EXHIBIT 3
FOUR MEDIA COMPANY
CERTIFICATE OF DESIGNATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151(g) of the Delaware General Corporation Law
The undersigned officer hereby certifies that:
A. He is the duly elected and acting officer of FOUR MEDIA COMPANY, a
Delaware corporation (the "Corporation").
B. On February 5, 1998, the Board of Directors of the Corporation duly
adopted resolutions in order to designate the Series A Preferred Stock (as set
forth in the resolution below).
C. The resolution contained herein has not been modified, altered or amended
and is presently in full force and effect.
RESOLVED, that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article 4.3 of the Certificate of Incorporation
of the Corporation, the Board of Directors hereby fixes and determines the
voting rights, designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
relative rights of the first series of the preferred stock, par value $.01 per
share, which shall be designated as Series A Convertible Preferred Stock (the
"Series A Preferred Stock").
1. Designation. One hundred fifty thousand (150,000) shares of preferred
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stock, par value $.01 per share, of the Corporation are hereby constituted as a
series of the preferred stock designated as "Series A Convertible Preferred
Stock."
2. Dividends.
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a) Dividends on Series A Preferred Stock. In the event that the Corporation
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shall at any time or from time to time declare, order, pay or make a dividend or
other distribution (whether in cash, securities, rights to purchase securities
or other property) on its Common Stock, the holders of shares of the Series A
Preferred Stock shall be entitled to receive from the Corporation, with respect
to each share of Series A Preferred Stock held, a dividend or distribution that
is the same dividend or distribution that would be received by a holder of the
number of shares of Common Stock into which such share of Series A Preferred
Stock is convertible pursuant to the provisions of Section 5 hereof on the
record date for such dividend or distribution (except in the case of the payment
of a stock dividend in shares of its Common Stock
if a holder of shares of Series A Preferred Stock shall have given notice to the
Corporation (within five (5) business days after such holder's receipt of the
Corporation's notice regarding the stock dividend) of its election to have the
Conversion Price of its shares adjusted in accordance with Section 5(d)(i)
hereof). Any such dividend or distribution shall be declared, ordered, paid or
made on the Series A Preferred Stock at the same time such dividend or
distribution is declared, ordered, paid or made on the Common Stock. Dividends,
if declared, on shares of the Series A Preferred Stock shall accrue and be
cumulative from the Issue Date of such shares.
b) Limitation on Dividends, Repurchases and Redemptions. So long as any
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shares of Series A Preferred Stock shall be outstanding, the Corporation shall
not declare or pay or set apart for payment any dividends or make any other
distributions on any Junior Securities, whether in cash, securities, rights to
purchase securities or other property (other than dividends or distributions
payable in shares of the class or series upon which such dividends or
distributions are declared or paid), nor shall the Corporation or any of its
Subsidiaries purchase, redeem or otherwise acquire for any consideration or make
payment on account of the purchase, redemption or other retirement of any Parity
Securities or Junior Securities, nor shall any monies be paid or made available
for a sinking fund for the purchase or redemption of any Parity Securities or
Junior Securities, unless with respect to all of the foregoing all dividends or
other distributions to which the holders of Series A Preferred Stock shall have
been entitled, pursuant to Section 2(a) hereof, shall have been paid or declared
and a sum of money has been set apart for the full payment thereof.
(c) Pro Rata Payments. In the event that full dividends are not paid or made
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available to the holders of all outstanding shares of Series A Preferred Stock
and of any Parity Securities and funds available for payment of dividends shall
be insufficient to permit payment in full to holders of all such stock of the
full preferential amounts to which they are then entitled, then the entire
amount available for payment of dividends shall be distributed ratably among all
such holders of Series A Preferred Stock and of any Parity Securities in
proportion to the full amount to which they would otherwise be respectively
entitled.
3. Preference on Liquidation.
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(a) Liquidation Preference for Series A Preferred Stock. In the event that
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the Corporation shall liquidate, dissolve or wind up, whether voluntarily or
involuntarily, no distribution shall be made to the holders of shares of Common
Stock or other Junior Securities (and no monies shall be set apart for such
purpose) unless prior thereto, the holders of shares of Series A Preferred Stock
shall have received an amount per share equal to the greater of (i) the sum of
(x) the Liquidation Value, plus (y) all declared but unpaid dividends thereon
through the date of distribution, (ii) ratable distributions determined with
respect to the holders of Series A Preferred Stock and Common Stock on the basis
of the number of shares of Common Stock into which such Series A Preferred Stock
could be converted pursuant to the provisions of Section 5 hereof immediately
prior to such distribution and (iii) the Payment Amount, on a per share basis
(the greater of (i), (ii) and (iii) above is herein referred to as the "Series A
Liquidation Preference"). The "Liquidation Value" means $100 per share with
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respect to the Series A Preferred Stock.
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(b) Pro Rata Payments. If, upon any such liquidation, dissolution or other
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winding up of the affairs of the Corporation, the assets of the Corporation
shall be insufficient to permit the payment in full of the Series A Liquidation
Preference for each share of Series A Preferred Stock then outstanding and the
full liquidating payments on all Parity Securities, then the assets of the
Corporation remaining shall be ratably distributed among the holders of Series A
Preferred Stock and of any Parity Securities in proportion to the full amounts
to which they would otherwise be respectively entitled if all amounts thereon
were paid in full.
(c) Sale Not a Liquidation. Neither the voluntary sale, conveyance, exchange
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or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all the property or assets of the Corporation nor the
consolidation, merger or other business combination of the Corporation with or
into one or more corporations shall be deemed to be a liquidation, dissolution
or winding-up, voluntary or involuntary, of the Corporation.
(d) Notice of Liquidation. Written notice of any liquidation, dissolution or
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winding up of the Corporation, stating the payment date or dates when and the
place or places where amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than
thirty (30) days prior to any payment date specified therein, to the holders of
record of the Series A Preferred Stock at their respective addresses as shall
appear on the records of the Corporation.
4. Voting.
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(a) General. In addition to any voting rights provided in the Corporation's
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Certificate of Incorporation or by law, the Series A Preferred Stock shall vote
together with the Common Stock as a single class on all actions to be voted on
by the stockholders of the Corporation other than election of directors. Each
share of Series A Preferred Stock shall entitle the holder thereof to such
number of votes per share on each such action as shall equal the number of
shares of Common Stock (including fractions of a share) into which each share of
Series A Preferred Stock is then convertible. The holders of Series A Preferred
Stock shall be entitled to notice of any stockholder's meeting in accordance
with the By-Laws of the Corporation.
(b) Board of Directors. The Corporation shall not, without the written
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consentor affirmative vote of the holders representing at least a majority of
the shares of Series A Preferred Stock then outstanding, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class, increase the maximum number of directors constituting the Board of
Directors to a number in excess of twelve (12).
(c) Election of Directors. So long as either (i) the Fleming Holders own at
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least 75,000 shares of Series A Preferred Stock or (ii) any Transferee owns at
least 75,000 shares of Series A Preferred Stock and the Corporation consented to
such Transferee (which consent shall not be unreasonably withheld), the holders
of Series A Preferred Stock, consenting or voting (as the case may be) as a
separate class, shall be entitled, but not required, to elect one (1) director
of the Corporation (the "Preferred Director").
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Holders of at least a majority of the outstanding shares of Series A Preferred
Stock shall exercise the right to elect a Preferred Director by written notice
to the Corporation, whereupon the Corporation shall call a meeting of the
holders of the Series A Preferred Stock to elect a Preferred Director.
Thereafter, the holders of Series A Preferred Stock, consenting or voting as a
class (as the case may be), shall be entitled to elect a Preferred Director at
any meeting (or in a written consent in lieu thereof) held for the purpose of
electing directors until such time as holders of at least a majority of the
outstanding shares of Series A Preferred Stock shall notify the Corporation in
writing that they no longer wish to exercise their right to elect a Preferred
Director.
At any meeting (or in a written consent in lieu thereof) held for the purpose
of electing directors, (i) the presence in person or by proxy (or the written
consent) of the holders representing a majority of the shares of Series A
Preferred Stock then outstanding shall constitute a quorum of such class for the
election of the Preferred Director; and (ii) the absence of the presence in
person or by proxy (or written consent) of the holders representing less than a
majority of the shares of Common Stock then outstanding shall not affect the
right of a quorum of holders of Series A Preferred Stock to elect the Preferred
Director. Any Preferred Director may be removed with or without cause by, and
shall not be removed except by, the holders representing a majority of the
shares of Series A Preferred Stock then outstanding, present in person or by
proxy and voting at a meeting of stockholders, or of the holders of Series A
Preferred Stock called for that purpose, or by written consent signed by the
holders representing a majority of the shares of Series A Preferred Stock then
outstanding.
A vacancy in the directorship to be held by the Preferred Director shall be
filled only by vote or written consent of the holders of the Series A Preferred
Stock as provided above. Unless otherwise required by the laws of the State of
Delaware, any holder or holders of at least a majority of the outstanding shares
of Series A Preferred Stock shall have the right to call a meeting of the
holders of Series A Preferred Stock of the Corporation for the purpose of
electing a Preferred Director and filling vacancies of Preferred Directors.
5. Conversion. The holders of shares of Series A Preferred Stock shall have
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the right o convert all or a portion of such shares into fully paid and
nonassessable shares of Common Stock or any capital stock or other securities
into which such Common Stock shall have been changed or any capital stock or
other securities resulting from a reclassification thereof as follows:
(a) Right to Convert. Subject to and upon compliance with the provisions of
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this Section 5, a holder of shares of Series A Preferred Stock shall have the
right, at the option of such holder, at any time, to convert any or all of such
shares into the number of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion rounded down to the nearest 1/100th of a
share) obtained by dividing the aggregate Liquidation Value of the shares to be
converted, plus all declared but unpaid dividends thereon through the date of
conversion (unless the holder of shares of Series A Preferred Stock being so
converted shall have elected to receive any such dividends in respect of the
shares being converted subsequent to conversion),
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by the Conversion Price and by surrender of such shares, such surrender to be
made in the manner provided in paragraph (b) of this Section 5. The Common Stock
issuable upon conversion of the shares of Series A Preferred Stock, when such
Common Stock shall be issued in accordance with the terms hereof, are hereby
declared to be and shall be duly authorized, validly issued, fully paid and
nonassessable Common Stock held by the holders thereof.
(b) Mechanics of Conversion. Each holder of Series A Preferred Stock that
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desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the principal office of
the Corporation or of any transfer agent for the Series A Preferred Stock or
Common Stock, accompanied by written notice to the Corporation that such holder
elects to convert the same and stating therein the number of shares of Series A
Preferred Stock being converted and whether all declared and unpaid dividends in
respect of such shares shall be included in the calculation set forth in Section
5(a) hereof, and setting forth the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued if such name
or names shall be different than that of such holder. Thereupon, the Corporation
shall issue and deliver at such office on the second succeeding Business Day
(unless such conversion is in connection with an underwritten public offering of
Common Stock, in which event concurrently with such conversion) to such holder
or on such holder's written order, (i) a certificate or certificates for the
number of validly issued, fully paid and nonassessable full shares of Common
Stock to which such holder is entitled and (ii) if less than the full number of
shares of Series A Preferred Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date of such surrender of the shares to be converted
(except that if such conversion is in connection with an underwritten public
offering of Common Stock, then such conversion shall be deemed to have been
effected upon such surrender) so that the rights of the holder thereof as to the
shares being converted shall cease at such time except for the right to receive
shares of Common Stock and if the holder of the shares being so converted shall
have elected to receive dividends subsequent to such conversion, all accrued and
unpaid dividends in accordance herewith, and the person entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock at such time.
(c) Conditional Conversion. Notwithstanding any other provision hereof, if
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conversion of any shares of Series A Preferred Stock is to be made in connection
with a public offering of Common Stock or any transaction described in Section
5(d)(vii) hereof, the conversion of any shares of Series A Preferred Stock may,
at the election of the holder thereof, be conditioned upon the consummation of
the public offering or such transaction, in which case such conversion shall not
be deemed to be effective until the consummation of such public offering or
transaction.
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(d) Adjustment of the Conversion Price. The Conversion Price shall be
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adjusted from time to time as follows:
(i) Adjustment for Stock Splits and Combinations. If the Corporation at any
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time or from time to time after the Issue Date, pays a stock dividend in
shares of its Common Stock, issues any convertible debt securities, effects a
subdivision of the outstanding Common Stock, combines the outstanding shares
of Common Stock, issues by reclassification of shares of its Common Stock any
shares of capital stock of the Corporation, makes a distribution of any of its
assets (other than cash dividends payable out of earnings or retained earnings
in the ordinary course of business) then, in each such case, the Conversion
Price in effect immediately prior to such event shall be adjusted so that each
holder of shares of Series A Preferred Stock shall have the right to convert
its shares of Series A Preferred Stock into the number of shares of Common
Stock which it would have owned after the event had such shares of Series A
Preferred Stock been converted immediately before the happening of such event.
Any adjustment under this Section 5(d)(i) shall become effective retroactively
immediately after the record date in the case of a dividend and distribution
and shall become effective immediately after the effective date in the case of
an issuance, subdivision, combination or reclassification. If the Corporation
pays a stock dividend in shares of its Common Stock and the holders of the
Series A Preferred Stock received such stock dividend pursuant to Section 2(a)
hereof, the Conversion Price shall not be adjusted for such stock dividend
under this Section 5(d)(i).
(ii) Issuance of Additional Shares of Stock. If at any time the Corporation
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shall (except as hereinafter provided) issue or sell any Additional Shares of
Stock in exchange for consideration in an amount per Additional Share of Stock
less than the Conversion Price in effect immediately prior to such issuance or
sale of Additional Shares of Stock, then the Conversion Price as to the Common
Stock into which the Series A Preferred Stock is convertible immediately prior
to such adjustment shall be adjusted to equal the consideration paid per
Additional Share of Stock. The provisions of this Section 5(d)(ii) shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Section 5(d)(i) or which are dividends or
distributions received by the holders of the Series A Preferred Stock pursuant
to Section 2(a) hereof.
(iii) issuance of Warrants or Other Rights. If at any time the Corporation
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shall in any manner (whether directly or by assumption in a merger in which
the Corporation is the surviving corporation) issue or sell any warrants or
other rights to subscribe for or purchase any Additional Shares of Stock or
any Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the consideration received for
such warrants or other rights or such Convertible Securities shall be less
than the Conversion Price in effect immediately prior to the time of such
issue or sale, then the Conversion Price shall be adjusted as provided in
Section 5(d)(ii). No further adjustments of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such warrants or other rights or upon the actual issue of
such Common Stock upon such conversion or
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exchange of such Convertible Securities.
(iv) Superseding Adjustments. If, at any time after any adjustment of the
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Conversion Price at which the Series A Preferred Stock is convertible shall
have been made pursuant to Section 5(d)(iii) as a result of any issuance of
warrants, rights or Convertible Securities,
(i) such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire, and all or a portion of
such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the
case may be, shall not have been exercised, or
(ii) the consideration per share for which shares of Stock are issuable
pursuant to such warrants or rights, or the terms of such other
Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per
share upon the occurrence of a specified date or event, then such previous
adjustment shall be rescinded and annulled and the Additional Shares of
Stock which were deemed to have been issued by virtue of the computation
made in connection with the adjustment so rescinded and annulled shall no
longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such rights or
options or other Convertible Securities on the basis of
(iii) treating the number of Additional Shares of Stock or other property,
if any, theretofore actually issued or issuable pursuant to the previous
exercise of any such warrants or rights or any such right of conversion or
exchange, as having been issued on the date or dates of any such exercise
and for the consideration actually received and receivable therefor, and
(iv) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share
for which shares of Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new
adjustment of the Conversion Price at which the Series A Preferred Stock
is convertible shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
(v) Antidilution Adjustments Under Other Securities. Without limiting any
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other rights available hereunder to the holders of the Series A Preferred
Stock, if there is an antidilution adjustment (i) under any Convertible
Securities, whether issued prior to or after the Issue Date, or (ii) under
any rights, options or warrants to purchase Additional Shares of Stock,
whether issued prior to or after the Issue Date which, in either case,
results in a reduction in the exercise or purchase price with respect to
such security or rights or results in an increase in the number of
Additional Shares of Stock obtainable under such Convertible Security,
right, option or warrant, then an adjustment shall be
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made to the Conversion Price hereunder. Any such adjustment pursuant to
this Section 5(d)(v) shall be whichever of the following results in a lower
Conversion Price: (A) a reduction in the Conversion Price equal to the
percentage reduction in such exercise or purchase price with respect to
such Convertible Security, right, option or warrant or (B) a reduction in
the Conversion Price which will result in the same percentage increase in
the number of shares of Common Stock available hereunder as the percentage
increase in the number of Additional Shares of Stock available under such
Convertible Security, right, option or warrant. Any such adjustment under
this Section 5(d)(v) shall only be made if it would result in a lower
Conversion Price than that which would be determined pursuant to any other
antidilution adjustment otherwise required hereunder as a result of the
event or circumstance which triggered the adjustment to such Convertible
Security, right, option or warrant, and if an adjustment is made pursuant
to this Section 5(d)(v), such other antidilution adjustment otherwise
required hereunder shall not be made as a result of such event or
circumstance.
(vi) Other Provisions Applicable to Adjustments under this Section. The
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following provisions shall be applicable to making adjustments to the
shares of Common Stock into which the Series A Preferred Stock is
convertible and the Conversion Price at which the Series A Preferred Stock
is convertible provided for in this Section 5(d):
(a) Computation of Consideration. To the extent that any
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Additional Shares of Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Corporation therefor
shall be the amount of the cash received by the Corporation therefor,
or, if such Additional Shares of Stock or Convertible Securities are
offered by the Corporation for subscription, the subscription price,
or, if such Additional Shares of Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest
or accrued dividends and any compensation, discounts or expenses paid
or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent
that such issuance shall be for a consideration other than cash, then
except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board of Directors of the Corporation. In case any Additional
Shares of Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase such Additional Shares of Stock or
Convertible Securities shall be issued in connection with any merger
in which the Corporation issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Corporation,
of such portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Stock, Convertible
Securities, warrants or other rights, as the
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case may be. The consideration for any Additional Shares of Stock
issuable pursuant to any warrants or other rights to subscribe for or
purchase the same shall be the consideration received by the
Corporation for issuing such warrants or other rights plus the
additional consideration payable to the Corporation upon exercise of
such warrants or other rights. The consideration for any Additional
Shares of Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Corporation for
issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Corporation in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any,
payable to the Corporation upon the exercise of the right of
conversion or exchange in such Convertible Securities. In case of the
issuance at any time of any Additional Shares of Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class
of stock other than Common Stock, the Corporation shall be deemed to
have received for such Additional Shares of Stock or Convertible
Securities a consideration equal to the amount of such dividend so
paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
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this Section 5(d) shall be made whenever and as often as any event
requiring an adjustment shall occur, except that any adjustment of the
Conversion Price that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the
Common Stock, as provided for in Section 5(d)(i)) up to, but not
beyond the date of exercise if such adjustment either by itself or
with other adjustments not previously made amount to a change in the
Conversion Price of less than $.05. Any adjustment representing a
change of less than such minimum amount (except as aforesaid) which is
postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section
5(d) and not previously made, would result in a minimum adjustment or
on the date of conversion. For the purpose of any adjustment, any
event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
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Section 5(d), fractional interests in the Common Stock shall be taken
into account to the nearest 1/100th of a share.
(d) Challenge to Good Faith Determination. Whenever the Board of
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Directors of the Corporation shall be required to make a
determination in good faith of the fair value of any item under this
Section 5(d), such determination may be challenged in good faith by a
holder of Series A Preferred Stock and any dispute shall be resolved
by an investment banking firm of recognized national standing jointly
selected by the Corporation and such holder. The fees of such
investment banker shall be borne by such holder if the Corporation's
calculation is determined to be correct and otherwise by the
Corporation.
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(vii) Reorganization, Reclassification, Merger or Consolidation. If
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the Corporation shall at any time reorganize or reclassify the
outstanding shares of Common Stock (other than a change in par value,
or from no par value to par value, or from par value to no par value,
or as a result of a subdivision or combination) or consolidate with or
merge into another corporation (where the Corporation is not the
continuing corporation after such merger or consolidation), the
holders of Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock in whole or in
part, the same kind and number of shares of stock and other
securities, cash or other property (and upon the same terms and with
the same rights) as would have been distributed to a holder upon such
reorganization, reclassification, consolidation or merger had such
holder converted its Series A Preferred Stock immediately prior to
such reorganization, reclassification, consolidation or merger
(subject to subsequent adjustments under Section 5(d) hereof). The
Conversion Price upon such conversion shall be the Conversion Price
that would otherwise be in effect pursuant to the terms hereof.
Notwithstanding anything herein to the contrary, the Corporation will
not effect any such reorganization, reclassification, merger or
consolidation unless prior to the consummation thereof, the
corporation which may be required to deliver any stock, securities or
other assets upon the conversion of the Series A Preferred Stock shall
agree by an instrument in writing to deliver such stock, cash,
securities or other assets to the holders of the Series A Preferred
Stock. A sale, transfer or lease of all or substantially all of the
assets of the Corporation to another person shall be deemed a
reorganization, reclassification, consolidation or merger for the
foregoing purposes.
(viii) Exceptions to Adjustment of Conversion Price. Anything
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herein to the contrary notwithstanding, the Corporation shall not make
any adjustment of the Conversion Price in the case of (i) the issuance
of shares of Common Stock to holders of the Series A Preferred Stock
upon conversion of all or any portion of their shares of Series A
Preferred Stock, (ii) the issuance of securities with an aggregate
Market Value not in excess of $13 million in the transactions
identified in a letter agreement dated February 26, 1998 from the
Corporation to the Fleming Funds, (iii) the issuance of securities
with an aggregate Market Value not in excess of $15 million in other
transactions not described in clause (ii), provided, that, in any such
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transaction, shares of Common Stock are issued at a Market Price per
share between $9.00 and $10.00 and (iv) any other issuances of
securities that the Fleming Holders agree in writing shall be exempt
from the adjustment provisions of this Section 5(d).
(ix) Chief Financial Officer's Opinion. Upon each adjustment of the
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Conversion Price, and in the event of any change in the rights of a
holder of Series A Preferred Stock by reason of other events herein
set forth, then and in each such case, the Corporation will promptly
obtain an opinion of the chief financial officer of the Corporation,
stating the adjusted Conversion Price, or specifying the other
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shares of the Common Stock, securities or assets and the amount
thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. The Corporation will promptly
mail a copy of such opinion to the holders of Series A Preferred
Stock. If a holder disagrees with such calculation, the Corporation
agrees to obtain within thirty (30) business days an opinion of a firm
of independent certified public accountants selected by the
Corporation's Board of Directors and acceptable to such holder to
review such calculation and the opinion of such firm of independent
certified public accountants shall be final and binding on the parties
and shall be conclusive evidence of the correctness of the computation
with respect to any such adjustment of the Conversion Price.
(x) Corporation to Prevent Dilution. In case at any time or from
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time to time conditions arise by reason of action taken by the
Corporation, which in the good faith opinion of its Board of Directors
or a majority of the holders of the Series A Preferred Stock are not
adequately covered by the provisions of this Section 5(d), and which
might materially and adversely affect the exercise rights of the
holders of the Series A Preferred Stock, the Board of Directors of the
Corporation shall appoint such firm of independent certified public
accountants acceptable to a majority of the holders of the Series A
Preferred Stock, which shall give their opinion upon the adjustment,
if any, on a basis consistent with the standards established in the
other provisions of this Section 5(d), necessary with respect to the
Conversion Price, so as to preserve, without dilution (other than as
specifically contemplated by the Certificate of Incorporation), the
exercise rights of the holders of the Series A Preferred Stock. Upon
receipt of such opinion, the Board of Directors of the Corporation
shall forthwith make the adjustments described therein.
(e) No Impairment. The Corporation will not, by amendment of its
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Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of Section 5 hereof and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(f) No Fractional Shares Adjustments. No fractional shares shall be
--------------------------------
issued upon conversion of the Series A Preferred Stock. If more than one share
of the Series A Preferred Stock is to be converted at one time by the same
stockholder, the number of full shares issuable upon such conversion shall be
computed on the basis of the aggregate amount of the shares to be converted.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation will pay a cash adjustment in respect of such fractional interest
in an amount equal to the same fraction of the Market Price per share of Common
Stock at
11
the close of business on the day of conversion which such fractional share of
Series A Preferred Stock would be convertible into on such date.
(g) Shares to be Reserved. The Corporation shall at all times
---------------------
reserve and keep available, out of its authorized and unissued stock, solely for
the purpose of effecting the conversion of the Series A Preferred Stock, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Series A Preferred Stock from time to time
outstanding. The Corporation shall from time to time, in accordance with the
laws of the State of Delaware, increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized but unissued
Common Stock shall be insufficient to permit the conversion in full of the
Series A Preferred Stock.
(h) Taxes and Charges. The Corporation will pay any and all issue
-----------------
or other taxes that may be payable in respect of any issuance or delivery of
shares of Common Stock on conversion of the Series A Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance or delivery of Common Stock
in a name other than that of the Series A Preferred Stock, and no such issuance
or delivery shall be made unless and until the Person requesting such issuance
has paid to the Corporation the amount of such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(i) Accrued Dividends. Upon conversion of any shares of Series A
-----------------
Preferred Stock, the holder thereof shall be entitled to receive any accrued but
unpaid dividends in respect of the shares of Series A Preferred Stock so
converted to the date of such conversion.
(j) Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any shares of Series A Preferred Stock or
of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Preferred Stock in any manner which interferes with the
timely conversion of such shares of Series A Preferred Stock.
6. Redemption
----------
(a) Redemption Price. Any redemption of the Series A Preferred
----------------
Stock pursuant to Section 6(b) shall be at a price per share equal to the
Liquidation Value plus all declared but unpaid dividends thereon through the
redemption date (the "Mandatory Redemption Price"). Any redemption of the Series
A Preferred Stock pursuant to Section 6(d) shall be at a price per share equal
to the Series A Liquidation Preference, except that, for purposes of calculation
of the redemption price under this Section 6(a), clause (ii) of the definition
of Series A Liquidation Preference in Section 3(a) hereof shall provide for the
amount per share such holders would have received if such holders had converted
their shares of Series A Preferred Stock into shares of Common Stock immediately
prior to the Fundamental Change (the "Optional Redemption Price"). The Mandatory
12
Redemption Price and the Optional Redemption Price shall be paid, at the
election of the Corporation, in cash or shares of Common Stock, provided, that,
(i) for purposes of calculating the number of shares of Common Stock to be
received by each holder of Series A Preferred Stock, each such share of Common
Stock shall be valued at 10% less than the Market Price, and (ii) in the case of
the Optional Redemption Price, if the Corporation's stockholders are receiving
cash for their interests in the Corporation and the Corporation's lenders have
been indefeasibly paid in full in cash, then the Optional Redemption Price shall
be paid in cash. If the Mandatory Redemption Price or the Optional Redemption
Price is paid in shares of Common Stock and issuance of such shares results in
any holder or holders of the Series A Preferred Stock, individually or as a
"group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended) acquiring beneficial ownership of 30% or more of the
outstanding shares of Common Stock of the Corporation having ordinary voting
power in the election of directors, the Corporation shall only issue that number
of shares equal to 29.9% of such outstanding shares of Common Stock (the
"Maximum Ownership") and shall deliver to each holder of record of the shares to
be redeemed a new certificate registered in such holder's name (or the name of
its nominee, if requested by such holder) evidencing the number of shares of
Series A Preferred Stock not redeemed for shares of Common Stock under Section
6(b) hereof or Section 6(d) hereof, as the case may be. If at any time, the
number of shares of Common Stock held by such holder or holders shall fall below
the Maximum Ownership, the holder or holders of shares of Series A Preferred
Stock shall be entitled to have the Corporation redeem the number of shares of
Series A Preferred Stock such that such holder or holders shall hold the Maximum
Ownership, such redemption to be in shares of Common Stock at the Mandatory
Redemption Price or the Optional Redemption Price, as the case may be (such
shares of Common Stock being paid in such redemption shall be distributed among
the holders of Series A Preferred Stock pro rata based upon their total
ownership of shares of Series A Preferred Stock).
For purposes of this Section 6(a), the percentage of the outstanding shares of
Common Stock of the Corporation shall be calculated by using a fraction, (x) the
numerator of which is the number of shares of Common Stock to be issued pursuant
to Section 6(a) and (y) the denominator of which is the number of outstanding
shares of Common Stock on the redemption date or the Repurchase Date (as the
case may be) plus the number of shares of Common Stock to be issued pursuant to
----
Section 6(a).
(b) Mandatory Redemption. Subject to Section 6(a) hereof, the
--------------------
Corporation shall redeem all of the then outstanding shares of Series A
Preferred Stock at the Mandatory Redemption Price on December 31, 2002.
(c) Procedures for Redemption. In the event the Corporation shall
-------------------------
be required to redeem shares of Series A Preferred Stock pursuant to Section
6(b), the Corporation shall give written notice of such redemption by first
class mail, postage prepaid, mailed not less than thirty (30) nor more than
ninety (90) days prior to the redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as the same appears on the stock
records of the Corporation. Each such notice shall state: (i) the
13
redemption date; (ii) the number of shares of Series A Preferred Stock to be
redeemed; (iii) the Mandatory Redemption Price or Optional Redemption Price, as
the case may be; (iv) the place or places where certificates for such shares are
to be surrendered for payment of the Mandatory Redemption Price or Optional
Redemption Price, as the case may be; (v) that payment will be made upon
presentation and surrender of such Series A Preferred Stock; (vi) the then
current Conversion Price and the date on which the right to convert such shares
of Series A Preferred Stock will expire; (vii) that dividends on the shares to
be redeemed shall cease to accrue following such redemption date; (viii) that
such redemption is mandatory, if pursuant to Section 6(b) and (ix) that
dividends, if any, accrued to and including the date fixed for redemption will
be paid as specified in such notice. Notice having been mailed as aforesaid,
from and after the redemption date, unless the Corporation shall be in default
in the payment of the Mandatory Redemption Price or Optional Redemption Price,
as the case may be (including any accrued and unpaid dividends to (and
including) the date fixed for redemption), (A) dividends on the shares of the
Series A Preferred Stock so called for redemption shall cease to accrue, (B)
such shares shall be deemed no longer outstanding and (C) all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation (i) any moneys payable upon redemption without interest
thereon and (ii) any shares of Series A Preferred Stock and Common Stock
pursuant to Section 6(a) hereof) shall cease.
Upon surrender in accordance with such notice of the certificates for any such
shares so redeemed (properly endorsed or assigned for transfer, if the Board of
Directors shall so require and the notice shall so state), such shares shall be
redeemed by the Corporation at the applicable Mandatory Redemption Price.
Notwithstanding the foregoing, if notice of redemption has been given pursuant
to this Section 6 and any holder of shares of Series A Preferred Stock shall,
prior to the close of business on the third (3rd) Business Day preceding the
redemption date, give written notice to the Corporation pursuant to Section 5(b)
hereof of the conversion of any or all of the shares to be redeemed held by such
holder (accompanied by a certificate or certificates for such shares, duly
endorsed or assigned to the Corporation), then the conversion of such shares to
be redeemed shall become effective as provided in Section 5 hereof.
(d) Redemption at Option of Holder Upon a Fundamental Change.
--------------------------------------------------------
Subject to Section 6(a) hereof, if a Fundamental Change occurs, each holder of
Series A Preferred Stock shall have the right, at the holder's option, to
require the Corporation to repurchase all of such holder's Series A Preferred
Stock, or any portion thereof, on the date (the "Repurchase Date") selected by
the Corporation that is not less than ten (10) nor more than twenty (20) days
after the Final Surrender Date, at a price per share equal to the Optional
Redemption Price. The Corporation agrees that it will not complete any
Fundamental Change unless proper provision has been made to satisfy its
obligations under this Section 6(d).
14
(e) Notice of Fundamental Change. Within thirty (30) days after the
----------------------------
occurrence of a Fundamental Change, the Corporation shall mail to all holders of
record of the Series A Preferred Stock a notice in the manner and containing the
information set out in Section 6(c), except that, for purposes of this Section
6(e), such notice shall also describe the occurrence of such Fundamental Change
and of the repurchase right arising as a result thereof. To exercise the
repurchase right, a holder of Series A Preferred Stock must surrender, on or
before the date which is, subject to any contrary requirements of applicable
law, thirty (30) days after the date of mailing of the notice from the
Corporation (the "Final Surrender Date"), the certificates representing the
Series A Preferred Stock with respect to which the right is being exercised,
duly endorsed for transfer to the Corporation, together with a written notice of
election.
(f) Election Irrevocable. An election by a holder of Series A
--------------------
Preferred Stock to have the Corporation repurchase shares of Series A Preferred
Stock pursuant to Section 6(d) shall become irrevocable at the close of business
on the relevant Repurchase Date.
7. Shares to be Retired. Any share of Series A Preferred Stock
--------------------
converted, redeemed, repurchased or otherwise acquired by the Corporation shall
be retired and cancelled and shall upon cancellation be restored to the status
of authorized but unissued shares of preferred stock, subject to reissuance by
the Board of Directors as shares of preferred stock of one or more other series
but not as shares of Series A Preferred Stock.
8. Definitions. As used herein, the following terms shall have the
-----------
respective meanings set forth below:
"Additional Shares of Stock" means all shares of Common Stock issued
--------------------------
by the Corporation after the Issue Date, other than (i) Common Stock
to be issued upon conversion of the Series A Preferred Stock, (ii)
1,827,625 shares of Common Stock (subject to an increase on August 1
of each year by a number of shares equal to five percent of the
Corporation's outstanding Common Stock as of such dates) to be issued
pursuant to the Corporation's 1997 Stock Plan, (iii) 700,000 shares of
Common Stock to be issued pursuant to the Corporation's 1997 Director
Option Plan and (iv) 615,125 shares of Common Stock to be issued
pursuant to certain management stock option agreements.
"Affiliate", when used with respect to any Person, means (i) if such
---------
Person is a corporation, any officer or director thereof (other than a
director elected pursuant to Section 4 hereof) and any Person which
is, directly or indirectly, the beneficial owner (by itself or as part
of any group) of more than five percent (5%) of any class of any
equity security (within the meaning of the Securities Exchange Act of
1934, as amended) thereof, and, if such beneficial owner is a
partnership, any general partner thereof, or if such beneficial owner
is a corporation, any Person controlling, controlled by or under
common control with such beneficial owner, or any officer or director
of such beneficial owner or of any corporation occup-
15
ying any such control relationship, (ii) if such Person is a
partnership, any general or limited partner thereof, and (iii) any
other Person which, directly or indirectly, controls or is controlled
by or is under common control with such Person. For purposes of this
definition, "control" (including the correlative terms "controlling",
"controlled by" and "under common control with"), with respect to any
Person, shall mean possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by
contract or otherwise.
"Business Day" means any day that is not a Saturday, a Sunday or any
------------
day on which banks in the State of New York are authorized or
obligated to close.
"Common Stock" means the Corporation's Common Stock, par value $.01
------------
per share, and shall also include any common stock of the Corporation
hereafter authorized and any capital stock of the Corporation of any
other class hereafter authorized which is not preferred as to
dividends or assets over any other class of capital stock of the
Corporation or which has ordinary voting power for the election of
directors of the Corporation.
"Conversion Price" means the Conversion Price per share of Common
----------------
Stock into which the Series A Preferred Stock is convertible, as such
Conversion Price may be adjusted pursuant to Section 5 hereof. The
initial Conversion Price will be $10.00.
"Convertible Securities" means evidences of indebtedness, shares of
----------------------
preferred stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in
cash or property, for Additional Shares of Stock, either immediately
or upon the occurrence of a specified date or a specified event, other
than the Series A Preferred Stock.
"Designated Entity" means (i) as long as any shares of Series A
-----------------
Preferred Stock are held by any Fleming Holder, Fleming Capital
Management, 320 Park Avenue, NY, NY 10022, attention: Robert L. Burr
and (ii) if no shares of Series A Preferred Stock are held by a
Fleming Holder, the entity designated by the Transferee who holds the
largest number of such shares (in which case such Transferee shall
provide notice to the Corporation of such entity in accordance with
Section 5(d) hereof).
"Final Surrender Date" shall have the meaning set forth in Section
--------------------
6(e).
"Fleming Funds" means Fleming US Discovery Fund III, L.P. and Fleming
-------------
US Discovery Offshore Fund III, L.P.
"Fleming Holders" means (i) the Fleming Funds and (ii) any Affiliate,
---------------
officer or employee of an Affiliate or investment fund managed by an
Affiliate of the Fleming Funds to which the Fleming Funds may
transfer record and/or beneficial ownership of any shares of Series A
Preferred Stock (the "Shares") or any shares of Common Stock obtained
or obtainable upon conversion of the Shares (the "Conversion
Shares"). The
16
Conversion Shares shall include any capital stock or other securities
into which Conversion Shares are changed and any capital stock or
other securities resulting from or comprising a reclassification,
combination or subdivision of, or a stock dividend on, any Conversion
Shares.
"Fundamental Change" means any of the following events:
------------------
(i) the sale (or functional equivalent of a sale) of all or
substantially all of the asset s of the Corporation;
(ii) any consolidation of the Corporation with, or merger of
the Corporation into, any other person, any merger of another person
into the Corporation or any other business combination involving the
Corporation which results in the holders of the Corporation's stock
immediately prior to giving effect to such transaction owning shares
of capital stock of the surviving corporation in such transaction
representing (x) fifty percent (50%) or less of the total voting
power of all shares of capital stock of such surviving corporation
entitled to vote generally in the election of directors or (y) fifty
percent (50%) or less of the total value of all capital stock of
such surviving corporation, provided, that a fundamental change
--------
shall not include a series of consolidations, mergers or any other
business combinations that, in the aggregate, result in the holders
of the Corporation's stock immediately prior to giving effect to
such transactions owning shares of capital stock of the surviving
corporation in such transaction(s) representing fifty percent (50%)
or less of the total voting power of all shares of capital stock of
such surviving corporation entitled to vote generally in the
election of directors, as long as (i) Robert T. Walston remains the
Chief Executive Officer of the Corporation and (ii) at least one of
John H. Donlon, Gavin W. Schutz and Robert Bailey remain as members
of senior management of the Corporation; or
(iii) the commencement by the Corporation of a voluntary case
under the Federal bankruptcy laws or any other applicable Federal or
state bankruptcy, insolvency or similar law; the consent by the
Corporation to the entry of an order for relief in an involuntary
case under such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its
property; any assignment by the Corporation for the benefit of its
creditors; any admission by the Corporation in writing of its
inability to pay its debts generally as they become due; the entry
of a decree or order for relief in respect of the Corporation by a
court having jurisdiction in the premises in an involuntary case
under Federal bankruptcy laws or any other applicable Federal or
state bankruptcy, insolvency or similar law appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of
its property, or ordering the winding up or liquidation of its
affairs, and on account of any such event the Corporation shall
liquidate, dissolve or wind up; or the liquidation, dissolution or
winding up of the Corporation under any other circumstances.
17
"Issue Date" means, as to any share of Series A Preferred Stock, the date of
----------
original issuance thereof by the Corporation.
"Junior Securities" mean the Common Stock and any other class of capital stock
- ------------------
or series of preferred stock hereafter created by the Corporation which does
not expressly provide that it ranks senior to or pari passu with the Series A
---- -----
Preferred Stock as to dividends, other distributions, liquidation preference or
otherwise.
"Liquidation Value" shall have the meaning set forth in Section 3(a).
-----------------
"Mandatory Redemption Price" shall have the meaning set forth in Section 6(a).
--------------------------
"Market Price" means, as to any security on the date of determination thereof,
------------
the average of the closing prices of such security's sales on all principal
United States securities exchanges on which such security may at the time be
listed, or, if there shall have been no sales on any such exchange on any day,
the last trading price of such security on such day, or if such there is no such
price, the average of the bid and asked prices at the end of such day, on the
Nasdaq Stock Market, in each such case averaged for a period of twenty (20)
consecutive Business Days prior to the day when the Market Price is being
determined; provided that if such security is listed on any United States
securities exchange the term "Business Days" as used in this sentence means
business days on which such exchange is open for trading. Notwithstanding the
foregoing, with respect to the issuance of any security by the Corporation in an
underwritten public offering, the Market Price shall be the per share purchase
price paid by the underwriters. If at any time such security is not listed on
any exchange or the Nasdaq Stock Market, the Market Price shall be deemed to be
the fair value thereof determined by an investment banking firm of nationally
recognized standing selected by the Board of Directors of the Corporation and
acceptable to holders of a majority of the Series A Preferred Stock, as of the
most recent practicable date when the determination is to be made, taking into
account the value of the Corporation as a going concern, and without taking into
account any lack of liquidity of such security or any discount for a minority
interest.
"Market Value" means the amount obtained by multiplying the Market Price by the
- --------------
number of securities issued.
"Maximum Ownership" shall have the meaning set forth in Section 6(a) hereof.
-----------------
"Optional Redemption Price" shall have the meaning set forth in Section 6(a).
-------------------------
"Parity Securities" mean any class of capital stock or series of preferred stock
- ------------------
hereafter created by the Corporation, with the prior written consent of the
Fleming Holders, which expressly provides that it ranks pari passi with the
---- -----
Series A Preferred Stock as to dividends, other distributions, liquidation
preference or otherwise.
18
"Payment Amount" means such amount as is necessary to cause the net
--------------
present value to equal zero as of any date of all Cash Inflows and all
Cash Outflows (each as defined below) with respect to the Series A
Preferred Stock being repurchased pursuant to Section 6 or held on the
date of the distribution pursuant to Section 3, as the case may be,
when calculated with an annual interest rate (compounded annually)
equal to twelve percent (12%). "Cash Inflows" as used herein means all
------------
cash payments, including the Payment Amount, received by the holders
of the Series A Preferred Stock as a dividend or distribution with
respect to, or as consideration for the sale of, such Series A
Preferred Stock (whether such payments are received from the
Corporation or any other Person). "Cash Outflows" as used herein means
-------------
the sum of all cash payments made by the holders of the Series A
Preferred Stock to the Corporation to acquire such Series A Preferred
Stock. (For the avoidance of doubt, Cash Inflows and Cash Outflows
with respect to any Series A Preferred Stock not included in the
Series A Preferred Stock being repurchased pursuant to Section 6
hereof as part of the transaction for which the Payment Amount is then
being calculated shall not be included in the Cash Inflows and Cash
Outflows used to make such calculation (for purposes of Section 6
only), and only the Cash Inflows and Cash Outflows with respect to the
Series A Preferred Stock which are then being repurchased pursuant to
Section 6 hereof in the transaction for which the Payment Amount is
then being calculated shall be used in the Cash Inflows and Cash
Outflows used to make such calculation (for purposes of Section 6
only).)
"Person" or "person" shall mean an individual, partnership,
------ ------
corporation, trust, unincorporated organization, joint venture,
government or agency, political subdivision thereof, or any other
entity of any kind.
"Preferred Director" shall have the meaning set forth in Section 4(c).
------------------
"Repurchase Date" shall have the meaning set forth in Section 6(d).
---------------
"Series A Liquidation Preference" shall have the meaning set forth
-------------------------------
in Section 3(a).
"Series A Preferred Stock" shall have the meaning set forth in the
------------------------
resolution paragraph in the preamble.
"Transferees" shall mean any transferee (except for a Fleming Holder)
-----------
of Shares or Conversion Shares (as such terms are defined within the
definition of "Fleming Holders") from a Fleming Holder. Transferees
shall not include a transferee of Shares or Conversion Shares sold in
either a public offering pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), or
pursuant to Rule 144 under the Securities Act.
9. Notices. (a) Except as may otherwise be provided for herein,
-------
all notices referred to herein shall be in writing, and all notices hereunder
shall be deemed to have been given (i) upon receipt, in the case of a notice of
conversion given to the Corporation as contemplated in Section 5(b) hereof or in
the case of a notice of redemption at the holder's option given to the
19
Corporation as contemplated in Section 6(d) hereof, or (ii) in all other cases,
upon the earlier of (x) receipt of such notice, (y) three Business Days after
the mailing of such notice if sent by registered mail (unless first-class mail
shall be specifically permitted for such notice under the terms hereof) or (z)
the Business Day following sending such notice by overnight courier, in any case
with postage or delivery charges prepaid, addressed: if to the Corporation, to
its offices at 2813 West Alameda Avenue, Burbank, CA 91505, Attention: Robert T.
Walston, or to an agent of the Corporation designated as permitted by the
Certificate of Incorporation, or, if to any holder of the Series A Preferred
Stock, to such holder at the address of such holder of the Series A Preferred
Stock as listed in the stock record books of the Corporation, or to such other
address as the Corporation or holder, as the case may be, shall have designated
by notice similarly given.
(b) The consent (or agreement as described in Section 5(d)(viii)
hereof) of the Fleming Holders shall be deemed obtained if any of the following
conditions are satisfied:
(i) the Fleming Funds are the only holders of Series A Preferred
Stock and the Designated Entity shall have obtained the consent of each Fleming
Fund and shall have given notice to the Corporation to such effect in accordance
with Section 9(a) hereof;
(ii) the Fleming Funds are not the only holders of Series A Preferred
Stock and the Designated Entity shall have obtained the consent of a majority of
the outstanding shares of Series A Preferred Stock held by all Fleming Holders,
and shall have given notice to the Corporation to such effect in accordance with
Section 9(a) hereof; or
(iii) no shares of Series A Preferred Stock are held by a Fleming
Holder and
(iv) the Designated Entity shall have obtained the consent of a
majority of the outstanding shares of Series A Preferred Stock held by all
Transferees, and shall have given notice to the Corporation to such effect in
accordance with Section 9(a) hereof.
IN WITNESS WHEREOF, Four Media Company has caused this
Certificate of Designations to be signed by its Chief Executive Officer and
attested to by its Secretary, all as of the 25 day of February, 1998.
FOUR MEDIA COMPANY
By: /s/ Robert T. Walston
___________________________
Robert T. Walston
Chief Executive Officer
Attest:
By:/s/ Gavin Schutz
----------------------
Name: Gavin W. Schutz
Secretary
20