Exhibit
4.7


 


CERTIFICATE OF DESIGNATIONS,

PREFERENCES AND RIGHTS


 


of


 


SERIES A CONVERTIBLE PREFERRED STOCK


 


of


 


QUALITY PRODUCTS, INC.


 


(Pursuant to Section 151
of the


General Corporation Law
of the State of Delaware)


 


Quality Products, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
“Corporation”), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation on September 25, 2002 pursuant to
authority of the Board of Directors as required by Section 151(g) of the
General Corporation Law of the State of Delaware:


 


RESOLVED, that pursuant to the authority granted to
and vested in the Board of Directors of this Corporation (the “Board of
Directors” or the “Board”) in accordance with the provisions of its Certificate
of Incorporation, the Board of Directors hereby authorizes a series of the
Corporation’s previously authorized Preferred Stock, par value $.00001 per
share (the “Preferred Stock”), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:


 


Series A Convertible
Preferred Stock:


 


I.  Designation and Amount


 


The designation of this
series, which consists of 10,000 shares of Preferred Stock, is Series A
Convertible Preferred Stock (the “Series A Preferred Stock”) and the stated
value shall be One Hundred Dollars ($100) per share (the “Stated Value”).


 

















 


II.  Rank


 


The Series A Preferred Stock shall rank (i) senior to
the Corporation’s common stock, par value $.00001 per share (the “Common
Stock”); (ii) senior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article VIII hereof) specifically ranking, by its
terms, junior to the Series A Preferred Stock (collectively, with the Common
Stock, “Junior Securities”); and (iii) junior to any class or series of capital
stock of the Corporation hereafter created (with the consent of the holders of
Series A Preferred Stock obtained in accordance with Article VIII hereof)
specifically ranking, by its terms, senior to the Series A Preferred Stock
(“Senior Securities”), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.


 


III.  Dividends


 


A.            The holders of Series A Preferred Stock shall be entitled
to receive, when, as and if authorized by the Board of Directors out of funds
legally available for that purpose, dividends in an amount per share equal to
Ten Percent (10%) of the Stated Value of each such share per annum; provided,
however, that if the Corporation fails to pay any dividends when due then
dividends shall accrue at a rate of Twelve Percent (12%) per annum thereafter
until such time as all dividends due and owing shall have been paid in
full.  Such dividends shall be payable
in cash.  Such dividends shall be
payable quarterly on the Dividend Payment Date (as defined below) for the
applicable Dividend Payment Period (as defined below), if as an when declared
by the board of directors.  The
calculation of any such quarterly dividend shall be made to the nearest cent
(with $.005 being rounded upward).  Such
dividends shall begin to accumulate and shall be fully cumulative from the date
of issuance of the Series A Preferred Stock (the “Issue Date”), whether or not
authorized by the Board of Directors and whether or not in any Dividend Period
there shall be funds of the Corporation legally available for the payment of
such dividends, and shall be payable quarterly in immediately available funds,
when, as and if authorized by the Board of Directors, in arrears on Dividend
Payment Dates or such other dates as provided herein, commencing on the first
Dividend Payment Date after the Issue Date. 
Each such dividend shall be payable in arrears to the holders of record
of Series A Preferred Stock, as they appear on the stock records of the
Corporation at the close of business on the last day of such Dividend
Period.  Accumulated and unpaid
dividends for any past Dividend Periods may be authorized and paid at any time
and for such interim periods, without reference to any regular Dividend Payment
Date, to holders of record on such date, not more than 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors.  The Corporation shall give each holder of
Series A Preferred Stock at least ten (10) days prior written notice of any
record date for the payment of any accumulated and unpaid dividends for any
past Dividend Periods.


 


For purposes hereof, the
term “Dividend Payment Date” shall mean a date fixed by the Board of
Directors which date shall not be more than 15 days following the end of


 


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the applicable Dividend Period, and “Dividend Periods” shall
mean quarterly dividend periods commencing on January 1, April 1, July 1
and October 1 of each year and ending on and including March 31, June 30,
September 30 and December 31 of such year, respectively.


 


B.            The
amount of dividends payable for the initial Dividend Period, or any other
period shorter or longer than a full Dividend Period, on the Series A Preferred
Stock shall be computed on the basis of twelve 30-day months and a 360-day
year.  Holders of Series A Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of cumulative dividends, as herein provided, on the Series
A Preferred Stock.  No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series A Preferred Stock that may be in arrears.


 


C.            Unless
the consent of the holders of Series A Preferred Stock has been obtained in
accordance with Article VIII hereof, so long as any shares of Series A
Preferred Stock are outstanding, no dividends shall be authorized or paid or
set apart for payment or other distribution authorized or made upon any other
class of capital stock of the Corporation, nor shall any such capital stock be
redeemed, purchased or otherwise acquired 
for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless (i) the full cumulative dividends
on all outstanding Series A Preferred Stock shall have been paid or authorized
and set apart for payment for all past Dividend Periods with respect to the
Series A Preferred Stock and (ii) sufficient funds shall have been paid or
authorized and set apart for the payment of the dividend for the current
Dividend Period with respect to the Series A Preferred Stock.


 


D.            Shares
of Series A Preferred Stock shall share on a pro rata basis with any and all
dividends (whether of cash, securities or other rights) declared on shares of
the Corporation’s Common Stock as if such shares of Series A Preferred Stock
had been converted into Common Stock prior to the distribution of such
dividend.


 


IV.  Liquidation Preference


 


A.            If the
Corporation shall commence a voluntary case under the Federal bankruptcy laws
or any other applicable Federal or State bankruptcy, insolvency or similar law,
or consent to the entry of an order for relief in an involuntary case under any
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a


 


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period of sixty (60) consecutive days and, on account of any such
event, the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (each such event
being considered a “Liquidation Event”), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities) upon liquidation, dissolution or winding up unless prior thereto
the holders of shares of Series A Preferred Stock, subject to Article VI, shall
have received the Liquidation Preference (as defined in Article IV.C below)
with respect to each share, but such holders will not be entitled to any
further payment in respect of such liquidation, dissolution or winding up.


 


B.            At
the option of the holders of 51% of the outstanding Series A Preferred Stock,
the sale, conveyance or disposition of all or substantially all of the assets
of the Corporation, the effectuation by the Corporation of a transaction or
series of related transactions in which more than 50% of the voting power of
the Corporation is disposed of (other than through a public offering of the
Corporation’s securities), or the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined below)
or Persons when the Corporation is not the survivor shall be deemed to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute the Liquidation Preference with
respect to each outstanding share of Series A Preferred Stock in accordance
with and subject to the terms of this Article IV. “Person” shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.


 


C.            For
purposes hereof, the “Liquidation Preference” with respect to a share of the
Series A Preferred Stock shall mean an amount equal to the sum of (i) the
Stated Value thereof, plus (ii) any and all accrued but unpaid dividends
thereon.


 


V. Redemption


 


A.            If
any of the following events (each, a “Mandatory Redemption Event”) shall occur:


 


(i)            The
Corporation fails to issue shares of Common Stock to the holders of Series A
Preferred Stock upon exercise by the holders of their conversion rights in
accordance with the terms of this Certificate of Designation and any such
failure shall continue uncured (or any announcement not to honor its
obligations shall not be rescinded) for thirty (30) business days;


 


(ii)           The
Corporation shall make an assignment for the benefit of creditors, or apply for
or consent to the appointment of a receiver or trustee for it or for all or
substantially all of its property or business; or such a receiver or trustee
shall otherwise  be appointed; or


 


(iii)          Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Corporation; provided, however, that in the


 


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case of any involuntary bankruptcy, such involuntary bankruptcy shall
continue undischarged or undismissed for a period of sixty (60) days,


 


then, upon the occurrence and during the continuation without cure of
any Mandatory Redemption Event specified in subparagraph (i), at the option of
the holders of at least 51% of the then outstanding shares of Series A
Preferred Stock by written notice (the “Mandatory Redemption Notice”) to the
Corporation of such Mandatory Redemption Event, or upon the occurrence of any
Mandatory Redemption Event specified in subparagraphs (ii) or (iii), the
Corporation shall purchase, on the date specified in such notice (the
“Mandatory Redemption Date”), each holder’s shares of Series A Preferred Stock
for an amount per share equal to the sum of (a) 125% multiplied by the Stated
Value of the shares to be redeemed, plus (b) the amount of any and all accrued
but unpaid dividends on the shares to be redeemed.


 


B.            In
the case of a Mandatory Redemption Event, if the Corporation fails to pay the
Mandatory Redemption Amount for each share within twenty (20) business days of
written notice that such amount is due and payable, then (assuming there are
sufficient authorized shares) in addition to all other available remedies, each
holder of Series A Preferred Stock shall have the right at any time, so long as
the Mandatory Redemption Event continues, to require the Corporation, upon
written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series A Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the Conversion Price then in effect.


 


C.            Upon
a “Change in Control” (as defined below), the Corporation shall have the option
to redeem and purchase all, but not less than all, of the outstanding Series A
Preferred Stock for a price per share equal to its Stated Value plus all
accrued and unpaid dividends thereon. 
Such purchase shall occur simultaneously with the consummation of the
transaction that effects the Change of Control.  For purposes hereof, a “Change in Control” means circumstances
under which the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation or entity regardless of which entity
is the surviving company, other than a merger or consolidation in which the
voting securities of the Company which were outstanding immediately prior to
the merger or consolidation continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company and the surviving entity which are outstanding immediately after
such merger or consolidation.


 


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VI.  Conversion


 


A.            At
any time from and after the third (3rd) anniversary of the Issue
Date, each share of issued and outstanding Series A Preferred Stock shall be
convertible, at the option of the holder, into shares of Common Stock as
follows:   Each share of Series A
Preferred Stock shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (1) the
Stated Value thereof, by (2) the then effective Conversion Price (as defined
below).


 


B.            To
convert Series A Preferred Stock, the holder shall deliver to the Corporation a
notice signed by such holder stating that the holder elects to convert Series A
Preferred Stock into Common Stock, and specifying the number of shares to be
converted and the names and relative amounts in which the Common Stock to be
issued shall be registered. Such notice shall be delivered by hand, overnight
courier or certified mail or fax to the Corporation, at its principal office
(or if by fax, at its fax address), addressed to the attention of the President
of the Corporation. Contemporaneously, or as soon as practicable thereafter,
the holder shall surrender to the Corporation the duly endorsed certificate or
certificates of Series A Preferred Stock being converted. Promptly upon receipt
of such notice, the Corporation shall issue, and it shall deliver upon
surrender of such duly endorsed Series A Preferred Stock certificate or
certificates, a duly registered certificate or certificate for the number of
shares of Common Stock issuable upon such conversion together with a duly
registered certificate for the number of shares, if any, of Series A Preferred
Stock which the holder has not elected to convert and which are evidenced in
part by the surrendered certificate or certificates.


 


C.            The
“Conversion Price” shall be the lesser of (1) $0.75, or (2) if the Corporation
is publicly-traded at the time of conversion, the thirty (30) day average
closing price for a share of Common Stock as reported by the stock exchange the
Common Stock is traded on (or, if the Common Stock is not traded on a stock
exchange, the closing price as reported by the automated quotation service
utilized by the Corporation such as the Nasdaq National Market or the Over The
Counter Bulletin Board), in each case subject to adjustments from time to time
pursuant to the provisions of Article VI.D below.


 


D.            The
Conversion Price shall be subject to adjustment from time to time as follows:


 


(a)           Adjustment
to Conversion Price Due to Stock Split, Stock Dividend, Etc.  If at any time when the Series A Preferred
Stock is issued and outstanding, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, combination,
reclassification, below-Market Price rights offering to all holders of Common
Stock or other similar event, the Conversion Price shall be proportionately
reduced.


 


(b)           Adjustment
Due to Merger, Consolidation, Etc. 
If, at any time when Series A Preferred Stock is issued and outstanding
and prior to the conversion of all


 


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Series A Preferred Stock, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar event,
as a result of which shares of Common Stock of the Corporation shall be changed
into the same or a different number of shares of another class or classes of
stock or securities of the Corporation or another entity, or in case of any
sale or conveyance of all or substantially all of the assets of the Corporation
other than in connection with a plan of complete liquidation of the
Corporation, then the holders of Series A Preferred Stock shall thereafter have
the right to receive upon conversion of the Series A Preferred Stock, upon the
bases and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the holders of Series A Preferred Stock would
have been entitled to receive in such transaction had the Series A Preferred
Stock been converted in full immediately prior to such transaction, and in any
such case appropriate provisions shall be made with respect to the rights and interests
of the holders of Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities or assets thereafter
deliverable upon the conversion hereof. 
The Corporation shall not effect any transaction described in this
subsection (b) unless (i) it first gives, to the extent practical, thirty (30)
days’ prior written notice (but in any event at least fifteen (15) business
days prior written notice) of such merger, consolidation, exchange of shares,
recapitalization, reorganization  or other
similar event or sale of assets (during which time the holders of Series A
Preferred Stock shall be entitled to convert the Series A Preferred Stock) and
(ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of this subsection (b).  The above provisions shall similarly apply
to successive consolidations, mergers, sales, transfers or share exchanges.


 


E.             In
order to receive shares of Common Stock in exchange for the converted Series A
Preferred Stock, a holder of Series A Preferred Stock shall surrender the
original certificates representing the Series A Preferred Stock being converted
(the “Preferred Stock Certificates”), duly endorsed, to the office of the
Corporation.  In the case of a dispute
as to the calculation of the Conversion Price, the Corporation shall promptly
issue such number of shares of Common Stock that are not disputed in accordance
with subparagraph (b) below.  The
Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion.  The Corporation shall use
its best efforts to cause its accountant to audit the calculations and notify
the Corporation and the holder of the results no later than 48 hours from the
time it receives the disputed calculations. 
The accountant’s calculation shall be deemed conclusive absent manifest
error.


 


(a)           Lost or Stolen Certificates.  Upon receipt by the Corporation of evidence
of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series A Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender


 


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and cancellation of the Preferred Stock Certificate(s), if mutilated,
the Corporation shall execute and deliver new Preferred Stock Certificate(s) of
like tenor and date.


 


(b)           Delivery of Common Stock Upon
Conversion.  Upon the surrender of
certificates as described above together with a Notice of Conversion, the
Corporation shall issue and, within two (2) business days after such surrender
(or, in the case of lost, stolen or destroyed certificates, after provision of
agreement and indemnification pursuant to subparagraph (a) above) (the
“Delivery Period”), deliver to or upon the order of the holder (i) that number
of shares of Common Stock for the portion of the shares of Series A Preferred
Stock converted as shall be determined in accordance herewith and (ii) a
certificate representing the balance of the shares of Series A Preferred Stock
not converted, if any.


 


(c)           No Fractional Shares.  If any conversion of Series A Preferred
Stock would result in a fractional share of Common Stock or the right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
of the Series A Preferred Stock shall be the next higher number of shares.


 


F.             A
number of shares of the authorized but unissued Common Stock sufficient to
provide for the conversion of the Series A Preferred Stock outstanding at the
then current Conversion Price shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion or exercise.  In addition, if the Corporation shall issue
any securities or make any change in its capital structure which would change
the number of shares of Common Stock into which each share of the Series A
Preferred Stock shall be convertible at the then current Conversion Price, the
Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series A Preferred Stock.


 


G.            Upon
the occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Article VI, 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 A Preferred Stock a certificate
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 A Preferred Stock, furnish or cause to be furnished to such
holder a like certificate 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 securities or property which
at the time would be received upon conversion of a share of Series A Preferred
Stock.


 


VII. Voting Rights


 


A.            The
holders of the Series A Preferred Stock shall not having voting rights except
for the approval rights set forth herein or as otherwise required by the DGCL.


 


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Holders of the Series A Preferred Stock shall be entitled to notice of
all stockholder meetings or written consents (and copies of proxy materials and
other information sent to stockholders), which notice must be provided pursuant
to the Corporation’s bylaws and the DGCL in order for the proposed stockholder
action to be valid.


 


B.            To
the extent that under the DGCL the vote of the holders of the Series A
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote
or consent of the holders of at least 51% of the shares of the Series A
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class.


 


VIII. Protective
Provisions


 


So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by the DGCL) of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock:


 


(a)           alter
or change the rights, preferences or privileges of the Series A Preferred Stock
or any Senior Securities so as to affect adversely the Series A Preferred
Stock;


 


(b)           create
any new class or series of capital stock having a preference over the Series A
Preferred Stock as to distribution of assets upon liquidation, dissolution or
winding up of the Corporation (as previously defined in Article II hereof,
“Senior Securities”);  or


 


(c)           increase
the authorized number of shares of Series A Preferred Stock.


 


In the event holders of 51% of the then outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to
such alteration or change (the “Dissenting Holders”) and Dissenting Holders
shall have the right for a period of thirty (30) days to convert pursuant to
the terms of this Certificate of Designation as they exist prior to such
alteration or change or continue to hold their shares of Series A Preferred
Stock.


 


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IN WITNESS WHEREOF, this Certificate of
Designation is executed on behalf of the Corporation this 8th day of October,
2002.


 


 


	
   

  	
  QUALITY PRODUCTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Richard Drexler

  	
   

  
	
   

  	
   

  	
  Richard Drexler, Chairman

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Michael Goldberg

  	
   

  	
   

  
	
  Michael Goldberg,
  Secretary

  	
   

  
					



 


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