Certificate of Designation for Series B Redeemable Preferred Stock

(1)

“Options” shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire Common Stock, Series B Redeemable Preferred Stock, or Convertible Securities (defined below).

 

(2)

“Original Issue Date” shall mean the date on which a share of Series B Redeemable Preferred Stock was first issued.

 

(3)

“Convertible Securities “shall mean any evidences of indebtedness, shares (other than Common Stock and Series B Redeemable Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

 

(4)

“Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section G.(c)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issuable or issued:

 

(A)

upon conversion of shares of Series B Redeemable Preferred Stock;

 

(B)

to officers, directors or employees of, are consultants to, the Corporation pursuant to stock option or stock purchase plans or agreements but not exceeding 500,000 shares of Common Stock (not of any repurchases of such shares or cancellations or expirations of options), subject to adjustment for all subdivisions and combinations;

 

(C)

as a dividend or distribution on Series B Redeemable Preferred Stock;

 

(D)

upon exercise or conversion of options or warrants outstanding as of the Original Issue Date; or

 

(E)

for which adjustment of the Series B Conversion Price is made pursuant to Section G.(d)

 

(ii)

No Adjustment of Series B Conversion Price. Any provision herein to the contrary not withstanding, no adjustment in the Series B Conversion Price for a series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section G.(c)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Series B Conversion Price for such series of Preferred Stock in effect on the date of, and immediately prior to, such issue.

 

(1)

no further adjustments in the Series B Conversion Price shall be made upon the subsequent issue of such Convertible Securities, or Series B Redeemable Preferred Stock or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities or Series B Redeemable Preferred Stock;

 

(2)

if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or decrease or increase in the number of shares of Common Stock the number of shares issuable, upon the exercise, conversion or exchange thereof, the Series B Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Series B Convertible Conversion Price shall affect Common Stock previously issued upon conversion of Series B Redeemable Preferred Stock);

 

(3)

upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series B Convertible Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

 

(A)

in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefore was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange and

 

(B)

in the case of Options for Convertible Securities or Series B Redeemable Preferred Stock only the Convertible Securities or Series B Redeemable Preferred Stock, if any, actually issued upon the conversion thereof were issued at the time of issue of such Options, and exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section G.(c)) upon the issue of the Convertible Securities or Series B Redeemable Preferred Stock with respect to which such Options were actually exercised;

In the event the Corporation, at any time after the Original Issue Date shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section G.(c)(iii) without consideration or for a consideration per share less than the Series B Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Series B Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Series B Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Series B Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series B Redeemable Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of stock or convertible securities had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date, but not including in such calculation any additional shares of Common Stock issuable with respect to shares of Series B Redeemable Preferred Stock, Convertible Securities, or outstanding options, warrants or other rights for the purchase of stock or convertible securities, solely as a result of the adjustment of the respective Series B Conversion Prices (or other conversion ratios) resulting from the issuance of Additional Shares of Common Stock causing the adjustment in question.

For purposes of this Section G.(c), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(A)

insofar, as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;

 

(B)

insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

 

(C)

in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors.

 

(2)

Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section G.(c)(iii), relating to Options and Convertible Securities shall be determined by dividing:

 

(A)

the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional considerations (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, in the case of Options for Convertible Securities or Series B Redeemable Preferred Stock, the exercise of such Options for Convertible Securities or Series B Redeemable Preferred Stock and the conversion or exchange of such Convertible Securities or Series B Redeemable Preferred Stock by

 

(B)

the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities.

 

(e)

Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series B Redeemable Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section G.(d) above or a merger or other reorganization referred to in Section D.(c) above), the Series B Conversion Price therein effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series B Redeemable Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common stock that would have been subject to receipt by the holders upon conversion of the Series B Redeemable Preferred Stock immediately before that change.

 

(f)

No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B Redeemable Preferred Stock against impairment.

 

(g)

Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of any Series B Conversion Price pursuant to this Section G, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Redeemable Preferred Stock a certificate executed by the Corporation’s President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Redeemable Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series B Conversion Price for such series of Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series B Redeemable Preferred Stock.

 

 

(1)

at least 20 days’ prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and

 

(2)

in the case of the matters referred to in (iii) and (iv) above, at least 20 days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).

 

(i)

Issue Taxes. The Corporation shall pay any and all issue and other taxes that my be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series B Redeemable Preferred Stock pursuant hereto; provided; however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

 

(j)

Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out if its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Redeemable Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Redeemable Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Redeemable Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation.

 

(k)

Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series B Redeemable Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series B Redeemable Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional shares. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors).

 

(l)

Notices. Any notice required by the provisions of this Section G to be given to the holders of shares of Series B Redeemable Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, or if sent by facsimile or delivered personally by hand or nationally recognized courier and addressed to each holder of record at such holder’s address or facsimile number appearing in the records of the Corporation.