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EXHIBIT 4.1
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
ENVIRONMENTAL SAFEGUARDS, INC.
Environmental Safeguards, Inc. (hereinafter referred to as the
"Corporation" or "Company"), a corporation organized and existing under the laws
of the State of Nevada,
DOES HEREBY CERTIFY:
That, the Articles of Incorporation of the Corporation authorizes the
issuance of 10,000,000 shares of Preferred Stock, $.001 par value per share, and
expressly vests in the Board of Directors of the Corporation the authority to
issue any or all of said shares in one or more series and by resolution or
resolutions to establish the designation, number, full or limited voting powers,
or the denial of voting powers, preferences and relative, participating,
optional, and other special rights and the qualifications, limitations,
restrictions and other distinguishing characteristics of each series to be
issued:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series B Convertible Preferred
Stock, par value $.001 with a stated value of $5,000.00 ("Preferred Stock"), is
hereby authorized and created, said series to consist of up to 5,000,000
shares. The voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations or restrictions
thereof shall be as follows:
1. DIVIDENDS ON PREFERRED STOCK
(a) The holders of Preferred Stock shall be entitled to receive
out of funds legally available therefor, dividends at the same rate as
dividends (other than dividends paid in additional shares of Common
Stock) are paid with respect to the outstanding shares of the Company's
Common Stock, $.001 par value per share ("Common Stock"), (treating each
share of Preferred Stock as being equal to the number of shares of
Common Stock into which each such share of Preferred Stock could be
converted pursuant to the provisions of Section 2 hereof with such
number determined as of the record date for the determination of holders
of Common Stock entitled to receive such dividend).
(b) Dividends in Kind. In the event the Company shall make or
issue, or shall fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution with
respect to the Common Stock payable in (i) securities of the Company
other than shares of Common Stock or (ii) assets, then and in each such
event the holders of Preferred Stock shall receive, at the same time
such distribution is made with respect to Common Stock, the number of
securities or such other assets of the
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Company which they would have received had their Preferred Stock been
converted into Common Stock immediately prior to the record date for
determining holders of Common Stock entitled to receive such
distribution.
2. CONVERSION OF PREFERRED STOCK INTO COMMON STOCK
(a) Each holder of shares of Preferred Stock may, at his option
and at any time and from time to time, convert any or all such shares,
plus all dividends accrued and unpaid on such Preferred Stock up to the
conversion date, on the terms and conditions set forth in this Section
2, into fully paid and non-assessable shares of the Corporation's Common
Stock except that with respect to any shares of Preferred Stock called
for redemption, the conversion right shall terminate at the close of
business on the business day prior to the Redemption Date, unless
default is made in the payment of the Redemption Price. The number of
shares of Common Stock into which each share of Preferred Stock may be
converted shall be determined by multiplying the number of shares of
Preferred Stock to be converted by $1.06 and dividing the result by the
Conversion Price (as defined herein) in effect at the time of
conversion. The "Conversion Price" per share at which shares of Common
Stock shall be issuable upon conversion of any shares of Preferred Stock
shall initially be $1.06, subject to adjustment provided below.
(b) To exercise his conversion privilege, the holder of any
shares of Preferred Stock shall surrender to the Corporation during
regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the Preferred Stock
or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly
endorsed for transfer to the Corporation (if required by it),
accompanied by written notice stating that the holder irrevocably elects
to convert such shares. Conversion shall be deemed to have been
effected on the date when such delivery is made, and such date is
referred to herein as the "Conversion Date." Within five (5) business
days after the date on which such delivery is made, the Corporation
shall issue and send (with receipt to be acknowledged) to the holder
thereof or the holder's designee, at the address designated by such
holder, a certificate or certificates for the number of full shares of
Common Stock to which the holder is entitled as a result of such
conversion, and cash with respect to any fractional interest of a share
of Common Stock as provided in paragraph (c) of this Section 2. The
holder shall be deemed to have become a stockholder of record of the
number of shares of Common Stock into which the shares of Preferred
Stock have been converted on the applicable Conversion Date unless the
transfer books of the Corporation are closed on that date, in which
event he shall be deemed to have become a stockholder of record of such
shares on the next succeeding date on which the transfer books are
open, but the Conversion Price shall be that in effect on the Conversion
Date. Upon conversion of only a portion of the number of shares of
Preferred Stock represented by a certificate or certificates surrendered
for conversion, the Corporation shall within three (3) business days
after the date on which such delivery is made, issue and send (with
receipt to be acknowledged) to the holder
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thereof or the holder's designee, at the address designated by such
holder, a new certificate covering the number of shares of Preferred
Stock representing the unconverted portion of the certificate or
certificates so surrendered.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Preferred Stock. If more than one
share of Preferred Stock shall be surrendered for conversion at any one
time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Preferred Stock so surrendered. Instead
of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest, to
the nearest 1/100th of a share of Common Stock, in cash at the Current
Market Price (as defined below) on the business day preceding the
effective date of the conversion. The "Current Market Price" of
publicly traded shares of Common Stock of the Corporation for any day
shall be deemed to be the average of the daily "Closing Prices" for the
10 consecutive trading days preceding the Conversion Date. The "Closing
Price" shall mean the last reported sales price on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automated Quotations System, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or
quoted on the National Association of Securities Dealers Automated
Quotations System, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose.
(d) The Corporation shall at all times reserve for issuance
and maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred
Stock, the full number of shares of Common Stock deliverable upon the
conversion of all Preferred Stock from time to time outstanding. The
Corporation shall from time to time (subject to obtaining necessary
director and stockholder action), in accordance with the laws of the
State of Nevada, increase the authorized number of shares of its Common
Stock if at any time the authorized number of shares of its Common Stock
remaining unissued shall not be sufficient to permit the conversion of
all of the shares of Preferred Stock at the time outstanding.
(e) If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Preferred Stock require registration
or listing with, or approval of, any governmental authority, stock
exchange or other regulatory body under any federal or state law or
regulation or otherwise, including registration under the Securities Act
of 1933, as amended, and appropriate state securities laws, before such
shares may be validly issued or delivered upon conversion, the
Corporation will in good faith and as expeditiously as possible meet
such registration, listing or approval, as the case may be.
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(f) All shares of Common Stock which may be issued upon
conversion of the shares of Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free
from all taxes, liens and charges with respect to the issuance thereof.
(g) The Conversion Price in effect shall be subject to
adjustment from time to time as follows:
(i) Stock Splits, Dividends and Combinations. In the
event that the Corporation shall at any time subdivide the
outstanding shares of Common Stock, or shall pay or make a
dividend or distribution on any class of capital stock of the
Corporation in Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such
dividend shall be proportionately decreased, and in case the
Corporation shall at any time combine the outstanding shares of
Common Stock, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased, effective at
the close of business on the date of such subdivision, dividend
or combination, as the case may be.
(ii) Non-Cash Dividends, Stock Purchase Rights, Capital
Reorganization and Dissolutions. In the event:
(A) that the Corporation shall take a record of
the holders of its Common Stock for the purpose of
entitling them to receive a dividend, or any other
distribution, payable otherwise than in cash; or
(B) that the Corporation shall take a record of
the holders of its Common Stock for the purpose of
entitling them to subscribe for or purchase any shares of
stock of any class or other securities, or to receive any
other rights; or
(C) of any capital reorganization of the
Corporation, reclassification of the capital stock of the
Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock), consolidation or
merger of the Corporation with or into another
corporation, share exchange for all outstanding shares of
Common Stock under a plan of exchange to which the
Corporation is a party, or conveyance of all or
substantially all of the assets of the Corporation to
another corporation; or
(D) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
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then, and in any such case, the Corporation shall cause to
be mailed to the holders of record of the outstanding
Preferred Stock, at least 10 days prior to the date
hereinafter specified, a notice stating the date on which
(x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger,
share exchange, conveyance, dissolution, liquidation or
winding up is to take place and the date, if any is to be
fixed, as of which holders of Corporation securities of
record shall be entitled to exchange their shares of
Corporation securities for securities or other property
deliverable upon such reclassification, reorganization,
consolidation, merger, share exchange, conveyance,
dissolution, liquidation or winding up.
(iii) Issuances at Less than the Conversion Price.
Upon the issuance by the Corporation of Common Stock, or
any right, warrant or option to purchase Common Stock or
any security convertible into or exchangeable for Common
Stock, or any obligation or any share of stock convertible
into or exchangeable for Common Stock for a consideration
per share less than the Conversion Price of the Preferred
Stock in effect immediately prior to the time of such
issue or sale other than an issuance of stock or
securities pursuant to paragraph (i) of this Section 2(g),
the issuance of shares of Common Stock upon exercise of
options and warrants granted prior to the date of initial
issuance of the Preferred Stock, shares of Common Stock
issued upon the exercise of stock options granted pursuant
to the corporation's employee stock option plan in effect
from time to time (and as amended if approved by the
stockholders of the Corporation), or shares of Common
Stock issued in bona fide acquisitions (stock or asset)
approved by the Board of Directors or stockholders of the
Corporation, then forthwith upon such issue or sale, the
Conversion Price of the Preferred Stock shall be reduced
to a price (calculated to the nearest cent) determined by
dividing:
(A) an amount equal to the sum of (x) the
number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied
by the then existing Conversion Price of the
Preferred Stock, (y) the number of shares of Common
Stock issuable upon conversion or exchange of any
obligations or of any shares of stock of the
Corporation outstanding immediately prior to such
issue or sale multiplied by the then existing
Conversion Price of the Preferred Stock, and (z) an
amount equal to the aggregate "consideration
actually received" by the Corporation upon such
issue or sale; by
(B) the sum of the number of shares of
Common Stock outstanding immediately after such
issue or sale and the number of shares of Common
Stock issuable upon conversion or exchange of any
obligations or of any share of stock of the
Corporation outstanding immediately after such
issue or sale.
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For purposes of this paragraph 2(g)(iii), the following
provisions will be applicable:
(A) In the case of an issue or sale for cash of
shares of Common Stock, the "consideration actually received"
by the Corporation therefor shall be deemed to be the amount
of cash received, before deducting therefrom any commissions
or expenses paid by the Corporation.
(B) In case of the issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of
the Corporation) of additional shares of Common Stock for a
consideration other than cash or a consideration partly other
than cash, the amount of the consideration other than cash
received by the Corporation for such shares shall be deemed to
be the fair value of such consideration as determined in good
faith by the Board of Directors.
(C) In case of the issuance by the Corporation in
any manner of any rights to subscribe for or to purchase
shares of Common Stock, or any options for the purchase of
shares of Common Stock or stock convertible into Common Stock,
all shares of Common Stock or stock convertible into Common
Stock to which the holders of such rights or options shall be
entitled to subscribe for or purchase pursuant to such rights
or options shall be deemed to be "outstanding" as of the date
of the offering of such rights or the granting of such
options, as the case may be, and the aggregate consideration
named in such rights or options for the shares of Common Stock
or stock convertible into Common Stock covered thereby, plus
the consideration, if any, received by the Corporation for
such rights or options, shall be deemed to be the
"consideration actually received" by the Corporation (as of
the date of the offering of such rights or the granting of
such options, as the case may be) for the issuance of such
shares.
(D) In case of the issuance or issuances by the
Corporation in any manner of any obligations or of any shares
of stock of the Corporation that shall be convertible into or
exchangeable for Common Stock, all shares of Common Stock
issuable upon the conversion or exchange of such obligations
or shares shall be deemed to be issued as of the date such
obligations or shares are issued, and the amount of the
"consideration actually received" by the Corporation for such
additional shares of Common Stock shall be deemed to be the
total of (x) the amount of consideration received by the
Corporation upon the issuance of such obligations or shares,
as the case may be, plus (y) the aggregate consideration, if
any, other than such obligations or shares, receivable by
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the Corporation upon such conversion or exchange, except in
adjustment of dividends.
(E) The amount of the "consideration actually
received" by the Corporation upon the issuance of any rights
or options referred to in subparagraph (C) above or upon the
issuance of any obligations or shares which are convertible or
exchangeable as described in subparagraph (D) above, and the
amount of the consideration, if any, other than such
obligations or shares so convertible or exchangeable,
receivable by the Corporation upon the exercise, conversion or
exchange thereof shall be determined in the same manner
provided in subparagraphs (A) and (B) above with respect to
the consideration received by the Corporation in case of the
issuance of additional shares of Common Stock. Upon the
expiration of any rights or options referred to in subparagraph
(C), or the termination of any right of conversion or exchange
referred to in subparagraph (D), or any change in the number
of shares of Common Stock deliverable upon exercise of such
options or rights or upon conversion of or exchange of such
convertible or exchangeable securities, the Conversion Prices
then in effect shall forthwith be readjusted to such
Conversion Prices as would have obtained had the adjustments
made upon the issuance of such options, rights or convertible
or exchangeable securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually
delivered or to be delivered upon the exercise of such rights
or options or upon the conversion or exchange of such
securities.
(h) Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to paragraph 2(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 Preferred Stock a certificate signed by an
officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price 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 such holder's shares.
(i) In case any shares of Preferred Stock shall be
converted pursuant to Section 2(f) hereof, or purchased or otherwise
acquired by the Corporation, the shares so converted, purchased or
acquired shall be restored to the status of authorized but unissued
shares of preferred stock, without designation as to class or series,
and may thereafter be reissued, but not as shares of Preferred Stock.
(j) Effective upon the closing of a Qualified Public
Offering (as hereinunder defined) all of the then outstanding
Preferred Stock shall automatically be converted into Common Stock at
the applicable Conversion Price then in effect. For purposes hereof,
the
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term "Qualified Public Offering" shall mean the closing of a firm
commitment underwritten public offering pursuant to a registration
statement filed and declared effective under the Securities Act of
1933, as amended, (the "Act") covering the offer and sale of Common
Stock to the public in which the aggregate proceeds to the Company
equal or exceed $25,000,000 and in which the price per share of Common
Stock is at least $5.00 per share. All holders of record of shares of
Preferred Stock will be given at least 10 days' prior written notice
of the date fixed and the place designated for mandatory conversion of
all such shares of Preferred Stock pursuant to this Section 2(j). On
or before the date fixed for conversion, each holder of shares of
Preferred Stock shall surrender his or its certificate or certificates
for all such shares to the Company at the place designated in such
notice, and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled pursuant to
this Section 2(j). Within five (5) business days after the date of
such mandatory conversion and the surrender of the certificate or
certificates for Preferred Stock, the Company shall cause to be issued
and delivered to such holder a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Section
2(c) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
3. VOTING
(a) Except for election of directors, as otherwise required
by law or set forth herein, the shares of Preferred Stock shall be
entitled to vote, together with the shares of the Corporation's Common
Stock, on all matters presented at any annual or special meeting of
stockholders of the Corporation, or may act by written consent in the
same manner as the holders of the Corporation's Common Stock, upon the
following basis: each holder of Preferred Stock shall be entitled to
cast such number of votes for each share of Preferred Stock held by
such holder on the record date fixed for such meeting, or on the
effective date of such written consent, as shall be equal to the
number of shares of the Corporation's Common Stock into which each of
such holder's shares of Preferred Stock is convertible immediately
after the close of business on the record date fixed for such meeting
or the effective date of such written consent. The Preferred Stock
and any other stock having voting rights shall vote together as one
class, except as provided by law and in paragraph 5 hereof.
(b) Without limiting the foregoing, so long as the Preferred
Stock is outstanding and unconverted to Common Stock, the holders of
the Preferred Stock, voting separately as a class, shall be entitled
to elect one member of the Board of Directors.
4. LIQUIDATION RIGHTS
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders
of shares of Preferred Stock then outstanding
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shall be entitled to receive out of assets of the Corporation
available for distribution to stockholders, before any distribution of
assets is made to holders of any other class of capital stock of the
Corporation, an amount equal to $1.06 per share, plus accumulated and
unpaid dividends thereon to the date fixed for distribution
("Liquidation Amount").
(b) A consolidation or merger of the Corporation (in the
event that the Corporation is not the surviving entity) or sale of all
or substantially all of the Corporation's assets shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Company
within the meaning of this Section 4. In the event of such a
liquidation as contemplated by this Section 4(b), the holders of
Preferred Stock shall be entitled to receive an amount equal to the
greater of the Liquidation Amount or that which such holders would
have received if they had converted their Preferred Stock into Common
Stock immediately prior to such liquidation or winding up (without
giving effect to the liquidation preference of or any dividends on any
other capital stock ranking prior to the Common Stock).
(c) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation which
involves the distribution of assets other than cash, the Corporation
shall promptly engage competent independent appraisers to determine
the value of the assets to be distributed to the holders of shares of
Preferred Stock and the holders of shares of Common Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give
prompt written notice to each holder of shares of Preferred Stock of
the appraiser's valuation.
5. LIMITATIONS
(a) So long as twenty-five percent (25%) of the shares of
Preferred Stock are outstanding, the Corporation shall not:
(i) create, authorize or issue shares of any class
or series of stock, or any security convertible into such class or
series ranking senior to or on parity with the Preferred Stock either
as to payment of dividends or as distributions in the event of a
liquidation, dissolution or winding up of the Corporation; or
(ii) amend, alter or repeal any provision of the
Articles of Incorporation or Bylaws of the Corporation so as to affect
adversely the relative rights, preferences, qualifications,
limitations or restrictions (including, without limitation, expanding
the number of members on the Board of Directors) of the Preferred
Stock; or
(iii) declare or pay any dividend on its Common
Stock if any dividends are unpaid on the Preferred Stock; or
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(iv) redeem for cash any other securities issued
by the Company; or
(v) directly or indirectly, enter into any merger,
consolidation or other reorganization in which the Company shall no be
the surviving corporation, unless the surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in
writing to assume the obligations of the Company under the Certificate
of Designation.
(b) The provisions of this paragraph 5 shall not in any way
limit the right and power of the Corporation to issue bonds, notes,
mortgages, debentures, common stock, preferred stock ranking junior to the
terms of the Preferred Stock and other obligations, and to incur
indebtedness to banks and to other lenders.
IN WITNESS WHEREOF, ENVIRONMENTAL SAFEGUARDS, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
JAMES S. PERCELL, its president, and RONALD BIANCO, its assistant secretary,
this ___ day of ________________, 1997.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
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JAMES S. PERCELL, President
By:
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RONALD BIANCO, Assistant Secretary
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
James S. Percell, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL of office this ____ day of December,
1997.
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NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
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THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
Ronald Bianco, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL of office this ____ day of December,
1997.
---------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
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