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                                                                  Exhibit 3.1(d)
                    CERTIFICATE OF THE POWERS, DESIGNATIONS,

                         PREFERENCES AND RIGHTS OF THE

                      SERIES B CONVERTIBLE PREFERRED STOCK

                                ($.01 Par Value)

                   (Liquidation Preference $50.00 per Share)

                                       OF

                         ENERGY BIOSYSTEMS CORPORATION

                             ______________________


           Pursuant to Section 151(g) of the General Corporation Law

                            of the State of Delaware

                             ______________________



     THE UNDERSIGNED, being the President and Chief Executive Officer of Energy
BioSystems Corporation, a Delaware corporation (the "Company"), DOES HEREBY
CERTIFY that, pursuant to the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware and pursuant to authority conferred
upon the Board of Directors by the provisions of the Amended and Restated
Certificate of Incorporation of the Company (the "Certificate of Incorporation),
the Board of Directors of the Company has duly adopted resolutions providing for
the issuance of a series of its preferred stock and fixing the relative powers,
designations, preferences
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and rights of such stock and the qualifications, limitations and restrictions
thereof. These resolutions are as follows:

     RESOLVED, that pursuant to authority expressly granted to and vested in the
Board of Directors of the Company by the provisions of the Certificate of
Incorporation, the issuance of a series of preferred stock, par value $.01 per
share, which shall consist of 785,350 of the 5,000,000 shares of preferred stock
which the Company now has authority to issue, be, and the same hereby is,
authorized, and the Board of Directors hereby fixes the powers, designations,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions thereof, of the shares of such
series (in addition to the powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which may be applicable to the preferred stock of this series) as
follows:

     1.   Number of Shares and Designation.  785,350 shares of the preferred
stock, $.01 par value per share, of the Company are hereby constituted as a
series of the preferred stock designated as Series B Convertible Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock").

     2.   Definitions.  For purposes of the Series B Preferred Stock, in
addition to those terms otherwise defined herein, the following terms shall have
the meanings indicated:

          (a) "Board of Directors" shall mean the board of directors of the
Company or any committee authorized by such Board of Directors to perform any of
its responsibilities with respect to the Series B Preferred Stock.

          (b) "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which state or federally chartered banking institutions in the State of
New York or the State of Texas are authorized or obligated by law or executive
order to close.

          (c) "Closing Price" of a security with respect to any day shall mean
the average of the daily closing prices for the ten (10) consecutive Trading
Dates commencing twelve (12) Trading Dates before such day.  The closing price
for each Trading Date shall be the reported last sales price, regular way, for
the security or, in case no sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, for the security in either
case as reported on the New York Stock Exchange or the principal national
securities exchange on which the security is listed or admitted to trading, or,
if not listed or admitted to trading on any national securities exchange, on The
Nasdaq Stock Market, Inc. ("Nasdaq") National Market, or if such security is not
quoted on such The Nasdaq National Market, the average of the closing bid and
asked prices on such day in the over-the-counter market as reported by Nasdaq.
If the Closing Price cannot be so determined, then the Closing Price shall be
determined:

                                      -2-
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          (i) by the written agreement of the Company and the holders of shares
of Series B Preferred Stock representing a majority of the Common Shares then
obtainable from the conversion of outstanding shares of Series B Preferred
Stock, or

          (ii) in the event that no such agreement is reached within twenty (20)
days after the event giving rise to the need to determine the Closing Price, by
the agreement of two arbitrators, one of whom shall be selected by the Company
and the other of whom shall be selected by such majority holders or

          (iii) if the two arbitrators so selected fail to agree within twenty
(20) days, by a third arbitrator selected by the mutual agreement of the other
two (with all costs and expenses of any arbitrators to be paid by the Company).

The Company shall cooperate to permit any determination under the preceding
clauses (i), (ii) or (iii).

     (d) "Common Stock" shall mean the Common Stock of the Company, par value
$.01 per share.

     (e) "Common Shares" shall have the meaning set forth in Section 7 hereof.

     (f) "Company Notice" shall have the meaning set forth in paragraph (d) of
Section 5.

     (g) "Conversion Price" shall mean the Conversion Price per Common Share
into which the Series B Preferred Stock is convertible, as such Conversion Price
may be adjusted pursuant to Section 7 hereof.  The initial Conversion Price
shall be $7.25.

     (h) "Dividend Payment Date" shall have the meaning set forth in paragraph
(a) of Section 3 hereof.

     (i) "Dividend Payment Record Date" shall have the meaning set forth in
paragraph (a) of Section 3 hereof.

     (j) "Dividend Periods" shall mean the interval beginning on the most recent
Dividend Payment Date and ending on and including the day immediately preceding
the next succeeding Dividend Payment Date.

     (k) "Fundamental Change" shall have the meaning set forth in paragraph (c)
of Section 8 hereof.

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     (l) "Initial Dividend Period" shall mean the interval beginning on the
Issue Date to and including May 1, 1997.

     (m) "Issue Date" shall mean the first date on which shares of the Series B
Preferred Stock are issued.

     (n) "Person" shall mean any individual, association, partnership,
corporation, a government or a political subdivision thereof, a governmental
agency or other entity, and shall include any agency successor (by merger or
otherwise) of such entity.

     (o) "Series A Preferred Stock" shall mean the Company's Series A Preferred
Stock, as designated by the Certificate of the Powers, Designations, Preferences
and Rights filed with the Secretary of State of the State of Delaware on October
25, 1994.

     (p) "Trading Date" with respect to Common Shares means (i) if the Common
Shares are listed or admitted for trading on the New York Stock Exchange or
another national securities exchange, a day on which the New York Stock Exchange
or such other national securities exchange is open for business, or (ii) if the
Common Shares are quoted on The Nasdaq National Market, a day on which trades
may be made on The Nasdaq National Market, or (iii) otherwise, any Business Day.

     (q) "Transfer Agent" means KeyCorp Shareholder Services, Inc. or such other
agent or agents of the Company as may be designated by the Board of Directors of
the Company as the transfer agent for the Series B Preferred Stock.

3.   Dividends.

     (a) Holders of the Series B Preferred Stock are entitled to receive, when,
as and if declared by the Board of Directors, out of the funds of the Company
legally available therefor, a semi-annual dividend payable in Common Stock or
cash or a combination of Common Stock and cash, at the Board of Directors'
option (except that if in the preceding 6 months the Company has paid cash
dividends on any preferred stock other than the Preferred Stock with respect to
which the Company had the option to pay dividends in Common Stock, such semi-
annual dividend on the Preferred Stock shall be paid in cash), from the Issue
Date for the Initial Dividend Period and for each Dividend Period thereafter, at
an annual rate equal to (i) $4.00 per share of Series B Preferred Stock to the
extent the dividend is paid in cash and (ii) $4.50 per share of Series B
Preferred Stock to the extent the dividend is paid in Common Stock (and, in the
case of any accrued but unpaid dividends, upon liquidation as provided under
Section 4 hereof, upon redemption as provided under Section 5 hereof and upon
conversion as provided under Section 7 hereof).  Notwithstanding the above, the
Company will not declare and cause to be paid dividends on the Series B
Preferred Stock in shares of Common Stock until a registration statement
covering the resale of such shares of Common Stock has been filed with the
Securities and Exchange Commission and has been declared

                                      -4-
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effective thereby. If May 1 and November 1 of each year (each a "Dividend
Payment Date") or any other Dividend Payment Date shall be on a day other than a
Business Day, then the Dividend Payment Date shall be on the next succeeding
Business Day. Dividends on the Series B Preferred Stock will be cumulative from
the Issue Date, whether or not in any Dividend Period or Periods there shall be
funds of the Company legally available for the payment of such dividends,
whether or not such dividends are declared, and whether or not there are other
legal or contractual restrictions on the declaration or payment of such
dividends. Dividends will be payable to holders of record as they appear on the
stock books of the Company on the Dividend Payment Record Date (the "Dividend
Payment Record Date"), which shall be not more than 60 days nor less than 10
days preceding the Dividend Payment Dates thereof, as shall be fixed by the
Board of Directors. The amount of dividends payable per share of Series B
Preferred Stock for each full semi-annual Dividend Period shall be computed by
dividing the annual dividend rate by two. Dividends on the Series B Preferred
Stock shall accrue (whether or not declared) on a daily basis from the Issue
Date in the amounts described above. Accrued dividends for each Dividend Period
shall accumulate to the extent not paid on the Dividend Payment Date first
following the Dividend Period for which they accrue. As used herein, the term
"accrued" with respect to dividends includes both accrued and accumulated
dividends.

     (b) If, and to the extent, the Board of Directors elects to pay dividends
on the Series B Preferred Stock in Common Stock, the number of shares of Common
Stock which shall be issued in payment of such dividend shall be equal to the
amount of such dividend specified in (a) of this Section 3 for dividends payable
in Common Stock divided by the Closing Price as of the relevant Dividend Payment
Date.  No fractional shares of Common Stock shall be issued in connection with
such a dividend, but, in lieu of any fraction of a share of Common Stock which
would otherwise be issuable in respect of the aggregate number of shares of
Series B Preferred Stock held by the holder thereof, the holder shall have the
right to receive an amount in cash equal to the same fraction of the Closing
Price as of the Dividend Payment Date for such dividend.

     (c) Holders of shares of Series B Preferred Stock called for redemption on
a redemption date falling between the close of business on a Dividend Payment
Record Date and the opening of business on the corresponding Dividend Payment
Date shall, in lieu of receiving such dividend payment on the Dividend Payment
Date fixed therefor, receive an amount equal to such dividend payment
(consisting of all accumulated and unpaid dividends through and including the
redemption date) on the date fixed for redemption (unless such holder converts
such shares of Series B Preferred Stock in accordance with Section 7 hereof).
If a conversion of shares of Series B Preferred Stock occurs between a Dividend
Payment Record Date and the corresponding Dividend Payment Date, the dividends
payable on the conversion date under Section 7 hereof shall be calculated
through and including such conversion date. If, for whatever reason (i) any
share of Series B Preferred Stock has not been converted pursuant to Section 7
hereof on a conversion date, or (ii) all payments have not been made with
respect to any share of Series B Preferred Stock as required by Section 5 on a
redemption date or all payments have not been made with respect to any share of
Series B Preferred

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Stock as required by Section 8 on a repurchase date (other than because of a
failure by the holder thereof to tender such shares for payment on such date)
then, notwithstanding any other provision hereof, dividends shall continue to
accrue on such outstanding shares until paid.

     (d) If the Company shall, after the Issue Date, fix a record date for the
making of a Distribution on Common Stock to holders of its Common Stock (other
than any distribution referred to in Section 7(d) hereof and cash dividends paid
out of retained earnings of the Company determined under generally accepted
accounting principles consistently applied), the Company shall set aside in an
escrow reasonably acceptable to the holders of a majority of the Series B
Preferred Stock, the Distribution on Common Stock to which they would have been
entitled if they had converted all of the Series B Preferred Stock held by them
for the Company's Common Stock immediately prior to the record date for the
purpose of determining stockholders entitled to receive such Distribution on
Common Stock and any such Distribution on Common Stock shall thereafter be
distributed from time to time out of such escrow to persons converting the
Series B Preferred Stock (immediately upon conversion) to the extent such
Distribution on Common Stock relates to the shares of Series B Preferred Stock
then being converted.  As used herein, the term "Distribution on Common Stock"
means a distribution to holders of the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of (i) assets (including any cash
dividends or distributions), (ii) evidences of indebtedness or other securities
of the Company or of any entity other than the Company or (iii) subscription
rights (including, without limitation, rights issued pursuant to a rights plan
as authorized by Article Fifth of the Company's Amended and Restated Certificate
of Incorporation), options or warrants to purchase any of the foregoing assets
or securities, whether or not such rights, options or warrants are immediately
exerciseable.

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

     (f) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on any class or series of stock of the
Company ranking, as to dividends, on a parity with the Series B Preferred Stock,
for any period unless full cumulative dividends have been or contemporaneously
are declared and paid, or declared and an amount sufficient for the payment
thereof set apart for such payment, on the Series B Preferred Stock for all
Dividend Periods terminating on or prior to the date of payment, or setting
apart for payment, of such dividends on such parity stock.  When dividends are
not paid in full or a sum sufficient for such payment is not

                                      -6-
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set apart, as aforesaid, upon the shares of the Series B Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series B Preferred Stock, all dividends declared upon shares of the Series B
Preferred Stock and all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series B Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series B Preferred Stock and on such other stock bear to each other.

     (g) So long as any shares of the Series B Preferred Stock are outstanding,
no other stock of the Company ranking on a parity with the Series B Preferred
Stock as to dividends or upon liquidation, dissolution or winding up shall be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund or otherwise for the purchase or
redemption of any shares of any such stock) by the Company unless the full
cumulative dividends, if any, accrued on all outstanding shares of the Series B
Preferred Stock shall have been paid or set apart for payment for all past
Dividend Periods.

     (h) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Common Stock
or other stock ranking junior to the Series B Preferred Stock, as to dividends
and upon liquidation, dissolution or winding up) shall be declared or paid or
set apart for payment and no other distribution shall be declared or made or set
apart for payment, in each case upon the Common Stock or any other stock of the
Company ranking junior to the Series B Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common Stock nor any other
such stock of the Company ranking junior to the Series B Preferred Stock as to
dividends or upon liquidation, dissolution or winding up be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund or otherwise for the purchase or redemption of any
shares of any such stock) by the Company except by conversion into or exchange
for stock of the Company ranking junior to the Series B Preferred Stock as to
dividends and upon liquidation, dissolution or winding up unless, in each case
the full cumulative dividends, if any, accrued on all outstanding shares of the
Series B Preferred Stock and any other stock of the Company ranking on a parity
with the Series B Preferred Stock as to dividends shall have been paid or set
apart for payment for all past Dividend Periods and all past dividend periods
with respect to such other stock.

     4.   Liquidation Preference.  (a)  In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
before any payment or distribution of the assets of the Company (whether capital
or surplus) shall be made to or set apart for the holders of Common Stock or any
other series or class or classes of stock of the Company ranking junior to the
Series B Preferred Stock upon liquidation, dissolution or winding up, the
holders of the shares of Series B Preferred Stock shall be entitled to receive
from the assets of the Company, whether represented by capital, surplus,
reserves or earnings, payment in cash or other assets, if the holders of a
majority of the shares of Series B Preferred Stock have agreed to accept the
distribution

                                      -7-
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hereunder in assets of the Company, in an amount (the "Preferred Liquidation
Value") equal to the greater of (i) $50.00 per share, or (ii) the amount per
share of Series B Preferred Stock that would have been payable had each such
share been converted to Common Shares immediately prior to such event of
liquidation, dissolution or winding-up pursuant to Section 7 hereof, plus, in
either case, an amount per share equal to all dividends (whether or not earned
or declared) accrued and unpaid thereon to the date of final distribution to
such holders; but such holders shall not be entitled to any further payment. No
payment on account of any liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of stock ranking on a parity
with the Series B Preferred Stock in respect of the distribution of assets upon
dissolution, liquidation or winding up unless there shall likewise be paid at
the same time to the holders of the Series B Preferred Stock like proportionate
amounts determined ratably in proportion to the full amounts to which the
holders of all outstanding shares of Series B Preferred Stock and the holders of
all outstanding shares of such parity stock are respectively entitled with
respect to such distribution. If, upon any liquidation, dissolution or winding
up of the Company, the assets of the Company, or proceeds thereof, distributable
among the holders of the shares of Series B Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any other shares of stock ranking, as to liquidation, dissolution or
winding up, on a parity with the Series B Preferred Stock, then such assets, or
the proceeds thereof, shall be distributed among the holders of shares of Series
B Preferred Stock and any such other stock ratably in accordance with the
respective amounts which would be payable on such shares of Series B Preferred
Stock and any such other stock if all amounts payable thereon were paid in full.
For the purposes of this Section 4, (i) a consolidation or merger of the Company
with one or more corporations or other entities, (ii) a sale, lease, exchange or
transfer of all or any part of the Company's assets or (iii) a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.

     (b) Subject to the rights of the holders of shares of any series or class
or classes of stock ranking on a parity with or prior to the Series B Preferred
Stock upon liquidation, dissolution or winding up, upon any liquidation,
dissolution or winding up of the Company, after payment shall have been made in
full to the holders of Series B Preferred Stock, as provided in this Section 4,
any other series or class or classes of stock ranking junior to the Series B
Preferred Stock upon liquidation, dissolution or winding up shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of Series B Preferred Stock shall not be entitled to share therein.

     (c) Written notice of any liquidation, dissolution or winding up of the
Company, stating the payment date or dates when and the place or places where
the amounts distributable in such circumstances shall be payable, shall be given
by first class mail, postage prepaid, not less than thirty (30) days prior to
any payment date stated therein, to the holders of record of the Series B
Preferred Stock at their respective addresses as the same shall appear on the
books of the Transfer Agent.

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     5.   Redemption.

     (a) Any redemption of Series B Preferred Stock pursuant to this Section 5
shall be at a price equal to $50.00 per share of Series B Preferred Stock, plus
in each case an amount equal to accrued and unpaid dividends, if any, to (and
including) the redemption date, whether or not earned or declared (the
"Redemption Price").  The Redemption Price may be paid in cash or, at the
Company's option, subject to the provisions of this Section 5, in Common Shares
or in a combination of Common Shares and cash.  If, and to the extent, the
Company elects to pay the Redemption Price for the Series B Preferred Stock in
Common Shares, then such number of Common Shares payable to a holder of Series B
Preferred Stock shall be equal to the greater of (i) the number of Common Shares
into which the shares of Series B Preferred Stock held by the holder of such
Series B Preferred Stock could be converted as of the date on which notice of
such redemption is given by the Company or (ii) the number of Common Shares
determined by dividing the Redemption Price payable to such holder of Series B
Preferred Stock by the Closing Price as of the date on which notice of such
redemption is given by the Company.

     (b) At any time on or after February 26, 1999 (and not before) and prior to
February 26, 2002, if the daily closing price (as referred to in the second
sentence of the definition of "Closing Price" in Section 2) of the Common Shares
has been $10.875 (a 50% premium to the Conversion Price) or higher for the 30
consecutive Trading Dates commencing 32 Trading Dates before the date of the
notice of redemption under Section 5(d), the Company may at its option (subject
to the other provisions of this Section 5) redeem all or a portion of the
outstanding Series B Preferred Stock pursuant to this Section 5(b).

     (c) On February 26, 2002 (or, if such date is not a Business Day, the next
succeeding Business Day), the Company shall (subject to the other provisions of
this Section 5) redeem all the outstanding Series B Preferred Stock pursuant to
this Section 5(c); provided, that if the Company intends to elect in accordance
with this Section 5 to pay the Redemption Price in Common Shares and, having
used its reasonable best efforts to do so, has not been able to arrange for the
firm commitment underwriting referred to in Section 5(d)(xi) below prior to such
date, the Company shall not be required to redeem the Series B Preferred Stock
for cash on such date but shall be required to (i) redeem for the Redemption
Price payable in Common Shares all Series B Preferred Stock held by holders
which waive the firm commitment underwriting requirements herein, and (ii) if
any Series B Preferred Stock is not so redeemed, to continue to use its
reasonable best efforts to arrange for such firm commitment underwriting as
promptly as practicable thereafter and shall effect the redemption of all
outstanding shares of Series B Preferred Stock upon arranging for such firm
commitment underwriting.

     (d) In the event the Company shall elect to redeem shares of Series B
Preferred Stock pursuant to Section 5(b) or shall be required to redeem shares
of Series B Preferred Stock pursuant to Section 5(c), a notice of such
redemption shall be given by the Company (a "Company Notice")

                                      -9-
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by first class mail, postage prepaid, mailed not less than 30 nor more than 90
days prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the stock records of
the Company. Each such notice shall state:

          (i) the redemption date;

          (ii) the number of shares of Series B Preferred Stock to be redeemed
and, if less than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder;

          (iii) the Redemption Price;

          (iv) whether the Redemption Price will be paid in Common Shares or
cash, or in a combination of Common Shares and cash;

          (v) the place or places where certificates for such shares of Series B
Preferred Stock are to be surrendered for payment of the Redemption Price;

          (vi) that payment will be made upon presentation and surrender of such
Series B Preferred Stock;

          (vii) the then current Conversion Price and the date on which the
right to convert such shares of Series B Preferred Stock will expire;

          (viii) that dividends on the shares to be redeemed shall cease to
accrue following such redemption date;

          (ix) whether such redemption is at the option of the Company;

          (x) that dividends accrued to and including the date fixed for
redemption will be paid as specified in said notice on the shares to be
redeemed; and

          (xi) if the Redemption Price will be paid in Common Shares, that an
investment banking firm mutually acceptable to the Company and the holders of a
majority of the shares of Series B Preferred Stock has agreed to proceed with a
firm commitment underwriting (l) for holders of Series B Preferred Stock to be
redeemed under this Section 5 by such notice, (m) with respect to the Common
Shares obtainable by such holders upon redemption of the Series B Preferred
Stock and (n) which will yield net proceeds (after deducting underwriting
commissions and fees and other expenses of the offering) (which net proceeds may
be supplemented by the Company, at its option, to meet the following threshold
amounts) (a) in the case of a redemption under section 5(b), for such holders
for such Common Shares equal to at least $10.875 (a 50% premium to the
Conversion Price)

                                      -10-
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for each Common Share sold and (b) in the case of a redemption under Section
5(c), for such holders of such redeemed Series B Preferred Stock equal to the
Redemption Price for each redeemed share of Series B Preferred Stock.

     Notice having been mailed as aforesaid, from and after the redemption date,
unless the Company shall be in default in providing money or Common Shares for
the payment of the Redemption Price (including any accrued and unpaid dividends
to (and including) the date fixed for redemption), (1) dividends on the shares
of the Series B Preferred Stock so called for redemption shall cease to accrue,
(2) said shares shall be deemed no longer outstanding, and (3) all rights of the
holders thereof as stockholders of the Company (except the right to receive from
the Company any moneys or Common Shares payable upon redemption without interest
thereon) shall cease except for the rights applicable to any Common Shares paid
pursuant to the redemption.  Neither the failure to mail a Company Notice
required by this paragraph (d) nor any defect in the mailing thereof to a
particular holder, shall affect the sufficiency of the notice or the validity of
the proceedings for redemption with respect to any other holder.  If the Company
chooses to redeem the Series B Preferred Stock for cash, its obligation to
provide moneys in accordance with this paragraph shall be deemed fulfilled if,
on or before the redemption date, the Company shall deposit with a bank or trust
company having an office or agency in the Borough of Manhattan, City of New
York, and having a capital and surplus of at least $50,000,000, the principal
amount of funds necessary for such redemption, in trust for the account of the
holders of the shares to be redeemed (and so as to be and continue to be
available therefor), with irrevocable instructions and authority to such bank or
trust company that such funds be applied to the redemption of the shares of
Series B Preferred Stock so called for redemption.  Any interest accrued on such
funds shall be paid to the Company from time to time.  Any funds so deposited
and unclaimed at the end of two years from such redemption date shall be
released or repaid to the Company, after which, subject to any applicable laws
relating to escheat or unclaimed property, the holder or holders of such shares
of Series B Preferred Stock so called for redemption shall look only to the
general funds of the Company for payment of the Redemption Price.

     Upon surrender in accordance with said notice of the certificates for any
such shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such shares
shall be redeemed by the Company at the applicable Redemption Price aforesaid.
If fewer than all the outstanding shares of Series B Preferred Stock are to be
redeemed, shares to be redeemed shall be selected by the Company from
outstanding shares of Series B Preferred Stock not previously called for
redemption by lot or pro rata (as near as may be) or by any other equitable
method determined by the Company in its sole discretion.  If fewer than all the
shares represented by any certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.

     Notwithstanding the foregoing, if the Company Notice of redemption has been
given pursuant to this Section 5 and any holder of shares of Series B Preferred
Stock shall, prior to the

                                      -11-
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close of business on the third Business Day preceding the redemption date, give
written notice to the Company pursuant to Section 7(b) hereof of the conversion
of any or all of the shares to be redeemed held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or assigned to the
Company), then the conversion of such shares to be redeemed shall become
effective as provided in Section 7.

     (e) In the case of a redemption under Section 5(b) or Section 5(c) hereof,
if the Redemption Price will be paid, in whole or in part, in Common Shares,
within 20 days after the receipt of the Company Notice described in Section 5(d)
hereof, each holder of Series B Preferred Stock shall notify the Company whether
or not it elects to participate in such underwritten offering (the failure to
timely provide the required notice being deemed an election not to participate
in such underwritten offering for purposes of this Section 5).  As soon as
practicable thereafter, the Company and the holders wishing to participate in
such underwritten offering will, using such investment banking firm, proceed
with a registration, qualification and offering of the Common Shares obtainable
upon conversion of the Series B Preferred Stock held by such holders wishing to
participate and subject to required redemption by the Company under the notice
given under Section 5(d) hereof.  It shall be a condition to the obligation of
selling holders to close under such firm commitment underwriting that such
underwriting shall net to the holders wishing to participate in such
underwritten offering an amount (after deducting underwriting commissions and
fees and other expenses of the underwriting) at least equal to the amounts
stated in Section 5(d)(xi)(n)(a) or (b), as the case may be.

     (f) An election by any holders under the first sentence of Section 5(e)
hereof to participate in an underwritten public offering shall suspend any
redemption under this Section 5 with respect to Series B Preferred Stock held by
such holders.  If such holders who notified the Company that they wished to
participate in the public offering refuse to close under the underwriting
agreement despite the satisfaction of all conditions therein to their obligation
to close thereunder, then the Company shall redeem the Series B Preferred Stock
held by such holders scheduled for redemption in accordance with the notice
given under Section 5(d) hereof; any such required redemption shall be made no
later than the date (which shall be a Business Day) to be specified (not more
than 20 days or less than 5 days after such failure to close) to such holders by
the Company.  If any underwriting under Section 5(e) does not close due to one
or more of the conditions to the sellers' obligations to close under the
underwriting agreement not being satisfied, then the notice of the Company
requiring redemption of the Series B Preferred Stock described in Section 5(d)
hereof shall be rescinded with respect to the shares held by the holders
electing to participate in such offering, subject, in the case of a redemption
pursuant to Section 5(c) hereof, to an obligation of the Company to use its
reasonable best efforts to arrange as promptly as practicable thereafter for
another firm commitment underwriting for the Common Shares issuable in
connection with such redemption and to effect the redemption of all outstanding
shares of Series B Preferred Stock upon arranging for such firm commitment
underwriting.

                                      -12-
<PAGE>

     (g) Neither the Company nor any of its subsidiaries shall repurchase any
outstanding shares of Series B Preferred Stock unless the Company on the same
terms either (i) offers to purchase all of the then outstanding shares of Series
B Preferred Stock or (ii) offers to purchase shares of Series B Preferred Stock
from the holders thereof in proportion to the respective number of shares of
Series B Preferred Stock held by each holder.  In any such repurchase by the
Company, if all shares of Series B Preferred Stock are not being repurchased,
then the number of shares of Series B Preferred Stock to be repurchased shall be
allocated among all shares of Series B Preferred Stock held by holders which
accept the Company's repurchase offer so that the shares of Series B Preferred
Stock are repurchased from such holders in proportion to the respective number
of shares of Series B Preferred Stock held by each such holder which accepts the
Company's offer (or in such other proportion as agreed by all such holders who
accept the Company's offer).  Nothing in this Section 5(g) shall (i) obligate a
holder of shares of Series B Preferred Stock to accept the Company's repurchase
offer or (ii) prevent the Company from redeeming shares of Series B Preferred
Stock in accordance with the terms of Sections 5(a) through (f) hereof.

     6.   Shares To Be Retired.  Any share of Series B Preferred Stock
converted, redeemed or otherwise acquired by the Company shall be retired and
canceled and shall upon cancellation be restored to the status of authorized but
unissued shares of preferred stock, subject to reissuance by the Board of
Directors as shares of preferred stock of one or more other series but not as
shares of Series B Preferred Stock.

     7.   Conversion.  Holders of shares of Series B Preferred Stock shall have
the right to convert all or a portion of such shares (including fractions of
such shares) into fully paid and non-assessable shares of Common Stock or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof (such shares, the "Common Shares"), as follows:

     (a) Subject to and upon compliance with the provisions of this Section 7, a
holder of shares of Series B Preferred Stock shall have the right, at the option
of such holder, at any time after the expiration of 60 days following the last
date of original issuance of the Series B Preferred Stock (excluding the Series
B Preferred Stock issued pursuant to the exercise of certain warrants referred
to in Section 7(d)(vi)(E)), to convert any of such shares (or fractions thereof)
into the number of fully paid and non-assessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) obtained by
dividing (x) the product of (i) the number of shares to be converted and (ii)
$50.00 per share by (y) the Conversion Price, and by surrender of such shares,
such surrender to be made in the manner provided in paragraph (b) of this
Section 7; provided, however, that the right to convert shares called for
redemption pursuant to Section 5 shall terminate at the close of business on the
third Business Day preceding the date fixed for such redemption, unless the
Company shall default in making payment of the amount payable upon such
redemption.  Subject to the following provisions of this Section 7(a), any share
of Series B Preferred Stock may be converted, at the option of its holder, in
part into Common Shares under the procedures set forth

                                      -13-
<PAGE>

above. If a part of a share of Series B Preferred Stock is converted, then the
Company will convert such share into the appropriate number of Common Shares
(subject to paragraph (c) of this Section 7) and issue a fractional share of
Series B Preferred Stock evidencing the remaining interest of such holder. The
Common Shares issuable upon conversion of the shares of Series B Preferred
Stock, when such Common Shares shall be issued in accordance with the terms
hereof, are hereby declared to be and shall be duly authorized, validly issued,
fully paid and non-assessable Common Shares held by the holders thereof.

     (b) In order to exercise the conversion right, the holder of each share of
Series B Preferred Stock (or fraction thereof) to be converted shall surrender
the certificate representing such share, duly endorsed or assigned to the
Company or in blank, at the office or agency of the Transfer Agent in the
Borough of Manhattan, City of New York or Houston, Texas, accompanied by written
notice to the Company that the holder thereof elects to convert the holder's
Series B Preferred Stock or a specified portion thereof.  Unless the shares
issuable on conversion are to be issued in the same name as the name in which
such share of Series B Preferred Stock is registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form satisfactory
to the Company, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any required transfer or similar tax
(or evidence reasonably satisfactory to the Company demonstrating that such
taxes have been paid).

     Within five (5) Business Days after receipt of any share of Series B
Preferred Stock and an election to convert all or a portion of such share of
Series B Preferred Stock under this Section 7, the Company will pay, out of
funds legally available therefor, to the holder of such share of Series B
Preferred Stock full cumulative dividends, if any, accrued to the effective date
of conversion of such share of Series B Preferred Stock and relating to the
portion of such share to be converted; provided, however, that if a share of
Series B Preferred Stock is surrendered for conversion between a Dividend
Payment Record Date and a Dividend Payment Date, the Company shall only be
obligated to pay such full cumulative dividends to the record holder of such
share of Series B Preferred Stock on the Dividend Payment Record Date.

     As promptly as practicable after the surrender of certificates for shares
of Series B Preferred Stock as aforesaid and in any event within five (5)
Business Days thereafter (unless such conversion is in connection with an
underwritten public offering of Common Shares as specified in a written notice
provided to the Company, in which event concurrently with such conversion) the
Company shall issue and shall deliver at such office to such holder, or on his
or her written order, a certificate or certificates for the number of Common
Shares issuable upon the conversion of such shares in accordance with the
provisions of this Section 7, and any fractional interest in respect of a Common
Share arising upon such conversion shall be settled as provided in paragraph (c)
of this Section 7.

     Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificate or certificates for
shares of Series B Preferred Stock

                                      -14-
<PAGE>

shall have been surrendered and such notice received by the Company as aforesaid
(except that if such conversion is in connection with an underwritten public
offering of Common Shares, then such conversion shall be deemed to have been
effected upon such surrender), and the person or persons in whose name or names
any certificate or certificates for Common Shares shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date, and such conversion shall
be at the Conversion Price in effect at such time on such date, unless the stock
transfer books of the Company shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price in
effect on the date and at the time referred to above. All Common Shares
delivered upon conversion of the Series B Preferred Stock will, upon delivery,
be duly authorized, validly issued and fully paid and non-assessable.

     (c) In connection with the conversion of any shares of Series B Preferred
Stock, fractions of such shares may be converted; however, no fractional shares
or securities representing fractions of Common Shares shall be issued upon
conversion of the Series B Preferred Stock.  Instead of any fractional interest
in a Common Share which would otherwise be deliverable upon the conversion of a
share of Series B Preferred Stock (or fraction thereof), the Company shall pay
to the holder of such share an amount in cash (computed to the nearest cent)
equal to the daily closing price (as referred to in the second sentence of the
definition of "Closing Price'') of a Common Share on the Trading Date
immediately preceding the date of conversion multiplied by the fraction of a
share of Common Stock represented by such fractional interest.  If more than one
share (or fraction thereof) of Series B Preferred Stock shall be surrendered for
conversion at 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 Series B Preferred Stock (or fractions thereof) so
surrendered.

     (d) The Conversion Price shall be adjusted from time to time as follows:

          (i) Stock Dividends and Stock Splits.  If at any time after the Issue
     Date, (i) the Company shall fix a record date for the issuance of any
     dividend payable in Common Shares or (ii) the number of Common Shares shall
     be increased by a subdivision or split-up of Common Shares, then, on the
     record date fixed for the determination of holders of Common Shares
     entitled to receive such dividend or immediately after the effective date
     of such subdivision or split-up, as the case may be, the number of shares
     to be delivered upon surrender of any share of Series B Preferred Stock for
     conversion will be appropriately increased so that each holder of Series B
     Preferred Stock thereafter will be entitled to receive the number of Common
     Shares that such holder would have owned immediately following such action
     had such share of Series B Preferred Stock been surrendered for conversion
     immediately prior thereto, and the Conversion Price will be appropriately
     adjusted.  The time of occurrence of an event giving rise to an adjustment
     made pursuant to this paragraph d(i)

                                      -15-
<PAGE>

     shall, in the case of a subdivision or split-up, be the effective date
     thereof and shall, in the case of a stock dividend, be the record date
     thereof.

          (ii) Combination of Stock.  If the number of Common Shares outstanding
     at any time after the Issue Date shall have been decreased by a combination
     of the outstanding Common Shares, then, immediately after the effective
     date of such combination, the number of shares to be delivered upon
     surrender of any share of Series B Preferred Stock for conversion will be
     appropriately decreased so that each holder of Series B Preferred Stock
     thereafter will be entitled to receive the number of Common Shares that
     such holder would have owned immediately following such action had such
     share of Series B Preferred Stock been surrendered for conversion
     immediately prior thereto, and the Conversion Price will be appropriately
     adjusted.

          (iii)  Reorganization.  If any capital reorganization of the Company,
     or any reclassification of the Common Stock, or any consolidation of the
     Company with or merger of the Company with or into any other corporation or
     any sale, lease or other transfer of all or substantially all of the assets
     of the Company to any other person (including any individual, partnership,
     joint venture, corporation, trust or group thereof) shall be effected in
     such a way that the Common Shares shall be converted into the right to
     receive stock, securities or other property (including cash or any
     combination thereof), then, upon surrender of the Series B Preferred Stock
     for conversion in accordance with the terms of this Section 7, each holder
     shall have the right to receive the kind and amount of stock and other
     securities and property receivable (including cash or any combination
     thereof) upon such reorganization, reclassification, consolidation, merger
     or sale, lease or other transfer by a holder of the number of Common Shares
     that such holder of the Series B Preferred Stock would have been entitled
     to receive upon surrender of the Series B Preferred Stock for conversion
     pursuant to this Section 7 had the Series B Preferred Stock been
     surrendered for conversion immediately prior to such reorganization,
     reclassification, consolidation, merger or sale, lease or other transfer.
     As a condition to any such transaction, the Company shall require such
     person to confirm in writing the rights of the holders of Series B
     Preferred Stock pursuant to this paragraph d(iii).

          (iv) Rights Offering.  If the Company at any time after the Issue Date
     shall issue or sell or fix a record date for the issuance of rights,
     options or warrants to all holders of Common Shares entitling the holders
     thereof to subscribe for or purchase or otherwise acquire Common Shares (or
     securities convertible into or exchangeable for Common Shares), in any such
     case, at a price per share (or having a conversion price or exchange value
     per share) that, together with the value (if for consideration other than
     cash, as determined in good faith by the Board of Directors) of any
     consideration paid for any such rights, options or warrants is less than
     the Closing Price of the Common Shares as of the date of such issuance or
     sale or as of such record date, then, immediately after such record date,

                                      -16-
<PAGE>

     the number of shares to be delivered upon surrender of the Series B
     Preferred Stock for conversion shall be appropriately increased so that
     each holder thereafter will be entitled to receive the number of Common
     Shares determined by multiplying the number of Common Shares such holder
     would have been entitled to receive immediately before the date of such
     issuance or sale on such record date by a fraction, the numerator of which
     will be the number of Common Shares outstanding on such date plus the
     number of additional Common Shares offered for subscription or purchase (or
     into which the convertible securities so offered are initially convertible)
     and the denominator of which will be the number of Common Shares
     outstanding on such date plus the number of Common Shares that the
     aggregate offering price of the total number of shares so offered for
     subscription or purchase would purchase at such Closing Price, and the
     Conversion Price shall be appropriately adjusted.  Notwithstanding the
     foregoing, rights issued by the Company to all holders of its Common Shares
     entitling the holders thereof to subscribe for or purchase securities of
     the Company, which rights (i) are deemed to be transferred with such Common
     Shares, (ii) are not immediately exerciseable, and (iii) are also issued in
     respect of future issuances of Common Shares pursuant to a stockholder
     rights plan or similar plan of the Company, in each case in clauses (i)
     through (iii) until the occurrence of a specified event or events, shall
     for purposes of this paragraph (d) of this Section 7 not be deemed issued
     until the occurrence of the earliest such specified event.

          (v) Certain Issuances.  If the Company shall sell or issue any
     Additional Stock (as defined below), the Conversion Price in effect
     immediately prior to each such sale or issuance shall forthwith (except as
     otherwise provided in this clause (v)) be adjusted to a price determined by
     multiplying such Conversion Price by a fraction:

          (x)  the numerator of which shall be

               (1) the aggregate number of outstanding Common Shares immediately
     prior to such sale (assuming conversion of all outstanding shares of Series
     B Preferred Stock into Common Shares); plus

               (2) the number of Common Shares which the aggregate consideration
     received by the Company for the shares of Additional Stock would purchase
     at the current Conversion Price immediately prior to this adjustment ; and

          (y) the denominator of which shall be

               (1) the aggregate number of outstanding Common Shares immediately
     prior to such sale (assuming conversion of all outstanding shares of Series
     B Preferred Stock into Common Shares) ; plus

                                      -17-
<PAGE>

               (2) the number of such shares of Additional Stock so issued or
     sold by the Company.

     The consideration for the issuance of Common Shares shall be deemed to be
the amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance and sale thereof or
the value of other consideration received therefor as determined in good faith
by the Board of Directors.

     In the case of the issuance of Additional Stock consisting of Common Shares
issuable under options to purchase or rights to subscribe for Common Shares,
securities by their terms convertible into or exchangeable for Common Shares or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply:

          (A) The aggregate maximum number of Common Shares deliverable upon
exercise of such options to purchase or rights to subscribe for Common Shares
shall be deemed to have been issued as Additional Stock at the time such options
or rights were issued and for a consideration equal to the cash consideration,
if any, received by the Company upon the issuance of such options or rights plus
the minimum purchase or exercise price provided in such options or rights for
the Common Shares covered thereby.

          (B) The aggregate maximum number of Common Shares deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued as Additional Stock at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Company for
any such securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related options or rights.

          (C) In the event of any change in the number of Common Shares
deliverable or any change in the consideration payable to the Company upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price
obtained with respect to the adjustment which was made upon the issuance of such
options, rights or securities, and any subsequent adjustments based thereon,
shall be recomputed to reflect such change, but in no case shall a further
adjustment be made for the actual issuance of Common Shares or any payment of
such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities; provided, however, that this section
shall not have any effect on any conversion of the Series B Preferred Stock
prior to such change; provided, further, that

                                      -18-
<PAGE>

if such adjustment would result in an increase in the Conversion Price then in
effect, such adjustment shall not be effective until 30 days after written
notice thereof has been given by the Company to all holders of the Series B
Preferred Stock; and provided further that the Conversion Price shall in no
event be increased to an amount greater than that which would have been
effective without regard to the original issuance.

          (D) Upon the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any options or
rights related to such convertible or exchangeable securities, the Conversion
Price obtained with respect to the adjustment which was made upon the issuance
of such options, rights or securities or options or rights related to such
securities, and any subsequent adjustments based thereon, shall be recomputed to
reflect the issuance of only the number of Common Shares actually issued upon
the exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities; provided, however, that this section shall not have any effect on
any conversion of Series B Preferred Stock prior to such expiration or
termination; and provided further that the Conversion Price shall in no event be
increased to an amount greater than that which would have been effective without
regard to the original issuance.

     (vi) Additional Stock.  "Additional Stock" shall mean any Common Shares
issued by the Company after the Issue Date for a consideration per share of
$6.50 or less, as adjusted for stock splits, dividends and combinations, (or
Common Shares issuable pursuant to options or rights or convertible or
exchangeable securities as referred to in paragraph (v) above if the
consideration therefor as provided in clause (A) therein is $6.50 or less, as
adjusted as aforesaid) other than

          (A) Common Shares issued pursuant to any transaction described in
Sections 3(e) or 7(d)(i)-(iv) hereof,

          (B) Common Shares issued or issuable to employees, directors,
consultants or advisors of the Company directly or pursuant to a stock plan or
stock purchase plan or agreement, which have been issued as of the date hereof
or are issuable pursuant to agreements entered into on or prior to the date
hereof.  Any further Common Shares issued or issuable to employees, directors,
consultants or advisors of the Company other than those referenced in the
preceding sentence that in the aggregate do not exceed 5% of the outstanding
Common Shares at such Common Shares' date of issuance or deemed date of
issuance,

          (C) Common Shares issued upon conversion or redemption of the Series A
Preferred Stock (provided, in the case of the redemption of the Series A
Preferred Stock, that Common Shares issued upon redemption of the Series A
Preferred Stock shall be deemed to be Additional Stock to the extent that the
number of Common Shares so issued exceeds the number of Common Shares issuable
immediately prior to such redemption upon conversion of the redeemed shares of
Series A Preferred Stock),

                                      -19-
<PAGE>

          (D) Common Shares issued in payment of dividends or upon conversion or
redemption of the Series B Preferred Stock,

          (E) Securities issued or issuable for consideration other than solely
cash in connection with any license, collaborative, corporate partnership, co-
marketing or co-promotion, research and development or similar arrangement; and

          (F) Common Shares issuable to a certain party retained as exclusive
agent of the Company in connection with the offer and sale by the Company of the
shares of Series B Preferred Stock pursuant to the exercise of warrants to
purchase shares of Series B Preferred Stock and the subsequent conversion of
such shares of Series B Preferred Stock.

     (vii)  No Adjustments to Exercise Price.  No adjustment in the number of
Common Shares issuable upon conversion and consequently the Conversion Price in
accordance with the provisions of Sections 7(d)(i)-(v) above need be made if
such adjustment would amount to a change in such Conversion Price of less than
$.10; provided, however, that the amount by which any adjustment is not made by
reason of the provisions of this section shall be carried forward and taken into
account at the time of any subsequent adjustment in the Conversion Price; and
provided further, that adjustment shall be required and made in accordance with
the provisions of this Section 7 not later than such time as may be required in
order to preserve the tax free nature of a distribution to the holder of any
Common Share.  Anything in this Section 7 to the contrary notwithstanding, the
Company shall be entitled to the extent permitted by law to make such reductions
in the Conversion Price, in addition to those required by this Section 7, as it
in its sole discretion shall determine to be advisable in order to avoid or
diminish any income tax to any holder of Common Share resulting from any
dividend or distribution of capital stock or rights or warrants to purchase
capital stock or from any event treated as such for income tax purposes or for
any other reasons.

     (viii)  Readjustments, Etc.  If an adjustment is made under Sections
7(d)(i)-(v) above, and the event to which the adjustment relates does not occur,
then any adjustments in the Conversion Price or Common Shares to be delivered
upon surrender of the Series B Preferred Stock for conversion that were made in
accordance with such paragraphs shall be adjusted back to the Conversion Price
and the number of Common Shares to be delivered upon surrender of the Series B
Preferred Stock for conversion that were in effect immediately prior to the
record date for such event (subject to the effect of any subsequent intervening
adjustments).

     (e) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file in the custody of its Secretary or an Assistant
Secretary at its principal office and with the Transfer Agent an officers'
certificate setting forth the adjusted number of Common Shares to be delivered
upon surrender of the Series B Preferred Stock for conversion and the Conversion
Price after such adjustment, the method of calculation thereof and a brief
statement of the facts requiring such adjustment and upon which such adjustment
is based. Promptly after each such adjustment, the

                                      -20-
<PAGE>

Company shall cause a copy of such certificate to be mailed to the holder of
each share of Series B Preferred Stock at his or her last address as shown on
the stock books of the Company. Each such officers' certificate shall be made
available at all reasonable times for inspection by each holder of Series B
Preferred Stock.

     (f) In any case in which paragraph (d) of this Section 7 provides that an
adjustment shall become effective immediately after a record date for an event
and the date fixed for conversion pursuant to Section 7 occurs after such record
date but before the occurrence of such event, the Company may defer until the
actual occurrence of such event (A) issuing to the holder of any share of Series
B Preferred Stock surrendered for conversion the additional Common Shares
issuable upon such conversion by reason of the adjustment required by such event
over and above the Common Shares issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount in cash in
lieu of any fraction pursuant to paragraph (c) of this Section 7.

     (g) The Company covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued Common Shares the maximum number of Common Shares into which all
shares of the Series B Preferred Stock from time to time may be converted, but
Common Shares held in the treasury of the Company may, in its discretion, be
delivered upon any conversion of shares of Series B Preferred Stock.

     Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Common Shares issuable
upon conversion of the Series B Preferred Stock, the Company will take any
corporate action which may in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue Common Shares at such adjusted
Conversion Price, which shares shall be fully-paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof.

     Prior to the delivery of any securities which the Company shall be
obligated to deliver upon conversion of the Series B Preferred Stock, the
Company will endeavor in good faith and as expeditiously as possible to comply
with all federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.

     (h) The Company will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of the shares of
Series B Preferred Stock (or any other securities issued on account of the
Series B Preferred Stock pursuant hereto) or Common Shares on conversion of the
Series B Preferred Stock pursuant hereto; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of shares of Series B Preferred Stock
(or any other securities issued on account of the Series B Preferred Stock
pursuant hereto) or Common Shares in a name other than the name in which the
shares of Series B Preferred Stock with respect to which such Common Shares

                                      -21-
<PAGE>

are issued were registered, and the Company shall not be required to make any
issue or delivery unless and until the person requesting such issue or delivery
has paid to the Company the amount of any such tax.

     If:
          (i) the Company shall authorize the issuance to all holders of Common
Shares of rights or warrants to subscribe for or purchase Common Shares or any
other subscription rights or warrants; or

          (ii) the Company shall authorize the distribution to all holders of
Common Shares of evidences of its indebtedness or assets (other than cash
dividends payable out of retained earnings, distributions excluded from the
operation of subparagraph (d)(iv) of this Section 7, stock dividends or
securities issued pursuant to any stockholder rights plan or any similar plan of
the Company); or

          (iii)  there shall be any capital reorganization or reclassification
of the Common Shares (other than a subdivision, split-up or combination of the
outstanding Common Shares, an increase in the authorized capital stock of the
Company not involving the issuance of any shares thereof, or a change in par
value of the Common Shares), or any other consolidation or merger to which the
Company is a party (other than a consolidation or merger with a subsidiary in
which the Company is the continuing entity and that does not result in any
reclassification or change in the Common Shares outstanding) or a sale, lease or
transfer of all or substantially all of the assets of the Company; or

          (iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or

          (v) there shall be any other event that would result in an adjustment
pursuant to paragraph (d) of this Section 7 of the Conversion Price or the
number of Common Shares that may be issuable upon the conversion of the Series B
Preferred Stock;

then the Company will cause to be filed with the Transfer Agent and to be mailed
to each holder of Series B Preferred Stock by first class mail addressed to such
holder at the address appearing in the stock records of the Company, at least
twenty (20) days (or ten (10) days in any case specified in clauses (i) or (ii)
above) before the applicable record or effective date hereinafter specified, a
notice stating (A) the date as of which the holders of Common Shares of record
entitled to receive any such rights, warrants or distributions are to be
determined or (B) the date on which any such consolidation, merger, sale, lease,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Shares
of record will be entitled to exchange their Common Shares for securities or
other property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, sale, lease, transfer, dissolution, liquidation or
winding-up.  Such notice shall also state whether such transaction will result
in any

                                      -22-
<PAGE>

adjustment in the Conversion Price and, if so, shall state what the adjusted
Conversion Price will be and when it will become effective. The failure to give
such notice or any defect therein shall not affect the legality or validity of
any distribution, right, warrant, consolidation, merger, sale, lease, transfer,
dissolution, liquidation or winding-up or the vote upon any such action.

     8.   Redemption at Option of Holder Upon a Fundamental Change.  (a)  If a
Fundamental Change (as defined in paragraph (c) of this Section 8) occurs, each
holder of Series B Preferred Stock shall have the right, at the holder's option,
to require the Company to redeem all of such holder's Series B Preferred Stock,
or any portion thereof that has an aggregate liquidation value that is a
multiple of $50.00, on the date (the "Repurchase Date") selected by the Company
that is not less than 10 nor more than 20 days after the Final Surrender Date
(as defined in paragraph (b) of this Section 8), at a price per share equal to
the Redemption Price.  The Company may, at its option, pay all or any portion of
such Redemption Price upon a Fundamental Change in Common Shares, provided that
if the Company elects to pay all or any portion of the repurchase price in
Common Shares, the holders of Series B Preferred Stock electing to sell their
shares of Series B Preferred Stock to the Company pursuant to this Section 8
must be given the opportunity to sell the Common Shares received from the
Company pursuant to this Section 8 in a firm commitment underwriting by an
investment banking firm mutually acceptable to the Company and the holders of a
majority of such shares.  For purposes of calculating the number of Common
Shares issuable upon such redemption, the value of any such Common Shares will
be equal to the Closing Price of such Common Shares as of the Repurchase Date.
Payment may not be made in Common Shares unless (i) the issuance or resale of
such shares has been, or will be registered on or prior to the Final Surrender
Date (as defined in paragraph (b) of this Section 8) under the Securities Act of
1933, as amended, or such shares are freely tradable pursuant to an exemption
thereunder and (ii) such shares are listed on a United States national
securities exchange or quoted on the National Market of NASDAQ at (or
immediately after) the time of payment.

     (b) Within 30 days after the occurrence of a Fundamental Change, the
Company must mail to all holders of record of the Series B Preferred Stock a
Company Notice containing the information set out in paragraph (d) of Section 5,
except that, for purposes of this Section 8 only, instead of stating that a
redemption is occurring at the option of the Company, the Company Notice shall
describe the occurrence of such Fundamental Change and of the redemption right
arising as a result thereof.  The Company must cause a copy of such notice to be
published in a newspaper of general circulation in the Borough of Manhattan, the
City of New York.  At least two Business Days prior to the Repurchase Date, the
Company must publish a similar notice stating whether and to what extent the
Redemption Price will be paid in cash or Common Shares.  To exercise the
redemption right, a holder of Series B Preferred Stock must surrender, on or
before the date which is, subject to any contrary requirements of applicable
law, 60 days after the date of mailing of the Company Notice (the "Final
Surrender Date"), the certificate or certificates representing the Series B
Preferred Stock with respect to which the right is being exercised, duly
endorsed for transfer to the Company, together with a written notice of
election.

                                      -23-
<PAGE>

     (c) The term "Fundamental Change" shall mean any of the following:

          (i) a "person" or "group" (within the meaning of Section 13(d)(3) of
     the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
     together with any affiliates thereof, becoming the "beneficial owners" as
     defined in Rule 13d-3 under the Exchange Act) of Voting Shares (as defined
     in this Section 8) of the Company entitled to exercise more than 60% of the
     total voting power of all outstanding Voting Shares of the Company
     (including any Voting Shares that are not then outstanding of which such
     person or group is deemed the beneficial owner);

          (ii) any consolidation of the Company with, or merger of the Company
     into, any other person, any merger of another person (other than a wholly-
     owned subsidiary of the Company) into the Company, or any sale, lease or
     transfer of all or substantially all of the assets of the Company to
     another person (other than a merger (a) which results in the holders of
     Common Stock of the Company immediately prior to giving effect to such
     transaction owning shares of capital stock of the surviving corporation in
     such transaction representing in excess of 40% of the total voting power of
     all shares of capital stock of such surviving corporation entitled to vote
     generally in the election of directors and (b) in which the shares of the
     surviving corporation held by such holders are, or immediately upon
     issuance will be, listed on a national securities exchange or quoted on the
     National Market of NASDAQ, are not subject to any right of repurchase by
     the issuer thereof or any third party and are not otherwise subject to any
     encumbrance as a result of such transaction, provided, that the surviving
     corporation amends its charter or certificate of incorporation to include
     the rights of the Series B Preferred Stock and its terms as set forth
     herein); or

          (iii)  the substantial reduction or elimination of a public market for
     the Common Shares as the result of repurchases, delisting or deregistration
     of the Common Shares or a corporate reorganization or recapitalization
     undertaken by the Company;

provided, however, that a Fundamental Change shall not occur under clause (i) or
(ii) above if, (x) as of the fifteenth (15th) Trading Date after the public
announcement by the Company of such transaction and, if later, three days prior
to the consummation of such transaction, the Closing Price is at least equal to
110% of the Conversion Price then in effect on such dates and (y) in the case of
clause (ii) above, at least 90% of the consideration (excluding cash payments
for fractional shares) in such transaction or transactions to the holders of
Common Shares consists of shares of common stock that are, or immediately upon
issuance will be, listed on a national securities exchange or quoted on the
National Market of NASDAQ, and as a result of such transaction or transactions,
the Series B Preferred Stock becomes convertible into such common stock.

                                      -24-
<PAGE>

     (d) An election by a holder of Series B Preferred Stock to have the Company
redeem shares of Series B Preferred Stock pursuant to subsection 8(a) shall
become irrevocable at the close of business on the relevant Repurchase Date.

     (e) The Company agrees that it will not complete any Fundamental Change
described in subsection 8(c) unless proper provision has been made to satisfy
its obligations under this Section 8.

For purposes of this Section 8, "Voting Shares" is defined to mean all
outstanding shares of any class or classes (however designated) of capital stock
entitled to vote generally in the election of members of the Board of Directors.

     9.   Ranking.  Any class or classes of stock of the Company shall be deemed
to rank:

     (i) prior to the Series B Preferred Stock, as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of Series B Preferred Stock.

     (ii) on a parity with the Series B Preferred Stock, as to dividends or as
to distribution of assets upon liquidation, dissolution or winding up, whether
or not the dividend rates, dividend payment dates or redemption or liquidation
prices per share thereof be different from those of the Series B Preferred
Stock, if the holders of such class of stock and the Series B Preferred Stock
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to
their respective amounts of accrued and unpaid dividends per share or
liquidation prices, without preference or priority of one over the other; and

     (iii)  junior to the Series B Preferred Stock, as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up, if such
stock shall be Common Stock or if the holder of Series B Preferred Stock shall
be entitled to receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of such stock.

Without limiting the foregoing, the Series A Preferred Stock shall be deemed to
rank on a parity with the Series B Preferred Stock as to dividends and as to
distributions of assets upon liquidation, dissolution or winding up.

     10.  Voting and Special Rights.  (a)  In addition to the voting rights
provided below, the holders of Series B Preferred Stock will have voting rights
on all matters subject to a vote of holders of Common Stock as if such shares of
Series B Preferred Stock were converted into the applicable number of Common
Shares consistent with Section 7 hereof; provided, however, that

                                      -25-
<PAGE>

notwithstanding the foregoing provisions of this Section 10(a), any holder of
Series B Preferred Stock that would be required to make a filing under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") in connection
with the acquisition of Series B Preferred Stock shall not be entitled, pursuant
to the provisions of this Section 10(a), to vote in the election of directors of
the Company until (i) such holder has notified the Company in writing of its
election to exercise its right to vote in the election of directors of the
Company pursuant to the provisions of this Section 10(a), (ii) the required
filings under the HSR Act have been made and (iii) the waiting period under the
HSR Act applicable to the election by such holder described in (i) of this
Section 10(a) has expired or been terminated.

     (b) Notwithstanding (a) above of this Section 10, so long as any shares of
the Series B Preferred Stock remain outstanding, the consent of the holders of
at least two-thirds (2/3) of the shares of Series B Preferred Stock outstanding
at the time, voting separately as a class, given in person or by proxy either in
writing (as permitted by law and the Certificate of Incorporation and By-laws of
the Company) or at any special or annual meeting, shall be necessary to permit,
effect or validate any one or more of the following:

     (i) the authorization, creation or issuance, or any increase in the
authorized or issued amount, of any class or series of stock ranking prior to
the Series B Preferred Stock as to dividends or the distribution of assets upon
liquidation, dissolution or winding up;

     (ii) the creation, authorization or issuance of any class or series of
common stock other than the class of Common Stock presently authorized for
issuance under the Certificate of Incorporation as in effect on January 1, 1997,
subject to changes to the terms thereof hereafter made to the Certificate of
Incorporation; provided that (A) there shall be no more than one class (and
there shall be no separate series) of Common Stock and (B) the Company will not
permit the par value or the determined or stated value of any shares of the
Common Stock receivable upon the conversion of the shares of Series B Preferred
Stock to exceed the amount payable therefor upon such conversion and (C) the
Company will not take any action which results in any adjustment of the current
Conversion Price under this Certificate if the total number of shares of Common
Stock then available for issuance upon conversion of all shares of Series B
Preferred Stock (and upon conversion of all other then outstanding shares of the
Company's capital stock convertible into Common Stock) would be insufficient to
satisfy all such conversion rights;

     (iii)  the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate of
Incorporation of the Company which would adversely affect any right, preference,
privilege or voting power of the Series B Preferred Stock or of the holders
thereof; provided, however, that any increase in the amount of authorized
preferred stock or the creation and issuance of other series of preferred stock,
or any increase in the amount of authorized shares of such series or of any
other series of preferred stock, in each case ranking on a parity with or junior
to the Series B Preferred Stock with respect to the payment of dividends and

                                      -26-
<PAGE>

the distribution of assets upon liquidation, dissolution or winding up, shall
not be deemed to adversely affect such rights, preferences or voting powers;

     (iv) the authorization of any reclassification of the Series B Preferred
Stock;

     (v) any increase in the number of shares of Series B Preferred Stock
authorized for issuance;

     (vi) the creation, authorization or issuance of any series or class of
stock or any other obligation or security convertible into any capital stock
which capital stock is prohibited under clauses (i) or (ii) above;

     (vii)  the amendment of this Certificate of Designations; or

     (viii)  at any time after March 31, 1997, the issuance of any shares of
Series B Preferred Stock (excluding the issuance of share certificates upon
transfers or exchanges of shares by holders (other than the Company) or upon
replacement of lost, stolen, damaged or mutilated share certificates and
excluding the shares of Series B Preferred Stock to be issued upon the exercise
of the warrants issued to the exclusive agent for the Company in connection with
the issuance and sale of the shares of the Series B Preferred Stock).

     (c)  Additional Voting Rights.

     (i) If on the sixth anniversary of the Issue Date any shares of the Series
B Preferred Stock are outstanding, the size of the Board of Directors of the
Company shall be increased by such number representing not less than 20%
(rounded to the nearest whole number) of the total number of directors after
giving effect to the increase in the size of the Board of Directors contemplated
by this paragraph and during the period (hereinafter in this Section 10 called
the "Class Voting Period") commencing upon such date and ending on the date on
which no shares of Series B Preferred Stock remain outstanding, the holders of
at least two-thirds (2/3) of the then outstanding shares of Series B Preferred
Stock, by the affirmative vote in person or by proxy at a special meeting of
holders of Series B Preferred Stock called for such purpose (or at any
adjournment thereof) by holders of at least 25% of the then outstanding shares
of Series B Preferred Stock or at any annual meeting of stockholders, or by
written consent delivered to the Secretary of the Company, with the holders of
the Series B Preferred Stock voting as a separate class and with each share of
Series B Preferred Stock having one vote, shall be entitled, as a class, to the
exclusion of the holders of all other classes or series of capital stock of the
Company, to elect such additional number of directors of the Company.

     (ii) At any time when such voting right under this Section l0(c) shall have
vested in the holders of shares of Series B Preferred Stock entitled to vote
thereon, and if such right shall not

                                      -27-
<PAGE>

already have been initially exercised, an officer of the Company shall, upon the
written request of at least 25% of the holders of record of shares of the Series
B Preferred Stock then outstanding, addressed to the Secretary of the
Corporation, call a special meeting of holders of shares of the Series B
Preferred Stock. Such meeting shall be held at the earliest practicable date
upon the notice required for special meetings of stockholders at the place for
holding annual meetings of stockholders of the Company or, if none, at a place
designated by the Secretary of the Company. If such meeting shall not be called
by the proper officers of the Company within 30 days after the personal service
of such written request upon the Secretary of the Company, or within 30 days
after mailing the same within the United States, by registered mail, addressed
to the Secretary of the Company at its principal office (such mailing to be
evidenced by the registry receipt issued by the political authorities), then the
holders of record of at least 25% of the shares of Series B Preferred Stock then
outstanding may designate in writing any person to call such meeting at the
expense of the Company, and such meeting may be called by such person so
designated upon the notice required for special meetings of stockholders and
shall be held at the same place as is elsewhere provided in this paragraph or,
if none, at a place designated by the person selected to call the meeting. Any
holder of shares of Series B Preferred Stock then outstanding that would be
entitled to vote at such meeting shall have access to the stock books of the
Company for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this paragraph.

     (iii)  Any director who shall have been elected by the holders of Series B
Preferred Stock pursuant to this Section l0(c) may be removed at any time during
the Class Voting Period, by the vote of the holders of at least two-thirds (2/3)
of all of the then outstanding shares of Series B Preferred Stock, voting as a
separate class in person or by proxy at a special meeting of holders of shares
of Series B Preferred Stock called for such purpose by the holders of at least
25% of the then outstanding shares of Series B Preferred Stock.  Any director
who shall have been elected by the holders of Series B Preferred Stock may not
be removed at any time during the Class Voting Period without the consent of the
holders of at least two-thirds (2/3) of all of the then outstanding shares of
Series B Preferred Stock.  Any vacancy created by the removal, death or
resignation of a director elected by the holders of Series B Preferred Stock may
be filled during the Class Voting Period by the holders of at least two-thirds
(2/3) of all of the then outstanding shares of Series B Preferred Stock by vote
in person or by proxy at a special meeting of holders of shares of Series B
Preferred Stock of the Company called for such purpose by holders of at least
25% of the then outstanding shares of Series B Preferred Stock.

     (iv) The term of any director elected pursuant to the provisions of this
Section l0(c) shall in all events expire at the end of the Class Voting Period
and the size of the Board of Directors shall be reduced accordingly.

     (d)  Special Rights.  Each holder of 100,000 shares or more of Series B
Preferred Stock or such number of Common Shares issued upon conversion of at
least 100,000 or more shares of the Series B Preferred Stock (such number being
subject to adjustment in a manner consistent

                                      -28-
<PAGE>

with the provisions of Section 7 hereof) (each such person, an "Eligible
Holder") shall have the right, during the period such Person holds the number of
shares of Series B Preferred Stock or Common Shares specified above, and (if
requested by the Company) subject to execution by such Eligible Holder of a
reasonable confidentiality agreement, to send one (1) representative to meetings
of the Company's and each subsidiary's, if any, Board of Directors (and the
executive committee if the executive committee has more than five members) of
such Board of Directors, such representatives to act as observers without a vote
or other rights as a director (except the right to receive sufficient notice to
enable such attendance and the right to receive all other communications,
information and materials furnished, from time to time, to directors of the
Company and each subsidiary).

     (e) To alter or amend the voting or special rights of the holders of Series
B Preferred Stock or any Eligible Holder as provided in this Section 10 requires
the consent of the holders of a majority of the Common Shares issuable upon
conversion of the then outstanding Series B Preferred Stock; provided that the
holders of a majority of the Common Shares issuable upon conversion of the then
outstanding Series B Preferred Stock held by the Eligible Holders also consent
to such alteration or amendment.

     11.  Record Holders.  The Company and the Transfer Agent may deem and treat
the record holder of any shares of Series B Preferred Stock as the true and
lawful owner thereof for all purposes, and neither the Company nor the Transfer
Agent shall be affected by any notice to the contrary.

     12.  Notices.  Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt, in the case of a notice of conversion
given to the Company as contemplated in Section 7(b) hereof, or, in all other
cases, upon the earlier of receipt of such notice or three Business Days after
the mailing of such notice if sent by registered mail (unless first-class mail
shall be specifically permitted for such notice under the terms of this
Certificate of Designations) with postage prepaid, addressed:  if to the
Company, to its offices at 4200 Research Forest Drive, The Woodlands, Texas
77381 (Attention:  Investor Relations Department) or to an agent of the Company
designated as permitted by this Certificate of Designations, or, if to any
holder of the Series B Preferred Stock, to such holder at the address of such
holder of the Series B Preferred Stock as listed in the stock record books of
the Company (which may include the records of any transfer agent for the Series
B Preferred Stock); or to such other address as the Company or holder, as the
case may be, shall have designated by notice similarly given.

     13.  Rights Plan.  The Company's ability to adopt a rights plan as
authorized by Article Fifth of the Company's Amended and Restated Certificate of
Incorporation shall not be limited or restricted in any respect by the
provisions of this Certificate, except as provided in Sections 3(e) and 7(d)(iv)
herein.

                                      -29-
<PAGE>

     IN WITNESS WHEREOF, this Certificate has been signed by John H. Webb, and
attested to by Paul G. Brown, III, of the Company, all as of the 20th day of
February, l997.


                              ENERGY BIOSYSTEMS CORPORATION



                              By: /s/ John H. Webb
                                  ---------------------------------------
                                  John H. Webb
                                  President and Chief Executive Officer

Attest:
By: /s/ Paul G. Brown, III
   ----------------------------------
   Paul G. Brown, III
   Secretary

                                      -30-