EXHIBIT 10.6

 

CERTIFICATE OF DESIGNATIONS, PREFERENCES

AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK

OF

UNITED ENERGY CORP.

(pursuant to NRS 78.1955)

 

United Energy Corp. (the “Company”), a corporation organized and existing under
the Private Corporations Law of the State of Nevada, does hereby certify that,
pursuant to authority conferred upon the Board of Directors of the Company by
the Certificate of Incorporation, as amended, of the Company, and pursuant to
NRS Section 78.1955 of the Private Corporations Law of Nevada, the Board of
Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company’s authorized preferred stock, par value
$0.01 per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of Four Hundred Twenty (420) shares of
Series A Convertible Preferred Stock of the Company, as follows:

RESOLVED, that the Company is authorized to issue 420 shares of Series A
Convertible Preferred Stock (the “Preferred Shares”), par value $0.01 per share,
which shall have the following powers, designations, preferences and other
special rights:

 

(1)        Dividends. The holders of the Preferred Shares shall be entitled to
receive dividends (“Dividends”) at a rate of 6.0% of the Stated Value (as
defined below) per annum, due and payable out of any assets or funds legally
available therefore on each June 30 and December 30 that such Preferred Share is
outstanding (each, a “Dividend Date”). Such Dividends shall be cumulative and
shall accrue daily from the Issuance Date (as defined below). 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. Accrued
dividends, if not paid on the Dividend Date, shall thereafter accrue additional
dividends in respect thereof, compounded annually, at the rate of 6% per annum.

 

Subject to the provisions of Section 5, the holder of a Preferred Share may
elect to have all or any portion of accrued but not paid Dividends paid in
shares of Common Stock by notifying the Company of its election in the form of
notice attached hereto as Exhibit I (the “Dividend Election Notice”). If the
holder elects to have the Dividend paid in shares of

 

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Common Stock, the number of such shares to be issued for such Dividend shall be
the number determined by dividing (x) the Dividend by (y) the Conversion Price
as of the date of such election. Such shares shall be issued and delivered on or
before the third Business Day following the date of receipt by the Company of
the facsimile or other copy of such Dividend Election Notice in accordance with
the procedures set forth in Section 2(d)(ii), and shall be duly authorized,
validly issued, fully paid, non-assessable and free and clear of all
encumbrances. If any holder does not receive the requisite number of shares of
Common Stock in the form required above within such three Business Day period,
the holder shall be entitled to the relief as provided in Section (2)(d)(v)(A)
and (B).

 

(2)        Conversion of Preferred Shares. Preferred Shares shall be convertible
into shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”), on the terms and conditions set forth in this Section 2.

 

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

 

(i)         “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.

 

(ii)        “Closing Sale Price” means, for any security, the closing sale price
per such security as reported by the Principal Market on the trading day
immediately preceding the date on which such value is being determined.

 

(ii)

“Conversion Amount” means the Stated Value.

 

(iii)       “Conversion Price” means, with respect to any Preferred Share as of
any Conversion Date or other date of determination, [$1.00] [subject to
adjustment per Section 4.2(a)(i) of the Securities Purchase Agreement], subject
to adjustment as provided herein.

 

(iv)       “Issuance Date” means, with respect to each Preferred Share, the date
of issuance of the applicable Preferred Share.

 

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

 

(vi)       “Principal Market” means, with respect to any security, the principal
securities exchange or trading market for such security.

 

(vii)      “SEC” means the United States Securities and Exchange Commission.

 

 

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(viii)     “Securities Purchase Agreement” means that certain Securities
Purchase Agreement dated as of March 18, 2005, between the Company, and the
initial holders of the Preferred Shares relating to the issuance of securities
of the Company including shares of the Company’s Series A Convertible Preferred
Stock.

 

(ix)

“Stated Value” means $8,000.

 

(x)        “Warrants” means the warrants issued pursuant to the Securities
Purchase Agreement.

 

(b)        Holder’s Conversion Right. Subject to the provisions of Section 5, at
any time or times on or after the Issuance Date, any holder of Preferred Shares
shall be entitled to convert any whole or fractional number of Preferred Shares
into fully paid and nonassessable shares of Common Stock in accordance with
Section 2(d), at the Conversion Rate (as defined below). The Company shall not
issue any fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, 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 or down to the
nearest whole share.

 

(c)        Conversion Rate. The number of shares of Common Stock issuable upon
conversion of each Preferred Share pursuant to Section 2(b) shall be determined
according to the following formula (the “Conversion Rate”):

 

Conversion Amount

Conversion Price

 

(d)        Mechanics of Conversion. The conversion of Preferred Shares shall be
conducted in the following manner:

 

(i)         Holder’s Delivery Requirements. To convert Preferred Shares into
shares of Common Stock on any date (the “Conversion Date”), the holder thereof
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., Eastern Time on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit II (the “Conversion Notice”)
to the Company and (B) if required by Section 2(d)(vi), surrender to a common
carrier for delivery to the Company as soon as practicable following such date
the original certificates representing the Preferred Shares being converted (or
an indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the “Preferred Stock Certificates”).

 

(ii)        Company’s Response. Upon receipt by the Company of a copy of a
Conversion Notice, the Company (A) shall immediately send, via facsimile, a
confirmation of receipt of such Conversion Notice to such holder and the
Company’s designated

 

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transfer agent (the “Transfer Agent”), which confirmation shall constitute an
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein and (B) on or before the second Business Day
following the date of receipt by the Company of the facsimile or other copy of
such Conversion Notice (the “Share Delivery Date”), (I) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (II) provided the Transfer Agent is
participating in The Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program, upon the request of the holder, credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder’s
or its designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion is greater than the
number of Preferred Shares being converted, then the Company shall, as soon as
practicable and in no event later than three (3) Business Days after receipt of
the Preferred Stock Certificate(s) (the “Preferred Stock Delivery Date”) and at
its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.

 

(iii)       Dispute Resolution. In the case of a dispute as to the arithmetic
calculation of the Conversion Rate, the Company shall instruct the Transfer
Agent to issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed arithmetic calculations to the holder via
facsimile within one (1) Business Day of receipt of such holder’s Conversion
Notice. If such holder and the Company are unable to agree upon the arithmetic
calculation of the Conversion Rate within three (3) Business Days of such
disputed or arithmetic calculation being submitted to the holder, then the
Company shall within one (1) Business Day submit via facsimile the disputed
arithmetic calculation of the Conversion Rate to the Company’s independent,
outside accountant. The Company shall cause the accountant to perform the
determinations or calculations and notify the Company and the holder of the
results no later than three (3) Business Days from the time it receives the
disputed determinations or calculations. Such accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent error.

 

(iv)       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.

 

(v)

Company’s Failure to Timely Convert.

 

(A)       Cash Damages. If within three (3) Business Days after the Company’s
receipt of the facsimile copy of a Conversion Notice the Company shall fail to
issue a certificate to a holder or credit such holder’s balance account with DTC
for the number of shares of Common Stock to which such holder is entitled upon
such holder’s conversion of Preferred Shares or to issue a new Preferred Stock
Certificate representing the number of Preferred Shares to which such holder is
entitled pursuant to Section 2(d)(ii), in addition to all other available
remedies which such holder may pursue hereunder, the Company shall pay to

 

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such holder for each date after the Share Delivery Date such conversion is not
timely effected and/or each date after the Preferred Stock Delivery Date such
Preferred Stock Certificate is not delivered in an amount equal to 0.5% of the
sum of (a) the product of (I) the number of shares of Common Stock not issued to
the holder on or prior to the Share Delivery Date and to which such holder is
entitled and (II) the Closing Sale Price of the Common Stock on the Share
Delivery Date, and (b) in the event the Company has failed to deliver a
Preferred Stock Certificate to the holder on or prior to the Preferred Stock
Delivery Date, the product of (y) the number of shares of Common Stock issuable
upon conversion of the Preferred Shares represented by such Preferred Stock
Certificate, as of the Preferred Stock Delivery Date and (z) the Closing Sale
Price of the Common Stock on the Preferred Stock Delivery Date. If the Company
fails to pay the additional damages set forth in this Section 2(d)(v) within
five (5) Business Days of the date incurred, then the holder entitled to such
payments shall have the right at any time, so long as the Company continues to
fail to make such payments, to require the Company, upon written notice, to
immediately issue, in lieu of such cash damages, the number of shares of Common
Stock equal to the quotient of (X) the aggregate amount of the damages payments
described herein divided by (Y) the Conversion Price in effect on such
Conversion Date as specified by the holder in the Conversion Notice. The
foregoing notwithstanding, the damages set forth in this Section 2(d)(v)(A)
shall be stayed with respect to the number of shares of Common Stock and, if
applicable, the Preferred Stock Certificate for which there is a good faith
dispute being resolved pursuant to, and within the time periods provided for in
Section 2(d)(iii), pending the resolution of such dispute.

 

(B)       Void Conversion Notice; Adjustment to Conversion Price. If for any
reason a holder has not received all of the shares of Common Stock prior to the
tenth (10th) Business Day after the Share Delivery Date with respect to a
conversion of Preferred Shares, then the holder, upon written notice to the
Company, with a copy to the Transfer Agent, 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.

 

(vi)       Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of Preferred Shares in accordance with the terms hereof,
the holder thereof shall not be required to physically surrender the certificate
representing the Preferred Shares to the Company unless the full number of
Preferred Shares represented by the certificate are being converted. The holder
and the Company shall maintain records showing the number of Preferred Shares so
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the holder and the Company, so as not to require
physical surrender of the certificate representing the Preferred Shares upon
each such conversion. In the event of any dispute or discrepancy, such records
of the Company shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if Preferred Shares represented by a
certificate are converted as aforesaid, the holder may not transfer the
certificate representing the Preferred Shares unless the holder first physically
surrenders the certificate representing the Preferred Shares to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the
holder a new certificate of like tenor, registered as the holder may request,
representing in the aggregate the remaining number of Preferred Shares
represented by such certificate. The holder and any assignee, by acceptance of a
certificate, acknowledge and agree

 

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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 of the face thereof. Each
certificate for Preferred Shares shall bear the following legend:

 

ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
COMPANY’S CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 2(d)(vi) THEREOF. THE
NUMBER OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE
NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION
2(d)(vi) OF THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS.

 

(e)        Taxes. The Company shall pay any and all taxes other than capital
gain taxes or other income taxes that may be payable with respect to the
issuance and delivery of Common Stock upon the conversion of Preferred Shares.

 

(f)         Adjustments to Conversion Price. The Conversion Price will be
subject to adjustment from time to time as provided in this Section 2(f).

 

(i)         Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever on or after the date hereof, the Company issues or sells, or in
accordance with this Section 2(f) is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding (a) the Excluded
Securities (as defined below) and (b) shares of Common Stock deemed to have been
issued by the Company in connection with an Approved Stock Plan (as defined
below) or upon conversion of the Preferred Shares or exercise of the Warrants)
for a consideration per share (the "New Share Consideration") less than a price
(the “Applicable Price”) equal to the Conversion Price in effect immediately
prior to such time, then immediately after such issue or sale, the Conversion
Price then in effect shall be adjusted to an amount equal to the New Share
Consideration. For purposes of determining the adjusted Conversion Price under
this Section 2(f)(i), the following shall be applicable:

 

(A)       Issuance of Options. If the Company in any manner grants or sells any
Options (as defined below) and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon conversion
or exchange of any Convertible Securities (as defined below) issuable upon
exercise of such Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(f)(i)(A), the “lowest price per share
for which one share of Common Stock is issuable upon the exercise of any such
Option or upon conversion or exchange of any Convertible Securities issuable
upon exercise of such

 

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Option” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, upon exercise of the Option
and upon conversion or exchange of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities.

 

(B)       Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share for
which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance of sale of such Convertible Securities for such price
per share. For the purposes of this Section 2(f)(i)(B), the “lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Conversion Price shall be made upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Conversion Price had been or are to be made
pursuant to other provisions of this Section 2(f)(i), no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.

 

(C)       Change in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(f)(i)(C), if the terms of any
Option or Convertible Security that was outstanding as of the date of issuance
of the Preferred Shares are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment shall be
made if such adjustment would result in an increase of the Conversion Price then
in effect.

 

(D)       Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $0.01. If any Common Stock, Options or
Convertible Securities are issued or

 

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sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company therefor.
If any Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
where such consideration consists of marketable securities, in which case the
amount of consideration received by the Company will be equal to the arithmetic
average of the Closing Sale Prices of such marketable securities for the ten
(10) consecutive trading days immediately preceding the date of receipt. If any
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the holders of
a majority of the Preferred Shares then outstanding. If such parties are unable
to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the holders of a majority of the Preferred
Shares then outstanding. The determination of such appraiser shall be deemed
binding upon all parties absent manifest error and the fees and expenses of such
appraiser shall be borne equally by the Company and the holders of the Preferred
Shares.

 

(E)        Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

 

(F)        Certain Definitions. For purposes of this Section 2(f)(i), the
following terms have the respective meanings set forth below:

 

(I)         “Approved Stock Plan” shall mean any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which the
Company’s securities may be issued to any employee, officer or director for
services provided to the Company.

 

(II)        “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exchangeable for Common
Stock.

 

(III)       “Options” means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.

 

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(IV)      “Excluded Securities” means (A) provided such security is issued at a
price which is greater than or equal to the greater of (a) 90% of the Applicable
Price and (b) the arithmetic average of the Closing Sale Prices of the Common
Stock for the ten (10) consecutive trading days immediately preceding the date
of issuance, any of the following (i) any issuance by the Company of securities
in connection with a strategic partnership or a joint venture (the primary
purpose of which is not to raise equity capital) and (ii) any issuance by the
Company of securities as consideration for a merger or consolidation or the
acquisition of a business, product, license, or other assets of another person
or entity, (B) any warrants or options outstanding as of the Issuance Date which
have not been modified or amended since the Issuance Date and (C) options to
purchase shares of Common Stock, provided (I) such options are issued after the
Issuance Date to employees of the Company within 30 days of such employee
starting their employment with the Company, (II) an aggregate of no more than
150,000 options are issued in reliance on this exclusion and (III) the exercise
price of such options is not less than 75% of the market price of the Common
Stock on the date of issuance of such options.

 

(ii)        Adjustment of the Conversion Price upon Subdivision or Combination
of Common Stock. If the Company at any time 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. If the Company at any time 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.

 

(iii)       Holder’s Right of Alternative Conversion Price Following Issuance of
Convertible Securities. If the Company in any manner issues or sells any Options
or Convertible Securities after the Issuance Date that are convertible into or
exchangeable or exercisable for Common Stock at a price which may vary with the
market price of the Common Stock, including by way of one or more resets to the
conversion, exchange or exercise price of such Convertible Security or Option
(the formulation for such variable price being herein referred to as, the
“Variable Price”), the Company shall provide written notice thereof via
facsimile and overnight courier to each holder of the Preferred Shares
(“Variable Notice”) on the date of issuance of such Convertible Securities. From
and after the date the Company issues any such Convertible Securities with a
Variable Price, a holder of Preferred Shares shall have the right, but not the
obligation, in its sole discretion to substitute the Variable Price for the
Conversion Price upon conversion of any Preferred Shares by designating in the
Conversion Notice delivered upon conversion of such Preferred Shares that solely
for purposes of such conversion the holder is relying on the Variable Price
rather than the Conversion Price then in effect. A holder’s election to rely on
a Variable Price for a particular conversion of Preferred Shares shall not
obligate the holder to rely on a Variable Price for any future conversions of
Preferred Shares.

 

(iv)

Other Events. If any event occurs of the type contemplated

 

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by the provisions of this Section 2(f) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f).

 

(v)

Notices.

 

(A)       Immediately upon any adjustment of the Conversion Price, the Company
will give written notice thereof to each holder of Preferred Shares, setting
forth in reasonable detail, and certifying, the calculation of such adjustment.

 

(B)       The Company will give written notice to each holder of Preferred
Shares at least ten (10) Business Days prior to the date on which the Company
closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.

 

(C)       The Company will also give written notice to each holder of Preferred
Shares at least ten (10) Business Days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.

 

(3)

Intentionally Omitted.

 

(4)

Other Rights of Holders.

 

(a)        Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company’s assets to another Person or other
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as “Organic Change.” Prior to the consummation of any (i) sale of all
or substantially all of the Company’s assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the “Acquiring Entity”) a
written agreement (in form and substance reasonably satisfactory to the holders
of at least two-thirds (2/3) of the Preferred Shares then outstanding) to
deliver to each holder of Preferred Shares in exchange for such shares, a
security of the Acquiring Entity evidenced by a written instrument substantially
similar in form and substance to the Preferred Shares, including, without
limitation, having a stated value and liquidation preference equal to the Stated
Value and the Liquidation Preference of the Preferred Shares held

 

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by such holder, and reasonably satisfactory to the holders of a at least
two-thirds (2/3) of the Preferred Shares then outstanding. Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to the holders of at
least two-thirds (2/3) of the Preferred Shares then outstanding) to insure that
each of the holders of the Preferred Shares will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder’s Preferred Shares such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the conversion of such holder’s
Preferred Shares as of the date of such Organic Change (without taking into
account any limitations or restrictions on the convertibility of the Preferred
Shares).

 

(c)        Purchase Rights. If at any time the Company grants, issues or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the “Purchase Rights”), then the holders of Preferred Shares will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the Preferred Shares) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.

 

(5)        Limitations on Conversion. The Company shall not effect any
conversion of Preferred Shares (including payment of Dividends in Common Stock)
and no holder of Preferred Shares shall have the right to convert any Preferred
Shares (including payment of Dividends in Common Stock) in excess of that number
of Preferred Shares (or payment of Dividends in Common Stock) which, upon giving
effect to such conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 9.99% of the
shares of the Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by a holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion or exercise of the
Preferred Shares with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock which would
be issuable (i) upon conversion or exercise of the remaining unconverted or
unexercised Preferred Shares beneficially owned by such holder and its
affiliates and (ii) upon conversion or exercise of the unconverted or
unexercised portion of any other securities of the Company beneficially owned by
such holder and its affiliates subject to a limitation on conversion or exercise
analogous to the limitation contained in this paragraph. Except as set forth in
the preceding sentence, for purposes of this paragraph beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. For purposes of this paragraph, in determining the
number of outstanding shares of Common Stock, a holder may rely on the number of
outstanding shares of Common Stock as

 

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reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as the case
may be, (2) a more recent public announcement by the Company or (3) any other
notice by the Company or its transfer agent setting forth the number of shares
of Common Stock outstanding. For any reason at any time, upon the written or
oral request of any holder, the Company shall within one (1) Business Day
confirm orally and in writing to any such holder the number of shares Common
Stock then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the Preferred Shares, by such holder or its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.

 

(6)

Reservation of Shares.

 

(a)        Reservation. The Company shall, so long as any of the Preferred
Shares are outstanding, take all action necessary to reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares (including payment of accrued and unpaid
Dividends in Common Stock) then outstanding; provided that the number of shares
of Common Stock so reserved shall at no time be less than 100% of the number of
shares of Common Stock for which the Preferred Shares are at any time
convertible (without regard to any limitations on conversions) (the “Required
Reserve Amount”). The initial number of shares of Common Stock reserved for
conversions of the Preferred Shares and each increase in the number of shares so
reserved shall be allocated pro rata among the holders of the Preferred Shares
based on the number of Preferred Shares held by each holder at the time of
issuance of the Preferred Shares or increase in the number of reserved shares,
as the case may be. 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 the number of reserved shares of Common Stock reserved for such
transferor. 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.

 

(b)        Insufficient Authorized Shares. If at any time while any of the
Preferred Shares remain outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance upon conversion of the Preferred Shares at
least a number of shares of Common Stock equal to the Required Reserve 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 the Required Reserve Amount
for 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 60 days after the
occurrence of such Authorized Share Failure, the Company shall (A) hold a
meeting of its stockholders or (B) obtain a majority written consent of its
stockholders, for the authorization 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 and shall use its best efforts
to solicit its stockholders’ approval of such

 

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increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

 

(7)        Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, and as expressly provided in this Certificate
of Designations.

 

(8)        Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares 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 the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (a) the Stated
Value and (b) the accrued but not paid Dividends for such Preferred Share (such
sum being referred to as the “Liquidation Preference”); provided that, if the
Liquidation Funds are insufficient to pay the full amount due to the holders of
Preferred Shares and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Preferred Shares as to
payments of Liquidation Funds (the “Pari Passu Shares”), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the full
amount of Liquidation Funds payable to all holders of Preferred Shares and Pari
Passu Shares. In addition to the receipt of the Liquidation Preference, in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of the Preferred Shares shall be entitled to receive
Liquidation Funds distributed to holders of Common Stock, after the Liquidation
Preference has been paid, to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversions herein or elsewhere) and had held such shares of
Common Stock on the record date for such distribution of the remaining
Liquidation Funds. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.

 

(9)        Preferred Rank. All shares of Common Stock shall be of junior rank to
all Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then

 

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outstanding Preferred Shares, the Company shall not hereafter authorize or issue
additional or other capital stock that is of senior or equal rank to the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company’s Certificate of Incorporation or
bylaws, or file any resolution of the board of directors of the Company with the
Nevada Secretary of State or enter into any agreement containing any provisions,
which would adversely affect or otherwise impair the rights or relative priority
of the holders of the Preferred Shares relative to the holders of the Common
Stock or the holders of any other class of capital stock. In the event of the
merger or consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.

 

(10)      Participation. Subject to the rights of the holders, if any, of the
Pari Passu Shares, the holders of the Preferred Shares shall, as holders of
Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into 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 distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.

 

(11)      Restriction on Redemption. Until all of the Preferred Shares have been
converted and all accrued Dividends have been paid as provided herein, the
Company shall not, directly or indirectly, redeem its capital stock (other than
the Preferred Shares) without the prior express written consent of the holders
of not less than two-thirds (2/3) of the then outstanding Preferred Shares.

 

(12)      Vote to Change the Terms of Preferred Shares. The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting,
of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, shall be required for (a) any change to this Certificate of
Designations or the Company’s Certificate of Incorporation which would amend,
alter, change or repeal any of the powers, designations, preferences and rights
of the Preferred Shares and (b) the issuance of Preferred Shares other than
pursuant to the Securities Purchase Agreement.

 

(13)      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 Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred

 

14

 

 

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Shares into Common Stock.

 

(14)      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, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder’s right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares 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 the holder thereof 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 of the
Preferred Shares 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, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

 

(15)      Specific Shall Not Limit General; Construction. No specific provision
contained in this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all Purchasers and shall not be
construed against any person as the drafter hereof.

 

(16)      Failure or Indulgence Not Waiver. No failure or delay on the part of a
holder of Preferred Shares 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.

 

(17)      Notice. Whenever notice is required to be given pursuant to this
Certificate of Designations, unless otherwise provided herein, such notice shall
be given in accordance with Section 9.4 of the Securities Purchase Agreement.

 

                

 

15

 

 

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IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to
be signed by its President, and by its Secretary, as of the [_] day of
[__________], 2005.

 

UNITED ENERGY CORP.

 

By:

 

Name: ______________

Its:

President

 

 

 

By:

 

Name: ______________

Its:

Secretary

 

 

 

State of ________________

)

) ss

County of ______________

)

 

On [___________] [_], 2005, personally appeared before me, a Notary Public,
[_________________] and [_________________], who acknowledged that they executed
the above instrument.

 

 

_________________________

Notary Public

 

 

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EXHIBIT I

 

UNITED ENERGY CORP.

DIVIDEND ELECTION NOTICE

 

Reference is made to the Certificate of Designations, Preferences and Rights of
United Energy Corp. for its Series A Convertible Preferred Stock (the
“Certificate of Designations”). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to have accrued and
unpaid dividends on the shares of Series A Convertible Preferred Stock, (the
“Preferred Shares”), paid in shares of Common Stock, par value $0.01 per share
(the “Common Stock”), of the Company, as of the date specified below.

 

Date of Election:

______________

 

Amount of Dividends to be Paid:

______________

 

Stock certificate no(s). of Preferred Shares:

______________

 

Please confirm the following information:

 

Conversion Price:

______________

 

Number of shares of Common Stock to be issued:

______________

 

 

Please issue the Common Stock in the following name and to the following
address:

 

Issue to:___________________________________

 

 

Facsimile Number:____________________________

 

Authorization: ___________________________________________

 

By:

____________________________

 

Title:

____________________________

 

Dated:_____________________________________

 

Account Number (if electronic book entry transfer):____________________

 

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

 

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ACKNOWLEDGMENT

 

The Company hereby acknowledges this Dividend Election Notice and hereby directs
its TRANSFER AGENT to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated ___________ ___, ____
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

 

UNITED ENERGY CORP.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

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EXHIBIT II

 

UNITED ENERGY CORP.

CONVERSION NOTICE

 

Reference is made to the Certificate of Designations, Preferences and Rights of
United Energy Corp. for its Series A Convertible Preferred Stock (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 A Convertible Preferred Stock, par value $0.01 per share
(the “Preferred Shares”), of United Energy Corp., a Nevada corporation (the
“Company”), indicated below into shares of Common Stock, par value $0.01 per
share (the “Common Stock”), of the Company, as of the date specified below.

 

Date of Conversion:

______________

 

Number of Preferred Shares to be converted:

______________

 

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

______________

 

Please confirm the following information:

 

Conversion Price:

______________

 

Number of shares of Common Stock to be issued:

______________

 

 

Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:

 

Issue to:___________________________________

 

 

Facsimile Number:____________________________

 

Authorization: ___________________________________________

 

By:

____________________________

 

Title:

____________________________

 

Dated:_____________________________________

 

Account Number (if electronic book entry transfer):____________________

 

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

 

 

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ACKNOWLEDGMENT

 

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

 

UNITED ENERGY CORP.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

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