DRAFT

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of October  _,
2017, between Canbiola, Inc., a Florida corporation (the “Company”), and
RedDiamond Partners LLC, a limited liability company formed under the laws of
Delaware (the “Purchaser”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506(b) promulgated thereunder, the Company desires
to issue and sell to the Purchaser, and the Purchaser desires to purchase from
the Company, convertible preferred stock of the Company designated as Series BB
Preferred Stock and as more fully described in this Agreement;

WHEREAS, the Board of Directors of the Company has approved the creation and
authorization of the Series BB Preferred Stock;

WHEREAS, pursuant to the Certificate of Designations, the Company shall issue to
the Purchaser certain number of shares of the Series BB Preferred Stock (the
“Preferred Shares”) in accordance with this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:

ARTICLE I.

DEFINITIONS

 

1.1

Definitions.  In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Certificate of Designations (as defined herein), and
(b) the following terms have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.6.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

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“Certificate of Designations” means that certain Certificate of Designations,
Preferences and Rights of the Series B Convertible Preferred Stock of the
Company.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto in connection
with a Closing, and all conditions precedent to (i) the Purchaser’s obligations
to pay the applicable Purchase Price as to such Closing and (ii) the Company’s
obligations to deliver the Securities as to such Closing, in each case, have
been satisfied or waived.

 

“Closing” means one or more closings of the purchase and sale of the Securities
pursuant to Section 2.2.

“Closing Statement” means the Closing Statement in the form on Annex A attached
hereto.

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value Nil per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company Counsel” means Austin Legal Group, APC.

“Redemption Price” shall have the meaning ascribed to such term in the
Certificate of Designations.

  

“Disclosure Schedules” shall have the meaning ascribed to such term in
Section 3.1.

“Evaluation Date” shall have the meaning ascribed to such term in
Section 3.1(q).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers, directors, advisors or independent contractors of the
Company pursuant to any stock or option plan duly adopted for such purpose, (b)
shares of Common Stock, warrants or options to advisors or independent
contractors of the Company for compensatory purposes, (c) securities upon the
exchange of or redemption of any Securities issued hereunder and/or other
securities exercisable or exchangeable for

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or convertible into shares of Common Stock issued and outstanding on the date of
filing of the Certificate of Designations with the Secretary of State of the
State of Florida, provided that the Certificate of Designation has not been
amended since such date to increase the authorized number of such securities or
to decrease the redemption price or exchange price of such securities,
(d) securities issuable pursuant to any contractual anti-dilution obligations of
the Company in effect as of the date of filing of the Certificate of
Designations with the Secretary of State of the State of Florida, provided that
such obligations have not been materially amended since such date, and (e)
securities issued pursuant to acquisitions or any other strategic transactions
approved by the Board of Directors, provided that any such issuance shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(jj).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).

  

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Preferred Shares” means the shares of Series B Convertible Preferred Stock
issued to the Purchaser.

 

“Preferred Stock Certificate” means one or more certificates representing
Preferred Shares issued to the Purchaser at a Closing.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.

 

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“Public Information Failure” shall have the meaning ascribed to such term in
Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such
term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.9.

“Purchase Price” in aggregate shall mean $150,000, and as to each Closing shall
mean the respective actual amounts of funds the Purchaser will transfer to the
Company at the Closing.

 

“Registrable Securities” means all Underlying Shares and any other shares of
Common Stock issuable under the Certificate of Designations. 

“Required Approvals” shall have the meaning ascribed to such term in
Section 3.1(e).

 

“Maximum Convertible Amount” means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable or convertible in
the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon the conversion in full of all Preferred Shares or all,
respectively, (including Underlying Shares issuable as payment of dividends,
late-charges, make-whole amounts, and any other amounts described in the
Certificate of Designations).

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Preferred Shares and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Series B Preferred Stock” means the Series B Convertible Preferred Stock, par
value $0.001 per share, of the Company that can be issued pursuant to the
Certificate of Designations.

“Shell Company” means an entity that fits within the definition of a “shell
company” under Section 12b-2 of the Exchange Act and Rule 144.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act.

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“Stated Value” means the face value of the Series B Preferred Stock, based on
which the number of shares of common stock of the Company will be calculated
together with the conversion price. The Stated Value per Preferred Share is
$1.00, subject to adjustment for stock splits, stock dividends,
recapitalizations, reorganizations, reclassifications, combinations,
subdivisions or other similar events occurring after the Initial Issuance Date
with respect to the Preferred Shares.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a)
and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.

 

“Trading Day” means a day on which the principal Trading Market is open for
trading.

 

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question:  the
Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select
Market; the New York Stock Exchange; the NYSE MKT, any level of the OTC Markets
operated by OTC Markets Group, Inc. or the OTC Bulletin Board (or any successors
to any of the foregoing).

  

“Transaction Documents” means this Agreement, the Certificate of Designations,
the legal opinion of Company Counsel, the Transfer Agent Instruction Letter, all
exhibits and schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means Island Stock Transfer, the current transfer agent of the
Company, with a mailing address of 15500 Roosevelt Blvd Clearwater Fl 33760 and
a telephone number of 727-289-0010, and any successor transfer agent of the
Company.

 

“Transfer Agent Instruction Letter” means the letter from the Company to the
Transfer Agent which instructs the Transfer Agent to issue Underlying Shares
pursuant to the Transaction Documents, in the form of Exhibit A attached hereto.

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Preferred Shares (including, without limitation, any shares of
Common Stock issuable as payment of dividends, late-charges, make-whole amounts,
and any other amounts described in the Certificate of Designations) and issued
and issuable in lieu of the cash payment of dividends on the Preferred Shares in
accordance with the terms of the Certificate of Designations.

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ARTICLE II.

PURCHASE AND SALE; EXCHANGE

 

2.1

Purchase.  The Purchaser agrees to purchase from the Company and the Company
agrees to sell to the Purchaser an aggregate of $15000 of Preferred Shares at a
purchase price equal to $0.95 per share, for an aggregate of 157,895 Preferred
Shares.  The Purchaser shall not be required to purchase additional shares of
Preferred Share subsequent to the First Closing if (a) the Company, its
Subsidiaries, or any of the directors or officers of the Company or its
Subsidiaries commit fraud; (b) the Company or its Subsidiaries breach any
covenant contained herein or in the other Transaction Documents; or (c) a
Triggering Event (as defined in the Certificate of Designations) occurs on or
before any Closing Day unless  the Company cures such Triggering Event within
the applicable period set forth in the Certificate of Designations.

 

2.2

Closings.   At each Closing, (i) the Purchaser shall deliver to the Company, via
wire transfer to an account designated by the Company, immediately available
funds equal to the Purchase Price, which, for such respective Closing, shall be
equal to the number of Preferred Shares to be purchased and sold multiplied by
ninety-five percent (95%) of the Stated Value per share; (ii) the Company shall
deliver to the Purchaser its Preferred Stock Certificate representing the
Preferred Shares purchased and sold at such Closing; and (iii) the Company and
the Purchaser shall deliver all other items set forth in Section 2.3.  Upon
satisfaction of the covenants and conditions set forth in Sections 2.3 and
2.4for each Closing, each Closing shall occur electronically or at such other
location as the parties shall mutually agree, and may by agreement be undertaken
remotely by electronic exchange of Closing documentation.  Within ninety (90)
days from the execution and delivery of this Agreement by the parties hereto,
the Company and the Purchaser shall conduct a Closing at which the Purchaser
shall purchase and the Company shall sell $100,000 of Preferred Shares (the
“First Closing”).  Subsequent to the First Closing, the Company and the
Purchaser shall conduct additional Closings on each monthly anniversary
following the date of the First Closing until the Purchaser has purchased and
the Company has sold an aggregate of $150,000 of Preferred Shares hereunder.  At
the sole discretion of the Purchaser, the Purchaser shall have the option to
accelerate the date of any and all additional Closings by providing the Company
notice of such intent to conduct a Closing at least three (3) Trading Days prior
to the date of such accelerated Closing.

Notwithstanding anything to the contrary stated herein, Purchaser acknowledges
that pursuant to the Exchange Act, the Company is required to file forms Pre14C
and Def14C with the Commission at least forty (40) days prior to filing forms
designating the Preferred Shares with the state of Florida and that the failure
to file the Certificate of Designations for the Preferred Shares shall not,
under any circumstance, constitute a breach of any provision of this Agreement
until the date at least ninety (90) days from the date of this Agreement and
that Purchaser may nonetheless tender the Company a portion of the Purchase
Price prior to such filing.

2.3

Deliveries Upon Closing.

 

(a)

On or prior to the applicable Closing Date, the Company shall deliver or cause
to be delivered to the Purchaser the following:

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(i)

as to the First Closing, this Agreement duly executed by the Company;

 

(ii)

as to the First Closing, a legal opinion of Company Counsel, substantially in
the form of Exhibit B attached hereto;

(iii)

as to the First Closing, a stamped copy of the Certificate of Designations that
is filed with the Secretary of State of the State of Florida;

 

(iii)

as to the First Closing, the Transfer Agent Instruction Letter duly executed by
the Company and the Transfer Agent; and

 

(v)

a certificate representing the requisite amount of Preferred Shares equal to the
Purchaser’s Purchase Price as to the applicable Closing, registered in the name
of the Purchaser.

(b)

On or prior to the applicable Closing Date, the Purchaser shall deliver or cause
to be delivered to the Company, as applicable, the following:

 

(i)

as to the First Closing, this Agreement duly executed by the Purchaser; and

 

(ii)

the Purchaser’s Purchase Price as to the applicable Closing, by wire transfer to
the account specified in writing by the Company.

2.4

Closing Conditions.

 

(a)

The obligations of the Company hereunder in connection with the First Closing
and additional Closings are subject to the following conditions being met:

 

(i)

the accuracy in all material respects, on the applicable Closing Date, of the
representations and warranties of the Purchaser contained herein (unless as of a
specific date therein in which case they shall be accurate as of such date);

 

(ii)

all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to the applicable Closing Date shall have been performed;
and

 

(iii)

the delivery by the Purchaser of the items set forth in Section 2.3(b) of this
Agreement.

 

(b)

The obligations of the Purchaser hereunder in connection with the First Closing
and additional Closings are subject to the following conditions being met:

 

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(i)

the accuracy in all material respects when made and on the applicable Closing
Date of the representations and warranties of the Company contained herein
(unless as of a specific date therein);

 

(ii)

all obligations, covenants and agreements of the Company required to be
performed at or prior to the applicable Closing Date shall have been performed;

 

(iii)

the delivery by the Company of the items set forth in Section 2.3(a) of this
Agreement;

(iv)

the Certificate of Designations has been filed with the Secretary of State of
the State of Florida;

 

(v)

there is no Triggering Event (as defined in the Certificate of Designations);

 

(vi)

there shall have been no Material Adverse Effect with respect to the Company
since the date hereof; and

  

(vii)

from the date hereof to the applicable Closing Date, trading in the Common Stock
shall not have been suspended by the Commission or the Company’s principal
Trading Market and, at any time prior to the applicable Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been suspended
or limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of the Purchaser, and
without regard to any factors unique to the Purchaser, makes it impracticable or
inadvisable to purchase the Preferred Stock at the applicable Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1

Representations and Warranties of the Company.  Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to the Purchaser as of the date hereof:

 

(a)

Subsidiaries.  All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital

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stock or other equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of each Subsidiary
are validly issued and are fully paid, non-assessable and free of preemptive and
similar rights to subscribe for or purchase securities.  

 

(b)

Organization and Qualification.  The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
 Neither the Company nor any Subsidiary is in violation nor default of any of
the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents.  Each of the Company and
the Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document; (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole; or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

  

(c)

Authorization; Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and each of the other Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder.  The execution and delivery of this
Agreement and each of the other Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection herewith or therewith other than in
connection with the Required Approvals.  This Agreement and each other
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally; (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies; and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

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(d)

No Conflicts.  The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents to which it is a party, the
issuance and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents; (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien (except Liens in favor of the Purchaser) upon any of the
properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected; or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.

   

(e)

Filings, Consents and Approvals.  The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.15 of this Agreement,
(ii) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby and (iii) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “Required Approvals”).

 

(f)

Issuance of the Securities.  The Securities are duly authorized and, when issued
and paid for in accordance with the applicable Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company other than restrictions on transfer provided for in
the Transaction Documents.  The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents.  The Company
has reserved under the Purchaser’s name from its duly authorized capital stock a
number of shares of Common Stock for issuance of the Underlying Shares at least
equal to 300% of the Maximum Convertible Amount on the date hereof.

 

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(g)

Capitalization.  The capitalization of the Company is as set forth on
Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares
of Common Stock owned beneficially, and of record, by Affiliates of the Company
as of the date hereof.  No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.  Except as disclosed to
or known by Purchaser, there are no outstanding options, warrants, scrip rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents.  The
issuance and sale of the Preferred Stock will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities.  All of the outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities.  No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities.  There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.

 

(h)

SEC Reports; Financial Statements.  The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”).  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  The Company has never been an issuer subject to Rule 144(i) under
the Securities Act.  The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing.  Such financial statements have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except
that

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unaudited financial statements may not contain all footnotes required by GAAP,
and fairly present in all material respects the financial position of the
Company and its consolidated Subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments.  

 

(i)

Material Changes; Undisclosed Events, Liabilities or Developments.  Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof: (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse Effect;
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or disclosed in filings made with the Commission; (iii) the Company has not
altered its method of accounting; (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock; and (v) the Company has not issued any equity securities to
any officer, director or Affiliate.  Except for the issuance of the Preferred
Stock contemplated by this Agreement, no event, liability, fact, circumstance,
occurrence or development has occurred or exists or is reasonably expected to
occur or exist with respect to the Company or its Subsidiaries or their
respective businesses, properties, operations, assets or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has
not been publicly disclosed at least one (1) Trading Day prior to the date that
this representation is made.

(j)

Litigation.  Except as set forth on Schedule 3.1(j), there is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect, and neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty.  There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company that is likely to lead to action that can reasonably be expected to
result in a Material Adverse Effect.  There has not been, and to the knowledge
of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of

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the Company.  The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.

 

(k)

Labor Relations.  No labor dispute exists or, to the knowledge of the Company,
is imminent with respect to any of the employees of the Company, which could
reasonably be expected to result in a Material Adverse Effect.  None of the
Company’s or its Subsidiaries’ employees is a member of a union that relates to
such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good  To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters.  The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

(l)

Compliance.  Neither the Company nor any Subsidiary: (i) is in default under or
in violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any judgment,
decree or order of any court, arbitrator or other governmental authority or
(iii) is or has been in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and
labor matters, except in each case as could not have or reasonably be expected
to result in a Material Adverse Effect.

   

(m)

Regulatory Permits.  The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any
Material Permit.

 

13

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(n)   Title to Assets.  The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and (ii) Liens for the
payment of federal, state or other taxes, for which appropriate reserves have
been made therefor in accordance with GAAP and, the payment of which is neither
delinquent nor subject to penalties.  Any real property and facilities held
under lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.

 

(o)

Intellectual Property.  The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights and similar rights as described in the SEC
Reports as necessary or required for use in connection with their respective
businesses as presently conducted and which the failure to so have could have a
Material Adverse Effect (collectively, the “Intellectual Property Rights”).
 Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of, the Intellectual Property Rights has expired, terminated
or been abandoned, or is expected to expire or terminate or be abandoned, within
two (2) years from the date of this Agreement.  Neither the Company nor any
Subsidiary has received, since the date of the latest audited financial
statements included within the SEC Reports, a written notice of a claim or
otherwise has any knowledge that the Intellectual Property Rights violate or
infringe upon the rights of any Person, except as could not have or reasonably
be expected to not have a Material Adverse Effect.  To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights.  The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)

Transactions with Affiliates and Employees.  Except as set forth on Schedule
3.1(p), none of the officers or directors of the Company or any Subsidiary and,
to the knowledge of the Company, none of the employees of the Company or any
Subsidiary is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from providing for the borrowing of money from or lending of
money to, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $160,000 other than for:

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(i) payment of salary or consulting fees for services rendered;
(ii) reimbursement for expenses incurred on behalf of the Company; and
(iii) other employee benefits.

 

(q)

Sarbanes-Oxley; Internal Accounting Controls.  Except as set forth on Schedule
3.1(q), the Company and the Subsidiaries are in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of
the applicable Closing Date.  The Company and the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.  The
Company and the Subsidiaries have established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
the Subsidiaries and designed such disclosure controls and procedures to ensure
that information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rules and forms.
 The Company’s certifying officers have evaluated the effectiveness of the
disclosure controls and procedures of the Company and the Subsidiaries as of the
end of the period covered by the most recently filed periodic report under the
Exchange Act (such date, the “Evaluation Date”).  The Company presented in its
most recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.  Since the
Evaluation Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act) that have
materially affected, or is reasonably likely to materially affect, the internal
control over financial reporting of the Company and its Subsidiaries.

 

(r)

Certain Fees.  Other than as set forth on Schedule 3.1(r), no brokerage or
finder’s fees or commissions are or will be payable by the Company or any
Subsidiaries to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.  The Purchaser shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by the Transaction
Documents.

  

(s)

Private Placement.  Assuming the accuracy of the Purchaser’s representations and
warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated

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hereby.  The issuance and sale of the Securities hereunder does not contravene
the rules and regulations of the Trading Market.

 

(t)

Investment Company.  The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.  The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

 

(u)

Registration Rights.  Except in Schedule 3.1(u), no Person has any right to
cause the Company to effect the registration under the Securities Act of any
securities of the Company or any Subsidiaries.

 

(v)

Listing and Maintenance Requirements.  The class of Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration.  The Company has not, in the twelve
(12) months preceding the date hereof, received notice from any Trading Market
on which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market.  The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.

 

(w)

Application of Takeover Protections.  The Company and the Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s Articles of Incorporation (or similar charter documents) or
the laws of its state of incorporation that is or could become applicable to the
Purchaser as a result of the Purchaser and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Securities and the Purchaser’s ownership of the Securities.

 

(x)

Disclosure.  Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the
Purchaser or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information.  The Company
understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company.  All of
the disclosure furnished by or on behalf of the Company to the Purchaser
regarding the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement,

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is true and correct and does not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.  The Company acknowledges and agrees that the Purchaser does not
make or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

(y)

No Integrated Offering.  Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable stockholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

(z)

No General Solicitation.  In connection with the transaction contemplated
herein, neither the Company nor any person acting on behalf of the Company has
offered or sold any of the Securities by any form of general solicitation or
general advertising.  The Company has offered the Securities for sale only to
the Purchaser and certain other “accredited investors” within the meaning of
Rule 501 under the Securities Act.

 

(aa)

Foreign Corrupt Practices.  Neither the Company nor any Subsidiary, nor to the
knowledge of the Company or any Subsidiary, any agent or other person acting on
behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used
any funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity; (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds;
(iii) failed to disclose fully any contribution made by the Company or any
Subsidiary (or made by any person acting on its behalf of which the Company is
aware) which is in violation of law; or (iv) violated in any material respect
any provision of FCPA.

 

(bb)

Accountants.  The Company’s accounting firm is set forth on Schedule 3.1(bb) of
the Disclosure Schedules.  To the knowledge and belief of the Company, such
accounting firm is a registered public accounting firm as required by the
Exchange Act.

 

(cc)

No Disagreements with Accountants and Lawyers.  There are no disagreements of
any kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents.

 

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(dd)

Acknowledgment Regarding Purchaser’s Purchase of Securities.  The Company
acknowledges and agrees that the Purchaser is acting solely in the capacity of
an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby.  The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchaser’s purchase of the Securities.  The Company further represents to the
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

  

(ee)

Regulation M Compliance.  The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

 

(ff)

Reserved.

 

(gg)

Office of Foreign Assets Control.  Neither the Company nor any Subsidiary nor,
to the Company's knowledge, any director, officer, agent, employee or affiliate
of the Company or any Subsidiary is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department.

 

(hh)

U.S. Real Property Holding Corporation.  The Company is not and has never been a
U.S. real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify upon
Purchaser’s request.

 

(ii)

Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries or
Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”).  Neither the Company nor any of its Subsidiaries
or Affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.  Neither the
Company nor any of its Subsidiaries or Affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

18

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(jj)

Solvency.  Based on the consolidated financial condition of the Company as of
the applicable Closing Date after giving effect to the receipt by the Company of
the proceeds from the sale of the Securities hereunder: (i) the fair saleable
value of the Company’s assets exceeds the amount that will be required to be
paid on or in respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature, (ii) the Company’s
assets do not constitute unreasonably small capital to carry on its business as
now conducted and as proposed to be conducted including its capital needs taking
into account the particular capital requirements of the business conducted by
the Company, consolidated and projected capital requirements and capital
availability thereof, and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid.  The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).  The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the applicable
Closing Date.  Schedule 3.1(jj) sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments.  For the purposes of this
Agreement, “Indebtedness” means (x) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others, whether or not the
same are or should be reflected in the Company’s consolidated balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (z) the present value of any lease payments in excess of $50,000
due under leases required to be capitalized in accordance with GAAP.  Neither
the Company nor any Subsidiary is in default with respect to any Indebtedness.

(kk)

Tax Status.  Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company (i) has made or filed all United States federal, state and
local income and all foreign income and franchise tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations
and (iii) has set aside on its books provision reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which
such returns, reports or declarations apply.  Except as set forth on Schedule
3.1(kk), there are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim.

19

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(ll)

Seniority.  As of each Closing Date, except as set forth on Schedule 3.1(ll), no
Indebtedness or other claim against the Company is senior to the Preferred
Shares in right of payment, whether with respect to interest or upon liquidation
or dissolution, or otherwise, other than indebtedness secured by purchase money
security interests (which is senior only as to underlying assets covered
thereby) and capital lease obligations (which is senior only as to the property
covered thereby).

(mm)

Shell Company Status .  The Company is not presently and has not been since
December 31, 2010, an issuer identified as a “Shell Company”.

(nn)

Money Laundering.  The operations of the Company and its Subsidiaries are and
have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, applicable money laundering
statutes and applicable rules and regulations thereunder (collectively, the
“Money Laundering Laws”), and no action, suit or proceeding by or before any
court or governmental agency, authority or body or any arbitrator involving the
Company or any Subsidiary with respect to the Money Laundering Laws is pending
or, to the knowledge of the Company or any Subsidiary, threatened.

 

3.2

Representations and Warranties of the Purchaser.  The Purchaser hereby
represents and warrants as of the date hereof and as of the Closing Date to the
Company as follows (unless as of a specific date therein):

 

(a)

Organization; Authority.  The Purchaser is either an individual or an entity
duly incorporated or formed, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation with full right,
corporate, partnership, limited liability company or similar power and authority
to enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
 The execution and delivery of the Transaction Documents and performance by the
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate, partnership, limited liability
company or similar action, as applicable, on the part of the Purchaser.  Each
Transaction Document to which it is a party has been duly executed by the
Purchaser and, when delivered by the Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally; (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies; and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.

 

(b)

Own Account.  The Purchaser understands that the Preferred Shares are
“restricted securities” and it is acquiring the Preferred Shares as principal
for its own

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account and not with a view to or for distributing or reselling such Securities
or any part thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such Securities
in violation of the Securities Act or any applicable state securities law and
has no direct or indirect arrangement or understandings with any other persons
to distribute or regarding the distribution of such Securities in violation of
the Securities Act or any applicable state securities law (this representation
and warranty not limiting the Purchaser’s right to sell the Securities in
compliance with applicable federal and state securities laws).  The Purchaser is
acquiring Preferred Shares hereunder in the ordinary course of its business.

(c)

Purchaser Status.  At the time the Purchaser was offered the applicable
Securities, it was, and as of the date hereof it is, and on each date on which
it converts any Preferred Shares, it will be an “accredited investor” as defined
in Rule 501 under the Securities Act.

 

(d)

Experience of the Purchaser.  The Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  The Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.

 

(e)

General Solicitation.  The Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

 

(f)

Certain Transactions and Confidentiality.  Other than consummating the
transactions contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing as of
the time that the Purchaser first received a term sheet (written or oral) from
the Company or any other Person representing the Company setting forth the
material terms of the transactions contemplated hereunder and will not engage in
such activities during any period in which it holds the Preferred Shares or
Underlying Shares.  Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of the Purchaser’s assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of the Purchaser’s assets, the representation
set forth above shall only apply with respect to the portion of assets managed
by the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement.  Other than to other Persons party to this
Agreement, the Purchaser has maintained the confidentiality of all disclosures
made

21

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to it in connection with this transaction (including the existence and terms of
this transaction).  

(g)

  Regulation M Compliance.  The Purchaser has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company.

The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on
the Company’s representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1

Transfer Restrictions.

 

(a)

The Preferred Stock may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Preferred Stock other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of the Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such Preferred Stock under the Securities Act.  As a
condition of transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights and obligations of a
Purchaser under this Agreement.

(i)

Right of First Refusal. Purchaser hereby grants to the Company, and the Company
hereby accepts, the right of first refusal of any bona fide offer to purchase
Preferred Shares (the “Right of First Refusal.  In the event that Purchaser
receives a bona fide offer from a third party to purchase all or a portion of
the Preferred Shares (an “Offer”) and Purchaser intends to accept such offer,
Purchaser shall notify the Company in writing of the terms, conditions,
warranties, and all other material information included in the Offer.  Upon
receipt, the Company shall have the Right of First Refusal to purchase the
Preferred Shares subject to the Offer on the same terms contained in the Offer
(the “Option”). The Company shall exercise the Option granted hereby by
providing a written notice to Purchaser of the Company’s intent to purchase the
Preferred Shares according

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to the Offer. If the Company provides notice to Purchaser of its intent to
purchase the Preferred Shares according to the terms of the Offer within
fourteen (14) days, the parties shall enter into s standard stock purchase
agreement for the Preferred Shares based on the terms of the Offer. If the
Company fails to exercise the Option within fourteen (14) days from receipt from
Purchaser of notice of the Offer, Purchaser may sell the Preferred Shares
subject to the terms of the Offer.

 

(b)

The Purchaser agrees to the imprinting, so long as is required by this Section
4.1, of a legend on any of the Securities in the following form:

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON [REDEMPTION] OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Preferred Stock to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and, if required under the terms of such arrangement, the Purchaser
may transfer pledged or secured Preferred Stock to the pledgees or secured
parties.  Such a pledge or transfer would not be subject to approval of the
Company and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith.  Further, no notice shall be
required of such pledge.  At the Purchaser’s expense, the Company will execute
and deliver such documentation as a pledgee or secured party of Preferred Stock
may reasonably request in connection with a pledge or transfer of the Preferred
Stock.

 

(c)

Certificates evidencing the Underlying Shares.  Certificates evidencing the
Underlying Shares shall not contain any legend (including the legend set forth
in Section 4.1(b) hereof): (a) while a registration statement covering the
resale of such security is

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effective under the Securities Act; (b) following any sale of such Underlying
Shares pursuant to Rule 144; or (c) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).  The
Company shall, upon request of a Purchaser and at the Company’s expense, cause
Company Counsel to issue a legal opinion to the Transfer Agent promptly after
any of the events described in (a)-(d) in the preceding sentence if required by
the Transfer Agent to effect the removal of the legend hereunder (with a copy to
the Purchaser and its broker).  If Underlying Shares are sold under Rule 144 or
if such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission), then such Underlying Shares shall be issued free
of all legends.  The Company agrees that, at such time as such legend is no
longer required under this Section 4.1(c), it will, no later than three (3)
Trading Days following the delivery by the Purchaser to the Company or the
Transfer Agent of a certificate representing such Underlying Shares and an
opinion acceptable to the Company for the availability of a resale exemption
with a restrictive legend (such third Trading Day, the “Preferred Share Legend
Removal Date”), instruct the Transfer Agent to deliver or cause to be delivered
to the Purchaser a certificate representing such Shares that is free from all
restrictive and other legends.  The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the restrictions
on transfer set forth in this Section 4.  Certificates for Underlying Shares
subject to legend removal hereunder shall be transmitted by the Transfer Agent
to the Purchaser by crediting the account of the Purchaser’s prime broker with
the Depository Trust Company System as directed by the Purchaser.  

(d)

Intentionally Omitted.  

(e)

The Company shall provide an opinion letter from legal counsel confirming that
the Common stock issuable pursuant to the conversion of the Preferred Stock is
exempt from the registration requirements under Rule 144 so long as the
requirements of Rule 144 are satisfied. The Purchaser shall accept such opinion
letter that covers all Preferred Shares and is satisfactory to the Company’s
Transfer Agent. Should the Company seek recommendation of legal counsel who may
provide such opinion letter, the Purchaser may provide recommendation on choice
of counsel and the Company bears the legal fees relating to the opinion letter.
 

 

4.2

Acknowledgment of Dilution.  The Company acknowledges that the issuance or
conversion of the Preferred Stock may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions.  The Company further acknowledges that its obligations under the
Transaction Documents, including, without limitation, its obligation to issue
the Underlying Shares pursuant to the Transaction Documents, are unconditional
and absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.

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4.3

Furnishing of Information; Public Information.

 

(a)

The Company covenants to maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.

 

(b)

At any time during the period commencing from the six (6)-month anniversary of
the date hereof and ending at such time that all of the Securities may be sold
without the requirement for the Company to be in compliance with Rule 144(c)(1)
and otherwise without restriction or limitation pursuant to Rule 144, if the
Company shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a “Public Information Failure”), then, in
addition to the Purchaser’s other available remedies, the Company shall pay to a
Purchaser, in cash, as partial liquidated damages and not as a penalty, by
reason of any such delay in or reduction of its ability to sell the Securities,
an amount in cash equal to two percent (2.0%) of the aggregate Stated Value of
the Purchaser’s Preferred Stock then owned by the Purchaser on the day of a
Public Information Failure and on every thirtieth (30th) day (pro-rated for
periods totaling less than thirty days) thereafter until the earlier of (i) the
date such Public Information Failure is cured and (ii) such time that such
public information is no longer required for the Purchaser to transfer the
Underlying Shares pursuant to Rule 144.  The payments to which the Purchaser
shall be entitled pursuant to this Section 4.3(b) are referred to herein as
“Public Information Failure Payments.”  Public Information Failure Payments
shall be paid on the earlier of (i) the last day of the calendar month during
which such Public Information Failure Payments are incurred and (ii) the third
(3rd) Business Day after the event or failure giving rise to the Public
Information Failure Payments is cured.  In the event the Company fails to make
Public Information Failure Payments in a timely manner, such Public Information
Failure Payments shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full.  Nothing herein shall limit the Purchaser’s
right to pursue actual damages for the Public Information Failure, and the
Purchaser shall have the right to pursue all remedies available to it at law or
in equity, including, without limitation, a decree of specific performance
and/or injunctive relief.

4.4

Integration.  Except as set forth on Schedule 4.4, the Company shall not sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
or that would be integrated with the offer or sale of the Securities for
purposes of the rules and regulations of any Trading Market such that it would
require stockholder approval prior to the closing of such other transaction
unless stockholder approval is obtained before the closing of such subsequent
transaction.

 

4.5

One-Time Redemption.  At any time before the third month anniversary from the
date hereof, the Company may redeem the total outstanding Preferred Stock for an
aggregate of one

25

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hundred and fifteen percent (115%) of its Stated Value and one hundred percent
(100%) of accrued and unpaid dividends of the outstanding Preferred Stock and
any other amounts due pursuant to the Certificate of Designations.  The form of
the Redemption Notice included in the Certificate of Designations sets forth the
totality of the procedures required of the Company in order to redeem the
Preferred Shares.  No additional legal opinion, other information or
instructions shall be required of the Company to redeem all of its outstanding
Preferred Shares.  The Purchaser shall honor redemptions of the Preferred Stock
and shall deliver the certificate representing all such Preferred Stock
outstanding in accordance with the terms, conditions and time periods set forth
in the Transaction Documents.

 

4.6

Stockholder Rights Plan.  No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchaser.

 

4.7

Non-Public Information.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf, will provide the Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto the Purchaser shall have entered into a written agreement with the
Company regarding the confidentiality and use of such information.  The Company
understands and confirms that the Purchaser shall be relying on the foregoing
covenant in effecting transactions in the Company’s Securities.

 

4.8

Use of Proceeds.  The Company may use the net proceeds hereunder at its sole and
absolute discretion.

 

4.9

Indemnification of the Purchaser.  Subject to the provisions of this Section
4.9, the Company will indemnify and hold the Purchaser and its directors,
officers, stockholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, stockholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any Purchaser Party may suffer or incur as a result
of or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against any Purchaser Party
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company

26

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who is not an Affiliate of the Purchaser Party, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of the Purchase’s representations, warranties or covenants
under the Transaction Documents or any agreements or understandings the
Purchaser Party may have with any such stockholder or any violations by
such Purchaser Party of state or federal securities laws or any conduct by the
Purchaser Party which constitutes fraud, gross negligence, willful misconduct or
malfeasance).  If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, the
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choice that is reasonably acceptable to the Purchaser Party being sued.  Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the Purchaser Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of the Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no
more than one such separate counsel.  The Company will not be liable to any
Purchaser Party under this Agreement (x) for any settlement by a Purchaser Party
effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (y) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser’s
breach of any of the representations, warranties, covenants or agreements made
by the Purchaser in this Agreement or in the other Transaction Documents or the
Purchaser Party’s negligence or willful misconduct.  The indemnification
required by this Section 4.9 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or are incurred.  The indemnification contained herein shall be in
addition to any cause of action or similar right of any Purchaser Party against
the Company or others and any liabilities the Company may be subject to under
applicable laws.

  

4.10

Reservation and Listing of Securities.

 

(a)

The Company shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in such amount as may
then be required to fulfill its obligations in full under the Transaction
Documents.

 

(b)

If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 300% of the Maximum Convertible
Amount on such date, then the Board of Directors shall use commercially
reasonable efforts to amend the Company’s certificate or articles of
incorporation to increase the number of authorized but unissued shares of Common
Stock to at least 300% of the Maximum Convertible Amount at such time, as soon
as possible and in any event not later than the seventy-fifth (75th) day after
such date.

 

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(c)

The Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Maximum Convertible Amount on the date of such
application; (ii) take all steps necessary to cause such shares of Common Stock
to be approved for listing or quotation on such Trading Market as soon as
possible thereafter; (iii) provide to the Purchaser evidence of such listing or
quotation; and (iv) maintain the listing or quotation of such Common Stock on
any date at least equal to the Maximum Convertible Amount on such date on such
Trading Market or another Trading Market.

 

4.11

Prohibition on Variable Securities.  So long as any of the Preferred Shares are
outstanding, the Company shall not, without written consent of the Purchaser,
issue any Variable Security (as defined herein), unless (i) the Company is
permitted to redeem all outstanding Preferred Shares in cash at the time of the
issuance of the respective Variable Security and (ii) the Company has the option
to and does redeem all outstanding Preferred Shares, pursuant to the terms of
the Certificate of Designations, in cash at the time of the issuance of the
respective Variable Security. A Variable Security shall mean any security issued
by the Company that (i) has or may have conversion rights of any kind,
contingent, conditional or otherwise in which the number of shares that may be
issued pursuant to such conversion right varies with the market price of the
Company’s common stock; (ii) is or may become convertible into the Company’s
common stock (including without limitation convertible debt, warrants or
convertible preferred stock), with a conversion or exercise price that varies
with the market price of the common stock, even if such security only becomes
convertible or exercisable following an event of default, the passage of time,
or another trigger event or condition; or (iii) was issued or may be issued in
the future in exchange for or in connection with any contract, security, or
instrument, whether convertible or not, where the number of shares of common
stock issued or to be issued is based upon or related in any way to the market
price of the common stock, including, but not limited to, common stock issued in
connection with a Section 3(a)(9) exchange, a Section 3(a)(10) settlement, or
any other similar settlement or exchange.

 

4.12

Treatment of Obligations and Prohibition on Senior Obligations.  All obligations
hereunder and pursuant to the Certificate of Designation, including those to pay
dividends, fees, expenses or redemption amounts upon the occurrence of a
Triggering Event (as defined in the Certificate of Designations), and any
premiums, whether or not allowed as a claim under bankruptcy or similar laws)
with respect to the Preferred Shares and other obligations, and fees and
expenses in connection therewith and hereunder (collectively, the
“Obligations”), shall rank senior to any debt, payment obligations or similar
arrangement (“Indebtedness”) in respect of the preferences as to dividends,
distributions and payments upon the liquidation, dissolution and winding-up of
the Company and the incurrence of any Indebtedness that ranks senior to the
Obligations shall be prohibited unless the Purchaser expressly consents in
writing to such incurrence of Indebtedness.

4.13

Right of First Offer.  From the date hereof until the date that is the twelve
(12) month anniversary of the date of the First Closing, in the event that the
Company desires to consummate a transaction with any  Person with respect to a
bona fide offer of capital or

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financing, including without limitation, the issuance of Common Stock, Common
Stock Equivalents or debt for cash consideration, Indebtedness or a combination
of units thereof (a “ROFO Financing”), then the Company shall first offer such
opportunity to the Purchaser, in writing (a “ROFO Notice”). The ROFO Notice must
be sent Purchaser pursuant to Section 5.4.  Such ROFO Notice shall contain the
material economic terms that the Company would, in good faith, expect to receive
in the market for transactions similar in type to the ROFO Financing being
sought (the “Material Economic Terms”).  If Purchaser is unwilling or unable to
provide such ROFO Financing to the Company within three (3) Trading Days from
Purchaser’s receipt of the ROFO Notice, then the Company may obtain such ROFO
Financing from any other Person upon the exact same Material Economic Terms,
which such ROFO Financing must be completed within ninety (90) calendar days
after the date of the ROFO Notice.  If the Company does not receive the ROFO
Financing from such Person within ninety (90) calendar days after the date of
the respective ROFO Notice, then the Company must again offer the ROFO Financing
opportunity to Purchaser as described above, and the process detailed above
shall be repeated.  Additionally, in the event that the Company proceeds to a
ROFO Financing with another Person and then the Material Economic Terms are
altered or modified in any way, then the Company must again offer the ROFO
Financing opportunity (on such altered or modified Material Economic Terms) to
the Purchaser as described above, and the process detailed above shall be
repeated.

4.14

Certain Transactions and Confidentiality.  The Purchaser, covenants that neither
it, nor any Affiliate acting on its behalf or pursuant to any understanding with
it will execute any Short Sales, of any of the Company’s securities during the
period commencing with the execution of this Agreement and ending on the date
that the Preferred Shares are no longer outstanding.

4.15

Securities Laws Disclosure; Publicity.  The Company shall (a) by 9:30 a.m. (New
York City time) on the Trading Day immediately following the date hereof, issue
a press release disclosing the material terms of the transactions contemplated
hereby and (b) by the fourth (4th) Trading Day immediately following the date
hereof file a Current Report on Form 8-K, including the Transaction Documents as
exhibits thereto, with the Commission.  From and after the issuance of such
press release, the Company represents to the Purchaser that it shall have
publicly disclosed all material, non-public information delivered to the
Purchaser by the Company or any of its Subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents.  The Company and the Purchaser shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor the Purchaser
shall issue any such press release nor otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
the Purchaser, or without the prior consent of the  Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, delayed, denied, or conditioned except if such disclosure is required
by law, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication.
 Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchaser, or include the name of the Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of the Purchaser, except: (a) as required by federal securities

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law in connection with any registration statement filed in connection with the
resale of the Securities purchased hereunder and (b) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchaser with prior notice of such disclosure
permitted under this clause (b).

4.16

Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of the Purchaser.  The Company shall also take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the Purchaser
on the applicable dates under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of the Purchaser.

4.17

Exchange Transactions.  During the period commencing on the date hereof and for
so long as any of the Preferred Shares remain outstanding, neither the Company
nor any of its affiliates or Subsidiaries, nor any of its or their respective
officers, employees, directors, agents or other representatives, will, without
the prior written consent of the Purchaser (which consent may be withheld,
delayed or conditioned in the Purchaser’s reasonable discretion), directly or
indirectly: (a) solicit, initiate, encourage or accept any other inquiries,
proposals or offers from any Person (other than the Purchaser) relating to any
exchange of any indebtedness or other securities of, or claim against, the
Company or any of its Subsidiaries relying on the exemption provided by Section
3(a)(10) of the Securities Act (any such transaction described in clause (a), an
“Exchange Transaction”); (b) enter into, effect, alter, amend, announce or
recommend to its stockholders any Exchange Transaction with any Person (other
than the Purchaser); or (c) participate in any discussions, conversations,
negotiations or other communications with any Person (other than the Purchaser)
regarding any Exchange Transaction, or furnish to any Person (other than the
Purchaser) any information with respect to any Exchange Transaction, or
otherwise cooperate in any way, assist or participate in, facilitate or
encourage any effort or attempt by any Person (other than the Purchaser) to seek
an Exchange Transaction involving the Company or any of its Subsidiaries.  In
addition, for so long as any of the Preferred Shares remain outstanding, neither
the Company nor any of its affiliates or Subsidiaries, nor any of its or their
respective officers, employees, directors, agents or other representatives,
will, without the prior written consent of the Purchaser (which consent may be
withheld, delayed or conditioned in the Purchaser’s sole discretion), directly
or indirectly, cooperate in any way, assist or participate in, facilitate or
encourage any effort or attempt by any Person (other than the Purchaser) to
effect any acquisition of securities or indebtedness of, or claim against, the
Company by such Person from an existing holder of such securities, indebtedness
or claim in connection with a proposed exchange of such securities or
indebtedness of, or claim against, the Company (whether pursuant to Section
3(a)(9) or 3(a)(10) of the Securities Act or otherwise) (a “Third Party Exchange
Transfer”).  The Company, its affiliates and Subsidiaries, and each of its and
their respective officers, employees, directors, agents or other representatives
shall immediately cease and cause to be terminated all existing discussions,
conversations, negotiations and other communications with any Persons (other
than the Purchaser) with respect to any of the foregoing.  The Company shall
promptly (and in no event later than twenty-four (24) hours after receipt)
notify (which notice shall be provided orally and in writing and shall

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identify the Person making the inquiry, request, proposal or offer and set forth
the material terms thereof) the Purchaser after receipt of any inquiry, request,
proposal or offer relating to any Exchange Transaction or Third Party Exchange
Transfer, and shall promptly (and in no event later than twenty-four (24) hours
after receipt) provide copies to the Purchaser of any written inquiries,
requests, proposals or offers relating thereto.  The Company agrees that it and
its affiliates and Subsidiaries, and each of its and their respective officers,
employees, directors, agents or other representatives Subsidiaries will not
enter into any agreement with any Person subsequent to the date hereof which
prohibits the Company from providing any information to the Purchaser in
accordance with this provision.  For all purposes of this Agreement, violations
of the restrictions set forth in this Section 4.17 by any Subsidiary or
affiliate of the Company, or any officer, employee, director, agent or other
representative of the Company or any of its Subsidiaries or affiliates shall be
deemed a direct breach of this Section 4.17 by the Company.  For the avoidance
of doubt, the Company shall not without the prior written consent of the
Purchaser (which consent may be withheld, delayed or conditioned in the
Purchaser’s sole discretion), directly or indirectly consummate an Exchange
Transaction or a Third Party Exchange Transfer if such exchange involves a third
party (i.e., a Person that is neither the Company nor any existing security or
debt holder of the Company).

ARTICLE V.

MISCELLANEOUS

 

5.1

Termination.  This Agreement may be terminated by any party by written notice to
the other parties if the First Closing has not been consummated on or before the
date ninety (90) days from the date of this Agreement; provided, however, that
such termination will not affect the right of any party to sue for any breach by
any other party (or parties).

 

5.2

Fees and Expenses.  The parties shall pay their own fees and expenses relating
to the transactions contemplated hereby The Company shall deliver to the
Purchaser, prior to each applicable Closing, a completed and executed copy of
the Closing Statement, attached hereto as Annex A.  Except as expressly set
forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.

 

5.3

Entire Agreement.  The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and thereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

 

5.4

Notices.  Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of: (i) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto at or prior to 12:00 noon

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(New York City time) on a Trading Day; (ii) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number set forth on the signature pages attached hereto on a day
that is not a Trading Day or later than 12:00 noon (New York City time) on any
Trading Day; or (iii) the second (2nd) Trading Day following the date of
physical transmittal, if sent by a United States nationally recognized overnight
courier service or upon actual receipt of the physically transmitted notice by
the party to whom such notice is required to be given.  The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

 

5.5

Amendments; Waivers.  No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchaser, and in the case of a waiver, by the
party against whom the enforcement of any such waived provision is sought.  No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

5.6

Headings.  The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.

 

5.7

Successors and Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns.  The Company
may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Purchaser (other than by merger).  The Purchaser
may assign any or all of its rights under this Agreement to any Person to whom
the Purchaser assigns or transfers any Securities, provided that such transferee
agrees in writing to be bound, with respect to the transferred Securities, by
the provisions of the Transaction Documents that apply to the Purchaser as
defined herein.

 

5.8

No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not
for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.9.

 

5.9

Governing Law.  All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, stockholders, partners, members, employees or
agents) shall be commenced exclusively in the state and federal courts sitting
in the City of New York.  Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed

32

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herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law.  If either party shall
commence an action, suit or proceeding to enforce any provisions of the
Transaction Documents, then, in addition to the obligations of the Company under
Section 4.9, the prevailing party in such action, suit or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

 

5.10

Survival.  The representations and warranties contained herein shall survive
each Closing and the deliveries of the Securities.

 

5.11

Execution.  This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to each other party, it being understood that the parties need not
sign the same counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page was an original thereof.

 

5.12

Severability.  If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction.  It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13

Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then the
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

33

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5.14

Replacement of Securities.  If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction.  The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.

 

5.15

Remedies.  In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, the Purchaser and the Company
will be entitled to specific performance under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at law
would be adequate.

 

5.16

Payment Set Aside.  To the extent that the Company makes a payment or payments
to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

 

5.17

Reserved.

  

5.18

Liquidated Damages.  The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

5.19

Reserved.

 

5.20

Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall
not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

 

5.21

Construction.  The parties agree that each of them and/or their respective
counsel have reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal

34

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rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of the
Transaction Documents or any amendments thereto.  In addition, each and every
reference to share prices and shares of Common Stock in any Transaction Document
shall be subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the date of this Agreement.

 

5.22

WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION
BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND
INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY
ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY
JURY.

 

 

(Signature Pages Follow)

 

35

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DRAFT

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

RedDiamond Partners LLC

By:__________________________________________

    Name:

    Title:

Address for Notice:  

156 West Saddle River Road

Saddle River, NJ 07458

COMPANY NAME

By:__________________________________________

    Name: Marco Alfonsi

    Title: Chief Executive Officer

Address for Notice:  

 

 

 

--------------------------------------------------------------------------------

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
SERIES B CONVERTIBLE PREFERRED STOCK OF CANBIOLA, INC.

 

I, Marco Alfonsi, hereby certify that I am the Chief Executive Officer of
Canbiola, Inc.. (the “Company”), a corporation organized and existing under the
Florida Business Corporation Act (the “FBCA”), and further do hereby certify:

 

That, pursuant to the authority expressly conferred upon the Board of Directors
of the Company (the “Board”) by the Company’s Articles of Incorporation, as
amended (the “Articles of Incorporation”), the Board on October 05, 2017,
adopted the following resolutions creating a series of shares of preferred stock
designated as Series B Convertible Preferred Stock, none of which shares have
been issued:

 

RESOLVED, that the Board hereby designates the Series B Convertible Preferred
Stock and the number of shares constituting such series, and fixes the rights,
powers, preferences, privileges and restrictions relating to such series in
addition to any set forth in the Articles of Incorporation as follows:

 

TERMS OF SERIES B CONVERTIBLE PREFERRED STOCK

 

1.       Designation and Number of Shares. There shall hereby be created and
established a series of preferred stock of the Company designated as “Series B
Convertible Preferred Stock” (the “Preferred Shares”).  The authorized number of
Preferred Shares shall be 500,000 shares.  Each Preferred Share shall have a par
value of $0.001.  Capitalized terms not defined herein shall have the meanings
as set forth in Section 23 below.

 

2.

Ranking.  Except with respect to any other future series of preferred stock of
senior rank to the Preferred Shares in respect of the preferences as to
dividends, distributions and payments upon the liquidation, dissolution and
winding-up of the Company (collectively, the “Senior Preferred Stock”) or any
future series of preferred stock of pari passu rank to the Preferred Shares in
respect of the preferences as to dividends, distributions and payments upon the
liquidation, dissolution and winding-up of the Company (collectively, the
“Parity Stock”), all shares of capital stock of the Company shall be junior in
rank to all Preferred Shares with respect to the preferences as to dividends,
distributions and payments upon the liquidation, dissolution and winding-up of
the Company (collectively, the “Junior Stock”).  The rights of all such shares
of capital stock of the Company shall be subject to the rights, powers,
preferences and privileges of the Preferred Shares.  In the event of the merger
or consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative rights, powers, preferences, privileges,
and designations provided for herein and no such merger or consolidation shall
result inconsistent therewith.

 

3.

Dividends.

 

2

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(a)

From and after the date of issuance of each share of Preferred Shares (the
“Initial Issuance Date”), each holder of a Preferred Share (each, a “Holder” and
collectively, the “Holders”) shall be entitled to receive dividends (the
“Dividends”), which Dividends shall be paid by the Company out of funds legally
available therefor, payable, subject to the conditions and other terms hereof,
in shares of Common Stock or cash on the Stated Value (as defined below) of such
Preferred Share at the Dividend Rate (as defined below), which shall be
cumulative but not compounding and shall continue to accrue whether or not
declared and whether or not in any fiscal year there shall be net profits or
surplus available for the payment of dividends in such fiscal year.  Dividends
on the Preferred Shares shall commence accumulating on the Initial Issuance Date
and shall be computed on the basis of a 365-day year and actual days elapsed.
Subject to Section 4(c), Dividends shall be payable quarterly, at the Holder’s
option, in cash or shares of Common Stock, with the first (1st) Dividend Date
being the date ninety (90) days from the Initial Issuance Date of the first
Preferred Share to be issued (each, a “Dividend Date”).  If a Dividend Date is
not a Business Day (as defined below), then the Dividend shall be due and
payable on the Business Day immediately following such Dividend Date.
Additionally, after the first Dividend Date, the Holder may request the payment
of any accrued Dividends on any Conversion Date or the date of any Installment
Redemption Payment (each, an “Optional Dividend Date”).

 

(b)

Dividends shall be payable on each Dividend Date, to the Holders of record of
the Preferred Shares on the applicable Dividend Date, in shares of Common Stock
(the “Dividend Shares”) so long as there has been no Equity Conditions Failure
and so long as the delivery of Dividend Shares would not violate the provisions
of Section 4(e); provided, however, that the Company may, at its option, pay
Dividends on any Dividend Date in cash (the “Cash Dividends”) or in a
combination of Cash Dividends and, so long as there has been no Equity
Conditions Failure, Dividend Shares. The Company shall deliver a written notice
(each, a “Dividend Election Notice”) to each Holder on the Dividend Notice Due
Date (the date such notice is delivered to all of the Holders, the “Dividend
Notice Date”), which notice (1) either (A) confirms that Dividends to be paid on
such Dividend Date shall be paid entirely in Dividend Shares or (B) elects to
pay Dividends as Cash Dividends, Dividend Shares, or as a combination of
Dividend Shares and Cash Dividends and, in any event, specifies the amount of
Dividends that shall be paid as Cash Dividends and the amount of Dividends, if
any, that shall be paid in Dividend Shares and (2) certifies that there has been
no Equity Conditions Failure as of such time, if any portion of the Dividends
shall be paid in Dividend Shares. Notwithstanding anything herein to the
contrary, if no Equity Conditions Failure has occurred as of the Dividend Notice
Date but an Equity Conditions Failure occurs at any time prior to the Dividend
Date, (A) the Company shall provide each Holder a subsequent notice to that
effect and (B) unless such Holder waives the Equity Conditions Failure, the
Dividend payable to such Holder on such Dividend Date

3

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shall be paid as Cash Dividends to be paid to each Holder on a Dividend Date in
Dividend Shares shall be paid in a number of fully paid and non-assessable
shares (rounded to the nearest whole share, with 0.50 or more of a share being
rounded up to the nearest whole share and 0.49 or less of a share being rounded
down to the nearest whole share) of Common Stock equal to the quotient of (1)
the amount of Dividends payable to such Holder on such Dividend Date less any
Cash Dividends paid and (2) the Conversion Price in effect on the applicable
Dividend Date.

 

 (c)       When any Dividend Shares are to be paid on an Dividend Date to any
Holder, the Company shall (i) (A) provided that (x) the Company’s transfer agent
(the “Transfer Agent”) is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program and (y) such Dividend Shares to be so
issued are eligible for resale pursuant to Rule 144 (as defined in the
Securities Purchase Agreement), credit such aggregate number of Dividend Shares
to which such Holder shall be entitled to such Holder’s or its designee’s
balance account with DTC through its Deposit and Withdrawal at Custodian system,
or (B) if either of the immediately preceding clauses (x) or (y) is not
satisfied, issue and deliver on the applicable Dividend Date, to the address set
forth in the register maintained by the Company for such purpose pursuant to the
Securities Purchase Agreement or to such address as specified by such Holder in
writing to the Company at least two (2) Business Days prior to the applicable
Dividend Date, a certificate, registered in the name of such Holder or its
designee, for the number of Dividend Shares to which such Holder shall be
entitled and (ii) with respect to each Dividend Date, pay to such Holder, in
cash by wire transfer of immediately available funds, the amount of any Cash
Dividend. The Company shall pay any and all taxes that may be payable with
respect to the issuance and delivery of Dividend Shares.

(d)

In the event that a Holder requests the payment of Dividends on any Optional
Dividend Date, such Dividends shall be payable in accordance with mechanisms set
forth in Sections 4(c)(i)-(ii) and Section 5(b), as applicable. The Dividends
shall be paid, at the Holder’s option in cash, in Dividend Shares, or any
combination of cash and Dividend Shares, so long as there has been no Equity
Conditions Failure and so long as the delivery of Dividend Shares would not
violate the provisions of Section 4(e). Dividends to be paid to such Holder on
an Optional Dividend Date in Dividend Shares shall be paid in a number of fully
paid and non-assessable shares (rounded to the nearest whole share) of Common
Stock equal to the quotient of (1) the amount of Dividends payable to such
Holder on such Optional Dividend Date less any Dividends paid in cash and (2)
the Conversion Price in effect on the applicable Optional Dividend Date.

 

4.       Conversion. Each Preferred Share shall be convertible into validly
issued, fully paid and non-assessable shares of Common Stock (as defined below)
on the terms and conditions set forth in this Section 4.

4

--------------------------------------------------------------------------------

 

(a)       Holder’s Conversion Right. Subject to the provisions of Section 4(e)
and Section 5, at any time or times after the date (the “Initial Conversion
Date”) that is six (6) months after the Initial Issuance Date, each Holder shall
be entitled to convert any whole number of Preferred Shares and any accrued but
unpaid Dividends into validly issued, fully paid and non-assessable shares of
Common Stock in accordance with Section 4(c) at the Conversion Rate (as defined
below); provided, however, the maximum number of Preferred Shares that may be
converted by such Holder during the five (5) Trading Day period following the
Initial Conversion Date and every five (5) Trading Day period thereafter (each a
“Monthly Conversion Period”) shall be no greater than that number of Preferred
Shares with an aggregate Stated Value equal to $20,000 (the “Maximum Conversion
Shares”) unless the Company and the Holder agree in writing to increase the
Maximum Conversion Shares for each respective Monthly Conversion Period.

(b)       Conversion Rate. The number of validly issued, fully paid and
non-assessable shares of Common Stock issuable upon conversion (the “Conversion
Shares”) of each Preferred Share pursuant to Section 4(a) shall be determined
according to the following formula (the “Conversion Rate”):

 

(Conversion Amount x Conversion Premium)
Conversion Price

 

No fractional shares of Common Stock are to be issued upon the conversion of any
Preferred Shares. If the issuance would result in the issuance of a fraction of
a share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share.  

(c)

Mechanics of Conversion. The conversion of each Preferred Share shall be
conducted in the following manner:

 

(i)        Holder’s Conversion. Subject to the provisions of Section 4(e) and
Section 5, to convert Preferred Shares into validly issued, fully paid and
non-assessable shares of Common Stock on any date (a “Conversion Date”), a
Holder shall deliver (whether via facsimile or otherwise), for receipt on or
prior to 11:59 p.m., New York time, on such date, a copy of an executed notice
of conversion of Preferred Shares subject to such conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company, which
Conversion Notice shall be subject to an adjustment to the Conversion Price set
forth on such Conversion Notice upon the close of the Principal Market on the
Conversion Date. If required by Section 4(c)(vi), within three (3) Trading Days
following a conversion of any such Preferred Shares into Common Shares as
aforesaid, such Holder shall surrender to a nationally

5

--------------------------------------------------------------------------------

recognized overnight delivery service for delivery to the Company the original
certificates representing the share(s) of Preferred Shares (the “Preferred Share
Certificates”) so converted as aforesaid.

 

 (ii)        Company’s Response. On or before the second (2nd) Trading Day
following the date of receipt of a Conversion Notice, the Company shall transmit
by facsimile or electronic mail an acknowledgment of confirmation, in the form
attached hereto as Exhibit II, of receipt of such Conversion Notice to such
Holder and the Transfer Agent, which confirmation shall constitute an
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein. On or before the second (2nd) Trading Day
following the date of receipt by the Company of such Conversion Notice, the
Company shall (1) provided that (x) the Transfer Agent is participating in DTC
Fast Automated Securities Transfer Program and (y) such Conversion Shares and
Dividend Shares (as applicable) to be so issued are eligible for resale pursuant
to Rule 144 (as defined in the Securities Purchase Agreement) credit such
aggregate number of Conversion Shares and Dividend Shares (as applicable) to
which such Holder shall be entitled to such Holder’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system, or (2) if
either of the immediately preceding clauses (x) or (y) are not satisfied, issue
and deliver (via reputable overnight courier) to the address as specified in
such Conversion Notice, a certificate, registered in the name of such Holder or
its designee, for the number of Conversion Shares and Dividend Shares (as
applicable) to which such Holder shall be entitled. If the number of Preferred
Shares represented by the Preferred Share Certificate(s) submitted for
conversion pursuant to Section 4(c)(vi) is greater than the number of Preferred
Shares being converted, then the Company shall if requested by such Holder, as
soon as practicable and in no event later than three (3) Trading Days after
receipt of the Preferred Share Certificate(s) and at its own expense, issue and
deliver to such Holder (or its designee) a new Preferred Share Certificate
representing the number of Preferred Shares not converted.

 

(iii)        Record Holder. The Person or Persons entitled to receive the shares
of Common Stock issuable upon a conversion of Preferred Shares shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Conversion Date.

 

 (iv)        Company’s Failure to Timely Convert. If the Company shall fail, for
any reason or for no reason, to issue to a Holder within two (2) Trading Days
after the Company’s receipt of a Conversion Notice (whether via facsimile or
otherwise) (the “Share Delivery Deadline”), a certificate for the number of
shares of Common Stock to which such

6

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Holder is entitled and register such shares of Common Stock on the Company’s
share register or to credit such Holder’s or its designee’s balance account with
DTC for such number of shares of Common Stock to which such Holder is entitled
upon such Holder’s conversion of any Preferred Shares (as the case may be) (a
“Conversion Failure”), then, in addition to all other remedies available to such
Holder, such Holder, upon written notice to the Company, may void its Conversion
Notice with respect to, and retain or have returned (as the case may be) any
Preferred Shares that have not been converted pursuant to such Holder’s
Conversion Notice, provided that the voiding of a Conversion Notice shall not
affect the Company’s obligations to make any payments which have accrued prior
to the date of such notice pursuant to the terms of this Certificate of
Designations or otherwise.

 

 (v)        Pro Rata Conversion; Disputes. In the event the Company receives a
Conversion Notice from more than one Holder for the same Conversion Date and the
Company can convert some, but not all, of such Preferred Shares submitted for
conversion, the Company shall convert from each Holder electing to have
Preferred Shares converted on such date a pro rata amount of such Holder’s
Preferred Shares submitted for conversion on such date based on the number of
Preferred Shares submitted for conversion on such date by such Holder relative
to the aggregate number of Preferred Shares submitted for conversion on such
date. In the event of a dispute as to the number of shares of Common Stock
issuable to a Holder in connection with a conversion of Preferred Shares, the
Company shall issue to such Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 22.

 

(vi)        Book-Entry. Notwithstanding anything to the contrary set forth in
this Section 4, upon conversion of any Preferred Shares in accordance with the
terms hereof, no Holder thereof shall be required to physically surrender the
certificate representing the Preferred Shares to the Company following
conversion thereof unless (A) the full or remaining number of Preferred Shares
represented by the certificate are being converted (in which event such
certificate(s) shall be delivered to the Company as contemplated by this Section
4(c)(vi)) or (B) such Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
Preferred Shares upon physical surrender of any Preferred Shares. Each Holder
and the Company shall maintain records showing the number of Preferred Shares so
converted by such Holder and the dates of such conversions or shall use such
other method, reasonably satisfactory to such Holder and the Company, so as not
to require physical surrender of the certificate representing the Preferred
Shares upon each such

7

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conversion. In the event of any dispute or discrepancy, such records of such
Holder establishing the number of Preferred Shares to which the record holder is
entitled shall be controlling and determinative in the absence of manifest
error. A Holder and any transferee or assignee, by acceptance of a certificate,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of any Preferred Shares, the number of Preferred Shares
represented by such certificate may be less than the number of Preferred Shares
stated on the face thereof. Each certificate for Preferred Shares shall bear the
following legend:

 

ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS
OF THE CORPORATION’S CERTIFICATE OF DESIGNATIONS RELATING TO THE SHARES OF
SERIES A PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION
4(c)(vi) THEREOF. THE NUMBER OF SHARES OF SERIES A PREFERRED STOCK REPRESENTED
BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF SERIES A PREFERRED
STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 4(c)(vi) OF THE CERTIFICATE
OF DESIGNATIONS RELATING TO THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED
BY THIS CERTIFICATE.

 

(d)           Taxes. The Holder shall pay any and all documentary, stamp,
transfer (but only in respect of the registered holder thereof), issuance and
other similar taxes that may be payable with respect to the issuance and
delivery of shares of Common Stock upon the conversion of Preferred Shares.

 

(e)           Limitation on Beneficial Ownership.

 

(i)        Notwithstanding anything to the contrary contained in this
Certificate of Designations, the Preferred Shares held by a Holder shall not be
convertible by such Holder, and the Company shall not effect any conversion of
any Preferred Shares held by such Holder, to the extent (but only to the extent)
that such Holder or any of its affiliates would beneficially own in excess of
4.99% (the “Maximum Percentage”) of the then issued and outstanding shares of
Common Stock. To the extent the above limitation applies, the determination of
whether the Preferred Shares held by such Holder shall be convertible (vis-à-vis
other convertible, exercisable or exchangeable securities owned by such Holder
or any of its affiliates) and of which such securities shall be convertible,
exercisable or exchangeable (as among all such securities owned by such Holder
and its affiliates) shall, subject to such Maximum

8

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Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability of a Holder to convert Preferred Shares, or of the Company to issue
shares of Common Stock to such Holder, pursuant to this Section 4(e) shall have
any effect on the applicability of the provisions of this Section 4(e) with
respect to any subsequent determination of convertibility or issuance (as the
case may be). For purposes of this Section 4(e), beneficial ownership and all
determinations and calculations (including, without limitation, with respect to
calculations of percentage ownership) shall be determined in accordance with
Section 13(d) of the 1934 Act and the rules and regulations promulgated
thereunder. The provisions of this Section 4(e) shall be implemented in a manner
otherwise in strict conformity with the terms of this Section 4(e) to correct
this Section 4(e) (or any portion hereof) which may be defective or inconsistent
with the intended Maximum Percentage beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such Maximum Percentage limitation. The limitations contained in
this Section 4(e) shall apply to a successor holder of Preferred Shares. The
holders of Common Stock shall be third party beneficiaries of this Section 4(e)
and the Company may not waive this Section 4(e) without the consent of holders
of a majority of its Common Stock. For any reason at any time, upon the written
or oral request of a Holder, the Company shall within one (1) Business Day
confirm orally and in writing to such Holder the number of shares of Common
Stock then outstanding, including by virtue of any prior conversion or exercise
of convertible or exercisable securities into Common Stock, including, without
limitation, pursuant to this Certificate of Designations or securities issued
pursuant to the other Transaction Documents. By written notice to the Company,
any Holder may increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% specified in such notice; provided that (i)
any such increase will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to such Holder sending such notice and not to any other Holder.

Notwithstanding anything contained in this Section 4(e) to the contrary and
subject to the other provisions of this Certificate of Designations, the Holder
may, at its option and in its sole discretion, determine (A) whether the
Preferred Shares held by such Holder shall be convertible (vis-à-vis other
convertible, exercisable or exchangeable securities owned by such Holder or any
of its affiliates) and (B) of which such securities shall be convertible,
exercisable or exchangeable (as among all such securities owned by such Holder
and its affiliates) on any

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basis, order, or amounts for conversion, exercise or exchange (as the case may
be).

   

(ii)        Principal Market Regulation. Notwithstanding anything herein to the
contrary, the Company shall not issue any shares of Common Stock upon conversion
of any Preferred Shares or otherwise pursuant to this Certificate of
Designations, until the Company obtains the Stockholder Approval, to the extent
such Stockholder Approval is necessary for such issuance.

(f)

Anti-Dilution. If, at any time during the period twelve (12) months from a
Holder’s Initial Issuance Date,  the Company or any Subsidiary, as applicable,
sells or grants any option to purchase or sells or grants any right to reprice,
or otherwise disposes of or issues (or announces any sale, grant or any option
to purchase or other disposition), any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an effective price per
share that is lower than the then Conversion Price (such lower price, the “Base
Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if
the holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price.  Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued.  Notwithstanding the foregoing, no
adjustment will be made under this Section 4(f) in respect of an Exempt
Issuance.  The Company shall notify the Holders in writing, no later than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 4(f), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice, the “Dilutive Issuance Notice”).  For purposes
of clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 4(f), upon the occurrence of any Dilutive Issuance, the
Holders will be entitled to receive a number of Conversion Shares based upon the
Base Conversion Price on or after the date of such Dilutive Issuance, regardless
of whether the Holder accurately refers to the Base Conversion Price in the
Notice of Conversion.  

5.       Optional and Triggered Redemption

(a)

Company One-Time Redemption. In addition to the Company’s Monthly Redemption
right as set forth in Section 5(c), at any time before the date six (6) months
from a Holder’s Initial Issuance Date and provided that no Equity Conditions
Failure (as defined below) exists, the Company shall have the

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right to redeem all, but not less than all, of the Preferred Shares then
outstanding, plus the then accrued and unpaid Dividends (the “Company One-Time
Redemption Amount”). The Preferred Shares subject to redemption described herein
shall be redeemed by the Company, in cash at a price per Preferred Share (the
“Company One-Time Redemption Price”) equal to (1) one hundred and fifteen
percent (115%) of the Stated Value, plus (2) all Additional Amounts, plus (3)
all Make-Whole Amounts, plus (4) any accrued and unpaid Late Charges (as defined
in Section 22(b)(ii)) with respect to such Stated Value as of such date of
determination.  The Company may exercise its redemption option under this
Section 5(a) by delivering a written notice thereof by facsimile or electronic
mail to all, but not less than all, of the Holders (the “Company One-Time
Redemption Notice” and the date all of the Holders received such notice is
referred to as the “Company One-Time Redemption Notice Date”). The Company may
deliver only one Company One-Time Redemption Notice hereunder and such Company
One-Time Redemption Notice shall be irrevocable. The Company One-Time Redemption
Notice shall (x) state the date on which the Company One-Time Redemption shall
occur (the “Company One-Time Redemption Date”) which date shall not be less than
sixty (60) Trading Days nor more than seventy- five (75) Trading Days following
the Company One-Time Redemption Notice Date, (y) certify that there has been no
Equity Conditions Failure and (z) state the aggregate Company One-Time
Redemption Amount of the Preferred Shares which is being redeemed in such
Company Optional Redemption from such Holder and all of the other Holders of the
Preferred Shares pursuant to this Section 5(a) on the Company Optional
Redemption Date. Notwithstanding anything herein to the contrary, (i) if no
Equity Conditions Failure has occurred as of the Company Optional Redemption
Notice Date but an Equity Conditions Failure occurs at any time prior to the
Company One-Time Redemption Date, (A) the Company shall provide each Holder a
subsequent notice to that effect and (B) unless such Holder waives the Equity
Conditions Failure, the Company One-Time Redemption with respect to such Holder
shall be cancelled and the applicable Company One-Time Redemption Notice shall
be null and void and (ii) at any time prior to the date the Company One-Time
Redemption Price is paid, in full, the Company One-Time Redemption Amount may be
converted, in whole or in part, by any Holder into shares of Common Stock
pursuant to Section 4. All Conversion Amounts converted by a Holder after the
Company One-Time Redemption Notice Date shall reduce the Company One-Time
Redemption Amount of the Preferred Shares of such Holder required to be redeemed
on the Company One-Time Redemption Date. Redemptions made pursuant to this
Section 5(a) shall be made in accordance with Section 5(d). In the event of the
Company’s redemption of any of the Preferred Shares under this Section 5(a), a
Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for such Holder.
Accordingly, any redemption premium due under this Section 5(a) is intended by
the parties to be, and shall be deemed,

11

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a reasonable estimate of such Holder’s actual loss of its investment opportunity
and not as a penalty. For the avoidance of doubt, the Company shall have no
right to effect a Company One-Time Redemption if any Triggering Event has
occurred and is continuing, but any Triggering Event shall have no effect upon
any Holder’s right to convert Preferred Shares in its discretion.  

           (b)

Triggering Event Redemptions.  

(i)

Triggering Event. Each of the following events shall constitute a “Triggering
Event” and each of the events in clauses (ix), (x) and (xi) shall constitute a
“Bankruptcy Triggering Event”:

 

a.

any of the shares of Common Stock issuable upon conversion of the Preferred
Shares are not freely tradable without restriction by any of the Holders due to
a breach by the Company which remains uncured for a period of five (5)
consecutive Trading Days;

b.

the suspension from trading or failure of the Common Stock to be traded or
listed (as applicable) on an Eligible Market for a period of five (5)
consecutive Trading Days;

c.

the Company’s written notice to the holder of the Preferred Shares, including,
without limitation, by way of public announcement or through any of its agents,
at any time, of its intention not to comply, as required, with a request for
conversion of any Preferred Shares into shares of Common Stock that is requested
in accordance with the provisions of this Certificate of Designations, other
than pursuant to Section 4(e) hereof;

d.

at any time following the fifth (5th) consecutive day following written notice
that a Holder’s pro rate authorized share allocation (as defined in Section 9
below) is less than 300% of the number of shares of Common Stock that such
Holder would be entitled to receive upon a conversion in full of the Preferred
Shares held by such Holder (without regard to any limitations on conversion set
forth in this Certificate of Designations) and the Company’s shareholders have
not voted to increase the authorized Common Shares to cure such defect;

 

e.

the Company’s Board of Directors fails to declare any Dividend to be paid on the
applicable Dividend Date in accordance with Section 3;

f.

the Company’s failure to pay to the Holder any Dividend (whether or not declared
by the Board of Directors) or any other amount when and as due under this
Certificate of Designations (including, without

12

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limitation, the Company’s failure to pay any redemption payments or amounts
hereunder) or any other Transaction Document or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated hereby (in each case, as permitted pursuant to the FBCA), except,
in the case of a failure to pay Dividends and Late Charges (as defined in
Section 22(b)(ii)) when and as due, in each such case only if such failure
remains uncured for a period of at least three (3) Trading Days;

g.

the Company, on three or more occasions, either (A) fails to cure a Conversion
Failure by delivery of the required number of shares of Common Stock within two
(2) Trading Days after the applicable Conversion Date or (B) fails to remove any
restrictive legend on any certificate for any shares of Common Stock issued to
such Holder upon conversion of any Preferred Shares acquired by such Holder as
and when required with respect to such securities in accordance with applicable
federal securities laws, and any such failure remains uncured for at least three
(3) Trading Days;

h.

the occurrence of any default under, redemption of or acceleration prior to
maturity of at least an aggregate of $500,000 of Indebtedness of the Company or
any Subsidiaries;

i.

bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for the relief of debtors shall be instituted by or against the
Company or any Subsidiary and, if instituted against the Company or any
Subsidiary by a third party, shall not be dismissed within thirty (30) days of
their initiation;

j.

the commencement by the Company or any Subsidiary of a voluntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition

13

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of debts, or the occurrence of any other similar federal, state or foreign
proceeding, or the admission by it in writing of its inability to pay its debts
generally as they become due, the taking of corporate action by the Company or
any Subsidiary in furtherance of any such action or the taking of any action by
any Person to commence a Uniform Commercial Code foreclosure sale or any other
similar action under federal, state or foreign law;

k.

the entry by a court of (A) a decree, order, judgment or other similar document
in respect of the Company or any Subsidiary of a voluntary or involuntary case
or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or (B) a decree, order, judgment
or other similar document adjudging the Company or any Subsidiary as bankrupt or
insolvent, or approving as properly filed a petition seeking liquidation,
reorganization, arrangement, adjustment or composition of or in respect of the
Company or any Subsidiary under any applicable federal, state or foreign law or
(C) a decree, order, judgment or other similar document appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any Subsidiary or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree, order, judgment or other similar document or any such other
decree, order, judgment or other similar document unstayed and in effect for a
period of thirty (30) consecutive days;

l.

a final judgment or judgments for the payment of money aggregating in excess of
$250,000 are rendered against the Company and/or any of its subsidiaries and
which judgments are not, within thirty (30) days after the entry thereof,
bonded, discharged, settled or stayed pending appeal, or are not discharged
within thirty (30) days after the expiration of such stay; provided, however,
any judgment which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $250,000 amount set forth above
so long as the Company provides each Holder a written statement from such
insurer or indemnity provider (which written statement shall be reasonably
satisfactory to each Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company or such Subsidiary (as the case may
be) will receive the proceeds of such insurance or indemnity within thirty (30)
days of the issuance of such judgment;

m.

the Company and/or any Subsidiary, individually or in the aggregate fails to
pay, when due, or within any applicable grace period, any payment with respect
to any Indebtedness in excess of $250,000 due to any third party (other than,
with respect to payments contested by the

14

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Company and/or such subsidiary (as the case may be) in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for
the payment thereof in accordance with GAAP) or is otherwise in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$250,000, which breach or violation causes the other party thereto to declare a
default or otherwise accelerate amounts due thereunder;

n.

other than as specifically set forth in another clause of this Section 5(b), the
Company or any Subsidiary breaches any representation or warranty in any
material respect (other than representations or warranties subject to material
adverse effect or materiality, which may not be breached in any respect) or any
covenant or other term or condition of any Transaction Document, except, in the
case of a breach of a covenant or other term or condition that is curable, only
if such breach remains uncured for a period of five (5) consecutive Trading
Days, unless such breach does not have a Material Adverse Effect (as defined
below);

o.

a false or inaccurate certification (including a false or inaccurate deemed
certification) by the Company that either (A) the Equity Conditions are
satisfied, (B) there has been no Equity Conditions Failure, or (C) as to whether
any Triggering Event has occurred, and such Holder suffers economic damage
thereby;

p.

any breach or failure in any respect by the Company or any Subsidiary to comply
with any covenants of this Certificate of Designations, unless such breach does
not have a Material Adverse Effect;

q.

occurrence of any Material Adverse Effect;

r.

the occurrence or continuance of an Event of Default under any Transaction
Document and such Event of Default has not been cured during the applicable cure
period; or

s.

any Equity Condition Failure.

(ii)           Notice of a Triggering Event; Redemption Right. Upon the
occurrence of a Triggering Event with respect to the Preferred Shares, the
Company shall within two (2) Business Days deliver written notice thereof via
facsimile or electronic mail (a “Triggering Event Notice”) to each Holder. At
any time after the earlier of a Holder’s receipt of a Triggering Event Notice
and such Holder becoming aware of a Triggering Event (such earlier date, the
“Triggering Event Right Commencement Date”) and ending (such ending date, the
“Triggering Event Right Expiration Date”, and each such period, a “Triggering
Event Redemption Right Period”) on the tenth (10th) Trading Day

15

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after the later of (x) the date such Triggering Event is cured (notwithstanding,
the Company shall only have five (5) calendar days to cure any Equity Conditions
Failure) and (y) such Holder’s receipt of a Triggering Event Notice that
includes (I) a reasonable description of the applicable Triggering Event, (II) a
certification as to whether, in the opinion of the Company, such Triggering
Event is capable of being cured and, if applicable, a reasonable description of
any existing plans of the Company to cure such Triggering Event and (III) a
certification as to the date the Triggering Event occurred and, if cured on or
prior to the date of such Triggering Event Notice, the applicable Triggering
Event Right Expiration Date, such Holder may require the Company to redeem
(regardless of whether such Triggering Event has been cured on or prior to the
Triggering Event Right Expiration Date) all or any of the Preferred Shares held
by such Holder by delivering written notice thereof (the “Triggering Event
Redemption Notice”) to the Company, which Triggering Event Redemption Notice
shall indicate the number of the Preferred Shares such Holder is electing to
redeem. Each of the Preferred Shares subject to redemption by the Company
pursuant to this Section 5(b) shall be redeemed by the Company, at the Holder’s
option, for shares of Common Stock at a price equal to the lesser of (i) the
product of (A) the Conversion Amount to be redeemed multiplied by (B) one
hundred thirty five percent (135%) (the “Triggering Event Redemption Premium”)
and (ii) the product of (X) the Conversion Rate with respect to the Conversion
Amount in effect at such time as such Holder delivers a Triggering Event
Redemption Notice multiplied by (Y) the product of (1) the Trigger Event
Redemption Premium multiplied by (2) the greatest Closing Sale Price of the
Common Stock on any Trading Day during the period commencing on the date
immediately preceding such Triggering Event and ending on the date the Company
makes the entire payment required to be made under this Section 5(b) (the
“Triggering Event Redemption Price”).  In the event that the Company elects to
pay the Trigger Event Redemption Price in shares of Common Stock, the Company
shall issue the shares of Common Stock at a conversion price equal to 90% of the
then applicable Conversion Price (the “Triggering Event Redemption Conversion
Price”). For the avoidance of doubt, if Holders are requesting redemptions at
the Triggering Event Redemption Conversion Price due to an Equity Conditions
Failure, upon a cure of the Equity Conditions Failure, the Company shall not be
required to pay to the Holders the redemptions described in this Section 5(b) in
shares of Common Stock at the Triggering Event Conversion Redemption Price.
 Triggering Redemptions required by this Section 5(b) shall be made in
accordance with the provisions of Section 5. To the extent redemptions required
by this Section 5(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Preferred Shares by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5(b), but subject to Section 4(e),
until the Triggering Event Redemption Price (together with any Late Charges (as
defined in Section 22(b)(ii)) thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) (together

16

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with any Late Charges (as defined in Section 22(b)(ii)) thereon) may be
converted, in whole or in part, by such Holder into Common Stock pursuant to the
terms of this Certificate of Designations. In the event of the Company’s
redemption of any of the Preferred Shares under this Section 5(b), a Holder’s
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for such Holder.
Accordingly, any redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of such Holder’s
actual loss of its investment opportunity and not as a penalty.

(iii)

Notwithstanding anything to the contrary contained in this Section 5(b), upon a
Trigger Event, each Holder shall have the option to redeem all of its Preferred
Shares in accordance with this Section 5(b).  Additionally, following a
Triggering Event, interest shall accrue on the amount due to a Holder at a rate
of two percent (2%) per month until such Holder is paid in full.  

(iv)       Mandatory Redemption upon Bankruptcy Triggering Event.
Notwithstanding anything to the contrary herein, and notwithstanding any
conversion that is then required or in process, upon any Bankruptcy Triggering
Event, the Company shall immediately redeem, in cash, each of the Preferred
Shares then outstanding at a redemption price equal to the applicable Triggering
Event Redemption Price (calculated as if such Holder shall have delivered the
Triggering Event Redemption Notice immediately prior to the occurrence of such
Bankruptcy Triggering Event), without the requirement for any notice or demand
or other action by any Holder or any other person or entity, provided that a
Holder may, in its sole discretion, waive such right to receive payment upon a
Bankruptcy Triggering Event, in whole or in part, and any such waiver shall not
affect any other rights of such Holder or any other Holder hereunder, including
any other rights in respect of such Bankruptcy Triggering Event, any right to
conversion, and any right to payment of such Triggering Event Redemption Price
or any other Redemption Price, as applicable.

 

(c)       Company Monthly Redemption.   On or after the date that is six (6)
months from the Initial Issuance Date, on each Business Day before the Monthly
Conversion Period as described in Section 4(a), the Company, at its sole
discretion, shall have the right to redeem all or a portion of the Maximum
Conversion Shares (the “Monthly Redemption Shares”), in cash at a price per
Maximum Conversion Share (the “Company Monthly Redemption Price”) equal to (1)
one hundred twenty percent (120%) of the Stated Value of such Monthly Redemption
Shares, plus (2) all Additional Amounts with respect to such Monthly Redemption
Shares, plus (3) all Make-Whole Amounts with respect to such Monthly Redemption
Shares, plus (4) any accrued and unpaid Late Charges (as defined in Section
22(b)(ii)) with respect to the Stated Value of such Monthly Redemption Shares as
of such date of determination.  The

17

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Company may exercise its redemption option under this Section 5(c) by delivering
a written notice thereof by facsimile or electronic mail to all, but not less
than all, of the Holders (the “Company Monthly Redemption Notice” and the date
all of the Holders received such notice is referred to as the “Company Monthly
Redemption Notice Date”). The Company may deliver only one Company Monthly
Redemption Notice with respect to any Monthly Conversion Period hereunder and
such Company Monthly Redemption Notice shall be irrevocable. The Company Monthly
Redemption Notice shall (x) state the date on which the Company One-Time
Redemption shall occur (the “Company Monthly Redemption Date”) which date shall
be no more than three (3) Trading Days following the Company Monthly Redemption
Notice Date, (y) certify that there has been no Equity Conditions Failure and
(z) state the aggregate Company Monthly Redemption Shares which is being
redeemed in such Company Monthly Redemption from such Holder and all of the
other Holders of Monthly Redemption Shares pursuant to this Section 5(c) on the
Company Monthly Redemption Date. Redemptions made pursuant to this Section 5(c)
shall be made in accordance with Section 5(d). In the event of the Company’s
redemption of any of the Preferred Shares under this Section 5(c), a Holder’s
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for such Holder.
Accordingly, any redemption premium due under this Section 5(c) is intended by
the parties to be, and shall be deemed, a reasonable estimate of such Holder’s
actual loss of its investment opportunity and not as a penalty. For the
avoidance of doubt, the Company shall have no right to effect a Company Monthly
Redemption if any Triggering Event has occurred and is continuing, but any
Triggering Event shall have no effect upon any Holder’s right to convert
Preferred Shares in its discretion.  

(d)

Redemptions.

(i)

General. If a Holder has submitted a Triggering Event Redemption Notice in
accordance with Section 5(b)(ii), the Company shall deliver the applicable
Triggering Event Redemption Price to such Holder in cash within five (5)
Business Days after the Company’s receipt of such Holder’s Triggering Event
Redemption Notice.  If the Company has deliver Monthly Redemption Notice in
accordance with Section 5(c), the Company shall deliver the Monthly Redemption
Price, in cash, within three (3) Trading Days following the Company Monthly
Redemption Notice Date.  In the event of a redemption of less than all of the
Preferred Shares held by such Holder, the Company shall promptly cause to be
issued and delivered to such Holder a new Preferred Certificate (likewise to the
procedure set forth in Section 14) representing the number of Preferred Shares
which have not been redeemed. In the event that the Company does not pay the
applicable Redemption Price to a Holder

18

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within the time period required for any reason (except if such payment is
prohibited pursuant to the FBCA), at any time thereafter and until the Company
pays such unpaid Redemption Price in full, such Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to such Holder all
or any of the Preferred Shares that were submitted for redemption and for which
the applicable Redemption Price has not been paid. Upon the Company’s receipt of
such notice, (x) the applicable Redemption Notice shall be null and void with
respect to such Preferred Shares, (y) the Company shall immediately return the
applicable Preferred Share Certificate, or issue a new Preferred Share
Certificate (likewise to the procedure set forth in Section 14), to such Holder.
 

(ii)

Redemption by Multiple Holders. Upon the Company’s receipt of a Redemption
Notice from any Holder for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences described in
Section 5(b)(ii), the Company shall immediately, but no later than one (1)
Business Day of its receipt thereof, forward to each other Holder by facsimile
or electronic mail a copy of such notice. If the Company receives one or more
Redemption Notices, during the seven (7) Business Day period beginning on and
including the date which is three (3) Business Days prior to the Company’s
receipt of the initial Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company’s receipt of the initial
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such initial Redemption Notice and such other
Redemption Notices received during such seven (7) Business Day period, then the
Company shall redeem a pro rata amount from each Holder based on the principal
amount of the Preferred Shares submitted for redemption pursuant to such
Redemption Notices received by the Company during such seven (7) Business Day
period.

(iii)

Triggering Event Redemptions.  Notwithstanding anything to the contrary in
Sections 5(b)(ii) or 5(b)(iv), the Company shall have no obligation to comply
with such Sections 5(b)(ii) or 5(b)(iv) at any time that (x) the Company does
not have surplus as described under the FBCA or funds legally available to
redeem all outstanding Preferred Shares, (y) the Company’s capital is impaired
as described under the FBCA or (z) the redemption of any Preferred Shares would
result in an impairment of the Company’s capital as described under FBCA;
provided, however that in the event that the Company does not comply with the
provisions of Sections 5(b)(ii) or 5(b)(iv) by virtue of the restrictions in
this Section 5(d)(iii), the Company will comply with

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the provisions of Sections 5(b)(ii) or 5(b)(iv) promptly after such restrictions
are no longer applicable.

6.       Rights Upon Fundamental Transactions.  The Company shall not enter into
or be party to a Fundamental Transaction unless (i) the Successor Entity assumes
in writing all of the obligations of the Company under this Certificate of
Designations and the other Transaction Documents in accordance with the
provisions of this Section 6 pursuant to written agreements, including
agreements to deliver to each holder of Preferred Shares in exchange for such
Preferred Shares a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Certificate of
Designations, including, without limitation, having a Stated Value and Dividend
Rate equal to the stated value and dividend rate of the Preferred Shares held by
the Holders and having similar ranking to the Preferred Shares, and reasonably
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose shares of common stock
are quoted on or listed for trading on an Eligible Market. Upon the occurrence
of any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Certificate of Designations and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Certificate of
Designations and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein and therein. In addition
to the foregoing, upon consummation of a Fundamental Transaction, the Successor
Entity shall deliver to each Holder confirmation that there shall be issued upon
conversion of the Preferred Shares at any time after the consummation of such
Fundamental Transaction, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property (except such items still issuable
under Sections 7(a) and 12, which shall continue to be receivable thereafter))
issuable upon the conversion of the Preferred Shares prior to such Fundamental
Transaction, such shares of publicly traded common stock (or their equivalent)
of the Successor Entity (including its Parent Entity) which each Holder would
have been entitled to receive upon the  consummation of such Fundamental
Transaction had all the Preferred Shares held by each Holder been converted
immediately prior to such Fundamental Transaction (without regard to any
limitations on the conversion of the Preferred Shares contained in this
Certificate of Designations), as adjusted in accordance with the provisions of
this Certificate of Designations. The provisions of this Section 6 shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion of the Preferred
Shares.

  

7.            Rights Upon Issuance of Purchase Rights and Other Corporate
Events.

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(a)       Intentionally Omitted.

 

(b)       Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that each Holder will during the period sixty (60) days following the
Corporate Event have the right to receive upon a conversion of all the Preferred
Shares held by such Holder (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which such
Holder would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by such Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of the Preferred Shares contained in this
Certificate of Designations) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as such Holder would have
been entitled to receive had the Preferred Shares held by such Holder initially
been issued with conversion rights for the form of such consideration (as
opposed to shares of Common Stock) at a conversion rate for such consideration
commensurate with the Conversion Rate. The provisions of this Section 7 shall
apply similarly and equally to successive Corporate Events and shall be applied
without regard to any limitations on the conversion of the Preferred Shares
contained in this Certificate of Designations.

   

8.           Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock. Without limiting any provision of Section 7 or Section 12, if the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. Without limiting any provision of Section 7 or Section
12, if the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 8 shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 8 occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.

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9.            Authorized Shares.

 

(a)       Reservation. The Company shall initially reserve out of its authorized
and unissued Common Stock a number of shares of Common Stock equal to the sum of
(i) 300% of the Conversion Rate with respect to the Conversion Amount of each
Preferred Share as of the Initial Issuance Date (assuming for purposes hereof,
that all the Preferred Shares issuable pursuant to the Securities Purchase have
been issued, such Preferred Shares are convertible at the Conversion Price and
without taking into account any limitations on the conversion of such Preferred
Shares set forth in herein) and (ii) the maximum number of Dividend Shares
issuable pursuant to the terms of this Certificate of Designations from the
Initial Issuance Date through the fifth (5th) anniversary of the Initial
Issuance Date (assuming for purposes hereof, that all the Preferred Shares
issuable pursuant to the Second Securities Purchase Agreement have been issued
and without taking into account any limitations on the issuance of securities
set forth herein). So long as any of the Preferred Shares are outstanding, the
Company shall take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, as of any given date, the sum
of (i) 300% of the number of shares of Common Stock as shall from time to time
be necessary to effect the conversion of all of the Preferred Shares issued or
issuable pursuant to the Securities Purchase Agreement and (ii) the maximum
number of Dividend Shares issuable pursuant to the terms of this Certificate of
Designations from such date through the fifth (5th) anniversary of such given
date, assuming for purposes hereof, that all the Preferred Shares issuable
pursuant to the Securities Purchase Agreement have been issued and without
taking into account any limitations on the issuance of securities set forth
herein), provided that at no time shall the number of shares of Common Stock so
available be less than the number of shares required to be reserved by the
previous sentence (without regard to any limitations on conversions contained in
this Certificate of Designations) (the “Required Amount”). The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and for
issuance as Dividend Shares and each increase in the number of shares so
reserved shall be allocated pro rata among the Holders based on the number of
Preferred Shares held by each Holder on the Initial Issuance Date or increase in
the number of reserved shares (as the case may be) (the “Authorized Share
Allocation”). In the event a Holder shall sell or otherwise transfer any of such
Holder’s Preferred Shares, each transferee shall be allocated a pro rata portion
of such Holder’s Authorized Share Allocation. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any Preferred Shares
shall be allocated to the remaining Holders of Preferred Shares, pro rata based
on the number of Preferred Shares then held by such Holders.

 

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(b)       Insufficient Authorized Shares. If, notwithstanding Section 9(a) and
not in limitation thereof, at any time while any of the Preferred Shares remain
outstanding the Company does not have a sufficient number of authorized and
unissued shares of Common Stock to satisfy its obligation to have available for
issuance upon conversion of the Preferred Shares at least a number of shares of
Common Stock equal to the Required Amount (an “Authorized Share Failure”), then
the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve and have available the Required Amount for all of the
Preferred Shares then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting or obtain written consent of its stockholders for the approval of an
increase in the number of authorized shares of Common Stock. In connection with
such meeting, the Company shall provide each stockholder with a proxy statement
or information statement, as applicable, and shall use its best efforts to
solicit its stockholders’ approval of such increase in authorized shares of
Common Stock and to cause its Board to recommend to the stockholders that they
approve such proposal.

(c)

Increases in Reserved Share Ratio. With respect to a particular date of
determination, that the quotient of (x) the sum of the VWAP of the Common Stock
for each Trading Day in the Ten (10) consecutive Trading Day period ending and
including the Trading Day immediately preceding such date of determination,
divided by (y)ten (10) is less than $0.005 (as adjusted for stock splits, stock
dividends, stock combinations, recapitalizations or other similar transactions)
then the Company is required to reserve no less than 1,000% of the number of
shares of Common Stock that such Holder would be entitled to receive upon a
conversion in full of the Preferred Shares held by such Holder (without regard
to any limitations on conversion set forth in this Certificate of Designations);

  

10.       Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law (including without limitation, the FBCA) and
as expressly provided in this Certificate of Designations. To the extent that
under the FBCA the vote of the holders of the Preferred Shares, voting
separately as a class or series as applicable, is required to authorize a given
action of the Company, the affirmative vote or consent of the holders of all of
the Preferred Shares, voting together in the aggregate and not in separate
series unless required under the FBCA, represented at a duly held meeting at
which a quorum is presented or by written consent of all of the Preferred Shares
(except as otherwise may be required under the FBCA), voting together in the
aggregate and not in separate series unless required under the FBCA, shall
constitute the approval of such action by both the class or the series, as
applicable. Subject to Section

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4(e), to the extent that under the FBCA holders of the Preferred Shares are
entitled to vote on a matter with holders of shares of Common Stock, voting
together as one class, each Preferred Share shall entitle the holder thereof to
cast that number of votes per share as is equal to the number of shares of
Common Stock into which it is then convertible (subject to the ownership
limitations specified in Section 4(e) hereof) using the record date for
determining the stockholders of the Company eligible to vote on such matters as
the date as of which the Conversion Price is calculated. Notwithstanding,
anything to the contrary herein, to the extent that under the FBCA holders of
the Preferred Shares are entitled to vote on a matter with holders of shares of
Common Stock, no Holder of Preferred Shares shall be entitled to cast votes
representing more than 4.99% of the votes entitled to be cast in the matter.
 Holders of the Preferred Shares shall be entitled to written notice of all
stockholder meetings or written consents (and copies of proxy materials and
other information sent to stockholders) with respect to which they would be
entitled by vote, which notice would be provided pursuant to the Company’s
bylaws and the FBCA).

 

11.       Liquidation, Dissolution, Winding-Up. In the event of a Liquidation
Event, the Holders shall be entitled to receive in cash out of the assets of the
Company, whether from capital or from earnings available for distribution to its
stockholders (the “Liquidation Funds”), before any amount shall be paid to the
holders of any of shares of Junior Stock, an amount per Preferred Share equal to
the greater of (A) 100% of the Stated Value and (B) the amount per share such
Holder would receive if such Holder converted such Preferred Shares into Common
Stock immediately prior to the date of such payment, provided that if the
Liquidation Funds are insufficient to pay the full amount due to the Holders and
holders of shares of Parity Stock, then each Holder and each holder of Parity
Stock shall receive a percentage of the Liquidation Funds equal to the full
amount of Liquidation Funds payable to such Holder and such holder of Parity
Stock as a liquidation preference, in accordance with their respective
certificate of designations (or equivalent), as a percentage of the full amount
of Liquidation Funds payable to all holders of Preferred Shares and all holders
of shares of Parity Stock. To the extent necessary, the Company shall cause such
actions to be taken by each of its Subsidiaries so as to enable, to the maximum
extent permitted by law, the proceeds of a Liquidation Event to be distributed
to the Holders in accordance with this Section 11. All the preferential amounts
to be paid to the Holders under this Section 11 shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any Liquidation Funds of the Company to the holders of
shares of Junior Stock in connection with a Liquidation Event as to which this
Section 11 applies.

 

12.       Participation. In addition to any adjustments pursuant to Section 8,
the Holders shall, as holders of Preferred Shares, be entitled to receive such
dividends paid and distributions made to the holders of shares of Common Stock
to the same extent as if such Holders had converted each Preferred Share held by
each of them into shares of Common Stock (without regard to any limitations on
conversion herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and

24

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distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of shares of Common Stock
(provided, however, to the extent that a Holder’s right to participate in any
such dividend or distribution would result in such Holder exceeding the Maximum
Percentage, then such Holder shall not be entitled to participate in such
dividend or distribution to such extent (or the beneficial ownership of any such
shares of Common Stock as a result of such dividend or distribution to such
extent) and such dividend or distribution to such extent shall be held in
abeyance for the benefit of such Holder until such time, if ever, as its right
thereto would not result in such Holder exceeding the Maximum Percentage).

   

13.       Vote to Change the Terms of or Issue Preferred Shares. In addition to
any other rights provided by law, except where the vote or written consent of
the holders of a greater number of shares is required by law or by another
provision of the Articles of Incorporation, without first obtaining the
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders, voting together as a single
class, the Company shall not amend or repeal any provision of, or add any
provision to, its Articles of Incorporation or bylaws, or file any certificate
of designations or articles of amendment of any series of shares of preferred
stock, if such action would adversely alter or change in any respect the
preferences, rights, privileges or powers, or restrictions provided for the
benefit, of the Preferred Shares, regardless of whether any such action shall be
by means of amendment to the Articles of Incorporation or by merger,
consolidation or otherwise; provided, however, the Company shall be entitled,
without the consent of the Required Holders unless such consent is otherwise
required by the FBCA, to (a) amend the Articles of Incorporation to effectuate
one or more reverse stock splits of its issued and outstanding Common Stock for
purposes of maintaining compliance with the rules and regulations of the
Principal Market; (b) purchase, repurchase or redeem any shares of capital stock
of the Company junior in rank to the Preferred Shares (other than pursuant to
equity incentive agreements (that have in good faith been approved by the Board)
with employees giving the Company the right to repurchase shares upon the
termination of services); or (c) issue any preferred stock that is junior in
rank to the Preferred Shares.

 

14.       Lost or Stolen Certificates. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificates representing Preferred Shares (as to which a
written certification and the indemnification contemplated below shall suffice
as such evidence), and, in the case of loss, theft or destruction, of an
indemnification undertaking by the applicable Holder to the Company in customary
and reasonable form and, in the case of mutilation, upon surrender and
cancellation of the certificate(s), the Company shall execute and deliver new
certificate(s) of like tenor and date.

15.       Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations and any of the other Transaction Documents, at law
or in equity (including a decree of

25

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specific performance and/or other injunctive relief), and no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise to
such remedy. Nothing herein shall limit any Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms of
this Certificate of Designations. The Company covenants to each Holder that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by a Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holders and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, each Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any such
breach or any such threatened breach, without the necessity of showing economic
loss and without any bond or other security being required, to the extent
permitted by applicable law. The Company shall provide all information and
documentation to a Holder that is requested by such Holder to enable such Holder
to confirm the Company’s compliance with the terms and conditions of this
Certificate of Designations.

  

16.       Noncircumvention. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Certificate of Designations, and will at all times in good faith carry
out all the provisions of this Certificate of Designations and take all action
as may be required to protect the rights of the Holders. Without limiting the
generality of the foregoing or any other provision of this Certificate of
Designations, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the conversion of any Preferred Shares above the
Conversion Price then in effect, (ii) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the conversion of
Preferred Shares and (iii) shall, so long as any Preferred Shares are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, the maximum number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of the Preferred Shares then outstanding (without regard to any limitations on
conversion contained herein).

 

17.       Failure or Indulgence Not Waiver. No failure or delay on the part of a
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. No waiver shall be effective unless it is in writing
and signed by an authorized

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representative of the waiving party. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all Holders and shall not be
construed against any Person as the drafter hereof.

 

18.       Notices. The Company shall provide each Holder of Preferred Shares
with prompt written notice of all actions taken pursuant to the terms of this
Certificate of Designations, including in reasonable detail a description of
such action and the reason therefor. Whenever notice is required to be given
under this Certificate of Designations, unless otherwise provided herein, such
notice must be in writing and shall be given in accordance with the signature
page of the Securities Purchase Agreement. Without limiting the generality of
the foregoing, the Company shall give written notice to each Holder (i) promptly
following any adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least
fifteen (15) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any grant, issuances, or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to all holders of shares of Common Stock as a class or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided, in each case, that such information shall
be made known to the public prior to, or simultaneously with, such notice being
provided to any Holder.

  

19.       Transfer of Preferred Shares. Subject to the restrictions set forth in
the Securities Purchase Agreement, a Holder may transfer some or all of its
Preferred Shares with the Company having first right of refusal provided in the
Securities Purchase Agreement.

 

20.       Preferred Shares Register. The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holders), a register for the Preferred Shares, in
which the Company shall record the name, address and facsimile number of the
Persons in whose name the Preferred Shares have been issued, as well as the name
and address of each transferee. The Company may treat the Person in whose name
any Preferred Shares is registered on the register as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary, but in all
events recognizing any properly made transfers.

 

21.       Stockholder Matters; Amendment.

 

(a)       Stockholder Matters. Any stockholder action, approval or consent
required, desired or otherwise sought by the Company pursuant to the FBCA, the
Articles of Incorporation, this Certificate of Designations or otherwise with
respect to the issuance of Preferred Shares may be effected by written consent
of the Company’s stockholders or at a duly called meeting of the Company’s
stockholders, all in accordance with the applicable rules and regulations of the
FBCA. This provision is intended to comply with the applicable sections of the

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FBCA permitting stockholder action, approval and consent affected by written
consent in lieu of a meeting.

 

(b)       Amendment. This Certificate of Designations or any provision hereof
may be amended by obtaining the affirmative vote at a meeting duly called for
such purpose, or written consent without a meeting in accordance with the FBCA,
of the Required Holders, voting separate as a single class, and with such other
stockholder approval, if any, as may then be required pursuant to the FBCA and
the Articles of Incorporation.

 

22.       Dispute Resolution.

 

(a)       Submission to Dispute Resolution.

 

(i) In the case of a dispute relating to a Closing Sale Price, a Conversion
Price, a VWAP or a fair market value or the arithmetic calculation of a
Conversion Rate (as the case may be) (including, without limitation, a dispute
relating to the determination of any of the foregoing), the Company or the
applicable Holder (as the case may be) shall submit the dispute to the other
party via facsimile (A) if by the Company, within two (2) Business Days after
the occurrence of the circumstances giving rise to such dispute or (B) if by
such Holder at any time after such Holder learned of the circumstances giving
rise to such dispute. If such Holder and the Company are unable to promptly
resolve such dispute relating to such Closing Sale Price, such Conversion Price,
such VWAP or such fair market value, or the arithmetic calculation of such
Conversion Rate (as the case may be), at any time after the second (2nd)
Business Day following such initial notice by the Company or such Holder (as the
case may be) of such dispute to the Company or such Holder (as the case may be),
then such Holder may, at its sole option, select an independent, reputable
investment bank to resolve such dispute.

(ii) Such Holder and the Company shall each deliver to such investment bank (A)
a copy of the initial dispute submission so delivered in accordance with the
first sentence of this Section 22 and (B) written documentation supporting its
position with respect to such dispute, in each case, no later than 5:00 p.m.
(New York time) by the fifth (5th) Business Day immediately following the date
on which such Holder selected such investment bank (the “Dispute Submission
Deadline”) (the documents referred to in the immediately preceding clauses (A)
and (B) are collectively referred to herein as the “Required Dispute
Documentation”) (it being understood and agreed that if either such Holder or
the Company fails to so deliver all of the Required Dispute Documentation by the
Dispute Submission Deadline, then the party who fails to so submit all of the
Required Dispute Documentation shall no

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longer be entitled to (and hereby waives its right to) deliver or submit any
written documentation or other support to such investment bank with respect to
such dispute and such investment bank shall resolve such dispute based solely on
the Required Dispute Documentation that was delivered to such investment bank
prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing
by both the Company and such Holder or otherwise requested by such investment
bank, neither the Company nor such Holder shall be entitled to deliver or submit
any written documentation or other support to such investment bank in connection
with such dispute (other than the Required Dispute Documentation) .

 

(iii) The Company and such Holder shall cause such investment bank to determine
the resolution of such dispute and notify the Company and such Holder of such
resolution no later than ten (10) Business Days immediately following the
Dispute Submission Deadline. The fees and expenses of such investment bank shall
be borne solely by the Company, and such investment bank’s resolution of such
dispute shall be final and binding upon all parties absent manifest error.

 

(b)       Miscellaneous.

(i)

Whenever any payment of cash is to be made by the Company to any Person pursuant
to this Certificate of Designations, unless otherwise expressly set forth
herein, such payment shall be made in lawful money of the United States of
America by a certified check drawn on the account of the Company and sent via
overnight courier service to such Person at such address as previously provided
to the Company in writing, provided that such Holder may elect to receive a
payment of cash via wire transfer of immediately available funds by providing
the Company with prior written notice setting out such request and such Holder’s
wire transfer instructions. Whenever any amount expressed to be due by the terms
of this Certificate of Designations is due on any day which is not a Business
Day, the same shall instead be due on the next succeeding day which is a
Business Day.

 

23.       Certain Defined Terms. For purposes of this Certificate of
Designations, the following terms shall have the following meanings:

 

(a)

“1934 Act” means the Securities Exchange Act of 1934, as amended.

 

(b)

 “Additional Amount” means, as of the applicable date of determination, with
respect to each Preferred Share, all declared and unpaid Dividends on such
Preferred Share.

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(c)

 “Approved Share Plan” means any employee benefit plan which has been approved
by the board of directors of the Company prior to or subsequent to the date
hereof pursuant to which shares of Common Stock and standard options to purchase
Common Stock may be issued to any employee, officer or director for services
provided to the Company in their capacity as such.

 

(d)

 “Bloomberg” means Bloomberg, L.P.

 

(e)

 “Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.

 

(f)

 “Closing Sale Price” means, for any security as of any date, the last closing
trade price for such security on the Principal Market, as reported by Bloomberg,
or, if the Principal Market begins to operate on an extended hours basis and
does not designate the closing trade price (as the case may be) then the last
trade price of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last trade price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last trade price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
if no last trade price is reported for such security by Bloomberg, the average
of the bid prices, or the ask prices, respectively, of any market makers for
such security as reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC). If the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the applicable Holder. If the Company and such
Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved in accordance with the procedures in Section 22.
All such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period.

 

(g)

 “Common Stock” means (i) the Company’s shares of common stock, Nil par value
per share, and (ii) any capital stock into which such common stock shall have
been changed or any share capital resulting from a reclassification of such
common stock.

(h)

 “Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred

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stock, right, option, warrant or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles the
holder thereof to receive, Common Stock.

 

(i)

 “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

(j)

 “Conversion Amount” means, with respect to each Preferred Share, as of the
applicable date of determination, the sum of (1) the Stated Value thereof, plus
(2) the Additional Amount thereon as of such date of determination, plus (3) the
Make-Whole Amount.

 

(k)

“Conversion Premium” means One Hundred Thirty Percent (130%).

(l)

“Conversion Price” means, with respect to each Preferred Share, the lower of (i)
the Fixed Conversion Price; or (ii) the lower of the VWAP of the Common Stock on
the Trading Day prior to the Conversion Date or the VWAP of the Common Stock on
the Conversion Date, subject to changes as set forth herein.

(m)

“Convertible Securities” means any stock or other security (other than Options)
that is at any time and under any circumstances, directly or indirectly,
convertible into, exercisable or exchangeable for, or which otherwise entitles
the holder thereof to acquire, any shares of Common Stock.

 

(n)

 “Dividend Notice Due Date” means the eleventh (11th) Trading Day immediately
prior to the applicable Dividend Date.

 

(o)

 “Dividend Rate” means five percent (5.0%) per annum.

 

(p)

 “Eligible Market” means The New York Stock Exchange, the NYSE MKT, the Nasdaq
Global Select Market, the Nasdaq Global Market or the Principal Market.

 

(q)

 “Equity Conditions” means: (i) with respect to the applicable date of
determination all of the shares of Common Stock issuable upon conversion of all
of the Preferred Shares are freely tradable without the need for registration
under any applicable federal or state securities laws (in each case,

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disregarding any limitation on conversion contained herein); (ii) on each day
during the period beginning thirty (30) days prior to the applicable date of
determination and ending on and including the applicable date of determination
(the “Equity Conditions Measuring Period”), the Common Stock (including all of
the shares of Common Stock issuable upon conversion of all of the Preferred
Shares) is listed or designated for quotation (as applicable) on an Eligible
Market and shall not have been suspended from trading on an Eligible Market
(other than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company);
(iii) on each day during the Equity Conditions Measuring Period, the Company
shall have delivered all shares of Common Stock issuable upon conversion of
Preferred Shares on a timely basis as set forth in Section 4 hereof, and all
other shares of capital stock required to be delivered by the Company on a
timely basis as set forth in the other Transaction Documents; (iv) any shares of
Common Stock to be issued in connection with the event requiring determination
may be issued in full without violating Section 4(e) hereof (each Holder
acknowledges that the Company shall be entitled to assume that this condition
has been met for all purposes hereunder absent written notice from such Holder);
(v) any shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating the rules or
regulations of the Eligible Market on which the Common Stock is then listed or
designated for quotation (as applicable); (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause any of the shares of
Common Stock issuable upon conversion of any Preferred Shares to not be freely
tradable without the need for registration under any applicable state securities
laws (disregarding any limitation on conversion contained herein); (viii) no
Holder shall be in possession of any material, non-public information provided
to any of them by the Company, any of its Subsidiaries or any of their
respective affiliates, employees, officers, representatives, agents or the like;
(ix) on each day during the Equity Conditions Measuring Period, the Company
otherwise shall have been in material compliance with each, and shall not have
breached any, provision, covenant, representation or warranty of any Transaction
Document; (x) on each day during the Equity Conditions Measuring Period, there
shall not have occurred any Volume Failure or Price Failure; (xi) there shall be
no Triggering Events; (xii) The Company’s Common Stock must be DWAC eligible and
not subject to “DTC chill”; (xiii) the Company must be current on all of its
filings under the 1934 Act; (xiv) the Preferred Shares must be able to be
delivered via an “Automatic Conversion” of principal and/or interest.

 

(r)

 “Equity Conditions Failure” means, with respect to any date of determination,
that on any day during the period commencing twenty (20)

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Trading Days immediately prior to such date of determination, the Equity
Conditions have not been satisfied (or waived in writing by the Required
Holders).

 

(s)

 “Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers, directors, advisors or independent contractors of the
Company pursuant to any stock or option plan duly adopted for such purpose, (b)
shares of Common Stock, warrants or options to advisors or independent
contractors of the Company for compensatory purposes, (c) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the Initial Issuance Date, provided that
such securities have not been amended since the Initial Issuance Date to
increase the number of such securities or to decrease the exercise price,
exchange price or conversion price of such securities, (d) securities issuable
pursuant to any contractual anti-dilution obligations of the Company in effect
as of the Initial Issuance Date, provided that such obligations have not been
materially amended since the Initial Issuance Date, and (e) securities issued
pursuant to acquisitions or any other strategic transactions approved by the
Board of Directors, provided that any such issuance shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities.

(t)

“Fixed Conversion Price” means, with respect to each Preferred Share, the result
of 110% multiplied by the VWAP of the common stock of the Company on the First
Closing Date of the Securities Purchase Agreement relating to the purchase and
sale of the Preferred Shares as described herein, subject to changes as set
forth herein.

(u)

“Fundamental Transaction” means that (i) the Company or any of its Subsidiaries
shall, directly or indirectly, in one or more related transactions, (1)
consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than fifty percent (50%) of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of the Company
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (4) consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with any other Person whereby such other
Person acquires more than fifty percent (50%)  

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of the outstanding shares of Voting Stock of the Company (not including any
shares of Voting Stock of the Company held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock or share purchase agreement or other business combination),
or (5) (I) reorganize, recapitalize or reclassify the Common Stock, (II) effect
or consummate a stock combination, reverse stock split or other similar
transaction involving the Common Stock or (III) make any public announcement or
disclosure with respect to any stock combination, reverse stock split or other
similar transaction involving the Common Stock (including, without limitation,
any public announcement or disclosure of (x) any potential, possible or actual
stock combination, reverse stock split or other similar transaction involving
the Common Stock or (y) board or stockholder approval thereof, or the intention
of the Company to seek board or stockholder approval of any stock combination,
reverse stock split or other similar transaction involving the Common Stock), or
(ii) any “person” or “group” (as these terms are used for purposes of Sections
13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated
thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of fifty percent (50%)  of the
aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.

   

(v)

 “GAAP” means United States generally accepted accounting principles,
consistently applied.

 

(w)

 “Indebtedness” of any Person means, without duplication (A) all indebtedness
for borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and

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contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above.

  

(x)

 “Liquidation Event” means, whether in a single transaction or series of
transactions, the voluntary or involuntary liquidation, dissolution or winding
up of the Company or such Subsidiaries the assets of which constitute all or
substantially all of the assets of the business of the Company and its
Subsidiaries, taken as a whole.

 

(y)

 “Make-Whole Amount” means as of any given date, the amount of any Dividend
that, but for any conversion hereunder on such given date, would have accrued
with respect to the Conversion Amount being redeemed hereunder at the Dividend
Rate then in effect for the period from such given date through the following
Dividend Date.

(z)

 “Material Adverse Effect” means any material adverse effect on (i) the
business, properties, assets, liabilities, operations (including results
thereof), condition (financial or otherwise) or prospects of the Company or any
subsidiary, either individually or taken as a whole, (ii) the transactions
contemplated hereunder or (iii) the authority or ability of the Company to
perform any of its obligations hereunder.

 

(aa)

 “Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.

 

(bb)

 “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.

 

(cc)

 “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity or a government or any department or agency thereof.

 

(dd)

 “Price Failure” means, with respect to a particular date of determination, that
the quotient of (x) the sum of the VWAP of the Common Stock for each Trading Day
in the thirty (30) consecutive Trading Day period ending and including the
Trading Day immediately preceding such date of determination, divided by (y)
thirty (30) is less than $0..001 (as adjusted for

35

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stock splits, stock dividends, stock combinations, recapitalizations or other
similar transactions).

 

(ee)

 “Principal Market” means the OTCPINK, OTCQB or OTCQX.

(ff)

 “Redemption Notices” means, collectively, the Triggering Event Redemption
Notice, the Company Monthly Redemption Notice and each of the foregoing,
individually, a “Redemption Notice”.

(gg)

 “Redemption Premium” means One Hundred Thirty Percent (130%).

(hh)

 “Redemption Prices” means, collectively, the Triggering Event Redemption Price,
the Company One-Time Redemption Price and the Monthly Redemption Price, and each
of the foregoing, individually, a “Redemption Price”.

 

(ii)

 “Required Holders” means the holders of at least 51% of the outstanding
Preferred Shares.

(jj)

 “Rule 144” means Rule 144 promulgated by the SEC pursuant to the Securities Act
of 1933, as amended, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC having substantially the
same effect as such Rule.

(kk)

 “SEC” means the Securities and Exchange Commission or the successor thereto.

 

(ll)

 “Securities” means, collectively, the Preferred Shares and the shares of Common
Stock issuable upon conversion of the Preferred Shares.

 

(mm)

 “Securities Purchase Agreement” for each Holder shall mean the Securities
Purchase Agreement and between the Company and the Holder.

 

(nn)

 “Stated Value” shall mean $1.00 per share, subject to adjustment for stock
splits, stock dividends, recapitalizations, reorganizations, reclassifications,
combinations, subdivisions or other similar events occurring after the Initial
Issuance Date with respect to the Preferred Shares.

  

(oo)

 “Stockholder Approval” means, for the purposes of this Certificate of
Designations and any other Transaction Document, the affirmative approval of the
stockholders of the Company providing for the Company’s issuance of all of the
Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market.

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--------------------------------------------------------------------------------

 

(pp)

 “Subscription Date” of a holder means the date the Securities Purchase
Agreement is duly executed by all parties thereto.

 

(qq)

 “Subsidiary” or “Subsidiaries” means any subsidiary of the Company, including,
where applicable, any direct or indirect subsidiary of the Company formed or
acquired after the date hereof.

 

(rr)

 “Successor Entity” means the Person (or, if so elected by the Required Holders,
the Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Required Holders, the Parent
Entity) with which such Fundamental Transaction shall have been entered into.

 

(ss)

 “Trading Day” means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Required Holders.

 

(tt)

 “Transaction Documents” for any Holder means this Certificate of Designations,
the Securities, the Securities Purchase Agreement and each of the other
agreements and instruments entered into or delivered by the Company or the
Holder in connection with the transactions contemplated thereby, all as may be
amended from time to time in accordance with the terms hereof or thereof.

 

(uu)

 “Volume Failure” means for any date one hundred eighty (180) from the Initial
Issuance Date, with respect to a particular date of determination, the aggregate
dollar trading volume (as reported on Bloomberg) of the Common Stock on the
Principal Market of any Trading Day in the twenty (20) consecutive Trading Day
period ending on the Trading Day immediately preceding such date of
determination is less than $10,000 (adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period). No
Volume Failure shall be deemed to have occurred on any date prior to the date
one hundred eighty (180) from the Initial Issuance Date.

 

(vv)

 “Voting Stock” of a Person means capital stock of such Person of the class or
classes pursuant to which the holders thereof have the general

37

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voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers, trustees or other similar governing body of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

 

(ww)

 “VWAP” means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market (or, if the Principal
Market is not the principal trading market for such security, then on the
principal securities exchange or securities market on which such security is
then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by OTC Markets Group
Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated for such
security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the
Company and such Holder. If the Company and such Holder are unable to agree upon
the fair market value of such security, then such dispute shall be resolved in
accordance with the procedures in Section 22. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period.

   

24.       Disclosure. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Certificate of Designations, unless the
Company has in good faith determined that the matters relating to such notice do
not constitute material, non-public information relating to the Company or any
of its Subsidiaries, the Company shall simultaneously with any such receipt or
delivery publicly disclose such material, non-public information on a Current
Report on Form 8-K or otherwise. In the event that the Company believes that a
notice contains material, non-public information relating to the Company or any
of its Subsidiaries, the Company so shall indicate to each Holder
contemporaneously with delivery of such notice, and in the absence of any such
indication, each Holder shall be allowed to presume that all matters relating to
such notice do not constitute material, non-public information relating to the
Company or its Subsidiaries. Nothing contained in this Section 24 shall limit
any obligations of the Company, or any rights of any Holder.

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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations
of Series B Convertible Preferred Stock to be signed by its Chief Executive
Officer on this 5th day of October, 2017.

 

 

 

 

 

 

COMPANY

 

 

 

 

 

 

 

By:  

 

 

 

 

Name:  

Marco Alfonsi

 

 

 

Title:  

Chief Executive Officer

 

  

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EXHIBIT I

 

COMPANY NAME

CONVERSION NOTICE

 

Reference is made to the Certificate of Designations, Preferences and Rights of
the Series B Convertible Preferred Stock of Canbiola, Inc. (the “Certificate of
Designations”). In accordance with and pursuant to the Certificate of
Designations, the undersigned hereby elects to convert the number of shares of
Series B Convertible Preferred Stock, $0.001 par value per share (the “Preferred
Shares”), of Canbiola, Inc., a Florida corporation (the “Company”), indicated
below into shares of common stock, $0.001 value per share (the “Common Stock”),
of the Company, as of the date specified below.

 

Date of Conversion:
_________________________________________________________________________

 

Number of Preferred Shares to be converted:
 ______________________________________________________

 

Share certificate no(s). of Preferred Shares to be converted:
 ___________________________________________

 

Tax ID Number (If
applicable): _________________________________________________________________

 

Conversion
Price**: _________________________________________________________________

 

Number of shares of Common Stock to be
issued: ___________________________________________________

 

Please issue the shares of Common Stock into which the Preferred Shares are
being converted in the following name and to the following address:

 

Issue to: _______________________________________________________________

 

                _______________________________________________________________

 

Address: _______________________________________________________________

 

Telephone Number: ____________________________________________________

 

Facsimile Number: _______________________________________________________

 

Holder: ______________________________________________________________

 

By: ___________________________________________________

 

Title: _________________________________________________

 

Dated: _______________________________________________

 

Account Number (if electronic book entry transfer):
_____________________________________________

 

Transaction Code Number (if electronic book entry transfer):
________________________________________

 

** Conversion Price may be based on the VWAP of the Trading Day prior to the
Conversion Date and remains subject to adjustment upon the close of the
Principal Market on the Conversion Date.

41

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EXHIBIT II

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs
[                                ] to issue the above indicated number of shares
of Common Stock in accordance with the Irrevocable Transfer Agent Instructions
dated __________, 2017 from the Company and acknowledged and agreed to by
[                              ].

 

     COMPANY NAME 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

42