EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL, INC.
(Under Section 807 of the Business Corporation Law)
* * *
The undersigned, for the purpose of restating the Certificate
of Incorporation pursuant to Section 807 of the Business Corporation Law of the
State of New York (the "Business Corporation Law"), hereby certifies:
1. The name of the Corporation is Town Sports
International, Inc. (the "Corporation").
2. The Certificate of Incorporation of the Corporation
was filed on June 5, 1973 by the Department of State. The Corporation was
originally incorporated under the name St John Squash Racquets, Inc.
3. The Certificate of Incorporation is hereby amended to
effect the following changes authorized by the Business Corporation Law, to wit:
a. To amend the purpose of the Corporation as
set forth in paragraph SECOND of the Certificate of
Incorporation;
b. To amend the capitalization provisions set
forth in paragraph FOURTH as follows:
(i) To amend subparagraph A to increase
the authorized shares of capital stock of the
Corporation from Five Hundred Thousand (500,000) to
Four Million (4,000,000), consisting of Two Million
Five
Hundred Thousand (2,500,000) shares of Class A Voting
Common Stock, par value $0.01 per share; One Million
Two Hundred Fifty Thousand (1,250,000) shares of
Class B Convertible Non-Voting Common Stock, par
value $0.01 per share; and Two Hundred Fifty Thousand
(250,000) shares of Preferred Stock, par value $0.10
per share, issuable in one or more series;
(ii) To amend subparagraph A and replace
subparagraphs B.1 and B.2 with a new subparagraph B.1
to designate the Corporation's voting Common Stock as
Class A Voting Common Stock and to reduce the par
value of such stock from $0.10 per share to $0.01 per
share;
(iii) To amend subparagraph A and add new
subparagraph B.2 to authorize and designate the
Corporation's Class B Convertible Non-Voting Common
Stock, par value $0.01 per share, which such stock
shall have the rights and privileges set forth
therein;
(iv) To renumber subparagraphs B.1, 3
and 4 as B.3, B.4 and B.5, respectively;
(v) To amend new subparagraph B.3 to
require the shareholders to approve the filing of any
amendments to the Certificate of Incorporation in
respect of the issuance of shares of a series of
Preferred Stock;
(vi) To amend the dividend rights and
voting rights provisions of new subparagraphs B.4(a)
and B.4(c), respectively.
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c. To change the post-office address to which
the Secretary of State shall mail a copy of any process
against the Corporation served upon it as set forth in
paragraph FIFTH of the Certificate of Incorporation;
d. To amend paragraph SEVENTH with respect to
the denial of preemptive rights under Section 622 of the
Business Corporation Law;
e. To replace paragraph EIGHTH with a new
paragraph EIGHTH relating to the indemnification of officers
and directors of the Corporation; and
f. To add a new paragraph NINTH relating to the
elimination of the personal liability of the Directors of the
Corporation to the fullest extent permitted by law.
4. The restatement of the Certificate of Incorporation
of the Corporation herein provided for was authorized by the unanimous written
consent of the holders of all of the outstanding shares of the Corporation
entitled to vote on the restatement of the Certificate of Incorporation and by
the unanimous written consent of the Board of Directors of the Corporation.
5. The Certificate of Incorporation, as amended and
restated herein, shall at the effective time of this Restated Certificate of
Incorporation, read as follows:
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CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL, INC.
(Under Section 402 of the Business Corporation Law)
FIRST: The name of the Corporation is Town Sports
International, Inc. (the "Corporation").
SECOND: The purpose for which the Corporation is formed is as
follows:
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the
Business Corporation Law, provided, however, that the
Corporation is not formed to engage in any act or activity
requiring the consent or approval of any state official,
department, board agency or other body without first obtaining
the consent of such body.
THIRD: The office of the Corporation is to be located in the
City of New York, County of New York, State of New York.
FOURTH: A. The aggregate number of shares which the
Corporation shall have the authority to issue is Four Million (4,000,000) shares
of capital stock, of which Two Million Five Hundred Thousand (2,500,000) shares
shall be designated Class A Voting Common Stock, par value $0.01 per share; One
Million Two Hundred Fifty Thousand (1,250,000) shares shall be designated Class
B Convertible Non-Voting Common Stock, par value $0.01 per share; and Two
Hundred Fifty Thousand (250,000) shares of Preferred Stock, par value $0.10 per
share, which such shares of Preferred Stock shall be issuable in one or more
series, including Five Hundred (500) shares which shall be designated Series A
Preferred Stock.
B. The relative rights, preferences and limitations of
each class of the Corporation's capital stock are, and the designation and
relative rights, preferences and limitations of each series of its Preferred
Stock are to be fixed, as follows:
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1. Class A Voting Common Stock. Except as otherwise
provided by law, the entire voting power for the election of directors and for
all other purposes shall be vested exclusively in the shares of Class A Voting
Common Stock. Each share of Class A Voting Common Stock shall have one vote upon
all matters. The affirmative vote of the holders of a majority of the
outstanding shares of Class A Voting Common Stock shall be sufficient to require
the dissolution of the Corporation. After the distribution in full of the
preferential amounts to be distributed to the holders of all classes of stock
entitled thereto in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of the Class A Voting Common Stock and the Class B Convertible Non-Voting
Common Stock (collectively, the "Common Stock") shall be entitled to receive all
the remaining assets of the Corporation.
2. Class B Convertible Non-Voting Common Stock. The
rights and privileges of the Class B Convertible Non-Voting Common Stock shall
be in all respects identical to the rights and privileges of the Class A Voting
Common Stock, except as otherwise required by law and except that (i) the
holders of the Class B Convertible Non-Voting Common Stock shall not have any
right to vote for the election of directors of the Corporation or on any other
matter requiring stockholder action, except as otherwise required by law, and
(ii) shares of the Class B Convertible Non-Voting Common Stock shall be
convertible into shares of the Class A Voting Common Stock pursuant to the terms
and conditions set forth below.
Conversion Terms. (a) Each share of Class B
Convertible Non-Voting Common Stock shall be convertible into
one share of Class A Voting Common Stock at the option of the
holder of such Class B Convertible Non-Voting Common Stock as
of the date (the "Conversion Date") an initial registration
statement with respect to shares of the Class A Voting Common
Stock is declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or a
successor statute, on and subject to the terms and conditions
hereinafter set forth. The Corporation shall provide each
holder of Class B Convertible Non-Voting Common Stock with
written notice of such conversion privilege at least thirty
(30) days prior to the Conversion Date at the address of such
holder as it appears on the stock transfer books of the
Corporation.
(b) In order to exercise its conversion
privilege set forth in subparagraph 4.B.2(a) above, the holder
of any shares of Class B Convertible Non-Voting Common Stock
or such holder's duly authorized representative shall
surrender the certificate or certificates representing such
shares to the Corporation during normal business hours at its
principal office on or before the Conversion Date and shall
deliver concurrently therewith a written notice of the
election of such holder to convert such shares represented by
the certificate or certificates so surrendered. Such notice
shall also state the name or names (with address) in which the
certificate or certificates for shares of Class A Voting
Common Stock, which shall be issuable upon such conversion,
shall be issued. If so required by the Corporation, any
certificate or certificates surrendered for conversion shall
be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder
of such shares or such holder's duly authorized
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representative. Each conversion of shares of Class B
Convertible Non-Voting Common Stock pursuant to the conversion
privilege set forth in subparagraph 4.B.2(a) above shall be
deemed to have been effected as of the Conversion Date, and
the person or persons in whose name or names any certificate
or certificates for shares of Class A Voting Common Stock
shall be issuable upon such conversion shall be, for the
purposes of receiving dividends and for all other corporate
purposes whatsoever, deemed to have become the holder or
holders of record of the shares of Class A Voting Common Stock
represented thereby on the Conversion Date.
(c) Notwithstanding anything contained herein to
the contrary, upon the date (the "Automatic Conversion Date")
the Corporation becomes a member corporation of a national
securities exchange registered under a statute of the United
States such as the Securities Exchange Act of 1934, as
amended, each outstanding share of Class B Convertible
Non-Voting Common Stock shall automatically be converted to
one share of Class A Voting Common Stock. Notice of such
automatic conversion shall be given by mail to each registered
holder of Class B Convertible Non-Voting Common Stock at the
address of such holder as it appears on the stock transfer
books of the Corporation, which such notice shall state that
all outstanding shares of the Class B Convertible Non-Voting
Common Stock shall be converted by the Corporation on the
Automatic Conversion Date specified therein. All conversions
of shares of Class B Convertible Non-Voting Common Stock
pursuant to this provision shall be deemed to have been
effected as of the Automatic Conversion Date, and the person
or persons in whose name or names any certificate or
certificates for shares of Class A Voting Common Stock shall
be issuable upon such conversion shall be, for the purposes of
receiving dividends and for all other corporate purposes
whatsoever, deemed to have become the holder or holders of
record of the shares of Class A Voting Common Stock
represented thereby on the Automatic Conversion Date.
(d) As promptly as practicable after the
presentation and surrender for conversion, as herein provided,
of any certificate for shares of Class A Voting Common Stock,
the Corporation shall issue and deliver at its principal
office, to or upon the written order of the holder thereof or
such holder's duly authorized representative, certificates for
the number of shares of Class A Voting Common Stock issuable
upon any such conversion. The issuance of certificates for
shares of Class A Voting Common Stock issuable upon the
conversion of the Class B Convertible Non-Voting Common Stock
shall be made without any charge to the converting holder of
such stock for any tax imposed on the Corporation in respect
of the issue thereof. The Corporation shall not, however, be
required to pay any tax which may be payable with respect to
any transfer involved in the issue and delivery of any
certificate in a name other than that of the registered holder
of the shares being converted, and the Corporation shall not
be required to issue and deliver any such certificate unless
and until the person requesting the issuance
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thereof in such other name shall have paid the Corporation the
amount of such tax or has established to the Corporation's
satisfaction that such tax has been paid.
(e) All shares of the Class B Convertible
Non-Voting Common Stock converted into shares of Class A
Voting Common Stock as provided for herein shall be cancelled
as of the date on which such conversion is deemed to have been
effected hereunder.
(f) One Hundred Twenty Five Thousand (125,000)
shares of Class A Voting Common Stock authorized hereby shall
be reserved and set aside, and such shares, or any
proportionate part thereof, shall be issued only upon the
conversion of shares of Class B Convertible Non-Voting Common
Stock in accordance with the provisions hereof.
3. Preferred Stock. Subject to any limitation prescribed
by law, the number of shares in each series of Preferred Stock and the
designation and relative rights, preferences and limitations of each series of
Preferred Stock shall be fixed by the Board of Directors of the Corporation,
provided that before any shares of a series of Preferred Stock are issued, the
holders of a majority of all outstanding shares entitled to vote thereon at a
meeting of shareholders shall vote to approve the filing of a corresponding
Certificate of Amendment of this Certificate of Incorporation as required by the
Business Corporation Law. Pursuant to the foregoing general authority vested in
it, but not in limitation thereof, the Board of Directors is expressly empowered
to determine with respect to the shares of each series of Preferred Stock:
(a) the dividend rights of such shares,
including whether the dividends to which such shares are
entitled shall be cumulative or non-cumulative and whether
dividends on such shares shall have any preference over
dividends payable on any other class or classes of stock;
(b) whether such shares shall be convertible
into shares of a class of Common Stock or, to the extent
permitted by law, into shares of another series of Preferred
Stock and, if so, upon what terms and conditions;
(c) whether such shares shall have voting rights
in addition to those provided by law and, if so, to what
extent and upon what terms and conditions;
(d) whether such shares shall be subject to
redemption by the Corporation and, if so, upon what terms and
conditions;
(e) whether, if such shares are to be
redeemable, a sinking fund or other fund shall be established
for the purchase or redemption thereof and, if so, upon what
terms and conditions; and
(f) the rights of such shares in the event of
the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, including whether such shares
shall have any preferential claim against the assets of the
Corporation and, if so, to what extent.
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4. Series A Preferred Stock. Five hundred (500) shares
of Series A Preferred Stock, par value of $0.10 per share, shall be issuable.
All shares of Series A Preferred Stock shall be of equal rank and shall be
identical.
(a) Limited Dividend Rights. Holders of Series A
Preferred Stock shall not receive any dividends unless so
declared by the Board of Directors and in no event shall such
dividends be in excess of one cent ($0.01) per year per share
of Series A Preferred Stock.
(b) No Conversion Rights. Series A Preferred
Stock shall not be convertible into shares of Common Stock or
into shares of another series of Preferred Stock.
(c) No Voting Rights. Except as otherwise
required by law or as specifically provided herein, Series A
Preferred Stock shall have no voting rights.
(d) Redemption. The shares of Series A Preferred
Stock shall be redeemable in whole or in part, at the option
of the Corporation, by resolution adopted by its Board of
Directors, at a fixed redemption price of One Thousand Dollars
($1,000) per share, payable from any legally available source
or fund, at such times as may be fixed and determined by the
Board of Directors from time to time or at any time. If fewer
than all outstanding shares of Series A Preferred Stock are to
be redeemed, the shares of said Series to be redeemed shall be
chosen by lot or pro rata in such manner as the Board of
Directors may determine. Not later than thirty (30) nor
earlier than sixty (60) days prior to the date fixed for
redemption, a notice specifying the time and place of
redemption shall be given by mail to the holders of record of
Series A Preferred Stock to be redeemed at their respective
addresses as the same shall appear on the stock books of the
Corporation, but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to the holder to
which the Corporation has failed to mail such notice or except
as to the holder as to which notice was defective. Any notice
mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder
receives the notice. At any time after notice of redemption
has been given in the manner prescribed above, the Corporation
may (but shall not be required to) deposit the aggregate
redemption price in trust with a bank or trust company (in
good standing, organized under the laws of the United States
of America or of the State of New York, doing business in the
Borough of Manhattan, City of New York, State of New York, and
having capital, surplus and undivided profits aggregating at
least $10,000,000) named in such notice, for payment on the
date fixed for redemption to the holders of the shares so to
be redeemed, upon surrender (and endorsement, if required by
the Board of Directors) of the certificates for such shares.
Upon such redemption date (unless the Corporation shall
default in payment or deposit of the redemption price as set
forth in such notice), such holders shall cease to be
shareholders with respect to such shares and shall have no
interest in, or claim against, the Corporation, including no
right to exercise privileges upon liquidation, and shall have
no rights
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with respect to such shares except the right to receive the
monies payable upon such redemption from such bank or trust
company, or from the Corporation, without interest thereon,
upon surrender (and endorsement, if required by the Board of
Directors) of such certificates; and the shares represented
thereby shall no longer be deemed to be outstanding. If the
holder of any of the shares so redeemed shall not, within six
(6) years after such deposit, claim the amount deposited as
above stated for the redemption thereof, the depositary shall,
upon demand, pay over to the Corporation or to its successor
such unclaimed amount so deposited, and the depositary shall
thereupon be relieved of all responsibility therefor to such
holder. The Corporation may retain such unclaimed amount as
part of its general funds, free of any claim of those
previously entitled thereto.
(e) No Sinking Fund. No sinking fund or other
fund shall be established for the purchase or redemption of
Series A Preferred Stock.
(f) Priority Upon Liquidation, Dissolution or
Winding Up. The Series A Preferred Stock shall be preferred
over the Common Stock as to the net assets of the Corporation
in the event of any dissolution, liquidation or winding up of
the affairs of the Corporation, either voluntary or
involuntary. In such event, the holders of Series A Preferred
Stock shall be entitled, after payment or provision for
payment of the debts or other liabilities of the Corporation,
to receive out of the net assets of the Corporation the fixed
amount of One Thousand Dollars ($1,000) per share of Series A
Preferred Stock, before any distribution shall be made to the
holders of the Common Stock. Neither the merger or
consolidation of the Corporation, nor the sale, lease or
conveyance of all or any part of its assets, shall be deemed
to be a dissolution, liquidation or winding up of the affairs
of the Corporation within the meaning of this subparagraph
(f).
5. Limitations. So long as any shares of Series A
Preferred Stock shall be outstanding, the Corporation shall not, by an amendment
of this Certificate of Incorporation or by merger or consolidation or in any
manner, without the affirmative vote at a duly authorized meeting or the written
consent of the holders of at least two-thirds of the aggregate number of shares
of Series A Preferred Stock at the time outstanding, voting or consenting, as
the case may be, together as a single class:
(a) authorize, or increase the number of
authorized shares of, any series of Preferred Stock ranking,
either as to payment of dividends or distribution of assets,
prior to the Series A Preferred Stock; or
(b) change the preferences or limitations,
special rights or powers with respect to the Series A
Preferred Stock in any respect adverse to the holders thereof.
FIFTH: The Secretary of State is designated as the agent of
the Corporation upon whom process in any action or proceeding against it may be
served. The post office address to
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which the Secretary of State shall mail a copy of any process against the
Corporation served upon him is: Town Sports International, Inc., 888 Seventh
Avenue, New York, New York 10106; Attention: Alexander A. Alimanestianu, Esq.
SIXTH: The duration of the Corporation is to be perpetual.
SEVENTH: No holder of any shares of capital stock of the
Corporation, by reason of their ownership of such shares of capital stock, shall
have any preemptive rights under Section 622 of the Business Corporation Law.
EIGHTH: The Corporation shall, to the fullest extent permitted
by Article 7 of the Business Corporation Law of the State of New York, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said Article from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
Article, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which any person may be entitled under any
By-Law, resolution of shareholders, resolution of directors, agreement,
insurance policy or otherwise as permitted by said Article, as to action in any
capacity in which he or she served at the request of the Corporation.
Without in any way limiting the foregoing, except to the
extent expressly prohibited by the Business Corporation Law, the Corporation
shall indemnify each person made or threatened to be made a party to any action
or proceeding, whether civil or criminal, by reason of the fact that such person
or such person's testator or intestate is or was a director or officer of the
Corporation or serves or served at the request of the Corporation any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, including
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attorneys' fees, incurred in connection with such action or proceeding, or any
appeal therein, provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such person establishes that his
or her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled, and provided further that
no such indemnification shall be required with respect to any settlement or
other nonadjudicated disposition of any threatened or pending action or
proceeding unless the Corporation has given its prior consent to such settlement
or other disposition.
The Corporation shall advance or promptly reimburse upon
request any person entitled to indemnification hereunder for all expenses,
including attorneys' fees, reasonably incurred in defending any action or
proceeding in advance of the final disposition thereof upon receipt of an
undertaking by or on behalf of such person to repay such amount if such person
is ultimately found not to be entitled to the indemnification or, where
indemnification is granted, to the extent the expenses so advanced or reimbursed
exceed the amount to which such person is entitled, provided, however, that such
person shall cooperate in good faith with any request by the Corporation that
common counsel be utilized by the parties to an action or proceeding who are
similarly situated unless to do so would be inappropriate due to actual or
potential differing interests between or among such parties.
Anything herein to the contrary notwithstanding, no
elimination of or amendment to this Article adversely affecting the right of any
person to indemnification or advancement of expenses hereunder shall be
effective until the 60th day following notice to such person of such action, and
no elimination of or amendment to this Article shall deprive any person of his
or her
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rights hereunder arising out of alleged or actual occurrences, acts or failures
to act prior to such 60th day.
The Corporation shall not, except by elimination of or
amendment to this Article in a manner consistent with the preceding paragraph,
take any corporate action or enter into any agreement which prohibits, or
otherwise limits the rights of any person to, indemnification in accordance with
the provisions of this Article. The indemnification of any person provided by
this Article shall continue after such person has ceased to be a director or
officer of the Corporation and shall inure to the benefit of such person's
heirs, executors, administrators and legal representatives.
The Corporation is authorized to enter into agreements with
any of its directors or officers extending rights to indemnification and
advancement of expenses to such person to the fullest extent permitted by
applicable law, but the failure to enter into any such agreement shall not
affect or limit the rights of such person pursuant to this Article, it being
expressly recognized hereby that all directors and officers of the Corporation,
by serving as such after the adoption hereof, are acting in reliance hereon and
that the Corporation is estopped to contend otherwise.
In case any provision in this Article shall be determined at
any time to be unenforceable in any respect, the other provisions shall not in
any way be affected or impaired thereby, and the affected provision shall be
given the fullest possible enforcement in the circumstances, it being the
intention of the Corporation to afford indemnification and advancement of
expenses to its directors and officers, acting in such capacities or in the
other capacities mentioned herein, to the fullest extent permitted by law.
For purposes of this Article, the Corporation shall be deemed
to have requested a person to serve an employee benefit plan where the
performance by such person of his or her
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duties to the Corporation also imposes duties on, or otherwise involves services
by, such person to the plan or participants or beneficiaries of the plan, and
excise taxes assessed on a person with respect to an employee benefit plan
pursuant to applicable law shall be considered indemnifiable expenses. For
purposes of this Article, the term "Corporation" shall include any legal
successor to the Corporation, including any corporation which acquires all or
substantially all of the assets of the Corporation in one or more transactions.
NINTH: The personal liability of the Directors of the
Corporation is eliminated to the fullest extent permitted by the provisions of
paragraph (b) of Section 402 of the Business Corporation Law of the State of New
York, as the same may be amended and supplemented. No amendment, modification or
repeal of this Article shall adversely affect any right or protection of any
director that exists at the time of such amendment, modification or repeal.
IN WITNESS WHEREOF, we have executed this document on the date
set forth below and do hereby affirm, under penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
Dated: March 5, 1993
/s/ Marc Tascher
-----------------------------------
Name: Marc Tascher
Title: Chairman
/s/ Robert Giardina
-----------------------------------
Name: Robert Giardina
Title: President
/s/ Alexander A. Alimanestianu
-----------------------------------
Name: Alexander A. Alimanestianu
Title: Secretary
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CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL, INC.
(Under Section 805 of the Business Corporation Law)
The undersigned, for the purpose of amending the Certificate
of Incorporation pursuant to Section 805 of the Business Corporation Law of the
State of New York (the "Business Corporation Law"), hereby certifies:
FIRST: The name of the corporation is Town Sports
International, Inc. (the "Corporation"). The Corporation was originally
incorporated under the name St John Squash Racquets, Inc.
SECOND: The Certificate of Incorporation of the Corporation
was filed on June 5, 1973 by the Department of State.
THIRD: The Certificate of Incorporation is hereby amended to
amend the capitalization provisions set forth in paragraph FOURTH as follows:
(a) to amend subparagraph FOURTH.A. to increase
the authorized shares of capital stock of the Corporation from Four Million
(4,000,000) shares, consisting of Two Million Five Hundred Thousand (2,500,000)
shares of Class A Voting Common Stock, par value $0.01 per share, One Million
Two Hundred Fifty Thousand (1,250,000) shares of Class B Convertible Non-Voting
Common Stock, par value $0.01 per share, and Two Hundred Fifty Thousand
(250,000) shares of Preferred Stock, par value $0.10 per share, issuable in one
or more series, including Five Hundred (500) shares designated as Series A
Preferred Stock, to Six Million (6,000,000) shares, consisting of Three Million
Five Hundred Thousand (3,500,000) shares of Class A Voting Common Stock, par
value $0.01 per share, One Million Two Hundred Fifty Thousand (1,250,000) shares
of Class B Convertible Non-Voting Common Stock, par value $0.01 per share, and
One Million Two Hundred Fifty Thousand (1,250,000) shares of Preferred Stock (of
which One Million (1,000,000) shares shall have par value $.01 per share and Two
Hundred and Fifty Thousand (250,000) shares shall have par value $.10 per
share), issuable in one or more series, including Five Hundred (500) shares of
Series A Preferred Stock, par value $0.10 per share, and One Million (1,000,000)
shares of Series B Redeemable Convertible Preferred Stock, par value $0.01 per
share;
(b) to amend subparagraph FOURTH.B. to designate
the Corporation's Series B Redeemable Convertible Preferred Stock, par value
$0.01 per share, which such stock shall have the rights and privileges set forth
herein, and give effect to the voting rights of the holders of Series B
Redeemable Convertible Preferred Stock; and
(c) to effect such other changes to Article
FOURTH of the Certificate of Incorporation as are set forth herein.
In order to effect all of such changes, Article FOURTH of said
Certificate of Incorporation is hereby amended in its entirety to read as
follows:
"FOURTH: A. The aggregate number of shares which the
Corporation shall have the authority to issue is Six Million (6,000,000) shares
of capital stock, of which Three Million Five Hundred Thousand (3,500,000)
shares shall be designated Class A Voting Common Stock, par value $0.01 per
share; One Million Two Hundred Fifty Thousand (1,250,000) shares shall be
designated Class B Convertible Non-Voting Common Stock, par value $0.01 per
snare; and One Million Two Hundred Fifty Thousand (1,250,000) shares of
Preferred Stock (of which One Million (1,000,000) shares shall have par value
$.01 per share and Two Hundred and Fifty Thousand (250,000) shares shall have
par value $.10 per share), which such shares of Preferred Stock shall be
issuable in one or more series, including Five Hundred (500) shares which shall
be designated Series A Preferred Stock, par value $0.10 per share, and One
Million (1,000,000) shares which shall be designated Series B Redeemable
Convertible Preferred Stock, par value $0.01 per share.
B. The relative rights, preferences and limitations of each class
of the Corporation's capital stock are, and the designation and relative rights,
preferences and limitations of each series of its Preferred Stock are to be
fixed, as follows:
1. Class A Voting Common Stock. Except as otherwise
provided by law the entire voting power for the election of directors and for
all other purposes shall be vested exclusively in the shares of Class A Voting
Common Stock and the Series B Redeemable Convertible Preferred Stock, as set
forth in subparagraph FOURTH.B.5 below. Each share of Class A Voting Common
Stock shall have one vote upon all matters. The affirmative vote of the holders
of a majority of the outstanding shares of Class A Voting Common Stock and
Series B Redeemable Convertible Preferred Stock, voting together (as set forth
in subparagraph FOURTH.B.5(d) below), shall be sufficient to require the
dissolution of the Corporation. After the distribution in full of the
preferential amounts to be distributed to the holders of all classes of stock
entitled thereto in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of the Class A Voting Common Stock and the Class B Convertible Non-Voting
Common Stock (collectively, the "Common Stock") shall be entitled to receive all
the remaining assets of the Corporation.
2. Class B Convertible Non-Voting Common Stock.
(a) The rights and privileges of the Class B
Convertible Non-Voting Common Stock shall be in all respects identical to the
rights and privileges of the Class A Voting Common Stock, except as otherwise
required by law and except that (i) the holders of the Class B Convertible
Non-Voting Common Stock shall not have any right to vote for the election of
directors of the Corporation or on any other matter requiring stockholder
action, except as otherwise required by law, and (ii) shares of the Class B
Convertible Non-Voting Common Stock shall be convertible into shares of the
Class A Voting Common Stock pursuant to the terms and conditions set forth
below.
- 2 -
(b) Each share of Class B Convertible Non-Voting
Common Stock shall be convertible into one share of Class A Voting Common Stock
at the option of the holder of such Class B Convertible Non-Voting Common Stock
as of the date (the "Class B Conversion Date" or "Public Distribution Effective
Date") an initial registration statement with respect to shares of the Class A
Voting Common Stock is declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or a successor statute
(a "Public Distribution"), on and subject to the terms and conditions
hereinafter set forth. The Corporation shall provide each holder of Class B
Convertible Non-Voting Common Stock with written notice of such conversion
privilege at least thirty (30) days prior to the Class B Conversion Date at the
address of such holders as it appears on the stock transfer books of the
Corporation.
(c) In order to exercise its conversion
privilege set forth in subparagraph FOURTH.B.2(b) above, the holder of any
shares of Class B Convertible Non-Voting Common Stock or such holder's duly
authorized representative shall surrender the certificate or certificates
representing such shares to the Corporation during normal business hours at its
principal office on or before the Class B Conversion Date and shall deliver
concurrently therewith a written notice of the election of such holder to
convert such shares represented by the certificate or certificates so
surrendered. Such notice shall also state the name or names (with address) in
which the certificate or certificates for shares of Class A Voting Common Stock,
which shall be issuable upon such conversion, shall be issued. If so required by
the Corporation, any certificate or certificates surrendered for conversion
shall be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or such holder's duly
authorized representative. Each conversion of shares of Class B Convertible
Non-Voting Common Stock pursuant to the conversion privilege set forth in
subparagraph FOURTH.B.2(b) above shall be deemed to have been effected as of the
Class B Conversion Date, and the person or persons in whose name or names any
certificate or certificates for shares of Class A Voting Common Stock shall be
issuable upon such conversion shall be, for the purposes of receiving dividends
and for all other corporate purposes whatsoever, deemed to have become the
holder or holders of record of the shares of Class A Voting Common Stock
represented thereby on the Class B Conversion Date.
(d) Notwithstanding anything contained herein to
the contrary, upon the date (the "Class B Automatic Conversion Date") the
Corporation's Class A Voting Common Stock becomes listed on a national
securities exchange registered under a statute of the United States such as the
Securities Exchange Act of 1934, as amended, or becomes quoted on the National
Market Service of the National Association of Securities Dealers Automatic
Quotation System, each outstanding share of Class B Convertible Non-Voting
Common Stock shall automatically be converted to one share of Class A Voting
Common Stock. Notice of such automatic conversion shall be given by mail to each
registered holder of Class B Convertible Non-Voting Common Stock at the address
of such holder as it appears on the stock transfer books of the Corporation,
which such notice shall state that all outstanding shares of the Class B
Convertible Non-Voting Common Stock shall be converted by the Corporation on the
Class B Automatic Conversion Date specified therein. All conversions of shares
of Class B Convertible Non-Voting Common Stock pursuant to this provision shall
be deemed to have been effected as of the Class B Automatic Conversion Date, and
the person or persons in whose name or names any certificate or certificates for
shares of Class A Voting Common Stock shall be issuable upon
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such conversion shall be, for the purposes of receiving dividends and for all
other corporate purposes whatsoever, deemed to have become the holder or holders
of record of the shares of Class A voting Common Stock represented thereby on
the Class B Automatic Conversion Date.
(e) As promptly as practicable after the
presentation and surrender for conversion, as herein provided, of any
certificate for shares of Class A Voting Common Stock, the Corporation shall
issue and deliver at its principal office, to or upon the written order of the
holder thereof or such holder's duly authorized representative, certificates for
the number of shares of Class A Voting Common Stock issuable upon any such
conversion. The issuance of certificates for shares of Class A voting Common
Stock issuable upon the conversion of the Class B Convertible Non-Voting Common
Stock shall be made without any charge to the converting holder of such stock
for any tax imposed on the Corporation in respect of the issue thereof. The
Corporation shall not, however, be required to pay any tax which may be payable
with respect to any transfer involved in the issue and delivery of any
certificate in a name other than that of the registered holder of the shares
being converted, and the Corporation shall not be required to issue and deliver
any such certificate unless and until the person requesting the issuance thereof
in such other name shall have paid the Corporation the amount of such tax or
shall have established to the Corporation's satisfaction that such tax has been
paid.
(f) All shares of the Class B Convertible
Non-Voting Common Stock converted into shares of Class A Voting Common Stock as
provided for herein shall be cancelled as of the date on which such conversion
is deemed to have been effected hereunder.
(g) The Corporation shall reserve and set aside
an appropriate number of shares of Class A Voting Common Stock which shall be
issued only upon the conversion of shares of Class B Convertible Non-Voting
Common Stock in accordance with the provisions hereof.
3. Preferred Stock. Subject to any limitation prescribed
by law or herein, the number of shares in each series of Preferred Stock and the
designation and relative rights, preferences and limitations of each series of
Preferred Stock shall be fixed by the Board of Directors of the Corporation,
provided that before any shares of a series of Preferred Stock are issued, the
holders of a majority of all outstanding shares entitled to vote thereon at a
meeting of shareholders shall vote to approve the filing of a corresponding
Certificate of Amendment of this Certificate of Incorporation as required by the
Business Corporation Law. Pursuant to the foregoing general authority vested in
it, but not in limitation thereof, the Board of Directors is expressly empowered
to determine with respect to the shares of each series of Preferred Stock:
(a) the dividend rights of such shares,
including whether the dividends to which such shares are entitled shall be
cumulative or non-cumulative and whether dividends on such shares shall have any
preference over dividends payable on any other class or classes of stock;
(b) whether such shares shall be convertible
into shares of a class of Common Stock, or, to the extent permitted by law, into
shares of another series of Preferred Stock and, if so, upon what terms and
conditions;
- 4 -
(c) whether such shares shall have voting rights
in addition to those provided by law and, if so, to what extent and upon what
terms and conditions;
(d) whether such shares shall be subject to
redemption by the Corporation and, if so, upon what terms and conditions;
(e) whether, if such shares are to be
redeemable, a sinking fund or other fund shall be established for the purchase
or redemption thereof and, if so, upon what terms and conditions; and
(f) the rights of such shares in the event of
the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, including whether such shares shall have any preferential claim
against the assets of the Corporation and, if so, to what extent.
4. Series A Preferred Stock. Five hundred (500) shares
of Series A Preferred Stock, par value $0.10 per share, shall be issuable. All
shares of Series A Preferred Stock shall be of equal rank and shall be
identical.
(a) Limited Dividend Rights. Holders of Series A
Preferred Stock shall not receive any dividends unless so declared by the Board
of Directors, and in no event shall such dividends be in excess of one cent
($0.01) per fiscal year per share of Series A Preferred Stock.
(b) No Conversion Rights. Series A Preferred
Stock shall not be convertible into shares of Common Stock or into shares of
another series of Preferred Stock.
(c) No Voting Rights. Except as otherwise
required by law or as specifically provided herein, Series A Preferred Stock
shall have no voting rights.
(d) Redemption. The shares of Series A Preferred
Stock shall be redeemable in whole or in part, at the option of the Corporation,
by resolution adopted by its Board of Directors, at a fixed redemption price of
One Thousand Dollars ($1,000) per share, payable from any legally available
source or fund, at such times as may be fixed and determined by the Board of
Directors from time to time or at any time. If fewer than all outstanding shares
of Series A Preferred Stock are to be redeemed, the shares of said Series to be
redeemed shall be chosen by lot or pro rata in such manner as the Board of
Directors may determine. Not later than thirty (30) nor earlier than sixty (60)
days prior to the date fixed for redemption, a notice specifying the time and
place of redemption shall be given by mail to the holders of record of Series A
Preferred Stock to be redeemed at their respective addresses as the same shall
appear on the stock books of the Corporation, but no failure to mail such notice
or any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to the holder to which the Corporation
has failed to mail such notice or except as to the holder as to which notice was
defective. Any notice mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
At any time after notice of redemption has been given in the manner prescribed
above, the Corporation may (but shall not be required to) deposit the aggregate
redemption price in trust. with a bank or trust company (in good standing,
organized under the laws of the United States of
- 5 -
America or of the State of New York, doing business in the Borough of Manhattan,
City of New York, State of New York, and having capital, surplus and undivided
profits aggregating at least $10,000,000) named in such notice, for payment on
the date fixed for redemption to the holders of the shares so to be redeemed,
upon surrender (and endorsement, if required by the Board of Directors) of the
certificates for such shares. Upon such redemption date (unless the Corporation
shall default in payment or deposit of the redemption price as set forth in such
notice), such holders shall cease to be shareholders with respect to such shares
and shall have no interest in, or claim against, the Corporation, including no
right to exercise privileges upon liquidation, and shall have no rights with
respect to such shares except the right to receive the monies payable upon such
redemption from such bank or trust company, or from the Corporation, without
interest thereon, upon surrender (and endorsement, if required by the Board of
Directors) of such certificates; and the shares represented thereby shall no
longer be deemed to be outstanding. If the holder of any of the shares so
redeemed shall not, within six (6) years after such deposit, claim the amount
deposited as above stated for the redemption thereof, the depositary shall, upon
demand, pay over to the Corporation or to its successor such unclaimed amount so
deposited, and the depositary shall thereupon be relieved of all responsibility
therefor to such holder. The Corporation may retain such unclaimed amount as
part of its general funds, free of any claim of those previously entitled
thereto.
(e) No Sinking Fund. No sinking fund or other
fund shall be established for the purchase or redemption of Series A Preferred
Stock.
(f) Priority Upon Liquidation Dissolution or
Winding Up. The Series A Preferred Stock shall be preferred over the Series B
Redeemable Convertible Preferred Stock and the Common Stock as to the net assets
of the Corporation in the event of any dissolution, liquidation or winding up of
the affairs of the Corporation, either voluntary or involuntary. In such event,
the holders of Series A Preferred Stock shall be entitled, after payment or
provision for payment of the debts or other liabilities of the Corporation, to
receive out of the net assets of the Corporation the fixed amount of One
Thousand Dollars ($1,000) per share of Series A Preferred Stock, before any
distribution shall be made to the holders of the Series B Redeemable Convertible
Preferred Stock or the Common Stock. Neither the merger or consolidation of the
Corporation, nor the sale, lease or conveyance of all or any part of its assets,
shall be deemed to be a dissolution, liquidation or winding up of the affairs of
the Corporation within the meaning of this subparagraph FOURTH.B.4(f).
(g) Limitations. So long as any shares of Series
A Preferred Stock shall be outstanding, the Corporation shall not, by an
amendment of this Certificate of Incorporation or by merger or consolidation or
in any manner, without the affirmative vote at a duly authorized meeting or the
written consent of the holders of at least two-thirds of the aggregate number of
shares of Series A Preferred Stock at the time outstanding, voting or
consenting, as the case may be, together as a single class:
(i) authorize, or increase the number of
authorized shares of, any series of Preferred Stock, other
than the Series B Redeemable Convertible Preferred Stock,
ranking, either as to payment of dividends or distribution of
assets, prior to the Series A Preferred Stock; or
- 6 -
(ii) change the preferences or limitations,
special rights or powers with respect to the Series A
Preferred Stock in any respect adverse to the holders thereof.
5. Convertible Preferred Stock. One Million (1,000,000)
shares of Series B Redeemable Convertible Preferred Stock, par value $0.01 per
share, shall be issuable (the "Convertible Preferred Stock"). All shares of
Convertible Preferred Stock shall be of equal rank and shall be identical.
(a) Dividends. The per annum dividend rate on
outstanding shares of Convertible Preferred Stock shall be 8% of the fixed
amount per share (excluding dividends) thereof as set forth in subparagraph
FOURTH.B.5(c) below. Dividends on shares of Convertible Preferred Stock shall be
deemed to accrue from and after the date of the issuance of such shares, whether
or not earned or declared and whether or not there be funds legally available
therefor, subject to the provisions of subparagraph FOURTH.B.5(b) below. Accrued
dividends on any shares of Convertible Preferred Stock shall not be payable
unless all declared but unpaid dividends on shares of Series A Preferred Stock
shall have been paid in full through such date of payment and shall only be
payable upon (i) the dissolution, liquidation or winding up of the affairs of
the Corporation, either voluntary or involuntary, (ii) the conversion of such
shares of Convertible Preferred Stock into shares of Class A Common Stock, (iii)
the redemption of such shares of Convertible Preferred Stock, whether at the
option of the Corporation or the holder of such shares, or (iv) the sale of
substantially all of the assets of the Corporation or the merger of the
Corporation with another Corporation where the Corporation is not the surviving
Corporation or where the Corporation's stockholders immediately prior to the
merger do not own a majority of the outstanding voting stock of the surviving
corporation immediately following the merger. In the event that (x) any
dividends are paid by the Corporation to any holder of Convertible Preferred
Stock pursuant to clause (ii) of the preceding sentence and (y) a Qualified
Distribution or Qualified Sale (each as hereinafter defined) occurs within six
(6) months after the applicable Conversion Date (as hereinafter defined), upon
the occurrence of the Qualified Distribution or Qualified Sale, such holder
shall refund to the Corporation a portion of such dividends equal to the amount,
if any, by which such dividends exceed the amount to which dividends have been
reduced pursuant to subparagraph FOURTH.B.5(b) below in respect of such
Qualified Distribution or Qualified Sale.
If the funds legally available for the payment of such
dividends are insufficient to pay in full the dividends payable on all
outstanding shares of Convertible Preferred Stock, the total available funds
shall be paid in partial dividends to the holders of the outstanding shares of
Convertible Preferred Stock ratably in proportion to the fully accrued dividends
to which they are entitled. Each issued and outstanding share of Convertible
Preferred Stock shall entitle the holder of record thereof to receive an equal
proportion of said dividends.
No dividend or distribution in cash or other property (other
than a stock dividend payable solely in shares of Common Stock) on any class of
stock of the Corporation shall be declared or paid or set apart for payment
unless such preferred dividends on the Convertible Preferred Stock shall have
been either declared and set apart, or paid in full. Any reference to
"distributions" in this subparagraph FOURTH.B.5(a) shall not be deemed to
include any
- 7 -
distribution made in respect of liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary.
(b) Reduction of Accrued Dividends upon
Occurrence of Liquidity Event. Upon the occurrence of any of the following
events (unless there shall have occurred a prior Qualified Distribution or
Qualified Sale) (a "Liquidity Event"):
(i) a Public Distribution wherein (A)
the aggregate net sale price to the Corporation for the number of shares of
Class A Voting Common Stock into which each share of Convertible Preferred Stock
is convertible pursuant hereto on the Public Distribution Effective Date exceeds
the Target Price (as defined below), and (B) the product of the net sale price
to the Company per share of Class A Voting Common Stock times the aggregate
number of shares of Class A Voting Common Stock outstanding after the
consummation of the subject Public Distribution (on an as-converted, fully
diluted basis, assuming the conversion and/or exercise of convertible securities
and/or options with an exercise or conversion price less than such net sale
price per share), exceeds $36 million (a "Qualified Distribution");
(ii) the consolidation of the
Corporation with or the merger of the Corporation with or into any other person,
firm or corporation as a result of which the Corporation is not the surviving
entity and the Corporation's stockholders own less than 50% of the voting equity
of the surviving entity, or the sale of 50% or more of the then outstanding
voting common shares of the Corporation (on a fully-diluted, as converted basis,
assuming the conversion and/or exercise of convertible securities and/or options
with an exercise or conversion price less than such net sale price per share) to
a purchaser not prior to such sale a shareholder of the Corporation, wherein the
aggregate purchase price (or the value, as determined by the Board of Directors,
of the consideration under such merger or consolidation) for the number of
shares of Class A Common Stock into which each share of Convertible Preferred
Stock is convertible pursuant hereto on the consummation date of such
transaction exceeds the Target Price (a "Qualified Sale"); or
(iii) the exercise by any holder of Class
A Common Stock received upon conversion of Convertible Preferred Stock of a
right to require the Corporation to repurchase the shares of Class A Common
Stock into which such shares of Convertible Preferred Stock were converted (such
shares of Convertible Preferred Stock so converted and with respect to which the
holder has exercised the right to require the Corporation to repurchase the
underlying shares of Class A Common Stock being hereinafter referred to as "Put
Convertible Preferred Stock"), wherein the aggregate repurchase price for the
number of shares of Class A Common Stock into which each share of Convertible
Preferred Stock is convertible pursuant hereto on the consummation date of such
transaction exceeds the Target Price (a "Qualified Put");
then the theretofore accrued dividends on each share of Convertible Preferred
Stock (or in the case of clause (iii) of this subparagraph FOURTH.B.5(b), each
share of Put Convertible Preferred Stock) shall be reduced to an amount equal to
the excess, if any, of (x) the sum of the Target Price plus any accrued but
unpaid dividends on each share of Convertible Preferred Stock (or in the case of
clause (iii) of this subparagraph FOURTH.B.5(b), each share of Put
- 8 -
Convertible Preferred Stock) through the Public Distribution Effective Date or
the applicable Qualified Sale or Qualified Put consummation date, as the case
may be, over (y) the net sale price to the Corporation (under the subject
Qualified Distribution) or the purchase or repurchase price or value of
consideration (under the subject Qualified Sale or Qualified Put), as the case
may be, for the number of shares of Class A Common Stock into which each share
of Convertible Preferred Stock is convertible on the Public Distribution
Effective Date or the applicable Qualified Sale or Qualified Put consummation
date, as the case may be, pursuant hereto (or, if dividends shall have been paid
upon the conversion of Put Convertible Preferred Stock, the amount of the
reduction calculated above shall be repaid to the Corporation). Upon the
occurrence of a Liquidity Event, if the amount in clause (x) of the immediately
preceding sentence is less than the amount in clause (y) of the immediately
preceding sentence, then the theretofore accrued dividends on each share of
Convertible Preferred Stock (or in the case of clause (iii) of this subparagraph
FOURTH.B.5(b), each share of Put Convertible Preferred Stock) shall be reduced
to zero (or, if dividends shall have been paid upon the conversion of Put
Convertible Preferred Stock, the entire amount of such dividends shall be repaid
to the Corporation). After the date of any such Qualified Distribution or
Qualified Sale, dividends shall no longer accrue or be cumulative on any shares
of Convertible Preferred Stock. The Target Price shall equal $28.
(c) Priority Upon Liquidation, Dissolution or
Winding Up. The Convertible Preferred-Stock shall be preferred over the Common
Stock as to the net assets of the Corporation in the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, either voluntary or
involuntary. In such event, the holders of Convertible Preferred Stock shall be
entitled, after payment or provision for payment of the debts or other
liabilities of the Corporation, and after payment or provision for payment to
the holders of Series A Preferred Stock of the amount provided for in
subparagraph FOURTH.B.4(f) above and all declared but unpaid dividends, if any,
on shares of Series A Preferred Stock, to receive out of the net assets of the
Corporation the fixed amount of $15.28 per share of Convertible Preferred Stock,
together with an amount equal to all accrued but unpaid dividends (as adjusted,
if applicable, for the occurrence of a Liquidity Event as set forth in
subparagraph FOURTH.B.5(b) above) on such shares to the date of such payment
(the "Convertible Preferred Liquidation Amount"), before any distribution shall
be made to the holders of the Common Stock. Assets remaining after distribution
to the holders of Preferred Stock, if any, shall be distributed to the holders
of record of the issued and outstanding shares of Common Stock pursuant to the
terms thereof. If, upon any dissolution, liquidation or winding up of the
affairs of the Corporation within the meaning of this subparagraph (c), the
assets of the Corporation, or proceeds thereof, distributable among the holders
of shares of Convertible Preferred Stock shall be insufficient to pay in full
the respective preferential amounts to holders of record of shares of
Convertible Preferred Stock, then such assets, or the proceeds thereof, shall be
distributed among such holders ratably in accordance with the respective
liquidation amounts which would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes of this subparagraph (c), neither
the merger or consolidation of the Corporation, nor the sale, lease or
conveyance of all or any part of its assets, shall be deemed to be a
dissolution, liquidation or winding up of the affairs of the Corporation.
- 9 -
(d) Voting.
(i) General. In addition to the
special voting rights provided below and by applicable law, the holders of
shares of Convertible Preferred Stock shall be entitled to vote upon all matters
upon which holders of Class A Common Stock have the right to vote, and shall be
entitled to the number of votes equal to the largest number of full shares of
Class A Common Stock into which such shares of Convertible Preferred Stock could
be converted pursuant to the provisions of subparagraph FOURTH.B.5(e) below, at
the record date for the determination of the shareholders entitled to vote on
such matters, or, if no such record date is established, at the date such vote
is taken or any written consent of shareholders is solicited, such votes to be
counted together with all other shares of capital stock having general voting
powers and not separately as a class. In all cases where the holders of shares
of Convertible Preferred Stock have the right to vote separately as a class,
such holders shall be entitled to one vote for each such share held by them
respectively.
(ii) Special Class Vote. So long as any
shares of Convertible Preferred Stock shall be outstanding, the Corporation
shall not by an amendment of this Certificate of Incorporation or by merger or
consolidation or in any manner, without the affirmative vote at a duly
authorized meeting of the holders of at least two-thirds of the aggregate
number, or the unanimous written consent of the holders, of shares of
Convertible Preferred Stock at the time outstanding, voting or consenting, as
the case may be, together as a single class:
(A) authorize, or increase the
number of authorized shares of, any series of Preferred Stock ranking, either as
to payment of dividends or distribution of assets, prior to the Convertible
Preferred Stock, or effect any reorganization, combination, split or
reclassification of any series or class of stock; or
(B) change the preferences or
limitations, special rights or powers with respect to the Convertible Preferred
Stock in any respect adverse to the holders thereof.
(e) Conversion Rights. The Convertible
Preferred Stock shall be convertible into Class A Common Stock as follows:
(i) Conversion. Subject to and upon
compliance with the provisions of this subparagraph FOURTH.B.5(e), the holder of
any shares of Convertible Preferred Stock shall have the right at such holder's
option, at any time or from time to time, to convert any of such shares of
Convertible Preferred Stock into fully paid and nonassessable shares of Class A
Common Stock at the Conversion Price (as hereinafter defined) in effect on the
Conversion Date (as hereinafter defined) upon the terms hereinafter set forth
(an "Optional Conversion"). In addition to the foregoing, in the event of a
Public Distribution wherein (A) the net sale price to the Corporation for the
number of shares of Class A Voting Common Stock into which each share of
Convertible Preferred Stock is convertible pursuant hereto on the Public
Distribution Effective Date exceeds the sum of the Target Price plus all accrued
but unpaid dividends on each share of Convertible Preferred Stock through the
Public Distribution Effective Date, and (B) the product of the net sale price to
the Corporation per share of Class A Voting Common Stock and the aggregate
number of shares of Class A Voting Common Stock
- 10 -
outstanding after the consummation of the subject Public Distribution (on an
as-converted, fully-diluted basis, assuming the exercise and/or conversion of
options and/or convertible securities with an exercise and/or conversion price
less than such net sale price per share) exceeds $36 million, then each share of
Convertible Preferred Stock shall automatically be converted into fully paid and
nonassessable shares of Class A Common Stock at the Conversion Price in effect
at such date (an "Automatic Conversion"). Upon the occurrence of an Optional
Conversion or an Automatic Conversion, accrued dividends on any shares of
Convertible Preferred Stock being converted shall be payable by the Corporation
to the holders of such shares, subject to the provisions of subparagraph
FOURTH.B.5(b) above.
(ii) Conversion Price. Each share of
Convertible Preferred Stock initially shall be convertible into one (1) share of
Class A Common Stock, so that the Conversion Price at which shares of Class A
Common Stock initially shall be issuable upon conversion of the shares of
Convertible Preferred Stock shall be $15.28 per share. Thereafter, each share of
Convertible Preferred Stock shall be convertible into the number of shares of
Class A Common Stock as is determined by dividing (i) the fixed amount of $15.28
by (ii) the Conversion Price in effect on the Conversion Date. The Conversion
Price shall be subject to adjustment as set forth in subparagraph
FOURTH.B.5(e)(iv).
(iii) Mechanics of Conversion.
(A) Conversion of any share of
Convertible Preferred Stock shall be deemed to have been effected, on the date
(the "Conversion Date"), (1) in the case of an Optional Conversion, when
delivery of notice of an election to convert and certificates for shares of
Convertible Preferred Stock being converted is made, and (2) in the case of an
Automatic Conversion, as of the date of consummation of the subject Public
Distribution, on and subject to the terms and conditions hereinafter set forth.
(B) In order to exercise its
Optional Conversion privilege set forth in this subparagraph FOURTH.B.5(e), the
holder of any shares of Convertible Preferred Stock or such holder's duly
authorized representative shall surrender the certificate or certificates
representing such shares to the Corporation during normal business hours at its
principal office on or before the Conversion Date and shall deliver concurrently
therewith a written notice of the election of such holder to convert such shares
(or a portion thereof) represented by the certificate or certificates so
surrendered. Such notice shall also state the name or names (with address) in
which the certificate or certificates for shares of Class A Voting Common Stock,
which shall be issuable upon such conversion, shall be issued. If so required by
the Corporation, any certificate or certificates surrendered for conversion
shall be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or such holder's duly
authorized representative. Each conversion of shares of Convertible Preferred
Stock pursuant to the conversion privilege set forth in this subparagraph
FOURTH.B.5(e) shall be deemed to have been effected as of the Conversion Date,
and the person or persons in whose name or names any certificate or certificates
for shares of Class A Voting Common Stock shall be issuable upon such conversion
shall be, for the purposes of receiving dividends and for all other corporate
purposes whatsoever, deemed to have become the holder or holders of record of
the shares of Class A Voting Common Stock represented thereby on the Conversion
Date. Upon conversion of only a portion of the number of shares covered by
- 11 -
a certificate representing shares of Convertible Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to or upon the written order
of the holder of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate covering the number of shares of
Convertible Preferred Stock representing the unconverted portion of the
certificate so surrendered.
(C) Notice of an Automatic
Conversion shall be given by mail to each registered holder of Convertible
Preferred Stock at the address of such holder as it appears on the stock
transfer books of the Corporation, which such notice shall state that all
outstanding shares of the Convertible Preferred Stock are to be converted by the
Corporation and shall state the anticipated Conversion Date. All conversions of
shares of Convertible Preferred Stock pursuant to this provision shall be deemed
to have been effected as of the Conversion Date, and the person or persons in
whose name or names any certificate or certificates for shares of Class A Voting
Common Stock shall be issuable upon such conversion shall be, for the purposes
of receiving dividends and for all other corporate purposes whatsoever, deemed
to have become the holder or holders of record of the shares of Class A Voting
Common Stock represented thereby on the Conversion Date.
(D) As promptly as practicable
after the presentation and surrender for conversion, as herein provided, of any
certificate for shares of Convertible Preferred Stock, the Corporation shall
issue and deliver at its principal office, to or upon the written order of the
holder thereof or such holder's duly authorized representative, certificates for
the number of shares of Class A Voting Common Stock issuable upon any such
conversion. The issuance of certificates for shares of Class A Voting Common
Stock issuable upon the conversion of the Convertible Preferred Stock shall be
made without any charge to the converting holder of such stock for any tax
imposed on the Corporation in respect of the issue thereof. The Corporation
shall not, however, be required to pay any tax which may be payable with respect
to any transfer involved in the issue and delivery of any certificate in a name
other than that of the registered holder of the shares being converted, and the
Corporation shall not be required to issue and deliver any such certificate
unless and until the person requesting the issuance thereof in such other name
shall have paid the Corporation the amount of such tax or shall have established
to the Corporation's satisfaction that such tax has been paid.
(E) All shares of Convertible
Preferred Stock converted into shares of Class A Voting Common Stock as provided
for herein shall be cancelled as of the date on which such conversion is deemed
to have been effected hereunder.
(F) The Corporation shall
reserve and set aside an appropriate number of shares of Class A Voting Common
Stock which shall be issued only upon the conversion of shares of Convertible
Preferred Stock in accordance with the provisions hereof.
(G) No fractional shares of
Class A Common Stock or scrip shall be issued upon conversion of shares of
Convertible Preferred Stock. If more than one share of Convertible Preferred
Stock shall be surrendered for conversion at any one time by the same holder,
the number of full shares of Class A Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Convertible Preferred Stock so surrendered. Instead of any fractional shares of
Class A Common Stock
- 12 -
which would otherwise be issuable upon conversion of any shares of Convertible
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest of the then
Current Market Price.
(iv) Conversion Price Adjustments for
the Convertible Preferred Stock. The Conversion Price for the Convertible
Preferred Stock shall be subject to adjustment from time to time as follows:
(A) Stock Dividends. If the
number of shares of Class A Common Stock outstanding at any time after the date
of issuance of the Convertible Preferred Stock is increased by a stock dividend
payable in shares of Class A Common Stock or securities convertible into,
exchangeable or exercisable for, shares of Class A Common Stock, other than
Treasury Stock, or by a subdivision or split-up of shares of Class A Common
Stock, then immediately after the record date fixed for the determination of
holders of Class A Common Stock entitled to receive such stock dividend or the
effective date of such subdivision or split-up, as the case may be, the
Conversion Price shall be appropriately reduced so that the holder of any shares
of Convertible Preferred Stock thereafter converted shall be entitled to receive
the number of shares of Class A Common Stock of the Corporation which such
holder would have owned immediately following such action had such shares of
Convertible Preferred Stock been converted immediately prior thereto, provided,
however, that if such dividend or distribution is not fully made, the Conversion
Price shall be recomputed to reflect that such dividend was not fully paid or
that such distribution was not fully made.
(B) Combination of Stock. If
the number of shares of Class A Common Stock outstanding at any time after the
date of issuance of the Convertible Preferred Stock is decreased by a
combination of the outstanding shares of Class A Common Stock, then, immediately
after the effective date of such combination, the Conversion Price shall be
appropriately increased so that the holder of any shares of Convertible
Preferred Stock thereafter converted shall be entitled to receive the number of
shares of Class A Common Stock of the Corporation which he would have owned
immediately following such action had such shares of Convertible Preferred Stock
been converted immediately prior thereto.
(C) Reorganizations, etc. In
case of any capital reorganization of the Corporation or of any reclassification
of the Class A Common Stock, or in case of the consolidation of the Corporation
with or the merger of the Corporation with or into any other person, firm or
corporation or the sale, lease or other transfer of all or substantially all of
the assets of the Corporation to any other person, firm or corporation, each
then outstanding share of Convertible Preferred Stock shall, after such capital
reorganization, reclassification, consolidation, merger, sale, lease or
transfer, be convertible into the number of shares of stock or other securities
or property (including cash) to which the Class A Common Stock issuable (at the
time of such capital reorganization, reclassification, consolidation, merger,
sale, lease or transfer) upon conversion of such share of Convertible Preferred
Stock would have been entitled upon such capital reorganization,
reclassification, consolidation, merger, sale, lease or transfer; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Convertible
Preferred Stock shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property (including cash) thereafter deliverable on the conversion of the shares
of
- 13 -
Convertible Preferred Stock. The subdivision or combination of shares of Common
Stock issuable upon conversion of shares of Convertible Preferred Stock at any
time outstanding into a greater or lesser number of shares of Common Stock
(whether with or without par value) shall not be deemed to be a reclassification
of the Common Stock for the purposes of this clause (C).
(D) Issuance of Additional
Shares Below Conversion Price.
(1) Reduction of
Conversion Price. If the Corporation shall issue, after the date of filing of
this Certificate of Amendment (including an issuance coming within the terms of
this paragraph that occurs prior to the issuance of the subject shares of
Convertible Preferred Stock), any shares of Class A Common Stock, or securities
convertible into or exchangeable or exercisable for, shares of Class A Common
Stock, other than Excluded Securities (as defined below) without consideration
or for a consideration per share less than the Conversion Price in effect
immediately prior to such issuance (which consideration shall be determined as
set forth in subsections (2) and (3) of this subparagraph FOURTH.B.5(e)(iv)(D)),
the Conversion Price in effect immediately prior to each such issuance (the
"Existing Conversion Price") shall immediately be reduced to the quotient
obtained by dividing:
(a) an amount equal
to (I) the total number of shares of Class A Common Stock outstanding (on an
as-converted, fully diluted basis) immediately prior to such issuance or sale
multiplied by the Conversion Price in effect immediately prior to such issuance
or sale, plus (II) the consideration, if any, received or deemed to be received
by the Corporation upon such issuance or sale, by
(b) the total
number of shares of Class A Common Stock outstanding (on an as-converted, fully
diluted basis) immediately after such issuance or sale.
Notwithstanding the foregoing, if a distribution of assets, stock or other
securities (other than stock of the Corporation) shall have been made to or for
the benefit of the stockholders of the Corporation (for example, in connection
with a distribution or "spin-off" of the shares of a subsidiary of the
Corporation holding certain assets) prior to an issuance described in this
subparagraph FOURTH.B.5(e)(iv)(D)(1), the Conversion Price shall be reduced to
the quotient obtained by dividing (x) the product of the Existing Conversion
Price and the reduced Conversion Price obtained pursuant to clauses (a) and (b)
above of this subparagraph FOURTH.B.5(e)(iv)(D)(1), by (y) such Existing
Conversion Price reduced by the fair value per share (calculated on an
as-converted basis) of such distribution as of the time of such distribution.
Such fair value shall be determined in good faith by an Independent Expert (as
defined below).
(2) Issuance of Options
and/or Convertible Securities. In the case of the issuance of securities (other
than Excluded Securities) convertible into and/or exchangeable or exercisable
for, shares of Class A Common Stock, (x) the consideration received by the
Corporation, for purposes of clause (a)(II) of subsection (1) of this
subparagraph FOURTH.B.5(e)(iv)(D), shall equal the aggregate purchase price for
such
- 14 -
securities plus, in the case of options, the aggregate exercise price of all
such options, and (y) the calculation of the total number of shares of Class A
Common Stock outstanding immediately after such issuance of sale, for purposes
of clause (b) of subsection (I) of this subparagraph FOURTH.B.5(e)(iv)(D), shall
assume the exercise and/or conversion of such securities for the maximum number
of shares of Class A Common Stock (including for shares of Class A Common Stock
issuable upon the exercise of options for securities which are convertible into
shares of Class A Common Stock and the conversion of such shares); provided,
that no further adjustments in the Conversion Price shall be made upon the
subsequent issue of securities convertible into shares of Class A Common Stock
upon the exercise of any options or the issue of Class A Common Stock upon the
conversion or exchange of such convertible securities. Upon the expiration or
cancellation of any such securities convertible into and/or exchangeable or
exercisable for, shares of Class A Common Stock, for which an adjustment to the
Conversion Price was made pursuant to this clause (2) upon the issuance thereof,
the Conversion Price shall forthwith be readjusted to such Conversion Price as
would have been in effect had such securities not been issued. If there shall be
a change in the exercise and/or conversion price of any such securities
convertible into and/or exchangeable or exercisable for, shares of Class A
Common Stock, for which an adjustment to the Conversion Price was made pursuant
to this clause (2), the Conversion Price shall be recalculated to give effect to
such change.
(3) Cash and Property
Consideration. For purposes of this subparagraph FOURTH.B.5(e)(iv)(D), the
consideration received by the Corporation for the issue of any shares of Class A
Common Stock and/or any securities convertible into, and/or exercisable or
exchangeable for, shares of Class A Common Stock, shall be computed as follows:
(a) insofar as it
consists of cash, it shall be the aggregate amount of cash received by the
Corporation; and
(b) insofar as it
consists of property other than cash, it shall be computed at the fair value
thereof at the time of the issue as determined in good faith by an Independent
Expert, irrespective of any accounting treatment.
An Independent Expert shall refer to any one of the following persons or
entities, as shall be selected by the Board of Directors of the Corporation,
provided that any such person or entity shall be independent of the Corporation:
(a) Goldman, Sachs & Co., (b) Morgan, Stanley & Co. Incorporated, (c) Lazard
Freres & Co., (d) Citibank, N.A., (e) Merrill Lynch, Pierce, Fenner & Smith
Incorporated, or (f) any successor thereof or other third party as shall be
determined by the Corporation as being qualified by training and experience in
appraising the value of the assets at issue.
(4) Excluded Securities.
"Excluded Securities" shall mean (a) shares of Class A Common Stock issued by
the Corporation as a stock dividend payable in shares of Class A Common Stock,
(b) securities issued as a stock dividend payable in any class of stock of the
Corporation, (c) securities the issuance of which are subject to the terms of
subsections (A), (B) or (C) above of this subparagraph FOURTH.B.5(e)(iv), (d)
securities issued by the Corporation to persons who are, or have agreed, orally
or in writing, to be or become, employees or directors of or consultants to the
Corporation or any affiliate thereof, or
- 15 -
securities where the issuance thereof shall be pursuant to a plan or arrangement
(whether or not "qualified" for tax purposes) approved by the Board of Directors
of the Corporation, (e) securities issued pursuant to a registration statement
under the Securities Act of 1933, as amended, (f) securities issued to Gerarda
De Orleans-Borbon or Coranda S.A. or any affiliate thereof, (g) securities
issued upon the exercise of any options and/or the conversion of any convertible
securities, and (h) securities, including options or warrants, issued in
connection with loans and other extensions of credit to the Corporation. For
purposes of this clause (4), "affiliate" shall have the meaning set forth in
Rule 405 of Regulation C under the Securities Act of 1933, as amended.
(E) Rounding of Calculations;
Minimum Adjustment. All calculations under this subparagraph FOURTH.B.5(e) shall
be made to the nearest cent or to the nearest one hundredth (l/l00th) of a
share, as the case may be. Any provision of this subparagraph FOURTH.B.5(e) to
the contrary notwithstanding, no adjustment in the Conversion Price shall be
made if the amount of such adjustment would be less than $0.01, but any such
amount shall be carried forward and an adjustment with respect thereto shall be
made at the time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward, shall
aggregate $0.01 or more.
(F) Timing of Issuance of
Additional Common Stock Upon Certain Adjustments. In any case in which the
provisions of this subparagraph FOURTH.B.5(e) shall require that an adjustment
shall become effective immediately after a record date for an event, the
Corporation may defer until the occurrence of such event (1) issuing to the
holder of any share of Convertible Preferred Stock converted after such record
date and before the occurrence of such event the additional shares of Class A
Common Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares of Class A Common Stock issuable upon
such conversion before giving effect to such adjustment, and (2) paying to such
holder any amount of cash in lieu of a fractional share of Class A Common Stock
pursuant to clause (G) of subparagraph FOURTH.B.5(e)(iii); provided that the
Corporation upon request shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(v) Current Market Price. The Current
Market Price at any date shall mean the price per share of Class A Common Stock
on such date determined in good faith by the Board of Directors as provided
below. The Current Market Price shall be the average of the daily closing prices
per share of Class A Common Stock for 30 consecutive business days ending no
more than 15 business days before the day in question (as adjusted for any stock
split, combination or reclassification that took effect during such 30 business
day period). The closing price for each day shall be the last reported sales
price regular way or, in case no such reported sales take place on such day, the
average of the last reported bid and asked prices regular way, in either case on
the principal national securities exchange on which the Class A Common Stock is
listed or admitted to trading, or if not listed or admitted to trading on any
national securities exchange, the average of the highest bid and the lowest
asked prices quoted on the National Association of Securities Dealers Automated
Quotation System; provided that if the Class A Common Stock is not traded in
such manner that the quotations referred to above are available for the period
required hereunder, Current Market Price per share of Class A
- 16 -
Common Stock shall be deemed to be the fair value as reasonably determined by
the Board of Directors, irrespective of any accounting treatment.
(vi) Statement Regarding Adjustments.
Whenever the Conversion Price shall be adjusted as provided in subparagraph
FOURTH.B.5(e)(iv) above, the Corporation shall forthwith file, at the office of
any transfer agent for the Convertible Preferred Stock and at the principal
office of the Corporation, a statement showing in detail the facts requiring
such adjustment and the Conversion Price that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such statement to be
sent by mail, first class postage prepaid, to each holder of shares of
Convertible Preferred Stock at its address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
subparagraph FOURTH.B.5(e)(vii) below.
(vii) Notice to Holders. In the event
that the Corporation shall propose to take any action of the type described in
clause (A), (B) or (C) of subparagraph FOURTH.B.5(e)(iv), the Corporation shall
give notice to each holder of shares of Convertible Preferred Stock in the
manner set forth in subparagraph FOURTH.B.5(e)(vi), which notice shall specify
the record date, if any, with respect to any such action and the approximate
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of
Convertible Preferred Stock. In the case of any action which would require the
fixing of a record date, such notice shall be given at least 10 days prior to
the date so fixed, and in case of all other action, such notice shall be given
at least 15 days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
any such action.
(viii) Costs. The Corporation shall pay
all documentary, stamp, transfer or other transactional taxes attributable to
the issuance or delivery of shares of Class A Common Stock of the Corporation
upon conversion of any shares of Convertible Preferred Stock; provided that the
Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the share of
Convertible Preferred Stock in respect of which such shares are being issued and
no such issuance or delivery shall be made in such other name unless and until
the person requesting such issuance shall have paid to the Corporation the
amount of any such tax, or shall have established, to the satisfaction of the
Corporation, that such tax has been paid.
(ix) Approvals. If any shares of Class A
Common Stock to be reserved for the purpose of conversion of shares of
Convertible Preferred Stock require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then the Corporation will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If, and so long as, any Class A Common Stock into
which the shares of Convertible Preferred Stock are then convertible is listed
on any national securities exchange, the
- 17 -
Corporation will, if permitted by the rules of such exchange, list and keep
listed on such exchange, upon official notice of issuance, all shares of such
Class A Common Stock issuable upon conversion.
(x) Valid Issuance. All shares of Class
A Common Stock which may be issued upon conversion of the shares of Convertible
Preferred Stock will upon issuance by the Corporation be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof and the Corporation shall take no action
which will cause a contrary result (including, without limitation, any action
which would cause the Conversion Price to be less than the par value, if any, of
the Class A Common Stock).
(f) Redemption.
(i) The Corporation, at the option of
the Board of Directors, may redeem, out of funds legally available therefor, at
any time after December 31, 2000, all or any part of the shares of Convertible
Preferred Stock then outstanding, at a redemption price equal to the Convertible
Preferred Liquidation Amount, subject to the prior payment or setting aside for
payment in full to the holders of Series A Preferred Stock of the amount
provided for in subparagraph FOURTH.B.4(f) above and all declared but unpaid
dividends, if any, on shares of Series A Preferred Stock.
(ii) Not less than ninety (90) days
prior to the date fixed for any redemption of Convertible Preferred Stock (the
"Redemption Date"), the Corporation shall provide each holder of Convertible
Preferred Stock to be redeemed with written notice, at such holder's address as
it appears on the stock transfer books of the Corporation, notifying such holder
of the election of the Corporation to redeem such shares, specifying the
Redemption Date and calling upon such holder to surrender to the Corporation, in
the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed (such notice being herein
referred to as a "Redemption Notice"). On or after the Redemption Date, each
holder of Convertible Preferred Stock to be redeemed shall surrender to the
Corporation such holder's certificate or certificates representing such shares
to be redeemed, in the manner and at the place designated in the Redemption
Notice, and thereupon the Corporation shall deliver or cause to be delivered to
such holder a sum in cash equal to the Convertible Preferred Liquidation Amount
for each share of Convertible Preferred Stock to be redeemed, together with, if
the certificate or certificates presented and surrendered by such holder
represent a greater number of shares than the number of shares to be redeemed
from such holder, one or more new certificates registered in the name of such
holder and representing the shares of Convertible Preferred Stock not redeemed.
In the case of the redemption of part only of the issued and outstanding shares
of Convertible Preferred Stock, the shares shall be redeemed from the holders
thereof ratably in accordance with their ownership thereof.
(iii) Shares of Convertible Preferred
Stock redeemed pursuant to this subparagraph FOURTH.B.5(f) shall thereupon be
deemed retired and cancelled and may not be reissued.
- 18 -
(iv) Shares of Preferred Stock which
have been issued and have been redeemed, repurchased or reacquired in any manner
by the Corporation shall be retired and shall not be reissued.
6. General Provisions.
(a) The term "person" as used herein means any
corporation, partnership, trust, organization, association, other entity or
individual.
(b) The term "outstanding", when used with
reference to shares of stock, shall mean issued shares, excluding shares held by
the Corporation or a subsidiary.
(c) All accounting terms used herein and not
expressly defined herein shall have the meanings given to them in accordance
with generally accepted accounting principles.
(d) The headings of the paragraphs,
subparagraphs, clauses and subclauses of this Article are for convenience of
reference only and shall not define, limit or affect any of the provisions
hereof."
FOURTH: The foregoing amendment of the Certificate of
Incorporation of the Corporation was authorized by the unanimous written consent
of the Board of Directors of the Corporation and by the unanimous written
consent of the holders of all of the outstanding shares of capital stock of the
Corporation.
- 19 -
IN WITNESS WHEREOF, we have subscribed this document as of March 7,
1995 and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ R.G. Pyle
----------------------------
Name: R.G. Pyle
Title: Senior Vice President
By: /s/ Alex Alimanestianu
----------------------------
Name: Alex Alimanestianu
Title: Secretary
- 20 -
CERTIFICATE OF MERGER
OF
TSI MERGER SUB, INC.
AND
TOWN SPORTS INTERNATIONAL, INC.
INTO
TOWN SPORTS INTERNATIONAL, INC.
(Under Section 904 of the Business Corporation Law)
It is hereby certified upon behalf of each of the constituent
corporations herein named, as follows:
FIRST: The Board of Directors of each of the constituent
corporations has duly adopted an Agreement and Plan of Merger (the "Plan of
Merger") setting forth the terms and conditions of the merger of said
corporations.
SECOND: The name of the constituent corporation which is to be
the surviving corporation, and which is hereinafter sometimes referred to as the
"Surviving Corporation" is Town Sports International, Inc. The name under which
it was formed is St. John Squash Racquets, Inc. The date upon which its
Certificate of Incorporation was filed by the Department of State is June 5,
1973.
THIRD: The name of the other constituent corporation which is
being merged into the Surviving Corporation, and which is hereinafter sometimes
referred to as the "Merged Corporation" is TSI Merger Sub, Inc. The date upon
which its Certificate of Incorporation was filed by the Department of State is
October 30, 1996.
FOURTH: As to each constituent corporation, the Plan of Merger
sets forth the designation and number of outstanding shares of each class and
series, the specification of the classes and series entitled to vote on the Plan
of Merger, and the specification of each class and series entitled to vote as a
class on the Plan of Merger, as follows:
TOWN SPORTS INTERNATIONAL, INC.
Designation of each Number of Designation of class Classes and series
outstanding class and outstanding shares of and series entitled to entitled to vote as a
series of shares each class vote class
- --------------------- --------------------- ---------------------- ----------------------
Class A Common 706,306 Class A Common Series B Preferred
Class B Common 140,651 Series B Preferred
Series A Preferred 496
Series B Preferred 389,584
TSI MERGER SUB, INC.
Designation of each Number of Designation of class Classes and series
outstanding class and outstanding shares of and series entitled to entitled to vote as a
series of shares each class vote class
- --------------------- --------------------- ---------------------- ----------------------
Class A Common 3 Class A Common None
FIFTH: The merger herein certified was authorized in respect of the
Surviving Corporation by the written consent of the holders of two-thirds of the
outstanding shares of the Surviving Corporation entitled to vote on the Plan of
Merger.
SIXTH: The merger herein certified was authorized in respect of the
Merging Corporation by the written consent of the holders of all of the
outstanding shares of the Merging Corporation entitled to vote on the Plan of
Merger.
SEVENTH : That immediately following the effective time of the merger
the Certificate of Incorporation of the Surviving Corporation (the "Certificate
of Incorporation") is hereby amended by deleting Article IV and substituting the
following in lieu thereof:
- 2 -
ARTICLE IV
AUTHORIZED CAPITAL STOCK
I. AUTHORIZED SHARES
The total number of shares of capital stock which the
Corporation has authority to issue is 2,050,000 shares, consisting of:
(1) 1,150,000 shares of Class A Common Stock, par value
$.001 per share (the "Class A Common");
(2) 500,000 shares of Class B Common Stock, par value
$.001 per share (the "Class B Common");
(3) 200,000 shares of Series A Preferred Stock, par value
$1.00 per share (the "Series A Preferred Stock").
(4) 200,000 shares of Series B Preferred Stock, par value
$1.00 per share (the "Series B Preferred Stock").
The Class A Common and the Class B Common are hereafter
collectively referred to as the "Common Stock." The Series A Preferred Stock and
the Series B Preferred Stock are hereafter collectively referred to as the
"Preferred Stock."
In addition to any other consent or approval which may be
required pursuant to this Certificate of Incorporation, no amendment or waiver
of any provision of this Section I shall be effective without the prior approval
of the holders of a majority of the then outstanding Common Stock voting as a
single class. For purposes of votes on amendments and waivers to this Section I,
each share of Common Stock shall be entitled to one vote.
II. PREFERRED STOCK
Except as otherwise provided in this Section II or as
otherwise required by applicable law, all shares of Preferred Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's board of directors and to the extent permitted under the Business
Corporation Law of New York, the Corporation will pay preferential dividends to
the holders of the Preferred Stock as provided in this Section 1. Except as
otherwise provided herein, dividends on each share of the Series A Preferred
Stock will accrue at a rate of 14% per annum and dividends on each share Series
B Preferred Stock will accrue at a rate of 14% per annum (each share of Series A
Preferred Stock and Series B Preferred Stock being a "Share") of the Liquidation
Value of such Share from and including the date of issuance of such Share to and
including the date on which the Liquidation
- 3 -
Value (plus all accrued and unpaid dividends thereon) of such Share is paid in
full. Such dividends will accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. The date on which the
Corporation initially issues any Share will be deemed to be its "date of
issuance" regardless of the number of times transfer of such Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Share.
1B. Dividend Reference Dates. To the extent that all
accrued dividends are not paid on each January 1 and July 1 of each year
beginning January 1, 1997 (the "Dividend Reference Dates"), all dividends which
have accrued on each Share outstanding during the six-month period (or other
period in the case of the initial Dividend Reference Date) ending upon each such
Dividend Reference Date will be accumulated and added to the Liquidation Value
of such Share.
1C. Distribution of Partial Dividend Payments. If at any
time the Corporation elects to pay dividends in cash and pays less than the
total amount of dividends then accrued with respect to the Preferred Stock, such
payment will be distributed ratably among the holders of the Preferred Stock
based upon the aggregate accrued but unpaid dividends on the Shares of such
class held by each such holder.
2. Liquidation. Upon any liquidation, dissolution or winding up
of the Corporation, the holders of the Series A Preferred Stock and Series B
Preferred Stock will be entitled on a pari passu basis to be paid, before any
distribution or payment is made upon any of the Corporation's equity securities,
an amount in cash equal to the aggregate Liquidation Value (plus all accrued and
unpaid dividends thereon) of all such Shares outstanding, and the holders of
Series A Preferred Stock and Series B Preferred Stock will not be entitled to
any further payment. The Corporation will mail written notice of such
liquidation, dissolution or winding up, not less than 10 days prior to the
payment date stated therein, to each record holder of Preferred Stock. Neither
the consolidation or merger of the Corporation into or with any other
corporation or corporations, nor the sale or transfer by the Corporation of all
or any part of its assets, nor the reduction of the capital stock of the
Corporation, will be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Section 2.
3. Redemptions.
3A. Optional Redemptions. The Corporation may at any time
redeem all or any portion of Series A Preferred Stock and Series B Preferred
then outstanding at a price per Share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon); provided, that all optional
redemptions pursuant to this Section 3A are made pro rata among the holders of
Preferred Stock on the basis of the number of Shares held by each such holder.
3B. Redemption Price. For each Share which is to be
redeemed the Corporation will be obligated on the Redemption Date to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in immediately
available funds equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon). If the Corporation's funds which are legally
available
- 4 -
for redemption of Shares on any Redemption Date are insufficient to redeem the
total number of Shares to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of Shares
ratably among the holders of the Shares to be redeemed based upon the aggregate
Liquidation Value of such Shares (plus all accrued and unpaid dividends thereon)
held by each such holder and other Shares not so redeemed shall remain issued
and outstanding until redeemed in accordance with the terms thereof. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of Shares, such funds will immediately be used to redeem the
balance of the Shares which the Corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed.
3C. Notice of Redemption. The Corporation will mail
written notice of each redemption of Preferred Stock to each record holder not
more than 30 nor less than 10 days prior to the date on which such redemption is
to be made. Upon mailing any notice of redemption which relates to a redemption
at the Corporation's option, the Corporation will become obligated to redeem the
total number of Shares specified in such notice at the time of redemption
specified therein. In case fewer than the total number of Shares represented by
any certificate are redeemed, a new certificate representing the number of
unredeemed Shares will be issued to the holder thereof without cost to such
holder within three business days after surrender of the certificate
representing the redeemed Shares.
3D. Determination of the Number of Each Holder's Shares
to be Redeemed. Except as otherwise provided herein, the number of Shares of
Preferred Stock to be redeemed from each holder thereof in redemptions hereunder
will be the number of Shares determined by multiplying the total number of
Shares to be redeemed times a fraction, the numerator of which will be the total
number of Shares then held by such holder and the denominator of which will be
the total number of Shares of Preferred Stock then outstanding.
3E. Dividends After Redemption Date. No Share is entitled
to any dividends accruing after the date on which the Liquidation Value (plus
all accrued and unpaid dividends thereon) of such Share is paid in full. On such
date all rights of the holder of such Share will cease, and such Share will not
be deemed to be outstanding.
3F. Redeemed or Otherwise Acquired Shares. Any Shares
which are redeemed or otherwise acquired by the Corporation will be canceled and
will not be reissued, sold or transferred.
3G. Other Redemptions or Acquisitions. Neither the
Corporation nor any Subsidiary will redeem or otherwise acquire any Preferred
Stock, except as expressly authorized herein or pursuant to a purchase offer
made pro rata to all holders of the Preferred Stock on the basis of the number
of Shares of Preferred Stock owned by each such holder.
3H. Special Redemptions. If a Change in Control has
occurred then the Corporation shall give prompt written notice of such Change in
Control, describing in reasonable detail the definitive terms and date of
consummation thereof to each holder of Preferred Stock, but in any event such
notice shall be given not more than 30 days nor less than ten days prior to the
occurrence of such Change in Control. Each holder of Preferred Stock then
outstanding may
- 5 -
require the Corporation to redeem all or any portion of the Preferred Stock
owned by such holder at a price per Share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon) by giving written notice to the
Corporation of such election within 30 days of receipt of the Corporation's
notice. Upon receipt by the Corporation of such written notice from any holder,
subject to the provisions of any loan agreement, indenture or credit agreement
evidencing indebtedness for borrowed money incurred by the Corporation, the
Corporation shall be obligated to redeem the aggregate number of Shares
specified therein within five days after receipt of such notice from such
holder. The term "Change in Control" means (i) the sale of all or substantially
all of the assets reflected on the Corporation's most recent consolidated
balance sheet or capital stock of the Corporation, or (ii) the acquisition,
through stock purchase, merger or otherwise, by a Person or group of Persons
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) unaffiliated with Bruckmann, Rosser, Sherrill & Co., L.P. (and its
Permitted Transferees (as defined in the Shareholders Agreement)) and management
employees of the Corporation immediately prior to giving effect such
transaction, of capital stock of the Corporation representing, at any date of
determination, (x) prior to the consummation of an initial public offering of
the Common Stock registered under the Securities Act of 1933, as amended, 51% or
more of the common equity interest in the Corporation's capital stock and (y)
following the consummation of such an initial public offering of the Common
Stock, 33% or more of the common equity interest in the Corporation's capital
stock.
3I. Priority of Preferred Stock. So long as any Preferred
Stock remains outstanding, neither the Corporation nor any Subsidiary shall
declare or pay any cash dividends or make any cash distributions with respect to
or redeem, purchase or otherwise acquire for cash, directly or indirectly, any
Common Stock, if at the time of or immediately after any such redemption,
purchase, acquisition, dividend or distribution the Corporation has failed to
pay the full amount of dividends accrued on the Preferred Stock or the
Corporation has failed to make any redemption of the Preferred Stock required
hereunder; provided that the Corporation may purchase shares of Common Stock
from employees of the Corporation and its Subsidiaries upon termination of
employment.
4. Voting Rights. The Shares of Preferred Stock will not
have any voting rights attaching to them, except as required by applicable law.
5. Registration of Transfer. The Corporation will keep
at its principal office a register for the registration of Preferred Stock. Upon
the surrender of any certificate representing Preferred Stock at such place, the
Corporation will, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Shares represented by the surrendered certificate. Each such new certificate
will be registered in such name and will represent such number of Shares as is
requested by the holder of the surrendered certificate and will be substantially
identical in form to the surrendered certificate, and dividends will accrue on
the Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such Preferred Stock represented by the
surrendered certificate.
6. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Shares of any class of Preferred
- 6 -
Stock, and in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is an institutional investor its own agreement will be satisfactory), or,
in the case of any such mutilation upon surrender of such certificate, the
Corporation will (at its expense) execute and deliver in lieu of such
certificate a new certificate of like kind representing the number of Shares of
such class represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate, and
dividends will accrue on the Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
7. Definitions.
"Liquidation Value" of any Share of (i) Series A Preferred
Stock as of any particular date will be an amount equal to $100.00 per Share,
plus any and all accumulated and unpaid dividends which are added to the
Liquidation Value pursuant to Section 1B above and (ii) any Share of Series B
Preferred Stock as of any particular date will be an amount equal to $35.00 per
Share, plus any and all accumulated and unpaid dividends which are added to the
Liquidation Value pursuant to Section 1B above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Redemption Date" as to any Share means the date specified in
the notice of any redemption at the Corporation's option or the applicable date
specified herein in the case of any other redemption; provided, that no such
date will be a Redemption Date unless the applicable Liquidation Value (plus all
accrued and unpaid dividends thereon) is actually paid, or set aside for payment
in full on such date, and if not so paid or set aside for payment in full, the
Redemption Date will be the date on which such Liquidation Value (plus all
accrued and unpaid dividends thereon) is fully paid.
"Shareholders Agreement" means the Shareholders Agreement,
dated as of December 10, 1996, by and among the Corporation and certain
shareholders of the Corporation, as the same may be amended, restated, or
modified from time to time.
"Subsidiary" means with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled directly or
indirectly, by any person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or other business entity.
- 7 -
8. Amendment and Waiver. No amendment, modification or
waiver will be binding or effective with respect to any provision of Section II
without the prior written consent of the holders of at least fifty percent (50%)
of the Shares outstanding at the time such action is taken; provided, that no
such amendment, modification or waiver which adversely and prejudicially affects
the Series B Preferred shall be effective without the prior written consent of
the holders of at least fifty (50%) of the Shares of Series B Preferred
outstanding at the time such action is taken.
9. Notices. Except as otherwise expressly provided, all
notices referred to herein will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage prepaid and will
be deemed to have been given when so mailed (i) to the Corporation, at its
principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
III. COMMON STOCK
Except as otherwise provided in this Section III or as
otherwise required by applicable law, all shares of Common Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
1. Voting Rights. Except as otherwise provided in this
Section III or as otherwise required by applicable law:
(i) the holders of Class A Common shall be entitled to
one vote per share on all matters to be voted on by the Stockholders of
the Corporation; and
(ii) the holders of Class B Common will not have any
voting rights.
2. Dividends. As and when dividends are declared or paid
thereon, whether in cash, property or securities of the Corporation, the holders
of Common Stock shall be entitled to participate in such dividends ratably on a
per share basis; provided, that (i) if dividends are declared which are payable
in shares of Common Stock, dividends shall be declared which are payable at the
same rate on all classes of Common Stock and dividends payable in shares of
Class A Common shall be payable to holders of Class A Common, and dividends
payable in shares of Class B Common shall be payable to holders of Class B
Common.
3. Liquidation. Subject to the provisions of the
Preferred Stock, the holders of the Common Stock shall be entitled to
participate ratably on a per share basis in all distributions to the holders of
Common Stock in any liquidation, dissolution or winding up of the Corporation.
4. Conversion of Common Stock.
4A. Right to Convert. Subject to Section 4B below, the
holder or holders of a majority of the outstanding shares of Class B Common
shall be entitled at any time to convert all or any portion of the shares of
Class B Common into the same number of shares of Class A
- 8 -
Common. Any such conversion of Class B Common into Class A Common will be
effected among the holders of the Class B Common on a pro rata basis based upon
the number of shares of Class B Common then outstanding.
4B. Surrender of Certificates. Each conversion of shares
of Class B Common into shares of Class A Common shall be effected by the
surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with a written notice by the holder of shares of such
Class B Common stating that such holder desires to convert the shares, or a
stated number of the shares, of such Class B Common represented by such
certificate or certificates into shares of Class A Common. Each conversion of
Class B Common shall be deemed to have been effected as of the close of business
on the date on which such certificate or certificates have been surrendered and
such notice has been received, and at such time the rights of the holder of the
converted Class B Common as such holder shall cease, and the person or persons
in whose name or names the certificate or certificates for shares of Class A
Common are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Class A Common represented thereby.
4C. Issuance of Certificates. Promptly after the
surrender of certificates of Class B Common and the receipt of written notice,
the Corporation shall issue and deliver in accordance with the surrendering
holder's instructions the certificate or certificates for the Class A Common
issuable upon such conversion.
4D. No Charge. The issuance of certificates for Class A
Common upon conversion of Class B Common will be made without charge to the
holders of such shares of any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of Class A Common.
4E. Reserve Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common, solely for the purpose of issuance upon the conversion of the Class B
Common, such number of shares of Class A Common issuable upon conversion of all
outstanding shares of Class B Common. All shares of Common Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which will be immediately transmitted by the Corporation upon
issuance).
4F. Closing Books. The Corporation shall not close its
books against the transfer of shares of Common Stock in any manner which would
interfere with the timely conversion of any shares of Common Stock.
5. Stock Splits. If the Corporation in any manner
subdivides or combines the outstanding shares of one class of Common Stock, the
outstanding shares of each other class of Common Stock shall be proportionately
subdivided or combined in a similar manner.
- 9 -
6. Registration of Transfer. The Corporation shall keep
at its principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of Common Stock. Upon the
surrender of any certificate representing shares of any class of Common Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of such class represented by the surrendered certificate
and the Corporation shall forthwith cancel such surrendered certificate. Each
such new certificate shall be registered in such name and shall represent such
number of shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
7. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (provided that an affidavit of the registered
holder will be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing one or more shares of any class of
Common Stock, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation (provided that
if the holder is a financial institution or other institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
8. Notices. All notices referred to herein shall be in
writing, and shall be delivered by registered or certified mail, return receipt
requested, postage prepaid, and shall be deemed to have been given when so
mailed (i) to the Corporation at its principal executive offices and (ii) to any
stockholder at such holder's address as it appears in the stock records of the
Corporation (unless otherwise specified in a written notice to the Corporation
by such holder).
9. Action by Written Consent. Any action required to be
taken at any annual or special meeting of shareholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
shareholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken and
bearing the dates of signature of the shareholders who signed the consent or
consents, shall be signed by the holders of outstanding stock having not less
than a majority of the shares entitled to vote, or, if greater, not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
10. Amendment and Waiver. No amendment or waiver of any
provision of this Section III shall be effective without the prior consent of
the holders of a majority of the then outstanding shares of Common Stock voting
as a single class. For purposes of votes on amendments and waivers to this
Section III, each share of Common Stock shall be entitled to one vote. No
amendment directly to any terms or provisions of any class of Common Stock that
- 10 -
adversely affects such class of Common Stock vis-a-vis any other class of Common
Stock shall be effective without the prior consent of the holders of a majority
of the then outstanding shares of such class of Common Stock (it being
understood that the issuance of preferred stock shall not be deemed to adversely
affect the Common Stock).
* * * *
- 11 -
IN WITNESS WHEREOF, we have subscribed this document on the
date set forth below and do hereby affirm, under the penalties of perjury , that
the statements contained therein have been examined by us and are true and
correct.
Dated: December 10, 1996
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
---------------------------------------
Richard Pyle, Executive Vice President
By: /s/ Alex Alimanestianu
---------------------------------------
Alex Alimanestianu, Secretary
TSI MERGER SUB, INC.
By:/s/ Stephen Edwards
----------------------------------------
Stephen Edwards, President
By:/s/ Rice Edmonds
----------------------------------------
Rice Edmonds, Secretary
- 12 -
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL, INC.
(Under Section 805 of the Business Corporation Law)
The undersigned, for the purpose of amending the Certificate
of Incorporation pursuant to Section 805 of the Business Corporation Law of the
State of New York (the "Business Corporation Law"), hereby certifies:
FIRST: The name of the corporation is Town Sports
International, Inc. (the "Corporation"). The Corporation was originally
incorporated under the name St John Squash Racquets, Inc.
SECOND: The Certificate of Incorporation of the Corporation
was filed on June 5, 1973 by the Department of State.
THIRD: The Certificate of Incorporation is hereby amended to
increase the number of authorized shares of Class A Common Stock, $.001 par
value per share from 1,150,000 shares of Class A Common Stock, $.001 par value
per share to 2,500,000 shares of Class A Common Stock, $.001 par value per
share.
FOURTH: The Certificate of Incorporation is hereby amended to
create a new series of stock to be designated as Senior Preferred Stock, $1.00
par value per share of which 100,000 shares will be authorized for issuance.
FIFTH: In order to effectuate the foregoing amendment, Article
IV of the Certificate of Incorporation is hereby amended and restated in its
entirety to read as follows:
ARTICLE IV
AUTHORIZED CAPITAL STOCK
AUTHORIZED SHARES
The total number of shares of capital stock which the
Corporation has authority to issue is 3,540,000 shares, consisting of:
(i) 2,500,000 shares of Class A Common Stock, par value
$.001 per share (the "Class A Common");
(ii) 500,000 shares of Class B Common Stock, par value
$.001 per share (the "Class B Common");
(iii) 100,000 shares of Senior Preferred Stock, par value
$1.00 per share (the "Senior Preferred Stock");
(iv) 200,000 shares of Series A Preferred Stock, par value
$1.00 per share (the "Series A Preferred Stock"); and
(v) 200,000 shares of Series B Preferred Stock, par value
$1.00 per share (the "Series B Preferred Stock").
The Class A Common and the Class B Common are hereafter
collectively referred to as the "Common Stock." The Series A Preferred Stock and
the Series B Preferred Stock are hereafter collectively referred to as the
"Junior Preferred Stock."
In addition to any other consent or approval which may be
required pursuant to this Certificate of Incorporation, no amendment or waiver
of any provision of this Section I shall be effective without the prior approval
of the holders of a majority of the then outstanding Common Stock voting as a
single class. For purposes of votes on amendments and waivers to this Section I,
each share of Common Stock shall be entitled to one vote.
1. SENIOR PREFERRED STOCK
Except as otherwise provided in this Section II or as
otherwise required by applicable law, all shares of Senior Preferred Stock (each
such share, a "Senior Share") shall be identical in all respects and shall
entitle the holders thereof to the same rights and privileges, subject to the
same qualifications, limitations and restrictions.
A. Dividends.
1. General Obligation. When and as declared by
the Corporation's board of directors (the "Board") and to the extent permitted
under the Business Corporation Law of New York, the Corporation will pay
preferential dividends to the holders of the Senior Preferred Stock as provided
in this Section 1. Except as otherwise provided herein, dividends on each share
of Senior Preferred Stock will accrue at a rate of 12% per annum of the
Liquidation Value of such Senior Share from and including the date of issuance
of such share to and including the date on which the Liquidation Value (plus all
accumulated, accrued and unpaid dividends thereon) of such Senior Share is paid
in full. Such dividends will accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. The date on which the
Corporation initially issues any Senior Share will be deemed to be its "date of
issuance" regardless of the number of times transfer of such Senior Share is
made on the stock records maintained by or for the Corporation and regardless of
the number of certificates which may be issued to evidence such Senior Share.
2. Dividend Reference Dates. To the extent that
all accrued dividends are not paid on each May 31 and November 30 of each year
beginning May 31, 1999
- 2 -
(the "Dividend Reference Dates"), all dividends which have accrued on each
Senior Share outstanding during the six-month period (or other period in the
case of the initial Dividend Reference Date) ending upon each such Dividend
Reference Date will be accumulated and added to the Liquidation Value of such
Senior Shares.
3. Distribution of Partial Dividend Payments.
If at any time the Corporation elects to pay dividends in cash and pays less
than the total amount of dividends then accrued and unpaid with respect to the
Senior Preferred Stock, such payment will be distributed ratably among the
holders of Senior Shares based upon the aggregate accrued but unpaid dividends
on the Senior Shares held by each such holder, and any amounts of such dividends
remaining thereafter shall, until paid to the holder thereof, remain accumulated
dividends with respect to such Senior Share and shall remain part of the
Liquidation Value thereof.
4. Payment of Stock Dividends. In the sole
discretion of the Corporation, any dividends accruing on the Senior Shares may
be paid, in lieu of cash dividends, by the issuance of additional Senior Shares
(including fractional Senior Shares) having an aggregate Liquidation Value at
the time of such payment equal to the amount of the dividend to be paid;
provided, that if the Corporation pays less than the total amount of dividends
then accrued on the Senior Preferred Stock in the form of additional Senior
Shares, such payment in Senior Shares shall be made pro rata to the holders of
Senior Shares based upon the aggregate accrued but unpaid dividends on the
Senior Shares held by each such holder.
B. Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, before any distribution or payment is made upon
any Junior Securities, the holders of Senior Shares shall be entitled to be paid
an amount in cash equal to the aggregate Liquidation Value (plus all
accumulated, accrued and unpaid dividends thereon) of all such Senior Shares
outstanding, and the holders of Senior Shares as such will not be entitled to
any further payment. If upon any such liquidation, dissolution or winding up of
the Corporation, the Corporation's assets to be distributed among the holders of
the Senior Preferred Stock are insufficient to permit payment to such holders of
the aggregate amount which they are entitled to be paid, then the entire assets
to be distributed to the holders of Senior Preferred Stock shall be distributed
ratably among such holders based upon the aggregate Liquidation Value (plus all
accumulated, accrued and unpaid dividends) of the Senior Shares held by each
such holder. Prior to the time of any liquidation, dissolution or winding up of
the Corporation, the Corporation shall declare for payment all accrued and
unpaid dividends with respect to the Senior Preferred Stock. The Corporation
will mail written notice of such liquidation, dissolution or winding up, not
less than 10 days prior to the payment date stated therein, to each record
holder of Senior Preferred Stock. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 2.
C. Redemptions.
1. Scheduled Redemption. On the earlier of (x)
November 13, 2008 or (y) six months after the later to occur of (i) the
consummation of a Conversion Event and (ii) the date on which the Corporation
has fully repaid and fulfilled its obligations under the terms and conditions of
that certain indenture dated as of October 16, 1997, by and between the
- 3 -
Corporation and the United States Trust Company of New York (the "Scheduled
Redemption Date"), the Corporation will redeem all issued and outstanding Senior
Shares, at a price per Senior Share equal to the Liquidation Value thereof (plus
all accumulated, accrued and unpaid dividends thereon).
2. Optional Redemptions. The Corporation may at
any time redeem all or any portion of the Senior Preferred Stock then
outstanding at a price per Senior Share equal to the Liquidation Value thereof
(plus all accumulated, accrued and unpaid dividends thereon); provided, that all
partial optional redemptions of Senior Preferred Stock pursuant to this
subparagraph 3B shall be made pro rata among the holders of such Senior
Preferred Stock on the basis of the number of Senior Shares held by each such
holder in the order and priority specified in Section 3C. Redemptions made
pursuant to this Section 3B will not relieve the Corporation of its obligations
to redeem outstanding Senior Shares on the Scheduled Redemption Date.
3. Redemption Price. For each Senior Share
which is to be redeemed, the Corporation will be obligated on the Redemption
Date to pay to the holder thereof (upon surrender by such holder at the
Corporation's principal office of the certificate representing such Senior
Share) an amount in immediately available funds equal to the Liquidation Value
thereof (plus all accumulated, accrued and unpaid dividends thereon). If the
Corporation's funds which are legally available for redemption of Senior Shares
on any Redemption Date are insufficient to redeem the total number of Senior
Shares to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of Senior Shares to be redeemed
(if any) ratably among the holders of the Senior Shares to be redeemed based
upon the aggregate Liquidation Value of such Senior Shares (plus all
accumulated, accrued and unpaid dividends thereon) held by each such holder and
other Senior Shares not so redeemed shall remain issued and outstanding until
redeemed in accordance with the terms thereof. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
Senior Shares, such funds will immediately be used to redeem the balance of the
Senior Shares which the Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed in the order and priority set
forth above.
4. Notice of Redemption. The Corporation will
mail written notice of each redemption of Senior Preferred Stock to each record
holder of Senior Shares to be redeemed not more than 30 nor less than 10 days
prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation will become obligated to redeem the total number of Senior
Shares specified in such notice at the time of redemption specified therein. In
case fewer than the total number of Senior Shares represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Senior
Shares will be issued to the holder thereof without cost to such holder within
three business days after surrender of the certificate representing the redeemed
Senior Shares.
5. Determination of the Number of Each Holder's
Senior Shares to be Redeemed. Except as otherwise provided herein, the number of
Senior Shares to be redeemed from each holder thereof in redemptions hereunder
will be the number of Senior Shares determined by multiplying the total number
of Senior Shares to be redeemed times a fraction, the
- 4 -
numerator of which will be the total number of Senior Shares then held by such
holder and the denominator of which will be the total number of Senior Shares
then outstanding.
6. Dividends After Redemption Date. No Senior
Share is entitled to any dividends accruing after the date on which the
Liquidation Value (plus all accumulated, accrued and unpaid dividends thereon)
of such Senior Share is paid in full in immediately available funds. On such
date all rights of the holder of such Senior Share will cease, and such Senior
Share will not be deemed to be outstanding.
7. Redeemed or Otherwise Acquired Senior
Shares. Any Senior Shares which are redeemed or otherwise acquired by the
Corporation will be canceled and will not be reissued, sold or transferred.
8. Other Redemptions or Acquisitions. Neither
the Corporation nor any Subsidiary will redeem or otherwise acquire any Senior
Preferred Stock, except as expressly authorized herein or pursuant to a purchase
offer made pro rata to all holders of the Senior Preferred Stock on the basis of
the number of Shares of Senior Preferred Stock owned by each such holder.
9. Priority of Senior Preferred Stock. So long
as any Senior Preferred Stock remains outstanding, without the approval of the
holders of a majority of the Senior Shares then outstanding, neither the
Corporation nor any Subsidiary shall (i) declare or pay any dividends on any
Junior Securities (other than dividends declared in connection with any stock
splits, stock dividends, share combinations, share exchanges, or other
recapitalizations in which such dividends are made in the form of Junior
Securities), or (ii) repurchase or otherwise redeem any Junior Securities;
provided, that the Corporation may purchase shares of Common Stock from
employees of the Corporation and its Subsidiaries upon termination of
employment.
D. Conversion of Senior Preferred Stock.
1. Optional Conversion. Subject to Section 4B
below, upon the consummation of an Initial Public Offering (the "Conversion
Event"), each Senior Share shall, at the option of the holder of such Senior
Share, be converted (and the rights of the holder of the Senior Shares shall
cease) into a number of shares of the Corporation's Class A Common equal to the
(i) Liquidation Value of such Senior Share as of the date of such Conversion
Event (plus all accumulated, accrued and unpaid dividends thereon) divided by
(ii) the price at which each share of Class A Common was sold in such Initial
Public Offering. The Corporation shall give prompt written notice to each holder
of Senior Shares if a Conversion Event has occurred, which notice shall describe
in reasonable detail the Conversion Event that has occurred.
2. Surrender of Certificates. Each conversion
of Senior Shares into shares of Class A Common shall be effected by the
surrender of the certificate or certificates representing the Senior Shares to
be converted at the principal office of the Corporation at any time during
normal business hours, together with a written notice by the holder of such
Senior Shares stating that such holder desires to convert the Senior Shares, or
a stated number of the Senior Shares, represented by such certificate or
certificates into shares of Class A Common. Each conversion of Senior Shares
shall be deemed to have been effected as of the close of
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business on the date on which such certificate or certificates have been
surrendered and such notice has been tendered, and at such time the rights of
the holder of the converted Senior Shares as such holder shall cease, and the
person or persons in whose name or names the certificate or certificates for
shares of Class A Common are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Class A Common
represented thereby.
3. Issuance of Certificates. Within five
Business Days after the surrender of certificates of Senior Shares, the
Corporation shall issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates for the Class A Common issuable
upon such conversion.
4. No Charge. The issuance of certificates for
Class A Common upon conversion of the Senior Shares will be made without charge
to the holders of such Senior Shares of any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of Class A Common.
5. Reserved Shares. Upon the Conversion Event,
the Corporation shall take all such actions as may be necessary to assure that
all shares of Class A Common issuable pursuant to this Section 4 may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately transmitted by the Corporation upon issuance), including, but not
limited to, amending the Corporation's Articles of Incorporation to increase the
number of authorized but unissued shares of Class A Common. All shares of Class
A Common which are issuable pursuant to the terms and conditions of this Section
4 shall, when issued, be duly and validly issued, fully paid, and nonassessable
and free from all taxes, liens and charges.
6. Closing Books. The Corporation shall not
close its books against the transfer of Senior Shares in any manner which would
interfere with the timely conversion of any Senior Shares.
E. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Senior Preferred Stock shall have no
voting rights; provided, that each holder of Senior Preferred Stock shall be
entitled to notice of all stockholders meetings at the same time and in the same
manner as notice is given to the stockholders entitled to vote at such meeting.
With respect to any issue required to be voted on and approved by holders of
Senior Preferred Stock, the holders of Senior Preferred Stock will vote as a
single class.
F. Covenants. Notwithstanding anything to the contrary
contained in this Article IV, the Corporation shall not take any of the
following actions without the prior written consent received in accordance with
Section 10 hereof: (i) creating or issuing any class or series of equity
security of the Corporation that is senior or pari passu in priority to the
Senior Preferred Stock; provided, that the Corporation may issue additional
shares of Senior Preferred Stock with an aggregate initial Liquidation Value of
up to $25.0 million (the "Additional Senior Preferred Issuance"); (ii) redeeming
or repurchasing any Junior Security; provided, that the foregoing clause (ii)
shall not apply to redemptions or repurchases of any Junior Security from
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any employee of the Corporation upon the death, disability, retirement or other
termination of such employee; (iii) increasing the number of authorized shares
of Senior Preferred Stock; provided, that the foregoing clause (iii) shall not
apply to the Additional Senior Preferred Issuance; (iv) declaring or paying any
dividends on any Junior Securities (other than dividends declared in connection
with any stock splits, stock dividends, share combinations, share exchanges, or
other recapitalizations in which such dividends are made in the form of Junior
Securities); and (v) entering into any transaction or series of transactions
after the date hereof, whether or not in the ordinary course of business with
any Affiliate or 5% Owner (or any Affiliate of such 5% Owner); provided, that
the foregoing clause (v) shall not apply to (A) employment arrangements with any
Executive or employees of the Corporation entered into in the ordinary course of
business, (B) any transactions expressly permitted or contemplated by the
Transaction Agreements, or (C) any transaction consented to by not less than 70%
of the Shareholder Shares (as such term is defined in the Shareholders
Agreement), excluding for purposes of this clause (C) Shareholder Shares held by
such Affiliate or 5% Owner.
G. Registration of Transfer. The Corporation will keep
at its principal office a register for the registration of Senior Preferred
Stock. Upon the surrender of any certificate representing Senior Preferred Stock
at such place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Senior Shares represented by the surrendered certificate. Each
such new certificate will be registered in such name and will represent such
number of Senior Shares as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and dividends will accrue on the Senior Preferred Stock represented
by such new certificate from the date to which dividends have been fully paid on
such Senior Preferred Stock represented by the surrendered certificate.
H. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Senior Shares, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number of Senior Shares of such class represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the Senior
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
I. Definitions. The following definitions apply only to
this Section II.
"Affiliate" shall mean, as to any Person, any other
Person which directly or indirectly controls, or is under common control with,
or is controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or
- 7 -
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
"Amended Registration Rights Agreement" means the
Registration Rights Agreement, dated as of December 10, 1996, by and among the
Corporation and its shareholders, as amended by the First Amendment to
Registration Rights Agreement, dated as of November 13, 1998, by and among the
Corporation and certain shareholders of the Corporation, as the same may be
amended, restated, or modified from time to time.
"Business Day" means any day, excluding Saturday,
Sunday, and any day which shall be in the City of New York a legal holiday or a
day on which banking institutions are authorized by law or other governmental
actions to close.
"Conversion Event" has the meaning set forth in
Section 4A.
"5% Owner" means any Person who owns in excess of 5%
of the Common Stock on a fully diluted basis.
"Initial Public Offering" means the underwritten
initial public offering of Common Stock registered under the Securities Act.
"Junior Securities" means any of the Corporation's
equity securities, other than the Senior Preferred Stock, including, without
limitation, the Junior Preferred Stock and the Common Stock.
"Liquidation Value" of any Senior Share as of any
particular date will be equal to the sum of $1,000.00 per Senior Share, plus any
and all accumulated and unpaid dividends which are added to the Liquidation
Value pursuant to Section 1B above.
"Person" means an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Redemption Date" as to any Senior Share means (x)
November 13, 2008 or (y) the date specified in the notice of any redemption at
the Corporation's option or the applicable date specified herein in the case of
any other redemption; provided, that no such date will be a Redemption Date
unless the applicable Liquidation Value (plus all accumulated, accrued and
unpaid dividends thereon) is actually paid, and if not so paid, the Redemption
Date will be the date on which such Liquidation Value (plus all accumulated,
accrued and unpaid dividends thereon) is fully paid.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shareholders Agreement" means the Amended and
Restated Shareholders Agreement, dated as of November 13, 1998, by and among the
Corporation and certain shareholders of the Corporation, as the same may be
amended, restated, or modified from time to time.
- 8 -
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of Senior Shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or a general partner of such partnership,
association or other business entity.
"Transaction Agreements" means (i) the Shareholders
Agreement, (ii) the Amended Registration Rights Agreement, (iii) the Senior
Preferred Stock Purchase Agreement (as defined in the Shareholders Agreement),
(iv) the Investor Agreements (as defined in the Shareholders Agreement), (v) the
Warrant Documents (as defined in the Shareholders Agreement), (vi) the Second
Senior Preferred Stock Purchase Agreement (as defined in the Shareholder
Agreement) (when and if executed and delivered by the parties thereto), (vii)
the Executive Agreements (as defined in the Shareholders Agreement), (viii) the
Common Option Agreements (as defined in the Shareholders Agreement), (ix) the
Preferred Option Agreements (as defined in the Shareholders Agreement), and (x)
the Professional Services Agreement, dated as of December 10, 1996, by and among
the Corporation and an Affiliate of Bruckmann, Rosser, Sherrill & Co., L.P.
J. Amendment and Waiver
No amendment, modification or waiver will be binding
or effective with respect to any provision of this Section II without the prior
written consent of the holders of Senior Preferred Stock with a Liquidation
Value representing more than fifty percent (50%) of the aggregate Liquidation
Value of such Senior Preferred Stock then outstanding. Notwithstanding anything
to the contrary contained herein, no amendment, modification or waiver of any
provision of this Section II that adversely affects any holder of Senior
Preferred Stock and is prejudicial to such holder relative to all other holders
of Senior Preferred Stock shall be effective against such holder without such
holder's consent.
K. Notices
Except as otherwise expressly provided, all notices
referred to herein will be in writing and will be delivered by registered or
certified mail, return receipt requested, postage prepaid and will be deemed to
have been given when so mailed (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
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JUNIOR PREFERRED STOCK
Except as otherwise provided in this Section III or
as otherwise required by applicable law, all shares of Junior Preferred Stock
shall be identical in all respects and shall entitle the holders thereof to the
same rights and privileges, subject to the same qualifications, limitations and
restrictions.
A. Dividends.
1. General Obligation. When and as declared by
the Corporation's board of directors and to the extent permitted under the
Business Corporation Law of New York, the Corporation will pay preferential
dividends to the holders of the Junior Preferred Stock as provided in this
Section 1. Except as otherwise provided herein, dividends on each share of
Series A Preferred Stock will accrue at a rate of 14% per annum and dividends on
each share of Series B Preferred Stock will accrue at a rate of 14% per annum
(each share of Series A Preferred Stock and Series B Preferred Stock being a
"Share") of the Liquidation Value of such Share from and including the date of
issuance of such Share to and including the date on which the Liquidation Value
(plus all accrued and unpaid dividends thereon) of such Share is paid in full.
Such dividends will accrue whether or not they have been declared and whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The date on which the Corporation
initially issues any Share will be deemed to be its "date of issuance"
regardless of the number of times transfer of such Share is made on the stock
records maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Share.
2. Junior Preferred Dividend Reference Dates.
To the extent that all accrued dividends are not paid on each January 1 and July
1 of each year beginning January 1, 1997 (the "Junior Preferred Dividend
Reference Dates"), all dividends which have accrued on each Share outstanding
during the six-month period (or other period in the case of the initial Junior
Preferred Dividend Reference Date) ending upon each such Junior Preferred
Dividend Reference Date will be accumulated and added to the Liquidation Value
of such Share.
3. Distribution of Partial Dividend Payments.
If at any time the Corporation elects to pay dividends in cash and pays less
than the total amount of dividends then accrued with respect to the Junior
Preferred Stock, such payment will be distributed ratably among the holders of
the Junior Preferred Stock based upon the aggregate accrued but unpaid dividends
on the Shares of such class held by each such holder.
B. Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, the holders of the Series A Preferred Stock and
Series B Preferred Stock will be entitled on a pari passu basis to be paid,
before any distribution or payment is made upon any of the Corporation's equity
securities (except with respect to any distribution or payment made upon the
Senior Preferred Stock), an amount in cash equal to the aggregate Liquidation
Value (plus all accrued and unpaid dividends thereon) of all such Shares
outstanding, and the holders of Series A Preferred Stock and Series B Preferred
Stock will not be entitled to any further payment. The Corporation will mail
written notice of such liquidation, dissolution or winding up, not less than 10
days prior to the payment date stated therein, to each record holder of Junior
- 10 -
Preferred Stock. Neither the consolidation or merger of the Corporation into or
with any other corporation or corporations, nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation, will be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 2.
C. Redemptions.
1. Optional Redemptions. Subject to the terms
and conditions of the Senior Preferred Stock, the Corporation may at any time
redeem all or any portion of Series A Preferred Stock and Series B Preferred
Stock then outstanding at a price per Share equal to the Liquidation Value
thereof (plus all accrued and unpaid dividends thereon); provided, that all
optional redemptions pursuant to this Section 3A are made pro rata among the
holders of Junior Preferred Stock on the basis of the number of Shares held by
each such holder.
2. Redemption Price. For each Share which is to
be redeemed the Corporation will be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in immediately
available funds equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon). If the Corporation's funds which are legally
available for redemption of Shares on any Redemption Date are insufficient to
redeem the total number of Shares to be redeemed on such date, those funds which
are legally available will be used to redeem the maximum possible number of
Shares ratably among the holders of the Shares to be redeemed based upon the
aggregate Liquidation Value of such Shares (plus all accrued and unpaid
dividends thereon) held by each such holder and other Shares not so redeemed
shall remain issued and outstanding until redeemed in accordance with the terms
thereof. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Shares, such funds will immediately be
used to redeem the balance of the Shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed.
3. Notice of Redemption. The Corporation will
mail written notice of each redemption of Junior Preferred Stock to each record
holder not more than 30 nor less than 10 days prior to the date on which such
redemption is to be made. Upon mailing any notice of redemption which relates to
a redemption at the Corporation's option, the Corporation will become obligated
to redeem the total number of Shares specified in such notice at the time of
redemption specified therein. In case fewer than the total number of Shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Shares will be issued to the holder thereof without cost to
such holder within three business days after surrender of the certificate
representing the redeemed Shares.
4. Determination of the Number of Each Holder's
Shares to be Redeemed. Except as otherwise provided herein, the number of Shares
of Junior Preferred Stock to be redeemed from each holder thereof in redemptions
hereunder will be the number of Shares determined by multiplying the total
number of Shares to be redeemed times a fraction, the numerator of which will be
the total number of Shares then held by such holder and the denominator of which
will be the total number of Shares of Junior Preferred Stock then outstanding.
- 11 -
5. Dividends After Redemption Date. No Share is
entitled to any dividends accruing after the date on which the Liquidation Value
(plus all accrued and unpaid dividends thereon) of such Share is paid in full.
On such date all rights of the holder of such Share will cease, and such Share
will not be deemed to be outstanding.
6. Redeemed or Otherwise Acquired Shares. Any
Shares which are redeemed or otherwise acquired by the Corporation will be
canceled and will not be reissued, sold or transferred.
7. Other Redemptions or Acquisitions. Subject
to the terms and conditions of the Senior Preferred Stock, neither the
Corporation nor any Subsidiary will redeem or otherwise acquire any Junior
Preferred Stock, except as expressly authorized herein or pursuant to a purchase
offer made pro rata to all holders of the Junior Preferred Stock on the basis of
the number of Shares of Junior Preferred Stock owned by each such holder.
8. Special Redemptions. If a Change in Control
has occurred then the Corporation shall give prompt written notice of such
Change in Control, describing in reasonable detail the definitive terms and date
of consummation thereof to each holder of Junior Preferred Stock, but in any
event such notice shall be given not more than 30 days nor less than ten days
prior to the occurrence of such Change in Control. Each holder of Junior
Preferred Stock then outstanding may require the Corporation to redeem all or
any portion of the Junior Preferred Stock owned by such holder at a price per
Share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon) by giving written notice to the Corporation of such election
within 30 days of receipt of the Corporation's notice. Upon receipt by the
Corporation of such written notice from any holder, subject to the provisions of
any loan agreement, indenture or credit agreement evidencing indebtedness for
borrowed money incurred by the Corporation, the Corporation shall be obligated
to redeem the aggregate number of Shares specified therein within five days
after receipt of such notice from such holder. The term "Change in Control"
means (i) the sale of all or substantially all of the assets reflected on the
Corporation's most recent consolidated balance sheet or capital stock of the
Corporation, or (ii) the acquisition, through stock purchase, merger or
otherwise, by a Person or group of Persons (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) unaffiliated with
Bruckmann, Rosser, Sherrill & Co., L.P. (and its Permitted Transferees (as
defined in the Shareholders Agreement)) and management employees of the
Corporation immediately prior to giving effect such transaction, of capital
stock of the Corporation representing, at any date of determination, (x) prior
to the consummation of an initial public offering of the Common Stock registered
under the Securities Act of 1933, as amended, 51% or more of the common equity
interest in the Corporation's capital stock and (y) following the consummation
of such an initial public offering of the Common Stock, 33% or more of the
common equity interest in the Corporation's capital stock.
9. Priority of Junior Preferred Stock. So long
as any Senior Preferred Stock or Junior Preferred Stock remains outstanding,
neither the Corporation nor any Subsidiary shall declare or pay any cash
dividends or make any cash distributions with respect to or redeem, purchase or
otherwise acquire for cash, directly or indirectly, any Common Stock, if at the
time of or immediately after any such redemption, purchase, acquisition,
dividend or distribution the Corporation has failed to pay the full amount of
dividends accrued on the Senior Preferred Stock and the Junior Preferred Stock
or the Corporation has failed to make any redemption of the Senior
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Preferred Stock or the Junior Preferred Stock required hereunder; provided, that
the Corporation may purchase shares of Common Stock from employees of the
Corporation and its Subsidiaries upon termination of employment.
D. Voting Rights. The Shares of Junior Preferred Stock
will not have any voting rights attaching to them, except as required by
applicable law.
E. Registration of Transfer. The Corporation will keep
at its principal office a register for the registration of Junior Preferred
Stock. Upon the surrender of any certificate representing Junior Preferred Stock
at such place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
Shares as is requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate, and dividends
will accrue on the Junior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such Junior Preferred
Stock represented by the surrendered certificate.
F. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Shares of any class of Junior Preferred Stock, and in
the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is an
institutional investor its own agreement will be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation will
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
will accrue on the Junior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
G. Definitions. The following definitions apply to this
Section III only.
"Liquidation Value" of any Share of (i) Series A
Preferred Stock as of any particular date will be an amount equal to $100.00 per
Share, plus any and all accumulated and unpaid dividends which are added to the
Liquidation Value pursuant to Section 1B above and (ii) any Share of Series B
Preferred Stock as of any particular date will be an amount equal to $35.00 per
Share, plus any and all accumulated and unpaid dividends which are added to the
Liquidation Value pursuant to Section 1B above.
"Person" means an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
- 13 -
"Redemption Date" as to any Share means the date
specified in the notice of any redemption at the Corporation's option or the
applicable date specified herein in the case of any other redemption; provided,
that no such date will be a Redemption Date unless the applicable Liquidation
Value (plus all accrued and unpaid dividends thereon) is actually paid, or set
aside for payment in full on such date, and if not so paid or set aside for
payment in full, the Redemption Date will be the date on which such Liquidation
Value (plus all accrued and unpaid dividends thereon) is fully paid.
"Shareholders Agreement" means the Shareholders
Agreement, dated as of December 10, 1996, by and among the Corporation and
certain shareholders of the Corporation, as the same may be amended, restated,
or modified from time to time.
"Subsidiary" means with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled directly or
indirectly, by any person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or other business entity.
H. Amendment and Waiver. No amendment, modification or
waiver will be binding or effective with respect to any provision of Section III
without the prior written consent of the holders of at least fifty percent (50%)
of the Shares outstanding at the time such action is taken; provided, that no
such amendment, modification or waiver which adversely and prejudicially affects
the Series B Preferred shall be effective without the prior written consent of
the holders of at least fifty (50%) of the Shares of Series B Preferred
outstanding at the time such action is taken.
I. Notices. Except as otherwise expressly provided, all
notices referred to herein will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage prepaid and will
be deemed to have been given when so mailed (i) to the Corporation, at its
principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
COMMON STOCK
Except as otherwise provided in this Section IV or as
otherwise required by applicable law, all shares of Common Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
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A. Voting Rights. Except as otherwise provided in this
Section IV or as otherwise required by applicable law:
a. the holders of Class A Common shall be
entitled to one vote per share on all
matters to be voted on by the Stockholders
of the Corporation; and
b. the holders of Class B Common will not have
any voting rights.
B. Dividends. As and when dividends are declared or paid
thereon, whether in cash, property or securities of the Corporation, the holders
of Common Stock shall be entitled to participate in such dividends ratably on a
per share basis; provided, that (i) if dividends are declared which are payable
in shares of Common Stock, dividends shall be declared which are payable at the
same rate on all classes of Common Stock and dividends payable in shares of
Class A Common shall be payable to holders of Class A Common, and dividends
payable in shares of Class B Common shall be payable to holders of Class B
Common.
C. Liquidation. Subject to the provisions of the Senior
Preferred Stock and the Junior Preferred Stock, the holders of the Common Stock
shall be entitled to participate ratably on a per share basis in all
distributions to the holders of Common Stock in any liquidation, dissolution or
winding up of the Corporation.
D. Conversion of Common Stock.
1. Right to Convert. Subject to Section 4B
below, the holder or holders of a majority of the outstanding shares of Class B
Common shall be entitled at any time to convert all or any portion of the shares
of Class B Common into the same number of shares of Class A Common. Any such
conversion of Class B Common into Class A Common will be effected among the
holders of the Class B Common on a pro rata basis based upon the number of
shares of Class B Common then outstanding.
2. Surrender of Certificates. Each conversion
of shares of Class B Common into shares of Class A Common shall be effected by
the surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with a written notice by the holder of shares of such
Class B Common stating that such holder desires to convert the shares, or a
stated number of the shares, of such Class B Common represented by such
certificate or certificates into shares of Class A Common. Each conversion of
Class B Common shall be deemed to have been effected as of the close of business
on the date on which such certificate or certificates have been surrendered and
such notice has been received, and at such time the rights of the holder of the
converted Class B Common as such holder shall cease, and the person or persons
in whose name or names the certificate or certificates for shares of Class A
Common are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Class A Common represented thereby.
3. Issuance of Certificates. Promptly after the
surrender of certificates of Class B Common and the receipt of written notice,
the Corporation shall issue and
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deliver in accordance with the surrendering holder's instructions the
certificate or certificates for the Class A Common issuable upon such
conversion.
4. No Charge. The issuance of certificates for
Class A Common upon conversion of Class B Common will be made without charge to
the holders of such shares of any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of Class A Common.
5. Reserve Shares. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Class A Common, solely for the purpose of issuance upon the conversion of the
Class B Common, such number of shares of Class A Common issuable upon conversion
of all outstanding shares of Class B Common. All shares of Common Stock which
are so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which will be immediately transmitted by the Corporation upon
issuance).
6. Closing Books. The Corporation shall not
close its books against the transfer of shares of Common Stock in any manner
which would interfere with the timely conversion of any shares of Common Stock.
E. Stock Splits. If the Corporation in any manner
subdivides or combines the outstanding shares of one class of Common Stock, the
outstanding shares of each other class of Common Stock shall be proportionately
subdivided or combined in a similar manner.
F. Registration of Transfer. The Corporation shall keep
at its principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of Common Stock. Upon the
surrender of any certificate representing shares of any class of Common Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of such class represented by the surrendered certificate
and the Corporation shall forthwith cancel such surrendered certificate. Each
such new certificate shall be registered in such name and shall represent such
number of shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
G. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (provided that an affidavit of the registered
holder will be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing one or more shares of any class of
Common Stock, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation (provided that
if the holder is a
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financial institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
H. Notices. All notices referred to herein shall be in
writing, and shall be delivered by registered or certified mail, return receipt
requested, postage prepaid, and shall be deemed to have been given when so
mailed (i) to the Corporation at its principal executive offices and (ii) to any
stockholder at such holder's address as it appears in the stock records of the
Corporation (unless otherwise specified in a written notice to the Corporation
by such holder).
I. Action by Written Consent. Any action required to be
taken at any annual or special meeting of shareholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
shareholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken and
bearing the dates of signature of the shareholders who signed the consent or
consents, shall be signed by the holders of outstanding stock having not less
than a majority of the shares entitled to vote, or, if greater, not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
J. Amendment and Waiver. No amendment or waiver of any
provision of this Section IV shall be effective without the prior consent of the
holders of a majority of the then outstanding shares of Common Stock voting as a
single class. For purposes of votes on amendments and waivers to this Section
IV, each share of Common Stock shall be entitled to one vote. No amendment
directly to any terms or provisions of any class of Common Stock that adversely
affects such class of Common Stock vis-a-vis any other class of Common Stock
shall be effective without the prior consent of the holders of a majority of the
then outstanding shares of such class of Common Stock (it being understood that
the issuance of preferred stock shall not be deemed to adversely affect the
Common Stock).
SIXTH: The amendment herein certified was authorized
by the written consent of all of the members of the Board of Directors of the
Corporation followed by the written consent of the holders of a majority of the
outstanding shares entitled to vote thereon of the Corporation.
* * * *
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IN WITNESS WHEREOF, the undersigned has subscribed this
document as of November 13, 1998 and does hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by the
undersigned and are true and correct.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
------------------------------------------
Name: Richard Pyle
Title: Chief Executive Officer and Executive Vice
President
- 18 -
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL, INC.
(Under Section 805 of the Business Corporation Law)
The undersigned, for the purpose of amending the Certificate
of Incorporation pursuant to Section 805 of the Business Corporation Law of the
State of New York (the "Business Corporation Law"), hereby certifies:
FIRST: The name of the corporation is Town Sports
International, Inc. (the "Corporation"). The Corporation was originally
incorporated under the name St John Squash Racquets, Inc.
SECOND: The Certificate of Incorporation of the Corporation
was filed on June 5, 1973 by the Department of State.
THIRD: The Certificate of Incorporation is hereby amended to
change certain terms of Series A Preferred Stock and Series B Preferred Stock.
FOURTH: In order to effectuate the foregoing amendment,
Article IV of the Certificate of Incorporation is hereby amended and restated in
its entirety to read as follows:
ARTICLE IV
AUTHORIZED CAPITAL STOCK
I. AUTHORIZED SHARES
The total number of shares of capital stock which the
Corporation has authority to issue is 3,500,000 shares, consisting of:
(1) 2,500,000 shares of Class A Common Stock, par value
$.001 per share (the "Class A Common");
(2) 500,000 shares of Class B Common Stock, par value
$.001 per share (the "Class B Common");
(3) 100,000 shares of Senior Preferred Stock, par value
$1.00 per share (the "Senior Preferred Stock");
(4) 200,000 shares of Series A Preferred Stock, par value
$1.00 per share (the "Series A Preferred Stock"); and
(5) 200,000 shares of Series B Preferred Stock, par value
$1.00 per share (the "Series B Preferred Stock").
The Class A Common and the Class B Common are hereafter
collectively referred to as the "Common Stock." The Series A Preferred Stock and
the Series B Preferred Stock are hereafter collectively referred to as the
"Junior Preferred Stock."
In addition to any other consent or approval which may be
required pursuant to this Certificate of Incorporation, no amendment or waiver
of any provision of this Section I shall be effective without the prior approval
of the holders of a majority of the then outstanding Common Stock voting as a
single class. For purposes of votes on amendments and waivers to this Section I,
each share of Common Stock shall be entitled to one vote.
II. SENIOR PREFERRED STOCK
Except as otherwise provided in this Section II or as
otherwise required by applicable law, all shares of Senior Preferred Stock (each
such share, a "Senior Share") shall be identical in all respects and shall
entitle the holders thereof to the same rights and privileges, subject to the
same qualifications, limitations and restrictions.
1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's board of directors (the "Board") and to the extent permitted under
the Business Corporation Law of New York, the Corporation will pay preferential
dividends to the holders of the Senior Preferred Stock as provided in this
Section 1. Except as otherwise provided herein, dividends on each share of
Senior Preferred Stock will accrue at a rate of 12% per annum of the Liquidation
Value of such Senior Share from and including the date of issuance of such share
to and including the date on which the Liquidation Value (plus all accumulated,
accrued and unpaid dividends thereon) of such Senior Share is paid in full. Such
dividends will accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. The date on which the Corporation initially issues
any Senior Share will be deemed to be its "date of issuance" regardless of the
number of times transfer of such Senior Share is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Senior Share.
1B. Dividend Reference Dates. To the extent that all
accrued dividends are not paid on each May 31 and November 30 of each year
beginning May 31, 1999 (the "Dividend Reference Dates"), all dividends which
have accrued on each Senior Share outstanding during the six-month period (or
other period in the case of the initial Dividend Reference Date) ending upon
each such Dividend Reference Date will be accumulated and added to the
Liquidation Value of such Senior Shares.
1C. Distribution of Partial Dividend Payments. If at any
time the Corporation elects to pay dividends in cash and pays less than the
total amount of dividends then accrued and unpaid with respect to the Senior
Preferred Stock, such payment will be distributed ratably among the holders of
Senior Shares based upon the aggregate accrued but unpaid dividends on the
Senior Shares held by each such holder, and any amounts of such dividends
remaining thereafter shall, until paid to the holder thereof, remain accumulated
dividends with respect to such Senior Share and shall remain part of the
Liquidation Value thereof.
- 2 -
1D. Payment of Stock Dividends. In the sole discretion of
the Corporation, any dividends accruing on the Senior Shares may be paid, in
lieu of cash dividends, by the issuance of additional Senior Shares (including
fractional Senior Shares) having an aggregate Liquidation Value at the time of
such payment equal to the amount of the dividend to be paid; provided, that if
the Corporation pays less than the total amount of dividends then accrued on the
Senior Preferred Stock in the form of additional Senior Shares, such payment in
Senior Shares shall be made pro rata to the holders of Senior Shares based upon
the aggregate accrued but unpaid dividends on the Senior Shares held by each
such holder.
2. Liquidation. Upon any liquidation, dissolution or winding up
of the Corporation, before any distribution or payment is made upon any Junior
Securities, the holders of Senior Shares shall be entitled to be paid an amount
in cash equal to the aggregate Liquidation Value (plus all accumulated, accrued
and unpaid dividends thereon) of all such Senior Shares outstanding, and the
holders of Senior Shares as such will not be entitled to any further payment. If
upon any such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets to be distributed among the holders of the Senior Preferred
Stock are insufficient to permit payment to such holders of the aggregate amount
which they are entitled to be paid, then the entire assets to be distributed to
the holders of Senior Preferred Stock shall be distributed ratably among such
holders based upon the aggregate Liquidation Value (plus all accumulated,
accrued and unpaid dividends) of the Senior Shares held by each such holder.
Prior to the time of any liquidation, dissolution or winding up of the
Corporation, the Corporation shall declare for payment all accrued and unpaid
dividends with respect to the Senior Preferred Stock. The Corporation will mail
written notice of such liquidation, dissolution or winding up, not less than 10
days prior to the payment date stated therein, to each record holder of Senior
Preferred Stock. Neither the consolidation or merger of the Corporation into or
with any other corporation or corporations, nor the reduction of the capital
stock of the Corporation, will be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 2.
3. Redemptions.
3A. Scheduled Redemption. On the earlier of (x) November
13, 2008 or (y) six months after the later to occur of (I) the consummation of a
Conversion Event and (ii) the date on which the Corporation has fully repaid and
fulfilled its obligations under the terms and conditions of that certain
indenture dated as of October 16, 1997, by and between the Corporation and the
United States Trust Company of New York (the "Scheduled Redemption Date"), the
Corporation will redeem all issued and outstanding Senior Shares, at a price per
Senior Share equal to the Liquidation Value thereof (plus all accumulated,
accrued and unpaid dividends thereon).
3B. Optional Redemptions. The Corporation may at any time
redeem all or any portion of the Senior Preferred Stock then outstanding at a
price per Senior Share equal to the Liquidation Value thereof (plus all
accumulated, accrued and unpaid dividends thereon); provided, that all partial
optional redemptions of Senior Preferred Stock pursuant to this subparagraph 3B
shall be made pro rata among the holders of such Senior Preferred Stock on the
basis of the number of Senior Shares held by each such holder in the order and
priority specified in Section 3C. Redemptions made pursuant to this Section 3B
will not relieve the Corporation of its obligations to redeem outstanding Senior
Shares on the Scheduled Redemption Date.
- 3 -
3C. Redemption Price. For each Senior Share which is to
be redeemed, the Corporation will be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Senior Share) an amount in
immediately available funds equal to the Liquidation Value thereof (plus all
accumulated, accrued and unpaid dividends thereon). If the Corporation's funds
which are legally available for redemption of Senior Shares on any Redemption
Date are insufficient to redeem the total number of Senior Shares to be redeemed
on such date, those funds which are legally available will be used to redeem the
maximum possible number of Senior Shares to be redeemed (if any) ratably among
the holders of the Senior Shares to be redeemed based upon the aggregate
Liquidation Value of such Senior Shares (plus all accumulated, accrued and
unpaid dividends thereon) held by each such holder and other Senior Shares not
so redeemed shall remain issued and outstanding until redeemed in accordance
with the terms thereof. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Senior Shares, such
funds will immediately be used to redeem the balance of the Senior Shares which
the Corporation has become obligated to redeem on any Redemption Date but which
it has not redeemed in the order and priority set forth above.
3D. Notice of Redemption. The Corporation will mail
written notice of each redemption of Senior Preferred Stock to each record
holder of Senior Shares to be redeemed not more than 30 nor less than 10 days
prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation will become obligated to redeem the total number of Senior
Shares specified in such notice at the time of redemption specified therein. In
case fewer than the total number of Senior Shares represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Senior
Shares will be issued to the holder thereof without cost to such holder within
three business days after surrender of the certificate representing the redeemed
Senior Shares.
3E. Determination of the Number of Each Holder's Senior
Shares to be Redeemed. Except as otherwise provided herein, the number of Senior
Shares to be redeemed from each holder thereof in redemptions hereunder will be
the number of Senior Shares determined by multiplying the total number of Senior
Shares to be redeemed times a fraction, the numerator of which will be the total
number of Senior Shares then held by such holder and the denominator of which
will be the total number of Senior Shares then outstanding.
3F. Dividends After Redemption Date. No Senior Share is
entitled to any dividends accruing after the date on which the Liquidation Value
(plus all accumulated, accrued and unpaid dividends thereon) of such Senior
Share is paid in full in immediately available funds. On such date all rights of
the holder of such Senior Share will cease, and such Senior Share will not be
deemed to be outstanding.
3G. Redeemed or Otherwise Acquired Senior Shares. Any
Senior Shares which are redeemed or otherwise acquired by the Corporation will
be canceled and will not be reissued, sold or transferred.
3H. Other Redemptions or Acquisitions. Neither the
Corporation nor any Subsidiary will redeem or otherwise acquire any Senior
Preferred Stock, except as expressly
- 4 -
authorized herein or pursuant to a purchase offer made pro rata to all holders
of the Senior Preferred Stock on the basis of the number of Shares of Senior
Preferred Stock owned by each such holder.
3I. Priority of Senior Preferred Stock. So long as any
Senior Preferred Stock remains outstanding, without the approval of the holders
of a majority of the Senior Shares then outstanding, neither the Corporation nor
any Subsidiary shall (I) declare or pay any dividends on any Junior Securities
(other than dividends declared in connection with any stock splits, stock
dividends, share combinations, share exchanges, or other recapitalizations in
which such dividends are made in the form of Junior Securities), or (ii)
repurchase or otherwise redeem any Junior Securities; provided, that the
Corporation may purchase shares of Common Stock from employees of the
Corporation and its Subsidiaries upon termination of employment.
4. Conversion of Senior Preferred Stock.
4A. Optional Conversion. Subject to Section 4B below,
upon the consummation of an Initial Public Offering (the "Conversion Event"),
each Senior Share shall, at the option of the holder of such Senior Share, be
converted (and the rights of the holder of the Senior Shares shall cease) into a
number of shares of the Corporation's Class A Common equal to the (I)
Liquidation Value of such Senior Share as of the date of such Conversion Event
(plus all accumulated, accrued and unpaid dividends thereon) divided by (ii) the
price at which each share of Class A Common was sold in such Initial Public
Offering. The Corporation shall give prompt written notice to each holder of
Senior Shares if a Conversion Event has occurred, which notice shall describe in
reasonable detail the Conversion Event that has occurred.
4B. Surrender of Certificates. Each conversion of Senior
Shares into shares of Class A Common shall be effected by the surrender of the
certificate or certificates representing the Senior Shares to be converted at
the principal office of the Corporation at any time during normal business
hours, together with a written notice by the holder of such Senior Shares
stating that such holder desires to convert the Senior Shares, or a stated
number of the Senior Shares, represented by such certificate or certificates
into shares of Class A Common. Each conversion of Senior Shares shall be deemed
to have been effected as of the close of business on the date on which such
certificate or certificates have been surrendered and such notice has been
tendered, and at such time the rights of the holder of the converted Senior
Shares as such holder shall cease, and the person or persons in whose name or
names the certificate or certificates for shares of Class A Common are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Class A Common represented thereby.
4C. Issuance of Certificates. Within five Business Days
after the surrender of certificates of Senior Shares, the Corporation shall
issue and deliver in accordance with the surrendering holder's instructions the
certificate or certificates for the Class A Common issuable upon such
conversion.
4D. No Charge. The issuance of certificates for Class A
Common upon conversion of the Senior Shares will be made without charge to the
holders of such Senior Shares of any issuance tax in respect thereof or other
cost incurred by the Corporation in connection with such conversion and the
related issuance of Class A Common.
- 5 -
4E. Reserved Shares. Upon the Conversion Event, the
Corporation shall take all such actions as may be necessary to assure that all
shares of Class A Common issuable pursuant to this Section 4 may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately transmitted by the Corporation upon issuance), including, but not
limited to, amending the Corporation's Articles of Incorporation to increase the
number of authorized but unissued shares of Class A Common. All shares of Class
A Common which are issuable pursuant to the terms and conditions of this Section
4 shall, when issued, be duly and validly issued, fully paid, and nonassessable
and free from all taxes, liens and charges.
4F. Closing Books. The Corporation shall not close its
books against the transfer of Senior Shares in any manner which would interfere
with the timely conversion of any Senior Shares.
5. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Senior Preferred Stock shall have no voting
rights; provided, that each holder of Senior Preferred Stock shall be entitled
to notice of all stockholders meetings at the same time and in the same manner
as notice is given to the stockholders entitled to vote at such meeting. With
respect to any issue required to be voted on and approved by holders of Senior
Preferred Stock, the holders of Senior Preferred Stock will vote as a single
class.
6. Covenants. Notwithstanding anything to the contrary contained
in this Article IV, the Corporation shall not take any of the following actions
without the prior written consent received in accordance with Section 10 hereof:
(I) creating or issuing any class or series of equity security of the
Corporation that is senior or pari passu in priority to the Senior Preferred
Stock; provided, that the Corporation may issue additional shares of Senior
Preferred Stock with an aggregate initial Liquidation Value of up to $25.0
million (the "Additional Senior Preferred Issuance"); (ii) redeeming or
repurchasing any Junior Security; provided, that the foregoing clause (ii) shall
not apply to redemptions or repurchases of any Junior Security from any employee
of the Corporation upon the death, disability, retirement or other termination
of such employee; (iii) increasing the number of authorized shares of Senior
Preferred Stock; provided, that the foregoing clause (iii) shall not apply to
the Additional Senior Preferred Issuance; (iv) declaring or paying any dividends
on any Junior Securities (other than dividends declared in connection with any
stock splits, stock dividends, share combinations, share exchanges, or other
recapitalizations in which such dividends are made in the form of Junior
Securities); and (v) entering into any transaction or series of transactions
after the date hereof, whether or not in the ordinary course of business with
any Affiliate or 5% Owner (or any Affiliate of such 5% Owner); provided, that
the foregoing clause (v) shall not apply to (A) employment arrangements with any
Executive or employees of the Corporation entered into in the ordinary course of
business, (B) any transactions expressly permitted or contemplated by the
Transaction Agreements, or (C) any transaction consented to by not less than 70%
of the Shareholder Shares (as such term is defined in the Shareholders
Agreement), excluding for purposes of this clause (C) Shareholder Shares held by
such Affiliate or 5% Owner.
7. Registration of Transfer. The Corporation will keep at its
principal office a register for the registration of Senior Preferred Stock. Upon
the surrender of any certificate
- 6 -
representing Senior Preferred Stock at such place, the Corporation will, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Senior Shares represented by the
surrendered certificate. Each such new certificate will be registered in such
name and will represent such number of Senior Shares as is requested by the
holder of the surrendered certificate and will be substantially identical in
form to the surrendered certificate, and dividends will accrue on the Senior
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such Senior Preferred Stock represented by the
surrendered certificate.
8. Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder will be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing Senior Shares, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number of Senior Shares of such class represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the Senior
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
9. Definitions. The following definitions apply only to this
Section II.
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Amended Registration Rights Agreement" means the Registration
Rights Agreement, dated as of December 10, 1996, by and among the Corporation
and its shareholders, as amended by the First Amendment to Registration Rights
Agreement, dated as of November 13, 1998, by and among the Corporation and
certain shareholders of the Corporation, as the same may be amended, restated,
or modified from time to time.
"Business Day" means any day, excluding Saturday, Sunday, and
any day which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close.
"Conversion Event" has the meaning set forth in Section 4A.
"5% Owner" means any Person who owns in excess of 5% of the
Common Stock on a fully diluted basis.
- 7 -
"Initial Public Offering" means the underwritten initial
public offering of Common Stock registered under the Securities Act.
"Junior Securities" means any of the Corporation's equity
securities, other than the Senior Preferred Stock, including, without
limitation, the Junior Preferred Stock and the Common Stock.
"Liquidation Value" of any Senior Share as of any particular
date will be equal to the sum of $1,000.00 per Senior Share, plus any and all
accumulated and unpaid dividends which are added to the Liquidation Value
pursuant to Section 1B above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Redemption Date" as to any Senior Share means (x) November
13, 2008 or (y) the date specified in the notice of any redemption at the
Corporation's option or the applicable date specified herein in the case of any
other redemption; provided, that no such date will be a Redemption Date unless
the applicable Liquidation Value (plus all accumulated, accrued and unpaid
dividends thereon) is actually paid, and if not so paid, the Redemption Date
will be the date on which such Liquidation Value (plus all accumulated, accrued
and unpaid dividends thereon) is fully paid.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders Agreement" means the Amended and Restated
Shareholders Agreement, dated as of November 13, 1998, by and among the
Corporation and certain shareholders of the Corporation, as the same may be
amended, restated, or modified from time to time.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (I) if a
corporation, a majority of the total voting power of Senior Shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or a general partner of such partnership,
association or other business entity.
"Transaction Agreements" means (I) the Shareholders Agreement,
(ii) the Amended Registration Rights Agreement, (iii) the Senior Preferred Stock
Purchase Agreement (as defined in the Shareholders Agreement), (iv) the Investor
Agreements (as defined in the Shareholders Agreement), (v) the Warrant Documents
(as defined in the Shareholders
- 8 -
Agreement), (vi) the Second Senior Preferred Stock Purchase Agreement (as
defined in the Shareholder Agreement) (when and if executed and delivered by the
parties thereto), (vii) the Executive Agreements (as defined in the Shareholders
Agreement), (viii) the Common Option Agreements (as defined in the Shareholders
Agreement), (ix) the Preferred Option Agreements (as defined in the Shareholders
Agreement), and (x) the Professional Services Agreement, dated as of December
10, 1996, by and among the Corporation and an Affiliate of Bruckmann, Rosser,
Sherrill & Co., L.P.
10. Amendment and Waiver
No amendment, modification or waiver will be binding or
effective with respect to any provision of this Section II without the prior
written consent of the holders of Senior Preferred Stock with a Liquidation
Value representing more than fifty percent (50%) of the aggregate Liquidation
Value of such Senior Preferred Stock then outstanding. Notwithstanding anything
to the contrary contained herein, no amendment, modification or waiver of any
provision of this Section II that adversely affects any holder of Senior
Preferred Stock and is prejudicial to such holder relative to all other holders
of Senior Preferred Stock shall be effective against such holder without such
holder's consent.
11. Notices
Except as otherwise expressly provided, all notices referred
to herein will be in writing and will be delivered by registered or certified
mail, return receipt requested, postage prepaid and will be deemed to have been
given when so mailed (I) to the Corporation, at its principal executive offices
and (ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
III. JUNIOR PREFERRED STOCK
Except as otherwise provided in this Section III or as
otherwise required by applicable law, all shares of Junior Preferred Stock shall
be identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's board of directors and to the extent permitted under the Business
Corporation Law of New York, the Corporation will pay preferential dividends to
the holders of the Junior Preferred Stock as provided in this Section 1. Except
as otherwise provided herein, dividends on each share of Series A Preferred
Stock will accrue at a rate of 14% per annum and dividends on each share of
Series B Preferred Stock will accrue at a rate of 14% per annum (each share of
Series A Preferred Stock and Series B Preferred Stock being a "Share") of the
Liquidation Value of such Share from and including the date of issuance of such
Share to and including the date on which the Liquidation Value (plus all accrued
and unpaid dividends thereon) of such Share is paid in full. Such dividends will
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. The date on which the Corporation initially issues any
Share will be deemed to be its
- 9 -
"date of issuance" regardless of the number of times transfer of such Share is
made on the stock records maintained by or for the Corporation and regardless of
the number of certificates which may be issued to evidence such Share.
1B. Junior Preferred Dividend Reference Dates. To the
extent that all accrued dividends are not paid on each January 1 and July 1 of
each year beginning January 1, 1997 (the "Junior Preferred Dividend Reference
Dates"), all dividends which have accrued on each Share outstanding during the
six-month period (or other period in the case of the initial Junior Preferred
Dividend Reference Date) ending upon each such Junior Preferred Dividend
Reference Date will be accumulated and added to the Liquidation Value of such
Share.
1C. Distribution of Partial Dividend Payments. If at any
time the Corporation elects to pay dividends in cash and pays less than the
total amount of dividends then accrued with respect to the Junior Preferred
Stock, such payment will be distributed ratably among the holders of the Junior
Preferred Stock based upon the aggregate accrued but unpaid dividends on the
Shares of such class held by each such holder.
1D. Payment of Stock Dividends. In the sole discretion of
the Corporation, any dividends accruing on the Shares may be paid, in lieu of
cash dividends, by the issuance of additional Shares (including fractional
Shares) having an aggregate Liquidation Value at the time of such payment equal
to the amount of the dividend to be paid (such Shares, the "Dividend Shares");
provided, that (I) if the Corporation pays less than the total amount of
dividends then accrued on the Junior Preferred Stock in the form of Dividend
Shares, such payment in Dividend Shares shall be made pro rata to the holders of
Shares based upon the aggregate accrued but unpaid dividends on the Shares held
by each such holder and (ii) Section 3H below shall not apply to any and all
Dividend Shares.
2. Liquidation. Upon any liquidation, dissolution or winding up
of the Corporation, the holders of the Series A Preferred Stock and Series B
Preferred Stock will be entitled on a pari passu basis to be paid, before any
distribution or payment is made upon any of the Corporation's equity securities
(except with respect to any distribution or payment made upon the Senior
Preferred Stock), an amount in cash equal to the aggregate Liquidation Value
(plus all accrued and unpaid dividends thereon) of all such Shares outstanding,
and the holders of Series A Preferred Stock and Series B Preferred Stock will
not be entitled to any further payment. The Corporation will mail written notice
of such liquidation, dissolution or winding up, not less than 10 days prior to
the payment date stated therein, to each record holder of Junior Preferred
Stock. Neither the consolidation or merger of the Corporation into or with any
other corporation or corporations, nor the sale or transfer by the Corporation
of all or any part of its assets, nor the reduction of the capital stock of the
Corporation, will be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Section 2.
3. Redemptions.
3A. Optional Redemptions. Subject to the terms and
conditions of the Senior Preferred Stock, the Corporation may at any time redeem
all or any portion of Series A Preferred Stock and Series B Preferred Stock then
outstanding at a price per Share equal to the Liquidation Value thereof (plus
all accrued and unpaid dividends thereon); provided, that all optional
- 10 -
redemptions pursuant to this Section 3A are made pro rata among the holders of
Junior Preferred Stock on the basis of the number of Shares held by each such
holder.
3B. Redemption Price. For each Share which is to be
redeemed the Corporation will be obligated on the Redemption Date to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in immediately
available funds equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon). If the Corporation's funds which are legally
available for redemption of Shares on any Redemption Date are insufficient to
redeem the total number of Shares to be redeemed on such date, those funds which
are legally available will be used to redeem the maximum possible number of
Shares ratably among the holders of the Shares to be redeemed based upon the
aggregate Liquidation Value of such Shares (plus all accrued and unpaid
dividends thereon) held by each such holder and other Shares not so redeemed
shall remain issued and outstanding until redeemed in accordance with the terms
thereof. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Shares, such funds will immediately be
used to redeem the balance of the Shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed.
3C. Notice of Redemption. The Corporation will mail
written notice of each redemption of Junior Preferred Stock to each record
holder not more than 30 nor less than 10 days prior to the date on which such
redemption is to be made. Upon mailing any notice of redemption which relates to
a redemption at the Corporation's option, the Corporation will become obligated
to redeem the total number of Shares specified in such notice at the time of
redemption specified therein. In case fewer than the total number of Shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Shares will be issued to the holder thereof without cost to
such holder within three business days after surrender of the certificate
representing the redeemed Shares.
3D. Determination of the Number of Each Holder's Shares
to be Redeemed. Except as otherwise provided herein, the number of Shares of
Junior Preferred Stock to be redeemed from each holder thereof in redemptions
hereunder will be the number of Shares determined by multiplying the total
number of Shares to be redeemed times a fraction, the numerator of which will be
the total number of Shares then held by such holder and the denominator of which
will be the total number of Shares of Junior Preferred Stock then outstanding.
3E. Dividends After Redemption Date. No Share is entitled
to any dividends accruing after the date on which the Liquidation Value (plus
all accrued and unpaid dividends thereon) of such Share is paid in full. On such
date all rights of the holder of such Share will cease, and such Share will not
be deemed to be outstanding.
3F. Redeemed or Otherwise Acquired Shares. Any Shares
which are redeemed or otherwise acquired by the Corporation will be canceled and
will not be reissued, sold or transferred.
- 11 -
3G. Other Redemptions or Acquisitions. Subject to the
terms and conditions of the Senior Preferred Stock, neither the Corporation nor
any Subsidiary will redeem or otherwise acquire any Junior Preferred Stock,
except as expressly authorized herein or pursuant to a purchase offer made pro
rata to all holders of the Junior Preferred Stock on the basis of the number of
Shares of Junior Preferred Stock owned by each such holder.
3H. Special Redemptions. If a Change in Control has
occurred then the Corporation shall give prompt written notice of such Change in
Control, describing in reasonable detail the definitive terms and date of
consummation thereof to each holder of Junior Preferred Stock, but in any event
such notice shall be given not more than 30 days nor less than ten days prior to
the occurrence of such Change in Control. Each holder of Junior Preferred Stock
then outstanding may require the Corporation to redeem all or any portion of the
Junior Preferred Stock owned by such holder at a price per Share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by
giving written notice to the Corporation of such election within 30 days of
receipt of the Corporation's notice. Upon receipt by the Corporation of such
written notice from any holder, subject to the provisions of any loan agreement,
indenture or credit agreement evidencing indebtedness for borrowed money
incurred by the Corporation, the Corporation shall be obligated to redeem the
aggregate number of Shares specified therein within five days after receipt of
such notice from such holder. The term "Change in Control" means (I) the sale of
all or substantially all of the assets reflected on the Corporation's most
recent consolidated balance sheet or capital stock of the Corporation, or (ii)
the acquisition, through stock purchase, merger or otherwise, by a Person or
group of Persons (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) unaffiliated with Bruckmann, Rosser, Sherrill
& Co., L.P. (and its Permitted Transferees (as defined in the Shareholders
Agreement)) and management employees of the Corporation immediately prior to
giving effect such transaction, of capital stock of the Corporation
representing, at any date of determination, (x) prior to the consummation of an
initial public offering of the Common Stock registered under the Securities Act
of 1933, as amended, 51% or more of the common equity interest in the
Corporation's capital stock and (y) following the consummation of such an
initial public offering of the Common Stock, 33% or more of the common equity
interest in the Corporation's capital stock.
3I. Priority of Junior Preferred Stock. So long as any
Senior Preferred Stock or Junior Preferred Stock remains outstanding, neither
the Corporation nor any Subsidiary shall declare or pay any cash dividends or
make any cash distributions with respect to or redeem, purchase or otherwise
acquire for cash, directly or indirectly, any Common Stock, if at the time of or
immediately after any such redemption, purchase, acquisition, dividend or
distribution the Corporation has failed to pay the full amount of dividends
accrued on the Senior Preferred Stock and the Junior Preferred Stock or the
Corporation has failed to make any redemption of the Senior Preferred Stock or
the Junior Preferred Stock required hereunder; provided, that the Corporation
may purchase shares of Common Stock from employees of the Corporation and its
Subsidiaries upon termination of employment.
4. Voting Rights. The Shares of Junior Preferred Stock will not
have any voting rights attaching to them, except as required by applicable law.
- 12 -
5. Registration of Transfer. The Corporation will keep at its
principal office a register for the registration of Junior Preferred Stock. Upon
the surrender of any certificate representing Junior Preferred Stock at such
place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
Shares as is requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate, and dividends
will accrue on the Junior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such Junior Preferred
Stock represented by the surrendered certificate.
6. Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder will be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing Shares of any class of Junior Preferred Stock, and in the
case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is an
institutional investor its own agreement will be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation will
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
will accrue on the Junior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
7. Definitions. The following definitions apply to this Section
III only.
"Liquidation Value" of any Share of (I) Series A Preferred
Stock as of any particular date will be an amount equal to $100.00 per Share,
plus any and all accumulated and unpaid dividends which are added to the
Liquidation Value pursuant to Section 1B above and (ii) any Share of Series B
Preferred Stock as of any particular date will be an amount equal to $35.00 per
Share, plus any and all accumulated and unpaid dividends which are added to the
Liquidation Value pursuant to Section 1B above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Redemption Date" as to any Share means the date specified in
the notice of any redemption at the Corporation's option or the applicable date
specified herein in the case of any other redemption; provided, that no such
date will be a Redemption Date unless the applicable Liquidation Value (plus all
accrued and unpaid dividends thereon) is actually paid, or set aside for payment
in full on such date, and if not so paid or set aside for payment in full, the
Redemption Date will be the date on which such Liquidation Value (plus all
accrued and unpaid dividends thereon) is fully paid.
- 13 -
"Shareholders Agreement" means the Shareholders Agreement,
dated as of December 10, 1996, by and among the Corporation and certain
shareholders of the Corporation, as the same may be amended, restated, or
modified from time to time.
"Subsidiary" means with respect to any Person, any
corporation, partnership, association or other business entity of which (I) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled directly or
indirectly, by any person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or other business entity.
8. Amendment and Waiver. No amendment, modification or waiver
will be binding or effective with respect to any provision of Section III
without the prior written consent of the holders of at least fifty percent (50%)
of the Shares outstanding at the time such action is taken; provided, that no
such amendment, modification or waiver which adversely and prejudicially affects
the Series B Preferred shall be effective without the prior written consent of
the holders of at least fifty (50%) of the Shares of Series B Preferred
outstanding at the time such action is taken.
9. Notices. Except as otherwise expressly provided, all notices
referred to herein will be in writing and will be delivered by registered or
certified mail, return receipt requested, postage prepaid and will be deemed to
have been given when so mailed (I) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
IV. COMMON STOCK
Except as otherwise provided in this Section IV or as
otherwise required by applicable law, all shares of Common Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
1. Voting Rights. Except as otherwise provided in this Section IV
or as otherwise required by applicable law:
(i) the holders of Class A Common shall be entitled to
one vote per share on all matters to be voted on by the Stockholders of
the Corporation; and
(ii) the holders of Class B Common will not have any
voting rights.
2. Dividends. As and when dividends are declared or paid thereon,
whether in cash, property or securities of the Corporation, the holders of
Common Stock shall be entitled to
- 14 -
participate in such dividends ratably on a per share basis; provided, that (I)
if dividends are declared which are payable in shares of Common Stock, dividends
shall be declared which are payable at the same rate on all classes of Common
Stock and dividends payable in shares of Class A Common shall be payable to
holders of Class A Common, and dividends payable in shares of Class B Common
shall be payable to holders of Class B Common.
3. Liquidation. Subject to the provisions of the Senior Preferred
Stock and the Junior Preferred Stock, the holders of the Common Stock shall be
entitled to participate ratably on a per share basis in all distributions to the
holders of Common Stock in any liquidation, dissolution or winding up of the
Corporation.
4. Conversion of Common Stock.
4A. Right to Convert. Subject to Section 4B below, the
holder or holders of a majority of the outstanding shares of Class B Common
shall be entitled at any time to convert all or any portion of the shares of
Class B Common into the same number of shares of Class A Common. Any such
conversion of Class B Common into Class A Common will be effected among the
holders of the Class B Common on a pro rata basis based upon the number of
shares of Class B Common then outstanding.
4B. Surrender of Certificates. Each conversion of shares
of Class B Common into shares of Class A Common shall be effected by the
surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with a written notice by the holder of shares of such
Class B Common stating that such holder desires to convert the shares, or a
stated number of the shares, of such Class B Common represented by such
certificate or certificates into shares of Class A Common. Each conversion of
Class B Common shall be deemed to have been effected as of the close of business
on the date on which such certificate or certificates have been surrendered and
such notice has been received, and at such time the rights of the holder of the
converted Class B Common as such holder shall cease, and the person or persons
in whose name or names the certificate or certificates for shares of Class A
Common are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Class A Common represented thereby.
4C. Issuance of Certificates. Promptly after the
surrender of certificates of Class B Common and the receipt of written notice,
the Corporation shall issue and deliver in accordance with the surrendering
holder's instructions the certificate or certificates for the Class A Common
issuable upon such conversion.
4D. No Charge. The issuance of certificates for Class A
Common upon conversion of Class B Common will be made without charge to the
holders of such shares of any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of Class A Common.
4E. Reserve Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common, solely for the purpose of issuance upon the conversion of the Class B
Common, such number of shares of Class A
- 15 -
Common issuable upon conversion of all outstanding shares of Class B Common. All
shares of Common Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Corporation shall take all such actions as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock may be listed
(except for official notice of issuance which will be immediately transmitted by
the Corporation upon issuance).
4F. Closing Books. The Corporation shall not close its
books against the transfer of shares of Common Stock in any manner which would
interfere with the timely conversion of any shares of Common Stock.
5. Stock Splits. If the Corporation in any manner subdivides or
combines the outstanding shares of one class of Common Stock, the outstanding
shares of each other class of Common Stock shall be proportionately subdivided
or combined in a similar manner.
6. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock. Upon the surrender of
any certificate representing shares of any class of Common Stock at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of such class represented by the surrendered certificate and the
Corporation shall forthwith cancel such surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
7. Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (provided that an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
8. Notices. All notices referred to herein shall be in writing,
and shall be delivered by registered or certified mail, return receipt
requested, postage prepaid, and shall be deemed to have been given when so
mailed (I) to the Corporation at its principal executive offices and (ii) to any
stockholder at such holder's address as it appears in the stock records of the
Corporation (unless otherwise specified in a written notice to the Corporation
by such holder).
- 16 -
9. Action by Written Consent. Any action required to be taken at
any annual or special meeting of shareholders of the Corporation, or any action
which may be taken at any annual or special meeting of such shareholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken and bearing the dates
of signature of the shareholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
10. Amendment and Waiver. No amendment or waiver of any provision
of this Section IV shall be effective without the prior consent of the holders
of a majority of the then outstanding shares of Common Stock voting as a single
class. For purposes of votes on amendments and waivers to this Section IV, each
share of Common Stock shall be entitled to one vote. No amendment directly to
any terms or provisions of any class of Common Stock that adversely affects such
class of Common Stock vis-a-vis any other class of Common Stock shall be
effective without the prior consent of the holders of a majority of the then
outstanding shares of such class of Common Stock (it being understood that the
issuance of preferred stock shall not be deemed to adversely affect the Common
Stock).
FIFTH: The amendment herein certified was authorized by the written
consent of all of the members of the Board of Directors of the Corporation
followed by the written consent of the holders of a majority of the outstanding
shares entitled to vote thereon of the Corporation.
* * * *
- 17 -
IN WITNESS WHEREOF, the undersigned has subscribed this document as of
April 9, 1999 and does hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by the undersigned and are true
and correct.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
-------------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
- 18 -
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL, INC.
(UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW)
The undersigned, for the purpose of amending the Certificate
of Incorporation pursuant to Section 805 of the Business Corporation Law of the
State of New York (the "Business Corporation Law"), hereby certifies:
FIRST: The name of the corporation is Town Sports
International, Inc. (the "Corporation"). The Corporation was originally
incorporated under the name St John Squash Racquets, Inc.
SECOND: The Certificate of Incorporation of the Corporation
was filed on June 5, 1973 by the Department of State.
THIRD: The Certificate of Incorporation is hereby amended to
change certain terms of the Series B Preferred Stock.
FOURTH: In order to effectuate the foregoing amendment,
Article IV of the Certificate of Incorporation is hereby amended and restated in
its entirety to read as follows:
ARTICLE IV
AUTHORIZED CAPITAL STOCK
I. AUTHORIZED SHARES.
The total number of shares of capital stock which the
Corporation has authority to issue is 3,500,000 shares, consisting of:
(1) 2,500,000 shares of Class A Common Stock, par value
$.001 per share (the "Class A Common");
(2) 500,000 shares of Class B Common Stock, par value
$.001 per share (the "Class B Common");
(3) 100,000 shares of Senior Preferred Stock, par value
$1.00 per share (the "Senior Preferred Stock");
(4) 200,000 shares of Series A Preferred Stock, par value
$1.00 per share (the "Series A Preferred Stock"); and
(5) 200,000 shares of Series B Preferred Stock, par value
$1.00 per share (the "Series B Preferred Stock").
The Class A Common and the Class B Common are hereafter
collectively referred to as the "Common Stock." The Series A Preferred Stock and
the Series B Preferred Stock are hereafter collectively referred to as the
"Junior Preferred Stock."
In addition to any other consent or approval which may be
required pursuant to this Certificate of Incorporation, no amendment or waiver
of any provision of this Section I shall be effective without the prior approval
of the holders of a majority of the then outstanding Common Stock voting as a
single class. For purposes of votes on amendments and waivers to this Section I,
each share of Common Stock shall be entitled to one vote.
II. SENIOR PREFERRED STOCK.
Except as otherwise provided in this Section II or as
otherwise required by applicable law, all shares of Senior Preferred Stock (each
such share, a "Senior Share") shall be identical in all respects and shall
entitle the holders thereof to the same rights and privileges, subject to the
same qualifications, limitations and restrictions.
1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's board of directors (the "Board") and to the extent permitted under
the Business Corporation Law of New York, the Corporation will pay preferential
dividends to the holders of the Senior Preferred Stock as provided in this
Section 1. Except as otherwise provided herein, dividends on each share of
Senior Preferred Stock will accrue at a rate of 12% per annum of the Liquidation
Value of such Senior Share from and including the date of issuance of such share
to and including the date on which the Liquidation Value (plus all accumulated,
accrued and unpaid dividends thereon) of such Senior Share is paid in full. Such
dividends will accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. The date on which the Corporation initially issues
any Senior Share will be deemed to be its "date of issuance" regardless of the
number of times transfer of such Senior Share is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Senior Share.
1B. Dividend Reference Dates. To the extent that all accrued
dividends are not paid on each May 31 and November 30 of each year beginning May
31, 1999 (the "Dividend Reference Dates"), all dividends which have accrued on
each Senior Share outstanding during the six-month period (or other period in
the case of the initial Dividend Reference Date) ending upon each such Dividend
Reference Date will be accumulated and added to the Liquidation Value of such
Senior Shares.
1C. Distribution of Partial Dividend Payments. If at any time
the Corporation elects to pay dividends in cash and pays less than the total
amount of dividends then accrued and unpaid with respect to the Senior Preferred
Stock, such payment will be distributed ratably among the holders of Senior
Shares based upon the aggregate accrued but unpaid dividends on the Senior
Shares held by each such holder, and any amounts of such dividends remaining
2
thereafter shall, until paid to the holder thereof, remain accumulated dividends
with respect to such Senior Share and shall remain part of the Liquidation Value
thereof.
1D. Payment of Stock Dividends. In the sole discretion of the
Corporation, any dividends accruing on the Senior Shares may be paid, in lieu of
cash dividends, by the issuance of additional Senior Shares (including
fractional Senior Shares) having an aggregate Liquidation Value at the time of
such payment equal to the amount of the dividend to be paid; provided, that if
the Corporation pays less than the total amount of dividends then accrued on the
Senior Preferred Stock in the form of additional Senior Shares, such payment in
Senior Shares shall be made pro rata to the holders of Senior Shares based upon
the aggregate accrued but unpaid dividends on the Senior Shares held by each
such holder.
2. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation, before any distribution or payment is made upon any
Junior Securities, the holders of Senior Shares shall be entitled to be paid an
amount in cash equal to the aggregate Liquidation Value (plus all accumulated,
accrued and unpaid dividends thereon) of all such Senior Shares outstanding, and
the holders of Senior Shares as such will not be entitled to any further
payment. If upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Senior Preferred Stock are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid, then the entire assets to
be distributed to the holders of Senior Preferred Stock shall be distributed
ratably among such holders based upon the aggregate Liquidation Value (plus all
accumulated, accrued and unpaid dividends) of the Senior Shares held by each
such holder. Prior to the time of any liquidation, dissolution or winding up of
the Corporation, the Corporation shall declare for payment all accrued and
unpaid dividends with respect to the Senior Preferred Stock. The Corporation
will mail written notice of such liquidation, dissolution or winding up, not
less than 10 days prior to the payment date stated therein, to each record
holder of Senior Preferred Stock. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 2.
3. Redemptions.
3A. Scheduled Redemption. On the earlier of (x)November 13,
2008 or (y) six months after the later to occur of (i) the consummation of a
Conversion Event and (ii) the date on which the Corporation has fully repaid and
fulfilled its obligations under the terms and conditions of that certain
indenture dated as of October 16, 1997, by and between the Corporation and the
United States Trust Company of New York (the "Scheduled Redemption Date"), the
Corporation will redeem all issued and outstanding Senior Shares, at a price per
Senior Share equal to the Liquidation Value thereof (plus all accumulated,
accrued and unpaid dividends thereon).
3B. Optional Redemptions. The Corporation may at any time
redeem all or any portion of the Senior Preferred Stock then outstanding at a
price per Senior Share equal to the Liquidation Value thereof (plus all
accumulated, accrued and unpaid dividends thereon); provided, that all partial
optional redemptions of Senior Preferred Stock pursuant to this subparagraph 3B
shall be made pro rata among the holders of such Senior Preferred Stock on the
3
basis of the number of Senior Shares held by each such holder in the order and
priority specified in Section 3C. Redemptions made pursuant to this Section 3B
will not relieve the Corporation of its obligations to redeem outstanding Senior
Shares on the Scheduled Redemption Date.
3C. Redemption Price. For each Senior Share which is to be
redeemed, the Corporation will be obligated on the Redemption Date to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Senior Share) an amount in
immediately available funds equal to the Liquidation Value thereof (plus all
accumulated, accrued and unpaid dividends thereon). If the Corporation's funds
which are legally available for redemption of Senior Shares on any Redemption
Date are insufficient to redeem the total number of Senior Shares to be redeemed
on such date, those funds which are legally available will be used to redeem the
maximum possible number of Senior Shares to be redeemed (if any) ratably among
the holders of the Senior Shares to be redeemed based upon the aggregate
Liquidation Value of such Senior Shares (plus all accumulated, accrued and
unpaid dividends thereon) held by each such holder and other Senior Shares not
so redeemed shall remain issued and outstanding until redeemed in accordance
with the terms thereof. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Senior Shares, such
funds will immediately be used to redeem the balance of the Senior Shares which
the Corporation has become obligated to redeem on any Redemption Date but which
it has not redeemed in the order and priority set forth above.
3D. Notice of Redemption. The Corporation will mail written
notice of each redemption of Senior Preferred Stock to each record holder of
Senior Shares to be redeemed not more than 30 nor less than 10 days prior to the
date on which such redemption is to be made. Upon mailing any notice of
redemption which relates to a redemption at the Corporation's option, the
Corporation will become obligated to redeem the total number of Senior Shares
specified in such notice at the time of redemption specified therein. In case
fewer than the total number of Senior Shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Senior Shares
will be issued to the holder thereof without cost to such holder within three
business days after surrender of the certificate representing the redeemed
Senior Shares.
3E. Determination of the Number of Each Holder's Senior Shares
to be Redeemed. Except as otherwise provided herein, the number of Senior Shares
to be redeemed from each holder thereof in redemptions hereunder will be the
number of Senior Shares determined by multiplying the total number of Senior
Shares to be redeemed times a fraction, the numerator of which will be the total
number of Senior Shares then held by such holder and the denominator of which
will be the total number of Senior Shares then outstanding.
3F. Dividends After Redemption Date. No Senior Share is
entitled to any dividends accruing after the date on which the Liquidation Value
(plus all accumulated, accrued and unpaid dividends thereon) of such Senior
Share is paid in full in immediately available funds. On such date all rights of
the holder of such Senior Share will cease, and such Senior Share will not be
deemed to be outstanding.
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3G. Redeemed or Otherwise Acquired Senior Shares. Any Senior
Shares which are redeemed or otherwise acquired by the Corporation will be
canceled and will not be reissued, sold or transferred.
3H. Other Redemptions or Acquisitions. Neither the Corporation
nor any Subsidiary will redeem or otherwise acquire any Senior Preferred Stock,
except as expressly authorized herein or pursuant to a purchase offer made pro
rata to all holders of the Senior Preferred Stock on the basis of the number of
Shares of Senior Preferred Stock owned by each such holder.
3I. Priority of Senior Preferred Stock. So long as any Senior
Preferred Stock remains outstanding, without the approval of the holders of a
majority of the Senior Shares then outstanding, neither the Corporation nor any
Subsidiary shall (i) declare or pay any dividends on any Junior Securities
(other than dividends declared in connection with any stock splits, stock
dividends, share combinations, share exchanges, or other recapitalizations in
which such dividends are made in the form of Junior Securities), or (ii)
repurchase or otherwise redeem any Junior Securities; provided, that the
Corporation may purchase shares of Common Stock from employees of the
Corporation and its Subsidiaries upon termination of employment.
4. Conversion of Senior Preferred Stock.
4A. Optional Conversion. Subject to Section 4B below, upon the
consummation of an Initial Public Offering (the "Conversion Event"), each Senior
Share shall, at the option of the holder of such Senior Share, be converted (and
the rights of the holder of the Senior Shares shall cease) into a number of
shares of the Corporation's Class A Common equal to the (i) Liquidation Value of
such Senior Share as of the date of such Conversion Event (plus all accumulated,
accrued and unpaid dividends thereon) divided by (ii) the price at which each
share of Class A Common was sold in such Initial Public Offering. The
Corporation shall give prompt written notice to each holder of Senior Shares if
a Conversion Event has occurred, which notice shall describe in reasonable
detail the Conversion Event that has occurred.
4B. Surrender of Certificates. Each conversion of Senior
Shares into shares of Class A Common shall be effected by the surrender of the
certificate or certificates representing the Senior Shares to be converted at
the principal office of the Corporation at any time during normal business
hours, together with a written notice by the holder of such Senior Shares
stating that such holder desires to convert the Senior Shares, or a stated
number of the Senior Shares, represented by such certificate or certificates
into shares of Class A Common. Each conversion of Senior Shares shall be deemed
to have been effected as of the close of business on the date on which such
certificate or certificates have been surrendered and such notice has been
tendered, and at such time the rights of the holder of the converted Senior
Shares as such holder shall cease, and the person or persons in whose name or
names the certificate or certificates for shares of Class A Common are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Class A Common represented thereby.
4C. Issuance of Certificates. Within five Business Days after
the surrender of certificates of Senior Shares, the Corporation shall issue and
deliver in accordance with the
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surrendering holder's instructions the certificate or certificates for the Class
A Common issuable upon such conversion.
4D. No Charge. The issuance of certificates for Class A Common
upon conversion of the Senior Shares will be made without charge to the holders
of such Senior Shares of any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of Class A Common.
4E. Reserved Shares. Upon the Conversion Event, the
Corporation shall take all such actions as may be necessary to assure that all
shares of Class A Common issuable pursuant to this Section 4 may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately transmitted by the Corporation upon issuance), including, but not
limited to, amending the Corporation's Certificate of Incorporation to increase
the number of authorized but unissued shares of Class A Common. All shares of
Class A Common which are issuable pursuant to the terms and conditions of this
Section 4 shall, when issued, be duly and validly issued, fully paid, and
nonassessable and free from all taxes, liens and charges.
4F. Closing Books. The Corporation shall not close its books
against the transfer of Senior Shares in any manner which would interfere with
the timely conversion of any Senior Shares.
5. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Senior Preferred Stock shall have no voting
rights; provided, that each holder of Senior Preferred Stock shall be entitled
to notice of all stockholders meetings at the same time and in the same manner
as notice is given to the stockholders entitled to vote at such meeting. With
respect to any issue required to be voted on and approved by holders of Senior
Preferred Stock, the holders of Senior Preferred Stock will vote as a single
class.
6. Covenants. Notwithstanding anything to the contrary
contained in this Article IV, the Corporation shall not take any of the
following actions without the prior written consent received in accordance with
Section 10 hereof: (i) creating or issuing any class or series of equity
security of the Corporation that is senior or pari passu in priority to the
Senior Preferred Stock; provided, that the Corporation may issue additional
shares of Senior Preferred Stock with an aggregate initial Liquidation Value of
up to $25.0 million (the "Additional Senior Preferred Issuance"); (ii) redeeming
or repurchasing any Junior Security; provided, that the foregoing clause (ii)
shall not apply to redemptions or repurchases of any Junior Security from any
employee of the Corporation upon the death, disability, retirement or other
termination of such employee; (iii) increasing the number of authorized shares
of Senior Preferred Stock; provided, that the foregoing clause (iii) shall not
apply to the Additional Senior Preferred Issuance; (iv) declaring or paying any
dividends on any Junior Securities (other than dividends declared in connection
with any stock splits, stock dividends, share combinations, share exchanges, or
other recapitalizations in which such dividends are made in the form of Junior
Securities); and (v) entering into any transaction or series of transactions
after the date hereof, whether or not in the ordinary course of business with
any Affiliate or 5% Owner (or any Affiliate of such 5% Owner); provided, that
the foregoing clause (v) shall not apply to
6
(A) employment arrangements with any Executive or employees of the Corporation
entered into in the ordinary course of business, (B) any transactions expressly
permitted or contemplated by the Transaction Agreements, or (C) any transaction
consented to by not less than 70% of the Shareholder Shares (as such term is
defined in the Shareholders Agreement), excluding for purposes of this clause
(C) Shareholder Shares held by such Affiliate or 5% Owner.
7. Registration of Transfer. The Corporation will keep at its
principal office a register for the registration of Senior Preferred Stock. Upon
the surrender of any certificate representing Senior Preferred Stock at such
place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Senior Shares represented by the surrendered certificate. Each
such new certificate will be registered in such name and will represent such
number of Senior Shares as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and dividends will accrue on the Senior Preferred Stock represented
by such new certificate from the date to which dividends have been fully paid on
such Senior Preferred Stock represented by the surrendered certificate.
8. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Senior Shares, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number of Senior Shares of such class represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the Senior
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
9. Definitions. The following definitions apply only to this
Section II.
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Amended Registration Rights Agreement" means the Registration
Rights Agreement, dated as of December 10, 1996, by and among the Corporation
and its shareholders, as amended by the First Amendment to Registration Rights
Agreement, dated as of November 13, 1998, by and among the Corporation and
certain shareholders of the Corporation, as the same may be amended, restated,
or modified from time to time.
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"Business Day" means any day, excluding Saturday, Sunday, and
any day which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close.
"Conversion Event" has the meaning set forth in Section 4A.
"5% Owner" means any Person who owns in excess of 5% of the
Common Stock on a fully diluted basis.
"Initial Public Offering" means the underwritten initial
public offering of Common Stock registered under the Securities Act.
"Junior Securities" means any of the Corporation's equity
securities, other than the Senior Preferred Stock, including, without
limitation, the Junior Preferred Stock and the Common Stock.
"Liquidation Value" of any Senior Share as of any particular
date will be equal to the sum of $1,000.00 per Senior Share, plus any and all
accumulated and unpaid dividends which are added to the Liquidation Value
pursuant to Section 1B above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Redemption Date" as to any Senior Share means (x) November
13, 2008 or (y) the date specified in the notice of any redemption at the
Corporation's option or the applicable date specified herein in the case of any
other redemption; provided, that no such date will be a Redemption Date unless
the applicable Liquidation Value (plus all accumulated, accrued and unpaid
dividends thereon) is actually paid, and if not so paid, the Redemption Date
will be the date on which such Liquidation Value (plus all accumulated, accrued
and unpaid dividends thereon) is fully paid.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders Agreement" means the Amended and Restated
Shareholders Agreement, dated as of November 13, 1998, by and among the
Corporation and certain shareholders of the Corporation, as the same may be
amended, restated, or modified from time to time.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of Senior Shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest
8
in a partnership, association or other business entity if such Person or Persons
shall be allocated a majority of partnership, association or other business
entity gains or losses or shall be or control the managing director or a general
partner of such partnership, association or other business entity.
"Transaction Agreements" means (i) the Shareholders Agreement,
(ii) the Amended Registration Rights Agreement, (iii) the Senior Preferred Stock
Purchase Agreement (as defined in the Shareholders Agreement), (iv) the Investor
Agreements (as defined in the Shareholders Agreement), (v) the Warrant Documents
(as defined in the Shareholders Agreement), (vi) the Second Senior Preferred
Stock Purchase Agreement (as defined in the Shareholder Agreement) (when and if
executed and delivered by the parties thereto), (vii) the Executive Agreements
(as defined in the Shareholders Agreement), (viii) the Common Option Agreements
(as defined in the Shareholders Agreement), (ix) the Preferred Option Agreements
(as defined in the Shareholders Agreement), and (x) the Professional Services
Agreement, dated as of December 10, 1996, by and among the Corporation and an
Affiliate of Bruckmann, Rosser, Sherrill & Co., L.P.
10. Amendment and Waiver.
No amendment, modification or waiver will be binding or
effective with respect to any provision of this Section II without the prior
written consent of the holders of Senior Preferred Stock with a Liquidation
Value representing more than fifty percent (50%) of the aggregate Liquidation
Value of such Senior Preferred Stock then outstanding. Notwithstanding anything
to the contrary contained herein, no amendment, modification or waiver of any
provision of this Section II that adversely affects any holder of Senior
Preferred Stock and is prejudicial to such holder relative to all other holders
of Senior Preferred Stock shall be effective against such holder without such
holder's consent.
11. Notices.
Except as otherwise expressly provided, all notices referred
to herein will be in writing and will be delivered by registered or certified
mail, return receipt requested, postage prepaid and will be deemed to have been
given when so mailed (I) to the Corporation, at its principal executive offices
and (ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
III. JUNIOR PREFERRED STOCK.
Except as otherwise provided in this Section III or as
otherwise required by applicable law, all shares of Junior Preferred Stock (each
such share, a "Junior Share") shall be identical in all respects and shall
entitle the holders thereof to the same rights and privileges, subject to the
same qualifications, limitations and restrictions.
1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's board of directors and to the extent permitted under the Business
Corporation Law of New York, the Corporation will pay preferential dividends to
the holders of the Junior Preferred Stock as
9
provided in this Section 1. Except as otherwise provided herein, dividends on
each share of Series A Preferred Stock (a "Series A Share") will accrue at a
rate of 14% per annum and dividends on each share of Series B Preferred Stock (a
"Series B Share") will accrue at a rate of 14% per annum of the Liquidation
Value of such Junior Share from and including the date of issuance of such
Junior Share to and including the date on which the Liquidation Value (plus all
accrued and unpaid dividends thereon) of such Junior Share is paid in full. Such
dividends will accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. The date on which the Corporation initially issues
any Series A Share will be deemed to be its "date of issuance" regardless of the
number of times transfer of such Series A Share is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Series A Share. The "date of
issuance" for each Series B Share shall be deemed to be December 10, 1996
regardless of the number of times transfer of such Series B Share is made on the
stock records maintained by or for the Corporation and regardless of the number
of certificates which may be issued to evidence such Series B Share.
1B. Junior Preferred Dividend Reference Dates. To the extent
that all accrued dividends are not paid on each January 1 and July 1 of each
year beginning January 1, 1997 (the "Junior Preferred Dividend Reference
Dates"), all dividends which have accrued on each Junior Share outstanding
during the six-month period (or other period in the case of the initial Junior
Preferred Dividend Reference Date) ending upon each such Junior Preferred
Dividend Reference Date will be accumulated and added to the Liquidation Value
of such Junior Share.
1C. Distribution of Partial Dividend Payments. If at any time
the Corporation elects to pay dividends in cash and pays less than the total
amount of dividends then accrued with respect to the Junior Preferred Stock,
such payment will be distributed ratably among the holders of the Junior
Preferred Stock based upon the aggregate accrued but unpaid dividends on the
Junior Shares of such class held by each such holder.
1D. Payment of Stock Dividends. In the sole discretion of the
Corporation, any dividends accruing on the Junior Shares may be paid, in lieu of
cash dividends, by the issuance of additional Junior Shares (including
fractional Junior Shares) having an aggregate Liquidation Value at the time of
such payment equal to the amount of the dividend to be paid (such Junior Shares,
the "Dividend Shares"); provided, that (i) if the Corporation pays less than the
total amount of dividends then accrued on the Junior Preferred Stock in the form
of Dividend Shares, such payment in Dividend Shares shall be made pro rata to
the holders of Junior Shares based upon the aggregate accrued but unpaid
dividends on the Junior Shares held by each such holder and (ii) Section 3H
below shall not apply to any and all Dividend Shares.
2. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation, the holders of the Series A Preferred Stock and Series B
Preferred Stock will be entitled on a pari passu basis to be paid, before any
distribution or payment is made upon any of the Corporation's equity securities
(except with respect to any distribution or payment made upon the Senior
Preferred Stock), an amount in cash equal to the aggregate Liquidation Value
(plus all accrued and unpaid dividends thereon) of all such Junior Shares
outstanding, and the holders of Series A Preferred Stock and Series B Preferred
Stock will not be entitled to any further payment. The Corporation will mail
written notice of such liquidation, dissolution or
10
winding up, not less than 10 days prior to the payment date stated therein, to
each record holder of Junior Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 2.
3. Redemptions.
3A. Optional Redemptions. Subject to the terms and conditions
of the Senior Preferred Stock, the Corporation may at any time redeem all or any
portion of Series A Preferred Stock and Series B Preferred Stock then
outstanding at a price per Junior Share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon); provided, that all optional
redemptions pursuant to this Section 3A are made pro rata among the holders of
Junior Preferred Stock on the basis of the number of Junior Shares held by each
such holder.
3B. Redemption Price. For each Junior Share which is to be
redeemed the Corporation will be obligated on the Redemption Date to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Junior Share) an amount in
immediately available funds equal to the Liquidation Value thereof (plus all
accrued and unpaid dividends thereon). If the Corporation's funds which are
legally available for redemption of Junior Shares on any Redemption Date are
insufficient to redeem the total number of Junior Shares to be redeemed on such
date, those funds which are legally available will be used to redeem the maximum
possible number of Junior Shares ratably among the holders of the Junior Shares
to be redeemed based upon the aggregate Liquidation Value of such Junior Shares
(plus all accrued and unpaid dividends thereon) held by each such holder and
other Junior Shares not so redeemed shall remain issued and outstanding until
redeemed in accordance with the terms thereof. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
Junior Shares, such funds will immediately be used to redeem the balance of the
Junior Shares which the Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed.
3C. Notice of Redemption. The Corporation will mail written
notice of each redemption of Junior Preferred Stock to each record holder not
more than 30 nor less than 10 days prior to the date on which such redemption is
to be made. Upon mailing any notice of redemption which relates to a redemption
at the Corporation's option, the Corporation will become obligated to redeem the
total number of Junior Shares specified in such notice at the time of redemption
specified therein. In case fewer than the total number of Junior Shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Junior Shares will be issued to the holder thereof without
cost to such holder within three business days after surrender of the
certificate representing the redeemed Junior Shares.
3D. Determination of the Number of Each Holder's Junior Shares
to be Redeemed. Except as otherwise provided herein, the number of Junior Shares
to be redeemed from each holder thereof in redemptions hereunder will be the
number of Junior Shares determined by multiplying the total number of Junior
Shares to be redeemed times a fraction, the numerator of which will be the total
number of Junior Shares then held by such holder and the denominator of which
will be the total number of Junior Shares then outstanding.
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3E. Dividends After Redemption Date. No Junior Share is
entitled to any dividends accruing after the date on which the Liquidation Value
(plus all accrued and unpaid dividends thereon) of such Junior Share is paid in
full. On such date all rights of the holder of such Junior Share will cease, and
such Junior Share will not be deemed to be outstanding.
3F. Redeemed or Otherwise Acquired Junior Shares. Any Junior
Shares which are redeemed or otherwise acquired by the Corporation will be
canceled and will not be reissued, sold or transferred.
3G. Other Redemptions or Acquisitions. Subject to the terms
and conditions of the Senior Preferred Stock, neither the Corporation nor any
Subsidiary will redeem or otherwise acquire any Junior Preferred Stock, except
as expressly authorized herein or pursuant to a purchase offer made pro rata to
all holders of the Junior Preferred Stock on the basis of the number of Junior
Shares owned by each such holder.
3H. Special Redemptions. If a Change in Control has occurred,
then the Corporation shall give prompt written notice of such Change in Control,
describing in reasonable detail the definitive terms and date of consummation
thereof to each holder of Junior Preferred Stock, but in any event such notice
shall be given not more than 30 days nor less than ten days prior to the
occurrence of such Change in Control. Each holder of Junior Preferred Stock then
outstanding may require the Corporation to redeem all or any portion of the
Junior Preferred Stock owned by such holder at a price per Junior Share equal to
the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by
giving written notice to the Corporation of such election within 30 days of
receipt of the Corporation's notice. Upon receipt by the Corporation of such
written notice from any holder, subject to the provisions of any loan agreement,
indenture or credit agreement evidencing indebtedness for borrowed money
incurred by the Corporation, the Corporation shall be obligated to redeem the
aggregate number of Junior Shares specified therein within five days after
receipt of such notice from such holder. The term "Change in Control" means (i)
the sale of all or substantially all of the assets reflected on the
Corporation's most recent consolidated balance sheet or capital stock of the
Corporation, or (ii) the acquisition, through stock purchase, merger or
otherwise, by a Person or group of Persons (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) unaffiliated with
Bruckmann, Rosser, Sherrill & Co., L.P. (and its Permitted Transferees (as
defined in the Shareholders Agreement)) and management employees of the
Corporation immediately prior to giving effect such transaction, of capital
stock of the Corporation representing, at any date of determination, (x) prior
to the consummation of an initial public offering of the Common Stock registered
under the Securities Act of 1933, as amended, 51% or more of the common equity
interest in the Corporation's capital stock and (y) following the consummation
of such an initial public offering of the Common Stock, 33% or more of the
common equity interest in the Corporation's capital stock.
3I. Priority of Junior Preferred Stock. So long as any Senior
Preferred Stock or Junior Preferred Stock remains outstanding, neither the
Corporation nor any Subsidiary shall declare or pay any cash dividends or make
any cash distributions with respect to or redeem, purchase or otherwise acquire
for cash, directly or indirectly, any Common Stock, if at the time of or
immediately after any such redemption, purchase, acquisition, dividend or
distribution the Corporation has failed to pay the full amount of dividends
accrued on the Senior Preferred Stock
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and the Junior Preferred Stock or the Corporation has failed to make any
redemption of the Senior Preferred Stock or the Junior Preferred Stock required
hereunder; provided, that the Corporation may purchase shares of Common Stock
from employees of the Corporation and its Subsidiaries upon termination of
employment.
4. Conversion of Series B Preferred Stock.
4A. Optional Conversion. Subject to Section 4B below, upon the
consummation of an Initial Public Offering (the "Conversion Event"), each Series
B Share shall, at the option of either the holder of such Series B Share or the
Company, be converted (and the rights of the holder of the Series B Shares shall
cease) into a number of shares of the Corporation's Class A Common equal to the
(i) Liquidation Value of such Series B Share as of the date of such Conversion
Event (plus all accumulated, accrued and unpaid dividends thereon) divided by
(ii) the price at which each share of Class A Common was sold in such Initial
Public Offering. The Corporation shall give prompt written notice to each holder
of Series B Shares if a Conversion Event has occurred, which notice shall
describe in reasonable detail the Conversion Event that has occurred.
4B. Surrender of Certificates. Each conversion of Series B
Shares into shares of Class A Common at the option of the holder of such Series
B Shares shall be effected by the surrender of the certificate or certificates
representing the Series B Shares to be converted at the principal office of the
Corporation at any time during normal business hours, together with a written
notice by the holder of such Series B Shares stating that such holder desires to
convert the Series B Shares, or a stated number of the Series B Shares,
represented by such certificate or certificates into shares of Class A Common.
Each conversion of Series B Shares at the option of the holder of such Series B
Shares shall be deemed to have been effected as of the close of business on the
date on which such certificate or certificates have been surrendered and such
notice has been tendered, and at such time the rights of the holder of the
converted Series B Shares as such holder shall cease, and the person or persons
in whose name or names the certificate or certificates for shares of Class A
Common are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Class A Common represented thereby.
Each conversion of Series B Shares into shares of Class A Common at the option
of the Company shall be effected by delivery of written notice to the holder of
such Series B Shares stating that the Company desires to convert the Series B
Shares, or a stated number of Series B Shares, held by the holder of such Series
B Shares. Upon receipt of such written notice, the holder of the Series B Shares
shall surrender promptly the certificate or certificates representing the Series
B Shares to be converted at the principal office of the Corporation at any time
during normal business hours. Each conversion of Series B Shares at the option
of the Company shall be deemed to have been effected as of the close of business
on the date indicated in the written notice of conversion delivered by the
Company to the holder of such Series B Shares, and at such time, the rights of
the holder of the converted Series B Shares as such holder shall cease, and the
person or person in whose name or names the certificate or certificates for
shares of Class A Common are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Class A Common
represented thereby.
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4C. Issuance of Certificates. Within five Business Days after
the surrender of certificates of Series B Shares, the Corporation shall issue
and deliver in accordance with the surrendering holder's instructions the
certificate or certificates for the Class A Common issuable upon such
conversion.
4D. No Charge. The issuance of certificates for Class A Common
upon conversion of the Series B Shares will be made without charge to the
holders of such Series B Shares of any issuance tax in respect thereof or other
cost incurred by the Corporation in connection with such conversion and the
related issuance of Class A Common.
4E. Reserved Shares. Upon the Conversion Event, the
Corporation shall take all such actions as may be necessary to assure that all
shares of Class A Common issuable pursuant to this Section 4 may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately transmitted by the Corporation upon issuance), including, but not
limited to, amending the Corporation's Certificate of Incorporation to increase
the number of authorized but unissued shares of Class A Common. All shares of
Class A Common which are issuable pursuant to the terms and conditions of this
Section 4 shall, when issued, be duly and validly issued, fully paid, and
nonassessable and free from all taxes, liens and charges.
4F. Closing Books. The Corporation shall not close its books
against the transfer of Series B Shares in any manner which would interfere with
the timely conversion of any Series B Shares.
5. Voting Rights. The Junior Shares will not have any voting
rights attaching to them, except as required by applicable law.
6. Registration of Transfer. The Corporation will keep at its
principal office a register for the registration of Junior Preferred Stock. Upon
the surrender of any certificate representing Junior Preferred Stock at such
place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Junior Shares represented by the surrendered certificate. Each
such new certificate will be registered in such name and will represent such
number of Junior Shares as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and dividends will accrue on the Junior Preferred Stock represented
by such new certificate from the date to which dividends have been fully paid on
such Junior Preferred Stock represented by the surrendered certificate.
7. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Junior Shares, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its expense) execute and
deliver in lieu of such certificate a new certificate
14
of like kind representing the number of Junior Shares of such class represented
by such lost, stolen, destroyed or mutilated certificate and dated the date of
such lost, stolen, destroyed or mutilated certificate, and dividends will accrue
on the Junior Preferred Stock represented by such new certificate from the date
to which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
8. Definitions. The following definitions apply to this
Section III only.
"Liquidation Value" of any Junior Share of (i) Series A
Preferred Stock as of any particular date will be an amount equal to $100.00 per
Junior Share, plus any and all accumulated and unpaid dividends which are added
to the Liquidation Value pursuant to Section 1B above and (ii) any Junior Share
of Series B Preferred Stock as of any particular date will be an amount equal to
$35.00 per Junior Share, plus any and all accumulated and unpaid dividends which
are added to the Liquidation Value pursuant to Section 1B above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Redemption Date" as to any Junior Share means the date
specified in the notice of any redemption at the Corporation's option or the
applicable date specified herein in the case of any other redemption; provided,
that no such date will be a Redemption Date unless the applicable Liquidation
Value (plus all accrued and unpaid dividends thereon) is actually paid, or set
aside for payment in full on such date, and if not so paid or set aside for
payment in full, the Redemption Date will be the date on which such Liquidation
Value (plus all accrued and unpaid dividends thereon) is fully paid.
"Shareholders Agreement" means the Shareholders Agreement,
dated as of December 10, 1996, by and among the Corporation and certain
shareholders of the Corporation, as the same may be amended, restated, or
modified from time to time.
"Subsidiary" means with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled directly or
indirectly, by any person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or other business entity.
9. Amendment and Waiver. No amendment, modification or waiver
will be binding or effective with respect to any provision of Section III
without the prior written consent of the holders of at least fifty percent (50%)
of the Junior Shares outstanding at the time such
15
action is taken; provided, that no such amendment, modification or waiver which
adversely and prejudicially affects the Series B Preferred shall be effective
without the prior written consent of the holders of at least fifty (50%) of the
Series B Shares outstanding at the time such action is taken.
10. Notices. Except as otherwise expressly provided, all
notices referred to herein will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage prepaid and will
be deemed to have been given when so mailed (I) to the Corporation, at its
principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
IV. COMMON STOCK.
Except as otherwise provided in this Section IV or as
otherwise required by applicable law, all shares of Common Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
1. Voting Rights. Except as otherwise provided in this Section
IV or as otherwise required by applicable law:
(A) the holders of Class A Common shall be
entitled to one vote per share on all
matters to be voted on by the Stockholders
of the Corporation; and
(B) the holders of Class B Common will not have
any voting rights.
2. Dividends. As and when dividends are declared or paid
thereon, whether in cash, property or securities of the Corporation, the holders
of Common Stock shall be entitled to participate in such dividends ratably on a
per share basis; provided, that (i) if dividends are declared which are payable
in shares of Common Stock, dividends shall be declared which are payable at the
same rate on all classes of Common Stock and dividends payable in shares of
Class A Common shall be payable to holders of Class A Common, and dividends
payable in shares of Class B Common shall be payable to holders of Class B
Common.
3. Liquidation. Subject to the provisions of the Senior
Preferred Stock and the Junior Preferred Stock, the holders of the Common Stock
shall be entitled to participate ratably on a per share basis in all
distributions to the holders of Common Stock in any liquidation, dissolution or
winding up of the Corporation.
4. Conversion of Common Stock.
4A. Right to Convert. Subject to Section 4B below, the holder
or holders of a majority of the outstanding shares of Class B Common shall be
entitled at any time to convert all or any portion of the shares of Class B
Common into the same number of shares of Class A Common. Any such conversion of
Class B Common into Class A Common will be effected among the holders of the
Class B Common on a pro rata basis based upon the number of shares of Class B
Common then outstanding.
16
4B. Surrender of Certificates. Each conversion of shares of
Class B Common into shares of Class A Common shall be effected by the surrender
of the certificate or certificates representing the shares to be converted at
the principal office of the Corporation at any time during normal business
hours, together with a written notice by the holder of shares of such Class B
Common stating that such holder desires to convert the shares, or a stated
number of the shares, of such Class B Common represented by such certificate or
certificates into shares of Class A Common. Each conversion of Class B Common
shall be deemed to have been effected as of the close of business on the date on
which such certificate or certificates have been surrendered and such notice has
been received, and at such time the rights of the holder of the converted Class
B Common as such holder shall cease, and the person or persons in whose name or
names the certificate or certificates for shares of Class A Common are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Class A Common represented thereby.
4C. Issuance of Certificates. Promptly after the surrender of
certificates of Class B Common and the receipt of written notice, the
Corporation shall issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates for the Class A Common issuable
upon such conversion.
4D. No Charge. The issuance of certificates for Class A Common
upon conversion of Class B Common will be made without charge to the holders of
such shares of any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of Class
A Common.
4E. Reserve Shares. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Class A Common,
solely for the purpose of issuance upon the conversion of the Class B Common,
such number of shares of Class A Common issuable upon conversion of all
outstanding shares of Class B Common. All shares of Common Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which will be immediately transmitted by the Corporation upon
issuance).
4F. Closing Books. The Corporation shall not close its books
against the transfer of shares of Common Stock in any manner which would
interfere with the timely conversion of any shares of Common Stock.
5. Stock Splits. If the Corporation in any manner subdivides
or combines the outstanding shares of one class of Common Stock, the outstanding
shares of each other class of Common Stock shall be proportionately subdivided
or combined in a similar manner.
6. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock. Upon the surrender of
any certificate representing shares of any class of
17
Common Stock at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the Corporation's expense) a
new certificate or certificates in exchange therefor representing in the
aggregate the number of shares of such class represented by the surrendered
certificate and the Corporation shall forthwith cancel such surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of shares of such Class As is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate. The issuance of new certificates shall be
made without charge to the holders of the surrendered certificates for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such issuance.
7. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (provided that an affidavit of the registered
holder will be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing one or more shares of any class of
Common Stock, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation (provided that
if the holder is a financial institution or other institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
8. Notices. All notices referred to herein shall be in
writing, and shall be delivered by registered or certified mail, return receipt
requested, postage prepaid, and shall be deemed to have been given when so
mailed (i) to the Corporation at its principal executive offices and (ii) to any
stockholder at such holder's address as it appears in the stock records of the
Corporation (unless otherwise specified in a written notice to the Corporation
by such holder).
9. Action by Written Consent. Any action required to be taken
at any annual or special meeting of shareholders of the Corporation, or any
action which may be taken at any annual or special meeting of such shareholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken and bearing
the dates of signature of the shareholders who signed the consent or consents,
shall be signed by the holders of outstanding stock having not less than a
majority of the shares entitled to vote, or, if greater, not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
10. Amendment and Waiver. No amendment or waiver of any
provision of this Section IV shall be effective without the prior consent of the
holders of a majority of the then outstanding shares of Common Stock voting as a
single class. For purposes of votes on amendments and waivers to this Section
IV, each share of Common Stock shall be entitled to one vote. No amendment
directly to any terms or provisions of any class of Common Stock that adversely
affects such class of Common Stock vis-a-vis any other class of Common Stock
shall be effective without the prior consent of the holders of a majority of the
then outstanding shares
18
of such class of Common Stock (it being understood that the issuance of
preferred stock shall not be deemed to adversely affect the Common Stock).
FIFTH: The amendment herein certified was authorized by the
written consent of all of the members of the Board of Directors of the
Corporation followed by the written consent of the holders of a majority of the
outstanding shares entitled to vote thereon of the Corporation.
* * * *
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IN WITNESS WHEREOF, the undersigned has subscribed this
document as of February 24, 2003 and does hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by the
undersigned and are true and correct.
TOWN SPORTS INTERNATIONAL, INC.
By: s/s Richard Pyle
-----------------------------------
Name: Richard Pyle
Title: Chief Financial Officer