EXHIBIT 99.5
PREFERRED STOCK CONVERSION AND STOCKHOLDERS AGREEMENT
THIS PREFERRED STOCK CONVERSION AND STOCKHOLDERS AGREEMENT (this
"Agreement") is entered into as of this ___ day of January, 1999, by and among
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(i) Four Media Company, a Delaware corporation (the "Company"), (ii) Warburg,
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Xxxxxx Equity Partners, L.P., a Delaware limited partnership, Warburg, Xxxxxx
Netherlands Equity Partners I, C.V., a Dutch limited partnership, Warburg,
Xxxxxx Netherlands Equity Partners II, C.V., a Dutch limited partnership, and
Warburg, Xxxxxx Netherlands Equity Partners III, C.V., a Dutch limited
partnership (each a "Buyer" and, collectively, the "Buyers"), and (iii) Xxxxxxx
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US Discovery Fund III, L.P. ("Xxxxxxx US") and Xxxxxxx US Discovery Offshore
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Fund III, L.P. ("Xxxxxxx Offshore" and with the Xxxxxxx US, collectively, the
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"Xxxxxxx Funds").
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RECITALS
WHEREAS, the Company and Xxxxxxx US entered into the Preferred Stock
Purchase Agreement dated as of February 5, 1998, as amended as of February 27,
1998 (the "Xxxxxxx US Purchase Agreement"), with respect to, among other things,
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the purchase by Xxxxxxx US of 129,280 shares of the Company's Series A
Convertible Preferred Stock, $.01 par value per share (the "Series A Shares");
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WHEREAS, the Company and Xxxxxxx Offshore entered into the Preferred
Stock Purchase Agreement dated as of February 5, 1998, as amended as of February
27, 1998 (the "Xxxxxxx Offshore Purchase Agreement" and with the Xxxxxxx US
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Purchase Agreement, collectively, the "Preferred Purchase Agreements"), with
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respect to, among other things, the purchase by Xxxxxxx Offshore of 20,720
Series A Shares;
WHEREAS, the Company and the Xxxxxxx Funds entered into (a) the
Stockholders' Agreement dated as of February 27, 1998 (the "Stockholders'
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Agreement") which, among other things, granted the Xxxxxxx Funds certain rights
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with respect to their ownership of the Series A Shares and (b) the Registration
Rights Agreement dated as of February 27, 1998 (the "Registration Rights
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Agreement") whereby, among other things, the Company granted the Xxxxxxx Funds
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rights relating to the registration of the Common Shares (as defined below) of
the Company issuable upon conversion of the Series A Shares;
WHEREAS, the Company has been engaged in discussions with the Buyers
whereby the Buyers have expressed an interest in proceeding with an acquisition
of a significant equity stake in the Company pursuant to (a) a Stock Purchase
Agreement by and among Technical Services Partners, L.P. ("TSP") and the Buyers
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(as amended from time to time, the "Partnership Stock Purchase Agreement"), with
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respect to the purchase by the Buyers from TSP of shares of the Company's common
stock, par value $.01 per share (all shares of the Company's common stock
referred to herein as the "Common Shares"), (b) a Securities Purchase Agreement
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by and among the Company and the Buyers (as amended from time to time, the
"Securities Purchase Agreement"), with respect to the purchase by the Buyers of
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newly issued Common Shares directly from the Company and (c) a Stock Purchase
Agreement by and among the Buyers and Xxxx X. Xxxxxx ("Xxxxxx"), Xxxxx X. Xxxxxx
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("Xxxxxx"), Xxxxxx Xxxxxx ("Xxxxxx") and the estate of Xxxx X. Xxxxx ("Xxxxx"
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and together with Xxxxxx, Xxxxxx and Xxxxxx, the "Founders") (as amended from
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time to time, the "Founders Stock Purchase Agreement" and together with the
Securities Purchase Agreement and the Partnership Stock Purchase Agreement,
collectively, the "Purchase Agreements"), with respect to the purchase by the
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Buyers of Common Shares from the Founders (such acquisitions of Common Shares,
together with all related transactions between the Company and the Buyers, are
collectively referred to as the "Acquisitions");
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WHEREAS, the Company has advised the Xxxxxxx Funds that the Buyers
require as a condition precedent to the consummation of the Acquisitions that
the Xxxxxxx Funds agree to convert all of the outstanding Series A Shares into
Common Shares effective at and as of the time at which the Acquisitions are
consummated and to certain other matters set forth below; and
WHEREAS, the Xxxxxxx Funds desire to convert, and the Company desires
the Xxxxxxx Funds to convert, the Series A Shares into shares of Common Shares,
upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and intending to be
legally bound, the parties hereby agree as follows:
ARTICLE I.
CONVERSION
SECTION 1.1. CONVERSION OF SERIES A SHARES
Upon the terms and subject to the conditions of this Agreement, on the
Closing Date (as defined in Section 1.2 below) and concurrently with the
consummation of the Acquisitions, the Xxxxxxx Funds shall convert (the
"Conversion") 150,000 Series A Shares owned by them in the aggregate, into an
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aggregate of 2,250,000 Common Shares (subject to appropriate adjustments for
stock splits, dividends and combinations and other similar recapitalizations)
and the Company shall issue to the Xxxxxxx Funds the aggregate of 2,250,000
Common Shares required to be issued in respect of such Conversion (subject to
appropriate adjustments for stock splits, dividends and combinations and other
similar recapitalizations). The Common Shares to be issued by the Company as
provided above will be allocated among the Xxxxxxx Funds on a pro-rata basis in
accordance with their proportionate ownership of the Series A Shares.
SECTION 1.2. THE CLOSING
The closing of the Conversion (the "Closing") will take place on the
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same date that the closing of the Acquisitions takes place (the "Closing Date"),
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at the offices of Xxxxxxx Xxxx & Xxxxxxxxx, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx, unless another date, place or
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time is agreed to in writing by the Company and the Buyers. The Company shall
give the Xxxxxxx Funds at least three business days prior written notice of the
Closing Date and time and place of Closing. The Consideration shall be paid to
the Xxxxxxx Funds at Closing by wire transfer of immediately available funds and
following delivery to the Company of duly endorsed certificates (along with a
conversion notice in the form attached as Exhibit A) evidencing the Series A
Shares subject to conversion. At the Closing, upon its receipt of the
certificates representing the Series A Shares, the Company shall also deliver to
the Xxxxxxx Funds certificates representing the Common Shares as set forth in
Section 1.1. Any and all taxes that may be payable in respect of any issuance or
delivery of shares of Common Stock on conversion of the Series A Shares shall be
paid by the Company. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance or delivery of
Common Shares in a name other than that of the Series A Shares, and no such
issuance or delivery shall be made unless and until the Person (as defined in
the Certificate of Designation governing the Series A Shares (the "Certificate
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of Designations")) requesting such issuance has paid to the Company the amount
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of such tax or has established, to the satisfaction of the Company, that such
tax has been paid. At the Closing, each of the Xxxxxxx Funds shall deliver to
the Company a release and the Company shall provide each of the Xxxxxxx Funds
with a Release, in each case in the form attached hereto as Exhibit B.
SECTION 1.3. TERMINATION
This Agreement shall terminate in its entirety and be of no further
force and effect upon (a) the termination of the Purchase Agreements or (b) such
later date as all parties hereto shall agree (such date, the "Termination
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Date"). The Company shall notify the Xxxxxxx Funds promptly upon the occurrence
of the Termination Date.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 2.1. REPRESENTATIONS BY THE COMPANY AND THE XXXXXXX
FUNDS
The Company hereby represents and warrants to each of the Xxxxxxx
Funds, and each of the Xxxxxxx Funds hereby represents and warrants to the
Company, that the following statements with respect to itself are true and
correct as of the date hereof: (a) such party has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereunder, (b) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action by such party, (c) this Agreement has been duly executed
and delivered by such party, and constitutes the valid and binding obligations
of such party, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equitable principles, and (d) the execution and delivery of this Agreement by
such party and the announcement of the transactions contemplated hereby does
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not, and the consummation of the transactions contemplated by this Agreement
will not (1) conflict with, or result in any violation or breach of, any
provisions of the charter, bylaws or other governing documents of such party or
any of its subsidiaries (or controlled affiliates), (2) assuming the execution
and delivery of this Agreement by the parties hereto, result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any contract,
agreement, instrument or obligation to which such party or any of its
subsidiaries (or controlled affiliates) is a party or by which any of them or
any of their properties or assets may be bound, or (3) conflict with or violate
any judgment, writ, decree, order, ruling, law, statute, rule or regulation
applicable to such party or any of its subsidiaries (or controlled affiliates)
and of its or their properties or assets, except in the case of (2) and (3),
such conflicts, violations, defaults, terminations, cancellations or
accelerations which would not, individually or in the aggregate, prevent or
delay such party's ability to timely consummate the transactions herein
contemplated.
SECTION 2.2. TITLE
Each of the Xxxxxxx Funds represents and warrants to the Company that
the following statements with respect to itself are true and correct as of the
date hereof: (a) such Xxxxxxx Fund is the beneficial and record owner of the
number of Series A Shares set forth next to such Xxxxxxx Fund's name on the
signature pages hereto, free and clear of any liens, charges, encumbrances,
security interests and rights of others with full right and power to convert
such shares as set forth herein and (b) except for this Agreement, the Purchase
Agreements, the Registration Rights Agreement, the Preferred Purchase Agreements
and the Stockholders' Agreement, there are no outstanding agreements, options,
warrants or rights to purchase or acquire or agreements (whether voting or
otherwise) relating to any of the Series A Shares owned by such Xxxxxxx Fund.
SECTION 2.3. RESTRICTED SECURITIES
Each of the Xxxxxxx Funds represents and warrants to the Company that
it understands that the Common Shares it will receive upon the Conversion will
be characterized as "restricted securities" under the federal securities laws
inasmuch as they will be initially acquired from the Company in a transaction
not involving a public offering and that under such laws and applicable
regulations, such securities may be resold without registration under the
Securities Act, only in certain limited circumstances. In this connection, each
of the Xxxxxxx Funds represents that it is familiar with Securities and Exchange
Commission ("SEC") Rule 144 as presently in effect and it understands the resale
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limitations imposed thereby and by the Securities Act. Each of the Xxxxxxx
Funds understands that it will be deemed an "affiliate" of the Company as that
term is defined in Rule 144.
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SECTION 2.4. LEGENDS.
It is understood that the certificates evidencing the Common Shares,
when issued in the name of each of the Xxxxxxx Funds in accordance with Section
1.1, may bear the following legend, or a legend substantially similar to such
legend:
"These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
SECTION 2.5. ADDITIONAL REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to each of the Xxxxxxx Funds that
Schedule 2.5 sets forth a complete and accurate copy of the Securities Purchase
Agreement, including all exhibits thereto, as executed by the parties thereto.
The Company further represents that it has made available to the Xxxxxxx Funds
all of the material agreements contemplated by the Securities Purchase Agreement
and the other agreements related to the Acquisitions.
SECTION 2.6. ADDITIONAL REPRESENTATIONS OF THE COMPANY
The parties hereto agree and acknowledge that the representations and
warranties set forth in Sections 3.7 through 3.23, 3.27 and 3.28 of the
Securities Purchase Agreement, inasmuch and to the extent (but only to the
extent) that such representations and warranties relate to the business,
financial condition and operations of the Company (and, except in the case of
Sections 3.27 and 3.28, not to the transactions contemplated by the Securities
Purchase Agreement or any other matters), shall be deemed to be representations
and warranties of the Company made to the Xxxxxxx Funds for the purposes of this
Agreement and shall be incorporated for such purpose herein.
ARTICLE III.
CONSENT, WAIVER & TERMINATION
SECTION 3.1. CONSENT AND WAIVER
(a) Each of the Xxxxxxx Funds hereby waives any and all of its rights,
benefits and claims under the Certificate of Designations and any other document
or agreement, to any and all adjustments to the Conversion Price (as defined in
the Certificate of Designations) 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 Purchase Agreements; and
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(b) Each of the Xxxxxxx Funds hereby waives any and all of its rights,
benefits and claims under the Preferred Purchase Agreements, the Stockholders'
Agreement, the Registration Rights Agreement and any other agreement to which
the Company and the Xxxxxxx 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 Purchase Agreements, including without
limitation preemptive rights and registration rights with respect to the
issuance of Common Shares to the Buyers, and hereby consents to the execution,
delivery and performance of the Purchase Agreements; provided, however, that the
foregoing waiver shall be null and void ab initio on and after the Termination
Date.
SECTION 3.2. TERMINATION OF RIGHTS UNDER OTHER AGREEMENTS
All rights of the Xxxxxxx Funds under the Preferred Purchase
Agreements, the Registration Rights Agreement, the Stockholders' Agreement and
any other agreement to which the Company and the Xxxxxxx Funds are parties shall
terminate as of the Closing Date and such agreements shall be terminated and
shall thereafter be of no further force and effect.
SECTION 3.3. RIGHTS OF INCLUSION (TAG-ALONG RIGHTS)
For so long as the Xxxxxxx Funds own at least 50% of the Common Shares
that are issued to them pursuant to Section 1.1 of this Agreement, the following
provisions of this Section 3.3 apply:
(a) Subject to subsection (e) below, in the event that either the
Chief Executive Officer ("CEO") or the Buyers (with CEO collectively, the
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"Transferors" and each a "Transferor") propose to transfer any Common Shares
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owned by them (the "Transferor Shares") to any person (the "Transferee"), as a
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condition to such transfer, the Transferor(s) shall cause the Transferee to
offer (the "Inclusion Offer") to purchase from each Xxxxxxx Fund, at each such
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Xxxxxxx Fund's option, up to that number of Common Shares owned by such Xxxxxxx
Fund determined in accordance with this Section 3.3 below 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 Xxxxxxx Fund shall 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 shall, in any event,
include customary organizational representations with respect to each of the
Xxxxxxx Funds, customary representations with respect to required consents and
customary representations with respect to all of the other matters represented
by the Xxxxxxx Funds in Sections 2.1 and 2.2 hereof). The Transferor(s) shall
provide prompt written notice to each Xxxxxxx Fund (the "Inclusion Notice")
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setting forth all the terms and conditions of the Inclusion Offer, and each
Xxxxxxx Fund may accept the Inclusion Offer in whole or in part by providing a
written notice of acceptance with respect to Common Shares owned by it to the
applicable Transferor(s) within 10 business days of delivery of the Inclusion
Notice to it (the "Acceptance Notice");
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(b) Each Xxxxxxx Fund shall have the right to sell, pursuant to the
Inclusion Offer, Common Shares representing the same percentage of all Common
Shares owned by it as the Transferor Shares are of all Common Shares owned by
such Transferor; provided, however, that if neither Xxxxxxx Fund elects to
exercise such right within the 10 business day period described in subsection
(a), the Transferor(s) shall nonetheless be entitled to Transfer all of the
Transferor Shares described in the Inclusion Notice and the Xxxxxxx Funds shall
be deemed to have waived their rights hereunder with respect to such sale. In
the event the number of Inclusion Shares for which such Xxxxxxx Fund elects to
exercise such right, along with the Transferor Shares and any other shares of
the Company to be sold by other stockholders pursuant to any similar rights
granted to such other stockholders, exceed the number of shares which the
Transferee is willing to purchase, the number of shares to be transferred to the
Transferee by each transferring stockholder shall be reduced so that each
transferring stockholder is entitled to Transfer the same percentage of its
shares included in its Acceptance Notice (or other similar notice) as each other
transferring stockholder;
(c) The Transferor(s) shall have 90 days, commencing on the date of
the Inclusion Notice, in which to transfer, on behalf of himself, itself or
themselves and the Xxxxxxx Funds up to the number of shares covered by the
Inclusion Offer (including the Transferor Shares) to the Transferee. The terms
of such transfer, including, without limitation, price and form of
consideration, shall be as set forth in the Inclusion Notice. If at the end of
such 90 day period the Transferor(s) have not completed the transfer of the
Transferor Shares and the Inclusion Shares (if any) proposed to be transferred,
the Transferor(s) may not proceed with such transfer or any other transfer
without first giving a new Inclusion Notice pursuant to the provisions of this
Section 3.3;
(d) If the Transferor(s) are able to complete the transfer of the
Transferor Shares and the Inclusion Shares (if any) proposed to be transferred
within such 90 day period, at the closing thereof, each Xxxxxxx Fund shall
deliver to the Transferee a certificate or certificates representing the
Inclusion Shares owned by it to be transferred pursuant to the Inclusion Offer,
free and clear of all liens and encumbrances, and the Transferee shall pay to
each such Xxxxxxx Fund the purchase price for the Inclusion Shares so
transferred pursuant to this Section 3.3 and shall furnish such other evidence
of the completion of such transfer and the terms thereof as may be reasonably
requested by the Xxxxxxx Funds; and
(e) The provisions of this Section 3.3 shall not apply to any transfer
or proposed transfer by Transferors of shares owned by CEO or the Buyers, as
applicable, which represents twenty-five percent (25%) or less of the Common
Shares held by CEO or seven and a half percent (7.5%) or less of the Common
Shares held by the Buyers, as applicable, on the Closing Date if such transfer
or proposed transfer by CEO or the Buyers, as applicable, of the Common Shares
held by them, together with all other transfers by CEO or the Buyers, as
applicable, of Common Shares on or prior to the date of such transfer, represent
fifty percent (50%) or less of the Common Shares held by CEO or fifteen percent
(15%) or less of the Common Shares held by the Buyers, as applicable, on the
date hereof, with such baseline
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number of Common Shares held by each Transferor to be appropriately adjusted to
reflect any stock split, stock dividend, recapitalization or similar event;
provided, however, that each transfer of Common Shares by CEO or the Buyers, as
applicable, that takes place within one year of any other transfer by such
Transferor to the same person or any affiliate of such person shall be
aggregated for purposes of such twenty-five percent (25%) or seven and a half
percent (7.5%), as applicable, threshold. In addition, the provisions of this
Section 3.3 shall not apply to any transfer or proposed transfer by Transferors
to each other or to any of their Affiliates (as defined in the Purchase
Agreements) or by any of their Affiliates to any of their other Affiliates.
SECTION 3.4. REGISTRATION RIGHTS
(a) At the Closing, the Company and the Xxxxxxx Funds shall enter into
a registration rights agreement substantially in the form of Exhibit C hereto
(the "Registration Rights Agreement").
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(b) Except as otherwise consented to in writing by the Buyers and the
Xxxxxxx Funds, as applicable, the Company will not grant to any Person the right
to request the Company to register any equity securities of the Company, or any
securities convertible, exchangeable or exercisable for or into such securities
("Other Securities"), other than (i) piggyback registration rights entitling the
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holder thereof to participate in a piggyback registration with the Buyers and
the Xxxxxxx Funds; provided, however, that the "registrable securities" (as such
term is used or defined in the Registration Rights Agreement and the Company's
registration rights agreement with the Buyers (the "Buyer Registration Rights
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Agreement" and, together with the Registration Rights Agreement, the
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"Registration Rights Agreements")) of the Company owned by the Buyers and the
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Xxxxxxx Funds shall have priority over Other Securities in any such piggyback
registration, (ii) registration rights granted in connection with the Company's
acquisition of a complementary business through a pooling of interests
transaction; provided, however, that (x) the Company is required to grant such
rights in order to account for any such acquisition as a pooling of interests
transaction, (y) such rights or the agreement or instrument granting such rights
will not restrict or otherwise adversely affect the ability of the Company to
perform its obligations under the Registration Rights Agreement and (z) the
Company shall use its reasonable best efforts to obtain agreements from any
holder(s) 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), and (iii) registration rights granted in connection with
the Company's acquisition of a complementary business through a purchase
transaction (which could be in the form of demand registration rights or the
Company's agreement to file a registration statement for securities delivered as
consideration in such purchase transaction (a "Purchase Registration"));
provided, however, that (x) such rights or the agreement or instrument granting
such rights will not restrict or otherwise adversely affect the ability of the
Company to perform its obligations under the Registration Rights Agreements and
(y) the Buyers and the Xxxxxxx Funds shall have the right to piggyback on any
Purchase Registration in accordance with the respective Registration Rights
Agreements
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and the priority of securities to be included in any such registration shall be
governed, as applicable, by such Registration Rights Agreements.
(c) From and after the Closing Date and for so long as the Buyers own
any of the Common Shares purchased by them pursuant to the Purchase Agreements,
if the Company grants piggyback registration rights to any holder of its Common
Stock, such holder's piggyback registration rights will be specifically
subordinated to the piggyback registration rights granted to the Xxxxxxx Funds
pursuant to the Registration Rights Agreement.
(d) From and after the Closing Date and for so long as the Xxxxxxx
Funds own any of the Common Shares that are issued to them pursuant to Section
1.1 of this Agreement, if the Company grants piggyback registration rights to
any holder of its Common Stock, such holder's piggyback registration rights will
be specifically subordinated to the piggyback registration rights granted to the
Xxxxxxx Funds pursuant to the Registration Rights Agreement.
SECTION 3.5. BOARD REPRESENTATION
For so long as the Xxxxxxx Funds own at least 50% of the Common Shares
that are issued to them pursuant to Section 1.1 of this Agreement, the following
provision of this Section 3.5 applies:
From and after the Conversion, the Xxxxxxx Funds shall, collectively,
have the right, but not the obligation, to nominate, in the aggregate, one
individual (the "Nominee") reasonably acceptable to the Company to stand for
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election to the Company's Board of Directors. The Company shall cause such
Nominee to be nominated for election to the Board of Directors (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. To exercise such right, within 20 days of
receipt from the Company of written notice of the scheduling of any stockholders
meeting or solicitation of written consents relating to the election of
directors, the Xxxxxxx Funds shall together deliver to the Company a written
notice setting forth (i) that they intend to submit a Nominee to stand for
election to the Board of Directors, (ii) the name of the Nominee, (iii) such
other information regarding the Nominee as would be required to be included in
the Company's proxy statement under the Securities Exchange Act of 1934, as
amended, and (iv) the consent of the Nominee to serve as a director of the
Company if so elected. The Company shall, thereafter, solicit proxies (or, if
applicable, written consents) for, and otherwise use its reasonable best efforts
to secure, the election of such Nominee to the Board of Directors.
SECTION 3.6. CERTAIN ACTIONS BY THE XXXXXXX FUNDS
During the period beginning on the date hereof and continuing until
the Termination Date, each Xxxxxxx Fund, jointly and severally, covenants and
agrees with the
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Company as follows:
(a) Such Xxxxxxx Fund shall not sell, assign, transfer, encumber or
otherwise dispose of any Series A Shares or enter into any contract, agreement
or understanding with respect to the direct or indirect acquisition or sale,
assignment, transfer, encumbrance or other disposition of any Series A Shares or
Common Shares issuable upon conversion of the Series A Shares, or grant proxies
or enter into any voting trust or any other agreement or arrangement with
respect to any Series A Shares or Common Shares issuable upon conversion of the
Series A Shares, except pursuant to the terms hereof or with the prior written
consent of the Company; and
(b) Such Xxxxxxx Fund shall not take or commit to take any action that
would cause or make any of its representations and warranties contained in
Article II herein inaccurate in any material respect or make the conditions to
Closing set forth in Section 4.1 impossible or impracticable to satisfy.
SECTION 3.7. RESTRICTIONS ON TRANSFER
Each of the Xxxxxxx Funds agrees that it will not sell, dispose of, or
otherwise transfer any Common Shares issuable upon conversion of the Series A
Shares unless such Common Shares issuable upon conversion of the Series A Shares
have been registered under the Securities Act and, to the extent required, under
any applicable state securities laws, or pursuant to an applicable exemption
from such registration requirements.
SECTION 3.8. INDEMNIFICATION
From and after the Closing and subject to Section 5.1 of this
Agreement, the Company shall indemnify, defend and hold harmless the Xxxxxxx
Funds from and against any and all losses, damages, liabilities, claims, suits,
demands, judgments, assessments, fines, interest, penalties, costs and expenses
(including reasonable legal, accounting, experts' and other fees, costs and
expenses) or other obligations resulting from or arising out of the breach by
the Company of any (a) representation or warranty made by the Company in this
Agreement, or (b) any covenant or agreement made by the Company in this
Agreement; provided, however, that if the breach giving rise to such claim for
indemnification is capable of cure, the Xxxxxxx Funds shall not be entitled to
indemnification as described herein unless and until the Company shall have had
a period not to exceed ten (10) days to cure such breach. Subject to the
foregoing and to the provisions of Section 5.1 hereof, the Xxxxxxx Funds will
continue to be entitled to indemnification as provided by Section 12(b) of the
Xxxxxxx US Purchase Agreement and all indemnification provided by the Company
pursuant hereto and thereto shall be so provided pursuant to and in accordance
with the indemnification procedures set forth in Section 12(b) of the Xxxxxxx US
Purchase Agreement. The parties hereto agree and acknowledge that the
indemnification provided by the Company hereunder is the sole and
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exclusive remedy of the Xxxxxxx Funds with respect to such matters and the
Xxxxxxx Funds shall have no additional or other remedies with respect thereto.
SECTION 3.9. ACCESS TO INFORMATION
(a) For so long as the Xxxxxxx Funds own at least 50% of the Common
Shares that are issued to them pursuant to Section 1.1 of this Agreement, the
Company will deliver to the Xxxxxxx Funds and the Buyers:
(i) as soon as practicable but not later than forty-five (45) days
after the end of each month, (A) a consolidated balance sheet of the Company and
its subsidiaries (as defined in the Securities Purchase Agreement) as of the end
of such month and (B) consolidated statements of operations, stockholders'
equity and cash flows of the Company and its subsidiaries for the portion of the
fiscal year ended with the end of such month, in each case in reasonable detail,
certified by an appropriate officer of the Company and setting forth in
comparative form the corresponding figures for the comparable period for the
prior year (subject to normal year-end adjustments);
(ii) as soon as practicable and without duplication of the above item,
any other materials furnished to the Company's lenders under the Credit
Agreement (as defined in the Securities Purchase Agreement), including, without
limitation, any compliance certificates furnished in respect of such
indebtedness;
(iii) copies of any special or interim audit reports or management or
comment letters with respect to the Company or its subsidiaries or their
operations submitted to the Company by independent public accountants; and
(iv) copies of the annual budget and business plan of the Company for
the next fiscal year.
(b) All such financial statements provided pursuant to this Section
3.9 shall be prepared in accordance with generally accepted accounting
principles consistently applied (except for any change in accounting principles
specified in an accompanying certificate and except that any interim financial
statements may omit notes and may be subject to normal year-end adjustments).
(c) Without limiting the foregoing provisions of this Section 3.9, the
Company agrees that, if requested in writing by the Xxxxxxx Funds or the Buyers,
as the case may be, it will not deliver to such Person (until otherwise
instructed by such Person) any non-public information or non-public materials
regarding the Company or any of its subsidiaries described in this Section 3.9.
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SECTION 3.10. CONFIDENTIALITY
Concurrently with the execution of this Agreement, the Xxxxxxx Funds
shall enter into a confidentiality agreement with respect to information of the
Company substantially in the form of Exhibit D hereto.
SECTION 3.11. MUTUAL COVENANT
Each of the parties hereto expressly agrees and covenants to each
other party that it will comply in all material respects with each covenant,
agreement, condition, obligation and undertaking of such party in and pursuant
to each of the Transaction Documents (as defined in the Securities Purchase
Agreement) to which it is a party, in each case, subject to the terms and
conditions of the applicable Transaction Document. Each of the parties hereto
understands and acknowledges that the other parties are entering into this
Agreement in reliance on the mutual covenant made in the immediately preceding
sentence.
ARTICLE IV.
CONDITIONS TO THE CLOSING
SECTION 4.1. CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to pay the Consideration and issue the
Common Shares is subject to the satisfaction of each of the following conditions
on or prior to the Closing Date, any of which may be waived in writing
exclusively by the Company:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Xxxxxxx Funds set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except to
the extent such representations speak as of an earlier date, in which case they
shall be true and correct in all material respects as of such earlier date) as
of the Closing Date as though made on and as of the Closing Date (except for
changes contemplated by this Agreement) and the Company shall have received a
certificate signed on behalf of each Xxxxxxx Fund by a duly authorized agent of
such Xxxxxxx Fund to such effect.
(b) Performance of Obligations of the Xxxxxxx Funds. Each of the
-----------------------------------------------
Xxxxxxx Funds shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed on behalf of each
Xxxxxxx Fund by a duly authorized agent of such Xxxxxxx Fund to such effect.
(c) Purchase Agreements. The transactions contemplated by the
-------------------
Purchase Agreements shall be effected concurrently with the consummation of the
transactions contemplated by this Agreement.
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SECTION 4.2. CONDITIONS TO OBLIGATIONS OF THE XXXXXXX FUNDS
The obligation of the Xxxxxxx Funds to effect the Conversion is
subject to the satisfaction of each of the following conditions on or prior to
the Closing Date, any of which may be waived in writing exclusively by all of
the Xxxxxxx Funds:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations speak as of an earlier date, in which case they
shall be true and correct in all material respects as of such earlier date) as
of the Closing Date as though made on and as of the Closing Date (except for
changes contemplated by this Agreement) and the Xxxxxxx Funds shall have
received a certificate signed on behalf of the Company by a duly authorized
officer thereof to such effect.
(b) Performance of Obligations of the Company. The Company shall have
-----------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and the Xxxxxxx Funds
shall have received certificates signed on behalf of the Company by a duly
authorized officer thereof to such effect.
(c) Purchase Agreements. The transactions contemplated by the
-------------------
Purchase Agreements shall be effected concurrently with the consummation of the
transactions contemplated by this Agreement.
(d) Opinion. The Xxxxxxx Funds shall have received, or otherwise been
-------
permitted to rely upon, an opinion of counsel to the Company substantially
similar to the opinion of such counsel required to be delivered pursuant to the
Securities Purchase Agreement.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1. SURVIVAL
The provisions set forth in Article III (except Section 3.6) and
Article V shall survive the Closing Date. All representations and warranties
made by the parties hereto in this Agreement (including and to the extent such
as are specifically incorporated by reference into this Agreement pursuant to
Section 2.5) shall survive the Closing; provided, however, that neither party
shall commence any action against any other party hereto in respect of any such
representation or warranty at any time subsequent to the date eighteen (18)
months after the Closing Date.
SECTION 5.2. 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
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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):
If to the Xxxxxxx Funds:
Xxxxxxx Capital Management
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxx
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx, Xxxxx & Bockius LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
If to the Company
Four Media Company
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxx, Esq.
Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
If to any of the Buyers:
Warburg, Xxxxxx Equity Partners, L.P.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Facsimile: (000) 000-0000
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With a copy to:
Xxxxxxx Xxxx & Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxx Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
(b) Any notice so addressed shall be deemed to be given: if delivered
by hand or facsimile, on the date of such delivery; if sent by overnight
courier, on the first business day following the date on which such notice is
sent; and if mailed by registered or certified mail, on the third business day
after the date of such mailing.
SECTION 5.3. SCOPE OF AGREEMENT
(a) Except as specifically set forth herein, this Agreement and all
documents and instruments referred to herein (a) constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and thereof, and (b)
are not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
(b) Each of the parties hereto acknowledges that the obligation of the
parties to effect the Conversion and of the Company to pay the Consideration is
conditioned upon the concurrent consummation of the Acquisitions. Accordingly,
immediately upon the Termination Date, there shall be no further obligation or
liability hereunder on the part of either the Company or the Xxxxxxx Funds, or
their respective officers, directors, stockholders or Affiliates (as defined in
the Purchase Agreements), except for breaches of this Agreement.
SECTION 5.4. FURTHER ASSURANCES, COOPERATION AND NOTICE
Each of the parties hereto will use its reasonable best efforts and
cooperate with each other party in executing and delivering any and all
documents, amendments and other agreements that may be necessary to evidence or
effect the agreements set forth in this Agreement. Each of the parties hereto
shall notify each other party of, and will use its reasonable best efforts to
cure before the Closing Date, any event, transaction or circumstance, as soon as
practicable after it becomes known to such party, that causes or will cause any
covenant or agreement of such party under this Agreement to be breached or that
renders or will render untrue any representation or warranty of such party
contained in this Agreement. Each of the parties hereto also shall notify each
other party in writing of, and will use its reasonable best efforts to cure,
before the Closing Date, any violation or breach, as soon as practicable after
it becomes known to such party, of any representations, warranty, covenant or
agreement made by such party. No notice given pursuant to this paragraph shall
have any effect on the representations, warranties, covenants or agreements
contained in this Agreement for purposes of determining satisfaction of any
condition contained herein.
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SECTION 5.5. ATTORNEY'S FEES
The Company shall, promptly upon presentation of invoices therefor
setting forth with reasonable specificity the expenses for which reimbursement
is being requested, reimburse the Xxxxxxx Funds for their reasonable expenses,
including but not limited to counsel fees and disbursements incurred in
connection with this Agreement and the matters contemplated hereby; provided,
however, that the Company shall not be obligated to reimburse more than $50,000
in such expenses.
SECTION 5.6. COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when two or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
SECTION 5.7. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
laws of the State of New York without regard to any applicable conflicts of law.
SECTION 5.8. ASSIGNMENT; BINDING EFFECT
Except for any assignments by the Company arising by operation of law
as a result of the consummation of the transactions contemplated by the Purchase
Agreements, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable only by the parties and their
respective successors and assigns, and no person or entity not a party to a
provision herein set forth is intended to be a beneficiary of such provision.
SECTION 5.9. SPECIFIC PERFORMANCE
It is hereby agreed and acknowledged that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the event
of any such failure, an aggrieved party will be irreparably damaged and will not
have an adequate remedy at law. Any such party shall, therefore, be entitled to
injunctive relief, including specific performance, to enforce such obligations,
and if any action should be brought in equity to enforce any of the provisions
of this Agreement, none of the parties hereto shall raise the defense that there
is an adequate remedy at law.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed as of the date first above written.
FOUR MEDIA COMPANY
By:_______________________
Name:__________________
Title:_________________
WARBURG, XXXXXX EQUITY
PARTNERS, L.P.
By: Warburg, Xxxxxx & Co., its General
Partner
By:_______________________
Name:__________________
Title:_________________
WARBURG, XXXXXX NETHERLANDS
EQUITY PARTNERS I, C.V.
By: Warburg, Xxxxxx & Co., its General
Partner
By:_______________________
Name:__________________
Title:_________________
WARBURG, XXXXXX NETHERLANDS
EQUITY PARTNERS II, C.V.
By: Warburg, Xxxxxx & Co., its General
Partner
By:_______________________
Name:__________________
Title:_________________
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WARBURG, XXXXXX NETHERLANDS
EQUITY PARTNERS III, C.V.
By: Warburg, Xxxxxx & Co., its General
Partner
By:_______________________
Name:__________________
Title:_________________
XXXXXXX US DISCOVERY FUND III,
L.P.
By: Xxxxxxx US Discovery Partners, L.P.,
its General Partner
By: Xxxxxxx US Discovery, LLC,
its General Partner
By:_______________________
Name:__________________
Title:_________________
XXXXXXX US DISCOVERY OFFSHORE
FUND III, L.P.
By: Xxxxxxx US Discovery Partners, L.P.,
its General Partner
By: Xxxxxxx US Discovery, LLC,
its General Partner
By:_______________________
Name:__________________
Title:_________________
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