CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
ARGOSY GAMING COMPANY
Argosy Gaming Company (the "COMPANY"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock, par
value $.01 per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of One Thousand Six Hundred (1,600) shares
of Series A Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 1,600 shares of
Series A Convertible Preferred Stock (the "PREFERRED SHARES"), par value
$.01 per share, which shall have the following powers, designations,
preferences and other special rights:
(1) DIVIDENDS. The Preferred Shares shall not bear any dividends.
(2) HOLDER'S CONVERSION OF PREFERRED SHARES. A holder of Preferred
Shares shall have the right, at such holder's option, to convert the Preferred
Shares into shares of the Company's common stock, par value $.01 per share (the
"COMMON STOCK"), on the following terms and conditions:
(a) CONVERSION RIGHT. Subject to the provisions of Section
2(j), at any time or times on or after the Issuance Date (as defined
below), any holder of Preferred Shares shall be entitled to convert any
whole number of Preferred Shares into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 2(h)) of
Common Stock, at the Conversion Rate (as defined below); provided, however,
that in no event shall any holder be entitled to convert Preferred Shares
in excess of that
number of Preferred Shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of Common Stock beneficially
owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of
the Preferred Shares with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining,
nonconverted Preferred Shares beneficially owned by the holder and its
affiliates, and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company (including,
without limitation, any warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially
owned by the holder and its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 2(a), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. The holder may waive the
foregoing limitations by written notice to the Company upon not less
than 61 days prior notice (with such waiver taking effect only upon the
expiration of such 61 day notice period).
(b) CONVERSION RATE AND OTHER DEFINITIONS. The number of shares
of Common Stock issuable upon conversion of each of the Preferred Shares
pursuant to Sections (2)(a), 2(g) and 5 shall be determined according to
the following formula (the "CONVERSION RATE"):
Conversion Amount
-----------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CONVERSION PRICE" means, as of any Conversion Date (as
defined in Section 2(f)) or other date of determination, the lower of the
Fixed Conversion Price (as defined below) and the Floating Conversion Price
(as defined below), each in effect as of such date and subject to
adjustment as provided herein.
(ii) "FIXED CONVERSION PRICE" means (A) for Preferred Shares
issued on the first Issuance Date of any Preferred Shares, 120% of the
average of the Closing Bid Prices (as defined below) of the Common Stock
for the five consecutive trading days immediately preceding such Issuance
Date; or (B) for all other Preferred Shares, 125% of the average of the
Closing Bid Prices of the Common Stock for the five consecutive trading
days immediately preceding the applicable Issuance Date; subject to
adjustment as provided herein.
(iii) "FLOATING CONVERSION PRICE" means, as of any date
of determination, the amount obtained by multiplying the Conversion
Percentage (as defined
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below) in effect as of such date by the Market Price (as defined below) of
the Common Stock as of such date.
(iv) "CONVERSION PERCENTAGE" means 100%, subject to
adjustment as provided herein.
(v) "MARKET PRICE" means, with respect to any security for
any date, the average of the five lowest consecutive Closing Bid Prices for
such security during the 30 consecutive trading days immediately preceding
such date.
(vi) "CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on The New York Stock
Exchange, Inc. ("NYSE") as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if NYSE is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or,
if no closing bid price is reported for such security by Bloomberg, the
last closing trade price of such security as reported by Bloomberg, or, if
no last closing trade price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Bid Price cannot be calculated for such security on such date
on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the
Company and the holders of a majority of the outstanding Preferred Shares
(including for purposes of this determination any Preferred Shares with
respect to which the Closing Bid Price is being determined). If the
Company and the holders of Preferred Shares are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(f)(iii) with the term "Closing Bid Price" being
substituted for the term "Market Price." (All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during any period for which the Closing Bid Price is being
determined).
(vii) "N" means the number of days from, but excluding,
the Issuance Date through and including the Conversion Date for the
Preferred Shares for which conversion is being elected.
(viii) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(ix) "CONVERSION AMOUNT" means the sum of (A) the
Additional Amount (as defined below), provided that the Company has not
elected to pay the Additional Amount in cash as described in Section 2(l),
and (B) the Stated Value (as defined below).
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(x) "ADDITIONAL AMOUNT" means the result of the following
formula: (Dividend Rate)(N/365)(Stated Value).
(xi) "DIVIDEND RATE" means .04; provided, however,
that, subject to the satisfaction of the Dividend Elimination Conditions
described below, the Dividend Rate with respect to a Preferred Share shall
be 0.00 beginning on the next trading day following any date (A) which is
on or after the twenty-first trading day following the Issuance Date of
such Preferred Share, and (B) on which the average of the Closing Bid
Prices for the Common Stock for the 20 consecutive trading days immediately
preceding such date (the "ELIMINATION PERIOD") is greater than the product
of (x) 1.5, and (y) the average of the Closing Bid Prices for the Common
Stock for the five consecutive trading days immediately preceding the
Issuance Date of the applicable Preferred Shares. Notwithstanding the
foregoing, the Dividend Rate shall not be changed to 0.00 on a prospective
basis pursuant to the foregoing sentence unless the Dividend Elimination
Conditions (as defined below) are satisfied. The "DIVIDEND ELIMINATION
CONDITIONS" are as follows: (i) on each day during the Elimination Period
the registration statement (the "REGISTRATION STATEMENT") covering the
resale of the shares of Common Stock issuable upon conversion or exercise
of the Preferred Shares and the Warrants (as defined in the Securities
Purchase agreement referred to in Section 2(f)(v)), respectively, and
required to be filed by the Company pursuant the Registration Rights
Agreement between the Company and the Buyers referred to therein (the
"REGISTRATION RIGHTS AGREEMENT") was effective and available for the sale
of no less than 125% of the sum of (A) the number of Conversion Shares then
issuable upon the conversion of all outstanding Preferred Shares (without
regard to any limitation on conversion), (B) the number of Warrant Shares
then issuable upon the exercise of all outstanding Warrants (without regard
to any limitation on exercise), and (C) the number of Conversion Shares and
Warrants Shares that are then held by the holders of the Preferred Shares;
(ii) on each day during the Elimination Period the Common Stock was listed
on NYSE and was not suspended from trading; (iii) during the Elimination
Period the Company delivered Conversion Shares upon conversion of the
Preferred Shares and Warrant Shares upon exercise of the Warrants to the
holders of Preferred Shares on a timely basis as set forth in Section
2(f)(ii) of this Certificate of Designations and Sections 2(a) and 2(b) of
the Warrants, respectively; (iv) no event constituting a Major Transaction
(as defined in Section 3(c)), including an agreement to consummate a Major
Transaction, or a Triggering Event (as defined in Section 3(d)) shall have
occurred nor shall any pending event which would constitute a Major
Transaction have been publicly disclosed during the Elimination Period; and
(v) the Company has otherwise satisfied in all material respects its
obligations and is not in default in any material respect under this
Certificate of Designations, the Warrants, the Securities Purchase
Agreement and the Registration Rights Agreement. If a change is made to
the Dividend Rate as provided in this paragraph, then the Additional Amount
formula shall be appropriately altered to produce an Additional Amount
which reflects the two different Dividend Rates over the corresponding
periods.
(xii) "STATED VALUE" means $10,000.
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(c) ADJUSTMENT TO CONVERSION PRICE -- MARKET PRICE OF COMMON
STOCK AND REGISTRATION STATEMENT FAILURES. In addition to any other
adjustment to the Conversion Price provided for in this Certificate of
Designations, the Fixed Conversion Price shall be subject to the following
adjustments.
(i) 270 DAY ADJUSTMENT. In the event that neither (A) the
Closing Bid Price of the Common Stock on each day during any period of 20
consecutive trading days during the period beginning on and including the
date which is 21 trading days after the Issuance Date of the applicable
Preferred Shares and ending on the trading day immediately preceding the
date which is 270 days after the Issuance Date of the applicable Preferred
Shares (an "ADJUSTMENT DATE"), nor (B) the Closing Bid Price of the Common
Stock on the trading day immediately preceding the Adjustment Date is
greater than the Fixed Conversion Price in effect on the Issuance Date of
the Applicable Preferred Shares; then on and after the Adjustment Date, the
Fixed Conversion Price of the applicable Preferred Shares shall be equal to
the lesser of (x) the average of the Closing Bid Prices of the Common Stock
for the 20 consecutive trading days immediately preceding the Adjustment
Date, and (y) the Fixed Conversion Price of the applicable Preferred Shares
in effect on the Adjustment Date.
(ii) FAILURE TO MAKE REGISTRATION DELAY PAYMENTS. In the
event that the Company is prohibited under the Indenture dated as of
June 5, 1996 relating to the Company's 13-1/4% First Mortgage Notes due
2004 (the "INDENTURE") from making any Registration Delay Payments (as
defined in the Registration Rights Agreement referred to in Section
2(c)(iii)) in a timely manner as provided in Section 2(h) of the
Registration Rights Agreement, then if (i) the Registration Statement is
not filed on or before the date which is 60 days after the first
Issuance Date of any Preferred Shares (the "SCHEDULED FILING DATE"), and
such failure is not solely a result of an act or omission of an Investor
of which the Company has promptly notified the holders of Preferred
Shares and the Company is in compliance with Section 3(h) of the
Registration Rights Agreement; (ii) the Registration Statement is not
declared effective by the SEC on or before the date which is 120 days
after the first Issuance Date of any Preferred Shares (the "SCHEDULED
EFFECTIVE DATE"), and such failure is not solely a result of an act or
omission of an Investor of which the Company has promptly notified the
holders of Preferred Shares and the Company is in compliance with
Section 3(h) of the Registration Rights Agreement; or (iii) after the
Registration Statement has been declared effective by the SEC, the
Registration Statement is not available (other than on any days during
any Allowable Grace Period (as defined in Section 3(f) of the
Registration Rights Agreement)) for the sale of at least all the
Registrable Securities (as defined in the Registration Rights Agreement)
(whether because of a failure to keep the Registration Statement
effective, to disclose such information as is necessary for sales to be
made pursuant to the Registration Statement, to register sufficient
shares of Common Stock or otherwise), and such failure is not solely a
result of an act or omission of an Investor of which the Company has
promptly notified the holders of Preferred Shares and the Company is in
compliance with Section 3(h) of the Registration Rights Agreement; then,
as partial relief for the damages to any holder by reason of any such
delay in or reduction of its ability to sell the underlying shares of
Common Stock (which remedy
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shall not be exclusive of any other remedies available at law or in
equity), the Conversion Percentage and the Fixed Conversion Price shall
be adjusted as follows:
(A) CONVERSION PERCENTAGE. The Conversion Percentage in effect
at such time shall be reduced by a number of percentage points equal
to the sum of (I) 2.5, if the Registration Statement is not filed on
or before the Scheduled Filing Date, (II) 2.5, if the Registration
Statement is not declared effective by the SEC on or before the
Scheduled Effective Date, and (III) the product of (x) .067 and (y)
the sum of (a) the number of days after the Scheduled Filing Date that
the relevant Registration Statement is not filed with the SEC, (b) the
number of days after the Scheduled Effective Date that the relevant
Registration Statement is not declared effective by the SEC and (c)
the number of days after the Registration Statement has been declared
effective that the Registration Statement is not available for the
sale (other than on any days during any Allowable Grace Period) of at
least all of the Registrable Securities (such number of days being
collectively referred to as the "REGISTRATION STATEMENT DEFAULT
DAYS"); and
(B) FIXED CONVERSION PRICE. The Fixed Conversion Price in
effect at such time shall be reduced by an amount equal to the product
of (I) the Fixed Conversion Price in effect as of the Issuance Date of
the applicable Preferred Shares, multiplied by (II) the sum of (a)
.025, if the Registration Statement is not filed with the SEC on or
before the Scheduled Filing Date plus (b) .025, if the Registration
Statement is not declared effective by the SEC on or before the
Scheduled Effective Date, plus (c) the product of (x) .00067
multiplied by (y) the number of Registration Statement Default Days.
(iii) 180 DAY REGISTRATION STATEMENT FAILURE. In the
event that the Registration Statement is not declared effective by the SEC
on or prior to the date which is 180 days after the first Issuance Date of
any Preferred Shares (the "REGISTRATION EFFECTIVENESS ADJUSTMENT DATE");
then on and after the date immediately following the Registration
Effectiveness Adjustment Date, subject to further adjustment pursuant to
this Certificate of Designations, the Fixed Conversion Price of all
Preferred Shares outstanding at such time shall be equal to the lesser of
(x) the average of the five lowest consecutive Closing Bid Prices of the
Common Stock during the period (the "DELAY PERIOD") beginning on and
including the Registration Effectiveness Adjustment Date and ending on and
including the earlier of (I) the last date on which the Registration
Statement has not been declared effective by the SEC and (II) the
Conversion Date of the Preferred Shares with respect to which the
adjustment is being made, and (y) the Fixed Conversion Price in effect on
the Registration Effectiveness Adjustment Date. If the Delay Period is not
at least five days in duration, then the Delay Period shall consist of the
five consecutive trading days ending on the last trading date on which the
Registration Statement has not been declared effective by the SEC.
(d) ADJUSTMENT TO CONVERSION PRICE -- DILUTION AND OTHER EVENTS.
In order to prevent dilution of the rights granted under this Certificate
of Designations, the
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Conversion Price will be subject to adjustment from time to time as
provided in this Section 2(d).
(i) ADJUSTMENT OF FIXED CONVERSION PRICE UPON ISSUANCE OF
COMMON STOCK. If and whenever on or after the Issuance Date, the Company
issues or sells, or is deemed to have issued or sold, any shares of Common
Stock (other than the Conversion Shares, the Warrant Shares (as defined in
the Securities Purchase Agreement) and shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan
(as defined below)) for a consideration per share less than a price (the
"APPLICABLE PRICE") equal to the Fixed Conversion Price in effect
immediately prior to such issuance or sale, then immediately after such
issue or sale, the Fixed Conversion Price then in effect shall be reduced
to an amount equal to the product of (x) the Fixed Conversion Price in
effect immediately prior to such issue or sale and (y) the quotient
determined by dividing (1) the sum of (I) the product of the Applicable
Price and the number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such issue or sale, and (II) the
consideration, if any, received by the Company upon such issue or sale, by
(2) the product of (I) the Applicable Price and (II) the number of shares
of Common Stock Deemed Outstanding immediately after such issue or sale.
For purposes of determining the adjusted Fixed Conversion Price under this
Section 2(d)(i), the following shall be applicable:
(A) ISSUANCE OF OPTIONS. If the Company in any manner
grants any rights or options to subscribe for or to purchase Common Stock
(other than pursuant to an Approved Stock Plan or upon conversion of the
Preferred Shares) or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"OPTIONS" and such convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities is less than the
Applicable Price, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For purposes
of this Section 2(d)(i)(A), the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of
such Convertible Securities" is determined by dividing (I) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of all
such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (II) the total
maximum number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment of the
Fixed Conversion Price shall be made upon the actual issuance of such
Common Stock or of
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such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such conversion or
exchange is less than the Applicable Price, then the maximum number of
shares of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For the purposes
of this Section 2(d)(i)(B), the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (I)
the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities. No adjustment of the Fixed Conversion
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Fixed Conversion Price had been or are
to be made pursuant to other provisions of this Section 2(d)(i), no further
adjustment of the Fixed Conversion Price shall be made by reason of such
issue or sale.
(C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of
any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock change at any time,
the Fixed Conversion Price in effect at the time of such change shall be
readjusted to the Fixed Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold; provided that no adjustment shall be made if such
adjustment would result in an increase of the Fixed Conversion Price then
in effect.
(D) CERTAIN DEFINITIONS. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the
following terms have the meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean any
contract, plan or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's securities may be
issued to any employee, officer, director, consultant or other service
provider.
(II) "COMMON STOCK DEEMED OUTSTANDING" means, at
any given time, the number of shares of Common Stock actually outstanding
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at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 2(d)(i)(A) and 2(d)(i)(B) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable
upon conversion of the Preferred Shares or upon exercise of the Warrants
(as defined in the Securities Purchase Agreement referred to in Section
2(f)(v)).
(E) EFFECT ON FIXED CONVERSION PRICE OF CERTAIN
EVENTS. For purposes of determining the adjusted Fixed Conversion Price
under this Section 2(d)(i), the following shall be applicable:
(I) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor. In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the average of the Closing Bid Prices of such securities
for the five consecutive trading days immediately preceding the date of
receipt. In case any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of a
majority of the Preferred Shares then outstanding. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within two business days of the tenth
(10th) day following the Valuation Event by an independent, reputable
appraiser selected by the Company. The determination of such appraiser
shall be binding upon all parties absent manifest error.
(II) INTEGRATED TRANSACTIONS. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $.01.
(III) TREASURY SHARES. The number of shares of
Common Stock outstanding at any given time does not include shares owned
or held by or for the account of the Company, and the disposition of any
shares so owned or held will be considered an issue or sale of Common
Stock.
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(IV) RECORD DATE. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options
or in Convertible Securities, or (2) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(ii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON SUBDIVISION
OR COMBINATION OF COMMON STOCK. If the Company at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Fixed Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(iii) ADJUSTMENT OF FLOATING CONVERSION PRICE UPON
ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner issues or
sells Convertible Securities that are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common
Stock (the formulation for such variable price being herein referred to as,
the "VARIABLE PRICE") and such Variable Price is not calculated using the
same formula used to calculate the Floating Conversion Price in effect
immediately prior to the time of such issue or sale, the Company shall
provide written notice thereof via facsimile and overnight courier to each
holder of the Preferred Shares ("VARIABLE NOTICE") on the date of issuance
of such Convertible Securities. If the holders of Preferred Shares
representing at least two-thirds (2/3) of the Preferred Shares then
outstanding provide written notice via facsimile and overnight courier (the
"VARIABLE PRICE ELECTION NOTICE") to the Company within five (5) business
days of receiving a Variable Notice that such holders desire to replace the
Floating Conversion Price then in effect with the Variable Price described
in such Variable Notice, then from and after the date of the Company's
receipt of the Variable Price Election Notice the Floating Conversion Price
will automatically be replaced with the Variable Price (together with such
modifications to this Certificate of Designations as may be required to
give full effect to the substitution of the Variable Price for the Floating
Conversion Price). A holder's delivery of a Variable Price Election Notice
shall serve as the consent required to amend this Certificate of
Designations pursuant to Section 13 below. In the event that a holder
delivers a Conversion Notice at any time after the Company's issuance of
Convertible Securities with a Variable Price but before such holder's
receipt of the Company's Variable Notice, then such holder shall have the
option by written notice to the Company to rescind such Conversion Notice
or to have the Conversion Price be equal to such Variable Price for the
conversion effected by such Conversion Notice.
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(iv) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person (as defined below) or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock is referred to
herein as "ORGANIC CHANGE." Prior to the consummation of any Organic
Change, the Company will make appropriate provision (in form and substance
reasonably satisfactory to the holders of a majority of the Preferred
Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
otherwise acquirable and receivable upon the conversion of such holder's
Preferred Shares, such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the conversion of such holder's Preferred
Shares had such Organic Change not taken place (without taking into account
any limitations or restrictions on the timing or amount of conversions).
In any such case, the Company will make appropriate provision (in form and
substance reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding) with respect to such holders' rights and
interests to insure that the provisions of this Section 2(d) and Section
2(e) will thereafter be applicable to the Preferred Shares (including, in
the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is other than the Company, an immediate
adjustment of the Fixed Conversion Price to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, if the value
so reflected is less than the Fixed Conversion Price in effect immediately
prior to such consolidation, merger or sale and an immediate revision to
the Floating Conversion Price to reflect the price of the common stock of
the surviving entity and the market in which such common stock is traded).
The Company will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor entity (if other than the
Company) resulting from consolidation or merger or the entity purchasing
such assets assumes, by written instrument (in form and substance
reasonably satisfactory to the holders of a majority of the Preferred
Shares then outstanding), the obligation to deliver to each holder of
Preferred Shares such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire. "PERSON" shall mean an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(v) CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 2(d) but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company's Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the rights
of the holders of the Preferred Shares; provided, however, that no such
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adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 2(d).
(vi) NOTICES.
(A) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each holder of the
Preferred Shares, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(B) The Company will give written notice to each
holder of the Preferred Shares at least 15 days prior to the date on which
the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any
pro rata subscription offer to holders of Common Stock, or (III) for
determining rights to vote with respect to any Organic Change, dissolution
or liquidation and in no event shall such notice be provided to such holder
prior to such information being made known to the public.
(C) The Company will also give written notice to each
holder of the Preferred Shares at least 15 days prior to the date on which
any Organic Change, dissolution or liquidation will take place and in no
event shall such notice be provided to such holder prior to such
information being made known to the public.
(e) PURCHASE RIGHTS. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d), if at any time after the
Issuance Date the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other
property pro rata to the record holders of any class of Common Stock (the
"PURCHASE RIGHTS"), then the holders of the Preferred Shares will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Preferred Shares (without taking into account
any limitations or restrictions on the timing or amount of conversions)
immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of the Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(f) MECHANICS OF CONVERSION. Subject to the Company's inability
to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 4:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred
Shares into full shares of Common Stock on any date (the "CONVERSION
DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m. Eastern Time, on such date,
a copy of a fully executed notice of conversion in the form attached hereto
as EXHIBIT I (the "CONVERSION NOTICE") to the
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Company and its designated transfer agent (the "TRANSFER AGENT"), and
(B) surrender to a common carrier, for delivery to the Company or the
Transfer Agent as soon as practicable following such date, the original
certificate(s) representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATE(S)")
and the originally executed Conversion Notice.
(ii) COMPANY'S RESPONSE. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall as soon as
practicable, but in any event not later than the next business day, send,
via facsimile, a confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Company or the Transfer Agent of the Preferred
Stock Certificate(s) to be converted pursuant to a Conversion Notice,
together with the originally executed Conversion Notice, the Company or the
Transfer Agent (as applicable) shall, on the next business day following
the date of receipt, (I) issue and surrender to a common carrier for
overnight delivery to the address specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or
(II) credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account
with The Depository Trust Company. If the number of Preferred Shares
represented by the Preferred Stock Certificate(s) submitted for conversion
is greater than the number of Preferred Shares being converted, then the
Company or Transfer Agent, as the case may be, shall, as soon as
practicable and in no event later than three business days after receipt of
the Preferred Stock Certificate(s) and at its own expense, issue and
deliver to the holder a new Preferred Stock Certificate representing the
number of Preferred Shares not converted.
(iii) DISPUTE RESOLUTION. In the case of a dispute as
to the determination of the Market Price or the arithmetic calculation of
the Conversion Rate, the Company shall promptly issue to the holder the
number of shares of Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the holder via
facsimile within one business day of receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the
Conversion Rate within one business day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company
shall within one business day submit via facsimile (A) the disputed
determination of the Market Price to an independent, reputable investment
bank, or (B) the disputed arithmetic calculation of the Conversion Rate to
its independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than two business days from the time it receives the
disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error.
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(iv) RECORD HOLDER. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(v) COMPANY'S FAILURE TO TIMELY CONVERT. If within five
business days after the Company's or the Transfer Agent's receipt of the
Preferred Stock Certificates to be converted and the Conversion Notice the
Company shall fail (I) to issue a certificate for the number of shares of
Common Stock to which a holder is entitled or to credit the holder's
balance account with The Depository Trust Company for such number of shares
of Common Stock to which the holder is entitled upon such holder's
conversion of the Preferred Shares, or (II) to issue a new Preferred Stock
Certificate representing the number of Preferred Shares to which such
holder is entitled, pursuant to Section 2(f)(ii), in addition to all other
available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement between the Company and the initial holders
of the Preferred Shares (the "SECURITIES PURCHASE AGREEMENT") (including
indemnification pursuant to Section 8 thereof), the Company shall pay
additional damages to such holder on each date after such fifth (5th)
business day that such conversion or delivery of such Preferred Stock
Certificates, as the case may be, is not timely effected in an amount equal
to 0.5% of the product of (A) the sum of the number of shares of Common
Stock not issued to the holder on a timely basis pursuant to Section
2(f)(ii) and to which such holder is entitled and, in the event the Company
has failed to deliver a Preferred Stock Certificate to the holder on a
timely basis pursuant to Section 2(f)(ii), the number of shares of Common
Stock issuable upon conversion of the Preferred Shares represented by such
Preferred Stock Certificate as of the last possible date which the Company
could have issued such Preferred Stock Certificate to such holder without
violating Section 2(f)(ii); and (B) the Closing Bid Price of the Common
Stock on the last possible date which the Company could have issued such
Common Stock and the Preferred Stock Certificate, as the case may be, to
such holder without violating Section 2(f)(ii).
(g) MANDATORY CONVERSION OR REDEMPTION AT MATURITY. If any
Preferred Shares remain outstanding on the Maturity Date (as defined
below), then all such Preferred Shares, at the Company's option, either (i)
shall be converted as of such date in accordance with this Section 2 as if
the holders of such Preferred Shares had given the Conversion Notice on the
Maturity Date (a "MATURITY DATE MANDATORY CONVERSION"), or (ii) shall be
redeemed as of such date for an amount in cash per Preferred Share (the
"MATURITY DATE REDEMPTION PRICE") equal to the Conversion Amount (a
"MATURITY DATE MANDATORY REDEMPTION"); provided, however, that if the
Company has elected a Maturity Date Mandatory Conversion and a Triggering
Event has occurred and is continuing on the Maturity Date, then the Company
shall, within five calendar days following the Maturity Date (unless
otherwise notified in writing by the holder of its request to have the
Preferred Shares converted into Common Stock), pay to each holder of
Preferred Shares then outstanding, in immediately available funds, an
amount equal to the Maturity Date Redemption Price. The Company shall be
deemed to have elected a Maturity Date Mandatory Conversion unless it
delivers written notice
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to each holder of Preferred Shares at least 30 trading days prior to the
Maturity Date of its election to effect a Maturity Date Mandatory
Redemption. If the Company elects a Maturity Date Mandatory Redemption,
then on the Maturity Date the Company shall pay to each holder of
Preferred Shares outstanding on the Maturity Date, by wire transfer of
immediately available funds, an amount per Preferred Share equal to the
Maturity Date Redemption Price. All holders of Preferred Shares shall
thereupon surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company or the Transfer Agent, provided that the
Company has complied with its obligations under this Section 2(g). If
the Company elects a Maturity Date Mandatory Redemption and shall fail
to redeem all of the Preferred Shares outstanding on the Maturity Date
by payment of the Maturity Date Redemption Price, then in addition to
any remedy such holder of Preferred Shares may have under this
Certificate of Designations, the Securities Purchase Agreement and the
Registration Rights Agreement, the applicable Maturity Date Redemption
Price payable in respect of such unredeemed Preferred Shares shall bear
interest at the rate of 3.0% per month, prorated for partial months,
until paid in full. Notwithstanding the foregoing, if the Common Stock
is not designated for quotation on The Nasdaq National Market or listed
on NYSE but such events do not constitute a Triggering Event, then the
Maturity Date shall be extended until the Common Stock is so designated
or listed. "MATURITY DATE" means the date which is seven years after
the applicable Issuance Date, unless extended pursuant to (A) Section
3(f) of the Registration Rights Agreement, which extension shall be
equal to the aggregate number of days of all Grace Periods (as defined
in Section 3(f) of the Registration Rights Agreement), or (B) the
immediately preceding sentence.
(h) FRACTIONAL SHARES. The Company shall not issue any fraction
of a share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned
aggregation, the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up or down to the nearest whole share.
(i) TAXES. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of shares of
Common Stock upon the conversion of the Preferred Shares.
(j) CONVERSION RESTRICTIONS. The right of a holder of Preferred
Shares to convert Preferred Shares pursuant to this Section 2 shall be
limited as set forth below. Without the prior consent of the Company, a
holder of Preferred Shares shall not be entitled to convert an aggregate
number of Preferred Shares from the Issuance Date of such Preferred Shares
through the date of this determination in excess of the number of Preferred
Shares which when divided by the number of Preferred Shares purchased by
such holder on such Issuance Date would exceed (i) 0.00 for the period
beginning on the Issuance Date and ending on and including the date which
is 120 days after the Issuance Date, (ii) 0.33 for the period beginning on
and including the date which is 121 days after
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the Issuance Date and ending on and including the date which is 165 days
after the Issuance Date, (iii) 0.66 for the period beginning on and
including the date which is 166 days after the Issuance Date and ending
on and including the date which is 210 days after the Issuance Date, and
(iv) 1.00 for the period beginning on and including the date which is
211 days after the Issuance Date and ending on and including the
Maturity Date. Notwithstanding the foregoing, the conversion
restrictions set forth in this Section 2(j) shall not apply (w) on and
after any date on which the Common Stock is not listed on NYSE or has
been suspended from trading (excluding suspensions of not more than one
day resulting from business announcements), or any such delisting or
suspension is threatened or pending, (x) if there shall have occurred an
event constituting a Major Transaction (as defined in Section 3(c)) or
Triggering Event (as defined in Section 3(d)), (y) with respect to any
conversion of Preferred Shares at a Conversion Price which is equal to
the Fixed Conversion Price then in effect, or (z) if there is an
announcement of a pending Major Transaction.
(k) ADJUSTMENT OF CONVERSION RESTRICTIONS UPON ISSUANCE OF
CONVERTIBLE SECURITIES. If the Company in any manner issues or sells
Convertible Securities that are convertible into Common Stock and are
subject to (i) restrictions on the amount of shares that can be converted,
or (ii) no restrictions on the amount of shares that can be converted (the
restriction on conversions or lack thereof being herein referred to as the
"CONVERSION RESTRICTION"), and such Conversion Restriction is not
formulated using the same time periods and percentages used in Section
2(j), then the Company shall provide written notice thereof via facsimile
and overnight courier to each holder of the Preferred Shares ("CONVERSION
RESTRICTION NOTICE") on the date of issuance of such Convertible
Securities. If the holders of Preferred Shares representing at least
two-thirds (2/3) of the Preferred Shares then outstanding which remain
subject to the restrictions in Section 2(j) provide written notice via
facsimile and overnight courier (the "CONVERSION RESTRICTION ELECTION
NOTICE") to the Company within five (5) business days of receiving a
Conversion Restriction Notice that such holders desire to replace the
conversion restrictions set forth in Section 2(j) then in effect with the
Conversion Restriction described in such Conversion Restriction Notice,
then from and after the date of the Company's receipt of the Conversion
Restriction Election Notice the conversion restrictions set forth in
Section 2(j) automatically will be replaced with the Conversion
Restrictions (together with such modifications to this Certificate of
Designations as may be required to give full effect to the substitution
of the Conversion Restrictions for the conversion restrictions set forth
in Section 2(j)). A holder's delivery of a Conversion Restriction Election
Notice shall serve as the consent required to amend this Certificate of
Designations pursuant to Section 13 below.
(l) COMPANY'S OPTION TO PAY ADDITIONAL AMOUNT IN CASH. Upon
conversion pursuant to Sections 2(a) or 2(g), the Company shall have the
right to elect to pay the Additional Amount in cash, in lieu of conversion
to Common Stock. If the Company elects to pay the Additional Amount in
cash, such cash shall be paid simultaneously with the delivery to the
holder of the certificates representing the Common Stock issuable upon
conversion in accordance with Section 2(f). In order to exercise its right
to pay any Additional Amount in cash, the Company must advise each
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holder of Preferred Shares in writing (the "CASH DIVIDEND NOTICE") that
the Additional Amount shall be paid in cash until such time as the
Company shall terminate the Cash Dividend Notice by providing at least
two business days prior written notice of such termination (the
"TERMINATION NOTICE"). The Cash Dividend Notice shall set forth the
effective date of the Cash Dividend Notice, which date shall be at least
five business days after the date the Cash Dividend Notice is deemed to
have been delivered pursuant to Section 18. The Termination Notice
shall be effective on the third business day after the date the
Termination Notice is deemed to have been delivered pursuant to Section
18 unless a later date shall be specified in the Termination Notice.
(3) REDEMPTION AT OPTION OF HOLDERS.
(a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to
all other rights of the holders of Preferred Shares contained herein,
simultaneous with or after the occurrence of a Major Transaction (as
defined below), each holder of Preferred Shares shall have the right, at
such holder's option, to require the Company to redeem all or a portion of
such holder's Preferred Shares at a price per Preferred Share equal to the
greater of (i) 120% of the Liquidation Value (as defined in Section 9); and
(ii) the product of (A) the Conversion Rate at such time, and (B) the
Closing Bid Price on the date of the public announcement of such Major
Transaction or the next date on which the exchange or market on which the
Common Stock is traded is open if such public announcement is made
(X) after 12:00 p.m. Eastern Time, on such date or (Y) on a date on which
the exchange or market on which the Common Stock is traded is closed (the
"MAJOR TRANSACTION REDEMPTION PRICE"); provided, however, that,
notwithstanding anything contained in Section 3(a) or 3(b) to the contrary,
no holder of Preferred Shares shall have the right to require the Company
to redeem any Preferred Shares prior to the earlier of (i) June 1, 2004,
(ii) the legal defeasance and discharge of the Indenture, or (iii) the
written consent of the Trustee under the Indenture to any such redemption.
(b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all
other rights of the holders of Preferred Shares contained herein,
simultaneous with or after the occurrence of a Triggering Event (as defined
below), each holder of Preferred Shares shall have the right, at such
holder's option, to require the Company to redeem all or a portion of such
holder's Preferred Shares at a price per Preferred Share equal to the
greater of (i) 120% of the Liquidation Value; and (ii) the product of (A)
the Conversion Rate on the date of such holder's delivery of a Notice of
Redemption at Option of Holder Upon Triggering Event (as defined in Section
3(f)), and (B) the greater of (I) the Closing Bid Price on the trading day
immediately preceding such Triggering Event or (II) the Closing Bid Price
on the date of the holder's delivery to the Company of a Notice of
Redemption at Option of Buyer Upon Triggering Event (as defined below) or,
if such date of delivery is not a trading day, the next date on which the
exchange or market on which the Common Stock is traded is open (the
"TRIGGERING EVENT REDEMPTION PRICE" and, collectively with the Major
Transaction Redemption Price, the "REDEMPTION PRICE"); provided, however,
that, notwithstanding anything contained in Section 3(a) or 3(b) to the
contrary, no holder of Preferred Shares shall have the right to require the
Company to redeem any Preferred Shares prior to the earlier of (i) June 1,
2004, (ii) the
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legal defeasance and discharge of the Indenture, or (iii) the written
consent of the Trustee under the Indenture to any such redemption.
(c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination
of the Company with or into another Person (other than (A) a consolidation,
merger or other business combination in which holders of the Company's
voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation)
of such entity or entities, or (B) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company) (a "CHANGE OF CONTROL TRANSACTION");
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 50% of the outstanding shares of
Common Stock.
(d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed to
have occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be
declared effective by the Securities and Exchange Commission on or prior to
the date that is 180 days after the Initial Issuance Date;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable (other than on any days during any Allowable Grace Period (as
defined in Section 3(f) of the Registration Rights Agreement)) to the
holder of the Preferred Shares for sale of the Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms
of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five consecutive trading days, provided that the
cause of such lapse or unavailability is not due to factors solely within
the control of such holder of Preferred Shares;
(iii) delisting or suspension from listing of the Common
Stock from NYSE or The Nasdaq National Market for a period of five
consecutive days;
(iv) the Company's notice to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not
to comply with proper requests for conversion of any Preferred Shares into
shares of Common
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Stock, including due to any of the reasons set forth in Section 4(a)
below, or the Company's failure to deliver Conversion Shares within
fifteen days of the Conversion Date;
(v) following a Proxy Statement Trigger Date (as defined in
the Securities Purchase Agreement), the Company fails to obtain the
shareholder approval described in Section 4(l) of the Securities Purchase
Agreement in a timely manner; or
(vi) any representation or warranty by the Company was not
true and correct in any material respect at the time made (including the
applicable Issuance Date) or the Company breaches any covenant or other
material term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement, this Certificate of Designations, the
Irrevocable Transfer Agent Instructions (as defined in the Securities
Purchase Agreement), or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except (i) to the extent that such breach would not have
a Material Adverse Effect (as defined in Section 3(a) of the Securities
Purchase Agreement), and (ii) in the case of a breach of a covenant which
is curable, such breach continues for a period of less than ten days.
(e) MECHANICS OF REDEMPTION AT OPTION OF HOLDER UPON MAJOR
TRANSACTION. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier (a "NOTICE OF MAJOR
TRANSACTION") to each holder of Preferred Shares. At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of
Major Transaction is not delivered at least 10 days prior to a Major
Transaction, at any time on or after the date which is 10 days prior to a
Major Transaction), any holder of the Preferred Shares then outstanding may
require the Company to redeem all or a portion of the holder's Preferred
Shares, which redemption shall be effective concurrent with the
consummation of the Major Transaction, then outstanding by delivering
written notice thereof via facsimile and overnight courier (a "NOTICE OF
REDEMPTION AT OPTION OF HOLDER UPON MAJOR TRANSACTION") to the Company,
which Notice of Redemption at Option of Buyer Upon Major Transaction shall
indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the applicable Major Transaction Redemption Price,
as calculated pursuant to Section 3(a).
(f) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING
EVENT. Within one business day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and
overnight courier (a "NOTICE OF TRIGGERING EVENT") to each holder of
Preferred Shares. At any time after the earlier of a holder's receipt of a
Notice of Triggering Event and such holder becoming aware of a Triggering
Event, any holder of Preferred Shares then outstanding may require the
Company to redeem all or a portion of the holder's Preferred Shares then
outstanding by delivering written notice thereof via facsimile and
overnight courier (a "NOTICE OF REDEMPTION AT OPTION OF HOLDER UPON
TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of
Holder Upon Triggering Event shall
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indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 3(b).
(g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of
a Notice(s) of Redemption at Option of Holder Upon Triggering Event or a
Notice(s) of Redemption at Option of Holder Upon Major Transaction from any
holder of Preferred Shares, the Company shall immediately notify each
holder of Preferred Shares by facsimile of the Company's receipt of such
Notice(s) of Redemption at Option of Holder Upon Triggering Event or
Notice(s) of Redemption at Option of Holder Upon Major Transaction and each
holder which has sent such a notice shall promptly submit to the Company or
its Transfer Agent such holder's Preferred Stock Certificates which such
holder has elected to have redeemed. The Company shall deliver the
applicable Triggering Event Redemption Price, in the case of a redemption
pursuant to Section 3(f), to such holder within five business days after
the Company's receipt of a Notice of Redemption at Option of Holder Upon
Triggering Event and, in the case of a redemption pursuant to Section 3(e),
the Company shall deliver the applicable Major Transaction Redemption Price
immediately prior to the consummation of the Major Transaction; provided
that a holder's Preferred Stock Certificates shall have been so delivered
to the Company; and provided further that if the Company is unable to
redeem all of the Preferred Shares to be redeemed, the Company shall redeem
an amount from each holder of Preferred Shares being redeemed equal to such
holder's pro-rata amount (based on the number of Preferred Shares held by
such holder relative to the number of Preferred Shares outstanding) of all
Preferred Shares being redeemed. If the Company shall fail to redeem all
of the Preferred Shares submitted for redemption (other than (i) due to the
payment of the Redemption Price being prohibited by the Indenture, in which
case such holder shall have the rights set forth in Section 3(h), or (ii)
pursuant to a good faith dispute as to the arithmetic calculation of the
Redemption Price), in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement, the applicable
Redemption Price payable in respect of such unredeemed Preferred Shares
shall bear interest at the rate of 2.0% per month, prorated for partial
months, until paid in full. Until the Company pays such unpaid applicable
Redemption Price in full to a holder of Preferred Shares submitted for
redemption, such holder shall have the option (the "VOID OPTIONAL
REDEMPTION OPTION") to, in lieu of redemption, require the Company to
promptly return to such holder(s) all of the Preferred Shares that were
submitted for redemption by such holder(s) under this Section 3 and for
which the applicable Redemption Price has not been paid, by sending written
notice thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION
NOTICE"). Upon the Company's receipt of such Void Optional Redemption
Notice(s) and prior to payment of the full applicable Redemption Price to
such holder, (i) the Notice(s) of Redemption at Option of Holder Upon
Triggering Event or the Notice(s) of Redemption at Option of Holder Upon
Major Transaction, as the case may be, shall be null and void with respect
to those Preferred Shares submitted for redemption and for which the
applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Preferred Shares submitted to the Company by each
holder for redemption under this Section 3(g) and for which the
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applicable Redemption Price has not been paid, (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on
which the Void Optional Redemption Notice(s) is delivered to the Company
and (B) the lowest Closing Bid Price during the period beginning on the
date on which the Notice(s) of Redemption of Option of Holder Upon Major
Transaction or the Notice(s) of Redemption at Option of Holder Upon
Triggering Event, as the case may be, is delivered to the Company and
ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company; provided that no adjustment shall be made if
such adjustment would result in an increase of the Fixed Conversion
Price then in effect, (iv) the Conversion Percentage in effect at such
time shall be reduced by a number of percentage points equal to the
product of (A) .50 and (B) the number of days in the period beginning on
and including the date which is the last date on which the Triggering
Event Redemption Price or Major Transaction Redemption Price, as the
case may be, is required to be delivered in accordance with the
foregoing provisions of this Section 3(g) and ending on and including
the date on which the Void Optional Redemption Notice(s) is delivered to
the Company, and (v) if the redemption was caused by a Triggering Event
involving the Company's inability to issue Conversion Shares because of
the Exchange Cap (as defined in Section 12), the holders of at least
two-thirds of the Preferred Shares then outstanding, including Preferred
Shares submitted for redemption pursuant to this Section 3 with respect
to which the applicable Redemption Price has not been paid, may direct
the Company to immediately delist the Common Stock from the exchange or
automated quotation system on which the Common Stock is traded and have
the Common Stock, at such holders' option, traded in the electronic
bulletin board or the "pink sheets." Notwithstanding the foregoing, in
the event of a dispute as to the determination of the Closing Bid Price
or the arithmetic calculation of the Redemption Price, such dispute
shall be resolved pursuant to Section 2(f)(iii) above with the term
"Closing Bid Price" being substituted for the term "Market Price" and
the term "Redemption Price" being substituted for the term "Conversion
Rate". A holder's delivery of a Void Optional Redemption Notice and
exercise of its rights following such notice shall not effect the
Company's obligations to make any payments which have accrued prior to
the date of such notice. Payments provided for in this Section 3 shall
have priority to payments to other stockholders in connection with a
Major Transaction.
(h) INABILITY TO PAY REDEMPTION PRICE. If (A) upon the
occurrence of a Major Transaction or a Triggering Event a holder of
Preferred Shares does not have the right under Section 3(a) or 3(b) to
require the Company to redeem any Preferred Shares, (B) upon the Company's
failure to issue shares of Common Stock registered for resale upon receipt
of a Conversion Notice or on the Maturity Date a holder of Preferred Shares
does not have the right under Section 4(a)(i) to require the Company to
redeem any Preferred Shares, or (C) the Company is prohibited under the
Indenture from paying the Redemption Price or the Mandatory Redemption
Price (as defined in Section 4(a)(i)) to any holder, then, in addition to
any other remedy such holder of Preferred Shares may have under this
Certificate of Designations (including those in Section 3(g)), the
Warrants, the Securities Purchase Agreement and the Registration Rights
Agreement, such holder shall have the following remedies:
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(i) Such holder may elect, by providing written notice of
such election to the Company, to require that the Company deliver to such
holder within 15 business days of such notice readily marketable securities
("MARKETABLE SECURITIES") with a value (as determined by an independent,
reputable investment bank) equal to not less than the applicable Redemption
Price or Mandatory Redemption Price and a written agreement from such
investment bank to purchase such securities from the holder at any time
within two business days of such holder's receipt of the Marketable
Securities for a purchase price in cash equal to not less than the
applicable Redemption Price or Mandatory Redemption Price.
(ii) Unless such holder shall have elected and received the
Marketable Securities referred to in Section 3(h)(i) above, such holder
shall have the option (the "VOID MARKETABLE SECURITIES OPTION") to, in lieu
of redemption, require the Company to promptly return to such holder(s) all
of the Preferred Shares that were submitted for redemption by such
holder(s) under this Section 3 or Section 4(a)(i) and for which the
applicable Redemption Price or Mandatory Redemption Price has not been
paid, by sending written notice thereof to the Company via facsimile (the
"VOID MARKETABLE SECURITIES NOTICE"). Upon the Company's receipt of such
Void Marketable Securities Notice(s) and prior to payment of the full
applicable Redemption Price or Mandatory Redemption Price to such holder,
(A) the Notice(s) of Redemption at Option of Holder Upon Triggering Event
or the Notice(s) of Redemption at Option of Holder Upon Major Transaction,
as the case may be, shall be null and void with respect to those Preferred
Shares submitted for redemption pursuant to this Section 3 and for which
the applicable Redemption Price or Mandatory Redemption Price has not been
paid, (B) the Company shall immediately return any Preferred Shares
submitted to the Company by each holder for redemption under this Section 3
or Section 4(a)(i) and for which the applicable Redemption Price or
Mandatory Redemption Price has not been paid, (C) the Fixed Conversion
Price of such returned Preferred Shares shall be adjusted to the lesser of
(I) the Fixed Conversion Price as in effect on the date on which the Void
Marketable Securities Notice is delivered to the Company and (II) the
lowest Closing Bid Price during the period beginning on the date on which
the Notice of Redemption at Option of Holder Upon Major Transaction, the
Notice of Redemption at Option of Holder Upon Triggering Event or the
Conversion Notice is delivered to the Company or on the Maturity Date, as
the case may be, and ending on the date on which the Void Marketable
Securities Notice is delivered to the Company; provided that no adjustment
shall be made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect, and (D) if the redemption was caused by a
Triggering Event involving the Company's inability to issue Conversion
Shares because of the Exchange Cap (as defined in Section 12), the holders
of at least two-thirds of the Preferred Shares then outstanding, including
Preferred Shares submitted for redemption pursuant to this Section 3 or
Section 4(a)(i) with respect to which the applicable Redemption Price or
Mandatory Redemption Price has not been paid, may direct the Company to
immediately delist the Common Stock from the exchange or automated
quotation system on which the Common Stock is traded and have the Common
Stock, at such holders' option, traded in the electronic bulletin board or
the "pink sheets." A holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not effect
the Company's
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obligations to make any payments which have accrued prior to the date of
such notice. Payments provided for in this Section 3(h) shall have
priority to payments to other stockholders in connection with a Major
Transaction.
(i) EFFECT OF A FINDING OF UNSUITABILITY. If a holder or
beneficial owner of the Preferred Shares is required by any gaming
commission to be found suitable, such holder shall apply for a finding of
suitability within 30 days after a request by any gaming commission or
sooner if required by any gaming commission. If a holder or beneficial
owner of the Preferred Shares is required to be found suitable and is not
found suitable by any gaming commission, the holder shall, to the extent
required by applicable law, dispose of such holder's Preferred Shares
within 30 days or within that time prescribed by the gaming commission,
whichever is earlier. If the holder fails to dispose of such Preferred
Shares within such time period, the provisions of clause (ii) of Section
(a) of Article Eleventh of the Company's Certificate of Incorporation, as
amended, shall, to the extent and within the time period required by
applicable law, be deemed to be mandatory and the Company shall exercise
its rights under Section (a) of Article Eleventh, except that
notwithstanding anything contained in Section (c) of said Article Eleventh
to the contrary, the price for such Preferred Shares shall be (i) the
Liquidation Value, (ii) the amount the holder paid for the Preferred
Shares, (iii) the fair market value of the Preferred Shares, (iv) the
greatest of clauses (i), (ii) and (iii), or (v) such other amount as may be
determined by the appropriate gaming commission.
(4) INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If, upon
the Company's receipt of a Conversion Notice or on the Maturity Date, the
Company cannot issue shares of Common Stock registered for resale under the
Registration Statement (or which are exempt from the registration
requirements under the 1933 Act pursuant to Rule 144(k) under the 1933 Act)
for any reason, including, without limitation, because the Company (x) does
not have a sufficient number of shares of Common Stock authorized and
available, (y) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or its
Securities, including without limitation the Exchange Cap, from issuing all
of the Common Stock which is to be issued to a holder of Preferred Shares
pursuant to a Conversion Notice or (z) fails to have a sufficient number of
shares of Common Stock registered for resale under the Registration
Statement, then the Company shall issue as many shares of Common Stock as
it is able to issue in accordance with such holder's Conversion Notice and
pursuant to Section 2(f) and, with respect to the unconverted Preferred
Shares, the holder, solely at such holder's option, can elect to:
(i) require the Company to redeem from such holder those
Preferred Shares for which the Company is unable to issue Common Stock in
accordance with such holder's Conversion Notice ("MANDATORY REDEMPTION") at
a price per Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the
Triggering Event Redemption Price as of such Conversion Date; provided,
however, that notwithstanding
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anything contained in this Section 4(a)(i) to the contrary, no holder of
Preferred Shares shall have the right to require the Company to redeem
any Preferred Shares prior to the earlier of (i) June 1, 2004, (ii) the
legal defeasance and discharge of the Indenture or (iii) the written
consent of the Trustee under the Indenture to any such redemption;
(ii) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 4(a)(z), require the Company to issue
restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f);
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Preferred Shares that were
to be converted pursuant to such holder's Conversion Notice (provided that
a holder's voiding its Conversion Notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of
such notice); or
(iv) if the Company's inability to fully convert Preferred
Shares is pursuant to the Exchange Cap described in Section 4(a)(y),
require the Company to issue shares of Common Stock in accordance with such
holder's Conversion Notice and pursuant to Section 2(f) at a Conversion
Price equal to the average of Closing Bid Prices of the Common Stock for
the five consecutive trading days preceding such holder's Notice in
Response to Inability to Convert (as defined below).
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The Company
shall immediately send via facsimile to a holder of Preferred Shares, upon
receipt of a facsimile copy of a Conversion Notice from such holder which
cannot be fully satisfied as described in Section 4(a), a notice of the
Company's inability to fully satisfy such holder's Conversion Notice (the
"INABILITY TO FULLY CONVERT NOTICE"). Such Inability to Fully Convert
Notice shall indicate (i) the reason why the Company is unable to fully
satisfy such holder's Conversion Notice, (ii) the number of Preferred
Shares which cannot be converted and (iii) the applicable Mandatory
Redemption Price. Such holder shall notify the Company of its election
pursuant to Section 4(a) above by delivering written notice via facsimile
to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT").
(c) PAYMENT OF MANDATORY REDEMPTION PRICE. If such holder shall
elect to have its shares redeemed pursuant to Section 4(a)(i), the Company
shall pay the Mandatory Redemption Price in cash to such holder within ten
days of the Company's receipt of the holder's Notice in Response to
Inability to Convert. If the Company shall fail to pay the applicable
Mandatory Redemption Price to such holder on a timely basis as described in
this Section 4(c) (other than pursuant to a dispute as to the determination
of the arithmetic calculation of the Redemption Price), in addition to any
remedy such holder of Preferred Shares may have under this Certificate of
Designations, the Securities Purchase Agreement and the Registration Rights
Agreement, such unpaid amount shall bear interest at the rate of 2.0% per
month, prorated for partial months, until paid in full. Until the full
Mandatory Redemption Price is paid in full to such holder, such holder may
void the Mandatory Redemption with respect to those Preferred Shares for
-24-
which the full Mandatory Redemption Price has not been paid and (i) receive
back such Preferred Shares and (ii) the Fixed Conversion Price of such
returned Preferred Shares shall be adjusted to the lesser of (A) the Fixed
Conversion Price in effect on the date on which the holder voided the
Mandatory Redemption and (B) the lowest Closing Bid Price during the Period
beginning on the Conversion Date and ending on the date the holder voided
the Mandatory Redemption. Notwithstanding the foregoing, if the Company
fails to pay the applicable Mandatory Redemption Price within such ten-day
period due to a dispute as to the determination of the Mandatory Redemption
Price, such dispute shall be resolved pursuant to Section 2(f)(iii) with
the term "Mandatory Redemption Price" being substituted for the term
"Conversion Rate".
(d) PRO-RATA CONVERSION AND REDEMPTION. In the event the
Company receives a Conversion Notice, Notice of Redemption at Option of
Buyer Upon Major Transaction or Notice of Redemption at Option of Buyer
Upon Triggering Event from more than one holder of Preferred Shares on the
same day and the Company can convert and/or redeem some, but not all, of
the Preferred Shares pursuant to this Section 4, the Company shall convert
and/or redeem from each holder of Preferred Shares electing to have
Preferred Shares converted and/or redeemed at such time an amount equal to
such holder's pro-rata amount (based on the number of Preferred Shares held
by such holder relative to the number of Preferred Shares outstanding) of
all Preferred Shares being converted and redeemed at such time.
(5) CONVERSION OR REDEMPTION AT COMPANY'S ELECTION. At any time or
times on or after the Issuance Date of the applicable Preferred Shares, the
Company shall have the right, in its sole discretion, to require that any or all
of the outstanding Preferred Shares be (i) converted ("CONVERSION AT COMPANY'S
ELECTION") at the Conversion Rate; or (ii) redeemed ("REDEMPTION AT COMPANY'S
ELECTION") at the Company Election Redemption Price (as defined below); provided
that the Conditions to Company's Election (as set forth below) are satisfied.
(a) MECHANICS OF COMPANY'S ELECTION. The Company shall exercise
its right to Conversion at Company's Election or Redemption at Company's
Election by providing each holder of Preferred Shares written notice
("NOTICE OF COMPANY'S ELECTION") at least 30 days prior to the date
selected by the Company for conversion ("COMPANY'S ELECTION CONVERSION
DATE") or redemption ("COMPANY'S ELECTION REDEMPTION DATE"), as the case
may be. If the Company elects to require conversion or redemption of some,
but not all, of such Preferred Shares, the Company shall convert or redeem,
as the case may be, an amount from each holder of Preferred Shares equal to
such holder's pro rata amount (based on the number of such Preferred Shares
held by such holder relative to the number of such Preferred Shares
outstanding on the date of the Company's delivery of the Notice of
Company's Election) of all Preferred Shares the Company is requiring to be
converted or redeemed. The Notice of Company's Election shall indicate
(x) whether the Notice of Company's Election relates to a conversion or a
redemption, (y) the number of Preferred Shares the Company has selected for
conversion or redemption and each holder's pro rata share of such amount,
and (z) the Company's Election Conversion Date or Company's Election
Redemption Date, as the case may be (the "APPLICABLE ELECTION DATE"), which
Applicable Election Date shall be
-25-
not less than 30 or more than 45 days after each holder's receipt of the
Notice of Company's Election. All Preferred Shares selected for
conversion in accordance with the provisions of this Section 5 shall be
converted as of the Company's Election Conversion Date in accordance
with Section 2 as if the holders of such Preferred Shares selected by
the Company to be converted had given the Conversion Notice on the
Company's Election Conversion Date. All Preferred Shares selected for
redemption in accordance with the provisions of this Section 5 shall be
redeemed as of the Company's Election Redemption Date in accordance with
this Section 5 at the Company Election Redemption Price. All holders of
Preferred Shares shall thereupon and within two trading days after the
Applicable Election Date surrender all Preferred Stock Certificates
selected for conversion or redemption, as the case may be, duly endorsed
for cancellation, to the Company, provided the Company has complied with
its obligations under this Section 5.
(b) CONDITIONS TO COMPANY'S ELECTION. "CONDITIONS TO COMPANY'S
ELECTION" means the following conditions: (i) on each day during the
period beginning on and including the date which is 20 trading days prior
to the Applicable Election Date and ending on and including the Applicable
Election Date (the "APPLICABLE ELECTION PERIOD"), the Registration
Statement shall be effective and available for the sale of no less than
125% of the sum of (A) the number of Conversion Shares then issuable upon
the conversion of all outstanding Preferred Shares (without regard to any
limitations on conversion), including the Conversion Shares to be issued
pursuant to this Conversion at Company's Election or the Conversion Shares
which would have been issuable upon conversion of the Preferred Shares
subject to the Redemption at Company's Election, (B) the number of Warrant
Shares then issuable upon conversion of all outstanding Warrants (without
regard to any limitations on exercise), and (C) the number of Conversion
Shares and Warrant Shares that are then held by the holders of the
Preferred Shares; (ii) on each day during the Applicable Election Period,
the Common Stock is designated for quotation on The Nasdaq National Market
or listed on NYSE and is not suspended from trading; (iii) on each day
during the Applicable Election Period, the Closing Bid Price of the Common
Stock is at least 150% of the Fixed Conversion Price then in effect (giving
effect to any adjustment to the Fixed Conversion Price under Sections
2(c)(i), 2(d)(ii) and 2(d)(iv), but not giving effect to any adjustment
under Sections 2(c)(ii), 2(c)(iii), 2(d)(i) and 2(d)(v)) of the Preferred
Shares being converted; (iv) during the period beginning on the first
Issuance Date of any Preferred Shares and ending on and including the
Applicable Election Date, the Company shall have delivered Conversion
Shares upon conversion of the Preferred Shares and Warrant Shares upon
exercise of the Warrants to the holders on a timely basis as set forth in
Section 2(f)(ii) of this Certificate of Designations and Sections 2(a) and
2(b) of the Warrant, respectively; and (v) the Company otherwise has
satisfied in all material respects its obligations and is not in default in
any material respect under this Certificate of Designations, the Warrants,
the Securities Purchase Agreement and the Registration Rights Agreement.
Notwithstanding the above, any holder of Preferred Shares may convert such
shares (including Preferred Shares selected for conversion or redemption)
into Common Stock pursuant to Section 2(a) on or prior to the date
immediately preceding the Applicable Election Date.
-26-
(c) COMPANY ELECTION REDEMPTION PRICE. The "COMPANY ELECTION
REDEMPTION PRICE" shall be an amount per Preferred Share equal to the
product of (i) the Conversion Rate of the Preferred Shares on the Company's
Election Redemption Date, and (ii) the Closing Bid Price of the Common
Stock on the trading day immediately preceding the Company's Election
Redemption Date.
(d) PAYMENT OF COMPANY ELECTION REDEMPTION PRICE. The Company
shall pay the applicable Company Election Redemption Price to the holders
of the Preferred Shares being redeemed pursuant to this Section 5 in cash
within two trading days after the Company Election Redemption Date, but not
prior to such holders' delivery to the Company of the Preferred Stock
Certificates representing the Preferred Shares being redeemed pursuant to
this Section 5. If the Company shall fail to pay the Company Election
Redemption Price to the holders on a timely basis as described in this
Section 5(d), in addition to any remedy the holders of Preferred Shares may
have under this Certificate of Designations, the Warrants, the Securities
Purchase Agreement and the Registration Rights Agreement, such unpaid
amount shall bear interest at the rate of 2.0% per month (prorated for
partial months) until paid in full. Until the Company pays such unpaid
Company Election Redemption Price in full to each holder, each holder of
Preferred Shares being redeemed pursuant to this Section 5 and for which
the Company Election Redemption Price has not been paid, shall have the
option (the "VOID COMPANY REDEMPTION OPTION") to, in lieu of redemption,
require the Company to promptly return to each holder all of the Preferred
Shares that were submitted by such holder for Redemption at Company's
Election and for which the Company Election Redemption Price has not been
paid, by sending written notice thereof to the Company via facsimile (the
"VOID COMPANY REDEMPTION NOTICE"). Upon the Company's receipt of the Void
Company Redemption Notice(s) prior to payment of the Company Election
Redemption Price to each holder, (i) the Notice of Company's Election with
respect to a Redemption at Company's Election shall be null and void with
respect to those Preferred Shares submitted to the Company by each holder
for Redemption at Company's Election and for which the Company Election
Redemption Price has not been paid, (ii) the Company shall immediately
return any Preferred Shares submitted to the Company by each holder for
redemption under this Section 5 and for which the Company Election
Redemption Price has not been paid and (iii) the Fixed Conversion Price of
such returned Preferred Shares shall be adjusted to the lesser of (A) the
Conversion Price applicable to such Preferred Shares on the Company's
Election Redemption Date and (B) the Conversion Price applicable to such
Preferred Shares on the date of such holder's delivery of its Void Company
Redemption Notice. Notwithstanding the foregoing, if the Company fails to
pay the Company Election Redemption Price to the holders within the time
period described in this Section 5(d) due to a dispute as to the arithmetic
calculation of the Company Election Redemption Price, such dispute shall be
resolved pursuant to Section 2(f)(iii) with the term "Company Election
Redemption Price" being substituted for the term "Conversion Rate." If the
Company fails to timely effect a Redemption at Company's Election in
accordance with this Section 5, the Company shall not be allowed to submit
another Notice of Company Election without the prior written consent of the
holders of at two-thirds (2/3) of the Preferred Shares then outstanding.
-27-
(e) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT
FACILITIES. The Company shall not be entitled to send any Notice of
Company Election with the respect to a Redemption at Company's Election
pursuant to this Section 5 and begin the redemption procedure under this
Section 5, unless it (A) is permitted under the Indenture to timely pay the
Company Election Redemption Price, and (B) it has:
(i) the full amount of the Company Election Redemption
Price in cash, available in a demand or other immediately available account
in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Company Election
Redemption Price;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
redeem any Preferred Shares that is not converted prior to a Redemption at
Company's Election; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Company
Election Redemption Price.
(6) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(7) RESERVATION OF SHARES. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 150% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Preferred Shares based on the number of Preferred Shares held
by each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holder.
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(8) VOTING RIGHTS. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(9) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $10,000 and
(ii) an amount equal to the product of (Dividend Rate) (N/365) ($10,000) (such
sum being referred to as the "LIQUIDATION VALUE"); provided that, if the
Preferred Funds are insufficient to pay the full amount due to the holders of
Preferred Shares and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Preferred Shares as to
payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Preferred Funds equal to the full amount of Preferred Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the full
amount of Preferred Funds payable to all holders of Preferred Shares and Pari
Passu Shares. The purchase or redemption by the Company of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
(10) PREFERRED RANK; PARTICIPATION. (i) All shares of Common Stock
shall be of junior rank to all Preferred Shares in respect to the preferences as
to distributions and payments upon the liquidation, dissolution and winding up
of the Company. The rights of the shares of Common Stock shall be subject to
the preferences and relative rights of the Preferred Shares. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior rank to the Preferred
Shares in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
make any amendment to the Company's Certificate of Incorporation or bylaws, or
file any resolution of the board of directors of the Company with the Secretary
of State of the State of Delaware containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of the
holders of the Preferred Shares relative to the holders of the Common Stock or
the holders of any other class of capital stock. In the event of the merger or
-29-
consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(ii) Subject to the rights of the holders, if any, of the Pari Passu
Shares, the holders of the Preferred Shares shall, as holders of Preferred
Stock, be entitled to such dividends paid and distributions made to the
holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard
to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
(11) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH RESPECT TO
OTHER CAPITAL STOCK. Until all of the Preferred Shares have been converted
or redeemed as provided herein, the Company shall not, directly or
indirectly, redeem, or declare or pay any cash dividend or distribution on,
its Common Stock without the prior express written consent of the holders of
not less than two-thirds (2/3) of the then outstanding Preferred Shares.
(12) LIMITATION ON NUMBER OF CONVERSION SHARES. Notwithstanding
any other provision herein, the Company shall not be obligated to issue any
shares of Common Stock upon conversion of the Preferred Shares if the
issuance of such shares of Common Stock would exceed that number of shares of
Common Stock which the Company may issue upon Conversion of the Preferred
Shares (the "EXCHANGE CAP") without breaching the Company's obligations under
the rules or regulations of NYSE, except that such limitation shall not apply
in the event that the Company (a) obtains the approval of its stockholders as
required by applicable rules and regulations of NYSE for issuances of Common
Stock in excess of such amount or (ii) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding. Until such approval or written opinion is
obtained, no purchaser of Preferred Shares pursuant to the Securities
Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of
Preferred Shares, shares of Common Stock in an amount greater than the
product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the
numerator of which is the number of Preferred Shares issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all the Preferred Shares issued to the Purchasers
pursuant to the Securities Purchase Agreement (the "CAP ALLOCATION AMOUNT").
In the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Preferred Shares, the transferee shall be allocated a pro rata
portion of such Purchaser's Cap Allocation Amount. In the event that any
holder of Preferred Shares shall convert all of such holder's Preferred
Shares into a number of shares of Common Stock which, in the aggregate, is
less than such holder's Cap Allocation Amount, then the difference between
such holder's Cap Allocation Amount and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective Cap
Allocation Amounts of the remaining holders of Preferred Shares on a pro rata
basis in proportion to the number of Preferred Shares then held by each such
holder.
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(13) VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED SHARES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, shall be required for (a) any
change to this Certificate of Designations or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares, or (b) any
issuance of Preferred Shares other than pursuant to the Securities Purchase
Agreement.
(14) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests the
Company to convert such Preferred Shares into Common Stock.
(15) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(16) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and the initial holders of
the Preferred Shares and shall not be construed against any person as the
drafter hereof.
(17) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
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(18) NOTICES. Any notice required to be delivered pursuant to the
terms of this Certificate of Designations shall be delivered, unless otherwise
provided in this Certificate of Designations, in accordance with the terms, and
subject to the notice provisions of, the Securities Purchase Agreement.
* * * * * *
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IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by ________________________, its ____________, as of ____________
__, 1998.
ARGOSY GAMING COMPANY
By:______________________________
Name:____________________________
Its:_____________________________