EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
dated
February 27, 1998
among
Four Media Company,
Fleming US Discovery Fund III, L.P.,
and
Fleming US Discovery Offshore Fund III, L.P.
TABLE OF CONTENTS
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Page
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ARTICLE I............................................................... 1
DEMAND REGISTRATIONS............................................... 1
1.1 Requests for Registration.................................. 1
1.2 Limitations on Demand Registrations........................ 2
1.3 Effective Registration Statement........................... 2
1.4 Priority on Demand Registrations........................... 3
1.5 Selection of Underwriters.................................. 3
1.6 Other Registration Rights.................................. 3
ARTICLE II.............................................................. 4
OTHER REGISTRATIONS................................................ 4
2.1 Right to Piggyback.......................................... 4
2.2 Priority on Primary Registrations........................... 4
2.3 Priority on Secondary Registrations......................... 5
2.4 Other Registrations......................................... 5
ARTICLE III............................................................. 6
REGISTRATION PROCEDURES............................................ 6
ARTICLE IV.............................................................. 9
REGISTRATION EXPENSES.............................................. 9
4.1 Company's Fees and Expenses................................. 9
4.2 Fees of Counsel to Holders.................................. 9
ARTICLE V...............................................................10
UNDERWRITTEN OFFERINGS.............................................10
5.1 Demand Underwritten Offerings...............................10
5.2 Incidental Underwritten Offerings...........................10
ARTICLE VI..............................................................11
INDEMNIFICATION....................................................11
6.1 Indemnification by the Company..............................11
Page
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6.2 Indemnification by Holders................................. 12
6.3 Indemnification Procedures................................. 12
6.4 Indemnification of Underwriters............................ 13
6.5 Contribution............................................... 13
6.6 Timing of Indemnification Payments......................... 14
ARTICLE VII............................................................ 14
RULE 144.......................................................... 14
ARTICLE VIII........................................................... 15
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS....................... 15
ARTICLE IX............................................................. 15
MERGERS, ETC...................................................... 15
ARTICLE X.............................................................. 15
DEFINITIONS....................................................... 15
ARTICLE XI............................................................. 17
MISCELLANEOUS..................................................... 17
11.1 No Inconsistent Agreements................................. 17
11.2 Adjustments Affecting Registrable Securities............... 17
11.3 Remedies................................................... 17
11.4 Amendments and Waivers..................................... 18
11.5 Successors and Assigns..................................... 18
11.6 Notices.................................................... 18
11.7 Headings................................................... 20
11.8 Gender..................................................... 20
11.9 Invalid Provisions......................................... 20
11.10 Governing Law.............................................. 20
11.11 Counterparts............................................... 20
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is dated as of February 27, 1998, among
Four Media Company, a Delaware corporation (the "Company"), Fleming US Discovery
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Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (collectively,
the "Fleming Funds"). The Fleming Funds, any Fleming Holder and any Transferee
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are collectively referred to herein as the "Investors" and, individually, an
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"Investor". Capitalized terms used and not otherwise defined herein have the
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respective meanings ascribed thereto in Article X.
W I T N E S S E T H:
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WHEREAS, simultaneously herewith, the Fleming Funds have purchased an
aggregate of 150,000 shares of Preferred Stock pursuant to the terms of the
Stock Purchase Agreements;
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Stock Purchase Agreements that the Company and the Fleming
Funds enter into this Agreement whereby the Company shall grant, and the
Investors shall obtain, the rights relating to the registration of the
Registrable Securities under the Securities Act, as set forth in this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEMAND REGISTRATIONS
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I.1 Requests for Registration. Subject to Section 1.2, at any time and from
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time to time on or after the date hereof, the Fleming Holders may request
registration under the Securities Act of all or part of their Registrable
Securities (i) on Form S-1 or any similar long-form registration ("Long-Form
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Demand Registrations"), or (ii) on Form S-3 or any similar short-form
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registration ("Short-Form Demand Registrations") if the Company qualifies to use
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such short form (and the Company will use its best efforts to make short-form
registration statements available for the sale of Registrable Securities).
Thereafter, the Company will use its best efforts to promptly effect the
registration of such Registrable Securities under the Securities Act on the form
requested by the holder or holders making such registration request. All
registrations requested pursuant to this Section 1.1 are referred to herein as
"Demand Registrations". Upon receipt of a request for a Demand Registration,
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the Company will give prompt written notice (in any event within three (3)
Business Days after its receipt of such request) of the request for a Demand
Registration to all holders of Registrable Securities not making such request
and will include in such Demand Registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within ten (10) days after the receipt of the Company's notice. The holders of
the Registrable Securities making any such registration request may, at any time
prior to the effective date of the registration statement relating to any
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Demand Registration, revoke such Demand Registration request by providing
written notice to the Company.
I.2 Limitations on Demand Registrations. (a) The holders of the Registrable
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Securities shall be entitled to (i) two (2) Long-Form Demand Registrations,
provided, that each such Long-Form Demand Registration shall be for Registrable
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Securities with an aggregate Market Value of not less than $7.5 million, and
(ii) any number of Short-Form Demand Registrations; provided, that any such
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Short-Form Demand Registration shall be for Registrable Securities with an
aggregate Market Value of not less than $1 million.
(b) The Company shall be entitled to postpone for a reasonable period of time
not to exceed forty-five (45) days the filing of any registration statement
otherwise required to be prepared and filed by it if, at the time it receives a
Demand Registration request, the Board of Directors of the Company determines,
in its reasonable good faith judgment, that such registration would materially
interfere with a business or financial transaction of substantial importance to
the Company (other than an underwritten public offering of its securities),
including, without limitation, any such transaction involving a material
acquisition, consolidation, merger or corporate reorganization then pending or
proposed by its Board of Directors involving the Company, and the Company
promptly gives the holders of the Registrable Securities written notice of such
determination, containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay; provided, however,
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that the Company shall not be entitled to postpone filing a registration
statement in response to a Demand Registration for the twelve (12) months
following the expiration of such forty-five day period. In the event the filing
of any registration statement is postponed pursuant to this paragraph, the
holder or holders of the Registrable Securities making a registration request
shall have the right to withdraw such Demand Registration request by giving
written notice to the Company within thirty (30) days after receipt of the
notice of postponement (and, in the event of such withdrawal, the right of the
holders of the Registrable Securities to such Demand Registration shall be
reinstated).
I.3 Effective Registration Statement. A Demand Registration requested
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pursuant to Section 1.1 of this Agreement shall not be deemed to have been
effected (i) unless a registration statement with respect thereto has become
effective, (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Securities and Exchange Commission (the "SEC") or other governmental agency
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or court for any reason, and the Registrable Securities covered thereby have not
been sold, or (iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied by reason of (x) a failure by or inability of the
Company to satisfy any thereof, or (y) the occurrence of an event outside the
control of the holders of Registrable Securities. In addition, a Demand
Registration requested pursuant to Section 1.1 of this Agreement shall not
deemed to have been effected if holders of Registrable Securities are not able
to register and sell at least 66-2/3% of the amount of Registrable Securities
requested to be included in such registration; provided, however, that in no
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case shall the holders of the Registrable Securities be entitled to more than
one additional Long-Form
2
Demand Registration as a result of the inability to register and sell such
percentage of Registrable Securities.
I.4 Priority on Demand Registrations. The Company will not include in any
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Demand Registration any securities which are not Registrable Securities without
the written consent of the Fleming Holders. If other securities are permitted
to be included in a Demand Registration which is an underwritten offering and
the managing underwriters advise the Company in writing that in their opinion
the number of Registrable Securities exceeds the number of Registrable
Securities which can be sold in such offering within a price range acceptable to
the Fleming Holders, the Company will include in such registration prior to the
inclusion of any securities which are not Registrable Securities the number of
Registrable Securities requested to be included which in the opinion of such
underwriters can be sold, pro rata among the respective holders on the basis of
the amount of Registrable Securities requested to be offered thereby.
I.5 Selection of Underwriters. The Fleming Holders will have the right to
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select the underwriters and the managing underwriters to administer a Demand
Registration and such underwriters and managing underwriters shall be reasonably
acceptable to the Company.
I.6 Other Registration Rights. Except as provided in this Agreement or as
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otherwise consented to in writing by the Fleming Holders, the Company will not
grant to any Person the right to request the Company to register any equity
securities of the Company, or any securities convertible, exchangeable or
exercisable for or into such securities ("Other Securities"), other than (i)
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piggyback registration rights entitling the holder thereof to participate in
Company-initiated registrations with holders of Registrable Securities;
provided, however, that the Registrable Securities shall have priority over
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Other Securities in any such Company-initiated registration, (ii) registration
rights granted in connection with the Company's acquisition of a complementary
business through a pooling of interests transaction; provided, however, that (x)
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the Company is required to grant such rights in order to account for any such
acquisition as a pooling of interests transaction, (y) such rights or the
agreement or instrument granting such rights will not restrict or otherwise
adversely affect the ability of the Company to perform its obligations under
this Agreement and (z) the Company shall use its best efforts to obtain
agreements from any holder or holders who receive such rights to the effect that
such holders will enter into lock-up agreements if requested to do so by any
underwriter in any Demand Registration (except that the Company shall not be
obligated to take such action if it would prevent the subject acquisition from
being accounted for as a pooling of interests), (iii) registration rights
granted in connection with the Company's acquisition of a complementary business
through a purchase transaction (which could be in the form of demand
registration rights or the Company's agreement to file a registration statement
for securities delivered as consideration in such purchase transaction (a
"Purchase Registration")); provided, however, that (x) such rights or the
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agreement or instrument granting such rights will not restrict or otherwise
adversely affect the ability of the Company to perform its obligations under
this Agreement and (y) the holders of the Registrable Securities shall have the
right to piggyback on any Purchase Registration and the priority of securities
to be included in any such registration shall be governed by Section 2.3(b)
hereof and (iv) registration rights granted to Technical Services Partners, L.P.
or any of its partners (collectively, "Steinhardt"). In the case of clause
(iii) of this
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Section 1.6, the holders of the Registrable Securities shall be entitled to the
notice provided for in Section 2.1 hereof.
ARTICLE II
OTHER REGISTRATIONS
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II.1 Right to Piggyback. Whenever the Company proposes to register any of
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its securities under the Securities Act (other than pursuant to a Demand
Registration), and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
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will give prompt written notice (in any event within three (3) Business Days
after its receipt of notice of any exercise of other demand registration rights)
to all holders of Registrable Securities of its intention to effect such a
registration and will include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within ten (10) days after the receipt of the Company's notice.
II.2 Priority on Primary Registrations. If a Piggyback Registration is an
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underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities and any securities held by Steinhardt
requested to be included in such registration, provided, that if the managing
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underwriters in good faith determine that a lower number of securities should be
included, then the Company shall be required to include in the underwriting only
that lower number of securities, and the holders of Registrable Securities who
have requested registration and Steinhardt shall participate in the underwriting
pro rata based upon their total ownership, on a fully diluted basis, of any such
securities requested to be included in such registration and (iii) third, other
securities requested to be included in such registration; provided, however,
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that for two years from the date of this Agreement the securities Steinhardt
proposes to sell shall be second in priority (i.e., such securities shall be
included before the Registrable Securities).
II.3 Priority on Secondary Registrations. (a) Subject to paragraph (b) of
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this Section 2.3, if a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities requested to be included therein by the
holders requesting such registration, (ii) second, the Registrable Securities
and any securities held by Steinhardt requested to be included in such
registration, provided, that if the managing underwriters in good faith
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determine that a lower number of securities should be included, then the Company
shall be required to include in the underwriting only that lower number of
securities, and the holders of Registrable Securities who have requested
registration and Steinhardt shall participate in the underwriting pro rata based
upon their total ownership, on a fully diluted basis, of any such
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securities requested to be included in such registration and (iii) third, other
securities requested to be included in such registration; provided, however,
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that for two years from the date of this Agreement the securities Steinhardt
proposes to sell shall be second in priority (i.e., such securities shall be
included before the Registrable Securities).
(b) If a Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Company's securities and is a Purchase Registration,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, the Company will include
in such registration (i) first, the securities requested to be included therein
by the holders requesting such registration and the Registrable Securities and
the securities held by Steinhardt requested to be included in such registration,
provided, that if the managing underwriters in good faith determine that a lower
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number of securities should be included, then the Company shall be required to
include in the underwriting only that lower number of securities, and the
holders requesting such registration, the holders of Registrable Securities who
requested to be included in such registration and Steinhardt shall participate
in the underwriting pro rata based upon their total ownership, on a fully
diluted basis, of any such securities requested to be included in such
registration and (ii) second, other securities requested to be included in such
registration pursuant to piggyback rights. The Company hereby agrees that
whenever it grants piggyback rights to any holder of its securities such
holder's piggyback rights will be expressly subordinated to the piggyback rights
granted to the holders of the Registrable Securities under this Article II.
II.4 Other Registrations. If the Company has previously filed a registration
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statement for a Long-Form Demand Registration with respect to Registrable
Securities pursuant to Article I of this Agreement or pursuant to this Article
II, and if such previous registration has not been withdrawn or abandoned, the
Company will not file or cause to be effected any other registration of any of
its equity securities or securities convertible, exchangeable or exercisable for
or into its equity securities under the Securities Act (except on Form S-4 or S-
8 or any successor form), whether on its own behalf or at the request of any
holder or holders of such securities other than the holders of the Registrable
Securities, until a period of at least six (6) months elapsed from the effective
date of such previous registration.
ARTICLE III
REGISTRATION PROCEDURES
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Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible or,
in the case of clause (q) below, will not:
(a) promptly prepare and file with the SEC a registration statement with
respect to such Registrable Securities (such registration statement to
include all information which the
5
holders of the Registrable Securities to be registered thereby shall reasonably
request) and use its best efforts to promptly cause such registration statement
to become effective, provided that at least five days before filing a
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registration statement or prospectus or any amendments or supplements thereto,
the Company will (i) furnish to counsel selected by the Fleming Holders, copies
of all such documents proposed to be filed, and the Company shall not file any
such documents to which such counsel shall have reasonably objected on the
grounds that such document does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations thereunder,
and (ii) notify each holder of Registrable Securities covered by such
registration statement of (x) any request by the SEC to amend such registration
statement or amend or supplement any prospectus or (y) any stop order issued or
threatened by the SEC, and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered;
(b) (i) promptly prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than 180 days (except that such 180-day period shall be extended (x)
by the length of any period that a stop order or similar proceeding is in effect
which prohibits the distribution of the Registrable Securities, and (y) by the
number of days during the period from and including the date on which each
seller of Registrable Securities shall have received a notice delivered pursuant
to clause (f) below until the date when such seller shall have received a copy
of the supplemented or amended prospectus contemplated by clause (f) below), and
(ii) comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) as soon as reasonably possible furnish to each seller of Registrable
Securities, without charge, such number of conformed copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus and
prospectus supplement and, in each case, including all exhibits) and such other
documents as such seller may reasonably request, all in conformity with the
requirements of the Securities Act, in order to facilitate the disposition of
the Registrable Securities owned by such seller;
(d) use its best efforts promptly to register or qualify the Shares under such
other securities or blue sky laws of such jurisdictions as any seller thereof
shall reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect and to do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller, provided, however, that the Company
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will not be required to (i) qualify generally to do business as a foreign
corporation in any jurisdiction where it would not otherwise be required to
qualify but for this clause (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
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(e) furnish to each seller of Registrable Securities a signed copy, addressed
to such seller (and the underwriters, if any) of an opinion of counsel for the
Company or special counsel to the selling stockholders, dated the effective date
of such registration statement (and, if such registration statement includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and substance to
counsel selected by the Fleming Holders, covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel delivered to
the underwriters in underwritten public offerings, and such other legal matters
as the seller (or the underwriters, if any) may reasonably request;
(f) promptly notify each seller of Registrable Securities, at a time when a
prospectus relating to the Shares is required to be delivered under the
Securities Act, of the Company's becoming aware that the prospectus included in
such registration statement, as then in effect, contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and, at the request of any such
seller, promptly prepare and furnish such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made;
(g) cause all of the Shares to be listed on each securities exchange on which
similar securities issued by the Company are then listed or, if there shall then
be no such listing, to be accepted for quotation as a National Market Security
on The NASDAQ Stock Market;
(h) provide a transfer agent and registrar for all of the Shares not later than
the effective date of such registration statement;
(i) enter into such customary arrangements and take all such other actions as
the Fleming Holders or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of the Shares;
(j) make available for inspection by any seller of Registrable Securities, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(k) cause the Company's officers to make presentations to potential purchasers
of the Shares, as reasonably requested by any seller of Registrable Securities
or any underwriter
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participating in any disposition pursuant to such registration statement in
connection with one (1) Long-Form Demand Registration;
(l) subject to other provisions hereof, use its best efforts to cause the Shares
to be registered with or approved by such other governmental agencies or
authorities or self-regulatory organizations as may be necessary to enable the
sellers thereof to consummate the disposition of the Shares;
(m) use its best efforts to obtain a "comfort" letter, dated the effective date
of such registration statement (and, if such registration includes an
underwritten offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified the
Company's financial statements, addressed to each seller, and to the
underwriters, if any, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and with
respect to events subsequent to the date of such financial statements, as are
customarily covered in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and such other financial matters as
such seller (or the underwriters, if any) may reasonably request;
(n) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC and make available to its securityholders, in each case
as soon as practicable, an earnings statement covering a period of at least
twelve months, beginning after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(o) permit any holder of Registrable Securities, which holder, in the sole
judgment exercised in good faith of such holder, might be deemed to be a
controlling person of the Company (within the meaning of the Securities Act or
the Exchange Act), to participate in the preparation of any registration
statement covering such holder's Registrable Securities and to include therein
material, furnished to the Company in writing, which in the reasonable judgment
of such holder should be included and which is reasonably acceptable to the
Company;
(p) use every reasonable effort to obtain the lifting at the earliest possible
time of any stop order suspending the effectiveness of any registration
statement or of any order preventing or suspending the use of any prospectus;
(q) at any time file or make any amendment to a registration statement, or any
amendment of or supplement to a prospectus (including amendments of the
documents incorporated by reference into the prospectus), of which each seller
of Registrable Securities or the managing underwriters shall not have previously
been advised and furnished a copy or to which the sellers of Registrable
Securities, the managing underwriters, or counsel for such sellers or for the
underwriters shall reasonably object; and
(r) make such representations and warranties (subject to appropriate disclosure
exceptions) to sellers of Registrable Securities and the
underwriters, if any, in form,
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substance and scope as are customarily made by issuers to underwriters and
selling holders, as the case may be, in underwritten public offerings of
substantially the same type.
ARTICLE IV
REGISTRATION EXPENSES
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IV.1 Company's Fees and Expenses. All expenses incident to the Company's
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performance of or compliance with this Agreement, including without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and expenses for listing or quoting the Shares on each securities exchange
or The NASDAQ Stock Market on which similar securities issued by the Company are
then listed or quoted, and fees and disbursements of counsel for the Company,
any transfer agent and all independent certified public accountants,
underwriters (excluding discounts and selling commissions) and other Persons
retained by the Company in connection with any Demand Registration or any
Piggyback Registration (all such expenses being herein called "Registration
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Expenses"), will be paid by the Company.
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IV.2 Fees of Counsel to Holders. In connection with each registration
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hereunder, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the Fleming Holders.
ARTICLE V
UNDERWRITTEN OFFERINGS
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V.1 Demand Underwritten Offerings. If requested by the underwriters for any
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underwritten offerings of Registrable Securities pursuant to a Demand
Registration, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to the Fleming Holders and the underwriters, and to contain
such representations and warranties by the Company and such other terms as are
generally included in agreements of this type, including, without limitation,
indemnities customarily included in such agreements. The holders of Registrable
Securities to be distributed by such underwriters may be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. The Company shall cooperate with any such
holder of Registrable Securities in order to limit any representations or
warranties to, or agreements with, the Company or the underwriters to be made by
such holder only to those representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
9
V.2 Incidental Underwritten Offerings. If the Company at any time proposes
---------------------------------
to register any of its securities under the Securities Act as contemplated by
Article II of this Agreement and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Article II of this Agreement, arrange
for such underwriters to include all the Registrable Securities to be offered
and sold by such holder, subject to the limitations set forth in Article II
hereof, among the securities to be distributed by such underwriters. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to the underwriting agreement between the Company and such
underwriters, and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. The Company shall cooperate with any such
holder of Registrable Securities in order to limit any representations or
warranties to, or agreements with, the Company or the underwriters to be made by
such holder only to those representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
ARTICLE VI
INDEMNIFICATION
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VI.1 Indemnification by the Company. The Company agrees to indemnify and
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hold harmless, to the extent permitted by law, each of the holders of any
Registrable Securities covered by any registration statement prepared pursuant
to this Agreement, each other Person, if any, who controls such holder within
the meaning of the Securities Act or the Exchange Act, and each of their
respective directors, general partners and officers, as follows:
(i) against any and all loss, liability, claim, damage and expense arising
out of or based upon an untrue statement or alleged untrue statement of a
material fact contained in any registration statement (or any amendment or
supplement thereto), including all documents incorporated therein by
reference, or in any preliminary prospectus or prospectus (or any amendment
or supplement thereto) or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense to the
extent of the aggregate amount paid in settlement of any litigation,
investigation or proceeding by any governmental agency or body, commenced
or threatened, or of any claim whatsoever based upon any such untrue
statement or omission or any such alleged untrue statement or omission, if
such settlement is effected with the written consent of the Company; and
10
(iii) against any and all expense incurred by them in connection
with investigating, preparing or defending against any litigation,
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement
or omission or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under clause (i) or (ii) above;
provided, that this indemnity does not apply to any loss, liability, claim,
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damage or expense to the extent arising out of an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any holder expressly for use in the preparation of any registration statement
(or any amendment or supplement thereto), including all documents incorporated
therein by reference, or in any preliminary prospectus or prospectus (or any
amendment or supplement thereto); and provided further, that the Company will
-------- -------
not be liable to any holder under the indemnity agreement in this Section 6.1,
with respect to any preliminary prospectus or the final prospectus or the final
prospectus as amended or supplemented, as the case may be, to the extent that
any such loss, liability, claim, damage or expense of such controlling Person or
holder results from the fact that such holder sold Registrable Securities to a
Person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final prospectus or of the final
prospectus as then amended or supplemented, whichever is most recent, if the
Company has previously and timely furnished copies thereof to such holder. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or any such director, officer, general
partner, or other controlling person and shall survive the transfer of such
securities by such seller.
VI.2 Indemnification by Holders. In connection with any registration
--------------------------
statement in which a holder of Registrable Securities is participating, each
such holder agrees to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 6.1 of this Agreement), to the extent
permitted by law, the Company and its directors, officers and controlling
Persons, and their respective directors, officers and general partners, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such holder, specifically stating that it is for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company, or such
holder, as the case may be, or any of their respective directors, officers,
controlling Persons or general partners and shall survive the transfer of such
securities by such holder. The obligations of each holder of Registrable
Securities pursuant to this Section 6.2 are to be several and not joint;
provided, that, with respect to each claim pursuant to this Section 6.2, each
- --------
such holder's maximum liability under this Section shall be limited to an amount
equal to the net proceeds actually received by such holder (after deducting any
underwriting discount and expenses) from the sale of Registrable Securities
being sold pursuant to such registration statement or prospectus by such holder.
11
VI.3 Indemnification Procedures. Promptly after receipt by an indemnified
--------------------------
party hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in Section 6.1 or Section 6.2 of this
Agreement, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, that the failure of any indemnified party
--------
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under Section 6.1 or Section 6.2 of this Agreement except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, unless in such indemnified party's judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, in which case the indemnifying party shall not be liable for the
fees and expenses of (i) more than one counsel for all holders of Registrable
Securities, selected by the Fleming Holders, or (ii) more than one counsel for
the Company in connection with any one action or separate but similar or related
actions. An indemnifying party who is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels. The indemnifying party will not, without the
prior written consent of each indemnified party, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such indemnified party or any Person who controls such indemnified party
is a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such indemnified
party from all liability arising out of such claim, action, suit or proceeding.
Notwithstanding anything to the contrary set forth herein, and without limiting
any of the rights set forth above, in any event any party will have the right to
retain, at its own expense, counsel with respect to the defense of a claim.
VI.4 Indemnification of Underwriters. The Company and each holder of
-------------------------------
Registrable Securities requesting registration shall provide for the foregoing
indemnity in any underwriting agreement with respect to any required
registration or other qualification of securities under any Federal or state law
or regulation of any governmental authority other than the Securities Act.
VI.5 Contribution. If the indemnification provided for in Sections 6.1 and
------------
6.2 of this Agreement is unavailable or insufficient to hold harmless an
indemnified party under such Sections, then each indemnifying party shall
contribute to the amount paid or payable to such indemnified party as a result
of the losses, claims, damages or liabilities referred to in Section 6.1 or
Section 6.2 of this Agreement in such proportion as is appropriate to reflect
the relative fault
12
of the indemnifying party on the one hand, and the indemnified party on the
other, in connection with statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations, including, without limitation, the relative benefits
received by each party from the offering of the securities covered by such
registration statement, the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted
and the opportunity to correct and prevent any statement or omission. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this Section 6.5 were to be
determined by pro rata or per capita allocation (even if the underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this Section 6.5. The amount paid to an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 6.5 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim (which shall be limited as
provided in Section 6.3 of this Agreement if the indemnifying party has assumed
the defense of any such action in accordance with the provisions thereof) which
is the subject of this Section 6.5. Promptly after receipt by an indemnified
party under this Section 6.5 of notice of the commencement of any action against
such party in respect of which a claim for contribution may be made against an
indemnifying party under this Section 6.5, such indemnified party shall notify
the indemnifying party in writing of the commencement thereof if the notice
specified in Section 6.3 of this Agreement has not been given with respect to
such action; provided, that the omission to so notify the indemnifying
--------
party shall not relieve the indemnifying party from any liability which it may
otherwise have to any indemnified party under this Section 6.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. The Company and each holder of Registrable Securities agrees with
each other and the underwriters of the Registrable Securities, if requested by
such underwriters, that (i) the underwriters' portion of such contribution shall
not exceed the underwriting discount and (ii) the amount of such contribution
shall not exceed an amount equal to the net proceeds actually received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, liabilities, claims, damages or expenses of the indemnified
parties relate. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
VI.6 Timing of Indemnification Payments. The indemnification required by
----------------------------------
this Article VI shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
13
ARTICLE VII
RULE 144
--------
The Company covenants that it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information), and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemption provided by (i) Rule 144 or Rule 144A under the Securities Act,
as such Rules may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
ARTICLE VIII
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
-------------------------------------------
No Person may participate in any underwritten registration hereunder unless
such Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements and
consistent with the provisions of this Agreement.
ARTICLE IX
MERGERS, ETC.
-------------
The Company shall not, directly or indirectly, enter into any merger,
consolidation, or reorganization in which the Company shall not be the surviving
corporation unless the proposed surviving corporation shall, prior to such
merger, consolidation, or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Securities" shall be deemed to be references to the
securities that the Investors or the holders of Registrable Securities would be
entitled to receive in exchange for Registrable Securities under any such
merger, consolidation, or reorganization.
ARTICLE X
DEFINITIONS
-----------
As used in this Agreement, the following defined terms shall have the meanings
set forth below:
14
"Business Day" means a day other than Saturday, Sunday or any day on which
------------
banks in the State of New York are authorized or obligated to close.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
------------
"Designated Entity" means (i) as long as any Registrable Securities are held
-----------------
by any Fleming Holder, Fleming Capital Management, 320 Park Avenue, NY, NY
10022, attention: Robert L. Burr and (ii) if no Registrable Securities are held
by any Fleming Holder, the entity designated by the Transferee who holds the
largest number of Registrable Securities (in which case such Transferee shall
provide notice to the Company of such entity in accordance with Section 11.6(a)
hereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fleming Holders" shall have the meaning given it in Section 3 of the Stock
---------------
Purchase Agreements.
"Market Value" means, on a per share basis, the average closing price of the
------------
Company's Common Stock on the Nasdaq Stock Market, or the securities exchange on
which the Common Stock is then listed, for the 20 consecutive trading days
ending with the second trading day immediately preceding the date a request for
Demand Registration is received by the Company. For purposes of calculating the
Market Value of shares of Preferred Stock, such shares shall be converted into
shares of Common Stock at the current Conversion Price per share under Section 5
of the Certificate of Designations. If at any time such security is not listed
on any exchange or the Nasdaq Stock Market, the Market Value shall be deemed to
be the fair value thereof determined by an investment banking firm of nationally
recognized standing selected by the Board of Directors of the Corporation and
reasonably acceptable to the Fleming Holders, as of the most recent practicable
date as of which the determination is to be made, taking into account the value
of the Corporation as a going concern, and without taking into account any lack
of liquidity of such security or any discount for a minority interest.
"Person" means any individual, corporation, partnership, association, trust or
------
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Preferred Stock" means the Company's Series A Convertible Preferred Stock,
---------------
par value $.01 per share, which Preferred Stock is convertible into shares of
Common Stock.
"Registrable Securities" means (i) any shares of Common Stock issued or
----------------------
issuable upon conversion of the Preferred Stock purchased by the Investors
pursuant to the Stock Purchase Agreements and (ii) any securities issued or
issuable with respect to the Common Stock referred to in clause (i) by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have (x) been effectively registered under the
Securities Act and disposed of in accordance
15
with the registration statement covering them or (y) been transferred pursuant
to Rule 144 (or any similar rule then in force) under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Shares" means the shares of Registrable Securities registered on the
------
registration statement filed with the SEC in connection with any Demand
Registration or any Piggyback Registration.
"Stock Purchase Agreements" means, collectively, the separate Preferred Stock
-------------------------
Purchase Agreements, dated as of February 5, 1998, between the Company and each
of the Fleming Funds.
"Transferees" shall have the meaning given it in Section 3 of the Stock
-----------
Purchase Agreements.
ARTICLE XI
MISCELLANEOUS
-------------
XI.1 No Inconsistent Agreements. The Company will not hereafter enter into
--------------------------
any agreement with respect to its securities which is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.
XI.2 Adjustments Affecting Registrable Securities. The Company will not
--------------------------------------------
effect or permit to occur any combination, subdivision or reclassification of
any of its securities which would adversely affect the ability of the holders of
Registrable Securities to include Registrable Securities in a registration
undertaken pursuant to this Agreement or which, to the extent within its
control, would adversely affect the marketability of such Registrable Securities
in any such registration (including, without limitation, effecting a stock split
or a combination of shares).
XI.3 Remedies. In the event of a breach by any party to this Agreement of
--------
its obligations under this Agreement, any party injured by such breach, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The parties agree that the provisions of this Agreement
shall be specifically enforceable, it being agreed by the parties that the
remedy at law, including monetary damages, for breach of any such provision will
be inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
XI.4 Amendments and Waivers. Except as otherwise provided herein, no
----------------------
modification, amendment or waiver of any provision of this Agreement will be
effective against the Company or any holder of Registrable Securities, unless
such modification, amendment or waiver is approved in writing by the Company and
the Fleming Holders. The failure of any party to enforce any of the provisions
of this Agreement will in no way be construed as a waiver
16
of such provisions and will not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
XI.5 Successors and Assigns. All covenants and agreements in this Agreement
----------------------
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of the
Investors or the holders of Registrable Securities are also for the benefit of,
and enforceable by, any subsequent holder of Registrable Securities.
XI.6 Notices. (a) Subject to Section 11.6(b) hereof, all notices, requests
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and other communications hereunder must be in writing and will be deemed to have
been duly given only if delivered personally or by facsimile transmission or
sent by nationally recognized overnight courier service to the parties at the
following addresses or facsimile numbers:
(i) If to an Investor or a holder of Registrable Securities, to:
Fleming Capital Management
320 Park Avenue
NY, NY 10022
Facsimile No.: 21112-508-3928
Attn: Robert L. Burr
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: David W. Pollak, Esq.
(ii) If to the Company, to:
Four Media Company
2813 West Alameda Avenue
Burbank, California 91505
Facsimile No.: 818-840-7143
Attn: Robert T. Walston
with a copy to:
Greenberg Glusker Fields Claman
& Machtinger LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, California 90067
Facsimile No.: (310) 553-0687
Attn: Jill A. Cossman, Esq.
17
All such notices, requests and other communications will (x) if delivered
personally to the address as provided in this Section 11.6(a), be deemed given
upon delivery, (y) if delivered by facsimile transmission to the facsimile
number as provided in this Section 11.6(a), be deemed given upon receipt and (z)
if delivered by nationally recognized overnight courier service in the manner
described above to the address as provided in this Section 11.6(a), be deemed
given on the Business Day following the day it was sent (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this Section
11.6(a)). Any party may from time to time change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
(b) So long as any Fleming Holder holds any Registrable Securities, all notices
and other communications hereunder shall be deemed given to all holders of the
Registrable Securities when given to the Designated Entity in accordance with
Section 11.6(a) hereof. The consent, selection, request, acceptance, choice,
approval and other similar terms used in this Agreement (collectively, the
"Consent") of the Fleming Holders shall be deemed obtained if any of the
following conditions are satisfied: (i) the Fleming Funds are the only holders
of the Registrable Securities and the Designated Entity shall have obtained the
Consent of each Fleming Fund and shall have given notice to the Company to such
effect in accordance with Section 11.6(a) hereof; (ii) the Fleming Funds are not
the only holders of the Registrable Securities and the Designated Entity shall
have obtained the Consent of the holders of a majority of the Registrable
Securities held by all Fleming Holders, and shall have given notice to the
Company to such effect in accordance with Section 11.6(a) hereof; or (iii) no
Registrable Securities are held by a Fleming Holder and the Designated Entity
shall have obtained the Consent of the holders of a majority of the Registrable
Securities held by the Transferees, and shall have given notice to the Company
to such effect in accordance with Section 11.6(a) hereof; provided,
--------
however, that if the Consent relates to a particular Demand Registration or
- -------
Piggyback Registration or otherwise only involves or affects certain holders of
the Registrable Securities, only the Registrable Securities of the holders so
participating in such registration or so involved or affected shall be included
in the Consent required by clause (iii) of this paragraph.
XI.7 Headings. The headings used in this Agreement have been inserted for
--------
convenience of reference only and do not define or limit the provisions hereof.
XI.8 Gender. Whenever the pronouns "he" or "his" are used herein they shall
------
also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable.
Words in the singular shall be read and construed as though in the plural and
words in the plural shall be construed as though in the singular in all cases
where they would so apply.
XI.9 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable, and if the rights or obligations of any party
hereto under this Agreement will not be materially and adversely affected
thereby, (i) such provision will be fully severable, (ii) this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, (iii) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or
18
unenforceable provision or by its severance herefrom and (iv) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
XI.10 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York applicable to a contract
executed and performed in such State without giving effect to the conflicts of
laws principles thereof.
XI.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
Four Media Company
By: /s/ Robert T. Walston
----------------------------------------
Name: Robert T. Walston
Title: CEO
FLEMING US DISCOVERY FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY, LLC,
its general partner
By: /s/ Robert L. Burr
-----------------------------
Robert L. Burr, member
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY, LLC,
its general partner
By: /s/ Robert L. Burr
-----------------------------
Robert L. Burr, member
19