
director. One-quarter of the shares subject to the option will vest one year
after the date of grant and each additional one-quarter will vest at the end
of each year thereafter, provided that the optionee continues to serve as a
director on such dates. Subsequent to the closing of the Transaction, each
non-employee director (other than Mr. Amon) will be entitled to an initial
grant of 10,000 options and subsequent annual grants of 4,500 options. Each
grant will be fully vested when made. The exercise price of the options are
and will be 100% of the fair market value per share of the Common Stock on the
date of the grant of the option.
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 3 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 3 AND EACH OF THE OTHER PROPOSALS.
32
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth information concerning the compensation
during fiscal years ended August 2, 1998, August 3, 1997 and August 4, 1996 of
the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company as of August 2, 1998 whose
salary and bonus for the year ended August 2, 1998 exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------ -------------
Name and Principal Other Annual All Other Awards
Position Year Salary Bonus Compensation Compensation Option Shares
------------------ ---- -------- ------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert T. Walston....... 1998 $276,538(2) $ -- $(1) $ -- $ --
Chairman and 1997 240,000 -- (1) -- --
Chief Executive Officer 1996 240,000 -- (1) -- --
John H. Donlon.......... 1998 253,493 -- (1) -- --
President 1997 253,493 -- (1) -- --
1996 253,493 -- (1) -- --
Gavin W. Schutz......... 1998 175,000 -- (1) -- --
Vice President and 1997 175,000 -- (1) -- --
Chief Technology
Officer 1996 175,000 40,000 (1) -- --
Robert Bailey........... 1998 175,000 -- (1) -- --
Vice President and 1997 145,673 -- (1) -- --
Director of Marketing 1996 125,000 40,000 (1) -- --
James T. Conlon......... 1998 150,000 -- (1) -- --
Vice President and 1997 145,073 -- (1) -- --
Director of
International
Operations 1996 125,000 40,000 (1) -- --
</TABLE>
- --------
(1) Total amount of personal benefits paid to this executive officer during
the fiscal year was less than the lessor of (i) $50,000 or (ii) 10% of
such executive officer's total reported salary and bonus.
(2) $16,538 of Mr. Walston's 1997 compensation was paid in 1998.
Employment Agreements
Existing Agreements
Prior to the Transaction, the Company had previously entered into
employment agreements with Messrs. Walston, Donlon, Schutz and Bailey. Each of
the employment agreements with Messrs. Donlon and Bailey is for a term
extending through September 1999. Each of the employment agreements with
Messrs. Walston and Schutz is for a term extending through September 1999.
Under the terms of these agreements, Messrs. Walston, Donlon, Schutz and
Bailey are entitled to receive annual salaries of $260,000, $253,493, $175,000
and $175,000, respectively. In the event of termination without cause, Messrs.
Walston, Donlon, Schutz and Bailey are entitled to receive the full amount of
compensation payable under the original terms of their respective employment
agreements for the remaining term of such agreements, and in the event of
disability, the full amount of compensation payable for the lesser of six
months or the remaining terms of such agreements.
New Agreements
Walston Employment Agreement
The Company entered into an Employment Agreement (the "Walston Agreement")
with Mr. Walston, dated as of January 1, 1999, pursuant to which Mr. Walston
will serve as Chief Executive Officer of the
33
<PAGE>
Company, and, if so elected, as Chairman of the Board. The Walston Agreement
provides for a five year term of employment. Mr. Walston's annual base salary
under the Walston Agreement is $500,000, subject to review no less frequently
than annually for increase in the discretion of the Board. In addition, Mr.
Walston is eligible to participate in an incentive bonus plan to be
established and administered by the Compensation Committee of the Board. The
Walston Agreement provides that Mr. Walston is also entitled to participate in
such group welfare benefit plans as the Company may make available to its
other senior executives at a level consistent with his position.
In addition, the Walston Agreement provides that Mr. Walston will, subject
to approval of the Amendment by the Company's stockholders, be granted an
option (the "Walston Option") to purchase 2,500,000 shares of Common Stock at
an exercise price of $8.00 per share. The Walston Option has a ten year term
and vests cumulatively in five equal annual installments beginning on the
first anniversary of the date of grant, provided that Mr. Walston continues in
the employment of the Company through the applicable vesting date.
Notwithstanding the foregoing, all shares covered by the Walston Option will
vest and become exercisable upon the occurrence of any of the following
events: (i) a Termination Without Cause (as defined in the Walston Agreement),
(ii) a Termination With Good Reason (as defined in the Walston Agreement),
(iii) a Change in Control (as defined in the Walston Agreement) of the
Company, or (iv) a termination due to Mr. Walston's death or Disability (as
defined in the Walston Agreement). In the event that Mr. Walston incurs a
termination of employment for any reason other than a Termination With Cause
(as defined in the Walston Agreement) or resignation without good reason, any
vested portion of the Walston Option will remain exercisable until the tenth
anniversary of the date of grant. In the event that Mr. Walston incurs a
Termination With Cause or resigns without good reason, any vested portion of
the Walston Option will remain exercisable for 90 days following the date of
such termination.
Pursuant to the Walston Agreement, the Company will provide Mr. Walston, as
of the Closing Date, with an unsecured loan in the amount of $2,000,000 (the
"Executive Loan") at an interest rate of 4.59% per annum, compounded semi-
annually. The Executive Loan will automatically be fully forgiven, and Mr.
Walston will have no payment obligation with respect thereto, if (i) Mr.
Walston incurs a Termination Without Cause or a Termination With Good Reason
during his employment term, or (ii) a Change in Control of the Company occurs
during the employment term, or (iii) the Company achieves $327 million or more
in Gross Operating Revenues (as defined in the Walston Agreement) during the
period beginning on the fourth anniversary of the date of the Walston
Agreement and ending on the fifth anniversary of the date of the Walston
Agreement (the "Measurement Period"), or (iv) the Company achieves $87 million
or more in Consolidated EBITDA (as defined in the Walston Agreement) during
the Measurement Period, or (v) following the expiration of the Measurement
Period, the Board determines that the Executive Loan will be forgiven. In the
event that Mr. Walston incurs a Termination With Cause, the Executive Loan
will automatically become immediately due and payable. Mr. Walston is required
to repay the outstanding balance of the Executive Loan, if any, and any
accrued interest thereon no later than thirty (30) days following the date of
the fifth anniversary of the date of the Walston Agreement.
The Walston Agreement also provides that Mr. Walston is entitled to all
fringe benefits and perquisites made available by the Company to its senior
executives, including first-class airline travel for travel related to the
Company's business.
In the event that Mr. Walston incurs a Termination Without Cause or a
Termination With Good Reason during the employment term, the Company will pay
him his unpaid salary through the date of termination and will continue to pay
him his base salary (as in effect on the date of termination) and provide him
with medical benefits, in each case for the remainder of the employment term.
In the event that Mr. Walston dies or becomes Disabled, the Company will pay
him his unpaid salary through the date of termination and will continue to pay
him (or his legal representative) his base salary (as in effect on the date of
termination) for the lesser of (i) six months or (ii) the remainder of the
employment term, subject to reduction by amounts payable to him under the
Company's insurance plans.
34
<PAGE>
In addition, the Walston Agreement provides that in consideration of the
severance payments described above, Mr. Walston agrees that he will not
disclose confidential information of the Company and, for so long as he is
entitled to compensation under the Walston Agreement, he will not compete with
the Company or solicit its business or customers. Mr. Walston also agrees
that, for a period of two years following his termination of employment, he
will not solicit the Company's employees.
The Walston Agreement also provides that until the Closing Date, the terms
of Mr. Walston's employment will be governed by his prior employment agreement
with the Company. Upon the Closing Date, such prior agreement will be deemed
terminated and the Walston Agreement will be deemed effective as of January 1,
1999. At that time, the Company will pay Mr. Walston an amount equal to the
difference between his base salary under the prior agreement and his base
salary under the Walston Agreement for the period between January 1, 1999 and
the Closing Date. In addition, the Walston Agreement provides that if the
Closing Date does not occur by December 31, 1999, then the Walston Agreement
will automatically terminate without obligation by either party thereunder.
Marcketta Employment Agreement
The Company entered into an Employment Agreement (the "Marcketta
Agreement") with Mr. Marcketta, dated as of January 1, 1999, pursuant to which
Mr. Marcketta will serve as President and Chief Administrative Officer of the
Company. The Marcketta Agreement provides for a five year term of employment.
Mr. Marcketta's annual base salary under the Marcketta Agreement is $350,000,
subject to review no less frequently than annually for increase in the
discretion of the Board. In addition, Mr. Marcketta is eligible to participate
in an incentive bonus plan to be established and administered by the
Compensation Committee of the Board. The Marcketta Agreement provides that Mr.
Marcketta is also entitled to participate in such group welfare benefit plans
as the Company may make available to its other senior executives at a level
consistent with his position.
In addition, the Marcketta Agreement provides that Mr. Marcketta will,
subject to approval of the Amendment by the Company's stockholders, be granted
an option (the "Marcketta Option") to purchase 500,000 shares of Common Stock
at an exercise price of $8.00 per share. To the extent the Amendment is not
approved, Mr. Marcketta will be granted options equal to the amount of the
annual award limit under the Stock Plan (i.e., 175,000 options). The Marcketta
Option vests cumulatively in five equal annual installments beginning on the
first anniversary of the date of grant, provided that Mr. Marcketta continues
in the employment of the Company through the applicable vesting date.
Notwithstanding the foregoing, all shares covered by the Marcketta Option will
vest and become exercisable upon the occurrence of any of the following
events: (i) a Termination Without Cause (as defined in the Marcketta
Agreement), (ii) a Termination With Good Reason (as defined in the Marcketta
Agreement), (iii) a Change in Control (as defined in the Marcketta Agreement)
of the Company, or (iv) a termination due to Mr. Marcketta's death or
Disability (as defined in the Marcketta Agreement). In the event that Mr.
Marcketta incurs a termination of employment for any reason other than a
Termination With Cause (as defined in the Marcketta Agreement) or resignation
without good reason, any vested portion of the Marcketta Option will remain
exercisable for 12 months following the date of such termination. In the event
that Mr. Marcketta incurs a Termination With Cause or resigns without good
reason, any vested portion of the Marcketta Option will remain exercisable for
90 days following the date of such termination.
The Marcketta Agreement also provides that Mr. Marcketta is entitled to all
fringe benefits and perquisites made available by the Company to its senior
executives at his level, including first-class airline travel for travel
related to the Company's business.
In the event that Mr. Marcketta incurs a Termination Without Cause or a
Termination With Good Reason during the employment term, the Company will pay
him his unpaid salary through the date of termination and will continue to pay
him his base salary (as in effect on the date of termination) and provide him
with medical benefits, in each case for the remainder of the employment term.
In the event that Mr. Marcketta dies or becomes Disabled, the Company will pay
him his unpaid salary through the date of termination and will continue to pay
him (or his legal representative) his base salary (as in effect on the date of
termination) for the lesser of (i) six months or (ii) the remainder of the
employment term, subject to reduction by amounts payable to him under the
Company's insurance plans.
35
<PAGE>
In addition, the Marcketta Agreement provides that in consideration of the
severance payments described above, Mr. Marcketta agrees that he will not
disclose confidential information of the Company and, for so long as he is
entitled to compensation under the Marcketta Agreement, he will not compete
with the Company or solicit its business or customers. Mr. Marcketta also
agrees that, for a period of two years following his termination of
employment, he will not solicit the Company's employees.
Founders Employment Agreements
The Company entered into Employment Agreements (each, a "Founders
Employment Agreement"), each dated as of January 1, 1999, with each of Mr.
Donlon, Mr. Schutz and Mr. Bailey. Pursuant to the respective Founders
Employment Agreement, Mr. Donlon will serve as President--Broadcast,
Syndication and Manufacturing of the Company, Mr. Schutz will serve as Vice
President and Chief Technology Officer of the Company, and Mr. Bailey will
serve as Executive Vice President of Marketing and Business Development of
Broadcast, Syndication and Manufacturing of the Company. Each of the Founders
Employment Agreements provides for a five year term of employment.
Mr. Donlon's annual base salary under his Founders Employment Agreement is
$325,000; Mr. Schutz's annual base salary under his Founders Employment
Agreement is $275,000; and Mr. Bailey's annual base salary under his Founders
Employment Agreement is $225,000. In addition, each of Mr. Donlon, Mr. Schutz
and Mr. Bailey is eligible to participate in an incentive bonus plan to be
established and administered by the Compensation Committee of the Board. The
Founders Employment Agreements provide that Mr. Donlon, Mr. Schutz and
Mr. Bailey are also entitled to participate in such group welfare benefit
plans as the Company may make available to its other senior executives at a
level consistent with their respective positions.
In addition, the Founders Employment Agreements provide that each of Mr.
Donlon, Mr. Schutz and Mr. Bailey will, subject to approval of the Amendment
by the Company's stockholders, be granted an option (each, a "Founders
Option") to purchase shares of Common Stock at an exercise price of $8.00 per
share. Subject to such stockholder approval, Mr. Donlon will be granted a
Founders Option to purchase 200,000 shares, Mr. Schutz will be granted a
Founders Option to purchase 150,000 shares, and Mr. Bailey will be granted a
Founders Option to purchase 150,000 shares. Each Founders Option vests
cumulatively in five equal annual installments beginning on the first
anniversary of the date of grant, provided that the respective Founder
continues in the employment of the Company through the applicable vesting
date. Notwithstanding the foregoing, all shares covered by the Founders
Options will vest and become exercisable upon the occurrence of any of the
following events: (i) a Termination Without Cause (as defined in the
respective Founders Employment Agreement), or (ii) a Termination With Good
Reason (as defined in the respective Founders Employment Agreement). In the
event that the respective Founder incurs a termination of employment for any
reason other than a Termination With Cause (as defined in the respective
Founders Employment Agreement) or resignation without good reason, any vested
portion of his Founders Option will remain exercisable for 180 days following
the date of such termination. In the event that the respective Founder incurs
a Termination With Cause or resigns without good reason, any vested portion of
his Founders Option will remain exercisable for 90 days following the date of
such termination.
The Founders Employment Agreements also provide that Mr. Donlon, Mr. Schutz
and Mr. Bailey are entitled to all fringe benefits and perquisites made
available by the Company to its senior executives at their respective level.
In the event that Mr. Donlon incurs a Termination Without Cause or a
Termination With Good Reason during his employment term, the Company will pay
him his unpaid salary through the date of termination and will continue to pay
him his base salary (as in effect on the date of termination) and provide him
with medical benefits, in each case for 24 months. In the event that
Mr. Schutz or Mr. Bailey incurs a Termination Without Cause or a Termination
With Good Reason during his employment term, the Company will pay him his
unpaid salary through the date of termination and will continue to pay him his
base salary (as in effect on the date of termination) and provide him with
medical benefits, in each case for the lesser of 18 months or the remainder of
his employment term. In the event that the respective Founder dies or becomes
Disabled (as defined in the
36
<PAGE>
respective Founders Employment Agreement), the Company will pay him his unpaid
salary through the date of termination and will continue to pay him (or his
legal representative) his base salary (as in effect on the date of
termination) for the lesser of (i) six months or (ii) the remainder of his
employment term, subject to reduction by amounts payable to him under the
Company's insurance plans.
In addition, the Founders Employment Agreements provide that in
consideration of the severance payments described above, each of Mr. Donlon,
Mr. Schutz and Mr. Bailey agrees that he will not disclose confidential
information of the Company and, for so long as he is entitled to compensation
under his Founders Employment Agreement, he will not compete with the Company
or solicit its business or customers. Each of Mr. Donlon, Mr. Schutz and Mr.
Bailey also agrees that, for a period of two years following his termination
of employment, he will not solicit the Company's employees.
The Founders Employment Agreements also provide that until the Closing
Date, the terms of each Founder's employment will be governed by his prior
employment agreement with the Company. Upon the Closing Date, such prior
agreement will be deemed terminated and the Founders Employment Agreements
will be deemed effective as of January 1, 1999. At that time, the Company will
pay each of Mr. Donlon, Mr. Schutz and Mr. Bailey an amount equal to the
difference between his base salary under his prior agreement and his base
salary under his Founders Employment Agreement for the period between January
1, 1999 and the Closing Date. In addition, each Founders Employment Agreement
provides that if the Closing Date does not occur by September 30, 1999, then
each such agreement will automatically terminate without obligation by either
party thereunder.
Stock Options Granted in Fiscal 1998
During fiscal 1998, no options were granted to the persons named in the
Summary Compensation Table.
Option Exercises and Fiscal 1998 Year-End Values
The following table provides the specified information concerning exercises
of options to purchase the Common Stock in the fiscal year ended August 2,
1998 and unexercised options held as of August 2, 1998, by the persons named
in the Summary Compensation Table. A portion of the shares subject to these
options are not yet vested, and thus would be subject to repurchase by the
Company at a price equal to the option exercise price, if the corresponding
options were exercised before these shares had vested.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value in Dollars
Underlying Unexercised of Unexercised In-the-Money
Value Options at 8/2/98 (#) Options at 8/2/98
Shares Acquired Realized ---------------------------------- -------------------------------
Name on Exercise (#) ($) Exercisable(1)(2) Unexercisable(3) Exercisable(2) Unexercisable(4)
- ---- --------------- -------- ----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert T. Walston....... -- -- -- -- -- --
John H. Donlon.......... -- -- 148,384 29,677 1,080,977 216,197
Gavin W. Schutz......... -- -- 121,406 24,282 884,443 176,894
Robert Bailey........... -- -- 121,406 24,282 884,443 176,894
James T. Conlon......... -- -- 33,333 66,667 -- --
</TABLE>
- --------
(1) Options granted in fiscal 1994 outside of the Stock Plan vest over a six
year period at a rate of 16.7% per year.
(2) Represents shares that are immediately exercisable and/or vested. Based on
the closing price of $7.625 as reported on the Nasdaq National Market, on
July 31, 1998, less the exercise price.
(3) Represents shares which are unvested and not immediately exercisable.
(4) Based on the closing price of $7.625 as reported on the Nasdaq National
Market, on July 31, 1998, less the exercise price.
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Comparative Stock Performance
The chart below sets forth line graphs comparing the performance of the
Common Stock as compared with two peer group indices for the period from
February 7, 1997 (the date the initial public offering of the Common Stock was
consummated) through July 31, 1998. The first peer group index consists of the
common stock of companies that management of the Company believes are most
similar in their operations to that of the Company. This peer group includes
Panavision, Rainmaker, Laser Pacific Media Corporation, The Todd-AO
Corporation, VDI Media, and Video Services Corporation. The second peer group
index includes the broader category of all publicly traded companies whose
industry sector is defined or listed as motion picture services and includes
Activision, Cinar Films, Walt Disney, Hollywood Entertainment, IMAX Corp.,
King World Productions, Kushner-Locke, Media General, Playboy, Spelling
Entertainment, Trimark, Unitel Video and Viacom. The indices assume that the
value of the investment in the Common Stock and each company included in the
indices was $100 on February 7, 1997 and that dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG FOUR MEDIA COMPANY, INDEX 1 AND INDEX 2
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period FOUR MEDIA
(Fiscal Year Covered) COMPANY INDEX 1 INDEX 2
- --------------------- ---------- ------- -------
<S> <C> <C> <C>
Measurement Pt- 2/7/97 $100 $100 $100
FYE 8/4/97 $105 $ 99 $100
FYE 2/4/98 $123 $106 $ 89
FYE 7/31/98 $109 $ 97 $ 98
</TABLE>
1 Peer Group Index 1 includes: Panavision, Rainmaker, Laser Pacific Media
Corporation, The Todd-AO Corporation, VDI Media and Video Services
Corporation.
2 Peer Group Index 2 includes: Activision, Cinar Films, Walt Disney,
Hollywood Entertainment, IMAX Corp., King World Productions, Kushner-Locke,
Media General, Playboy, Spelling Entertainment, Trimark, Unitel Video and
Viacom.
The stock price performance depicted in the above graph is not necessarily
indicative of future price performance. The performance graph will not be
deemed to be incorporated by reference by any general statement incorporating
this Proxy Statement into any filing by the Company under the Securities Act
or under the Exchange Act, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
soliciting material or be deemed filed under such Acts.
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Compensation Committee Report
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation. Such report will not be deemed to
be incorporated by reference in any general statement incorporating this Proxy
Statement into any filing by the Company under the Securities Act or under the
Exchange Act, except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed soliciting
material or be deemed filed under such Act.
The Compensation Committee was formed to review and approve the
compensation and benefits of the Company's executive officers, administer the
Company's stock option and other benefit plans and make recommendations to the
Board of Directors regarding such matters.
The Compensation Committee has not yet adopted an overall executive
compensation policy, nor has it made compensation decisions with respect to
the executive officers. The salaries of the executive officers are set by
their respective employment agreements.
It is anticipated that the Compensation Committee will generally adhere to
compensation policies which reflect the belief that (i) the Company must
attract and retain individuals with outstanding ability and motivate and
reward such individuals for sustained performance; (ii) a substantial portion
of an executive's compensation should be at risk based upon the executive's
performance and that of the Company; and (iii) within these parameters, levels
of compensation should generally be in line with that offered by comparable
companies.
The Compensation Committee's goal with respect to incentive compensation
will be to focus executive behavior on the fulfillment of annual and long-term
business objectives, and to create a sense of ownership in the Company that
causes executive decisions to be aligned with the best interests of the
Company's stockholders. The Compensation Committee expects to develop programs
designed to meet such goals.
It is anticipated that the Company's long-term incentive compensation will
be provided by grants of stock options under the Stock Plan. The Compensation
Committee will assess various factors when considering option grants under the
Stock Plan. Such factors will include prevailing norms for the ratio of
options outstanding to total shares outstanding; the relative influence each
executive officer will have on building stockholder value over the long term;
and the amount, vesting and expiration date of each executive officer's
outstanding options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In considering the recommendation of the Board with respect to the
Transaction, stockholders should be aware that certain members of management
and of the Board and certain stockholders of the Company have interests in the
Transaction that are different from, or in addition to, the interests of the
Company's stockholders generally. The Board was aware of such interests and
considered them, among other matters, in approving the Transaction.
Certain Employment Agreements
Effective as of the Closing Date, each of Messrs. Walston, Donlon, Schutz,
and Bailey who are currently Chief Executive Officer, President--Broadcast,
Syndication and Marketing, Vice President and Chief Technology Officer and
Vice President and Director of Marketing, respectively, of the Company, will
enter into new employment agreements with the Company. In addition, on January
1, 1999, Mr. Marcketta entered into an employment agreement with the Company
providing for his employment as President and Chief Administrative Officer of
the Company. For a more detailed discussion of the terms of these employment
agreements, see "Executive Compensation--Employment Agreements."
Mr. Walston Option Grant
In connection with the Transaction, Mr. Walston, the Company's Chief
Executive Officer and Chairman of the Board, will receive an option to
purchase 2,500,000 shares of Common Stock at an exercise price of $8.00 per
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share. As of December 31, 1998, Mr. Walston held no options to purchase shares
of Common Stock. For a more detailed discussion of the grant of options to Mr.
Walston see, "Executive Compensation--Employment Agreements."
Founders Purchase Agreement
Pursuant to the Founders Purchase Agreement, Messrs. Donlon, Schutz and
Bailey, who collectively hold (with The Estate of John H. Sabin) 497,766
shares of Common Stock, have agreed to sell their shares of Common Stock to
the Purchasers in the Transaction. For a more detailed description of the
terms of such sale see "Proposal 1, Approval of Issuance of Common Stock and a
Warrant under the Company Purchase Agreement--Description of the Transaction--
Founders Purchase Agreement."
Preferred Stock Conversion
Pursuant to the Conversion Agreement, the Fleming Funds will convert the
150,000 shares of Series A Stock currently owned by such Funds into an
aggregate of 2,250,000 shares of Common Stock (subject to adjustment). In
addition, for so long as the Fleming Funds own at least 50% of the Common
Stock issued pursuant to the Conversion Agreement, the Funds will,
collectively, have the right to nominate one person to the Company's Board.
The Fleming Funds have nominated Eytan Shapiro, a general partner of Fleming
US Discovery Fund III, L.P. and a director of Fleming Capital Management, as
their director nominee in connection with the Transaction. For a more detailed
description of the Conversion Agreement, see "Proposal 1, Approval of Issuance
of Common Stock and a Warrant under the Company Purchase Agreement--
Description of the Transaction--Conversion Agreement."
Mr. Walston/TSP Relationship
In connection with a 1993 acquisition of shares of Common Stock by TSP, Mr.
Walston was granted a profit interest in TSP equal to 10% of the excess, if
any, by which the distributions (in cash or in kind) from TSP exceed the
partners' total investment in TSP plus a return of 9% per annum. As a result
of his profit interest in TSP, Mr. Walston beneficially owns 1,432,875 shares
of Common Stock. See "General Information--Security Ownership of Certain
Beneficial Owners and Management."
Certain Voting Agreements
The Fleming Funds, TSP and Mr. Walston beneficially owned as of the Record
Date, in the aggregate, approximately % of the outstanding shares of Common
Stock. Accordingly, as a result of the Voting Agreements, the votes
represented by these shares will be sufficient to constitute a quorum and to
approve the Proposals. See "Proposal 1, Approval of Issuance of Common Stock
and a Warrant under the Company Purchase Agreement--Description of the
Transaction--Voting Agreements."
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no matters that
will be presented for consideration at the Special Meeting other than as
described in this Proxy Statement. If any other matters shall properly come
before the Special Meeting or any adjournments or postponements thereof and be
voted upon, the enclosed proxy will be deemed to confer discretionary
authority in the individuals named as proxies therein to vote the shares
represented by such proxy as to any such matters. The persons named as proxies
intend to vote or not to vote in accordance with the recommendation of
management of the Company.
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SUBMISSION OF STOCKHOLDER PROPOSALS
Under the provisions of the Company's Bylaws, stockholder proposals
intended to be considered at the Company's 1999 annual meeting, must be
received at the Company's principal executive offices no later than August 1,
1999. Additionally, under the rules of the SEC relating to when a company must
include a stockholder's proposal in its proxy statement, stockholder proposals
intended to be included in the Company's 1999 Proxy Statement must be received
at the Company's principal executive offices no later than August 1, 1999.
By Order of the Board of Directors
Robert T. Walston
Chief Executive Officer and
Chairman of the Board of Directors
February , 1999
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ANNEX A
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of January 18, 1999 (this
"Agreement"), by and among Four Media Company, a Delaware corporation (the
"Company"), Warburg, Pincus Equity Partners, L.P., a Delaware limited
partnership, Warburg, Pincus Netherlands Equity Partners I, C.V., a Dutch
limited partnership, Warburg, Pincus Netherlands Equity Partners II, C.V., a
Dutch limited partnership, and Warburg, Pincus Netherlands Equity Partners
III, C.V., a Dutch limited partnership (each, a "Purchaser", and collectively,
"Purchasers").
WITNESSETH:
WHEREAS, Purchasers desire to purchase 6,582,607 shares of common stock,
par value $.01 per share, of the Company (such class of common stock, the
"Company Common Stock" and the shares of the Company Common Stock being
purchased, the "Shares") and a warrant (the "Warrant") to purchase an
aggregate of 1,100,000 shares (subject to adjustment) of Company Common Stock
from the Company, and the Company desires to issue and sell the Shares and the
Warrant to Purchasers, in each case upon the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, Purchasers and the Board of Directors of the Company (the "Board")
have approved the purchase and sale of the Shares and the Warrant, and the
other transactions contemplated herein, upon the terms and subject to the
conditions set forth herein, and the Board deems such purchase and sale and
other transactions to be advisable and in the best interests of the
stockholders of the Company; and
WHEREAS, the Board has resolved to recommend approval of the purchase and
sale of the Shares and the Warrant and the other transactions contemplated
herein to the holders of all the issued and outstanding shares of Company
Common Stock and Series A Convertible Preferred Stock, par value $.01 per
share (the "Series A Preferred Stock") of the Company (the Company Common
Stock and the Series A Preferred Stock being referred to collectively as the
"Capital Stock").
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and subject to the terms and conditions set forth
herein, the parties hereto hereby agree as follows:
Section 1. Authorization of Common Stock and Warrant
(a) The Company has authorized the issuance of the Shares for sale, and
reserved the Shares for issuance, to Purchasers upon the terms and subject to
the conditions of this Agreement.
(b) The Company has authorized the issuance of the Warrant to Purchasers
and reserved for issuance the shares of Company Common Stock issuable upon
exercise of the Warrant. The terms of the Warrant are set forth in the Form of
Warrant, a copy of which is attached hereto as Exhibit A.
Section 2. Purchase, Sale and Issuance of Common Stock and Warrant
(a) Subject to the terms and conditions set forth in this Agreement and in
reliance upon the Company's and Purchasers' respective representations and
warranties set forth below, on the Closing Date (as defined below) the Company
shall (i) sell to Purchasers, and Purchasers shall purchase from the Company,
the Shares for an aggregate cash purchase price of $52,660,856 (based on a
purchase price of $8.00 per share) (the "Purchase Price") and (ii) issue the
Warrant to Purchasers. Such sale, purchase and issuance shall be effected on
the Closing Date by the Company executing and delivering to Purchasers, duly
registered in its name, (i) a duly
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executed stock certificate or certificates evidencing the Shares and (ii) the
duly executed Warrant against delivery by Purchasers to the Company of the
Purchase Price by wire transfer of immediately available funds to such account
as the Company shall designate prior to the Closing Date.
(b) The closing of such sale, purchase and issuance (the "Closing") shall
take place at 10:00 A.M., New York City time, on the third Business Day after
all of the conditions set forth herein have been satisfied or waived, or such
other date as Purchasers and the Company shall agree in writing (the "Closing
Date"), at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, New York, or such other location as Purchasers and the Company shall
mutually select.
Section 3. Representations and Warranties of the Company
The Company represents and warrants to Purchasers that:
3.1. Corporate Organization
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Attached hereto as
Exhibit B and Exhibit C, respectively, are true and complete copies of the
Certificate of Incorporation and Bylaws of the Company, as amended through the
date hereof (collectively, the "Organizational Documents").
(b) The Company has all requisite power and authority and has all necessary
approvals, licenses, permits and authorization to own, operate or lease its
properties and to carry on its business as now conducted. The Company has all
requisite power and authority to execute and deliver the Company Transaction
Documents and to perform its obligations hereunder and thereunder.
(c) The Company has filed all necessary documents to qualify to do business
as a foreign corporation in, and the Company is in good standing under the
laws of, each jurisdiction in which the conduct of the Company's business or
the nature of the properties owned or leased by the Company requires such
qualification, except where the failure to so qualify or be in good standing
would not reasonably be expected to have a material adverse effect on the
business, assets, liabilities, properties or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole (a "Company
Material Adverse Effect").
3.2. Subsidiaries
(a) Schedule 3.2 sets forth (i) the name of each subsidiary of the Company;
(ii) the name of each corporation, partnership, joint venture or other entity
(other than such subsidiaries) in which the Company or any of its subsidiaries
has, or pursuant to any agreement has the right or obligation to acquire at
any time by any means, directly or indirectly, an equity interest or
investment; (iii) in the case of each of such corporations described in
clauses (i) and (ii) above, (A) the jurisdiction of incorporation, (B) the
percentage of each class of voting capital stock owned by the Company or any
of its subsidiaries, (C) a description of any contractual limitations on the
holder's ability to vote or alienate such securities, (D) a description of any
outstanding options or other rights to acquire securities of such corporation,
and (E) a description of any other contractual charge or impediment which
would limit or impair the Company's or any of its subsidiaries' ownership of
such entity or interest or its ability effectively to exercise the full rights
of ownership of such entity or interest; and (iv) in the case of each of such
unincorporated entities, information substantially equivalent to that provided
pursuant to clause (iii) above with regard to corporate entities.
(b) Each subsidiary of the Company listed on Schedule 3.2 has been duly
organized, is validly existing and in good standing under the laws of the
jurisdiction of its organization, has the corporate power and authority to own
and lease its properties and to conduct its business and is duly registered,
qualified and authorized to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the nature of its
properties requires such registration, qualification or authorization, except
where the failure to be so
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registered, qualified, authorized or in good standing would not reasonably be
expected to have a Company Material Adverse Effect. All of the issued and
outstanding equity or other participating interests of each subsidiary have
been duly authorized and validly issued, are fully paid and non-assessable,
and, to the extent owned by the Company as indicated on Schedule 3.2, are
owned free and clear of any mortgage, pledge, lien, encumbrance, security
interest, claim or equity, except as set forth on Schedule 3.2. Except as set
forth on Schedule 3.2, there are no outstanding options, warrants, agreements,
conversion rights, preemptive rights or other rights to subscribe for,
purchase or otherwise acquire any issued or unissued shares of capital stock
of any subsidiary.
3.3. Capitalization
(a) The authorized capital stock of the Company consists of 50,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock, par
value $.01 per share ("Company Preferred Stock"), of which 150,000 shares of
Company Preferred Stock have been designated as Series A Preferred Stock. As
of the close of business on the date one Business Day prior to the date
hereof, (i) 10,363,256 shares of Company Common Stock were issued and
outstanding, (ii) no shares of Company Common Stock were held in the treasury
of the Company, (iii) 150,000 shares of Series A Preferred Stock were issued
and outstanding and were held beneficially and of record by the Persons and in
the amounts set forth on Schedule 3.3(a), (iv) no shares of Company Preferred
Stock were issued or outstanding other than the 150,000 shares of Series A
Preferred Stock, (v) 2,621,463.60 shares of Company Common Stock were reserved
for issuance under the Company's employee stock option plans listed on
Schedule 3.3(b) in the amounts stated in such schedule and (vi) there were no
bonds, debentures, notes or other evidences of indebtedness issued or
outstanding having the right to vote on any matters on which the Company's
stockholders may vote.
(b) All the outstanding shares of capital stock of the Company have been
duly and validly issued and are fully paid and non-assessable, and were issued
in accordance with the registration or qualification requirements of the
Securities Act and any relevant state securities laws or pursuant to valid
exemptions therefrom. Upon issuance, sale and delivery as contemplated by this
Agreement, the Shares will be duly authorized, validly issued, fully paid and
non-assessable shares of Company Common Stock, free of all preemptive or
similar rights. Upon their issuance in accordance with the terms of the
Warrant, the shares of Company Common Stock issuable upon exercise of the
Warrant will be duly authorized, validly issued, fully paid and non-assessable
shares of Company Common Stock, free of all preemptive or similar rights.
(c) Except for the conversion rights which attach to the warrants, options
and convertible securities which are listed on Schedule 3.3(c) hereto and to
the Warrant, on the Closing Date there will be no shares of Company Common
Stock or any other equity security of the Company issuable upon conversion or
exchange of any security of the Company nor will there be any rights, options
or warrants outstanding or other agreements to acquire shares of Company
Common Stock or any other equity security of the Company nor will the Company
be contractually obligated to purchase, redeem or otherwise acquire any
outstanding shares of Company Common Stock or Company Preferred Stock. Except
as set forth on Schedule 3.3(c), (i) no stockholder of the Company is entitled
to any preemptive or similar rights to subscribe for shares of capital stock
of the Company, (ii) the Company has not agreed to register any of its
securities under the Securities Act (other than pursuant to the Registration
Rights Agreement) and (iii) there are no existing voting trusts or similar
agreements to which the Company or any of its subsidiaries is a party with
respect to the voting of the capital stock of the Company or any of its
subsidiaries.
3.4. Corporate Proceedings, etc.
The Company has full corporate power to execute and deliver the Company
Transaction Documents, to perform its obligations hereunder and thereunder
and, subject to obtaining the necessary approval of the Company Voting Matters
(as defined in Section 6.3) to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of the Company
Transaction Documents by the Company and each of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
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action on the part of the Company, subject to the approval of the Company
Voting Matters. Except for approval of the Company Voting Matters, no other
corporate action on the part of the Company is necessary to authorize the
execution, delivery and performance of the Company Transaction Documents by
the Company and each of the transactions contemplated hereby and thereby, and
upon such execution and delivery, each of the Company Transaction Documents
shall constitute a valid and binding obligation of the Company enforceable in
accordance with its terms, except that (i) the enforceability hereof and
thereof may be subject to applicable bankruptcy, insolvency or other similar
laws, now or hereinafter in effect, affecting creditors' rights generally, and
(ii) the availability of the remedy of specific performance or injunctive or
other forms of equitable relief may be subject to equitable defenses and would
be subject to the discretion of the court before which any proceeding therefor
may be brought. The Company has authorized the issuance and delivery of the
Shares and the Warrant in accordance with this Agreement and, subject to the
issuance of the Warrant, the Company has reserved for issuance the shares of
Company Common Stock issuable upon exercise of the Warrant.
3.5. Consents and Approvals
Except as set forth on Schedule 3.5 and other than the matters set forth in
Sections 6.2, 6.3, 6.4 and 6.5 and any required state blue sky filings in
connection with the transactions contemplated hereby, the execution and
delivery by the Company of the Company Transaction Documents, the performance
by the Company of its obligations hereunder and thereunder and the
consummation by the Company of the transactions contemplated hereby and
thereby do not require the Company or any of its subsidiaries to obtain any
consent, approval or action of, or make any filing with or give any notice to,
any corporation, Person, firm, Governmental Entity or public or judicial
authority.
3.6. Absence of Defaults, Conflicts, etc.
Except as set forth on Schedule 3.6, and assuming the consents and
approvals referred to in Section 3.5 and Schedule 3.5 are obtained, the
execution and delivery by the Company of the Company Transaction Documents do
not, and the fulfillment of the terms hereof and thereof by the Company, and
the issuance of the Shares, the Warrant and the Company Common Stock issuable
upon exercise of the Warrant will not, result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or permit the
acceleration of rights under or termination of, (a) any indenture, mortgage,
deed of trust, credit agreement, note or other evidence of indebtedness, or
other material agreement of the Company or any of its subsidiaries
(collectively the "Key Agreements and Instruments"), (b) the Organizational
Documents, or (c) any order, judgment, rule or regulation of any Governmental
Entity having jurisdiction over the Company or any of its subsidiaries or over
their respective properties or businesses, other than, in the case of clauses
(a) and (c) above, any such breaches, defaults, accelerations or terminations
that would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect. No event has occurred and no condition
exists which, upon notice or the passage of time (or both), would constitute a
default under any Key Agreements and Instruments or in any license, permit or
authorization to which the Company or any subsidiary is a party or by which
any of them may be bound, other than any such defaults that would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
3.7. SEC Reports
(a) The Company has furnished Purchasers with true and complete copies
(including all amendments thereof) of its (i) Annual Reports on Form 10-K for
the fiscal years ended August 3, 1997 and August 2, 1998 as filed with the
SEC, (ii) Quarterly Report on Form 10-Q for the quarter ended November 1,
1998, as filed with the SEC, (iii) proxy statements related to all meetings of
its stockholders (whether annual or special) held since February 7, 1997 and
(iv) all other reports filed with, or registration statements declared
effective by, the SEC since February 7, 1997, which are all the documents
(other than preliminary material) that the Company filed or was required to
file with the SEC from that date through the date hereof (clauses (i) through
(iv) being referred to herein collectively as the "SEC Reports"). From the
date hereof through the Closing Date, the Company will
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furnish to Purchasers copies of any reports and registration statements to be
filed with the SEC (the "Interim SEC Reports") within a reasonable amount of
time prior to filing thereof. As of their respective dates, the SEC Reports
(or the Interim SEC Reports, as the case may be) complied or will comply, as
the case may be, in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such reports and registration
statements. As of their respective dates, the SEC Reports (or the Interim SEC
Reports, as the case may be) did not and will not, as the case may be, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were, or will be, made, not
misleading.
(b) The audited consolidated financial statements and unaudited interim
financial statements of the Company included in the SEC Reports (or to be
included in the Interim SEC Reports, as the case may be) comply as to form in
all material respects with applicable accounting requirements of the
Securities Act or the Exchange Act, as applicable, and with the published
rules and regulations of the SEC with respect thereto. The financial
statements and the condensed financial statements, as applicable, included in
the SEC Reports (or to be included in the Interim SEC Reports, as the case may
be) (i) have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may be indicated
therein or in the notes thereto), (ii) present fairly, in all material
respects, the financial position of the Company and its subsidiaries as of the
dates thereof and the results of their operations and cash flows for the
periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other adjustments
described therein and the fact that certain information and notes have been
condensed or omitted in accordance with the Exchange Act and the rules and
regulations promulgated thereunder, and (iii) are in all material respects in
agreement with the books and records of the Company and its subsidiaries.
(c) The Company and its subsidiaries keep proper accounting records in
which all material assets and liabilities, and all material transactions, of
the Company and its subsidiaries are recorded in conformity with applicable
accounting principles. No part of the Company's or any of its subsidiaries'
accounting system or records, or access thereto, is under the control of a
Person who is not an employee of the Company or such subsidiary (other than
the Company's independent auditors and outside legal counsel).
3.8. Absence of Certain Developments
Except as disclosed in the SEC Reports filed with the SEC prior to the date
hereof or on Schedule 3.8, and except for the transactions contemplated by the
Transaction Documents, since August 2, 1998, the Company and its subsidiaries
have conducted their business only in the ordinary and usual course in
accordance with past practice, and:
(a) there have not occurred any events or changes (including the
incurrence of any liabilities of any nature, whether or not accrued,
contingent or otherwise) that have had, or are reasonably likely in the
future to have, individually or in the aggregate, a Company Material
Adverse Effect; and
(b) the Company has not taken any action which would have been
prohibited under Section 5.2 hereof.
3.9. Compliance with Law
(a) Except as set forth on Schedule 3.9, neither the Company nor any of its
subsidiaries is in violation of any laws, ordinances, governmental rules or
regulations to which it is subject, including without limitation laws or
regulations relating to the environment or to occupational health and safety.
No expenditures material to the Company and its subsidiaries taken as a whole
are or will be required in order to cause the current operations or properties
of such entities to comply with any such laws, ordinances, governmental rules
or regulations and except as set forth on Schedule 3.9, neither the Company
nor any of its subsidiaries has received notice of violation of any law,
ordinance, governmental rule or regulation and except as set forth on Schedule
3.9, no investigation or review by any Governmental Entity with respect to the
Company or any of its subsidiaries is pending or, to the best of the Company's
knowledge, threatened nor has any Governmental Entity indicated an intention
to conduct the same.
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(b) Neither the Company or any of its subsidiaries nor, to the Company's
knowledge, any of the officers, directors, employees, agents or other
representatives of the Company or any of its subsidiaries or any other
business entity or enterprise with which the Company or any subsidiary is or
has been affiliated or associated, has, directly or indirectly, made or
authorized any payment, contribution or gift of money, property, or services,
whether or not in contravention of applicable law, (i) as a kickback or bribe
to any Person or (ii) to any political organization, or the holder of or any
aspirant to any elective or appointive public office except for personal
political contributions not involving the direct or indirect use of funds of
the Company or any of its subsidiaries.
(c) The Company and its subsidiaries have, and Schedule 3.9 lists, all
licenses, permits, franchises or other governmental authorizations necessary
to the ownership of their property or to the conduct of their respective
businesses, which if violated or not obtained might have a Company Material
Adverse Effect. Neither the Company nor any subsidiary has finally been denied
any application for any such licenses, permits, franchises or other
governmental authorizations necessary to its business.
3.10. Litigation
Except as disclosed in the SEC Reports or on Schedule 3.10, there is no
legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding (whether federal, state,
local or foreign) pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any subsidiary or any of their
respective properties, assets or businesses which, either alone or in the
aggregate, would reasonably be expected to have a Company Material Adverse
Effect or prevent or delay the consummation of the transactions contemplated
by the Transaction Documents. To the best of the Company's knowledge, there
are no facts which might result in or form the basis for any such action,
suit, arbitration, investigation, inquiry or other proceeding. Except as set
forth on Schedule 3.10, neither the Company nor any subsidiary is subject to
any order, writ, judgment, injunction, decree, determination or award of any
Governmental Entity.
3.11. Material Contracts
Neither the Company nor any of its subsidiaries is in default (or would be
in default with notice or lapse of time, or both) under, is in violation (or
would be in violation with notice or lapse of time, or both) of, or has
otherwise breached, any indenture, note, credit agreement, loan document,
lease, license or other agreement, including, without limitation, any Material
Contract (as defined below), whether or not such default has been waived,
which default, alone or in the aggregate with all other such defaults, would
reasonably be expected to have a Company Material Adverse Effect. Schedule
3.11 contains a complete and correct list as of the date hereof of each
agreement, contract and commitment of the following types, written or oral, to
which the Company or any of its subsidiaries is a party or by which they or
any of their assets are bound: (a) mortgages, indentures, security agreements,
guarantees, pledges and other agreements and instruments relating to the
borrowing of money or extension of credit; (b) employment, severance and
consulting agreements (other than any such agreements that are terminable
without liability or penalty on 30 days' or less notice); (c) licenses of
patent, trademark and other rights relating to any Intellectual Property (as
defined below) and any other licenses, permits and authorizations relating to
the businesses of the Company and its subsidiaries (whether as licensor or
licensee) that involve by their terms a per annum payment in excess of
$100,000 or resulted in a payment obligation in excess of $100,000 in the
calendar year ended December 31, 1998; and (d) joint venture or partnership
contracts or agreements ((a) through (d) collectively, "Material Contracts").
Prior to the date hereof, the Company has delivered to Purchasers or their
representatives complete and correct copies of all written Material Contracts
together will all amendments thereto, and accurate descriptions of all oral
Material Contracts. Each Material Contract is in full force and effect and is
binding upon the Company or one of its subsidiaries, as the case may be, and,
to the best of the Company's knowledge, is binding upon such other parties, in
each case in accordance with its terms. There are no material unresolved
disputes involving the Company or any of its subsidiaries under any Material
Contract.
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3.12. Absence of Undisclosed Liabilities
(a) Except as disclosed on Schedule 3.12 and except for indebtedness,
obligations or liabilities that are reflected or reserved against as set forth
in the SEC Reports (including the notes to the financial statements included
therein), neither the Company nor any of its subsidiaries has any debt,
obligation or liability (whether accrued, absolute, contingent, liquidated or
otherwise, whether due or to become due and whether or not known to the
Company) arising out of any transaction entered into at or prior to the
Closing, or any act or omission at or prior to the Closing, or any state of
facts existing at or prior to the Closing, except (a) for debts, obligations
or liabilities incurred in the ordinary course of business since November 1,
1998, none of which (individually or in the aggregate) would reasonably be
expected to have a Company Material Adverse Effect and (b) for liabilities and
obligations arising under the Transaction Documents.
(b) Except as disclosed on Schedule 3.12 and except for liabilities that
are reflected or reserved against in the most recent financial statements
included in the SEC Reports, neither the Company nor any of its subsidiaries
has any tax liability with respect to or based upon any transactions or events
occurring at or prior to the Closing, including, without limitation, unfunded
past service liabilities under any pension, profit sharing or similar plan.
3.13. Labor Relations and Employment
(a) Except as set forth on Schedule 3.13(a), (i) there is no labor strike,
dispute, slowdown, stoppage or lockout actually pending, or, to the best of
the Company's knowledge, threatened against the Company or any of its
subsidiaries, and during the past three years there has not been any such
action; (ii) to the best of the Company's knowledge, there are no union claims
to represent the employees of the Company or any of its subsidiaries; (iii)
neither the Company nor any of its subsidiaries is a party to or bound by any
collective bargaining or similar agreement with any labor organization, or
work rules or practices agreed to with any labor organization or employee
association applicable to employees of the Company or any of its subsidiaries;
(iv) none of the employees of the Company or any of its subsidiaries is
represented by any labor organization and the Company does not have any
knowledge of any current union organizing activities among the employees of
the Company or any of its subsidiaries, nor does any question concerning
representation exist concerning such employees; (v) the Company and its
subsidiaries are, and have at all times been, in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work, occupational safety and
health, equal opportunity, collective bargaining and payment of social
security and other taxes, and are not engaged in any discriminatory employment
practices or unfair labor practices as defined in the National Labor Relations
Act or other applicable law, ordinance or regulation; (vi) there is no unfair
labor practice charge or complaint against the Company or any of its
subsidiaries pending or, to the best of the Company's knowledge, threatened
before the National Labor Relations Board or any similar state or foreign
agency; (vii) there is no grievance filed, or to the best of the Company's
knowledge, threatened to be filed, against the Company or any of its
subsidiaries arising out of any collective bargaining agreement or employment
agreement or other grievance procedure; (viii) no charges with respect to or
relating to the Company or any of its subsidiaries are pending before the
Equal Employment Opportunity Commission or any other agency responsible for
the prevention of unlawful employment practices; (ix) neither the Company nor
any of its subsidiaries has received notice of the intent of any federal,
state, local or foreign agency responsible for the enforcement of labor or
employment laws to conduct an investigation with respect to or relating to the
Company or any of its subsidiaries and no such investigation is in progress;
(x) there are no complaints, lawsuits or other proceedings pending or, to the
best of the Company's knowledge, threatened in any forum by or on behalf of
any present or former employee of the Company or any of its subsidiaries
alleging breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship; and (xi) there has been no "mass layoff" or "plant closing" as
defined by the Worker Adjustment and Retraining Notification Act or any
similar state or local "plant closing" law with respect to the current or
former employees of the Company and its subsidiaries.
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(b) The Company is not aware that any officer or key employee, or that any
group of key employees, intends to terminate their employment with the Company
or any of its subsidiaries, nor does the Company have a present intention to
terminate the employment of any of the foregoing.
3.14. Employee Benefit Plans
(a) Schedule 3.14(a) sets forth: (i) all "employee benefit plans", as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and all other material employee benefit
arrangements, including, without limitation, any such arrangements providing
severance pay, sick leave, vacation pay, salary continuation for disability,
retirement benefits, deferred compensation, bonus pay, incentive pay, stock
options, hospitalization insurance, medical insurance, life insurance,
scholarships or tuition reimbursements, maintained by the Company or any of
its subsidiaries or to which the Company or any of its subsidiaries is
obligated to contribute thereunder for current or former employees the Company
and its subsidiaries (the "Employee Benefit Plans"), and (ii) all "employee
pension plans", as defined in Section 3(2) of ERISA, other than any
Multiemployer Plan (as defined below), maintained by the Company or any trade
or business (whether or not incorporated) which is or has ever been under
control or treated as a single employer with the Company under Section 414(b)
or (c), of the Code ("ERISA Affiliate") or to which the Company or any ERISA
Affiliate has contributed or been obligated to contribute thereunder during
the last six years (the "Pension Plans").
(b) Except as set forth on Schedule 3.14(a), none of the Employee Benefit
Plans or Pension Plans is a multiemployer plan, as defined in Section 3(37) of
ERISA ("Multiemployer Plan"), and neither the Company nor any ERISA Affiliate
has withdrawn in a complete or partial withdrawal from any Multiemployer Plan
with respect to which the Company or any ERISA affiliate has any unsatisfied
withdrawal liability, nor has any of them incurred any unsatisfied liability
due to the termination or reorganization of a Multiemployer Plan.
(c) Each Employee Benefit Plan that is intended to qualify under Section
401 of the Code and the trust maintained pursuant thereto is exempt from
federal income taxation under Section 501 of the Code, and nothing has
occurred with respect to the operation of any such Employee Benefit Plan that
could cause the loss of such qualification or exemption or the imposition of
any liability, penalty or tax under ERISA or the Code.
(d) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under any of the
Employee Benefit Plans or Pension Plans or by law (without regard to any
waivers granted under Section 412 of the Code) to any funds or trusts
established thereunder or in connection therewith have been made by the due
date thereof (including any valid extension), and all contributions for any
period ending on or before the Closing Date which are not yet due will have
been paid or accrued on or prior to the Closing Date. No accumulated funding
deficiencies exist in any of the Employee Benefit Plans or Pension Plans
subject to Section 412 of the Code.
(e) There is no "amount of unfunded benefit liabilities" within the meaning
of Section 4001(a)(18) of ERISA in any of the Pension Plans which are subject
to Title IV of ERISA. Each of the Pension Plans are fully funded in accordance
with the actuarial assumptions used by the PBGC to determine the level of
funding required in the event of the termination of the Pension Plans.
(f) Neither the Company nor any ERISA Affiliate has terminated any Pension
Plan subject to Title IV of ERISA with respect to which it has incurred any
material outstanding liability, or incurred any material outstanding liability
under Section 4062 of ERISA to the PBGC or to a trustee appointed under
Section 4042 of ERISA. All premiums due the PBGC with respect to the Pension
Plans have been paid. Neither the Company nor any ERISA Affiliate has engaged
in any transaction described in Section 4069 of ERISA.
(g) There has been no "reportable event" within the meaning of Section 4043
of ERISA with respect to any Pension Plans subject to Title IV of ERISA which
would require the giving of notice or any other event requiring disclosure
under Section 4041(c)(3)(C) or 4063(a) of ERISA.
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(h) There has been no violation of ERISA or the Code with respect to the
filing of applicable reports, documents and notices regarding the Employee
Benefit Plans with the Secretary of Labor or the Secretary of the Treasury or
the furnishing of required reports, documents or notices to the participants
or beneficiaries of the Employee Benefit Plans which could result in a
material liability to the Company.
(i) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans and Pension Plans, have been
delivered to Purchasers by the Company or are publicly available: (i) all
plans and related trust documents, and amendments thereto; (ii) the most
recent Forms 5500; (iii) the last IRS determination letter; (iv) summary plan
descriptions; (v) the most recent actuarial report relating to the Employee
Benefit Plans and Pension Plans; and (vi) written descriptions of all non-
written agreements relating to the Employee Benefit Plans.
(j) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Employee Benefit Plans, the assets of any
of the trusts under such plans or the plan sponsor or the plan administrator,
or against any fiduciary of the Employee Benefit Plans with respect to the
operation of such plans (other than routine benefit claims), nor does the
Company have knowledge of facts which could form the basis for any such claim
or lawsuit.
(k) All amendments and actions required to bring the Employee Benefit Plans
and Pension Plans into conformity in all material respects with all of the
applicable provisions of ERISA, the Code and other applicable laws have been
made or taken except to the extent that such amendments or actions are not
required by law to be made or taken until a date after the Closing Date.
(l) The Employee Benefit Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA and
the Code (including rules and regulations thereunder) and other applicable
federal and state laws and regulations, and neither the Company, any of its
subsidiaries, nor, to the best of the Company's knowledge, any "party in
interest" or "disqualified person" with respect to the Employee Benefit Plans
has engaged in a "prohibited transaction" within the meaning of Section 406 of
ERISA or 4975 of the Code. No fiduciary has any liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any Employee Benefit Plan.
(m) None of the Employee Benefit Plans provide retiree life or retiree
health benefits except as may be required under Section 4980B of the Code or
Section 601 of ERISA or applicable state law and at the expense of the
participant or the participant's beneficiary. The Company and the ERISA
Affiliates have at all times complied with the notice and health care
continuation requirements of Section 4980B of the Code and Sections 601
through 608 of ERISA.
(n) Except as set forth on Schedule 3.14(n), none of the execution and
delivery of the Company Transaction Documents, the consummation of the
transactions contemplated hereby and thereby or any other transactions
involving the Company, Purchasers and/or any of the Company's stockholders
will (i) result in any payment becoming due to any employee (current, former
or retired) of the Company or any of its subsidiaries, (ii) increase any
benefits otherwise payable under any Employee Benefit Plan, (iii) result in
the acceleration of the time of payment or vesting of any benefits under any
Employee Benefit Plan, (iv) qualify as a "change of control" or similar event
under any Employee Benefit Plan or (v) result in any payment becoming due to
any employee that may be nondeductible under Section 162(m) or Section 280G of
the Code.
(o) Except as set forth on Schedule 3.14(o), no stock or other security
issued by the Company or any Affiliate forms or has formed a material part of
the assets of any Employee Benefit Plan or Pension Plan.
3.15. FCC Matters
(a) A complete and accurate list of the FCC Licenses is set forth on
Schedule 3.15. The FCC Licenses are in full force and effect and unimpaired by
any condition that could have a Company Material Adverse Effect.
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No application, complaint, action or proceeding is pending or, to the best of
the Company's knowledge, threatened, that may result in the revocation,
modification, non-renewal or suspension of any FCC License or the imposition
of any administrative or judicial sanction with respect to any FCC License.
Neither the Company, Catalina nor any other subsidiary of the Company has
knowledge of any failure of Catalina to comply in all material respects with
the terms and conditions of the FCC Licenses, and all applicable rules,
regulations and policies of the FCC and requirements of the Communications Act
of 1934, as amended.
(b) The equipment which is operated pursuant to the FCC Licenses is
operated in all material respects in compliance with the rules, regulations
and policies of the FCC and requirements of the Communications Act of 1934, as
amended.
(c) Neither the Company, Catalina nor any other subsidiary of the Company
is aware of any facts or circumstances that are likely to prevent or delay
prompt FCC Approval.
3.16. Real Property
(a) Schedule 3.16(a) contains a complete and accurate list of all real
property owned in whole or in part, directly or indirectly, by the Company or
its subsidiaries (the "Owned Real Property"). The Company has good and
marketable title in fee simple to all of the Owned Real Property, free and
clear of all liens, encumbrances, charges, mortgages, judgments and
hypothecations, whether recorded or unrecorded. None of the Owned Real
Property is subject to any right or option of any other Person to purchase or
lease or otherwise obtain title to or an interest in such real property. No
Person other than the Company or any of its subsidiaries has any right to use,
occupy or lease any of the Owned Real Property or Leased Real Property (as
defined in subsection (b) of this Section 3.16). Schedule 3.16(a) contains an
accurate and complete list of all Owned Real Property leased in whole or in
part by the Company as landlord. True and complete copies of all leases
including all modification and amendments thereto listed on Schedule 3.16(a)
have been delivered to Purchasers. All of the buildings, improvements,
structures and appurtenances situated on the Owned Real Property are owned by
the Company or one if its subsidiaries and are in all material respects in
good operating condition, normal wear and tear excepted. Except as set forth
on Schedule 3.16(a), no condemnation proceeding or similar proceeding is
pending or, to the best of the Company's knowledge, threatened that would
preclude or impair the use of any such property or any improvement thereon by
the Company or any of its subsidiaries for the purpose for which it is
currently used. There is no material latent or patent structural, mechanical
or other significant defect, soil condition or deficiency in any of the
improvements located on any of the Owned Real Property or, to the best of the
Company's knowledge, the Leased Real Property.
(b) Schedule 3.16(b) lists all real property leased by the Company or its
subsidiaries as well as the commencement and expiration dates of all leases
relating thereto (the "Leased Real Property"). True and complete copies of all
leases listed on Schedule 3.16(b) have been delivered to Purchasers. The
Company or one of its subsidiaries has a valid and existing lease or sublease
for each property subsumed within the Leased Real Property. All leases
covering any of the Leased Real Property are valid and enforceable by the
Company or one of its subsidiaries, as the case may be, in accordance with
their respective terms, are in full force and effect, and have not been
modified, supplemented or terminated except as set forth on Schedule 3.16(b),
and there is not under any such lease any default by the Company or one of its
subsidiaries or, to the best of the Company's knowledge, by any landlord or
lessor under any such lease. All third party consents required in respect of
the Owned Real Property or Leased Real Property in order to consummate the
transactions contemplated by the Company Transaction Documents have been
obtained. The facilities and real properties covered by the Leased Real
Property and included in the Owned Real Property constitute all of the
facilities and real properties presently used by the Company or its
subsidiaries.
(c) Any increase in real property taxes due to the acquisition of Owned
Real Property by the Company is reflected in the most recent financial
statements included in the SEC Reports. If the values of the Owned Real
Property for purposes of California property taxes are reassessed as of the
Closing Date to their fair market
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values as of the Closing Date, such reassessment will not result in a material
increase in the assessed values of such property. Schedule 3.16(c) accurately
states the assessed values for purposes of California property taxes of the
Owned Real Property.
3.17. Condition of Properties
Except as would not reasonably be expected to have a Company Material
Adverse Effect, all facilities, machinery, equipment, fixtures, vehicles and
other properties owned, leased or used by the Company and its subsidiaries are
in good operating condition and repair, are reasonably fit and usable for the
purposes for which they are being used, are adequate and sufficient for the
Company's or such subsidiary's business and conform in all material respects
with all applicable ordinances, regulations and laws.
3.18. Environmental Matters
(a) Except as set forth on Schedule 3.18 and except as would not reasonably
be expected to have a Company Material Adverse Effect:
(i) The Company and its subsidiaries (i) are in substantial compliance
with all Environmental Laws; (ii) have obtained all necessary Environmental
Permits, all of which are in full force and effect; and (iii) are in
substantial compliance with all terms and conditions of such Environmental
Permits.
(ii) Neither the Company nor any of its subsidiaries has violated or
done any act which could give rise to liability under, or have otherwise
failed to act in a manner which would expose any of them to liability
under, any Environmental Law.
(iii) No Hazardous Material has been released, spilled, discharged,
dumped, disposed of, or otherwise come to be located in, at, beneath or
near any of the Owned Real Property or Leased Real Property including
properties formerly owned, operated or otherwise controlled by the Company
or any of its subsidiaries (during the period of the Company's or such
subsidiaries' ownership, operation or control thereof) in such manner as
would reasonably be expected to result in environmental liability to the
Company or any of its subsidiaries.
(iv) There have been and are no: (i) aboveground or underground storage
tanks; (ii) surface impoundments for Hazardous Materials; or (iii) friable
asbestos or asbestos containing materials or polychlorinated biphenyl
("PCB") or PCB-containing equipment, located within any portion of the
Owned Real Property or Leased Real Property.
(v) No liens have been placed upon any Owned Real Property or Leased
Real Property in connection with any actual or alleged liability under any
Environmental Law.
(vi) Neither the Company nor any of its subsidiaries has received any
written notice, claim, demand, suit or request for information from any
Governmental Entity or private entity with respect to any liability or
alleged liability under any Environmental Law, nor has any entity
previously owned, operated, or otherwise controlled by the Company or its
subsidiaries whose liability, in whole or in part, may be attributed to the
Company or any of its subsidiaries, received any such notice, claim,
demand, suit or request for information; neither the Company nor any of its
subsidiaries has ongoing negotiations with or agreements with any
Governmental Entity or other Person or entity relating to any Remedial
Action or other claim arising under or related to any Environmental Law.
(vii) Neither the Company nor any of its subsidiaries has disposed, or
arranged for the disposal, of any Hazardous Materials at any facility that
is or has ever been the subject of investigation or response action under
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. (S) 9601 et seq. ("CERCLA"), Resource Conservation and Recovery
Act, 42 U.S.C. (S) 6901 et seq. ("RCRA"), or any state law of similar
effect.
(viii) The Company has provided to Purchasers all environmental studies
and reports pertaining to the Owned Real Property or Leased Real Property
including properties formerly owned, operated or otherwise
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controlled by the Company or any of its subsidiaries and the improvements
thereon that they are aware of, have commissioned or have in their
possession. To the best of the Company's knowledge, such studies and
reports do not contain any inaccuracies resulting from, in whole or in
part, any material misrepresentation of the Company.
With respect to the following owned Real Property and Leased Real Property the
above representations and warranties are unqualified with respect to Company
Material Adverse Effect: 3611 North San Fernando Road, Burbank, California;
2901 West Alameda Avenue, Burbank, California; 3000 Olympic Boulevard, Santa
Monica, California; 100 Universal City Plaza, Building 153, Universal Studios,
California; 730 Arizona Avenue, Santa Monica, California; 1318 Lincoln
Boulevard, Santa Monica, California.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Laws" shall mean any statute, regulation, ordinance, order,
decree, agreement, common law duty or other requirement of United States or
Singapore law (for the Singapore Leased Real Property only) relating to
protection of human health, safety or the environment (including, without
limitation, ambient air, surface water, groundwater, wetlands, soil, surface
and subsurface strata).
"Environmental Permits" shall mean all permits, licenses, approvals,
authorizations, consents or registrations required under any applicable
Environmental Law.
"Hazardous Materials" shall mean any chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, hazardous materials, hazardous
wastes, radioactive materials, petroleum or petroleum products.
"Remedial Action" shall mean any action required to: (i) clean up, remove
or treat Hazardous Materials; (ii) prevent a release or threat of release of
any Hazardous Material; (iii) perform pre-remedial studies, investigations or
post-remedial monitoring and care; or (iv) cure a violation of Environmental
Law.
3.19. Intellectual Property
(a) Schedule 3.19(a) sets forth a complete list of registrations/patents or
applications therefor pertaining to the Intellectual Property, the dates of
application/issuance and the relevant jurisdictions. Except as described on
Schedules 3.19(a), (b) or (c), the Company or one of its subsidiaries owns or,
to the best of the Company's knowledge, has the valid right to use, free and
clear of all liens and other encumbrances or claims of any nature, all of the
Intellectual Property necessary for the conduct of the business of the Company
or any of its subsidiaries. Except as described on Schedule 3.19(a), (b) or
(c), all Intellectual Property listed on Schedule 3.19(a) is valid,
subsisting, unexpired, and enforceable and all renewal fees and other
maintenance fees that have fallen due on or prior to the effective date of
this Agreement have been paid.
(b) Except as set forth on Schedule 3.19(b), there is no claim, suit,
action or proceeding pending or, to the best of the Company's knowledge,
threatened against the Company or one of its subsidiaries: (i) alleging any
such conflict or infringement with any third party's proprietary rights; or
(ii) challenging the Company or one of its subsidiaries' ownership or use, or
the validity or enforceability of any Intellectual Property that is necessary
for the conduct of the business of the Company or any of its subsidiaries.
Except as set forth on Schedule 3.19(b), there is no claim, suit, action or
proceeding pending or, to best of the Company's knowledge, threatened by the
Company or one of its subsidiaries, alleging any third party's intellectual
property rights conflict or infringe the Intellectual Property of the Company
or one of its subsidiaries.
(c) Schedule 3.19(c) sets forth a complete and accurate list of all: (i)
licenses, sublicenses and other agreements in which the Company or one of its
subsidiaries grants rights to any Person to use the Intellectual Property; and
(ii) consents, indemnifications, forbearances to sue, settlement agreements or
cross-licensing arrangements relating to the Intellectual Property or the
intellectual property of any third party to which the
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Company or one of its subsidiaries is a party. Except as set forth on Schedule
3.19(c), neither the Company nor any of its subsidiaries is under any
obligation to pay royalties or similar payments in connection with any
license, nor will the Company or any of its subsidiaries be, as a result of
the execution and delivery of the Company Transaction Documents or the
performance of its obligations hereunder or thereunder, in breach of any
license, sublicense or other agreement relating to the Intellectual Property.
(d) Except as set forth on Schedule 3.19(d), no former or present employee,
officer or director of the Company or any of its subsidiaries holds any right
or title, directly or indirectly, in whole or in part, in or to any
Intellectual Property.
(e) The Company or one of its subsidiaries owns or has the right to use all
computer software, software systems and databases and all other information
systems currently used in the business of the Company or any of its
subsidiaries and necessary for the conduct of the business of the Company or
any of its subsidiaries, including, without limitation, all such computer
software used in the business of the Company on personal computers by
employees of the Company or any of its subsidiaries.
For purposes of this Agreement, "Intellectual Property" shall mean all of
the following, owned or used in the business of the Company or any of its
subsidiaries: (i) trademarks and service marks (registered or unregistered),
trade dress, trade names and other names and slogans embodying business or
product goodwill or indications of origin, all applications or registrations
in any jurisdiction pertaining to the foregoing and all goodwill associated
therewith; (ii) patents, patentable inventions, discoveries, improvements,
ideas, know-how, formula methodology, processes, technology and computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications and
data) and all applications or registrations in any jurisdiction pertaining to
the foregoing, including all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof; (iii) trade secrets,
including confidential and other non-public information, and the right in any
jurisdiction to limit the use or disclosure thereof; (iv) copyrights in
writings, designs, mask works or other works, and applications or
registrations in any jurisdiction for the foregoing; (v) database rights; (vi)
Internet Web sites, domain names and registrations or applications for
registration thereof; (vii) licenses, immunities, covenants not to sue and the
like relating to any of the foregoing; (viii) books and records describing or
used in connection with any of the foregoing; and (ix) claims or causes of
action arising out of or related to infringement or misappropriation of any of
the foregoing.
3.20. Year 2000
Except as set forth on Schedule 3.20 or in the SEC Reports, or as would not
have, individually or in the aggregate, a Company Material Adverse Effect:
(a) To the best of the Company's knowledge, none of the Computer
Software, computer firmware, computer hardware (whether general or special
purpose) and other similar or related items of automated, computerized
and/or software system(s) that are used or relied on by the Company or any
of its subsidiaries in the conduct of their respective businesses will
malfunction, cease to function, generate incorrect data, or provide
incorrect results when processing, providing, and/or receiving (i) date-
related data into and between the twentieth and twenty-first centuries and
(ii) date-related data in connection with any valid date in the twentieth
and twenty-first centuries.
(b) To the best of the Company's knowledge, none of the products and
services sold, licensed, rendered or otherwise provided by the Company or
any of its subsidiaries in the conduct of their respective businesses will
malfunction, cease to function, generate incorrect data or produce
incorrect results when processing, providing and/or receiving (i) date-
related data in and between the twentieth and twenty-first centuries and
(ii) date-related data in connection with any valid date in the twentieth
and twenty-first centuries; and the Company and its subsidiaries are not
and shall not be subject to liabilities arising from their failure to do
so.
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For purposes of this Agreement, "Computer Software" shall mean any and all
items, products and systems used in the operation of the business of the
Company or its subsidiaries, which incorporate the processing of dates or
date-related data (including, but not limited to, representing, calculating,
comparing and sequencing) and are operationally material to the business of
the Company or its subsidiaries, including, but not limited to, computer
systems, infrastructure items, software applications, hardware, and related
equipment and utilities including, but not limited to (i) any and all computer
programs and applications consisting of sets of statements and instructions to
be used directly or indirectly in computer software or firmware whether in
source code or object code form, (ii) databases and compilations, including
without limitation any and all data and collections of data, whether machine
readable or otherwise, (iii) all versions of the foregoing including, without
limitation, all screen displays and designs thereof, and all component modules
of source code or object code or natural language code therefor, and whether
recorded on paper, magnetic media or other electronic or non-electronic
device, (iv) all descriptions, flowcharts and other work product used to
design, plan, organize and develop any of the foregoing, (v) all documentation
including, without limitation, all technical and user manuals and training
materials relating to the foregoing, and (vi) Internet domain names and
content contained on all World Wide Web sites of the Company or any of its
subsidiaries.
3.21. Tax Matters
(a) The Company is the common parent of an affiliated group of corporations
(within the meaning of Section 1504(a) of the Code) eligible to file
consolidated federal income Tax Returns.
(b) Except as set forth on Schedule 3.21(b), (i) the Company has filed (or
joined in the filing of) when due all Tax Returns required by applicable law
to be filed with respect to the Company and all Taxes shown to be due on such
Tax Returns have been paid; (ii) all such Tax Returns were true, correct and
complete as of the time of such filing; (iii) all Taxes relating to periods
ending on or before the Closing Date owed by the Company (whether or not shown
on any Tax Return) or to which the Company may be liable under Treasury
Regulations (S) 1.1502-6 (or analogous state, local, or foreign provisions),
as a transferee or successor, by contract or otherwise, by virtue of having
been a member of any "affiliated group" (or other group filing on a combined
or unitary basis) at any time on or prior to the Closing Date, if required to
have been paid, have been paid (except for Taxes which are being contested in
good faith); (iv) any liability of the Company for Taxes not yet due and
payable, or which are being contested in good faith, has been provided for on
the financial statements of the Company included in the SEC Reports in
accordance with GAAP; (v) there is no action, suit, proceeding, investigation,
audit or claim now pending against, or with respect to, the Company in respect
of any Tax or assessment, nor is any claim for additional Tax or assessment
asserted by any Tax authority, nor, to the best of the Company's knowledge, is
any such assertion threatened; (vi) no claim has been made by any Tax
authority in a jurisdiction where the Company does not currently file a Tax
Return that it is or may be subject to Tax by such jurisdiction, nor, to the
best of the Company's knowledge, is any such assertion threatened; (vii) there
is no outstanding request for any extension of time within which to pay any
Taxes or file any Tax Returns; (viii) there has been no waiver or extension of
any applicable statute of limitations for the assessment or collection of any
Taxes of the Company; (ix) no property of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code; (x) the Company is
not a party to any lease made pursuant to former Section 168(f)(8) of the
Internal Revenue Code of 1954 or any analogous state or local provisions; (xi)
the Company has not filed any agreement or consent under Section 341(f) of the
Code; (xii) the Company is not a party to any agreement, whether written or
unwritten, providing for the payment of Taxes, payment for Tax losses,
entitlements to refunds or similar Tax matters; (xiii) no ruling with respect
to Taxes (other than a request for determination of the status of a qualified
pension plan) has been requested by or on behalf of the Company; (xiv) the
Company has withheld and paid all material Taxes required to be withheld in
connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party; and (xv) there is no security
interest on any asset of the Company that arose in connection with a failure
(or alleged failure) to pay any Tax. For purposes of this paragraph (except
for clause (xvi)), "Company" includes the Company and any of its subsidiaries.
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(c) For purposes of this Agreement, the following terms shall have the
following meanings:
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Tax(es)" shall mean any and all federal, state, local, foreign and other
taxes, levies, fees, imposts, duties and charges of whatever kind (including
any interest, penalties or additions to the tax imposed in connection
therewith or with respect thereto), whether or not imposed on the Company,
including, without limitation, taxes imposed on, or measured by, income,
franchise, profits or gross receipts, and also ad valorem, value added, sales,
use, service, real or personal property, capital stock, license, payroll,
withholding, employment, social security, workers' compensation, unemployment
compensation, utility, severance, production, excise, stamp, occupation,
premium, windfall profits, transfer and gains taxes and customs duties.
"Tax Return(s)" shall mean returns, reports, information statements and
other documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any Tax and shall
include any amended returns required as a result of examination adjustments
made by the Internal Revenue Service or other Tax authority.
3.22. Insurance
The Company and its subsidiaries and their respective properties are
insured in such amounts, against such losses and with such insurers as are
prudent when considered in light of the nature of the properties and
businesses of the Company and its subsidiaries. Schedule 3.22 sets forth a
complete and accurate list of the insurance policies of the Company and its
subsidiaries as in effect on the date hereof, including in each case the
applicable coverage limits, deductibles and the policy expiration dates. No
notice of any termination or threatened termination of any of such policies
has been received by the Company or any of its subsidiaries and such policies
are in full force and effect.
3.23. Transactions with Related Parties
Except as set forth on Schedule 3.23 or in the SEC Reports, neither the
Company nor any subsidiary is a party to any agreement with any of the
Company's directors, officers or, to the best of the Company's knowledge,
shareholders or, to the best of the Company's knowledge, any Affiliate or
family member of any of the foregoing under which it: (i) leases any real or
personal property (either to or from such Person), (ii) licenses real or
personal property or Intellectual Property (either to or from such Person),
(iii) is obligated to purchase any tangible or intangible asset from or sell
such asset to such Person, (iv) purchases products or services from such
Person, (v) has borrowed money from or loaned money to such Person or (vi)
permits such Person to use any personal property of the Company or any of its
subsidiaries for personal purposes. Except as set forth on Schedule 3.23 or in
the SEC Reports, neither the Company nor any subsidiary employs as an employee
or engages as a consultant any family member of any of the Company's
directors, officers or, to the best of the Company's knowledge, shareholders.
To the best of the Company's knowledge and except as set forth on Schedule
3.23, there exist no agreements among shareholders of the Company, except as
contemplated by the Company Transaction Documents, to act in concert with
respect to their voting or holding of Company securities.
3.24. Interest in Competitors
Neither the Company, nor any or its subsidiaries, nor, to the best of the
Company's knowledge, any of their respective officers or directors, has any
interest, either by way of contract or by way of investment (other than as
holder of not more than 2% of the outstanding capital stock of a publicly
traded Person) or otherwise, directly or indirectly, in any Person other than
the Company and its subsidiaries that (i) provides any services or designs,
produces or sells any product or product lines or engages in any activity
similar to or competitive with any activity currently proposed to be conducted
by the Company or any of its subsidiaries or (ii) has any direct or indirect
interest in any asset or property, real or personal, tangible or intangible,
of the Company.
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3.25. Private Offering
Neither the Company nor anyone acting on its behalf shall offer the Shares
or the Warrant for issue or sale to, or solicit any offer to acquire any of
the same from, anyone so as to bring the issuance and sale of the Shares, the
Warrant or the shares of Company Common Stock issuable upon the exercise of
the Warrant, or any part thereof, within the provisions of Section 5 of the
Securities Act. Based upon the representations of Purchasers set forth in
Section 4, the offer, issuance and sale of the Shares, the Warrant and the
shares of Company Common Stock issuable upon exercise of the Warrant are and
will be exempt from the registration and prospectus delivery requirements of
the Securities Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
3.26. Brokerage
Other than with respect to fees payable to Houlihan, Lokey, Howard & Zukin
Capital ("Houlihan Lokey"), there are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement or the other Transaction Documents based on any
arrangement made by or on behalf of the Company and the Company agrees to
indemnify and hold Purchasers harmless against any costs or damages incurred
as a result of any such claim, including with respect to fees payable to
Houlihan Lokey. The Company has heretofore furnished to Purchasers true and
complete information concerning the financial arrangements between the Company
and Houlihan Lokey pursuant to which such firm would be entitled to any
payment as a result of the transactions contemplated by the Transaction
Documents.
3.27. Disclosure
None of the information with respect to the Company or its subsidiaries to
be included or incorporated by reference in the proxy statement of the
Company, including any amendments or supplements thereto (collectively, the
"Company Proxy Statement") to be mailed to the stockholders of the Company in
connection with the transactions contemplated by the Transaction Documents
will, at the time of the mailing of the Company Proxy Statement and at the
time of the Company Vote (as defined in Section 6.3 of this Agreement),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading; provided, that the foregoing representation shall not be
applicable with respect to untrue statements or omissions based upon
information furnished to the Company by Purchasers for use therein. The
Company Proxy Statement will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations thereunder.
Prior to the date hereof, the Company has provided or made available to
Purchasers or their representatives complete and accurate copies of (i) all
unredacted minutes of meetings and written consents of the Board and
committees thereof for the period from September 25, 1996 through December 1,
1998 and (ii) all documents and agreements, including any amendments, renewals
or modifications thereof, referenced in the schedules to this Agreement.
3.28. Takeover Provisions Inapplicable
As of the date hereof and at all times on or prior to the Closing Date, the
Board shall have approved the transactions contemplated by this Agreement,
including, without limitation, the Additional Purchase Agreements, the Voting
and Option Agreement and the Voting Agreements so as to render inapplicable
hereto and thereto the limitations on business combinations contained in
Section 203 of the DGCL.
3.29. Company Action
The Board (at a meeting duly called and held) has by unanimous vote of the
directors (i) determined that the transactions that are the subject of the
Company Voting Matters (as defined in Section 6.3 of this Agreement) are
advisable and in the best interests of the Company and its stockholders, (ii)
recommended the approval of the transactions that are the subject of the
Company Voting Matters and directed that the transactions that are
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the subject of the Company Voting Matters be submitted for consideration by
the Company's stockholders at the Company Vote (subject to its right to
withdraw, modify or amend such recommendation and direction solely as provided
in Section 5.3 of this Agreement), and (iii) adopted a resolution having the
effect of causing the Company not to be subject, to the extent permitted by
applicable law, to any state takeover law that may purport to be applicable to
the transactions contemplated by the Transaction Documents.
3.30. Fairness Opinion
The Company has received, and has furnished Purchasers with a complete and
correct copy of, the written opinion of Houlihan Lokey, the financial advisor
to the Company, dated the date hereof, in the form set forth on Schedule 3.30.
3.31. FIRPTA
The Company is not, and has not been at any time during the five year
period ending on the date of this Agreement, a United States real property
holding corporation with the meaning of Section 897(c)(2) of the Code.
3.32. [Intentionally Deleted]
3.33. Employment Agreements
The Company and each of the Executives have executed employment agreements
in the form set forth on Schedule 3.33 (collectively, the "Employment
Agreements"). Each of the Employment Agreements is in full force and effect
and none of the parties thereto are in breach thereof.
3.34. Negative Assurances
To the Company's knowledge, the representations and warranties of (a) TSP
in the Voting and Option Agreement, (b) Walston and TSP, respectively, in the
Walston Voting Agreement and (c) Flemings in the Flemings Voting Agreement
are, in each such case, true and correct in all material respects.
Section 4. Representations and Warranties of Purchasers
Each Purchaser jointly and severally represents and warrants to the Company
as follows:
(a) Each Purchaser is a limited partnership duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, and each Purchaser has the requisite power and authority to
execute and deliver this Agreement and the other Transaction Documents to
which it is a party and to consummate the transactions contemplated hereby
and thereby, and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and of the other Transaction
Documents to which it is a party.
(b) This Agreement and the other Transaction Documents to which it is a
party have been duly executed and delivered by each Purchaser and, assuming
the due execution and delivery of this Agreement by the Company and of such
other Transaction Documents by the other parties thereto, are the valid and
binding obligations of each Purchaser, enforceable against each Purchaser
in accordance with their respective terms, except that (i) the
enforceability hereof and thereof may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereinafter in effect, affecting
creditors' rights generally, and (ii) the availability of the remedy of
specific performance or injunctive or other forms of equitable relief may
be subject to equitable defenses and would be subject to the discretion of
the court before which any proceeding therefor may be brought.
(c) Neither the execution and delivery of this Agreement nor of the
other Transaction Documents to which it is a party nor the performance by
each Purchaser of its obligations hereunder or thereunder will conflict
with, result in a violation or breach of, or constitute a default (or an
event that, with notice or lapse
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of time or both, would result in a default) or give rise to any right of
termination, amendment, cancellation or acceleration under (collectively, a
"Conflict"), (i) its certificate of limited partnership, partnership
agreement or comparable instrument, (ii) any contract, commitment,
agreement, understanding, arrangement or restriction of any kind to which
such Purchaser is a party or by which such Purchaser is bound to the extent
such Conflict would materially affect such Purchaser's ability to
consummate the transactions contemplated under the Transaction Documents or
(iii) any judgment, writ, decree, order or ruling applicable to such
Purchaser to the extent such Conflict would materially affect such
Purchaser's ability to consummate the transactions contemplated under the
Transaction Documents.
(d) Neither the execution and delivery of this Agreement nor of the
other Transaction Documents to which it is a party nor the performance by
each Purchaser of its obligations hereunder or thereunder will violate any
law, decree, statute, rule or regulation applicable to such Purchaser or
require any order, consent, authorization or approval of, filing or
registration with, or declaration or notice to, any corporation, Person,
firm, Governmental Entity or public or judicial authority, other than any
required notices or filings with the FCC or pursuant to the HSR Act or the
federal securities laws.
(e) It is acquiring the Shares and the Warrant (and will acquire the
Company Common Stock issuable upon exercise of the Warrant) for its own
account for investment and not with a view towards the resale, transfer or
distribution thereof, nor with any present intention of distributing the
Shares or the Warrant (or the Company Common Stock acquired upon exercise
of the Warrant), but subject, nevertheless, to any requirement of law that
the disposition of such Purchaser's property shall at all times be within
such Purchaser's control (subject to any restrictions on transfer set forth
herein), and without prejudice to such Purchaser's right at all times to
sell or otherwise dispose of all or any part of such securities under a
registration under the Securities Act or under an exemption from said
registration available under the Securities Act.
(f) There are no claims for brokerage commissions or finder's fees or
similar compensation in connection with the transactions contemplated by
this Agreement or the other Transaction Documents to which it is a party
based on any arrangement made by or on behalf of such Purchaser or any of
its Affiliates and such Purchaser agrees to indemnify and hold the Company
harmless against any costs or damages incurred as a result of any such
claim.
(g) It has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of its
investment in the Company as contemplated by this Agreement and is able to
bear the economic risk of such investment for an indefinite period of time.
It has been furnished access to such information and documents as it has
requested and has been afforded an opportunity to ask questions of and
receive answers from representatives of the Company concerning the terms
and conditions of this Agreement and the purchase of the Shares and the
Warrant contemplated hereby. It is an "accredited investor" as defined in
Rule 501(a) under the Securities Act.
(h) Neither such Purchaser nor any of its Affiliates is an "interested
stockholder" (as such term is defined in Section 203 of the DGCL) of the
Company as of the date immediately prior to the date of this Agreement, and
has not had such status with respect to the Company during the three years
preceding such prior date. Immediately prior to the date of this Agreement,
such Purchaser was not the beneficial owner of any Capital Stock of the
Company.
(i) The Purchasers have available and fully committed to them all funds
necessary to consummate the transactions contemplated by the Transaction
Documents.
Section 5. Conduct of the Business pending the Sale and Purchase
5.1. Acquisition Proposals
The Company will notify Purchasers immediately, but in any event within 24
hours, if any proposals, inquiries or expressions of interest are received by,
any information is requested from, or any negotiations or
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discussions are sought to be initiated or continued with the Company or its
representatives, in each case in connection with any Takeover Proposal (as
defined below) or the possibility or consideration by a third party of making
a Takeover Proposal ("Takeover Proposal Interest") indicating, in connection
with such notice, the name of the Person indicating such Takeover Proposal
Interest and the terms and conditions of any proposals or offers. The Company
agrees that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Takeover Proposal Interest. The Company agrees that it
will take the necessary steps promptly to inform the Persons referred to in
the first sentence hereof of the obligations undertaken in this Section 5.1.
The Company agrees that it shall keep Purchasers informed, on a current basis,
of the status and terms of any Takeover Proposal Interest. As used in this
Agreement, "Takeover Proposal" shall mean any tender or exchange offer
involving the Company, any proposal for a merger, consolidation or other
business combination involving the Company, any proposal or offer to acquire
in any manner a greater than 15% equity interest in, or a significant portion
of the business or assets of, the Company (other than immaterial or
insubstantial assets or inventory in the ordinary course of business or assets
held for sale), any proposal or offer with respect to any recapitalization or
restructuring with respect to the Company or any proposal or offer with
respect to any other transaction similar to any of the foregoing with respect
to the Company other than pursuant to the transactions to be effected pursuant
to this Agreement and the Additional Purchase Agreements.
5.2. Conduct of Business by the Company
Except as contemplated by the Transaction Documents, from the date hereof
through the Closing Date, unless Purchasers shall otherwise agree in writing:
(a) the Company shall and shall cause its subsidiaries to carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its subsidiaries to, use their reasonable best efforts to preserve
intact their present business organizations, keep available the services of
their present officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and on-going businesses shall be unimpaired on the
Closing Date. Without limiting the generality of the foregoing, the Company
shall, and shall cause its subsidiaries to, (i) maintain insurance
coverages and its books and records in a manner consistent with prior
practices, (ii) comply with all laws, ordinances and regulations of
Governmental Entities applicable to the Company and its subsidiaries, (iii)
maintain and keep its properties and equipment in good repair, working
order and condition, ordinary wear and tear excepted, and (iv) perform its
obligations under all contracts and commitments to which it is a party or
by which it is bound, except in each case where the failure to so maintain,
comply or perform, either individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect;
(b) the Company shall not, nor shall it propose to, (i) sell, pledge or
transfer or agree to sell, pledge or transfer any capital stock owned by it
in any of its subsidiaries, (ii) amend its Certificate of Incorporation or
By-laws, (iii) split, combine or reclassify its outstanding capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of the capital stock,
or declare, set aside or pay any dividend or other distribution payable in
cash, stock or property, or (iv) directly or indirectly redeem, purchase or
otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of its capital stock, except pursuant to (A) the exercise of rights
granted to such party to repurchase shares of its capital stock from
employees upon termination of employment or (B) contractual obligations
arising under agreements existing on the date hereof and disclosed in the
schedules attached hereto;
(c) the Company shall not, nor shall it permit any of its subsidiaries
to, (i) issue, deliver, sell or encumber or agree to issue, deliver, sell
or encumber any additional shares of, or stock appreciation rights or
rights of any kind to acquire any shares of, its capital stock of any
class, or any options, rights or warrants to acquire, or securities
convertible into, shares of capital stock other than (A) issuances of
Company Common Stock pursuant to the exercise of warrants or stock options
outstanding on the date hereof and
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disclosed on Schedule 3.3(b) or Schedule 3.3(c) or (B) except with respect
to the persons listed on Schedule 5.2, the grant of employee stock options
and the issuance of Company Common Stock upon exercise thereof, at fair
market value at the time of grant of the options, in each case in the
ordinary course of business and consistent with past practice, to employees
below the level of officer or director, provided that such employees are
not Affiliates or immediate family members of employees of the Company or
any of its subsidiaries or Affiliates at or above the level of officer or
director, in each case in the ordinary course of business and consistent
with past practice but not to exceed 50,000 shares of Company Common Stock
in the aggregate, (ii) acquire, lease or dispose or agree to acquire, lease
or dispose of any capital assets or any other assets other than in the
ordinary course of business, (iii) incur additional indebtedness or
encumber or grant a security interest in any asset or enter into any
transaction other than in the ordinary course of business, (iv) incur any
liability or obligation, or contribute any asset, to a subsidiary of the
Company other than in the ordinary course of business, (v) acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, in each case in this clause (v) which are material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole, or (vi) adopt, enter into, amend or terminate any contract,
agreement, commitment or arrangement with respect to any of the foregoing
that is not otherwise permitted by the exceptions applicable to the
foregoing;
(d) the Company shall not, nor shall it permit any of its subsidiaries
to, other than to comply with applicable law, (i) adopt, enter into,
terminate or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other Employee Benefit Plan agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current
or former employee, except with respect to the agreements described in
Section 8.13, (ii) increase in any manner the compensation or fringe
benefits of any director, officer or employee (except for normal increases
in the ordinary course of business that are consistent with past practice
and that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company and its subsidiaries
relative to the level in effect prior to such increase), (iii) pay any
benefit not provided under any existing plan or arrangement, (iv) except
for benefits that have already been earned or vested without acceleration,
grant any awards or make any payments under any bonus, incentive,
performance or other compensation plan or arrangement or Employee Benefit
Plan (including, without limitation, the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units
or restricted stock, or the removal of existing restrictions in any benefit
plans or agreements or awards made thereunder), except for (A) making of
matching and annual contributions to 401(k) plans and (B) the grant of
employee stock options and the issuance of Company Common Stock upon
exercise thereof pursuant to subsection (c) of this Section 5.2, (v) take
any action to fund or in any other way secure the payment of compensation
or benefits under any employee plan, agreement, contract or arrangement or
Employee Benefit Plan, other than in the ordinary course of business
consistent with past practice, or (vi) adopt, enter into, amend or
terminate any contract, agreement, commitment or arrangement to do any of
the foregoing that is not otherwise permitted by the exceptions applicable
to the foregoing;
(e) the Company shall not, nor shall it permit any of its subsidiaries
to, make any investments in non-investment grade securities;
(f) the Company shall not, nor shall it permit its subsidiaries to, (i)
make any change in its accounting policies or procedures except as required
by GAAP or (ii) make any material Tax election, change any material Tax
election already made, adopt any material Tax accounting method, change any
material Tax accounting method unless required by GAAP, enter into any
closing agreement, settle any Tax claim or assessment or consent to any Tax
claim or assessment or any waiver of the statute of limitations for any
such claim or assessment; and
(g) the Company shall not enter into any agreement to perform any of the
actions prohibited under this Section 5.2 and not otherwise permitted by
the exceptions contained therein.
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5.3. No Solicitation; Board Recommendation
(a) The Company will not, and will use its best efforts to ensure that its
officers, directors, employees, investment bankers, attorneys, accountants and
other agents do not, directly or indirectly: (i) initiate, solicit or
encourage, or take any action to facilitate (including by the furnishing of
information) the making of, any offer or proposal which constitutes or is
reasonably likely to lead to any Takeover Proposal, (ii) enter into any
agreement with respect to any Takeover Proposal, or (iii) in the event of an
unsolicited Takeover Proposal for the Company, engage in negotiations or
discussions with, or provide any information or data to, any Person (other
than Purchasers, any of their Affiliates or representatives and except for
information which has been previously publicly disseminated by the Company)
relating to any Takeover Proposal.
(b) Notwithstanding the foregoing, prior to the Closing, the Company may
furnish information concerning its business, properties or assets to any
Person pursuant to appropriate confidentiality agreements, and may negotiate
and participate in discussions and negotiations with such Person concerning a
Takeover Proposal (provided that the Company shall not agree to any exclusive
right to negotiate with the Company) if (x) such entity or group has, without
the Company or any of its officers, directors, employees, investment bankers,
attorneys, accountants or other agents having taken any action prohibited by
Section 5.3(a) of this Agreement following the date of this Agreement,
submitted a bona fide written proposal to the Company relating to any such
transaction that the Board determines, in good faith, after receiving written
advice from a nationally recognized investment banking firm (for purposes
hereof, such firms shall include, without limitation, Houlihan Lokey and ING
Baring Furman Selz), is more favorable to the Company and its stockholders
than the transactions contemplated hereby (taking into account all relevant
factors), and which is not conditioned upon obtaining additional financing not
fully committed at such time and (y) in the opinion of the Board, after
receiving advice from outside legal counsel to the Company, the failure to
provide such information or access or to engage in such discussions or
negotiations would cause the Board to breach its fiduciary duties to the
Company's stockholders under applicable law (a Takeover Proposal which
satisfies clauses (x) and (y) being referred to herein as a "Superior
Proposal"). The Company shall within one Business Day following a
determination that such Takeover Proposal is a Superior Proposal notify
Purchasers of the receipt of the same. The Company shall promptly provide to
Purchasers any nonpublic information regarding the Company provided to any
other party which was not previously provided to Purchasers. If the Company's
outside counsel agrees that a breach of fiduciary duty would occur, the Board
may (subject to this and the following sentences) inform the Company's
stockholders that it no longer believes that the transactions contemplated
hereby are advisable and no longer recommends approval (a "Subsequent
Determination"), but only at a time that is after the fifth Business Day
following Purchasers' receipt of written notice advising Purchasers that the
Board has received a Superior Proposal specifying the material terms and
conditions of such Superior Proposal (and including a copy thereof with all
accompanying documentation), identifying the Person making such Superior
Proposal and stating that it intends to make a Subsequent Determination. After
providing such notice, the Company shall provide a reasonable opportunity to
Purchasers to make such adjustments in the terms and conditions of this
Agreement and/or any of the Transaction Documents as would enable the Board to
proceed with its recommendation to its stockholders without a Subsequent
Determination. At any time after five Business Days following notification to
Purchasers of the Company's intent to do so and if the Company has otherwise
complied with the terms of this Section 5.3(b), the Board may terminate this
Agreement pursuant to clause (ii) of Section 10.1(f) and enter into an
agreement with respect to a Superior Proposal, provided that the Company
shall, concurrently with terminating this Agreement pursuant to such clause,
pay or cause to be paid to Purchasers the Termination Fee/Expense
Reimbursement (as defined in Section 10.2(b) hereof). Notwithstanding any
other provision of this Agreement, provided that this Agreement has not
previously been terminated in accordance with its terms, the Company shall
submit the Company Voting Matters to its stockholders, whether or not the
Board makes a Subsequent Determination.
(c) Except as set forth in Section 5.3(b), neither the Board nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Purchasers, the approval or recommendation by
the Board or any such committee of this Agreement, the other Company
Transaction
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Documents, the transactions contemplated hereby and thereby and the Company
Voting Matters (as defined in Section 6.3 of this Agreement), (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or (iii)
enter into any agreement with respect to any Takeover Proposal.
(d) Nothing contained in this Section 5.3 shall prohibit the Company or the
Board from (i) taking, and disclosing to the Company's stockholders, a
position with respect to a Takeover Proposal pursuant to Rules 14d-9 and 14e-
2(a) under the Exchange Act or (ii) making any disclosure to the Company's
stockholders that the Board determines, in good faith and upon exercise of its
reasonable judgment after consultation with its financial advisors and outside
legal counsel, that the failure to so disclose would be reasonably likely to
result in a breach of the fiduciary duties of the Board under applicable law.
Section 6. Additional Covenants of the Parties
6.1. Access to Information; Confidentiality
From the date hereof to the Closing, the Company shall, and shall cause
each of its subsidiaries, officers, directors, employees, auditors and agents
to, afford the officers, employees and agents of Purchasers reasonable access
at all reasonable times to its officers, employees, agents, properties,
offices and other facilities and to all books and records, and shall furnish
Purchasers with all financial, operating and other data and information as
Purchasers, through their officers, employees or agents, may reasonably
request. Purchasers shall hold, and shall cause each of their subsidiaries,
officers, directors, employees, auditors and agents to hold, in confidence all
such information in accordance with the terms of the Confidentiality
Agreement, dated March 10, 1998, between Warburg, Pincus Ventures, L.P. and
the Company (the "Confidentiality Agreement").
6.2. Company Proxy Statement
(a) As promptly as practicable after the execution of this Agreement, the
Company shall prepare and file with the SEC preliminary proxy materials which
shall constitute the preliminary Company Proxy Statement. Purchasers shall
furnish to the Company such information regarding Purchasers as the Company
may reasonably request in writing and as shall be reasonably required in
connection with preparation of the Company Proxy Statement. As promptly as
practicable after comments are received from the SEC with respect to such
preliminary Company Proxy Statement and after the furnishing by the Company of
all information required to be contained therein, the Company shall file with
the SEC the definitive Company Proxy Statement. The Company shall mail the
Company Proxy Statement to its stockholders as promptly as practicable after
clearance by the SEC. The Company shall provide Purchasers for their review a
copy of the preliminary and the definitive Company Proxy Statement at least
such amount of time prior to its filing and mailing as is customary in
transactions of the type contemplated hereby and shall not file or mail such
Company Proxy Statement without the prior written consent of Purchasers, which
consent shall not be unreasonably withheld. The Company shall retain the
services of a proxy soliciting firm mutually acceptable to Purchasers and the
Company for the purpose of communicating to the Company's stockholders the
recommendation of the Board in favor of the transactions contemplated hereby
and obtaining the Company Vote.
(b) Purchasers and the Company shall make all necessary filings applicable
to them with respect to the transactions contemplated hereby under the
Securities Act and the Exchange Act and the rules and regulations thereunder
and under applicable Blue Sky or similar securities laws and shall use their
respective reasonable best efforts to obtain required approvals and clearances
with respect thereto.
6.3. Stockholder Meeting
The Company shall take all action necessary, in accordance with applicable
law, including the rules and regulations of the National Association of
Securities Dealers, Inc., the DGCL and the Company's Organizational Documents,
to convene a meeting of the holders of Capital Stock (such meeting and any
adjournments thereof, the "Company Vote) as promptly as practicable after the
date of this Agreement for the purpose of considering
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and taking action to authorize and approve this Agreement and the transactions
contemplated hereby, including, without limitation, the transactions
contemplated by Section 7.4 and, subject to the consummation of the
transactions contemplated hereby, the reduction of the number of outstanding
directors on the Board pursuant to Section 6.10 and the election as directors
of the Company of the individuals set forth in Section 6.11 (collectively, the
"Company Voting Matters"). At the Company Vote, (i) all of the shares of
Capital Stock then beneficially owned by Purchasers and their Affiliates, or
with respect to which Purchasers hold the power to direct the voting, will be
voted in favor of the Company Voting Matters and (ii) a majority of the votes
cast at the Company Vote (provided a quorum is present under applicable law)
shall be required to approve the Company Voting Matters.
6.4. HSR Act
The Company and Purchasers shall use their best efforts to file as soon as
practicable notifications under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), in connection with the transactions
contemplated hereby, and to respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Antitrust
Division of the Department of Justice for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other Governmental Entity
in connection with antitrust matters relating to the transactions contemplated
by this Agreement.
6.5. FCC Approvals
The Company, its subsidiaries and Purchasers shall use their best efforts
to file with the FCC as soon as practicable all necessary applications for
obtaining FCC Approval, and to respond as promptly as practicable to any
inquiries received from the FCC for additional information or documentation.
Each of the Company, its subsidiaries and Purchasers shall use its best
efforts to take, or cause to be taken, all action and to do or satisfy, or
cause to be done or satisfied, all things and conditions necessary, proper or
advisable, to obtain FCC Approval.
6.6. Additional Agreements
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to cooperate with the other and use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Transaction Documents, including using its reasonable best efforts to
obtain all necessary waivers, consents and approvals, and to effect all
necessary registrations and filings (including, but not limited to, filings
under the HSR Act, with the FCC for obtaining FCC Approval and with all
applicable Governmental Entities as required by law).
(b) In case at any time after the Closing any further action is necessary
or desirable to carry out the purposes of any of the Company Transaction
Documents, Purchasers and the Company shall take all such action as promptly
as practicable.
6.7. Notice of Breach
Each party shall promptly give written notice to the other parties upon
becoming aware of the occurrence or, to its knowledge, impending or threatened
occurrence, of any event which would cause any of the conditions to such
party's obligations to effect the transactions contemplated by this Agreement
not to be satisfied and will use its reasonable best efforts to prevent or
promptly remedy the same. Any such notification by the Company shall not be
deemed an amendment of this Agreement.
6.8. Director and Officer Indemnification and Insurance
From the date hereof through the fourth anniversary of the Closing Date and
for so long as any claim asserted prior to such date has not been fully
adjudicated by a court of competent jurisdiction, the Company (i)
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shall at all times maintain liability insurance coverage with respect to each
of the Company's and its subsidiaries' respective directors and officers
serving on the date hereof, insuring each such individual against liability
for their actions as a director and/or officer (as the case may be) occurring
prior to the Closing and in scope of coverage and in amounts and having
deductibles at least equivalent to that maintained by the Company on the date
hereof and otherwise reasonably comparable to the coverage maintained by the
Company on the date hereof, provided that in no event shall the Company be
obligated to expend in order to maintain or procure such insurance coverage
any amount per annum in excess of 200% of the aggregate premiums paid by the
Company in 1998 for such purpose (provided that if the Company is unable to
obtain the insurance required by this Section 6.8 for such maximum amount, it
shall obtain as much comparable insurance as possible for an annual premium
equal to such maximum amount), and (ii) shall not amend or modify any of the
provisions of Articles 6.4 or 7 of the Company's Certificate of Incorporation
or Article 8 of the Company's By-laws in any manner that would adversely
affect such individuals, unless required by law.
6.9. Resale of Securities
If Purchasers should decide to dispose of any of the Shares, the Warrant or
the Company Common Stock issuable upon exercise of the Warrant, each Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption
from registration under the Securities Act. In connection with any offer,
resale, pledge or other transfer (individually and collectively, a "Transfer")
of any such securities other than pursuant to an effective registration
statement, the Company may require that the transferor provide to the Company
an opinion of counsel which opinion shall be reasonably satisfactory in form
and substance to the Company, to the effect 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 and any applicable state or
foreign securities laws. Each Purchaser agrees to the imprinting, so long as
appropriate, of substantially the following legend on certificates
representing the Shares, the Warrant and the Company Common Stock issuable
upon exercise of the 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.
The legends set forth above may be removed if and when the securities
represented by such certificate are disposed of pursuant to an effective
registration statement under the Securities Act or the opinion of counsel
referred to above has been provided to the Company. The Share certificates and
the Warrant (and the Company Common Stock issuable upon exercise of the
Warrant) shall also bear any additional legends required by applicable
federal, state or foreign securities laws, which legends may be removed when,
in the opinion of counsel to the Company, the same are no longer required
under the applicable requirements of such securities laws. Each Purchaser
agrees that, in connection with any Transfer of securities by it pursuant to
an effective registration statement under the Securities Act, it will comply
with all prospectus delivery requirements of the
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Securities Act applicable to Purchasers. Each Purchaser acknowledges that the
Company makes no representation, warranty or agreement as to the availability
of any exemption from registration under the Securities Act with respect to
any resale of any of the Shares, the Warrant or the Company Common Stock
issuable upon exercise of the Warrant.
6.10. Reduction in Size of Board
The Company shall take all action necessary, in accordance with applicable
law, including the DGCL, the rules and regulations of the National Association
of Securities Dealers, Inc. and the Company's Certificate of Incorporation and
By-laws, to cause the number of outstanding directors on the Board to be
decreased to seven (7) directors effective the Closing Date, which
reconstituted Board will include Sidney Lapidus, David Libowitz, a person
designated by Purchasers (the "Purchasers' Designee", Walston, Jeffrey J.
Marcketta, an Independent Director (as defined in Section 6.11) designated by
the Company and a person designated by Flemings, including, to the extent
required under applicable law, the inclusion of a proposal to this effect in
the Company Proxy Statement and the recommendation of the Board to the
Company's stockholders to vote for such proposal at the Company Vote.
6.11. Board Nominees; Independent Directors
(a) For so long as Purchasers own beneficially (within the meaning of Rule
13d-3 under the Exchange Act) at least 35% of the then outstanding shares of
Company Common Stock, the Company will nominate and use its best efforts to
elect and to cause to remain as directors on the Board such number of
individuals as Purchasers may designate as shall constitute a majority of the
Board. For so long as Purchasers own beneficially 30% or more but less than
35% of the then outstanding shares of Company Common Stock, the Company will
nominate and use its best efforts to elect and to cause to remain as directors
on the Board the greater of (i) three individuals as designated by Purchasers
and (ii) such number of individuals as Purchasers may designate not exceeding
the product (rounded upward or downward to the nearest whole number) obtained
by multiplying the number of seats on the Board by the quotient obtained by
dividing (a) the number of shares of Company Common Stock then owned by
Purchasers by (b) the total number of shares of Company Common Stock then
outstanding (the "Applicable Percentage"). For so long as Purchasers own
beneficially 20% or more but less than 30% of the then outstanding shares of
Company Common Stock, the Company will nominate and use its best efforts to
elect and to cause to remain as directors on the Board the greater of (i) two
individuals as designated by Purchasers and (ii) the product (rounded upward
or downward to the nearest whole number) obtained by multiplying the number of
seats on the Board by the Applicable Percentage. For so long as Purchasers own
beneficially 10% or more but less than 20% of the then outstanding shares of
Company Common Stock, the Company will nominate and use its best efforts to
elect and to cause to remain as directors on the Board the greater of (i) one
individual as designated by Purchasers and (ii) the product (rounded upward or
downward to the nearest whole number) obtained by multiplying the number of
seats on the Board by the Applicable Percentage. Any vacancy created by the
death, disability, retirement or removal of any such individual may be filled
by Purchasers. For the sake of clarity, all percentages contained in this
Section 6.11(a) shall be calculated on the basis of the number of shares of
Company Common Stock outstanding on a primary, non-fully diluted basis.
(b) Purchasers shall use all reasonable efforts to ensure that, for so long
as the Company Common Stock is listed on the Nasdaq National Market or any
national securities exchange, the Board shall contain such number of
"independent directors", as defined in Section 4200 of the rules of the Nasdaq
Stock Market (the "Nasdaq Rules") or the rules governing such national
securities exchange (the "Stock Exchange Rules"), as applicable ("Independent
Directors"), as shall be required from time to time by the Nasdaq Rules or
Stock Exchange Rules, as applicable.
(c) This Section 6.11 shall expressly survive the termination of this
Agreement in accordance with the terms described herein.
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6.12. MSCL Section 338(h)(10) Election
If the Company and Purchasers mutually agree that it would be in the
Company's best interests, the Company shall use its reasonable best efforts to
procure from every shareholder of MSCL, Inc. from whom the Company acquired
shares of MSCL, Inc., and provide to Purchasers, written consents to effect a
timely election pursuant to Section 338(h)(10) of the Code, and any applicable
state or local provision, with respect to the acquisition of MSCL, Inc. on
September 15, 1998.
6.13. TVN Agreement
The Company shall use its reasonable best efforts to execute with TVN
Entertainment Corporation ("TVN") a new agreement, on terms reasonably
satisfactory to Purchasers, regarding the provision and maintenance by the
Company of an Uplink-Playback facility for TVN, which agreement shall replace
the Deal Memorandum between the Company and TVN currently in force, the term
of which expires on January 31, 1999.
Section 7. Closing Conditions of Purchasers and the Company
The respective obligations of each of the Company and Purchasers to effect
the transactions contemplated by this Agreement shall be subject to the
satisfaction on or prior to the Closing Date of the following conditions.
7.1. Stockholder Approval
This Agreement and the Company Voting Matters shall have been approved and
adopted by the requisite vote of the holders of Capital Stock at the Company
Vote.
7.2. FCC Approval
The Company shall have obtained FCC Approval; provided, however, that the
Company and Purchasers may, by mutual agreement prior to Closing, agree to
effect the transactions contemplated by this Agreement upon the adoption of
decisions by the FCC or its bureaus on designated authority which grant all
consents or approvals required under the Communications Act of 1934, as
amended, and the FCC's rules, regulations and policies for the transfer of
control of the FCC Licenses to Purchasers whether or not any appeal or request
for reconsideration or review of any such decisions is pending, or whether the
time for filing any such appeal or request for reconsideration or review or
for any sua sponte action by the FCC with similar effect, has expired.
7.3. Expiration or Termination of Waiting Period under HSR Act
Any waiting period (and any extension thereof) under the HSR Act applicable
to the transactions contemplated by this Agreement and the other Transaction
Documents shall have expired or been terminated.
7.4. Amendments to Stock Option Plan; Incentive Bonus Plan
The amendments to the Company's 1997 Stock Option Plan, in the form set
forth in Exhibit D, and the Company's Incentive Bonus Plan, in a form
reasonably acceptable to Purchasers, shall have been approved by the Board
(and such approval shall not have been modified or rescinded) and, in the case
of the amendments to the Company's 1997 Stock Option Plan, by the requisite
vote of the holders of Capital Stock in a manner that complies with the
requirements of Section 162(m) of the Code, such that any compensation
attributable to the exercise of options or payment of bonuses thereunder
(including any forgiveness of employee debt) shall constitute "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
7.5. Injunction
No preliminary or permanent injunction or other order by any federal or
state court in the United States which prevents the consummation of the
transactions contemplated by this Agreement shall have been issued and remain
in effect.
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Section 8. Purchaser Closing Conditions
The obligations of Purchasers to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions, any one or more of which may be waived in
writing by Purchasers in accordance with Section 10.4 hereof:
8.1. Representations and Warranties
The representations and warranties of the Company contained in the Company
Transaction Documents, to the extent such Company Transaction Documents
contain representations and warranties of the Company, shall be true and
correct in all respects (provided that, for purposes of this Section 8.1, any
representation or warranty of the Company contained in the Company Transaction
Documents that is qualified by a materiality standard or a Company Material
Adverse Effect qualification shall be read without regard to any such
qualifications as if such qualifications were not contained in the Company
Transaction Documents) as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the extent any
such representation or warranty speaks as to an earlier date, in which event
it shall be true and correct as of such earlier date) except as otherwise
affected by the transactions contemplated hereby and thereby and except for
such failures which, individually or in the aggregate, have not had and could
not reasonably be expected to (i) have a Company Material Adverse Effect, (ii)
materially impair the Company's ability to consummate the transactions
contemplated under the Transaction Documents or materially delay such
transactions or (iii) impose a material limitation on the ability of
Purchasers to effectively acquire, hold or exercise any rights of ownership
with respect to the Shares, the Warrants or the Common Stock issuable upon the
exercise of the Warrant.
8.2. Compliance with Company Transaction Documents
The Company shall have performed and complied in all material respects with
all agreements, covenants and conditions contained in the Company Transaction
Documents, to the extent such Company Transaction Documents contain
agreements, covenants and conditions of the Company, which are required to be
performed or complied with by the Company prior to or on the Closing Date,
including without limitation the actions required to be taken pursuant to
Sections 6.10 and 6.11 (provided that, for purposes of this Section 8.2, any
agreement, covenant or condition of the Company contained in the Company
Transaction Documents that is qualified by a materiality standard or a Company
Material Adverse Effect qualification shall be read without regard to any such
qualifications as if such qualifications were not contained in the Company
Transaction Documents) except, solely in the case of the agreements, covenants
or conditions set forth in Section 5.2, for such failures which, individually
or in the aggregate, have not had and could not reasonably be expected to (i)
have a Company Material Adverse Effect, (ii) materially impair the Company's
ability to consummate the transactions contemplated under the Transaction
Documents or materially delay such transactions or (iii) impose a material
limitation on the ability of Purchasers to effectively acquire, hold or
exercise any rights of ownership with respect to the Shares, the Warrants or
the Common Stock issuable upon the exercise of the Warrant.
8.3. Officer's Certificate
Purchasers shall have received a certificate, dated the Closing Date,
signed by each of the President and the Chief Executive Officer of the
Company, certifying that the conditions specified in the foregoing Sections
8.1 and 8.2 hereof have been fulfilled.
8.4. Consents
Except as set forth in Sections 7.1, 7.2, 7.3, 7.4 and 8.10, all permits,
consents, authorizations, approvals, waivers, registrations, qualifications,
designations and declarations set forth on Schedule 3.5 shall have been
obtained, and, to the extent required to be submitted prior to the Closing,
all filings and notices set forth on Schedule 3.5 shall have been submitted
except for such failures to obtain or submit which, individually or in the
aggregate, have not had and could not reasonably be expected to (i) have a
Company Material Adverse Effect,
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(ii) materially impair the Company's ability to consummate the transactions
contemplated under the Transaction Documents or materially delay such
transactions or (iii) impose a material limitation on the ability of
Purchasers to effectively acquire, hold or exercise any rights of ownership
with respect to the Shares, the Warrants or the Common Stock issuable upon the
exercise of the Warrant.
8.5. Counsel's Opinion
Purchasers shall have received from legal counsel to the Company an
opinion, dated the Closing Date, substantially in the form of Exhibit E
hereto.
8.6. Registration Rights Agreement
The Company and Purchasers shall have executed the Registration Rights
Agreement, substantially in the form of Exhibit F hereto (the "Registration
Rights Agreement").
8.7. Voting Agreements and Voting and Option Agreement
The options and irrevocable proxies granted by (i) Walston and Flemings,
respectively, pursuant to the Voting Agreements and (ii) TSP pursuant to the
Voting and Option Agreement shall be in full force and effect and none of the
parties thereto (other than Purchasers or any of their Affiliates) shall be in
material breach thereof.
8.8. Flemings Conversion Agreement
The transactions contemplated by the Flemings Conversion Agreement shall be
consummated concurrently with the Closing in accordance with the terms
thereof.
8.9. Additional Purchase Agreement
The transaction contemplated by the TSP Purchase Agreement shall be
consummated concurrently with the Closing in accordance with the terms
thereof.
8.10. Amendment of Credit Agreement
The Credit Agreement shall have been amended on terms reasonably acceptable
to Purchasers.
8.11. Board Recommendation
Neither the Board nor any committee thereof shall have amended, modified,
rescinded or repealed the approval by the Board of this Agreement and the
transactions contemplated hereby pursuant to which the limitations on business
combinations contained in Section 203 of the DGCL were rendered inapplicable
hereto and thereto, and neither the Board nor any committee thereof shall have
adopted any other resolutions in connection with this Agreement and the
transactions contemplated hereby inconsistent with such approval of the
transactions contemplated hereby.
8.12. Termination of Lock-Up Agreements
The Lock-up Agreements shall have been terminated by all parties thereto in
accordance with the terms thereof.
8.13. Employment Agreements
The Company shall have entered into employment agreements with certain key
employees of the Company identified by mutual agreement of the Company and
Purchasers, other than the Executives, on terms reasonable acceptable to
Purchasers.
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Section 9. Company Closing Conditions
The obligations of the Company to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions, any one or more of which may be waived in
writing by the Company in accordance with Section 10.4 hereof:
9.1. Representations and Warranties
The representations and warranties of Purchasers contained in the
Transaction Documents to which it is a party shall be true in all respects on
and as of the Closing Date (except to the extent any such representation and
warranty speaks as to an earlier date, in which event it shall be true and
correct in all material respects as of such earlier date) as though such
representations and warranties were made at and as of such date, except as
otherwise affected by the transactions contemplated hereby and except for such
failures which, individually or in the aggregate, have not had and could not
reasonably be expected to materially impair Purchasers' ability to consummate
the transactions contemplated under the Transaction Documents or materially
delay such transactions.
9.2. Compliance with Agreements
Purchasers shall have performed and complied in all material respects with
all agreements, covenants and conditions contained in the Transaction
Documents to which it is a party which are required to be performed or
complied with by them prior to or on the Closing Date.
9.3. Purchasers' Certificates
The Company shall have received a certificate from Purchasers, dated the
Closing Date, signed by a duly authorized representative of Purchasers,
certifying that the conditions specified in the foregoing Sections 9.1 and 9.2
hereof have been fulfilled.
Section 10. Termination, Amendment and Waiver
10.1. Termination
This Agreement may be terminated at any time prior to the Closing, whether
before or after approval of the Company Voting Matters by the stockholders of
the Company:
(a) By mutual written consent of the Board and Purchasers; or
(b) (i) By Purchasers if any of the conditions specified in Sections 7
or 8 have not been satisfied or waived by Purchasers at such time as such
condition is no longer capable of satisfaction, including the failure to
obtain any required approval of the Company's stockholders at the Company
Vote or at an adjournment thereof (provided Purchasers are not otherwise in
material breach of their representations, warranties, covenants or
agreements under this Agreement); or (ii) by the Company if any of the
conditions specified in Sections 7 or 9 have not been satisfied or waived
by the Company at such time as such condition is no longer capable of
satisfaction, including the failure to obtain any required approval of the
Company's stockholders at the Company Vote (provided the Company is not
otherwise in material breach of its representations, warranties, covenants
or agreements under this Agreement); or
(c) By either Purchasers or the Company if any Governmental Entity of
competent jurisdiction shall have issued a final permanent order enjoining
or otherwise prohibiting the consummation of the transactions contemplated
by this Agreement, and in any such case the time for appeal or petition for
reconsideration of such order shall have expired without such appeal or
petition being granted; or
(d) By Purchasers if, without any material breach by Purchasers of their
obligations under the Transaction Documents, the transactions contemplated
hereby shall not have been consummated on or
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before June 30, 1999 (the "Expiration Date"), unless the sole reason for
the failure to consummate the transactions contemplated hereby and thereby
by such date is the nonfulfillment of the conditions specified in Section
7.2, in which case the Expiration Date shall be extended to September 30,
1999 (the "Extended Expiration Date"); or
(e) By the Company if, without any material breach by the Company of its
obligations under the Company Transaction Documents, the transactions
contemplated hereby shall not have been consummated on or before the
Expiration Date or, if applicable, the Extended Expiration Date; or
(f) By the Company (i) if there shall be a material breach of any of
Purchasers' representations, warranties or covenants in any of the Company
Transaction Documents, which breach cannot be or has not been cured within
ten days of the receipt of written notice thereof, or (ii) to allow the
Company to enter into an agreement in accordance with Section 5.3(b);
provided that it has complied with all provisions thereof, including the
notice provision therein, and that it makes simultaneous payment to
Purchasers of the Termination Fee/Expense Reimbursement in immediately
available funds as provided in Section 10.2(b) hereof; or
(g) By Purchasers if there has been a material breach of any of the
Company's representations, warranties, covenants or agreements set forth in
any of the Company Transaction Documents, which breach cannot be or has not
been cured within ten days of the receipt of written notice thereof; or
(h) By Purchasers, if (i) the Board shall withdraw, modify or change its
recommendation or approval in respect of this Agreement or the Company
Voting Matters in a manner adverse to Purchasers, (ii) the Board of
Directors shall have recommended any proposal other than by Purchasers in
respect of a Takeover Proposal, (iii) the Company shall have exercised a
right with respect to a Takeover Proposal referenced in Section 5.3(b) and
shall, directly or through its representatives, continue discussions with
any third party concerning such Takeover Proposal for more than fifteen
Business Days after the date of receipt of such Takeover Proposal, (iv) a
Takeover Proposal that is publicly disclosed shall have been commenced or
communicated to the Company which contains a proposal as to price (without
regard to whether such proposal specifies a specific price or a range of
potential prices) and the Company shall not have rejected such proposal
within fifteen Business Days from the date such Takeover Proposal was
communicated to the Company (provided, that such Takeover Proposal shall be
deemed to have been communicated to the Company on such date as it shall
have been disclosed in a filing with the SEC by the party making such
Takeover Proposal), or (v) any Person or group (as defined in Section
13(d)(3) of the Exchange Act) other than Purchasers or any of their
respective subsidiaries or Affiliates shall have become the beneficial
owner of more than 15% of the outstanding shares of Company Common Stock
(either on a primary or a fully diluted basis); provided, however, that
with regard to a Person that owns more than 15% of the outstanding shares
of Company Common Stock on the date hereof, this provision shall be
triggered by such Person becoming the beneficial owner of an additional 5%
of the outstanding shares of Company Common Stock (either on a primary or a
fully diluted basis); or
(i) By Purchasers, if the Company or its representatives shall take any
of the actions proscribed by Section 5.1 or Section 5.3 hereof.
10.2. Effect of Termination
(a) Subject to Section 10.2(b), in the event of termination of this
Agreement as provided in Section 10.1 hereof, written notice thereof shall
forthwith be given to the other parties specifying the provision hereof
pursuant to which such termination is made, and, except as provided in Section
6.1 hereof, this Agreement shall forthwith become null and void and there
shall be no liability on the part of Purchasers or the Company or their
respective officers or directors or partners; provided that nothing herein
shall relieve any party from liability for any breach of this Agreement.
(b) If (i) Purchasers shall have terminated this Agreement pursuant to
Section 10.1(h) or Section 10.1(i), (ii) Purchasers shall have terminated this
Agreement pursuant to Section 10.1(g) and following the date hereof
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but prior to such termination there shall have been a Takeover Proposal
Interest or (iii) the Company shall have terminated this Agreement pursuant to
Section 10.1(f)(ii), then in any such case the Company shall pay
simultaneously with such termination if pursuant to Section 10.1(f)(ii) and
promptly, but in no event later than two Business Days after the date of such
termination or event if pursuant to Sections 10.1(g), 10.1(h) or 10.1(i), to
Purchasers (A) a termination fee of $2,250,000 and (B) reimbursement of up to
$750,000 of actual and documented costs and expenses incurred by Purchasers in
connection with the transactions contemplated by the Company Transaction
Documents (the "Termination Fee/Expense Reimbursement") which amounts shall be
payable by wire transfer of immediately available funds to such account as
Purchasers may designate in writing to the Company.
(c) Notwithstanding anything to the contrary contained herein, any election
by the Company to pay, or by Purchaser to receive, the Termination Fee/Expense
Reimbursement pursuant to Section 10.2(b) shall constitute full settlement of
any and all liabilities of the Company for damages under this Agreement in
respect of a termination of this Agreement pursuant to Sections 10.1(f)(ii),
10.1(g), 10.1(h) or 10.1(i) and shall be the sole measure of damages with
respect thereto.
10.3. Amendment
This Agreement may be amended by the parties hereto, by or pursuant to
action taken by Purchasers and the Company, at any time before or after
approval hereof by the stockholders of the Company, but, after such approval,
no amendment shall be made which materially adversely affects the rights of
such stockholders, without the further approval of such stockholders voting in
the manner specified in Section 6.3. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
10.4. Waiver
At any time prior to the Closing, the parties hereto, by or pursuant to
action taken by Purchasers and the Company, may (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any documents delivered pursuant hereto
by the other parties and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a parties hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
Section 11. Recovery of Fees
Any party hereto who shall obtain a final judgment in a court of competent
jurisdiction for the payment of damages by another party hereto for a breach
of this Agreement shall be entitled to recover reasonable attorneys' fees and
court costs incurred in connection with the obtaining of such judgment.
Section 12. Interpretation of this Agreement
12.1. Terms Defined
As used in this Agreement, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such term:
Additional Purchase Agreements: shall mean the TSP Purchase Agreement and
the Founders Purchase Agreement.
Affiliate: shall mean any Person or entity, directly or indirectly,
controlling, controlled by or under common control with such Person or entity.
Business Day: shall mean a day other than a Saturday, Sunday or other day
on which banks in the States of New York and California are not required or
authorized to close.
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Catalina: shall mean Catalina Transmission Corp., an indirect wholly owned
subsidiary of the Company.
Company Transaction Documents: shall mean this Agreement, the Warrant, the
Registration Rights Agreement, the Flemings Conversion Agreement and the
Employment Agreements.
Credit Agreement: shall mean the Credit Agreement, dated as of February 27,
1998, as amended, by and among the Company, the Several Lenders from time to
time party thereto (the "Lenders"), Bank of America NT&SA, as Syndication
Agent, Union Bank of California, N.A., as Documentation Agent, Societe
Generale as Co-Agent, and Canadian Imperial Bank of Commerce, as
Administrative Agent.
DGCL: shall mean the General Corporation Law of the State of Delaware.
Exchange Act: shall mean the Securities Exchange Act of 1934, as amended.
Executives: shall mean Robert T. Walston, Jeffrey J. Marcketta, John H.
Donlon, Gavin W. Schutz and Robert Bailey.
FCC: shall mean the Federal Communications Commission.
FCC Approval: shall mean Final FCC Orders adopted by the FCC or its bureaus
on designated authority which grant all consents or approvals required under
the Communications Act of 1934, as amended, and the FCC's rules, regulations
and policies for the transfer of control of the FCC Licenses to Purchasers.
FCC Licenses: shall mean all licenses and authorizations issued by the FCC
and held by the Company, Catalina or any other subsidiary of the Company.
Final FCC Orders: shall mean decisions of the FCC or its bureaus on
designated authority which have not been reconsidered, appealed, reversed,
stayed, or joined, set aside, annulled or suspended, and for which the forty
(40) day period for any such action on the FCC's own motion has expired.
Flemings: shall mean Fleming US Discovery Fund III, L.P., a Delaware
limited partnership, and Fleming US Discovery Offshore Fund III, L.P., a
Bermuda limited partnership, collectively.
Flemings Agreements: shall mean, collectively, (i) the Preferred Stock
Purchase Agreement and the Registration Rights Agreement, each dated as of
February 27, 1998, as amended, between Flemings and the Company and (ii) the
Stockholders Agreement, dated as of February 27, 1998, as amended, among
Flemings, the Company, Walston and the Founders.
Flemings Conversion Agreement: shall mean the Preferred Stock Conversion
and Stockholders Agreement, dated as of the date hereof, between the Company,
Flemings and Purchasers, substantially in the form of Exhibit G hereto.
Founders: shall mean John H. Donlon, Gavin W. Schutz, Robert Bailey and the
estate of John H. Sabin.
Founders Purchase Agreement: shall mean the Stock Purchase Agreement, dated
as of the date hereof, between Purchasers and the Founders, substantially in
the form of Exhibit H hereto.
Governmental Entity: shall mean any United States or international (a)
federal, state, county, local or municipal government or administrative agency
or political subdivision thereof, (b) court or administrative tribunal, (c)
non-governmental agency, tribunal or entity that is vested by a governmental
agency with applicable jurisdiction, or (d) arbitration tribunal or other non-
Governmental Entity with applicable jurisdiction.
Knowledge: shall mean the actual knowledge of the following officers and
employees of the Company: Walston, Jeffrey J. Marcketta and William Niles, in
each case without investigation or inquiry unless the context otherwise
requires.
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Lock-up Agreements: shall mean the Lock-up Agreements, dated as of January
15, 1997, by and between Furman Selz LLC and each of the following
individuals: Edward Kirtman, Shimon Topor, Robert Bailey, Gavin W. Schutz,
John H. Donlon and John H. Sabin.
Person: shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization,
and a Governmental Entity.
SEC: shall mean the Securities and Exchange Commission.
Securities Act: shall mean the Securities Act of 1933, as amended.
subsidiary: shall mean any (a) Person of which the Company (or other
specified Person) shall own directly or indirectly through a subsidiary, a
nominee arrangement or otherwise (i) at least a majority of the outstanding
capital stock (or other shares of beneficial interest) or (ii) at least a
majority of the partnership, membership, joint venture or similar interests,
or (b) in which the Company (or other specified Person) is a general partner
or joint venturer. For the sake of clarity, Cinram-POP DVD Center LLC, a
California limited liability company in which the Company holds a 49%
membership interest, shall not be deemed to be a subsidiary of the Company.
Transaction Documents: shall mean this Agreement, the Additional Purchase
Agreements, the Registration Rights Agreement, the Voting and Option
Agreement, the Voting Agreements and the Flemings Conversion Agreement.
TSP: shall mean Technical Services Partners L.P., a Delaware limited
partnership.
TSP Purchase Agreement: shall mean the Stock Purchase Agreement, dated as
of the date hereof, between Purchasers and TSP, substantially in the form of
Exhibit K hereto.
Voting Agreements: shall mean the Voting Agreements, dated as of the date
hereof, by and among each of (i) Walston, TSP and Purchasers (the "Walston
Voting Agreement") and (ii) Flemings and Purchasers (the "Flemings Voting
Agreement, substantially in the forms of Exhibit I-1 and Exhibit I-2.
Voting and Option Agreement: shall mean the Voting and Option Agreement,
dated as of the date hereof, among Purchasers and TSP, substantially in the
form of Exhibit J hereto.
Walston: shall mean Robert T. Walston.
12.2. Accounting Principles
Where the character or amount of any asset or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, it shall be done in accordance with GAAP at the
time in effect, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
12.3. 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.
12.4. 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.
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12.5. Paragraph and 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.
Section 13. Miscellaneous
13.1. Survival of Representations, Warranties and Agreements
All statements contained in any certificate or other instrument executed
and delivered by or on behalf of the Company or Purchasers pursuant to this
Agreement or in connection with the transactions contemplated hereby shall be
deemed representations and warranties of such Person hereunder. All
representations and warranties made by the parties hereto in this Agreement or
pursuant hereto shall survive the Closing hereunder and any investigation at
any time made by or on behalf of the other parties; provided, however, that no
party shall commence any action against the other parties in respect of any
provision of this Agreement at any time subsequent to the date eighteen (18)
months after the Closing Date, except that Purchasers shall be permitted to
commence an action against the Company in respect of the representations and
warranties made by the Company in Sections 3.14, 3.18 or 3.21 of this
Agreement at any time prior to the expiration of the longest applicable
federal, state, local or foreign statute of limitation (including any
extensions thereof). All covenants and agreements set forth in this Agreement
shall survive the Closing in accordance with their terms.
13.2. Notices
(a) 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 mail or certified mail, postage prepaid, in each case to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice, except that notices of changes of address
shall be effective upon receipt):
(1)if to any of the Purchasers:
Warburg, Pincus Equity Partners, L.P.
466 Lexington Avenue
New York, NY 10017
Attention: David E. Libowitz
Facsimile: (212) 878-9351
With a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6009
Attention: Neil Novikoff, Esq.
Facsimile: (212) 728-8111
(2)if to the Company:
Four Media Company
625 Arizona Avenue
Santa Monica, CA 90401
Attention: William E. Niles, Esq.
Facsimile: 310-587-1277
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With a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071-2007
Attention: Paul D. Tosetti, Esq. and
Michael W. Sturrock, Esq.
Facsimile: (213) 891-8763
(b) 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.
(c) Any approvals or consents required to be granted by Purchasers under
this Agreement may be granted by David E. Libowitz acting on behalf of, and
with full authority with respect to, Purchasers.
13.3. Expenses
(a) Except as provided in Section 13.3(b) or in cases in which a
Termination Fee/Expense Reimbursement is paid or payable pursuant to Section
10.2(b), all costs, fees and expenses incurred in connection with the
Transaction Documents and the transactions contemplated thereby shall be paid
by the party incurring such costs and expenses.
(b) If the transactions contemplated by this Agreement are consummated, the
Company shall pay to Purchasers (i) the lesser of (x) $500,000 or (y) the
total of all costs, fees and expenses incurred by Purchasers in connection
with the Transaction Documents ("Purchasers' Expenses"), plus (ii) in the
event that Purchasers' Expenses exceed $500,000, 50% of any such excess,
provided that the Company's reimbursement obligations pursuant to this Section
13.3(b)(i) and (ii) shall in no event exceed $1,000,000. Such monies shall be
payable on the Closing Date by wire transfer of immediately available funds to
such account as Purchasers may designate in writing to the Company.
13.4. Publicity
So long as this Agreement is in effect, Purchasers and the Company shall
consult with each other in issuing any press release or otherwise making any
public statement with respect to the transactions contemplated by this
Agreement, and none of them shall issue any press release or make any public
statement prior to such consultation. The commencement of litigation relating
to this Agreement or the transactions contemplated hereby or any proceedings
in connection therewith shall not be deemed a violation of this Section 13.4.
13.5. Specific Performance
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any state or federal court, this being in addition to any
other remedy to which they are entitled at law or in equity.
13.6. Reproduction of Documents
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by Purchasers on the Closing Date (except for
the Warrant and certificates evidencing the Shares themselves), and (c)
financial statements,
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certificates and other information previously or hereafter furnished to
Purchasers, may be reproduced by Purchasers by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar process and
Purchasers may destroy any original document so reproduced. Each party hereto
agrees and stipulates 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 Purchasers in the regular course of business) and
that any enlargement, facsimile or further reproduction of such reproduction
shall likewise be admissible in evidence.
13.7. Successors and Assigns
Neither this Agreement nor any of the rights or obligations of any party
may be assigned without the prior written consent of the other parties, except
that Purchasers may, without such consent, assign this Agreement and any of
such rights and obligations to one or more of their Affiliates unless such
assignment causes any representation or warranty to be untrue or incorrect in
any material respect or unless such assignment shall materially delay the
Closing. Any such assignment shall not, however, act as a release of the
assigning Person. Subject to the foregoing, this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, and no other Person shall have any right, benefit or obligation
hereunder.
13.8. Entire Agreement
This Agreement, the other Company Transaction Documents and the
Confidentiality Agreement constitute the entire understandings of the parties
hereto and supersede all prior agreements or understandings with respect to
the subject matter hereof among such parties.
13.9. 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.
13.10. Limitation on Enforcement of Remedies
The Company hereby agrees that it shall, and shall cause each of its
stockholders, officers, directors, employees, brokers, attorneys, accountants
and other agents to, not assert against the limited partners of Purchasers any
claim it or each of them may have under this Agreement or any other Company
Transaction Document by reason of any failure or alleged failure by Purchasers
to meet their obligations hereunder or thereunder. Each Purchaser hereby
agrees that it will not assert against the Company or any of its stockholders,
officers, directors, employees, brokers, attorneys, accountants or other
agents any claim it may have under this Agreement or any other Company
Transaction Document by reason of any failure or alleged failure by the
Company to meet its obligations hereunder or thereunder.
13.11. Simultaneous Effectiveness
This Agreement and each of the other Transaction Documents shall (i) be
executed simultaneously and at such time shall be valid and binding
obligations of each of the parties and signatories thereto and (ii)
simultaneously be consummated at the Closing.
13.12. 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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13.13. Joint and Several Obligations
All obligations and representations and warranties of Purchasers in the
Transaction Documents are joint and several obligations.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the Company and Purchasers have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
Four Media Company
/s/ Robert T. Walston
By: _________________________________
Name: Robert T. Walston
Title: Chief Executive Officer
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
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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
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<PAGE>
ANNEX B
FORM OF 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 ,
1999 and ending on , 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 (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
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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
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 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. 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.
(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
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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 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.
(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
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"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 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.
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
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(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 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.
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
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<PAGE>
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 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
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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.
(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 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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FOUR MEDIA COMPANY
By ______________________________
Dated: , 1999
Attest:
_____________________________________
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[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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[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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ANNEX C
[LOGO]
HOULIHAN LOKEY HOWARD & ZUKIN
FINANCIAL ADVISORS
January 18, 1999
To The Board of Directors of
Four Media Company
Dear Gentlemen:
We understand that the Company is considering entering into certain
agreements whereby (a) certain investors would purchase 6,582,607 newly issued
shares of common stock from the Company and approximately 497,766 shares from
John W. Donlon, Gavin W. Schutz, Robert Bailey and The Estate of John H. Sabin
at a purchase price of $8.00 per share; (b) the investors would also purchase
3,119,627 shares owned by Technical Services Partners, L.P., at a purchase
price of $7.50 per share; (c) as further consideration, the Company would
issue to the investor a seven-year warrant to purchase 1,100,000 shares at an
exercise price of $15.00 share and (d) the Fleming US Discovery Fund III, L.P.
and Fleming US Discovery Offshore Fund III, L.P. will convert its 150,000
shares of the Company's preferred stock into 2,250,000 shares of Company
common stock; and (e) the Company will (i) issue to the Company's Chief
Executive Officer, Robert T. Walston, options to purchase 2,500,000 shares of
common stock and (ii) loan to Walston $2,000,000 which could be forgiven upon
the achievement of certain milestones. Such transaction and other related
transactions disclosed to Houlihan Lokey are referred to collectively herein
as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form 10-K
for the fiscal year ended 1998 and quarterly report on Form 10-Q for the
quarter ended November 30, 1998, and Company-prepared pro forma financial
statements for the year ended August 31, 1998 and quarters ended November 30,
1998 and 1997 which the Company's management has identified as being the most
current financial statements available;
2. reviewed copies of the following agreements:
. Securities Purchase Agreement among 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. and Four Media Company;
. Stock Purchase Agreement among 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. and Technical Services Partners, L.P.;
. Stock Purchase Agreement among 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. and John W. Donlon, Gavin W. Schutz, Robert
Bailey and The Estate of John H. Sabin;
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. Voting and Option Agreement by and among Technical Services Partners,
L.P., 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.;
. Voting Agreement by and among Robert T. Walston, Technical Services
Partners, L.P. 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.;
. Voting Agreement by and among Fleming US Discovery Fund III, L.P.,
Fleming US Discovery Offshore Fund III, L.P., 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.;
. Four Media Company Common Stock Purchase Warrant;
. Registration Rights Agreement among 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.; and
. Preferred Stock Conversion and Stockholders Agreement by and among
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.,
Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore
Fund III, L.P.
3. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and projected
operations and performance of the Company;
4. visited certain facilities and business offices of the Company;
5. reviewed forecasts and projections prepared by the Company's management
with respect to the Company for the years ended August 30, 1999 through 2005;
6. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
7. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly available
prices and premiums paid in other transactions that we considered similar to
the Transaction;
8. reviewed drafts of certain documents to be delivered at the closing of
the Transaction; and
9. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this
letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the Transaction is fair, from a financial point of view, to the Company and
the public stockholders of the Company.
HOULIHAN LOKEY HOWARD & ZUKIN
FINANCIAL ADVISORS, INC.
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ANNEX D
FOUR MEDIA COMPANY 1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract and
retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants
of the Company and its Subsidiaries and to promote the success of the
Company's business. Options granted under the Plan may be Incentive Stock
Options or Nonstatutory Stock Options, as determined by the Administrator at
the time of grant of any Option and subject to the applicable provisions of
Section 422 of the Code and the regulations promulgated thereunder. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of Directors in
accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means FOUR MEDIA COMPANY, a Delaware corporation.
(g) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services. The term Consultant shall not include Directors
who are not compensated for their services or are paid only a Director's fee
by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
company or between the Company, its Parent, any Subsidiary or successor. A
leave of absence approved by the Company shall include sick leave, military
leave or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
on the 91st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated
for tax purposes as a Nonstatutory Stock Option.
(i) "Director" means a member of the Board of Directors of the Company.
(j) "Employee" means any person, including Officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company. The payment of a
Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported)
as quoted on such exchange or system for the last market trading day prior
to the time of determination and reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
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(ii) If the Common Stock is quoted on the NASDAQ System (but not on the
Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of
determination; or
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means an agreement between the Company and an
Optionee pursuant to which the Optionee receives an Option or a Stock Purchase
Right.
(r) "Optioned Stock" means the Common Stock subject to an Option or a Stock
Purchase Right.
(s) "Optionee" means an Employee or Consultant who receives an Option or
Stock Purchase Right.
(t) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(u) "Plan" means this 1997 Stock Plan.
(v) "Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 below.
(w) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 12 below.
(x) "Stock Purchase Right" means a right to purchase Common Stock pursuant
to Section 11 below.
(y) "Subsidiary" means a "subsidiary corporation," whether not or hereafter
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to Section 12, the maximum aggregate
number of Shares which may be subject to option and sold under the Plan is
1,650,000 Shares; provided, however, that beginning August 1, 1997, the number
of Shares shall be increased each August 1st by five percent (5%) of the total
issued and outstanding Shares on such date. In no event, except as subject to
Section 12, shall more than 1,650,000 Shares be available for issuance
pursuant to Incentive Stock Option grants under the Plan.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the plan
(unless the Plan has terminated). However, Shares that have actually been
issued under the Plan, upon exercise of either an Option or Stock Purchase
Right, shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if Shares of Restricted Stock
are repurchased by the Company at their original purchase price and the
original purchaser of such Shares did not receive any benefits of ownership of
such Shares, such Shares shall become available for future grant under the
Plan. For purposes of the preceding sentence, voting rights shall not be
considered a benefit of Share ownership.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan
may be administered by different bodies with respect to Directors and
Officers, and Employees and Consultants who are neither Directors nor
Officers.
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(ii) Administration With Respect to Directors and Officers. With respect
to grants of Options and Stock Purchase Rights to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A)
the Board if the Board may administer the Plan in compliance with Rule 16b-
3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-
3") with respect to a plan intended to qualify thereunder as a
discretionary plan, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted in such a manner
as to permit the Plan to comply with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan. Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan.
(iii) Administration With Respect to Other Employees and
Consultants. With respect to grants of Options and Stock Purchase Rights to
Employees or Consultants who are neither Directors nor Officers of the
Company, the Plan shall be administered by (A) the Board or (B) a Committee
designated by the Board, which committee shall be constituted in such a
manner as to satisfy the legal requirements relating to the administration
of incentive stock option plans, if any, of California corporate and
securities laws, of the Code, and of any applicable stock exchange (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. From time
to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however
caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan and,
in the case of a Committee, the specific duties delegated by the Board to such
Committee, and subject to the approval of any relevant authorities, including
the approval, if required, of any stock exchange upon which the Common Stock
is listed, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock Purchase
Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered by
each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Purchase Rights may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or Stock Purchase Right or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its
sole discretion, shall determine;
(vii) to reduce the exercise price of any Option or Stock Purchase Right
to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
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(ix) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option or Stock Purchase Right (subject to
Section 14 of the Plan), including the discretionary authority to extend
the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock Purchase
Right previously granted by the Administrator;
(xii) to determine the terms and restrictions applicable to Options and
Stock Purchase Rights and any Restricted Stock; and
(xiii) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if otherwise eligible, be granted additional Options or
Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair
Market Value of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which become exercisable for
the first time during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds the limit imposed by Section 422(d) of the Code
or any successor statute thereto, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted.
The Fair Market Value of the Shares shall be determined as of the time the
Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or
her employment or consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of common
equity securities required to be registered under Section 12 of the Exchange
Act or upon the Plan being assumed by a corporation having a class of common
equity securities required to be registered under Section 12 of the Exchange
Act, the following limitations shall apply to grants of Options and Stock
Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options and Stock Purchase Rights to purchase more than 175,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described
in Section 12.
(iii) If an Option or Stock Purchase Right is cancelled in the same
fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled
Option shall be counted against the limit set forth in Section 5(d)(i).
For this purpose, if the
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exercise price of an Option is reduced, such reduction will be treated
as a cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders
of the Company, as described in Section 18 of the Plan. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 14
of the Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued upon exercise
of an Option shall be such price as is determined by the Administrator, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such Option,
owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant;
(B) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share exercise
price shall be determined by the Administrator.
(b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5) delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and a broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, (6) a reduction in the amount of any
Company liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation
program or arrangement, or (7) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration
may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the
terms of the Plan. Notwithstanding the foregoing, no Option may be exercised
earlier than six (6) months from the date of grant of such Option.
An Option may not be exercised for a fraction of a Share.
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An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote, receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment shall be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided
in Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the event of
termination of an Optionee's Continuous Status as an Employee or Consultant
(but not in the event of an Optionee's change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first
(91st) day following such change of status) or from Consultant to Employee),
such Optionee may, but only within such period of time as is determined by the
Administrator, with such determination in the case of an Incentive Stock
Option not exceeding three (3) months after the date of such termination (but
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise his or her Option to the extent that
the Optionee was entitled to exercise it at the date of such termination. To
the extent that the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event of termination of an Optionee's
Continuous Status of an Employee or Consultant as a result of his or her
"Disability," as such term is defined in Section 422(e)(3) of the Code, the
Optionee may, but only within twelve (12) months from the date of such
termination (and in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination. To
the extent that the Optionee was not entitled to exercise the Option at the
date of termination, or if the Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the Option
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Option Agreement) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent that the Optionee was entitled to exercise the Option on the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after the
Optionee's death, the Optionee's estate or a person who acquires the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of the
Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to
the Optionee at the time that such offer is made.
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10. Non-Transferability of Options and Stock Purchase Rights. Options and
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with other awards granted under the Plan and/or
cash awards made outside of the Plan. After the Administrator determines that
it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the
date upon which the Administrator makes the determinations to grant the Stock
Purchase Right. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator. Shares
purchased pursuant to the grant of a Stock Purchase Right shall be referred to
herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with the Company for any
reason (including death or Disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock purchase agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall
lapse at such rate as the Administrator may determine.
(c) Rule 16b-3. Stock Purchase Rights granted to persons subject to Rule
16b-3 of the Exchange Act ("Insiders"), and Shares purchased by Insiders in
connection with Stock Purchase Rights, shall be subject to any restrictions
applicable thereto in compliance with Rule 16b-3. An Insider may only purchase
Shares pursuant to the grant of a Stock Purchase Right, and may only sell
Shares purchased pursuant to the grant of a Stock Purchase Right, during such
time or times as are permitted by Rule 16b-3.
(d) Other Provisions. The Restricted Stock purchase agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Administrator in its sole discretion. In addition,
the provisions of Restricted Stock purchase agreements need not be the same
with respect to each purchaser.
(e) Rights as a Stockholder. Once the Stock Purchase Right is exercised,
the purchaser shall have rights equivalent to those of a stockholder and shall
be a stockholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. No adjustment shall be made for
a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 12 of the
Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or
Stock Purchase Right, as well as the price per Share of Common Stock covered
by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company. The conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without
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receipt of consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of Shares of stock of
any class, or securities convertible into Shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify the Optionee at
least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall have the right to exercise the Option or
Stock Purchase Right as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option or Stock Purchase
Right is exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock
Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets
was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the successor corporation
or its Parent equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options or Stock Purchase Rights already granted,
and such Options and Stock Purchase Rights shall remain in full force and
effect as if this Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company.
D-8
<PAGE>
15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option or Stock Purchase Right unless the exercise of
such Option or Stock Purchase Right and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required by any of the aforementioned relevant provisions
of law.
16. Reservation of Shares. The Company, during the term of this Plan, shall
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time
to time.
18. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any stock exchange upon which the Common Stock is listed.
D-9
<PAGE>
ANNEX E
FIRST AMENDMENT TO
FOUR MEDIA COMPANY 1997 STOCK PLAN
THIS FIRST AMENDMENT TO FOUR MEDIA COMPANY 1997 STOCK PLAN, dated as of
, 1999, is made and adopted by FOUR MEDIA COMPANY, a Delaware corporation
(the "Company"). Capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to them in the 1997 Stock Plan, as
amended (as defined below).
RECITALS
WHEREAS, the Company maintains the Four Media Company 1997 Stock Plan (as
amended, the "1997 Stock Plan");
WHEREAS, the Company desires to amend the 1997 Stock Plan to, among other
things, increase the number of shares of common stock of the Company subject
thereto;
WHEREAS, this First Amendment was adopted by the Board of Directors of the
Company on , 1999; and
WHEREAS, this First Amendment was approved by the stockholders of the
Company on , 1999.
NOW, THEREFORE, in consideration of the foregoing, the Company hereby
amends the 1997 Stock Plan as follows:
1. The first paragraph of Section 3 of the 1997 Stock Plan is hereby
deleted in its entirety and replaced with the following paragraph:
"3. Stock Subject to the Plan. Subject to Section 12, the maximum
aggregate number of Shares which may be subject to option and sold under
the Plan is 6,271,464 Shares (the "Available Shares"); provided,
however, that beginning January 1, 2000, the number of Shares shall be
increased each January 1st by 650,000 Shares. In no event, except as
subject to Section 12, shall more than 1,650,000 Shares be available for
issuance pursuant to Incentive Stock Option grants under the Plan. Of
the Available Shares, the maximum aggregate number of Shares which may
be subject to Special Options (as defined below) granted pursuant to the
Employment Agreements (as defined below) is 3,200,000 Shares. For
purposes of this Plan, "Special Options" shall mean those Options
granted to the Chief Executive Officer of the Company, the President and
Chief Administrative Officer of the Company, and the President--
Broadcast, Syndication and Manufacturing of the Company (collectively,
the "Executives"), pursuant to those certain Employment Agreements (the
"Employment Agreements"), each dated as of January 1, 1999, between the
Company and each of the Executives."
2. Paragraph 5(d)(i) of the 1997 Stock Plan is hereby deleted in its
entirety and replaced with the following paragraph:
"(i) Except with respect to the Special Options, no Employee shall be
granted, in any fiscal year of the Company, Options and Stock Purchase
Rights to purchase more than 175,000 Shares. With respect to the Special
Options, the Chief Executive Officer of the Company shall not be
granted, in the fiscal year of the Company ending August 1, 1999,
Special Options to purchase more than 2,500,000 Shares, the President
and Chief Administrative Officer of the Company shall not be granted, in
the fiscal year of the Company ending August 1, 1999, Special Options to
purchase more than 500,000 Shares, and the President--Broadcast,
Syndication and Manufacturing of the Company shall not be granted, in
the fiscal year of the Company ending August 1, 1999, Special Options to
purchase more than 200,000 Shares."
E-1
<PAGE>
3. This First Amendment shall be and is hereby incorporated in and forms
a part of the 1997 Stock Plan.
4. All other terms and provisions of the 1997 Stock Plan shall remain
unchanged except as specifically modified herein.
5. The 1997 Stock Plan, as amended by this First Amendment, is hereby
ratified and confirmed.
6. This First Amendment shall be interpreted and enforced under the
internal laws of the State of California without regard to conflicts of
laws thereof.
[Signature Page to Follow]
E-2
<PAGE>
I hereby certify that the foregoing Amendment was duly adopted by the Board
of Directors of Four Media Company on , 1999.
By: _________________________________
Name:
Title:
I hereby certify that the foregoing Amendment was approved by the
stockholders of Four Media Company on , 1999.
By: _________________________________
Name:
Title:
E-3
<PAGE>
<TABLE>
<S> <C>
PROXY FOUR MEDIA COMPANY
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AND MAY BE REVOKED PRIOR TO ITS EXERCISE
The undersigned hereby appoints Robert T. Walston, Jeffrey J. Marcketta and
William E. Niles proxies with power to act without the other and with power of
substitution, and hereby authorizes them to represent and vote all the share
of stock of Four Media Company standing in the name of the undersigned with
all powers which the undersigned would possess if present at the Special
Meeting of Stockholders of the Company to be held March , 1999, or any
adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3.
Unless contrary instructions are given below, this Proxy will be voted
according to the recommendations of the Board.
PROPOSAL 1: APPROVAL OF STOCK ISSUANCE
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[_] [_] [_]
</TABLE>
PROPOSAL 2: APPROVAL OF AMENDMENT TO 1997 STOCK OPTION PLAN
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[_] [_] [_]
</TABLE>
PROPOSAL 3. RATIFICATION OF ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[_] [_] [_]
</TABLE>
I PLAN TO ATTEND THE MEETING [_]
_____________________________________ _____________________________________
Signature Dated
Note: Please sign as name appears hereon. Joint Owners must each sign. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please give full title as such.
