CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A CONVERTIBLE
PREFERRED STOCK
OF
AUTOTOTE CORPORATION
-------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------
Autotote Corporation, a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation (the "Certificate of Incorporation") and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation by resolution duly adopted
the following resolution which resolution remains in full force and effect on
the date hereof:
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $1.00 per share, which series shall be
designated as "Series A Convertible Preferred Stock" (the "Senior Preferred
Stock"), shall consist of 1,600,000 shares and shall have the following voting
powers, preferences and relative, participating, optional and other special
rights, and qualifications, limitations and restrictions thereof, as follows:
1 Certain Definitions.
Definitions. Unless the context otherwise requires, the terms
defined in this Section 1 shall have, for all purposes of this resolution, the
meanings herein specified (with terms defined in the singular having comparable
meanings when used in the plural).
"Adjusted Lowest Price" shall mean, if one or more adjustments to
the Conversion Price have been made pursuant to Section 5(g), an amount equal to
the Lowest Price adjusted in a
<PAGE>
manner identical to the manner in which the Conversion Price has been adjusted
pursuant to Section 5(g) (so that, for example, if there is a stock split and
the Conversion Price is divided in half, the Lowest Price shall be divided in
half to determine the amount of the Adjusted Lowest Price).
"Adjusted Low Trading Price" shall mean, if one or more adjustments
to the Conversion Price have been made pursuant to Section 5(g), an amount equal
to the Low Trading Price adjusted in a manner identical to the manner in which
the Conversion Price has been adjusted pursuant to Section 5(g) (so that, for
example, if there is a stock split and the Conversion Price is divided in half,
the Low Trading Price shall be divided in half to determine the amount of the
Adjusted Low Trading Price).
"Adjusted Target Trading Price" shall mean, if one or more
adjustments to the Conversion Price have been made pursuant to Section 5(g), an
amount equal to the High Trading Price adjusted in a manner identical to the
manner in which the Conversion Price has been adjusted pursuant to Section 5(g)
(so that, for example, if there is a stock split and the Conversion Price is
divided in half, the Target Trading Price shall be divided in half to determine
the amount of the Adjusted Target Trading Price).
"Affiliate" shall mean, with respect to any specified Person, any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Assets" means all of the Corporation's and its Subsidiaries' right,
title and interest in and to all properties, assets and rights of any kind,
whether tangible or intangible, real or personal, owned by the Corporation or
any of its Subsidiaries or in which the Corporation or its Subsidiaries has any
interest whatsoever.
"Business Day" shall mean a day other than a Saturday or Sunday or a
bank holiday in New York.
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or nonvoting) of such Person's capital stock,
whether outstanding on the Initial Issue Date or issued after the Initial Issue
Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock.
"Common Equity" shall mean all shares now or hereafter authorized of
any class of common stock of the Corporation, including the Common Stock, and
any other stock of the Corporation, howsoever designated, authorized after the
Initial Issue Date, which has the right (subject always to prior rights of any
class or series of preferred stock) to participate in the distribution of the
assets and earnings of the Corporation without limit as to per share amount.
2
<PAGE>
"Common Stock" shall mean the Class A Common Stock, par value $0.01
per share, of the Corporation.
"Conversion Date" shall have the meaning set forth in Section 5(c).
"Conversion Price" shall mean $6.00 and shall be subject to
adjustment pursuant to Section 5(g) and the following provisions of this
definition:
If the Conversion Price has not been adjusted pursuant to Section
5(g) on or prior to the Conversion Date and the Current Market Price per share
of the Common Stock on the Conversion Date is lower than the Target Trading
Price, the Conversion Price shall equal the lesser of the Current Market Price
per share on the Conversion Date and the Low Trading Price; provided, however,
that in the event such Current Market Price per share on the Conversion Date is
lower than the Lowest Price, the Conversion Price shall equal the Lowest Price;
If the Conversion Price has been adjusted pursuant to Section 5(g)
on or prior to the Conversion Date and the Current Market Price per share of the
Common Stock on the Conversion Date is lower than the Adjusted Target Trading
Price, the Conversion Price shall equal the lesser of the Current Market Price
per share on the Conversion Date and the Adjusted Low Trading Price; provided,
however, that in the event such Current Market Price per share on the Conversion
Date is lower than the Adjusted Lowest Price, the Conversion Price shall equal
the Adjusted Lowest Price.
"Conversion Rate" shall mean, as of any date, the number of shares
of Common Stock issuable upon conversion of one share of Senior Preferred Stock,
determined by dividing (a) the sum of the Liquidation Preference of such share
of Senior Preferred Stock plus accrued and unpaid dividends thereon by (b) the
Conversion Price then in effect.
"Current Market Price" shall mean, with respect to any particular
security on any date of determination, the average over the 30 Trading Days
ending on the date immediately preceding the date of such determination of the
last reported sale price, or, if no such sale takes place on any such day, the
closing bid price, in either case as reported for consolidated transactions on
the principal national securities exchange (including the American Stock
Exchange) or national quotation system on which such security is listed or
admitted for trading. If the Common Stock is not listed or traded in a manner
that the quotations referred to above are available for the period required
hereunder, the Current Market Price per share of a share of Common Stock shall
be deemed to be the fair value per share of the Common Stock as determined in
good faith by the Board of Directors of the Corporation.
"Director" shall mean a member of the Corporation's Board of
Directors.
"Dividend Payment Date" shall have the meaning set forth in Section
2(c).
"Dividend Period" shall mean the period from, and including, the
Initial Issue Date to, but not including, the first Dividend Payment Date and
thereafter, each quarterly period from, and including, the Dividend Payment Date
to, but not including, the next Dividend Payment Date.
3
<PAGE>
"Dividend Rate" shall mean six percent (6%) of the Liquidation
Preference per annum.
"Holder" shall mean the record holder of one or more shares of
Senior Preferred Stock, as shown on the books and records of the Corporation.
"Initial Issue Date" shall mean the date that shares of Senior
Preferred Stock are first issued by the Corporation.
"Junior Stock" shall mean, for purposes of Sections 2 and 3 below,
the Common Stock (or other Capital Stock of the Corporation) and any other
series of preferred stock established by the Board of Directors of the
Corporation that by its terms is junior to the Preferred Stock, either as to
payment of dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, or both.
"Liquidation Preference" shall mean $100.00 per share of Senior
Preferred Stock.
"Lowest Price" shall mean $5.00.
"Low Trading Price" shall mean $5.50.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"PIK Dividends" shall have the meaning as set forth in Section 2(b).
"Record Date" shall mean, with respect to any dividend, the date
designated by the Board of Directors of the Corporation at the time such
dividend is declared; provided, however, that such Record Date shall not be more
than thirty (30) days nor less than ten (10) days prior to the respective
Dividend Payment Date or such other date designated by the Board of Directors
for the payment of dividends.
"Redemption Price" shall mean a price equal to 105% of the
Liquidation Preference plus accrued and unpaid dividends to the date of
redemption.
"Stockholders' Agreement" shall mean the Stockholders' Agreement,
dated as of September 6, 2000, by and among the Corporation, Cermatica Gaming,
S.A., Olivetti International S.A., The Oak Fund, Peconic Fund Ltd. and Ramius
Securities, LLC.
"Subsidiary" means, with respect to any Person, any other Person,
whether or not incorporated, of which at least a majority of the securities or
interests having, by their terms, ordinary voting power to elect members of the
board of directors, or other persons performing similar functions with respect
to such other Person, are held, directly or indirectly, by such first Person.
"Target Trading Price" shall mean $9.65.
4
<PAGE>
"Trading Day" with respect to the Common Stock, shall mean any day
on which any market (including, without limitation, any formal or informal over
the counter market) in which the Common Stock is then traded and in which a
quoted price may be ascertained is open for business.
2 Dividends.
(a) The Holders of Senior Preferred Stock shall be entitled to receive
dividends, when and as declared by the Board of Directors of the Corporation,
out of funds legally available for payment of dividends. Such dividends shall be
payable by the Corporation in an amount per share determined by multiplying the
Dividend Rate (as adjusted pursuant to Section 2(c) if applicable) times a
fraction the numerator of which is the number of days in such Dividend Period
and the denominator of which is three hundred sixty-five (365).
(b) Dividends on the Senior Preferred Stock shall be paid in additional
fully paid and nonassessable shares of Senior Preferred Stock legally available
for such purpose (such dividends paid in kind being herein called "PIK
Dividends"). The Corporation may, at the option of the Board of Directors of the
Corporation, beginning on the ninth Dividend Payment Date, pay dividends on
Senior Preferred Stock (including, without limitation, on Senior Preferred Stock
issued as PIK Dividends) in cash, in substitute in whole or in part for
additional shares of Senior Preferred Stock. In the event the Corporation elects
to pay all or any portion of a dividend in cash pursuant to the second sentence
of this Section 2(b), the Corporation shall provide written notice of such cash
dividend election to all Holders of the Senior Preferred Stock no less than 45
days prior to the Dividend Payment Date with respect to such dividend. In no
event shall the election by the Corporation to pay dividends, in whole or in
part, in cash or in additional shares of Senior Preferred Stock preclude the
Corporation from making a different election with respect to all or a portion of
the dividends to be paid on the Senior Preferred Stock on any subsequent
Dividend Payment Date. PIK Dividends shall be paid by delivering to the Holders
of Senior Preferred Stock a number of shares of Senior Preferred Stock
determined by dividing the total amount of the dividend (rounded to the nearest
whole cent) such Holders are entitled to receive on the Dividend Payment Date,
calculated pursuant to Section 2(a), by the Liquidation Preference. The issuance
of any such PIK Dividend in such amount shall constitute full payment of such
dividend. The Corporation shall not issue fractional shares of Senior Preferred
Stock to which Holders may become entitled pursuant to this Section 2(b), but in
lieu thereof, the Corporation shall deliver a check in an amount in cash equal
to the applicable fraction of the Liquidation Preference. Any additional shares
or Senior Preferred Stock issued pursuant to this Section 2(b) shall be governed
by this resolution and shall be subject in all respects, except as to the date
of issuance and date from which dividends accrue and cumulate as set forth
below, to the same terms as the shares of Senior Preferred Stock originally
issued hereunder. All dividends (whether payable in cash or in whole or in part
in additional shares of Senior Preferred Stock) paid pursuant to this Section
2(b) shall be paid in equal pro rata proportions of such cash and/or shares of
Senior Preferred Stock to the Holders entitled thereto, except with respect to
cash payable in lieu of fractional shares which would otherwise be paid as PIK
Dividends.
(c) Dividends on shares of Senior Preferred Stock shall accrue and be
cumulative from the date of issuance of such shares. Dividends shall be payable
quarterly in arrears when and
5
<PAGE>
as declared by the Board of Directors of the Corporation on March 31, June 30,
September 30 and December 31 of each year (a "Dividend Payment Date"),
commencing on September 30, 2000 and for shares paid as PIK Dividends,
commencing on the first Dividend Payment Date after such shares are issued. If
any Dividend Payment Date occurs on a day that is not a Business Day, any
accrued dividends otherwise payable on such Dividend Payment Date shall be paid
on the next succeeding Business Day. Dividends shall be paid to the Holders of
record of the Senior Preferred Stock as their names shall appear on the share
register of the Corporation on the Record Date for such dividend. Dividends
payable in any Dividend Period which is less than a full Dividend Period in
length will be computed on the basis of a ninety (90) day quarterly period and
actual days elapsed in such Dividend Period. Dividends on account of arrears for
any past Dividend Periods may be declared and paid at any time to Holders of
record on the Record Date therefor. For any Dividend Period in which dividends
are not paid in full on the Dividend Payment Date first succeeding the end of
such Dividend Period, then on such Dividend Payment Date such accrued and unpaid
dividends (including PIK Dividends) shall be added (solely for the purpose of
calculating dividends payable on the Senior Preferred Stock) to the Liquidation
Preference of the Senior Preferred Stock effective at the beginning of the
Dividend Period succeeding the Dividend Period as to which such dividends were
not paid and shall thereafter accrue additional dividends in respect thereof at
the Dividend Rate until such accrued and unpaid dividends have been paid in
full.
(d) So long as any shares of Senior Preferred Stock shall be outstanding,
the Corporation shall not declare, pay or set apart for payment on any Junior
Stock any dividends whatsoever, whether in cash, property or otherwise (other
than dividends payable in shares of the class or series upon which such
dividends are declared or paid, or payable in shares of Common Stock with
respect to Junior Stock, or rights to acquire such stock, together with cash in
lieu of fractional shares), nor shall the Corporation make any distribution on
any Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise
acquired by the Corporation or any of its subsidiaries of which it owns not less
than a majority of the outstanding voting power (other than a purchase,
redemption or other acquisition of shares of Common Stock made for purposes of
an employee incentive or benefit plan of the Corporation, including, without
limitation, the acquisition upon exercise of stock options, warrants or rights
to acquire capital stock if the security acquired represents a portion of the
exercise price thereof and acquisitions from employees under any such employee
incentive or benefit plan), nor shall any monies be paid or made available for a
sinking fund for the purchase or redemption of any Junior Stock, unless all
dividends to which the Holders of Senior Preferred Stock shall have been
entitled for all previous Dividend Periods shall have been paid or declared and
a sum of money or PIK Dividends sufficient for the payment thereto has been set
apart.
(e) In the event that full dividends are not paid or made available to the
Holders of all outstanding shares of Senior Preferred Stock and funds available
for payment of dividends shall be insufficient to permit payment in full to
Holders of all such stock of the full preferential amounts to which they are
then entitled, then the entire amount available for payment of dividends shall
be distributed ratably among all such Holders of Senior Preferred Stock in
proportion to the full amount to which they would otherwise be respectively
entitled. For purposes of this Section
6
<PAGE>
2(e), the amount of legally available PIK Dividends shall be deemed funds
available for payment of dividends.
(f) Subject to Section 2(d), in the event that the Corporation declares or
pays or sets apart for payment on any Common Stock any cash dividends, the
Corporation shall also declare and pay to the Holders of the Senior Preferred
Stock at the same time that it declares and pays or sets apart for payment to
the holders of Common Stock, the cash dividends which would have been declared
and paid or set apart for payment with respect to the shares of Common Stock
issuable upon conversion of the Senior Preferred Stock had all of the
outstanding shares of Senior Preferred Stock been converted immediately prior to
the record date for such dividend, or if no record date is fixed, the date as to
which the record holders of the Junior Stock entitled to such dividends are to
be determined.
(g) The Corporation and each Holder acknowledge and agree that it is
intended that the Senior Preferred Stock not constitute "preferred stock" within
the meaning of Section 305 of the Internal Revenue Code of 1986, as amended, and
the Treasury Regulations promulgated thereunder, and neither the Corporation nor
the Holders shall treat the Senior Preferred Stock as such. Accordingly, payment
of any and all PIK Dividends to be made hereunder or under any other transaction
document by the Corporation to or for the benefit of any Holder is intended to
be made free and clear of, and without deduction for, U.S. federal income and
withholding taxes ("U.S. Taxes"). If the Corporation shall be required by law to
deduct any such U.S. Taxes from or in respect of any PIK Dividends to be paid
hereunder by the Corporation to or for the benefit of any Holder, then (a) the
Holder shall pay to the Corporation the amount of such U.S. Taxes not to exceed
ten percent (10%) of the fair market value of such PIK Dividend on the date such
PIK Dividend is distributed in accordance with this Certificate of Designations
(the "Fair Market Value"), and (b) upon payment by the applicable Holder the
Corporation shall pay to or for the benefit of the applicable Holder, in
addition to such PIK Dividend, an additional amount (the "Tax Gross-Up Amount"),
in cash, as necessary so that after making all required deductions on account of
U.S. Taxes (including deductions applicable to additional sums required to be
paid or deposited under this Section 2(g)) the amount received by such Holder
(disregarding the payment made by such Holder to the Corporation pursuant to
this sentence) shall be equal to the sum that would have been so received had no
such deductions been made. If a Holder is required to pay any U.S. Taxes (other
than U.S. Taxes determined on a net income basis) with respect to any PIK
Dividends (as a result of the Corporation's failure to withhold such U.S. Taxes
or otherwise) in excess of ten percent (10%) of the Fair Market Value of such
PIK Dividends, the Corporation shall indemnify and hold harmless such Holder
from any such U.S. Taxes in an amount equal to the Tax Gross-Up Amount, and if
the Corporation is required to pay any such U.S. Taxes with respect to any PIK
Dividends, the Holder shall indemnify and hold harmless the Corporation from any
such U.S. Taxes in an amount up to ten percent (10%) of the Fair Market Value of
such PIK Dividends.
(h) The amount to be paid by the Corporation under Section 2(g) shall be reduced
by the amount of any credit, against any other tax due in any other
jurisdiction, available to the Holder or its affiliates by reason of the payment
of U.S. Taxes pursuant to Section 2(g). In no event shall the Corporation be
liable for any U.S. Taxes required to be deducted from or in
7
<PAGE>
respect of any PIK Dividends by reason of any change in applicable law after the
Initial Issue Date (which shall be the responsibility of the Holder), or be
obligated to make any payment under Section 2(g) if, at the time of such
payment, such payment (a "Blocked Payment") would violate, or result in a
default or event of default under, the Indenture relating to the Corporation's
12 1/2% Senior Subordinated Notes due 2010 or the Corporation's Senior Credit
Agreement dated as of September 6, 2000 (in each case including any amendments,
modifications, extensions, refinancings or replacements thereof) (collectively,
the "Financing Documents"). Notwithstanding the foregoing, in the event the
Corporation does not make a payment as required by Section 2(g) because such
payment would be deemed a Blocked Payment, (A) the Holder shall have no
obligation to make the payment as described in clause (a) of Section 2(g), but
shall pay the amount otherwise required to be deducted directly to the U.S.
taxing authority, and (B) the Corporation shall be obligated to pay to the
applicable Holders an amount equal to any such Blocked Payments plus interest at
an annual rate of 6% starting from the date any such Blocked Payment otherwise
would have been made promptly following the date in which any such previously
Blocked Payments would no longer violate, or result in a default or event of
default under, the Financing Documents. Each Holder shall, if requested in
writing by the Corporation, promptly provide the Corporation with a properly
completed Form W-8 BEN or Form W-8 IMY (or successor forms), as applicable,
including, if applicable, the eligibility of such Holder for a reduced rate of
withholding pursuant to an applicable treaty.
3 Distributions Upon Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or other winding up of the affairs of the Corporation, before any payment or
distribution shall be made to the holders of Junior Stock, the Holders of Senior
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation in cash or property at its fair market value as determined by the
Board of Directors of the Corporation the Liquidation Preference per share plus
an amount equal to all dividends accrued and unpaid thereon to the date of such
liquidation or dissolution or such other winding up. Except as provided in this
Section 3(a), Holders of Senior Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Corporation.
(b) If, upon any such liquidation, dissolution or other winding up of the
affairs of the Corporation, the assets of the Corporation shall be insufficient
to permit the payment in full of the Liquidation Preference per share plus an
amount equal to all dividends accrued and unpaid on the Senior Preferred Stock,
then the assets of the Corporation shall be ratably distributed among the
Holders of Senior Preferred Stock in proportion to the full amounts to which
they would otherwise be respectively entitled if all amounts thereon were paid
in full. Neither the consolidation or merger of the Corporation into or with
another corporation or corporations, nor the sale, lease, transfer or conveyance
of all or substantially all of the assets of the Corporation to another
corporation or any other entity shall be deemed a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
3.
4 Redemption by the Corporation.
8
<PAGE>
(a) The Corporation may, in the manner hereinafter provided, redeem from
and after the date that is three years after the Initial Issue Date all, but not
less than all, of the outstanding shares of Senior Preferred Stock on payment of
the Redemption Price for each share of Senior Preferred Stock to be redeemed so
long as (i) a registration statement with respect to the Common Stock underlying
the Senior Preferred Stock has been filed with the Securities and Exchange
Commission, and such registration statement has been declared effective by the
Securities and Exchange Commission and has been effective for at least 180 days,
and (ii) the Current Market Price per share of Common Stock is higher than
$10.00 on the date the written notice of redemption referred to in Section 4(b)
is sent during the 180-day period set forth in clause (i).
(b) Before redeeming any shares of Senior Preferred Stock, the Corporation
shall mail by overnight courier and fax to each person who, at the date of such
mailing and fax, shall be a registered Holder of shares of Senior Preferred
Stock to be redeemed, notice of the intention of the Corporation to redeem such
shares held by such registered Holder. Such notice shall be mailed and faxed to
the last address of such Holder as it appears on the records of the Corporation,
or in the event of the address of any such Holder not appearing on the records
of the Corporation, then to the last address of such Holder known to the
Corporation, at least forty-five (45) days before the date specified for
redemption. Such notice shall set out the Redemption Price and the date on which
the redemption is to take place. On or after the date so specified for
redemption, the Corporation shall pay or cause to be paid the Redemption Price
to the registered Holders of the shares of Senior Preferred Stock on
presentation and surrender of the certificates for the shares of Senior
Preferred Stock so called for redemption at the registered office of the
Corporation or at such other place or places as may be specified in such notice,
and the certificates for such shares of Senior Preferred Stock shall thereupon
be cancelled, and the shares of Senior Preferred Stock represented thereby shall
thereupon be redeemed. From and after the date specified for redemption in such
notice, the Holders of the shares of Senior Preferred Stock called for
redemption shall cease to be entitled to dividends in respect of such shares and
shall not be entitled to exercise any of the rights of the Holders thereof,
except the right to receive the Redemption Price, unless payment of the
Redemption Price shall not be made by the Corporation in accordance with the
foregoing provisions, in which case the rights of the Holders of such shares
shall remain unaffected.
(c) No Senior Preferred Stock may be redeemed except with funds legally
available for the payment of the Redemption Price.
(d) All shares of Senior Preferred Stock redeemed pursuant to this Section
4 shall be retired and shall be restored to the status of authorized and
unissued shares of preferred stock, without designation as to series and may
thereafter be reissued as shares of any series of preferred stock.
5 Conversion.
(a) Each Holder shall have the right, at such Holder's option, to convert
all or any portion of its shares of Senior Preferred Stock into shares of Common
Stock at any time, at the Conversion Rate calculated as of the close of business
on the Conversion Date.
9
<PAGE>
(b) On the date five (5) years after the Initial Issue Date each share of
Senior Preferred Stock will automatically convert into shares of Common Stock at
the Conversion Rate calculated as of the close of business on the date five (5)
years after the Initial Issue Date. On such date, each Holder's shares of Senior
Preferred Stock shall represent the number of shares of Common Stock into which
the Senior Preferred Stock was converted. On and after such date, each Holder
will be entitled to deliver its Senior Preferred Stock certificates to the
Corporation in exchange for Common Stock certificates in accordance with the
terms of Section 5(c) as if such date of mandatory conversion was a Conversion
Date.
(c) The right of conversion attaching to any share of Senior Preferred
Stock may be exercised by the Holder thereof by delivering the certificate
representing such share of Senior Preferred Stock to be converted to the
Corporation, at its principal office or at the office or agency maintained by
the Corporation for that purpose, accompanied by a duly signed and completed
notice of conversion in form reasonably satisfactory to the Corporation. The
"Conversion Date" will be the date on which the duly signed and completed notice
of conversion are so delivered. As promptly as practicable on or after the
Conversion Date (provided the certificate representing the share of Senior
Preferred Stock is delivered to the Corporation), but in no event later than
three days from the Conversion Date, the Corporation shall issue and deliver to
the Holder (i) at the Holder's request, either a certificate or certificates or
electronic shares through "DWAC" for the number of full shares of Common Stock
issuable upon conversion, together with payment in cash, determined as provided
below, in lieu of any fraction of a share and (ii) if less than the full number
of shares of Senior Preferred Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such certificate or
certificates shall be delivered by the Corporation to the appropriate Holder by
mailing certificates evidencing the additional shares to the Holders at their
respective addresses set forth in the register of Holders maintained by the
Corporation. All shares of Common Stock issuable upon conversion of the Senior
Preferred Stock shall be fully paid and nonassessable and shall rank pari passu
with the other shares of Common Stock outstanding from time to time.
(d) The Corporation shall not issue a fractional share of Common Stock
upon conversion of Senior Preferred Stock. Instead the Corporation shall deliver
a check for an amount equal to the applicable fraction of a share multiplied by
the Current Market Price calculated as of the close of business on the
Conversion Date, rounded to the nearest cent.
(e) A Holder delivering Senior Preferred Stock for conversion will not be
required to pay any taxes or duties in respect of the issue or delivery of
Common Stock on conversion but will be required to pay any tax or duty that may
be payable in respect of any transfer involved in the issue or delivery of the
shares of Common Stock in a name other than that of the Holder of the Senior
Preferred Stock. Certificates representing shares of Common Stock will not be
issued or delivered unless all taxes and duties, if any, payable by the Holder
have been paid.
(f) The Corporation has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury enough
shares of Common Stock to permit the conversion of all outstanding shares of
Senior Preferred Stock in full as of the
10
<PAGE>
next succeeding Dividend Payment Date assuming that such conversion took place
at the Conversion Price then in effect (provided that such reservation may be
proportionally reduced as shares of Senior Preferred Stock are repurchased,
converted, exchanged or retired) and such shares shall be fully paid and
nonassessable and free of preemptive or similar rights. The Corporation shall
take all commercially reasonable steps to comply with all securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of
Senior Preferred Stock, provided, however, that the Corporation shall not be
required to file a registration statement with respect to such securities,
except as provided in the Stockholders' Agreement.
(g) The Conversion Price shall be subject to adjustment as follows:
(i) In case the Corporation shall (A) pay a dividend (or make a
distribution) on any class of its Capital Stock in shares of its
Common Stock, (B) issue shares of Common Stock to DLJ Capital
Funding, Inc. and those financial institutions that will be lenders
of the Corporation as contemplated by Commitment Letter dated as of
May 18, 2000 by and among DLJ Capital Funding, Inc., DLJ Bridge
Finance, Inc. and the Corporation either upon the exercise of rights
or warrants granted to such parties or otherwise, (C) subdivide its
outstanding shares of Common Stock into a greater number of shares
or (D) combine its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior
thereto shall be adjusted (as provided below) so that Holders of
shares of Senior Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
Common Stock which such Holder would have owned or have been
entitled to receive immediately following such action had such
shares of Senior Preferred Stock been converted immediately prior to
such time. The Conversion Price as adjusted shall be determined by
multiplying the Conversion Price at which the shares of Senior
Preferred Stock were theretofore convertible by a fraction of which
the denominator shall be the number of shares of Common Stock
outstanding immediately following such action and of which the
numerator shall be the number of shares of Common Stock outstanding
immediately prior thereto. Such adjustment shall be made whenever
any event listed above shall occur and shall become effective
retroactively immediately after the record date in the case of a
dividend or distribution and immediately after the effective date in
the case of a subdivision or combination.
(ii) In case the Corporation shall pay a dividend to all holders of
its Common Stock (including any dividend paid in connection with a
consolidation or merger in which the Corporation is the continuing
corporation) of any shares of Capital Stock of the Corporation or
its Subsidiaries (other than Common Stock) or evidences of its
indebtedness or assets or property (other than cash and excluding
dividends or distributions in connection with the liquidation,
dissolution or winding up of the Corporation) or rights or warrants
to subscribe for or purchase any of its Capital Stock or those of
its Subsidiaries or Capital Stock convertible or exchangeable for
Common Stock, then in each such case adequate provision shall be
made so that each Holder shall have the right to receive the amount
and kind of
11
<PAGE>
assets, evidences of indebtedness, property or securities such
holder would have received had such Holder converted each such share
of Senior Preferred Stock immediately prior to the record date for
such dividend. Such adjustment shall be made whenever any such
payment is made, and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive the payment.
(iii) No adjustment in the Conversion Price shall be required unless
the adjustment would require an increase or decrease of at least 1%
in the Conversion Price then in effect; provided, however, that any
adjustments that by reason of this Section 5(g)(iii) are not
required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section
5(g) shall be made to the nearest cent.
(iv) Whenever the Conversion Price is adjusted, as herein provided,
the Corporation shall promptly send to each Holder of record by
first class mail, postage pre-paid, a certificate of an officer of
the Corporation setting forth the Conversion Price after the
adjustment and setting forth a brief statement of the facts
requiring such adjustment and a computation thereof. The certificate
shall be conclusive evidence of the correctness of the adjustment.
The Corporation shall promptly cause a notice of the adjusted
Conversion Price to be mailed to each registered Holder.
(v) In case of any reclassification of the Common Stock, any
consolidation of the Corporation with, or merger of the Corporation
into, any other entity, any merger of another entity into the
Corporation (other than a merger that does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Corporation), any sale or
transfer of all or substantially all of the assets of the
Corporation or any compulsory share exchange pursuant to which share
exchange the Common Stock is converted into other securities, cash
or other property, then lawful provision shall be made as part of
the terms of such transaction whereby each Holder shall have the
right thereafter, during the period such shares of Senior Preferred
Stock shall be convertible, to convert its shares of Senior
Preferred Stock only into the kind and amount of securities, cash
and other property receivable upon the reclassification,
consolidation, merger, sale, transfer or share exchange of the
number of shares of Common Stock of the Corporation into which such
Holder's shares of Senior Preferred Stock would have been
convertible immediately prior to the reclassification,
consolidation, merger, sale, transfer or share exchange. The
Corporation, the Person formed by the consolidation or resulting
from the merger or which acquires such assets or which acquires the
Corporation's shares, as the case may be, shall make provisions in
its certificate or articles of incorporation or other constituent
document to establish such rights and such rights shall be clearly
provided for in the definitive transaction documents relating to
such transaction. The certificate or articles of incorporation or
other constituent document shall
12
<PAGE>
provide for adjustments, which, for events subsequent to the
effective date of the certificate or articles of incorporation or
other constituent document, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The
provisions of this Section 5(g)(v) shall similarly apply to
successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(h) All shares of Senior Preferred Stock converted pursuant to this
Section 5 shall be retired and shall be restored to the status of authorized and
unissued shares of preferred stock, without designation as to series and may
thereafter be reissued as shares of any series of preferred stock other than
Senior Preferred Stock.
6 Voting Rights.
(a) The Holders shall not be entitled to any voting rights except as
hereinafter provided in this Section 6 or as otherwise provided by law.
(b) The Holders shall be entitled to vote along with the holders of Common
Stock on all matters on which holders of Common Stock are entitled to vote. The
Holders shall participate in such votes as if the shares of Senior Preferred
Stock were converted into shares of Common Stock in accordance with Section 5
hereof as of the record date for the determination of holders of Common Stock
entitled to vote.
(c) In addition to any vote or consent of shareholders required by law,
the affirmative consent of the Holders that own more than fifty percent (50%) of
the then outstanding shares of Senior Preferred Stock (voting as a single
class), given in person or by proxy, either in writing without a meeting or by
vote at any meeting called for the purpose, shall be necessary for authorizing,
effecting or validating:
(i) any amendment, alteration or repeal of any of the provisions of
the Certificate of Designations of the Corporation;
(ii) any amendment, alteration or repeal of any of the provisions of
the Certificate of Incorporation of the Corporation that would adversely
affect the preferences, rights or powers of the Senior Preferred Stock;
(iii) any authorization, issuance or creation of (by
reclassification or otherwise) any class or series (or any security of any
class or series) of Capital Stock of the Corporation;
(iv) any increase in the size of the Board of Directors of the
Corporation (except as required pursuant to the terms of this Certificate
of Designations or the Stockholders' Agreement);
(v) any change in the state of incorporation of the Corporation;
(vi) any delisting of the Common Stock from the American Stock
Exchange or listing of Common Stock on a different exchange or national
quotation system; and
13
<PAGE>
(vii) any decision, or the entering into of any agreement,
commitment or arrangement, to effect any of the foregoing.
(d) Except as provided in Section 6(e), the Board of Directors of the
Corporation shall consist of ten (10) Directors, and the Holders of shares of
Senior Preferred Stock, voting separately as a class, shall be entitled to
elect:
(i) four (4) of such Directors for so long as the Holders own in the
aggregate shares of Senior Preferred Stock having the right to convert
into a number of shares of Common Stock that equals or exceeds twenty five
percent (25%) of the sum of (i) the number of shares of Common Stock
outstanding plus (ii) the number of shares of Common Stock into which or
for which all outstanding securities of the Corporation convertible into
or exercisable or exchangeable for Common Stock (including, without
limitation, the Senior Preferred Stock) may be converted, exercised or
exchanged;
(ii) three (3) of such Directors for so long as the Holders of own
in the aggregate shares of Senior Preferred Stock having the right to
convert into a number of shares of Common Stock that equals or exceeds
twenty percent (20%) of the sum of (i) the number of shares of Common
Stock outstanding plus (ii) the number of shares of Common Stock into
which or for which all outstanding securities of the Corporation
convertible into or exercisable or exchangeable for Common Stock
(including, without limitation, the Senior Preferred Stock) may be
converted, exercised or exchanged;
(iii) two (2) of such Directors for so long as the Holders own in
the aggregate shares of Senior Preferred Stock having the right to convert
into a number of shares of Common Stock that equals or exceeds ten percent
(10%) of the sum of (i) the number of shares of Common Stock outstanding
plus (ii) the number of shares of Common Stock into which or for which all
outstanding securities of the Corporation convertible into or exercisable
or exchangeable for Common Stock (including, without limitation, the
Senior Preferred Stock) may be converted, exercised or exchanged; or
(iv) one (1) of such Directors for so long as the Holders own in the
aggregate shares of Senior Preferred Stock having the right to convert
into a number of shares of Common Stock that equals or exceeds five
percent (5%) of the sum of (i) the number of shares of Common Stock
outstanding plus (ii) the number of shares of Common Stock into which or
for which all outstanding securities of the Corporation convertible into
or exercisable or exchangeable for Common Stock (including, without
limitation, the Senior Preferred Stock) may be converted, exercised or
exchanged.
(e) If the Corporation shall have failed to pay any dividends on any
Dividend Payment Date as provided in Section 2(a), (b) and (c) (and without
regard to (i) Section 2(e) or (ii) whether the payment of such dividend is
legally or otherwise permissible) or if the Corporation shall have failed to
comply with any provision of Section 6(d) hereof, then for as long as such
failure continues, the number of Directors of the Corporation shall be increased
to a number that is equal to three (3) more than the then current number of
Directors and the Holders, voting separately as a class, shall have a right to
designate and have appointed immediately by the Board
14
<PAGE>
of Directors of the Corporation by resolution, or elect (if specified by the
Holders) at the next annual meeting of the stockholders or at any special
meeting, three additional Directors to the Corporation's Board of Directors,
regardless of the number of shares of Preferred Stock then owned by the Holders.
(f) Whenever such voting right pursuant to Section 6(e) shall have vested,
such right may be exercised by written consent of the Holders of a majority of
the outstanding shares of Senior Preferred Stock or at a special meeting of the
Holders, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing Directors. Such right of the
Holders to elect Directors may be exercised until the Corporation has paid all
theretofore accrued and unpaid dividends as provided in Section 2(a), (b) and
(c) and/or, as applicable, cured any failure, at which time the right of the
Holders to elect such number of Directors shall cease, the term of such
Directors previously elected pursuant to Section 6(e) shall thereupon terminate,
and the authorized number of Directors shall thereupon return to the number of
authorized Directors otherwise in effect, but subject always to the same
provisions for the renewal and divestment of such special voting rights as
provided in Section 6(e).
(g) At any time when such voting right shall have vested in the Holders
pursuant to Section 6(e) and if such right shall not already have been initially
exercised by written consent or otherwise, a proper officer of the Corporation
shall, upon the written request of any Holder then outstanding, addressed to the
Secretary of the Corporation, call a special meeting of Holders. Such meeting
shall be held at the earliest practicable date upon the notice required for
annual meetings of stockholders at the place for holding annual meetings of
stockholders of the Corporation or if none at a place designated by the
Secretary of the Corporation. If such meeting shall not be called by the proper
officers of the Corporation within thirty (30) days after the personal service
of such written request upon the Secretary of the Corporation, or within thirty
(30) days after mailing the same, within the United States, by registered mail,
addressed to the Secretary of the Corporation at its principal office (such
mailing to be evidenced by the registry receipt issued by the postal
authorities), then the Holders of record of ten percent (10%) of the shares of
Senior Preferred Stock then outstanding may designate in writing a Holder to
call such meeting at the expense of the Corporation, and such meeting may be
called by such person so designated upon the notice required for annual meeting
of stockholders and shall be held at the place for holding annual meetings of
the Corporation or, if none, at a place designated by such Holder. Any Holder of
Senior Preferred Stock that would be entitled to vote at such meeting shall have
access to the stock books of the Corporation for the purpose of causing a
meeting of stockholders to be called pursuant to the provisions of this Section
6(g). Notwithstanding the provisions of this Section 6(g), however, no such
special meeting shall be called if any such request is received less than 90
days before the date fixed for the next ensuing annual or special meeting of
stockholders.
(h) If a Director so elected by the Holders of Senior Preferred Stock
shall cease to serve as a Director for any reason before his or her term
expires, the Holders may, by written consent or at a special meeting of the
Holders called as provided above, elect a successor to hold office for the
unexpired term of the Director whose place shall be vacant; provided that any
such
15
<PAGE>
prospective successor Director who is to replace Peter Cohen shall be reasonably
satisfactory to the Board of Directors as a whole.
(i) For so long as any Director has been elected by the Holders, at least
one of the Directors so elected by the Holders shall serve on all committees of
the Board of Directors of the Corporation.
7 Ranking.
With regard to rights to receive dividends, redemption payments and
distributions upon liquidation, dissolution or winding up of the Corporation,
the Senior Preferred Stock shall rank senior to the Common Stock and any other
equity securities or other securities convertible into or exercisable or
exchangeable for Common Stock or other equity securities that are issued by the
Corporation after the date of this Certificate of Designation. The Senior
Preferred Stock shall not be subject to the creation of any Capital Stock senior
with respect to the right to receive dividends, redemption payments and
distributions upon liquidation, dissolution or winding up of the Corporation.
8 Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Senior
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution and in the Certificate of Incorporation.
9 Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience
of reference only and shall not affect the interpretation of any of the
provisions hereof.
10 Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Senior Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution is invalid, unlawful or incapable of being enforced by reason of any
rule of law or public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Senior Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution which can be given effect without the invalid, unlawful or
unenforceable voting powers, preferences and relative, participating, optional
and other special rights of Senior Preferred Stock and qualifications,
limitations and restrictions thereof shall, nevertheless, remain in full force
and effect, and no voting powers, preferences and relative, participating,
optional or other special rights of Senior Preferred Stock and qualifications,
limitations and restrictions thereof herein set forth shall be deemed dependent
upon any other such voting powers, preferences and relative, participating,
optional or other special rights of Senior Preferred Stock and qualifications,
limitations and restrictions thereof unless so expressed herein.
16
<PAGE>
11 Record Holders.
The Corporation and the transfer agent for the Senior Preferred
Stock may deem and treat the Holder of any shares of Preferred Stock as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
transfer agent shall be affected by any notice to the contrary.
12 Notice.
Except as may otherwise be provided for herein, all notices referred
to herein shall be in writing, and all notices hereunder shall be deemed to have
been given upon the earlier of receipt of such notice or three Business Days
after the mailing of such notice if sent by registered mail (unless first-class
mail shall be specifically permitted for such notice under the terms of this
Certificate) with postage prepaid, addressed: if to the Corporation, to its
offices at 750 Lexington Avenue, 25th Floor, New York, NY 10022, Attention:
Secretary and General Counsel or to an agent of the Corporation designated as
permitted by this Certificate, or, if to any Holder of the Senior Preferred
Stock, to such Holder at the address of such Holder of the Senior Preferred
Stock as listed in the stock record books of the Corporation (which may include
the records of any transfer agent for the Senior Preferred Stock); or to such
other address as the Corporation or Holder, as the case may be, shall have
designated by notice similarly given.
17
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to
be duly executed by DeWayne Laird, its Vice President, and attested by
Martin Schloss, its Secretary, this 6th day of September, 2000.
AUTOTOTE CORPORATION
By: /s/ DeWayne Laird
----------------------------
Name: DeWayne Laird
Title: Vice President
ATTEST:
By: /s/ Martin Schloss
---------------------------
Name: Martin Schloss
Title: Secretary
18
