REGISTRATION RIGHTS AND STANDSTILL AGREEMENT
This Registration Rights and Standstill Agreement (this “Agreement“) is made and entered into as of the 28th dayof April, 2006, by and between Digital Generation Systems, Inc., a Delaware corporation (the “Company“), and Scott K. Ginsburg.
ThisAgreement is made pursuant to the terms of the Second Amended and Restated Agreement and Plan of Merger, dated as of April 14, 2006 among the Company, DG Acquisition Corp.IV, a wholly owned subsidiary of the Company, and FastChannel Network, Inc., a Delaware corporation (the “Merger Agreement“), in order to permitcertain holders of Registrable Securities (as defined herein) to provide for an orderly sale of the shares so as to minimize an adverse affect of the market for such shares.
Theparties hereto hereby agree as follows:
Capitalizedterms used and not otherwise defined herein that are defined in the Merger Agreement shall have the meanings given such terms in the Merger Agreement. As used in thisAgreement, the following terms shall have the following meanings:
“Effectiveness Date” means, with respect to the initial Registration Statement required to be filed hereunder, the 365th calendar dayfollowing the Closing of the Merger and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 45th calendar day following thedate on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required hereunder; provided,however, in the event the Company is notified by the Commission that one of the above Registration Statements will not be reviewed or is no longer subject to further review andcomments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates required above.
“Annual Limitation” shall mean that each holder of Registrable Shares shall be entitled to sell no more than the number of Eligible Sharesduring any 12-month period as calculated at the commencement of such period.
“Effectiveness Period” shall have the meaning set forth in Section 2(a).
“Eligible Shares” shall mean such number of Registrable Securities as is equal to four percent (4.0%) of the total number of shares ofCompany Common Stock issued and outstanding at such time.
“Event” shall have the meaning set forth in Section 2(b).
“Event Date” shall have the meaning set forth in Section 2(b).
“Filing Date” means, with respect to the initial Registration Statement required hereunder, the 335th calendar day following the Closingof the Merger and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 15th day following the date on which the Companyfirst knows, or reasonably should have known that such additional Registration Statement is required hereunder.
“Holder” or “Holders” means Scott K. Ginsburg and his permitted assigns.
“Indemnified Party” shall have the meaning set forth in Section 5(c) hereof.
“Indemnifying Party” shall have the meaning set forth in Section 5(c) hereof.
“Losses” shall have the meaning set forth in Section 5(a).
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partialproceeding, such as a deposition), whether commenced or threatened.
“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes anyinformation previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended orsupplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments andsupplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
“Registrable Securities” means, as of the date in question, (i) all of the shares of Common Stock held by the Holders immediatelyfollowing the Merger, and (iii) any securities issued or issuable upon any stock split, dividend or other distribution recapitalization or similar event with respect to the foregoing.
“Registration Statement” means the registration statements required to be filed hereunder and any additional registration statementscontemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- andpost-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended fromtime to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended fromtime to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
2. Shelf Registration
(a) Onor prior to each Filing Date, the Company shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of 120% of the EligibleShares with respect to each year of the two (2) year Effectiveness Period (as defined below) for each Holder and/or his permitted assigns who has duly requested that such shares be registeredon such Filing Date for an offering to be made on a continuous basis pursuant to Rule 415; provided, however, that each Holder and his or itsaffiliates, collectively, shall not be permitted to sell an amount greater than the Annual Limitation under registration statements filed pursuant to this Agreement. The Registration Statement shallbe on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall beon another appropriate form in accordance herewith) and shall contain (unless otherwise directed by the Holders) substantially the “Plan ofDistribution” attached hereto as Annex A. Subject to the terms of this Agreement, the Company shall use its reasonable bestefforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the applicable EffectivenessDate, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act for a period of two (2) years (the”Effectiveness Period“). The Company shall immediately notify the Holders via facsimile or other equally promt means of the effectiveness of theRegistration Statement on the same day that the Company receives notification of the effectiveness from the Commission. Failure to so notify the Holder within 24 hours of the day that theCompany receives such notification shall be deemed an Event under Section 2(b).
(b) If:(i) a Registration Statement is not filed on or prior to the applicable Filing Date (if the Company files a Registration Statement without affording theHolders the opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Companyfails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act (the “AccelerationRequest“), within five (5) Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a RegistrationStatement will not be “reviewed,” or not subject to further review, or (iii) prior to its Effectiveness Date, the Company fails to file a pre-effective amendment andotherwise respond in writing to comments made by the Commission in respect of such Registration Statement within ten (10) Trading Days after the receipt of comments by or notice from theCommission that such amendment is required in order for a Registration Statement to be declared effective, or (iv) a Registration Statement filed or required to be filed hereunder is notdeclared effective by the Commission by its Effectiveness Date, or (v) after the Effectiveness Date, a Registration Statement ceases for any reason to remain continuously effective as to allRegistrable Securities for which it is required to be effective, or the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities for ten(10) consecutive Trading Days but no more than an aggregate of fifteen (15) Trading Days during any 12-month period (which need not be consecutive Trading Days), or(vi) the Company fails to provide the Holder with a copy of the Acceleration Request within 24 hours of the time the Company provides such Acceleration Request to the Commission (anysuch failure or breach being referred to as an “Event,” and for purposes of clause (i), (iv) or (vi) the date on which such Eventoccurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for purposes of clause (iii) the date which such 10 Trading Day period is exceeded,or for purposes of clause (v) the date on which such 10 or 15 Trading Day period, as applicable, is exceeded being referred to as “Event Date“),then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Eventshall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.0%of the aggregate market value of the Eligible Shares to be registered by such Holder; provided, however, that notwithstanding the foregoing, the Holders of a majority of the Registrable Securitiesthen outstanding shall be entitled to waive such partial liquidated damages in whole or in part. If the Company fails to pay any partial liquidated damages not otherwise waived pursuant to thisSection 2(b) in full within seven (7) Trading Days after the date payable, the Company will pay interest thereon at a rate of 12.0% per annum (or such lesser maximum amount that ispermitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. Thepartial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event.
3. Registration Procedures.
Inconnection with the Company’s registration obligations hereunder, the Company shall:
(a) Notless than five (5) Trading Days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (includingany document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of all such documents proposed to be filed,which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the reasonable review of such Holders, and (ii) cause its officers and directors,counsel and independent certified public accountants to promptly respond to such inquiries from Holders as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonableinvestigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of amajority of the Registrable Securities then outstanding shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) TradingDays after the Holders have been so furnished copies of such documents; and provided further that the Company shall not be obligated to pay any partial liqiquidated damages with respect to any delayin filing caused by this provision. Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as AnnexB (a “Selling Holder Questionnaire“) not less than two Trading Days prior to the Filing Date or by the end of the fourth TradingDay following the date on which such Holder receives draft materials in accordance with this Section 3.
(b) (i) Prepareand file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used inconnection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with theCommission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended orsupplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptlyas reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders trueand complete copies of all correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act andthe Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement)with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Ifduring the Effectiveness Period, the number of Eligible Shares for any holder at any time exceeds the number of shares of Common Stock then registered in aRegistration Statement, then the Company shall file as soon as reasonably practicable but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale bythe Holders of not less than the actual number of such Eligible Shares.
(d) Notifythe Holders of Eligible Shares to be sold (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction tosuspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than five (5) Trading Days prior tosuch filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement orpost-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such RegistrationStatement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of theHolders); and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or anyother Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission orany other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of anyProceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of theRegistrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes thefinancial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to beincorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a RegistrationStatement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make thestatements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to theCompany that the Company’s Board of Directors reasonably believes may be material and therefore, in the reasonable determination of the Company’s Board, it is not in the best interests of the Companyto disclose such occurrence or event; provided that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless a Holder, afterconsultation with its legal counsel, reasonably determines that such disclosure is required by law, in which case Holder shall provide the Company with the opportunity to make such disclosure; provided,further, notwithstanding each Holder’s agreement to keep such information confidential, theHolders make no acknowledgement that any such information is material, non-public information in advance of its receipt thereof
(e) Useits reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a RegistrationStatement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.
(f) Furnishto each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements andschedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including thosepreviously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.
(g) Promptlydeliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplementthereto as such Persons may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company hereby consents to the use ofsuch Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and anyamendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).
(h) Priorto any resale of Registrable Securities by a Holder, use its reasonable best efforts to register or qualify or cooperate with the selling Holders in connectionwith the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for resale by the Holder under the securities or Blue Sky laws of suchjurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period andto do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that theCompany shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it isnot then so subject or file a general consent to service of process in any such jurisdiction.
(i) Ifrequested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to bedelivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Merger Agreement, of all restrictive legends, and to enable suchRegistrable Securities to be in such denominations and registered in such names as any such Holders may request.
(j) Uponthe occurrence of any event or circumstance contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account theCompany’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including apost-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file anyother required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material factrequired to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordancewith clauses (ii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shallimmediately suspend use of such Prospectus. The Company shall use its reasonable best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable in light of all thecircumstances. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment ofpartial liquidated damages pursuant to Section 2(b), for a period not to exceed 60 Trading Days (which need not be consecutive days) in any consecutive 12 month period.
(k) Complywith all applicable rules and regulations of the Commission.
(l) TheCompany may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holderand, if required by the Commission, the person thereof that has voting and dispositive control over the Shares. During any periods that the Company is unable to meet its obligations hereunder withrespect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages thatare accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such informationis delivered to the Company.
4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by theCompany shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shallinclude, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the TradingMarket on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including,without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of theRegistrable Securities for investment under the laws of such jurisdictions as requested by the Holders), (ii) printing expenses (including, without limitation, expenses of printing certificatesfor Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in a RegistrationStatement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company sodesires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. Inaddition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, withoutlimitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with thelisting of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions or, except to the extentprovided for in the Transaction Documents, any legal fees or other costs of the Holders.
(a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and holdharmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under amargin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act orSection 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any andall losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses“), asincurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment orsupplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make thestatements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but onlyto the extent, that (i) such untrue statements or omissions are based solely upon
informationregarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposedmethod of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form ofProspectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of thetype specified in Section 3(d)(ii)(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated ordefective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of anyProceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.
(b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, itsdirectors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and thedirectors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or basedsolely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue or alleged untrue statement of a material factcontained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to anyomission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that suchuntrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or(ii) to the extent that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly foruse therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writingby such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in anyamendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated or defectiveProspectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securitiesgiving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled toindemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the”Indemnifying Party“) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counselreasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give suchnotice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court ofcompetent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.
AnIndemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall beat the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failedpromptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding(including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely toexist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects toemploy separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separatecounsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consentshall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which anyIndemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
Subjectto the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection withinvestigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Trading Days of writtennotice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions forwhich such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (byreason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as aresult of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions thatresulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among otherthings, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates toinformation supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statementor omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or otherreasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided forin this Section was available to such party in accordance with its terms.
Theparties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method ofallocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shallbe required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to theProceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in thecase of fraud by such Holder.
Theindemnity and contribution agreements contained in this Section 5 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.
6. Standstill Provisions. Each Holder agrees that, until the earlier of the termination of this Agreement or the firstanniversary of this Agreement, without the Company’s prior written consent, such Holder shall not:
(a) acquire,publicly announce an intention to acquire, publicly offer or propose to acquire, or agree to acquire, by purchase or otherwise, beneficial ownership of anyCommon Stock, or rights or options to acquire any Common Stock if as a result of such acquisition such Holder would beneficially own or have the right to acquire Common Stock representing more than50% of the issued and outstanding Common Stock;
(b) makeany public announcement or proposal whatsoever with respect to a tender offer, merger or other business combination, sale or transfer of substantially all of theassets, recapitalization, dividend, share repurchase, liquidation or other extraordinary corporate transaction with the Company or any other transaction that would result in a change of control of theCompany; or
(c) makea public request to the Company (or its directors, officers, stockholders, employees or agents) to take any action in respect of the foregoing matters.
(a) Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, eachHolder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specificperformance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it ofany of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at lawwould be adequate.
(b) No Piggyback on Registrations. Without the consent of Holders of a majority of the Registrable Securities, neither theCompany nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the RegistrableSecurities.
(c) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of theSecurities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of anotice from the Company of the occurrence of any event of the kind described in Section 3(d), such Holder will forthwith discontinue disposition of such Registrable Securities under aRegistration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement, or until it is advised in writing (the”Advice“) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional orsupplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company shall use its reasonable best efforts to ensure that theuse of the Prospectus may be resumed as promptly as is practicable under the circumstances. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue thedisposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b).
(e) Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effectiveRegistration Statement covering all of the Eligible Securities for each Holder and the Company shall determine to prepare and file with the Commission a registration statement relating to an offeringfor its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgatedunder the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable inconnection with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days after the date of suchnotice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered;provided, that, the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgatedunder the Securities Act or that are the subject of a then effective Registration Statement.
(f) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended,modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majorityof the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rightsof Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided,however, that the provisions of this sentence may not be amended, modified, or supplementedexcept in accordance with the provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shallbe delivered to the addresses as set forth on the signature pages hereto in the manner set forth in the Merger Agreement.
(h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permittedassigns of each of the parties and shall inure to the benefit of each Holder. Each Holder shall be permitted, without the consent of the Company, to assign the registration rights granted hereunder toany of his or its affiliates. The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding RegistrableSecurities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Merger Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shallthe Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted tothe Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registrationrights with respect to any of its securities to any Person that have not been satisfied in full.
(j) Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executedshall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signatureshall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the originalthereof. In the event that the Merger Agreement is terminated, or the Merger is not consummated, this Agreement shall have no force or effect whatsoever.
(k) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreementshall be determined under the laws of the State of Texas.
(l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competentjurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in noway be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the sameresult as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms,provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affectthe meaning hereof.
(o) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not jointwith the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or inany other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, ajoint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by thisAgreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder tobe joined as an additional party in any proceeding for such purpose.
INWITNESS WHEREOF, the parties have executed this Registration Rights and Standstill Agreement as of the date first written above.
|DIGITAL GENERATION SYSTEMS, Inc.|
/s/ Omar A. Choucair
Name: Omar A. Choucair
Title: Chief Financial Officer
|/s/ Scott K. Ginsburg
Scott K. Ginsburg
Plan of Distribution
Each Selling Stockholder (the “Selling Stockholders“) of the common stock (“CommonStock“) of Digital Generation Systems, Inc., a Delaware corporation (the “Company“) and any of their pledgees, assigneesand successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on the Trading Market or any other stock exchange, market or trading facilityon which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:
- ordinarybrokerage transactions and transactions in which the broker-dealer solicits purchasers;
- blocktrades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate thetransaction;
- purchasesby a broker-dealer as principal and resale by the broker-dealer for its account;
- anexchange distribution in accordance with the rules of the applicable exchange;
- privatelynegotiated transactions;
- settlementof short sales entered into after the date of this prospectus;
- broker-dealersmay agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
- acombination of any such methods of sale;
- throughthe writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or
- anyother method permitted pursuant to applicable law.
TheSelling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act“),if available, rather than or in addition to sales under this prospectus.
Broker-dealersengaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the SellingStockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each Selling Stockholder does not expect these commissions anddiscounts relating to its sales of shares to exceed what is customary in the types of transactions involved.
Inconnection with the sale of our common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions,which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of our common stock short and deliverthese securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option orother transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financialinstitution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect suchtransaction).
TheSelling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act inconnection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwritingcommissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any agreement or understanding, directly or indirectly, with any person todistribute the Common Stock.
TheCompany is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholdersagainst certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
BecauseSelling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the SecuritiesAct. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under thisprospectus. Each Selling Stockholder has advised us that they have not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of theresale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.
Weagreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regardto any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus orRule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable statesecurities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registrationor qualification requirement is available and is complied with.
Underapplicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities withrespect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of theExchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the Selling Stockholders or anyother person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to thetime of the sale.