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EXHIBIT 3.4
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
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I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "ADVOCAT INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF
NOVEMBER, A.D. 2000, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL] /s/ Edward J. Freel
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Edward J. Freel, Secretary of State
AUTHENTICATION: 0780342
DATE: November 8, 2000
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CERTIFICATE OF DESIGNATION
OF
ADVOCAT INC.
Pursuant to the Provisions of the
Delaware General Corporation Law
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To the Secretary of State of the State of Delaware:
Pursuant to the provisions of Section 151 of the Delaware General
Corporation Law (the "Delaware Act"), the undersigned corporation submits this
Certificate of Designation for the purpose of designating a series of shares and
fixing and determining the relative rights and preferences thereof:
1. The name of the corporation is Advocat Inc.
2. The following resolution, designating a series of shares of
Advocat Inc. (the "Corporation") and fixing and determining the relative rights
and preferences thereof, was duly adopted by the Board of Directors of the
Corporation at a duly called meeting held on November 7, 2000.
RESOLVED, that pursuant to the powers expressly delegated to the Board
of Directors by Sections 4 and 12 of the Certificate of Incorporation of the
Corporation and pursuant to Section 102 of the Delaware Act, the Corporation
designates as Series B Convertible Preferred Stock (the "Series B Preferred
Stock") that number of shares having the powers, preferences and rights as is
set forth below.
RESOLVED, that the President, Chairman of the Board of Directors, Vice
President or Secretary of the Corporation, and each of them, be, and hereby are,
authorized and directed to execute, file and deliver all such instruments,
agreements, applications or other documents or amendments to any thereof that
may be required, necessary or desirable to carry fully into effect the foregoing
resolution and that the execution, filing or delivery of all of such shall be
deemed conclusive evidence of the approval and authorization by this Corporation
of such acts.
All terms used herein which are defined in the Certificate of
Incorporation of the Corporation shall have the same meaning herein, unless
defined herein or the context otherwise requires.
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Section 1. Designation and Amount. Of the authorized 800,000
shares of undesignated Preferred Stock, 600,000 shall be designated Series B
Convertible Preferred Stock. Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no resolution shall
reduce the number of shares of Series B Preferred Stock to a number less than
the number of shares then outstanding.
Section 2. Dividends and Distributions. (a) The holders of
Series B Preferred Stock shall be entitled to receive, when and as declared by
the Board of Directors of the Corporation (the "Board of Directors"), out of the
net profits of the Corporation, dividends per share equal to 7% per annum of the
Stated Value (as herein defined) of such Series B Preferred Stock, payable
quarterly. No dividend shall be paid in cash prior to the later of (1) October
1, 2002, and (2) the end of the fiscal quarter following the date that certain
reimbursement promissory note issued by the Corporation to AmSouth Bank dated
November ____, 2000 (the "Reimbursement Note") has been paid in full (the
"Dividend Payment Date"). Dividends on the outstanding shares of Series B
Preferred shall begin to accrue and accumulate (whether or not declared) from
the Issue Date of the Series B Preferred Stock, calculated on the basis of a
360-day year consisting of twelve 30-day months, and shall accrue and accumulate
on a daily basis and compound on a quarterly basis (to the extent not otherwise
declared and paid as set forth above), in each case whether or not declared. In
the event the Series B Preferred Stock is converted as provided in Section 8
below prior to the Dividend Payment Date, accrued but unpaid dividends payable
upon such conversion shall be payable by promissory note maturing no later than
the Dividend Payment Date in substantially the same form as the Subordinated
Note (as defined in Section 11 below) or by conversion as provided in Section
8(e) below, but not in cash. Notwithstanding anything to the contrary in this
Section 2, after the Dividend Payment Date, the Board of Directors shall declare
dividends on the Series B Preferred Stock to the extent, in its good faith
judgment, there are Available Funds (defined in Section 12 below) to pay such
quarterly dividends. To the extent there are insufficient Available Funds to pay
all holders of the Preferred Stock the full quarterly dividend for any quarter,
the Board of Directors shall declare a dividend to all holders of the Preferred
Stock on a pro rata basis to the extent of Available Funds, if any. Holders of
shares of the Preferred Stock shall be entitled to receive such dividends in
preference to and in priority over dividends upon Junior Stock (defined in
Section 12 below). All dividends declared upon the Series B Preferred Stock
shall be declared pro rata per share. For purposes hereof, the term "Stated
Value" shall mean $8.3829 per share, subject to appropriate adjustment in the
event of any stock dividend, stock split, stock distribution or combination with
respect to the Series B Preferred Stock.
(b) Dividends on the Series B Preferred Stock shall be cumulative
and compounded quarterly and shall continue to accrue whether or not declared
and whether or not in any fiscal year there shall be net profits or surplus
available for the payment of dividends in such fiscal year.
Section 3. Liquidation, Dissolution or Winding Up. (a) In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the holders of shares of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment shall be made
to the
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holders of Junior Stock, an amount in cash equal to the Stated Value per share
plus any dividends thereon accrued but unpaid. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for the distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series B
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect to the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were paid
in full.
(b) If any shares of Series A Preferred Stock are then outstanding
based upon a Distribution Date (as defined in the Rights Agreement dated as of
March 13, 1995 by and between Advocat and Third National Bank in Nashville - the
"Rights Agreement") caused by an Acquiring Person (as defined in the Rights
Agreement) other than the holder of the Series B Preferred Stock, then after the
payment of all preferential amounts required to be paid to the holders of Series
B Preferred Stock pursuant to Section 3(a) above and any other series of
Preferred Stock which is senior in priority to the Series A Preferred Stock upon
the dissolution, liquidation or winding up of the Corporation, no distribution
shall be made (1) as to the holders of shares of stock ranking junior to the
Series A Preferred Stock unless prior thereto the holders of Series B Preferred
Stock shall have received an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
plus an amount equal to the greater of (i) $100.00 per share or (ii) an
aggregate amount per share, subject to adjustment, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock, or (2)
to the holders of Series A Preferred Stock or any other stock ranking on a
parity with the Series A Preferred Stock, except distributions made ratably on
the Series B Preferred Stock and all other such parity stock in proportion to
the total amount to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. Notwithstanding the foregoing, in the
event a holder of Series B Preferred Stock transfers any shares of Series B
Preferred Stock to an Acquiring Person, then the rights to distributions
subsequent to the date of such transfer provided to such holder pursuant to this
Section 3(b) shall be null and void. In the event the Corporation shall at any
time after the date hereof declare or pay any dividend on Common Stock payable
in shares of Common Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the aggregate amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to the event described under
clause (1) above of the immediately prior sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(c) If no shares of Series A Preferred Stock are then outstanding,
then after the payment of all preferential amounts required to be paid to the
holders of Series B Preferred Stock and any other series of Preferred Stock upon
the dissolution, liquidation or winding up of the Corporation,
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the holders of shares of Common Stock then outstanding shall be entitled to
receive the remaining assets and funds of the Corporation available for
distribution to stockholders.
(d) The Corporation will mail written notice of any distribution
upon liquidation, dissolution or winding up, not less than 30 days prior to the
payment date stated therein, to each record holder of Series B Preferred Stock.
Section 4. Certain Restrictions. (a) At any time when there are
accrued and unpaid dividends and distributions, whether or not declared and
whether before or after the Dividend Payment Date, on shares of Series B
Preferred Stock outstanding, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration
any shares of Junior Stock (provided that the Corporation may
redeem shares of Common Stock from employees pursuant to
rights of the Corporation under employment agreements or
employee benefit plans);
(ii) except as permitted in subparagraph 4(a)(iii) below, redeem,
purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B
Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series B
Preferred Stock; or
(iii) purchase or otherwise acquire for consideration any shares of
Series B Preferred Stock, except in accordance with a pro rata
purchase offer for all or any portion of the shares of Series
B Preferred Stock made in writing to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subparagraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
(c) So long as any shares of Series B Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of at least a majority of the then outstanding shares of Series B
Preferred Stock, voting together as a single class:
(i) authorize or issue, or obligate itself to issue, any other
equity security (including any security convertible into or
exercisable for any equity security) senior to or on a
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parity with the Series B Preferred Stock as to dividend rights
or redemption rights or liquidation preferences;
(ii) permit any subsidiary to issue or sell, or obligate itself to
issue or sell, except to the Corporation or any wholly owned
subsidiary, any stock or other equity interest of such
subsidiary;
(iii) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Preferred Stock.
Section 5. Voting Rights. Except as otherwise provided by law
and Sections 4 and 14 of this Designation, the holders of shares of Series B
Preferred Stock shall have no voting rights and their consent shall not be
required for taking corporation action.
Section 6. Reacquired Shares. Any shares of Series B Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock that may be reissued as a part of a new series of
Preferred Stock, subject to the restrictions set forth in other Certificates of
Designation, or to Certificates of Amendment, creating a series of Preferred
Stock or any other similar stock or is otherwise required by law.
Section 7. Consolidation, Merger, Etc. If the Corporation shall
enter into any consolidation, merger, share exchange, combination or other
transaction in which all or substantially all of the shares of the Corporation
are exchanged for or changed into other stock or securities, cash, and/or any
other property, and if any shares of Series A Preferred Stock are then
outstanding based upon a Distribution Date caused by an Acquiring Person other
than the holder of the Series B Preferred Stock, then in any such case, at the
option of the holders of Series B Preferred Stock, each share of Series B
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provisions hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged. If the Corporation shall at any time declare or pay any
dividend on the Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. Notwithstanding the foregoing, in
the event a holder of Series B Preferred Stock transfers any shares of Series B
Preferred Stock to an Acquiring Person, then the rights to distributions
subsequent to the date of such transfer provided to such holder pursuant to this
Section 7 shall be null and void.
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Section 8. Conversion. (a) Each share of Series B Preferred
Stock may be converted at any time, at the option of the holder thereof, into
the number of fully-paid and nonassessable shares of Common Stock obtained by
dividing the Stated Value by the Conversion Price then in effect (the
"Conversion Rate"), provided, however, that on any redemption of any Series B
Preferred Stock or any liquidation of the Corporation, the right of conversion
shall terminate at the close of business on the full business day next preceding
the date fixed for such redemption or for the payment of any amounts
distributable on liquidation to the holders of Series B Preferred Stock. The
initial conversion price, subject to adjustment as provided herein, is equal to
$4.6705 (the "Conversion Price"). The initial Conversion Rate for the Series B
Preferred Stock shall be 1.7949 shares of Common Stock for each one share of
Series B Preferred Stock surrendered for conversion.
(b) The Corporation shall not issue fractions of shares of Common
Stock upon conversion of Series B Preferred Stock or scrip in lieu thereof. If
any fraction of a share of Common Stock would, except for the provisions of this
Section 8(b), be issuable upon conversion of any Series B Preferred Stock, the
Corporation shall in lieu thereof pay to the person entitled thereto an amount
in cash equal to the Current Value (as defined in Section 12 below) of such
fraction of a share of Common Stock, calculated to the nearest one-one hundredth
(1/100) of a share.
(c) In order to exercise the conversion privilege, the holder of
any Series B Preferred Stock to be converted shall surrender its certificate or
certificates therefor to the principal office of the transfer agent for the
Series B Preferred Stock (or if no transfer agent be at the time appointed, then
the Corporation at its principal office), and shall give written notice to the
Corporation at such office that the holder elects to convert the Series B
Preferred Stock represented by such certificates, or any number thereof. Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued, subject to any restrictions on transfer
relating to shares of the Series B Preferred Stock or shares of Common Stock
upon conversion thereof. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly authorized in writing. The date of receipt by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) of the
certificates and notice shall be the conversion date. As soon as practicable
after receipt of such notice and the surrender of the certificate or
certificates for Series B Preferred Stock as aforesaid, the Corporation shall
cause to be issued and delivered at such office to such holder, or on its
written order, a certificate or certificates for the number of full shares of
Common Stock issuable on such conversion and, if less than all shares of Series
B Preferred Stock represented by the certificate or certificates so surrendered
are being converted, a residual certificate or certificates representing the
shares of Series B Preferred Stock not converted.
(d) The Corporation shall at all times when the Series B Preferred
Stock shall be outstanding reserve and keep available out of its authorized but
unissued stock, for the purposes of effecting the conversion of the Series B
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series B Preferred Stock.
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(e) Upon any such conversion, any accrued but unpaid dividends on
the Series B Preferred Stock surrendered for conversion (the "Unpaid Dividends")
shall be paid:
(1) to the extent available and subject to the limitations
contained in Section 9(c)(1), by conversion into additional
shares of Common Stock;
(2) to the extent the Unpaid Dividends can not be converted into
Common Stock, if the Reimbursement Note has been paid in full,
then in cash; and
(3) any remaining Unpaid Dividends, by promissory note.
A holder of shares of Series B Preferred Stock may waive the payment of accrued
but unpaid dividends in its sole discretion. If the holder of shares of the
Series B Preferred Stock to be converted accepts a promissory note as payment
for any unpaid dividends accrued on the shares to be converted, the promissory
note shall be in substantially the same form as the Subordinated Note and will
mature on the last day of the quarter following the payment in full of the
Reimbursement Note. The number of additional shares of Common Stock to be issued
in respect of any Unpaid Dividends shall be equal to the amount of such accrued
but unpaid dividends divided by the Current Value of the Common Stock. To the
extent that any such dividend would result in the issuance of a fractional share
of Common Stock (which shall be determined with respect to the aggregate number
of shares of Common Stock held of record by each holder) then the Current Value
of such fraction of a Share shall be paid in cash (unless there are no legally
available funds with which to make such cash payment, in which event such cash
payment shall be made as soon as possible).
(f) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall forthwith cease and terminate except
only the right to the holder thereof to receive shares of Common Stock in
exchange therefor and payment of any accrued and unpaid dividends thereon.
Section 9. Mandatory Conversion. (a) Subject to the limitations
set forth in Section 9(c) below, the Corporation shall have the right to cause
the conversion of Series B Preferred Stock into shares of Common Stock at its
then effective Conversion Price at any time, provided that the Current Value of
the Corporation's Common Stock on the date of the notice described in Section
9(b) below and on the Conversion Date (as defined in Section 9(b) below) is
equal to or greater than 150% of the Conversion Price. In such a mandatory
conversion, the Corporation will pay accrued and unpaid dividends as provided in
Section 8(e).
(b) All holders of record of shares of Series B Preferred Stock
will be given at least 30 days' prior written notice (the "Conversion Notice")
of the date fixed (the "Conversion Date") and the place designated for mandatory
conversion of all (or if limited pursuant to Section 9(c)(1), such portion) of
such shares of Series B Preferred Stock pursuant to this Section 9. The
Conversion Notice will be sent by mail, first class, postage prepaid, to each
record holder of shares of Series B
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Preferred Stock at such holder's address appearing on the stock register. On or
before the date fixed for conversion each holder of shares of Series B Preferred
Stock shall surrender its certificate or certificates for all such shares to the
Corporation at the place designated in the Conversion Notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 9. Subject to Section
9(c), on the date fixed for conversion, all rights with respect to the Series B
Preferred Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series B Preferred Stock has been converted and payment of any accrued and
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his attorneys duly authorized in
writing. Subject to Section 9(c), all certificates evidencing shares of Series B
Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions of Section 9(a) shall, from and after the date
such certificates are so required to be surrendered, be deemed to have been
retired and canceled and the shares of Series B Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates on or
prior to such date. As soon as practicable after the date of such mandatory
conversion and the surrender of the certificate or certificates for Series B
Preferred Stock as aforesaid, the Corporation shall cause to be issued and
delivered to such holder, or on its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Section 8(b)
hereof in respect of any fraction of a share of Common Stock otherwise issuable
upon such conversion.
(c) Notwithstanding anything in this Designation to the contrary,
the Corporation may not require conversion of the shares of Series B Preferred
Stock into shares of Common Stock pursuant to this Designation and the holders
of the Series B Preferred Stock shall continue to hold shares of Series B
Preferred Stock after delivery of a Conversion Notice, unless, as of the date of
the proposed conversion:
(1) the accountants or legal counsel of the holders of
such Series B Preferred Stock to be converted render
a written opinion (the "Conversion Opinion") to such
holders prior to conversion that such conversion will
not result in, cause or create a material risk of,
the holders losing its or their status as a Real
Estate Investment Trust under the Internal Revenue
Code of 1986, as amended; provided, however, that the
Corporation may convert a portion of the Series B
Preferred Stock to Common Stock pursuant to Section
9(a) if the accountants or legal counsel of the
holders of such Series B Preferred Stock to be
converted render a Conversion Opinion with respect to
such portion and if subparagraphs (2) thru (5) of
this Section 9(c) are satisfied as of the date of the
proposed conversion;
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(2) the Common Stock is registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended
(the "34 Act") and the Corporation has timely filed
all reports required to be filed by the Corporation
under the 34 Act within the previous two years;
(3) no Event of Default (as defined in Section 12 below)
has occurred and is continuing;
(4) the Common Stock is listed for trading on the Nasdaq
National Market, the New York Stock Exchange or upon
a comparable national stock exchange; and
(5) the average weekly trading volume of the Common Stock
over the prior four weeks was at least 500,000 shares
traded (as adjusted for stock splits, stock dividends
or similar transactions).
All costs associated with the Conversion Opinion shall be paid by the
Corporation.
(d) If the Corporation may not convert all or any portion of the
shares of Series B Preferred Stock (the "Unconverted Shares") to the
Corporation's Common Stock pursuant to Section 9(a) solely because of the
limitation set forth in Section 9(c)(1), then, provided that the Reimbursement
Note has been paid in full, on the Conversion Date, the Corporation may redeem
all of the Unconverted Shares at a per share price in cash equal to the greater
of (1) the Current Value on the date of the Conversion Notice and (2) the
closing price on the last Trading Day (as defined in Section 12) immediately
prior to the Conversion Date, plus an amount equal to any dividends accrued but
unpaid thereon (such amount is hereinafter referred to as the "Corporation's
Redemption Price").
(e) On or prior to the Conversion Date, each holder of Series B
Preferred Stock to be redeemed shall surrender its certificate or certificates
representing such shares to the Corporation, and thereupon the Corporation's
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. From and after the Conversion
Date, unless there shall have been a default in payment of the Corporation's
Redemption Price, all rights of the holders of the Series B Preferred Stock
redeemed (except the right to receive the Redemption Price upon surrender of
their certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever.
Section 10. Conversion Price. The Conversion Price per share for
the Series B Preferred Stock shall be subject to adjustment from time to time as
provided below.
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(a) Adjustments to Conversion Price Based on Changes in
Capitalization. If outstanding shares of the Junior Stock of the Corporation
shall be subdivided into a greater number of shares, or a dividend in Junior
Stock or other securities of the Corporation convertible into or exchangeable
for Junior Stock (in which latter event the number of shares of Junior Stock
issuable upon the conversion or exchange of such securities shall be deemed to
have been distributed) shall be paid in respect to the Junior Stock of the
Corporation, or upon any other event which would reasonably require equitable
adjustment for the benefit of the holders of Series B Preferred Stock, the
Conversion Price in effect immediately prior to such subdivision or at the
record date of such dividend or at the date of such other event shall,
simultaneously with the effectiveness of such subdivision or other event or
immediately after the record date of such dividend, be proportionately reduced,
and conversely, if outstanding shares of the Common Stock of the Corporation
shall be combined into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. Any adjustment
to the Conversion Price under this subsection (a) shall become effective at the
close of business on the date the subdivision or combination or other event
referred to herein becomes effective.
(b) Adjustments to Conversion Price Based on Future
Issuances. If at any time or from time to time the Corporation shall issue or
sell Additional Shares of Junior Stock (as hereinafter defined) other than in a
transaction which falls within subsection (a), for a consideration per share
less than the then existing Conversion Price, then, and thereafter successively
upon each such issuance or sale, the Conversion Price shall, pursuant to the
following formula (the "Conversion Formula"), be adjusted to a Conversion Price
(calculated to the nearest cent) determined by dividing:
(i) an amount equal to the sum of (A) the
Conversion Price immediately prior to such
issue or sale, multiplied by the number of
shares of Junior Stock outstanding at the
close of business on the day next preceding
the date of such issue or sale, plus (B) the
aggregate consideration, if any, received or
to be received by the Corporation upon such
issue or sale, by
(ii) the number of shares of Junior Stock
outstanding at the close of business on the
date of such issue or sale after giving
effect to the issuance of such Additional
Shares of Junior Stock.
(c) Definitions for Purposes of this Section 10.
Notwithstanding any contrary definitions in these Articles, for purposes of this
Section 10, the following definitions shall apply:
(1) Consideration. For the purpose of making any
adjustment in the Conversion Price or number of shares of Common Stock
acquired upon conversion of the Series B Preferred Stock, as provided
above, the consideration received by the Corporation for any issue or
sale of securities shall:
(i) to the extent it consists of cash,
be deemed to be the amount of cash received by the Corporation
for such shares (or, if such shares are offered by
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the Corporation for subscription, the subscription price, or,
if such shares are sold to underwriters or dealers for public
offering without a subscription offering, the initial public
offering price), without deducting therefrom any compensation
or discount paid or allowed to underwriters or dealers or
others performing similar services or for any expenses
incurred in connection therewith;
(ii) to the extent it consists of
property other than cash, be computed at the fair market value
thereof as determined in good faith by the Board of Directors
of the Corporation, at or about, but as of, the date of the
adoption of the resolution specifically authorizing such
issuance or sale, irrespective of any accounting treatment
thereof; provided, however, that such fair market value as
determined by the Board of Directors of the Corporation, when
added to any cash consideration received in connection with
such issuance or sale, shall not exceed the aggregate market
price of the Additional Shares of Junior Stock being issued,
as of the date of the adoption of such resolution; and
(iii) Additional Shares
(A) if Additional Shares of Junior
Stock or Convertible Securities (as hereinafter
defined) or rights or options to purchase either
Additional Shares of Junior Stock or Convertible
Securities are issued or sold together with other
stock or securities or other assets of the
Corporation for consideration which covers both, the
consideration received for the Additional Shares of
Junior Stock, Convertible Securities or rights or
options shall be computed as that portion of the
consideration so received which is reasonably
determined in good faith by the Board of Directors of
the Corporation to be allocable to such Additional
Shares of Junior Stock, Convertible Securities or
rights or options. For the purpose of making any
adjustment in the Conversion Price provided in this
Section 10, if at any time, or from time to time, the
Corporation issues any stock or other securities
convertible into Additional Shares of Junior Stock
(such stock or other securities being hereinafter
referred to as "Convertible Securities") or issues
any rights or options to purchase Additional Shares
of Junior Stock or Convertible Securities (such
rights or options being hereinafter referred to as
"Rights"), then, and in each such case, the
Corporation shall be deemed to have issued at the
time of the issuance of such Rights or Convertible
Securities the maximum number of Additional Shares of
Junior Stock issuable upon exercise or conversion
thereof and to have received in consideration for the
issuance of such shares an amount equal to the
aggregate Effective Conversion Price of such Rights
or Convertible Securities. For the purposes of this
Section 10, "Effective Conversion Price" shall mean
an amount equal to the sum of the lowest amount of
consideration, if any, received or receivable by the
Corporation with respect to any one Additional Share
of Junior Stock upon issuance of the Rights or
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Convertible Securities and upon their exercise or
conversion, respectively. No further adjustment of
the Conversion Price shall be made as a result of the
actual issuance of Additional Shares of Junior Stock
on the exercise of any such Rights or the conversion
of any such Convertible Securities;
(B) if the purchase price or rate at
which any Rights or Convertible Securities are
convertible into or exchangeable for Additional
Shares of Junior Stock shall change at any time
(other than under or by reason of provisions designed
to protect against dilution), the Conversion Price
then in effect shall forthwith be readjusted as
otherwise provided herein to the Conversion Price
that would have been in effect at such time had such
Rights or Convertible Securities still outstanding
provided for such changed purchase price, additional
consideration or conversion right, as the case may
be, at the time initially issued, granted or sold. If
the purchase price, or the rate or the additional
consideration (if any) payable upon the exercise,
conversion or exchange of any Rights or Convertible
Securities shall be changed at any time or by reason
of provisions with respect thereto designed to
protect against dilution, then in the case of the
delivery of shares of Junior Stock upon exercise,
conversion or exchange of any such Rights or
Convertible Security, the Conversion Price then in
effect hereunder shall, upon issuance of such shares
of Junior Stock, be adjusted to such amount as would
have obtained had such Right or Convertible Security
never been issued and had adjustments been made only
upon the issuance of the shares of Junior Stock
delivered as aforesaid and for the consideration
actually received for such Convertible Security and
the Junior Stock;
(C) in the event of the termination
or expiration of any right to exercise, convert or
exchange Rights or Convertible Securities, the
Conversion Price then in effect shall, upon such
termination, be changed to the Conversion Price that
would have been in effect at the time of such
expiration or termination had such Right or
Convertible Security, to the extent outstanding
immediately prior to such expiration or termination,
never been issued, and the shares of Junior Stock
issuable thereunder shall no longer be deemed to be
outstanding Junior Stock.
(2) Outstanding Junior Stock. For purposes of this
Section 10, in determining the number of shares of the Junior Stock of
this Corporation outstanding at any time, there shall be included, in
addition to the Junior Stock then issued and outstanding, all Junior
Stock then issuable upon exercise of all outstanding Rights and
conversion of all outstanding Convertible Securities.
(3) Additional Shares of Junior Stock. "Additional Shares
of Junior Stock" as used in this Section 10 shall mean all shares of
Junior Stock or Convertible Securities and Rights issued by the
Corporation subsequent to the date of these Designation, other than (i)
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shares of Common Stock issued pursuant to the conversion of Series B
Preferred Stock, and (ii) the issuance and sale of, or the grant of
options to purchase Common Stock, to employees, directors or officers
of, or bona fide consultants to, the Corporation and its subsidiaries
pursuant to stock plans or options or agreements adopted or approved by
the Corporation's Board of Directors (including shares issued or sold
pursuant to the exercise of any stock option or purchased pursuant to a
grant under the Corporation's stock option plans or stock purchase
plans or pursuant to agreements entered into for employee compensation
purposes prior to the date of this Designation).
(d) Certification of Adjustments. In each case of an
adjustment or readjustment of the Conversion Price or the number of shares of
Common Stock or other securities issuable upon conversion of the Series B
Preferred Stock, if the change is greater than 1% from the previous change the
Corporation, at its expense, shall cause independent public accountants selected
by the Corporation to compute such adjustment or readjustment in accordance with
this Certificate and to prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each registered holder of the Series B Preferred Stock at the
holder's address as shown on the Corporation's stock transfer books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (i) the Conversion Price at the time in effect for the Series B
Preferred Stock, and (ii) the number of shares of Common Stock and the type and
amount, if any, of other property which at the time would be received upon
conversion of the Series B Preferred Stock. The form of such certificate shall
be reasonably acceptable to the holders of record of a majority of the shares of
Series B Preferred Stock then outstanding.
Section 11. Mandatory Redemption.
(a) At any time on or after the earlier to occur of (1) an Event
of Default and (2) September 30, 2007, holders of the Series B Preferred Stock
may require the Corporation to redeem all or a portion of the shares of Series B
Preferred Stock held by such holders (to the extent that such redemption shall
not violate any applicable provisions of the laws of the State of Delaware) at a
price in cash equal to the Stated Value per share, plus an amount equal to any
dividends accrued but unpaid thereon (such amount is hereinafter referred to as
the "Redemption Price"); provided, however, that if the Reimbursement Note has
not been paid in full as of the date the holders of the Series B Preferred Stock
require the Corporation to redeem such shares of Series B Preferred Stock (the
"Redemption Date"), the Corporation may pay the Redemption Price by delivery of
a promissory note in the amount of the Redemption Price to the holder of the
Series B Preferred Stock to be redeemed. If the holder of shares of the Series B
Preferred Stock to be redeemed is to receive a promissory note as payment of the
Redemption Price, the promissory note shall be in substantially the same form as
the Subordinated Note and will mature on the last day of the quarter following
the payment in full of the Reimbursement Note. If the Corporation is unable on
the Redemption Date to redeem any shares of Preferred Stock then to be redeemed
because such redemption would violate the applicable laws of the State of
Delaware, then the Corporation shall redeem such shares as soon thereafter as
redemption would not violate such laws.
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(b) On or prior to the Redemption Date, each holder of Series B
Preferred Stock to be redeemed shall surrender its certificate or certificates
representing such shares to the Corporation, and thereupon the Redemption Price
of such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of the Series B Preferred Stock redeemed (except the right to
receive the Redemption Price upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
Section 12. Certain Definitions. As used in this Certificate,
the following terms shall have the following respective meanings:
"Available Funds" shall mean any funds legally available for
the payment of dividends and interest accrued with respect to shares of the
Series B Preferred Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which the Rights Agent is authorized or obligated by law or
executive order to close.
"Current Value" of any share of Preferred Stock, Common Stock
or any other property on any date shall be determined as provided in this
Section 12. In the case of publicly traded securities, Current Value on any date
shall be deemed to be the average of the daily closing prices per share of such
stock for the thirty (30) consecutive Trading Days immediately prior to such
date; provided, however, that in the event the Current Value per share of any
security is determined during a period which includes any date that is within 30
Trading Days after the announcement by the issuer of such security of a dividend
or distribution payable in shares of such securities or securities convertible
into shares of such securities (other than the Rights), or any subdivision,
combination or reclassification of such securities, then, and in each such case,
the Current Value shall be properly adjusted to take into account ex-dividend or
post-effective date trading. The closing price for each day shall be the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc., Automated Quotation System or such other system
then in use, or, if on any such date such securities are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such securities selected by the
Board or, if the securities are listed or admitted to trading on the New York
Stock Exchange, the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system or, if such securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such securities are listed or admitted to trading.
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If the security is not publicly held or not so listed or traded, "Current
Value" means the fair value of a share of Preferred Stock, Common Stock or other
property, as determined by a "Big Five" or other nationally recognized
accounting firm (jointly selected by the Corporation and holders of Series B
Preferred Stock), which shall be determined based on the fair market value of
the Corporation and the number of outstanding shares of stock of the Corporation
(assuming full conversion of all convertible shares of stock of the Corporation)
and without any discount relating to minority ownership, lack of liquidity or
similar factors. If the holders of Series B Preferred Stock (voting as a class)
and the Corporation are unable to agree on the accounting firm, then each shall
choose an accounting firm, and those accounting firms shall jointly select
another nationally recognized accounting firm to perform the value
determination.
"Event of Default" shall have such meaning as is ascribed to
it in the Stock Issuance and Subscription Agreement between the Corporation and
Omega Healthcare Investors, Inc., a Maryland corporation.
"Issue Date" means the date on which the shares of Series B
Preferred are issued.
"Junior Stock" shall mean any shares of any series or class of
capital stock of the Corporation, other than the Series B Preferred Stock.
"Subordinated Note" means the Subordinated Note in the
original principal amount of $1,700,000 from the Corporation in favor of Omega
Healthcare Investors, Inc., a Maryland corporation.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of such security are listed or admitted
to trading is open for the transaction of business or, if the shares of such
security are not listed or admitted to trading on any national securities
exchange, a Business Day.
Section 13. Costs. The Corporation shall pay all taxes and other
governmental charges (other than any income or other taxes imposed upon the
profits realized by the recipient) that may be imposed in respect of the issue
or delivery of shares of Common Stock or other securities or property upon
conversion of shares of Series B Preferred Stock, including without limitation,
any tax or other charge (other than any transfer tax) imposed in connection with
the issue and delivery of shares of Common Stock or other securities at the time
of such conversion in a name other than that in which the shares of Series B
Preferred Stock so converted were registered.
Section 14. Amendment. The Corporation shall not amend, alter or
repeal its Certificate of Incorporation, its Bylaws or this Certificate of
Designation in any manner which would materially alter or change the powers,
preferences or rights of the Series B Preferred Stock so as to effect them
adversely without the affirmative vote of the holders of at least a majority of
the outstanding shares of Series B Preferred Stock, voting together as a class.
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This Certificate of Designation to the Certificate of Incorporation of
the Corporation shall be effective immediately upon filing thereof with the
Secretary of the State of Delaware.
ADVOCAT INC.
By: /s/ James F. Mills, Jr.
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James F. Mills, Jr.
Title: Sr. VP & CFO
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Dated: November 8, 2000
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