EX-4.2 Certificate of Designation



 





Exhibit 4.2




CERTIFICATE OF DESIGNATION, PREFERENCES

AND RIGHTS OF SERIES B

CONVERTIBLE PREFERRED STOCK

OF

NEW HORIZONS WORLDWIDE, INC.




          New Horizons Worldwide, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:




     A. That, pursuant to authority conferred upon the Board by the Restated Certificate of
Incorporation of the Corporation (the “Certificate of Incorporation”), and pursuant to the
provisions of Sections 141 and 151 of the Delaware General Corporation Law, as amended, the Board,
at a duly convened meeting of the Board held on July 5, 2006, adopted a resolution providing for
the designations, preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions of the Series B Convertible Preferred Stock, which
resolution is as follows:



     WHEREAS, the Certificate of Incorporation of the Corporation provides for two classes
of shares known as Common Stock and Preferred Stock; and



     WHEREAS, the Board is authorized under the Certificate of Incorporation to provide for the
issuance of the shares of preferred stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, preferences and rights of the shares of
each such series and the qualifications, limitations and restrictions thereof.



     NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable to, and hereby does,
designate a Series B Convertible Preferred Stock and fixes and determines the preferences, rights,
qualifications, limitations and restrictions relating to the Series B Convertible Preferred Stock
as follows:



     1. Designation. The shares of such series of Preferred Stock shall be designated as
“Series B Convertible Preferred Stock” (referred to herein as the “Series B Convertible Preferred
Stock”), and shall have a per share purchase price of $37.50 (which amount shall be subject to
equitable adjustment whenever there shall occur a stock split, combination, reclassification or
other similar event involving the Series B Convertible Preferred Stock) (the “Original Series B
Purchase Price”).



     2. Designated Number. The designated number of shares constituting the Series B
Convertible Preferred Stock shall be two hundred thousand (200,000).



 










 





     3. Dividends.



          (a) Commencing on the date of the first issuance of the Series B Convertible Preferred Stock
(the “First Issue Date”), and continuing until the fourth (4th) anniversary thereof, the
record holders of the Series B Convertible Preferred Stock shall be entitled to receive when, as
and if declared by the Corporation’s Board of Directors, cumulative preferential cash dividends at
an annual rate of eight percent (8%) per annum of the Original Series B Purchase Price (the
“Initial Dividend Rate”) with respect to each issued share of Series B Convertible Preferred Stock.
From and after the fourth (4th) anniversary of the First Issue Date and continuing
thereafter, the record holders of the Series B Convertible Preferred Stock shall be entitled to
receive when, as and if declared by the Corporation’s Board of Directors, cumulative preferential
cash dividends at an annual rate of twelve percent (12%) per annum of the Original Series B
Purchase Price (the “Subsequent Dividend Rate,” each of the Initial Dividend Rate and the
Subsequent Dividend Rate being sometimes referred to herein as the “Dividend Rate”) with respect to
each issued share of Series B Convertible Preferred Stock. Dividends on the Series B Convertible
Preferred Stock shall accrue on a quarterly basis with respect to the dividend periods ending on
the last day of each of March, June, September and December. Dividends shall be cumulative whether
or not declared and whether or not in any dividend period there shall have been net profits or net
assets of the Corporation legally available for the payment of those dividends.




          (b) To the extent declared by the Board of Directors, dividends accrued for each quarterly
period ending on the last day of the next preceding March, June, September and December,
respectively, shall be paid on the fifth day of April, July, October and January (or if any such
day is not a business day, the business day next preceding such day) in each year (each such date
being referred to as a “Series B Dividend Payment Date”). Any dividends not paid on a Series B
Dividend Payment Date thereafter shall accumulate and shall be considered “accrued but unpaid” for
all purposes hereunder until paid. The amount of dividends accruing for any period shorter than a
full quarterly dividend period shall be determined on the basis of twelve 30-day months and a
360-day year, and the actual number of days elapsed in the period for which a dividend is payable.
Dividends paid on the shares of Series B Convertible Preferred Stock in an amount less than the
total amount of such dividends at the time accrued on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. Dividends for any past
quarterly dividend period that are accrued but unpaid may be declared and paid at any time, without
reference to any regular Series B Dividend Payment Date, to the holders of record on the record
date for such dividend payment. Any accrued but unpaid dividends shall be paid (in cash or in kind
at the holders’ election, subject to the limitations set forth above) immediately prior to a
Liquidation Event (as defined in Section 4(a) below), or a conversion of any such holder’s
Series B Convertible Preferred Stock pursuant to Sections 5 or 6 hereof.




          (c) If a dividend on the Common Stock is declared by the Board, then the Board shall
simultaneously declare a dividend on the Series B Convertible Preferred Stock in an amount per
share equal to: (a) the product of (i) the dividend per share of




- 2 -









 







Common Stock, multiplied by (ii) the number of shares of Common Stock into which all of the
outstanding Series B Convertible Preferred Stock could then be converted, divided by (b) the number
of shares of Series B Convertible Preferred Stock then outstanding, and rounded to the nearest
cent, each such determination to be made as of the record date for the determination of the
dividend.




          (d) The term “dividend,” when used in this Section 3, shall refer to any dividend
which is not a stock dividend described in Section 8(d) hereof.




     4. Liquidation.



          (a) Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary (each a “Liquidation Event”), the holders of the shares of Series B Convertible
Preferred Stock shall be entitled to receive before any distribution or payment is made upon any
Common Stock or any other class or series of stock ranking junior to the Series B Convertible
Preferred Stock as to distribution of assets upon liquidation, an amount per share equal to the
Original Series B Purchase Price, plus any accrued but unpaid dividends (the “Series B Liquidation
Preference”). If upon such Liquidation Event, the assets to be distributed among the holders of
Series B Convertible Preferred Stock shall be insufficient to permit payment to the holders of
Series B Convertible Preferred Stock of the entire amount of the Liquidation Payment (as defined
below), then the entire assets of the Corporation available for distribution to the stockholders
shall be distributed ratably among the holders of Series B Convertible Preferred Stock and any
other class or series of stock ranking pari passu to the Series B Convertible Preferred Stock as to
distribution of assets upon liquidation in accordance with the sums that would be payable on such
distribution if all sums payable thereon to holders of all shares of such series were paid in full.
Notwithstanding the foregoing, upon any Liquidation Event, without duplication, the holders of the
Series B Convertible Preferred Stock shall be entitled to receive the greater of (i) the Series B
Liquidation Preference (in accordance with the procedures set forth above), or (ii) the amount per
share such holders would have received if all shares of Series B Convertible Preferred Stock had
been converted into Common Stock immediately prior to the Liquidation Event (such amount, the
“Liquidation Payment”). Upon any such Liquidation Event, after the holders of the Series B
Convertible Preferred Stock and any other class or series of stock ranking pari passu to the Series
B Convertible Preferred Stock as to distribution of assets upon liquidation shall have been paid in
full the amounts to which they shall be entitled, the remaining net assets of the Corporation shall
be distributed to the holders of any other class or series of stock ranking junior to the Series B
Convertible Preferred Stock as to distribution of assets upon liquidation.




          (b) Written notice of such Liquidation Event, stating a payment date, the amount of the
Liquidation Payment and the place where said Liquidation Payment shall be payable, shall be given
by mail, postage prepaid, not less than twenty (20) days prior to the payment date stated therein,
to the holders of record of Series B Convertible Preferred Stock, such notice to be addressed to
each such holder at its post office address as shown by the records of the Corporation.




- 3 -









 








          (c) Notwithstanding the foregoing, a Change of Control (as defined below), shall be deemed to
be a Liquidation Event unless the holders of a majority of the then outstanding Series B
Convertible Preferred Stock, voting together as a single class on an as-if converted basis, elect
otherwise by giving written notice thereof to the Corporation prior to the effective date of such
event. For purposes hereof, a “Change of Control” means (x) a merger, reorganization or
consolidation of the Corporation into or with another entity, a sale of stock or other similar
transaction or series of related transactions in which the stockholders of the Corporation
immediately prior to such merger, reorganization, consolidation, sale or stock by the Corporation
or similar transaction own less than fifty percent (50%) of the outstanding voting power of the
surviving entity immediately after such merger, reorganization, consolidation, sale of stock or
other similar transaction or (y) the sale, transfer or lease of all or substantially all of the
assets of the Corporation, including assets of the Corporation’s subsidiaries taken as a whole, to
an unaffiliated third party in one transaction or a series of related transactions. For the
avoidance of any doubt, a Change of Control transaction shall not include any merger of the Company
with or into a wholly-owned subsidiary of the Company.




     5. Optional Conversion.



          Any or all of the shares of Series B Convertible Preferred Stock shall be convertible, at any
time and from time to time, at the option of each holder of record thereof, into fully paid and
non-assessable shares of Common Stock of the Corporation upon surrender to the Corporation of the
certificate or certificates representing the Series B Convertible Preferred Stock to be converted;
and, upon receipt by the Corporation of such surrendered certificate or certificates with any
appropriate endorsement thereon as may be prescribed by the Board, such holder shall be entitled to
receive a certificate or certificates representing the shares of Common Stock into which such
shares of Series B Convertible Preferred Stock are convertible. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such surrender of the
shares of Series B Convertible Preferred Stock to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of such date. The basis
for such conversion shall be the “conversion rate” in effect at the time of conversion, which for
the purposes hereof shall mean the number of shares of Common Stock issuable for each share of
Series B Convertible Preferred Stock surrendered for conversion. Initially, the conversion rate
shall be 20.8333 shares of Common Stock for one share of Series B Convertible Preferred Stock; and
such conversion rate shall be subject to adjustment as provided in Section 8 below. In
connection with effecting any transfer to the Corporation for cancellation of any Series B
Convertible Preferred Stock upon conversion of the same into Common Stock, if any fractional
interest in a share of Common Stock would be deliverable upon such conversion of Series B
Convertible Preferred Stock, the Corporation shall pay in lieu of such fractional share an amount
equal to the “conversion price” (as defined in the following sentence) of such fractional share
(computed to the nearest one thousandth of a
 

- 4 -









 








share) in effect at the close of business on the date of conversion. As used herein, the term
“conversion price” shall be an amount computed by dividing the Original Series B Purchase Price by
the conversion rate then in effect. Initially, the conversion price shall be $1.80. The Board
shall at all times reserve a sufficient number of authorized but unissued shares of Common Stock,
which shall be issued only in satisfaction of the conversion rights and privileges aforesaid.




     6. Involuntary Conversion.



          (a) At any time after February 7, 2007, the Corporation, by way of written notice (an
“Involuntary Conversion Notice”) to the holders of Series B Convertible Preferred Stock shall have
the right to convert, and to declare to be so converted all shares of Series B Convertible
Preferred Stock into fully paid and non-assessable shares of Common Stock at the then-applicable
conversion price for Series B Convertible Preferred Stock, so long as (i) the volume weighted
average trading price of the Common Stock for the twenty (20) trading days immediately preceding
the date of the Involuntary Conversion Notice is greater than .225 times the Original Series B
Purchase Price as reported on the market or exchange on which shares of Common Stock of the
Corporation are then trading, or if none, by a nationally recognized quotation reporting service,
(ii) the average daily trading volume of the Common Stock for the forty-five (45) trading days
immediately preceding the date of Involuntary Conversion Notice is greater than 30,000 shares as
reported on the market or exchange on which shares of Common Stock of the Corporation are then
trading, or if none, by a nationally recognized quotation reporting service and (iii) the Common
Stock issued upon conversion of the Series B Convertible Preferred Stock hereunder may be sold
immediately pursuant to an effective registration statement registering the resale of the shares.




          (b) At any time after February 7, 2009, the Corporation, by way of an Involuntary Conversion
Notice to the holders of Series B Convertible Preferred Stock, shall have the right to convert, and
to declare to be so converted up to 50% of the shares of Series B Convertible Preferred Stock held
by holders of the Series B Convertible Preferred Stock into fully paid and non-assessable shares of
Common Stock at the then-applicable conversion price for Series B Convertible Preferred Stock, so
long as (i) the volume weighted average trading price of the Common Stock for the twenty (20)
trading days immediately preceding the date of the Involuntary Conversion Notice is greater than
        .25 times the Original Series B Purchase Price as reported on the market or exchange on which
shares of Common Stock of the Corporation are then trading, or if none, by a nationally recognized
quotation reporting service and (ii) the Common Stock issued upon conversion of the Series B
Convertible Preferred Stock hereunder may be sold immediately pursuant to an effective registration
statement registering the resale of the shares.




          (c) At any time after February 7, 2011, the Corporation, by way of an Involuntary Conversion
Notice to the holders of Series B Convertible Preferred Stock, shall have the right to convert, and
to declare to be so converted all of the shares of Series

- 5 -









 








B Convertible Preferred Stock not previously converted under Section 6(b) into fully paid
and non-assessable shares of Common Stock at the then-applicable conversion price for Series B
Convertible Preferred Stock, so long as (i) the volume weighted average trading price of the Common
Stock for the twenty (20) trading days immediately preceding the date of the Involuntary Conversion
Notice is greater than .25 times the Original Series B Purchase Price as reported on the market or
exchange on which shares of Common Stock of the Corporation are then trading, or if none, by a
nationally recognized quotation reporting service and (ii) the Common Stock issued upon conversion
of the Series B Preferred Stock hereunder may be sold immediately pursuant to an effective
registration statement registering the resale of the shares.




          (d) Such conversions shall be deemed to have been made immediately prior to the close of
business on the date of the mailing of the Involuntary Conversion Notice, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversions shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as of such date. The
holders of Series B Convertible Preferred Stock shall, within five (5) business days of receiving
the Involuntary Conversion Notice, surrender all certificates representing Series B Convertible
Preferred Stock to be converted; and, upon receipt by the Corporation of such surrendered
certificate or certificates with any appropriate endorsement thereon as may be prescribed by the
Board, the Corporation shall issue and deliver to such holder a certificate or certificates
representing the shares of Common Stock into which such shares of Series B Convertible Preferred
Stock are convertible.




     7. Issue Taxes. The Corporation shall pay all issue taxes, if any, incurred in
respect of the issue of shares of Common Stock on conversion. If a holder of shares surrendered
for conversion specifies that the shares of Common Stock to be issued on conversion are to be
issued in a name or names other than the name or names in which such surrendered shares stand,
other than an affiliate, the Corporation shall not pay any transfer or other taxes incurred by
reason of the issuance of such shares of Common Stock to the name of another, and if the
appropriate transfer taxes shall not have been paid to the Corporation or the transfer agent for
the Series B Convertible Preferred Stock at the time of surrender of the shares involved, the
shares of Common Stock issued upon conversion thereof may be registered in the name or names in
which the surrendered shares were registered, despite the instructions to the contrary.



     8. Adjustment of Conversion Price and Conversion Rate. The number and kind of
securities issuable upon the conversion of the Series B Convertible Preferred Stock, the conversion
price and the conversion rate shall be subject to adjustment from time to time upon the happening
of certain events as follows:



          (a) Reorganization, Reclassification. In the event of a reorganization, share
exchange, or reclassification, other than a change in par value, or from par value to no par value,
or from no par value to par value or a transaction described in Sections 8(b) or
(c) below, each share of Series B Convertible Preferred Stock shall, after such
reorganization, share exchange or reclassification, be convertible

- 6 -









 







into the kind and number of shares of stock or other securities or property of the Corporation to
which the holder of Series B Convertible Preferred Stock would have been entitled if the holder had
held the Common Stock issuable upon conversion of such holder’s Series B Convertible Preferred
Stock immediately prior to such reorganization, share exchange, or reclassification.




          (b) Consolidation, Merger. In the event of a merger or consolidation to which the
Corporation is a party, each share of Series B Convertible Preferred Stock shall, after such merger
or consolidation, be convertible into the kind and number of shares of stock and/or other
securities, cash or other property to which the holder of such share of Series B Convertible
Preferred Stock would have been entitled if the holder had held the Common Stock issuable upon
conversion of his share of Series B Convertible Preferred Stock immediately prior to such
consolidation or merger.




          (c) Subdivision or Combination of Shares. In case outstanding shares of Common Stock
shall be subdivided or combined, the conversion price shall be reduced proportionately, in case of
subdivision of such shares, as of the effective date of such subdivision, or as of the date a
record is taken of the holders of Common Stock for the purpose of so subdividing, whichever is
earlier, or shall be increased proportionately, in case of combination of such shares, as of the
effective date of such combination, or as of the date a record is taken of the holders of Common
Stock for the purpose of so combining, whichever is earlier.




          (d) Stock Dividends. In case shares of Common Stock are issued as a dividend or other
distribution on the Common Stock, then the conversion price shall be adjusted, as of the date a
record is taken of the holders of Common Stock for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as of the date of such payment or other distribution),
to that price determined by multiplying the conversion price in effect immediately prior to such
payment or other distribution by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such dividend or other distribution, and
(ii) the denominator of which shall be the total number of shares of Common Stock outstanding
immediately after such dividend or other distribution.




          (e) Issuance of Additional Shares of Common Stock.




               In the event the Corporation shall issue at any time any Additional Shares of Common Stock (as
defined in Section 8(i)(v)(B) and other than as provided in the foregoing Sections
8(a) through (d)) for a consideration per share less than the conversion price in
effect on the date of and immediately prior to such issue, then and in such event, such conversion
price shall be reduced, concurrently with such issue, to a price equal to the quotient obtained by
dividing:



                    (A) an amount equal to (x) the total number of shares of Common Stock outstanding immediately
prior to such issuance or sale multiplied by the conversion price in effect immediately prior to
such issuance or sale, plus (y) the



- 7 -









 





consideration, if any, received or deemed to be received by the Corporation upon such issuance or
sale, by




                    (B) the total number of shares of Common Stock outstanding immediately after such issuance or
sale.


For purposes of the foregoing formula, all shares of Common Stock issuable upon the exercise of
outstanding warrants, options or other rights described in Section 8(f) below or issuable
upon the conversion of the Corporation’s outstanding Series B Convertible Preferred Stock and any
other convertible securities, shall be deemed outstanding shares of Common Stock.



No adjustment of the conversion price shall be made under this Section 8(e) upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if any such adjustments shall
previously have been made upon the issuance of any such warrants, options or other rights or upon
the issuance of any convertible securities (or upon the issuance of any warrants, options or any
rights therefor) pursuant to Sections 8(f) or 8(g).




          (f) Issuance of Warrants, Options or Other Rights. Subject to the further provisions
of this Section 8(f), if the Corporation at any time shall issue any warrants, options or
other rights to subscribe for or purchase any Additional Shares of Common Stock and the price per
share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant
to such warrants, options or other rights shall be less than the conversion price per share in
effect immediately prior to such issuance, then upon such issuance the conversion price shall be
adjusted as provided in Section 8(e) on the basis that the aggregate consideration for the
Additional Shares of Common Stock issuable pursuant to such warrants, options or other rights,
shall be deemed to be the consideration received by the Corporation for the issuance of such
warrants, options, or other rights plus the minimum consideration to be received by the Corporation
for the issuance of Additional Shares of Common Stock pursuant to such warrants, options, or other
rights. Notwithstanding the foregoing, the conversion price adjustment provided for in this
Section 8(f) shall not apply with respect to any of the “Warrants” as defined in that
certain Credit Agreement of even date herewith among the Corporation, Camden Partners Strategic
III, LLC, as Administrative Agent, and the Lender named therein.




          (g) Issuance of Convertible Securities. In case the Corporation shall issue any
securities convertible into Common Stock and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable pursuant to the terms of such
convertible securities shall be less than the conversion price per share in effect immediately
prior to such issuance, then upon such issuance the conversion price shall be adjusted as provided
in Section 8(e) on the basis that (i) the maximum number of Additional Shares of Common
Stock necessary to effect the conversion or exchange of all such convertible securities shall be
deemed to have been


- 8 -









 







issued as of the date of issuance of such convertible securities, and (ii) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall be deemed to be
the consideration received by the Corporation for the issuance of such convertible securities plus
the minimum consideration received by the Corporation for the issuance of such Additional Shares of
Common Stock pursuant to the terms of such convertible securities. No adjustment of the conversion
price shall be made under this Section 8(g) upon the issuance of any convertible securities
which are issued pursuant to the exercise of any warrants, options or other subscription or
purchase rights therefor, if any such adjustment shall previously have been made upon the issuance
of such warrants, options or other rights pursuant to Section 8(f).




          (h) Adjustment of Conversion Rate. Upon each adjustment of the conversion price under
the provisions of this Section 8, the conversion rate shall be adjusted to an amount
determined by dividing $37.50 by such adjusted conversion price.




          (i) Other Provisions Applicable to Adjustments Under This Section. The following
provisions will be applicable to the making of adjustments in conversion price hereinabove provided
in this Section 8:




               (i) Computation of Consideration. To the extent that any Additional Shares of Common
Stock or any convertible securities or any warrants, options or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any convertible securities shall be issued for a
cash consideration, the consideration received by the Corporation therefor shall be deemed to be
the amount of the cash received by the Corporation therefor, or, if such Additional Shares of
Common Stock or convertible securities are offered by the Corporation for subscription, the
subscription price, or, if such Additional Shares of Common Stock or convertible securities are
sold to underwriters or dealers for public offering without a subscription offering, or through
underwriters or dealers for public offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or incurred by the Corporation for and
in the underwriting of, or otherwise in connection with the issue thereof. To the extent that such
issuance shall be for a consideration other than cash, then, the amount of such consideration shall
be deemed to be the fair value of such consideration at the time of such issuance as determined in
good faith by the Corporation’s Board. The consideration for any Additional Shares of Common Stock
issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received by the Corporation for issuing such warrants, options or other
rights, plus the additional consideration payable to the Corporation upon the exercise of such
warrants, options or other rights. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any convertible securities shall be the consideration paid or
payable to the Corporation in respect of the subscription for or purchase of such convertible
securities, plus the additional consideration, if any, payable to the Corporation upon the exercise
of the right of conversion or exchange of such convertible securities. In case of the issuance at
any time of any Additional Shares of Common Stock or convertible securities in payment or
satisfaction of any dividend upon any class of stock preferred as to dividends in a fixed



- 9 -










 




amount, the Corporation shall be deemed to have received for such Additional Shares of Common Stock
or convertible securities a consideration equal to the amount of such dividend so paid or
satisfied.




               (ii) Readjustment of Conversion Price. Upon the expiration of the right to convert or
exchange any convertible securities, or upon the expiration of any rights, options or warrants,
without conversion, exchange or exercise, the issuance of which convertible securities, rights,
options or warrants effected an adjustment in the conversion price, such conversion price shall
forthwith be readjusted and thereafter be the price which it would have been (but reflecting any
other adjustments in the conversion price made pursuant to the provisions of this Section 8
after the issuance of such convertible securities, rights, options or warrants) had the adjustment
of the conversion price made upon the issuance or sale of such convertible securities or issuance
of rights, options or warrants been made on the basis of the issuance only of the number of
Additional Shares of Common Stock actually issued upon conversion or exchange of such convertible
securities, or upon the exercise of such rights, options or warrants, and thereupon only the number
of Additional Shares of Common Stock actually so issued, if any, shall be deemed to have been
issued and only the consideration actually received by the Corporation (computed as set forth in
Section 8(i)(i)) shall be deemed to have been received by the Corporation. If the purchase
price provided for in any rights, options or warrants, or the additional consideration (if any)
payable upon the conversion or exchange of any convertible securities, or the rate at which any
convertible securities are convertible into or exchangeable for shares of Common Stock changes at
any time (other than under or by reason of provisions designed to protect against dilution), the
conversion price in effect at the time of the change shall be adjusted to the conversion price that
would have been in effect at such time had such rights, options, warrants or convertible securities
still outstanding provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold.



               (iii) Treasury Shares. The number of shares of Common Stock at any time outstanding
shall not include any shares thereof then directly or indirectly owned or held by or for the
accounts of the Corporation.



               (iv) Other Action Affecting Common Stock. In case the Corporation shall take any
action affecting the outstanding number of shares of Common Stock, other than an action described
in any of the foregoing Sections 8(a) to 8(g), inclusive, which in the opinion of
the Board would have a materially adverse effect upon the rights of the holders of the Series B
Convertible Preferred Stock, the conversion price shall be adjusted in such manner and at such time
as the Board on the advice of the Corporation’s independent public accountants may in good faith
determine to be equitable in the circumstances.



               (v) Certain Definitions. For purposes of this Section 8:



- 10 -









 





                    (A) The term “Common Stock” shall be deemed to mean (i) the Common Stock, $.01 par value, and
(ii) the stock of the Corporation of any other class, or series within such a class, whether now or
hereafter authorized, which has the right to participate in the distribution of either earnings or
assets of the Corporation without limit as to the amount or percentage.



                    (B) The term “Additional Shares of Common Stock” shall mean all shares of Common Stock issued
by the Corporation after the initial issuance of the Series B Convertible Preferred Stock, except:



                         (1) shares of Common Stock issuable upon conversion of the Series B Convertible Preferred
Stock;



                         (2) shares of Common Stock, warrants, options and other rights to purchase shares of Common
Stock and securities convertible into shares of Common Stock, issued to officers, directors and
employees of, and consultants to, the Corporation as compensation for bona fide services provided
or to be provided to the Corporation by such persons and approved by the Board or the Compensation
Committee, as the case may be;



                         (3) shares of Common Stock issuable upon exercise of warrants, options, notes or other rights
to acquire securities of the Corporation issued on or outstanding on the First Issue Date; and



                         (4) shares of Common Stock issued after the First Issue Date as a stock dividend or upon any
subdivision or combination of shares of Common Stock or Series B Preferred Stock for which
adjustment is made in accordance with Sections 8(c) or 8(d).


No reduction of the conversion price shall be made if the amount of any such reduction would be an
amount less than $.05, but any such amount shall be carried forward and reduction with respect
thereof shall be made at the time of and together with any subsequent reduction which, together
with such amount and any other amount or amounts so carried forward, shall aggregate $.05 or more.




          (j) Notices of Adjustments. Whenever the conversion rate and conversion price is
adjusted as herein provided, an officer of the Corporation shall compute the adjusted conversion
rate and conversion price in accordance with the foregoing provisions and shall prepare a written
instrument setting forth such adjusted conversion rate and conversion price and showing in detail
the facts upon which such adjustment is based, and such written instrument shall promptly be
delivered to the record holders of the Series B Convertible Preferred Stock.




- 11 -









 








     9. Notices of Record Dates and Effective Dates.



          (a) In case at any time: (a) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock payable otherwise than in shares of Common Stock, or (b) the
Corporation shall authorize the granting to the holders of Common Stock of rights to subscribe for
or purchase any shares of capital stock of any class or any other rights, or (c) the Corporation
shall authorize any reorganization, share exchange or reclassification of the capital stock of the
Corporation (other than a subdivision or combination of outstanding shares of Common Stock), or of
any consolidation or merger to which the Corporation is party or of the sale, lease or exchange of
all or substantially all of the assets of the Corporation, or (d) there shall occur the voluntary
or involuntary dissolution, liquidation or winding up of the Corporation, then the Corporation
shall cause to be mailed to the record holders of the Series B Convertible Preferred Stock at least
20 days prior to the applicable record date or effective date thereafter specified, a notice
stating (i) the date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the date as of which the holders of
record of Common Stock to be entitled to such dividend, distribution or rights are to be
determined, or (ii) the date on which such reclassification, reorganization, share exchange,
consolidation, merger, sale, lease, exchange, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of record of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, share exchange, consolidation, liquidation,
merger, sale, lease, exchange, dissolution, liquidation or winding up.




          (b) Except for notices provided for in Section 9(a), which shall be provided in the
manner described in Section 9(a), in the event that the Corporation provides any notice,
report or statement to any holder of Common Stock, the Corporation shall at the same time provide a
copy of any such notice, report or statement to each holder of outstanding Series B Preferred
Stock.




     10. Redemption at the Option of the Corporation.



     (a) From and after the date that is the sixth (6th) anniversary of the First Issue
Date, the Corporation, at its option, may redeem shares of Series B Convertible Preferred Stock, in
whole or in part, in the sole discretion of the Board of Directors, to the extent it has funds
legally available therefor, at a redemption price in cash equal to two and one-quarter
(2.25) times the Original Series B Convertible Purchase Price for each share of Series B
Convertible Preferred Stock to be redeemed, plus an amount equal to the accumulated and unpaid
dividends thereon, whether or not authorized, to the date fixed for redemption by the Board of
Directors of the Corporation (any such date, the “Redemption Date”).



     (b) Not less than 15 days nor more than 45 days (such date as fixed by the Board of Directors
of the Corporation is referred to herein as the “Redemption Record Date”) prior to the Redemption
Date, a notice specifying the time and place of the redemption and the number of shares to be
redeemed shall be given by overnight courier




- 12 -









 






or by certified mail return receipt requested, to the holders of record on the Redemption
Record Date of the shares of the Series B Convertible Preferred Stock to be redeemed at their
respective addresses as the same shall appear on the books of the Corporation, calling upon each
holder of record to surrender to the Corporation on the Redemption Date at the place designated in
the notice such holder’s certificate or certificates representing the number of shares specified in
the notice of redemption. Neither failure to mail such notice, nor any defect therein or in the
mailing thereof, to any particular holder shall affect the sufficiency of the notice or the
validity of the proceedings for redemption with respect to the other holders. Any notice sent in
the manner herein provided shall be conclusively presumed to have been duly given whether or not
the holder receives the notice. On or after the Redemption Date, each holder of shares of Series B
Convertible Preferred Stock to be redeemed shall present and surrender such holder’s certificate or
certificates for such shares to the Corporation at the place designated in the redemption notice
and thereupon the redemption price of the shares, and any accumulated and unpaid dividends thereon
to the Redemption Date, shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered certificate shall be
canceled. In case fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.




     (c) If a notice of redemption has been given pursuant to this Section 10 and, on or before the
Redemption Date, the funds necessary for such redemption (including all dividends on the shares of
Series B Convertible Preferred Stock to be redeemed that will accumulate to the Redemption Date)
shall have been set aside by the Corporation, separate and apart from its other funds, in trust for
the pro rata benefit of the holders of the shares of Series B Convertible Preferred Stock so called
for redemption, then, notwithstanding that any certificates for such shares of Series B Convertible
Preferred Stock have not been surrendered for cancellation, on the Redemption Date dividends shall
cease to accumulate on the shares of the Series B Convertible Preferred Stock to be redeemed and
the holders of such shares shall cease to be stockholders with respect to those shares, shall have
no interest in or claims against the Corporation by virtue thereof and shall have no voting or
other rights with respect thereto, except the conversion rights provided in Section 5 above and the
right to receive the monies payable upon such redemption, without interest thereon, upon surrender
(and endorsement, if required by the Corporation) of their certificates, and the shares of Series B
Convertible Preferred Stock represented thereby shall no longer be outstanding. Subject to
applicable escheat laws, any monies so set aside by the Corporation and unclaimed at the end of
four years from the Redemption Date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look only to the general
funds of the Corporation for the payment of the redemption price, without interest. Any interest
accrued on funds so deposited shall belong to the Corporation and be paid thereto from time to
time.



     (d) If a notice of redemption has been given pursuant to this Section 10 and any holder of
shares of Series B Convertible Preferred Stock shall, prior to the close of business on the
business day immediately preceding the Redemption Date, give written



- 13 -









 







notice to the Corporation pursuant to Section 5 above of the conversion of any or all of the shares
to be redeemed held by the holder, then such redemption shall not become effective as to such
shares to be converted and such conversion shall become effective as provided in Section 5 above,
whereupon any funds deposited by the Corporation for the redemption of such shares shall (subject
to any right of the holder of such shares to receive the dividends payable thereon as provided in
Section 5 above) immediately upon such conversion be returned to the Corporation or, if then held
in trust by the Corporation, shall automatically and without further corporate action or notice be
discharged from the trust.



     (e) In every case of redemption of fewer than all of the outstanding shares of the Series B
Convertible Preferred Stock pursuant to this Section 10, the shares to be redeemed shall be
selected pro rata among all holders of Series B Convertible Preferred Stock on the basis of the
number of shares of Series B Convertible Preferred Stock owned by each such holder, provided that
only whole shares shall be selected for redemption.



     11. Voting Rights. Holders of Series B Convertible Preferred Stock shall be entitled
to notice of any stockholders’ meeting. Except as otherwise required by law or this Certificate of
Designations, as determined in good faith by the Board, at any annual or special meeting of the
Corporation’s stockholders, each outstanding share of Series B Convertible Preferred Stock shall be
entitled to the number of votes equal to the number of full shares of Common Stock into which such
share of Series B Convertible Preferred Stock is then convertible (calculated by rounding any
fractional share down to the nearest whole number). Except as otherwise required by law or this
Certificate of Designations, as determined in good faith by the Board, the Series B Convertible
Preferred Stock and the Common Stock shall vote together on each matter submitted to the
stockholders, and not by separate class or series.



     12. Protective Provisions. Without first obtaining the approval of the holders of a
majority of the outstanding shares of Series B Convertible Preferred Stock (voting as a separate
class), the Corporation shall not have the authority (directly or indirectly, whether through
amendment of the Certificate of Incorporation, merger, recapitalization or otherwise) to alter or
change any right, preference, privilege or power of (or restriction for the benefit of) the Series
B Convertible Preferred Stock. Until such time that the holders of Series B Convertible Preferred
Stock hold less than fifty percent (50%) of the shares of Series B Convertible Preferred Stock
issued on the First Issue Date, without first obtaining the approval of the holders of a majority
of the outstanding shares of Series B Convertible Preferred Stock (voting together as a separate
class), the Corporation shall not (directly or indirectly, whether through amendment of the
Certificate of Incorporation, merger, recapitalization or otherwise): (i) create, designate,
authorize or issue any new equity securities having rights, preferences, privileges or powers (or
restrictions for the benefit of) senior to or on parity with the Series B Convertible Preferred
Stock, (ii) authorize the Corporation, or permit any subsidiary, to incur, create, assume, become
or be liable, directly, indirectly or contingently, in any manner with respect to, or permit to
exist, any indebtedness including, without limitation,



- 14 -









 







indebtedness under guarantees, letters of credit, capital leases or the like, in any one
transaction or series of related transactions in excess of $5,000,000 other than trade payables
incurred in the ordinary course of business; and no material term of any such indebtedness approved
in accordance with this Section 12 shall thereafter be modified or amended in any material respect,
nor shall payment thereof be extended, without the approval of holders of a majority of the
outstanding shares of Series B Convertible Preferred Stock (voting together as a separate class),
(iii) authorize or effect, or cause any subsidiary to authorize or effect, any single capital
expenditure equal to or in excess of $2,500,000 or (iv) make any acquisition of the capital stock
or assets of another entity, or enter into any joint venture or partnership with another entity
where the consideration or other capital commitment payable by the Corporation is equal to or in
excess of $2,500,000.



     13. Board Representation. Notwithstanding anything to the contrary set forth in the
Certificate of Incorporation, for so long as at least fifty percent (50%) of the shares of Series B
Convertible Preferred Stock issued on the First Issue Date remain outstanding, the holders thereof
shall be entitled to elect, at a meeting of such shareholders, three (3) members of the Board (the
"Series B Director Designees”). The Series B Director Designees elected by the holders of the
Series B Convertible Preferred Stock shall not serve a classified term with the directors elected
by the holders of Common Stock together with the holders of any other class or series of capital
stock entitled to vote thereon. Any director elected by the holders of the Series B Convertible
Preferred Stock who serves as a member of the Board may be removed without cause only by the
holders of a majority of the outstanding shares of Series B Convertible Preferred Stock, voting
together as a separate class. If a vacancy is created on the Board by reason of the death, removal
or resignation of any director elected by the holders of the Series B Convertible Preferred Stock,
the holders of a majority of the outstanding shares of Series B Convertible Preferred Stock, voting
together as a single class, may elect a replacement director to the Board.



     14. Corporate Opportunities. Pursuant to Section 122(17) of the Delaware General
Corporation Law, the Corporation hereby renounces, to the fullest extent permitted by law, any
interest or expectancy of the Corporation in, or in being offered an opportunity to participate in,
specified business opportunities that are presented to the holders of the Series B Convertible
Preferred Stock, their Affiliates, or the Series B Director Designees (collectively, the “Preferred
Investor Parties”). The Corporation acknowledges that the Preferred Investor Parties are in the
business of making investments in, and have investments in, other businesses similar to and that
may compete with the Corporation’s businesses (“Competing Businesses”), and agrees, to the fullest
extent permitted by law, that the Preferred Investor Parties may retain the right to make
additional investments in other Competing Businesses independent of their investments in the
Corporation. By virtue of a Preferred Investor Party holding securities of the Corporation or by
having persons designated by or affiliated with such Preferred Investor Party serving on or
observing at meetings of the Board of Directors or otherwise, no Preferred Investor Party shall
have any obligation to the Corporation, any of its subsidiaries or any other holder of securities
of the Corporation to refrain from competing with the Corporation and any of its subsidiaries,
making investments in Competing Businesses, or otherwise engaging in any commercial activity; and none of the Corporation, any of
its subsidiaries or any other holder of Capital Securities shall have any right with respect to any
such investments or activities undertaken by such Preferred



- 15 -









 







Investor Party. Without limitation of the foregoing, , to the fullest extent permitted by law,
each Preferred Investor Party may engage in or possess an interest in other business ventures of
any nature or description, independently or with others, similar or dissimilar to the business of
the Corporation or any of its subsidiaries, and none of the Corporation, any of its subsidiaries or
any other holder of securities of the Corporation shall have any rights or expectancy by virtue of
such Preferred Investor Party’s relationships with the Corporation, or otherwise in and to such
independent ventures or the income or profits derived therefrom; and the pursuit of any such
venture, even if such investment is in a Competing Business shall not be deemed wrongful or
improper. To the fullest extent permitted by law, no Preferred Investor Party shall be obligated
to present any particular investment opportunity to the Corporation or any of its subsidiaries even
if such opportunity is of a character that, if presented to the Corporation or such subsidiary,
could be taken by the Corporation or such subsidiary, and the Preferred Investor Party shall
continue to have the right to take for its own respective account or to recommend to others any
such particular investment opportunity. The provisions of this Section 14 shall in no way limit or
eliminate any Preferred Investor Party’s duties, responsibilities and obligations with respect to
any proprietary information of the Corporation and any of its subsidiaries, including the duty to
not disclose or use such proprietary information improperly or to obtain therefrom an improper
personal benefit.



     15. No Closing of Transfer Books. The Corporation shall not close its books against
the transfer of the Series B Convertible Preferred Stock in any manner that would interfere with
the timely conversion of any Series B Convertible Preferred Stock.



     16. Rank. The Series B Preferred Stock shall rank senior in right as to dividends,
upon the occurrence of a Liquidation Event and in all other respects to all Common Stock and any
other shares or securities of the Corporation ranking junior to such Series B Convertible Preferred
Stock, whenever issued.



     B. The recitals and resolutions contained herein have not been modified, altered or amended
and are presently in full force and effect.



     IN WITNESS WHEREOF, the undersigned has
executed this Certificate this 5th day of July, 2006.



	 	 	 	 	 
	 	 	NEW HORIZONS WORLDWIDE, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Thomas J. Bresnan
	 

	 	 	 	 
	 	 	Name: Thomas Bresnan
	 	 	Title: President