exh4-1.htm


    
      Exhibit
4.1

       

      EXHIBIT
A

      


      EVERGREEN
ENERGY INC.

      


      CERTIFICATE
OF DESIGNATION OF PREFERENCES,

      RIGHTS
AND LIMITATIONS

      OF

      SERIES
B
CONVERTIBLE PREFERRED STOCK

      


      PURSUANT
TO SECTION 151 OF THE

      DELAWARE
GENERAL CORPORATION LAW

      


              The
undersigned, Thomas B. Stoner and William G. Laughlin, do hereby certify
that:

      


                      1.
They are the President and Secretary, respectively, of Evergreen Energy Inc., a
Delaware corporation (the “Corporation”).

      


                      2.
The Corporation is authorized to issue 20,000,000 shares of preferred stock,
none of which have been issued.

      


                      3.
The following resolutions were duly adopted by the board of directors of the
Corporation (the “Board of
Directors”):

      


              WHEREAS,
the certificate of incorporation of the Corporation provides for a class of its
authorized stock known as preferred stock, consisting of 20,000,000 shares,
$0.001 par value per share, issuable from time to time in one or more
series;

      


              WHEREAS,
the Board of Directors is authorized to fix the dividend rights, dividend rate,
voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of preferred stock and the number of
shares constituting any series and the designation thereof, of any of them;
and

      


              WHEREAS,
it is the desire of the Board of Directors, pursuant to its authority as
aforesaid, to fix the rights, preferences, restrictions and other matters
relating to a series of the preferred stock, which shall consist of, except as
otherwise set forth in the Purchase Agreement, up to 6,973.38 shares of the
preferred stock which the Corporation has the authority to issue, as
follows:

      


              NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for
the issuance of a series of preferred stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of preferred
stock as follows:


      
        
           


        

        
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      TERMS
OF PREFERRED STOCK

      


      Section
1.     Definitions. For the
purposes hereof, the following terms shall have the following
meanings:

      


      “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 of the Securities Act.

      


      “Alternate
Consideration” shall have the meaning set forth in Section
7(e).

       

      “Bankruptcy Event”
means any of the following events: (a) the Corporation or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Corporation or
any Significant Subsidiary thereof, (b) there is commenced against the
Corporation or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 60 days after commencement, (c) the Corporation or
any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered,
(d) the Corporation or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 calendar days after such
appointment, (e) the Corporation or any Significant Subsidiary thereof makes a
general assignment for the benefit of creditors, (f) the Corporation or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts, or (g) the
Corporation or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

      


      “Beneficial Ownership
Limitation” shall have the meaning set forth in Section
6(d).

       

      “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.

      


      “Buy-In” shall have
the meaning set forth in Section 6(c)(iv).

      


      “Change of Control
Transaction” means the occurrence after the date hereof of any of (a) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective


      
        
           


        

        
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      control
(whether through legal or beneficial ownership of capital stock of the
Corporation, by contract or otherwise) of in excess of 33% of the voting
securities of the Corporation (other than by means of conversion or exercise of
Preferred Stock and the Securities issued together with the Preferred Stock),
(b) the Corporation merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Corporation and, after giving effect
to such transaction, the stockholders of the Corporation immediately prior to
such transaction own less than 66% of the aggregate voting power of the
Corporation or the successor entity of such transaction, (c) the Corporation
sells or transfers all or substantially all of its assets to another Person, (d)
a replacement at one time or within a one year period of more than one-half of
the members of the Board of Directors which is not approved by a majority of
those individuals who are members of the Board of Directors on the Original
Issue Date (or by those individuals who are serving as members of the Board of
Directors on any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members on the
Original Issue Date), or (e) the execution by the Corporation of an agreement to
which the Corporation  is a party or by which it is bound, providing
for any of the events set forth in clauses (a) through (d) above.

      


      “Closing” means the
closing of the purchase and sale of the Securities pursuant to Section 2.1 of
the Purchase Agreement.

      


      “Closing Date” means
the Trading Day on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto and all conditions precedent to (i)
each Holder’s obligations to pay the Subscription Amount and (ii) the
Corporation’s obligations to deliver the Securities have been satisfied or
waived.

      


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

      


      “Common Stock” means
the Corporation’s common stock, par value $0.001 per share, and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed.

      


      “Common Stock
Equivalents” means any securities of the Corporation or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants 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.

      


      “Conversion Amount”
means the sum of the Stated Value at issue.

      


      “Conversion Date”
shall have the meaning set forth in Section 6(a).

      


      “Conversion Price”
shall have the meaning set forth in Section 6(b).


      
        
           


        

        
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      “Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of the
shares of Preferred Stock in accordance with the terms hereof.

       

      “Dividend Payment
Date” shall have the meaning set forth in Section 3(a).

      


      “Effective Date” means
the earlier of the date that (a) all of the Conversion Shares have been
registered for resale by the Holders pursuant to a registration statement(s)
declared effective by the Commission and (b) all of the Conversion Shares have
been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the
requirement for the Corporation to be in compliance with the current public
information required under Rule 144 and without volume or manner-of-sale
restrictions.

      


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

      


       “Fundamental
Transaction” shall have the meaning set forth in Section
7(e).

      


      “GAAP” means United
States generally accepted accounting principles.

      


      “Holder” shall mean
each holder of a share of Preferred Stock.

      


      “Indebtedness” means
(a) any liabilities for borrowed money or amounts owed in excess of $200,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) 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 Corporation’s 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 (c) the present value of
any lease payments in excess of $200,000 due under leases required to be
capitalized in accordance with GAAP.

      


      “Junior Securities”
means the Common Stock and all other Common Stock Equivalents of the Corporation
other than those securities which are explicitly senior or pari passu to the
Preferred Stock in dividend rights or liquidation preference.

      


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

       

      “Liquidation” shall
have the meaning set forth in Section 5.

      


      “Make-Whole Payment”
shall have the meaning set forth in Section 3(a).

      


      “New York Courts”
shall have the meaning set forth in Section 11(d).

      


      “Notice of Conversion”
shall have the meaning set forth in Section 6(a).


      
        
           


        

        
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       “Original Issue Date”
means the date of the first issuance of any shares of the Preferred Stock
regardless of the number of transfers of any particular shares of Preferred
Stock and regardless of the number of certificates which may be issued to
evidence such Preferred Stock.

      


       “Permitted
Indebtedness” means (a) the Indebtedness existing on the Original Issue
Date and set forth on Schedule 3.1(aa)
attached to the Purchase Agreement (“Existing Indebtedness”); (b) any
replacement, refinance, or restructuring of any Existing Indebtedness (provided,
however, that in connection with any such replacement, refinance or
restructuring, the Corporation may not, prior to the later of December 1, 2009
and the Effective Date, (i) lower the conversion price (through amendment,
exchange or otherwise) of any convertible Existing Indebtedness or (ii) issue
any Common Stock or Common Stock Equivalents in exchange for nonconvertible
Existing Indebtedness); and (c) lease obligations and purchase money
indebtedness of up to $500,000, in the aggregate, incurred in connection with
the acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets.

      


       “Permitted Lien” means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Corporation) have been established
in accordance with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of the Corporation’s business, such as carriers’, warehousemen’s
and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens
arising in the ordinary course of the Corporation’s business, and which (x) do
not individually or in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of the
business of the Corporation and its consolidated Subsidiaries or (y) are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such Lien, (c) Liens incurred in connection with
Permitted Indebtedness under clause (a) thereunder, and (d) Liens incurred in
connection with Permitted Indebtedness under clause (b) thereunder, provided
that such Liens are not secured by assets of the Corporation or its Subsidiaries
other than the assets so acquired or leased.

      


      “Permitted
Transaction” shall mean (i) the Corporation’s contemplated offering
pursuant to a universal shelf registration statement for $50,000,000 or (ii) the
sale of all or substantially all the assets or sale of all or substantially all
of the outstanding equity held by the Company of Buckeye Industrial Mining Co.
(“Buckeye”) to
an unaffiliated and unrelated Person so long as the Corporation together with
its Subsidiaries continues to have bona fide, substantial and continuing
business operations and activities at all times after such sale is consummated,
provided that if the Corporation together with its Subsidiaries ceases to have
bona fide, substantial and continuing business operations and activities at any
time after such sale is consummated such sale shall have never constituted a
Permitted Transaction hereunder and each Holder shall be entitled
exercise


      
        
           


        

        
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       all
of its rights hereunder that would have been available to such Holder at the
time of the consummation of such sale, including, without limitation, any
redemption rights under Section 10.

      


      “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 Stock”
shall have the meaning set forth in Section 2.

      


      “Purchase Agreement”
means the Securities Purchase Agreement, dated as of the Original Issue Date,
among the Corporation and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.

      


      “Registration Rights
Agreement” means the Registration Rights Agreement, dated as of the date
of the Purchase Agreement, among the Corporation and the original Holders, in
the form of Exhibit
B attached to the Purchase Agreement.

      


      “Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Holder as provided for in the Registration Rights
Agreement.

      


      “Rights Plan” means
the stockholder rights plan adopted by the Corporation.

      


      “Securities” means the
Preferred Stock, the Warrants, the Warrant Shares and the Underlying
Shares.

      


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

      


      “Series A Preferred”
means the Corporation’s Series A Junior Participating Preferred Stock, of which
no shares are outstanding as of the Original Issue Date.

      


      “Share Delivery Date”
shall have the meaning set forth in Section 6(c).

      


      “Stated Value” shall
have the meaning set forth in Section 2, as the same may be increased pursuant
to Section 3 and as adjusted for reverse and forward stock splits and the like
after the Original Issue Date.

      


      “Subscription Amount”
shall mean, as to each Holder, the aggregate amount to be paid for the Preferred
Stock purchased pursuant to the Purchase Agreement as specified below such
Holder’s name on the signature page of the Purchase Agreement and next to the
heading “Subscription Amount,” in United States dollars and in immediately
available funds.


      
        
           


        

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

       

      “Successor Entity”
shall have the meaning set forth in Section 7(e).

      


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

      


      “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 NYSE, NYSE Arca, AMEX, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the New York Stock Exchange, the OTC Bulletin Board or any successors to
any of the foregoing.

      


      “Transaction
Documents” means this Certificate of Designation, the Purchase Agreement,
the Warrants, the Registration Rights Agreement, all exhibits and schedules
thereto and hereto and any other documents or agreements executed in connection
with the transactions contemplated pursuant to the Purchase
Agreement.

       

      “Transfer Agent” means
Intrawest Transfer Company, Inc., the current transfer agent of the Corporation,
with a mailing address of 1981 East 4800 South, Salt Lake City, Utah 84117 and a
facsimile number of 801-272-9370, and any successor transfer agent of the
Corporation.

       

      “Triggering Event”
shall have the meaning set forth in Section 10(a).

      


      “Triggering Redemption
Amount” means, for each share of Preferred Stock, the sum of (a) the
greater of (i) the sum of (1) 130% of the Stated Value, plus (2) accrued and
unpaid dividends thereon and (ii) the sum of (1) 130% of the product of (y) the
VWAP on the Trading Day immediately preceding the date of the Triggering Event
and (z) the Stated Value divided by the then Conversion Price, plus (2) accrued and
unpaid dividends thereon, (b) the Make-Whole Payment and (c) all liquidated
damages and other costs, expenses or amounts due in respect of the Preferred
Stock.

      


      “Triggering Redemption
Payment Date” shall have the meaning set forth in Section
10(b).

      


      “Underlying Shares”
means the shares of Common Stock issued and issuable upon conversion or
redemption of the Preferred Stock and upon exercise of the
Warrants.

       

       “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
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      listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b)  if the
OTC Bulletin Board is not a Trading Market, the volume weighted average price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holders of 70% in
interest of the Securities then outstanding and reasonably acceptable to the
Corporation, the fees and expenses of which shall be paid by the
Corporation.

      


      “Warrants” means,
collectively, the Common Stock purchase warrants delivered to the Holders at the
Closing in accordance with Section 2.2(a) of the Purchase Agreement, which
Warrants shall be exercisable immediately and have a term of exercise equal to
five years, in the form of Exhibit C
attached to the Purchase Agreement.

       

      “Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

       

      Section
2.     Designation, Amount and Par
Value. The series of preferred stock shall be designated as its Series B
Convertible Preferred Stock (the “Preferred Stock”) and
the number of shares so designated shall be up to 6,973.38 (which shall not be
subject to increase unless approved by the Holders in accordance with Section
4). Each share of Preferred Stock shall have a par value of $0.001 per share and
a stated value equal to $1,000, subject to increase set forth in Section 3 below
(the “Stated
Value”).

       

      Section
3.     Dividends.

      


      a)           Dividends in Cash;
Make-Whole. Subject to the Make-Whole Payment provision set forth below
in this Section 3(a), Holders shall be entitled to receive, and the Corporation
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) of 5.6597510373444% per annum until October 21, 2014 and
0% per annum thereafter, payable semi-annually on June 30 and December 31,
beginning on December 31, 2009 and on each Conversion Date (with respect only to
Preferred Stock being converted) (each such date, a “Dividend Payment
Date”) (if any Dividend Payment Date is not a Trading Day, the applicable
payment shall be due on the next succeeding Trading Day) in cash; provided, however, upon the
conversion of Preferred Stock prior to October 21, 2014, the Corporation shall
pay to the Holders of the Preferred Stock so converted cash with respect to the
Preferred Stock so converted in an amount equal to U.S. $282.99 per $1,000
stated value of the Preferred Stock, less the amount of any dividend paid on
such Preferred Stock before the relevant Conversion Date (the “Make-Whole
Payment”).

       
 

       


      
        
           


        

        
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      b)           Dividend
Calculations. Dividends on the Preferred Stock shall be calculated on the
basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall
accrue daily commencing on the Original Issue Date, and shall be deemed to
accrue from such date whether or not earned or declared and whether or not there
are profits, surplus or other funds of the Corporation legally available for the
payment of dividends.

      


      c)           Late Fees. Any
dividends that are not paid within three Trading Days following a Dividend
Payment Date shall continue to accrue and shall entail a late fee, which must be
paid in cash, at the rate of 18% per annum or the lesser rate permitted by
applicable law which shall accrue daily from the Dividend Payment Date through
and including the date of actual payment in full.

       

      d)           Other Securities. So
long as any Preferred Stock shall remain outstanding, and except for the
issuance of any Series A Preferred or securities pursuant to the Rights Plan,
neither the Corporation nor any Subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities except as
expressly permitted by Section 10(a)(ix).  So long as any Preferred
Stock shall remain outstanding, neither the Corporation nor any Subsidiary
thereof shall directly or indirectly pay or declare any dividend or make any
distribution upon (other than a dividend or distribution described in Section 6
or dividends due and paid in the ordinary course on preferred stock of the
Corporation at such times when the Corporation is in compliance with its payment
and other obligations hereunder), nor shall any distribution be made in respect
of, any Junior Securities, nor shall any monies be set aside for or applied to
the purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari passu with the
Preferred Stock.

      


      e)           Special Reserves. The
Corporation acknowledges and agrees that the capital of the Corporation (as such
term is used in Section 154 of the Delaware General Corporation Law) in respect
of the Preferred Stock and any future issuances of the Corporation’s capital
stock shall be equal to the aggregate par value of such Preferred Stock or
capital stock, as the case may be, and that, on or after the date of the
Purchase Agreement, it shall not increase the capital of the Corporation with
respect to any shares of the Corporation’s capital stock issued and outstanding
on such date.  The Corporation also acknowledges and agrees that it
shall not create any special reserves under Section 171 of the Delaware General
Corporation Law without the prior written consent of each Holder.

      


      Section
4.     Voting Rights. Except
as otherwise provided herein or as otherwise required by law, the Preferred
Stock shall have no voting rights. However, as long as any shares of Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote
of the Holders of 70% of the then outstanding shares of the Preferred Stock, (a)
alter or change adversely the powers, preferences or rights given to the
Preferred Stock or alter or amend this Certificate of Designation, (b) authorize
or create any class of stock ranking as to dividends, redemption or distribution
of assets upon a Liquidation (as defined in Section 5) senior to, or 

        
          
             


          

          
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      otherwise
pari passu with, the
Preferred Stock, (c) amend its certificate of incorporation or other charter
documents in any manner that adversely affects any rights of the Holders, (d)
increase the number of authorized shares of Preferred Stock, or (e) enter into
any agreement with respect to any of the foregoing.

       

      Section
5.     Liquidation. Upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary (a “Liquidation”), the
Holders shall be entitled to receive out of the assets, whether capital or
surplus, of the Corporation an amount equal to the sum of (i) the Stated Value
plus accrued and unpaid dividends thereon, plus (ii) the Make-Whole Payment,
plus (iii) any other fees or liquidated damages then due and owing thereon under
this Certificate of Designation, for each share of Preferred Stock before any
distribution or payment shall be made to the holders of any Junior Securities,
and if the assets of the Corporation shall be insufficient to pay in full such
amounts, then the entire assets to be distributed to the Holders shall be
ratably distributed among the Holders in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full.  A Fundamental Transaction or Change of Control Transaction
shall not be deemed a Liquidation. The Corporation shall mail written notice of
any such Liquidation, not less than 45 days prior to the payment date stated
therein, to each Holder.

      


      Section
6.     Conversion.

      


      a)           Conversions at Option of
Holder. Each share of Preferred Stock shall be convertible, at any time
and from time to time from and after the Original Issue Date at the option of
the Holder thereof, into that number of shares of Common Stock (subject to the
limitations set forth in Section 6(d)) determined by dividing the Stated Value
of such share of Preferred Stock by the Conversion Price. Holders shall effect
conversions by providing the Corporation with the form of conversion notice
attached hereto as Annex A (a “Notice of
Conversion”) in the manner provided in Section 11(a) of this Certificate
of Designations. Each Notice of Conversion shall specify the number of shares of
Preferred Stock to be converted, the number of shares of Preferred Stock owned
prior to the conversion at issue, the number of shares of Preferred Stock owned
subsequent to the conversion at issue and the date on which such conversion is
to be effected, which date may not be prior to the date the applicable Holder
delivers such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If
no Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion to the Corporation is deemed
delivered hereunder. The calculations and entries set forth in the Notice of
Conversion shall control in the absence of manifest or mathematical
error.  To effect conversions of shares of Preferred Stock, a Holder
shall not be required to surrender the certificate(s) representing the shares of
Preferred Stock to the Corporation, unless all of the shares of Preferred Stock
represented thereby are so converted, in which case such Holder shall deliver
the certificate representing such shares of Preferred Stock promptly following
the Conversion Date at issue (it being understood and agreed that delivery of
such certificate shall not be a condition to effecting a
conversion).  Shares of Preferred Stock converted into Common Stock or
redeemed in accordance with the terms hereof shall be canceled and shall not be
reissued.  The 

    

     

     

    
      
        
        

      

      
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    Corporation
shall maintain records showing the number of shares of Preferred Stock converted
for each Holder and the applicable Conversion Date. Each Holder and any
assignee, by acceptance of a certificate for the Preferred Stock, acknowledges
and agrees that, by reason of the provisions of this paragraph, the number of
shares of Preferred Stock represented by such certificate may at any given time
be less than the amount stated on the face thereof.

    


    b)           Conversion
Price.  The conversion price for the Preferred Stock shall
equal $0.6025, subject to adjustment herein (the “Conversion
Price”).

    


    
      	
               
      

            	
              c)

            	
              Mechanics of
      Conversion

            


    

    


    i.           Delivery of Certificate Upon
Conversion. Not later than three (3) Trading Days after each Conversion
Date (the “Share
Delivery Date”), the Corporation shall deliver, or cause to be delivered,
to the converting Holder (A) a certificate or certificates representing the
Conversion Shares which, on or after the earlier of (i) the six month
anniversary of the Original Issue Date or (ii) the Effective Date, shall be free
of restrictive legends and trading restrictions (other than those which may then
be required by the Purchase Agreement) representing the number of Conversion
Shares being acquired upon the conversion of the Preferred Stock and (B) a bank
check in the amount of accrued and unpaid dividends. On or after the earlier of
(i) the six month anniversary of the Original Issue Date or (ii) the Effective
Date, the Corporation shall use its best efforts to deliver any certificate or
certificates required to be delivered by the Corporation under this Section 6
electronically through the Depository Trust Company or another established
clearing corporation performing similar functions.

    


    ii.           Failure to Deliver
Certificates.  If, in the case of any Notice of Conversion,
such certificate or certificates are not delivered to or as directed by the
applicable Holder by the second Trading Day following the Share Delivery Date,
the Holder shall be entitled to elect by written notice to the Corporation at
any time on or before its receipt of such certificate or certificates, to
rescind such Conversion, in which event the Corporation shall promptly return to
the Holder any original Preferred Stock certificate delivered to the Corporation
and the Holder shall promptly return to the Corporation the Common Stock
certificates issued to such Holder pursuant to the rescinded Conversion Notice;
provided that such rescission shall not effect the Corporation’s obligations to
make any payments which have accrued prior to the date of such notice of
rescission pursuant to Section 6(c)(iii) or otherwise.

     

    iii.           Obligation Absolute; Partial
Liquidated Damages.  The Corporation’s obligation to issue and
deliver the Conversion Shares upon conversion of Preferred Stock in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by a Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery 

    


    
      
        
           


        

        
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    of
any judgment against any Person or any action to enforce the same, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by such Holder or any other Person of any obligation to the
Corporation or any violation or alleged violation of law by such Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Corporation to such Holder in connection with the
issuance of such Conversion Shares; provided, however, that such
delivery shall not operate as a waiver by the Corporation of any such action
that the Corporation may have against such Holder.  In the event a
Holder shall elect to convert any or all of the Stated Value of its Preferred
Stock, the Corporation may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, agreement or for any other reason, unless an injunction
from a court, on notice to Holder, restraining and/or enjoining conversion of
all or part of the Preferred Stock of such Holder shall have been sought and
obtained, and the Corporation posts a surety bond for the benefit of such Holder
in the amount of 150% of the Stated Value of Preferred Stock which is subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to such Holder to the extent it obtains judgment.  In the
absence of such injunction, the Corporation shall issue Conversion Shares and,
if applicable, cash, upon a properly noticed conversion. If the Corporation
fails to deliver to a Holder such certificate or certificates pursuant to
Section 6(c)(i) on the second Trading Day after the Share Delivery Date
applicable to such conversion, the Corporation shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each $1,000 of Stated
Value of Preferred Stock being converted, $10 per Trading Day (increasing to $20
per Trading Day on the third Trading Day and increasing to $40 per Trading Day
on the sixth Trading Day after such damages begin to accrue) for each Trading
Day after such second Trading Day after the Share Delivery Date until such
certificates are delivered or Holder rescinds such
conversion.  Nothing herein shall limit a Holder’s right to pursue
actual damages or declare a Triggering Event pursuant to Section 10 hereof for
the Corporation’s failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.  The exercise
of any such rights shall not prohibit a Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.

     

    iv.           Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition to
any other rights available to the Holder, if the Corporation fails for any
reason to deliver to a Holder the applicable certificate or certificates by the
Share Delivery Date pursuant to Section 6(c)(i), and if after the Share Delivery
Date such Holder is required by its brokerage firm to purchase (in an open
market transaction or otherwise), or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale


    


    
      
        
           


        

        
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    by
such Holder of the Conversion Shares which such Holder was entitled to receive
upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the
Corporation shall (A) pay in cash to such Holder (in addition to any other
remedies available to or elected by such Holder) the amount, if any, by which
(x) such Holder’s total purchase price (including any brokerage commissions) for
the Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale price at which the
sell order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of such Holder, either reissue (if
surrendered) the shares of Preferred Stock equal to the number of shares of
Preferred Stock submitted for conversion (in which case, such conversion shall
be deemed rescinded) or deliver to such Holder the number of shares of Common
Stock that would have been issued if the Corporation had timely complied with
its delivery requirements under Section 6(c)(i). For example, if a Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of Preferred
Stock with respect to which the actual sale price of the Conversion Shares
(including any brokerage commissions) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately preceding sentence,
the Corporation shall be required to pay such Holder $1,000. The Holder shall
provide the Corporation written notice indicating the amounts payable to such
Holder in respect of the Buy-In and, upon request of the Corporation, evidence
of the amount of such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Corporation’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Preferred Stock as required pursuant to the terms hereof.

     

    v.           Reservation of Shares
Issuable Upon Conversion. The Corporation covenants that it will at all
times reserve and keep available out of its authorized and unissued shares of
Common Stock for the sole purpose of issuance upon conversion of the Preferred
Stock, as herein provided, free from preemptive rights or any other actual
contingent purchase rights of Persons other than the Holder (and the other
holders of the Preferred Stock), not less than such aggregate number of shares
of the Common Stock as shall (subject to the terms and conditions set forth in
the Purchase Agreement) be issuable (taking into account the adjustments of
Section 7) upon the conversion of the then outstanding shares of Preferred Stock
(the “Required Reserve
Amount”).  The Corporation covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public resale in
accordance with such Registration Statement (subject to such Holder’s compliance
with its obligations under the Registration 

    


    
      
        
           


        

        
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    Rights
Agreement).  If, notwithstanding the foregoing, and not in limitation
thereof, at any time while any shares of Preferred Stock remain outstanding the
Corporation does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to have available for issuance
upon conversion of Preferred Stock at least a number of shares of Common Stock
equal to the Required Reserve Amount (an “Authorized Share
Failure”), then the Corporation shall immediately take all action
necessary to increase the Corporation’s authorized shares of Common Stock to an
amount sufficient to allow the Corporation to have available the Required
Reserve Amount for all shares of Preferred Stock then outstanding, including,
without limitation, the prompt calling and holding of a meeting of shareholders
to approve an increase in the number of authorized shares of Common Stock. In
connection with such meeting, the Corporation shall provide each shareholder
with a proxy statement and shall use its commercially reasonable efforts to
solicit its shareholders’ approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal.

    


    vi.           Fractional Shares. No
fractional shares or scrip representing fractional shares shall be issued upon
the conversion of the Preferred Stock.   As to any fraction of a
share which the Holder would otherwise be entitled to purchase upon such
conversion, the Corporation shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.

    


    vii.           Transfer
Taxes.  The issuance of certificates for shares of the Common
Stock on conversion of this Preferred Stock shall be made without charge to any
Holder for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificates, provided that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holders of such shares of Preferred
Stock and the Corporation shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid.

    


    d)           Beneficial Ownership
Limitation. The Corporation shall
not effect any conversion of the Preferred Stock, and a Holder shall not have
the right to convert any portion of the Preferred Stock, to the extent that,
after giving effect to the conversion set forth on the applicable Notice of
Conversion, such Holder (together with such Holder’s Affiliates, and any Persons
acting as a group together with such Holder or any of such Holder’s Affiliates)
would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below).  For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by such Holder and its Affiliates
shall 

    


    
      
        
           


        

        
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    include
the number of shares of Common Stock issuable upon conversion of the Preferred
Stock with respect to which such determination is being made, but shall exclude
the number of shares of Common Stock which are issuable upon (i) conversion of
the remaining, unconverted Stated Value of Preferred Stock beneficially owned by
such Holder or any of its Affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Corporation  subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, the
Preferred Stock or the Warrants) beneficially owned by such Holder or any of its
Affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section 6(d), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  To the extent that the limitation contained in this
Section 6(d) applies, the determination of whether the Preferred Stock is
convertible (in relation to other securities owned by such Holder together with
any Affiliates) and of how many shares of Preferred Stock are convertible shall
be in the sole discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder’s determination of whether the
shares of Preferred Stock may be converted (in relation to other securities
owned by such Holder together with any Affiliates) and how many shares of the
Preferred Stock are convertible, in each case subject to the Beneficial
Ownership Limitation. To ensure compliance with this restriction, each Holder
will be deemed to represent to the Corporation each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Corporation shall have no obligation to verify
or confirm the accuracy of such determination.  In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 6(d),
in determining the number of outstanding shares of Common Stock, a Holder may
rely on the number of outstanding shares of Common Stock as stated in the most
recent of the following: (i) the Corporation’s most recent periodic or annual
report filed with the Commission, as the case may be, (ii) a more recent public
announcement by the Corporation or (iii) a more recent written notice by the
Corporation or the Transfer Agent setting forth the number of shares of Common
Stock outstanding.  Upon the written request of a Holder, the Corporation
shall within two Trading Days confirm orally and in writing to such Holder the
number of shares of 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 Corporation, including the
Preferred Stock, by such Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of Preferred Stock held by the applicable
Holder.  A Holder, upon not less than 61 days’ prior notice to the
Corporation, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 6(d) applicable to its Preferred Stock provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock 

    


    
      
        
           


        

        
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    upon
conversion of this Preferred Stock held by the Holder and the provisions of this
Section 6(d) shall continue to apply.  Any such increase or decrease
will not be effective until the 61st day
after such notice is delivered to the Corporation and shall only apply to such
Holder and no other Holder.  The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 6(d) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership
Limitation contained herein or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply
to a successor holder of Preferred Stock.

    


    Section
7.     Certain
Adjustments.

    


    a)           Stock Dividends and Stock
Splits.  If the Corporation, at any time while this Preferred
Stock is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any other Common Stock Equivalents (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Corporation
upon conversion of this Preferred Stock), (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, (iii) combines (including by way of
a reverse stock split) outstanding shares of Common Stock into a smaller number
of shares, or (iv) issues, in the event of a reclassification of shares of the
Common Stock, any shares of capital stock of the Corporation, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding any treasury shares of the
Corporation) outstanding immediately before such event, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any adjustment made pursuant to this
Section 7(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

     

    b)           RESERVED

     

    c)           Subsequent Rights
Offerings.  If the Corporation, at any time while this
Preferred Stock is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to the Holders) entitling them to subscribe for
or purchase shares of Common Stock at a price per share that is lower than the
VWAP on the record date referenced below, then the Conversion Price shall be
multiplied by a fraction of which the denominator shall be the number of shares
of the Common Stock outstanding on the date of issuance of such rights, options
or warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights,
options or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered (assuming delivery to the Corporation
in full of all consideration payable upon exercise of such rights, options or
warrants) would 

    


    
      
        
           


        

        
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    purchase
at such VWAP.  Such adjustment shall be made whenever such rights,
options or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants.

     

    d)           Pro Rata
Distributions. If the Corporation, at any time while this Preferred Stock
is outstanding, distributes to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security, then
in each such case the Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness or rights or warrants so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors of the Corporation in good faith.  In either case
the adjustments shall be described in a statement delivered to the Holders
describing the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common
Stock.  Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.

    


    e)           Fundamental
Transaction.  If, at any time while this Preferred Stock is
outstanding, (i) the Corporation, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Corporation with or into
another Person, (ii) the Corporation, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Corporation or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Corporation, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Corporation, directly
or indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
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) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of this Preferred
Stock, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction (without regard to any limitation in
Section

     

    


    
      
        
           


        

        
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    6(d)
on the conversion of this Preferred Stock), the number of shares of Common Stock
of the successor or acquiring corporation or of the Corporation, if it is the
surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Preferred Stock
is convertible immediately prior to such Fundamental Transaction (without regard
to any limitation in Section 6(d) on the conversion of this Preferred
Stock).  For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the
Corporation shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Preferred Stock following such Fundamental Transaction.  To the extent
necessary to effectuate the foregoing provisions, any successor to the
Corporation or surviving entity in such Fundamental Transaction shall file a new
Certificate of Designation with the same terms and conditions and issue to the
Holders new preferred stock consistent with the foregoing provisions and
evidencing the Holders’ right to convert such preferred stock into Alternate
Consideration.  The Corporation shall cause any successor entity in a
Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Corporation under this
Certificate of Designation and the other Transaction Documents (as defined in
the Purchase Agreement) in accordance with the provisions of this Section 7(e)
pursuant to written agreements in form and substance reasonably satisfactory to
the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the holder of this Preferred
Stock, deliver to the Holder in exchange for this Preferred Stock a security of
the Successor Entity evidenced by a written instrument substantially similar in
form and substance to this Preferred Stock which is convertible for a
corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and
receivable upon conversion of this Preferred Stock (without regard to any
limitations on the conversion of this Preferred Stock) prior to such Fundamental
Transaction, and with a conversion price which applies the conversion price
hereunder to such shares of capital stock (but taking into account the relative
value of the shares of Common Stock pursuant to such Fundamental Transaction and
the value of such shares of capital stock, such number of shares of capital
stock and such conversion price being for the purpose of protecting the economic
value of this Preferred Stock immediately prior to the consummation of such
Fundamental Transaction), and which is reasonably satisfactory in form and
substance to the Holder. Upon the occurrence of any such 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 Designation and the other Transaction Documents referring to
the “Corporation” shall refer instead to the Successor Entity), and may exercise
every right

     

    


    
      
        
           


        

        
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    and
power of the Corporation and shall assume all of the obligations of the
Corporation under this Certificate of Designation and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Corporation herein.  The provisions of this paragraph shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied as if the Preferred Stock (and any such subsequent preferred stock) were
fully convertible and without regard to any limitations on the conversion of
Preferred Stock (provided that the Holder shall continue to be entitled to the
benefit of the Beneficial Ownership Limitation, applied however with respect to
shares of capital stock registered under the Exchange Act and thereafter
receivable upon conversion of Preferred Stock (or any such other preferred
stock)).

     

    f)           Calculations.  All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be.  For purposes of this
Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Corporation) issued and
outstanding.

    


    g)           Notice to the
Holders.

    


    i.           Adjustment to Conversion
Price.  Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 7, the Corporation shall promptly deliver to each
Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.

     
 

    ii.           Notice to Allow Conversion
by Holder.  If (A) the Corporation shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the
Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, then, in each case,
the Corporation shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Preferred Stock, and shall cause to be
delivered to each Holder at its last address as it shall appear upon the stock
books of the Corporation, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend,

    


    
      
        
           


        

        
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    distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice.  To the
extent that any notice provided hereunder constitutes, or contains, material,
non-public information regarding the Corporation or any of the Subsidiaries, the
Corporation shall simultaneously file such notice with the Commission pursuant
to a Current Report on Form 8-K.  The Holder shall remain entitled to
convert the Conversion Amount of this Preferred Stock (or any part hereof)
during the 20-day period commencing on the date of such notice through the
effective date of the event triggering such notice except as may otherwise be
expressly set forth herein.

     

                           
Section
8.     RESERVED.

    


    Section
9.     Negative
Covenants.  As long as any shares of Preferred Stock are
outstanding, the Corporation shall not, and shall not permit any of the
Subsidiaries to, directly or indirectly:

    


    a)           other than Permitted Indebtedness, during the longer of
the three month period following the Closing Date or the Effective Date, enter
into, create, incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee, on or
with respect to any of its property or assets now owned or hereafter acquired or
any interest therein or any income or profits therefrom;

     

    b)           other than Permitted Liens, during the longer of the
three month period following the Closing Date or the Effective Date, enter into,
create, incur, assume or suffer to exist any Liens of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;

    


    c)           amend its charter documents, including, without
limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;

    


    d)           except
pursuant to the Rights Plan, repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of
shares of its Common Stock, Common Stock Equivalents or Junior Securities, other
than as to (i) the Conversion Shares or Warrant Shares as permitted or required
under the Transaction Documents and (ii) repurchases of Common Stock or Common
Stock Equivalents of departing officers and directors of the Corporation,
provided that such repurchases shall

    


    
      
        
           


        

        
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    not
exceed an aggregate of $100,000 for all officers and directors for so long as
the Preferred Stock is outstanding;

    


    e)           except for the Series A Preferred, pay cash dividends or
distributions on Junior Securities of the Corporation;

    


    f)           enter
into any transaction with any Affiliate of the Corporation which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Corporation (even if less than a
quorum otherwise required for board approval); or

    


    g)           enter
into any agreement with respect to any of the foregoing.

    


    Section
10.     Redemption Upon Triggering
Events.

     

    a)           “Triggering Event”
means, wherever used herein any of the following events (whatever the reason for
such event and whether such event shall be voluntary or involuntary or effected
by operation of law or pursuant to any judgment, decree or order of any court,
or any order, rule or regulation of any administrative or governmental
body):

    


    i.              the
failure of the initial Registration Statement to be declared effective by the
Commission on or prior to the 180th day
after the Original Issue Date; provided, however, no such
Triggering Event shall be deemed to have occurred if on such date the Holders
may resell the Conversion Shares and Warrant Shares (assuming cashless exercise)
pursuant to Rule 144 without volume or manner restrictions; provided that if at
any time during the period beginning on the 180th day
after the Original Issuance until the one year anniversary of the Original
Issuance Date, Conversion Shares or Warrant Shares (assuming cashless exercise)
may not be sold by the Holder pursuant to Rule 144 due to the Corporation’s
failure to satisfy the current public information requirements of Rule 144, and
a registration statement covering the resale by the Holder of all of such shares
is not effective at such time, a Triggering Event shall be deemed to have
occurred at such time.

     

    ii.              if,
during the Effectiveness Period (as defined in the Registration Rights
Agreement), the effectiveness of the Registration Statement lapses for twenty
(20) consecutive days or for more than an aggregate of 60 calendar days (which
need not be consecutive calendar days) during any 12 month period, or the
Holders shall not otherwise be permitted to resell Registrable Securities under
the Registration Statement for twenty (20) consecutive days or for more than an
aggregate of 60 calendar days (which need not be consecutive calendar days)
during any 12 month period; provided, however, no such
Triggering Event shall be deemed to have occurred if during the full duration of
any such periods the

    


    
      
        
           


        

        
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    Holders
may resell the Conversion Shares and Warrant Shares (assuming cashless exercise)
pursuant to Rule 144 without volume or manner restrictions;

    


    iii.              the
Corporation shall fail to deliver certificates representing Conversion Shares
issuable upon a conversion hereunder that comply with the provisions hereof
prior to the fifth Trading Day after such shares are required to be delivered
hereunder, or the Corporation shall provide written notice to any Holder,
including by way of public announcement, at any time, of its intention not to
comply with requests for conversion of any shares of Preferred Stock in
accordance with the terms hereof;

    


    iv.              one
of the Events (as defined in the Registration Rights Agreement) described in
subsections (i), (ii) or (iii) of Section 2(d) of the Registration Rights
Agreement shall not have been cured to the satisfaction of the Holders prior to
the expiration of 30 calendar days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event resulting
from a failure of a Registration Statement to be declared timely effective by
the Commission on or prior to the 180th day after the Original Issue Date, which
shall be covered by Section 10(a)(i));

    


    v.              the
Corporation shall fail for any reason to pay in full any amount when and as due
under this Certificate of Designation (including, without limitation, the
Corporation’s failure to pay any dividends or other amounts hereunder) or any
other Transaction Document within five days of the date due and
payable;

    


    vi.              the
Corporation shall fail to have available a sufficient number of authorized and
unreserved shares of Common Stock to enable the Corporation to complete any
conversion hereunder (without regard to any limitations on conversion set forth
in Section 6(d));

    


    vii.              unless
specifically addressed elsewhere in this Certificate of Designation as a
Triggering Event, the Corporation shall fail to observe or perform any other
material covenant, agreement or warranty contained in, or otherwise commit any
breach of the Transaction Documents, and such failure or breach shall not, if
subject to the possibility of a cure by the Corporation, have been cured within
five (5) business days after the date on which written notice of such failure or
breach shall have been delivered;

    


    viii.            RESERVED;

    


    ix.              the
Corporation shall redeem more than a de minimis number
of  Junior Securities other than, (i) pursuant to the Rights Plan, or
(ii) as to repurchases of Common Stock or Common Stock Equivalents from
departing officers and directors, provided that, while any of the Preferred
Stock remains

    


    
      
        
           


        

        
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    outstanding,
such repurchases shall not exceed an aggregate of $100,000 from all officers and
directors;

    


    x.              the
Corporation shall be party to a Change of Control Transaction other than a
Permitted Transaction;

    


    xi.              there
shall have occurred a Bankruptcy Event, other than a Bankruptcy Event under
clause (a) of the definition thereof occurring at Buckeye so long as the sole
purpose of such Bankruptcy Event is to effect the sale of all or substantially
all of the assets or substantially all of the outstanding equity held by the
Company of Buckeye to an unaffiliated and unrelated Person;

    


    xii.              the
Common Stock shall fail to be listed or quoted for trading on a Trading Market
for more than five Trading Days, which need not be consecutive Trading Days;
or

    


    xiii.              any
monetary judgment, writ or similar final process shall be entered or filed
against the Corporation, any subsidiary or any of their respective property or
other assets for more than $200,000, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.

    


    b)           Upon
the occurrence of a Triggering Event, each Holder shall (in addition to all
other rights it may have hereunder or under applicable law) have the right,
exercisable at the sole option of such Holder, to require the Corporation to,
(A) redeem all of the Preferred Stock then held by such Holder for a redemption
price, in cash, equal to the Triggering Redemption Amount, (B) redeem all of the
Preferred Stock then held by such Holder for a redemption price, in shares of
Common Stock, equal to a number of shares of Common Stock equal to the
Triggering Redemption Amount divided by 75% of the average of the 10 VWAPs
immediately prior to the date of election hereunder or (C) increase the dividend
rate on all of the outstanding Preferred Stock held by such Holder to 18% per
annum thereafter.  The Triggering Redemption Amount, in cash or in
shares, shall be due and payable or issuable, as the case may be, within five
Trading Days of the date on which the notice for the payment therefor is
provided by a Holder (the “Triggering Redemption
Payment Date”).  If the Corporation fails to pay in full the
Triggering Redemption Amount hereunder on the date such amount is due in
accordance with this Section (whether in cash or shares of Common Stock), the
Corporation will pay interest thereon at a rate equal to the lesser of 18% per
annum or the maximum rate permitted by applicable law, accruing daily from such
date until the Triggering Redemption Amount, plus all such interest thereon, is
paid in full.  For purposes of this Section, a share of Preferred
Stock is outstanding until such date as the applicable Holder shall have
received Conversion Shares upon a conversion (or attempted conversion) thereof
that meets the requirements hereof or has been paid the Triggering Redemption
Amount in cash or shares of Common Stock.

    


    
      
        
           


        

        
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    Section
11.     Miscellaneous.

    


    a)           Notices.  Any
and all notices or other communications or deliveries to be provided by the
Holders hereunder including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Corporation, at the
address set forth above Attention: William G. Laughlin,
General Counsel, facsimile number 303-293-8430, or such other facsimile
number or address as the Corporation may specify for such purposes by notice to
the Holders delivered in accordance with this Section 11.  Any and all
notices or other communications or deliveries to be provided by the Corporation
hereunder shall be in writing and delivered personally, by facsimile, or sent by
a nationally recognized overnight courier service addressed to each Holder at
the facsimile number or address of such Holder appearing on the books of the
Corporation, or if no such facsimile number or address appears on the books of
the Corporation, at the principal place of business of such Holder, as set forth
in the Purchase Agreement.  Any notice or other communication or
deliveries hereunder 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 in this Section prior to 5:30 p.m.
(New York City time) on any date, (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 in this Section on a day that is not a Trading Day or
later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.

     

    b)           Absolute Obligation.
Except as expressly provided herein, no provision of this Certificate of
Designation shall alter or impair the obligation of the Corporation, which is
absolute and unconditional, to pay liquidated damages, accrued dividends and
accrued interest, as applicable, on the shares of Preferred Stock at the time,
place, and rate, and in the coin or currency, herein prescribed.

     

    c)           Lost or Mutilated Preferred
Stock Certificate.  If a Holder’s Preferred Stock certificate
shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and
deliver, in exchange and substitution for and upon cancellation of a mutilated
certificate, or in lieu of or in substitution for a lost, stolen or destroyed
certificate, a new certificate for the shares of Preferred Stock so mutilated,
lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft
or destruction of such certificate, and of the ownership hereof reasonably
satisfactory to the Corporation.

    


    d)           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, without regard to the principles of conflict of laws
thereof.  Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions contemplated by any
of the Transaction Documents (whether brought against

    


    
      
        
           


        

        
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    a
party hereto or its respective Affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York
Courts”).  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed 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 such New York Courts, or such New York Courts are
improper or 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 Certificate
of Designation 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 applicable law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Certificate of
Designation or the transactions contemplated hereby.  If any party
shall commence an action or proceeding to enforce any provisions of this
Certificate of Designation, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.

    


    e)           Waiver.  Any
waiver by the Corporation or a Holder of a breach of any provision of this
Certificate of Designation shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Certificate of Designation or a waiver by any other Holders.  The
failure of the Corporation or a Holder to insist upon strict adherence to any
term of this Certificate of Designation on one or more occasions shall not be
considered a waiver or deprive that party (or any other Holder) of the right
thereafter to insist upon strict adherence to that term or any other term of
this Certificate of Designation on any other occasion.  Any waiver by
the Corporation or a Holder must be in writing.

     

    f)           Severability.  If
any provision of this Certificate of Designation is invalid, illegal or
unenforceable, the balance of this Certificate of Designation shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it
shall nevertheless remain applicable to all other Persons and
circumstances.  If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law.

    


    
      
        
           


        

        
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    g)        Next Business
Day.  Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

    


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

    


    i)           Status of Converted or
Redeemed Preferred Stock.  Shares of Preferred Stock may only
be issued pursuant to the Purchase Agreement.  If any shares of
Preferred Stock shall be converted, redeemed or reacquired by the Corporation,
such shares shall resume the status of authorized but unissued shares of
preferred stock and shall no longer be designated as Series B Convertible
Preferred Stock.

    


    


    *********************

     

     

     

    


    
      
        
           


        

        
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    RESOLVED,
FURTHER, that the Chairman, the president or any
vice-president,   and the secretary or any assistant secretary,
of the Corporation be and they hereby are authorized and directed to prepare and
file this Certificate of Designation of Preferences, Rights and Limitations in
accordance with the foregoing resolution and the provisions of Delaware
law.

    


            IN
WITNESS WHEREOF, the undersigned have executed this Certificate this 21st
day of October 2009.

     

     

    


    
      	
                   /s/ Diana L. Kubik

                   Name:
      Diana L. Kubik

                   Title: 
      VP and CFO

               

            	
                   /s/ William G.
      Laughlin

                   Name:
      William G. Laughlin

                   Title: 
      VP, General Counsel & Secretary

               

            


    

     

    
 

    


    
      
        
           


        

        
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    ANNEX
A

    


    NOTICE
OF CONVERSION

    


    (TO
BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)

    


    The
undersigned hereby elects to convert the number of shares of Series B
Convertible Preferred Stock indicated below into shares of common stock, par
value $0.001 per share (the “Common Stock”), of
Evergreen Energy Inc., a Delaware corporation (the “Corporation”),
according to the conditions hereof, as of the date written below. If shares of
Common Stock are to be issued in the name of a Person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as may be
required by the Corporation in accordance with the Purchase Agreement. No fee
will be charged to the Holders for any conversion, except for any such transfer
taxes.

    


    Conversion
calculations:

    


    
      
        	
                Date
      to Effect Conversion:                                                                                                                       

                 

              
	
                Number
      of shares of Preferred Stock owned prior to Conversion:                                                            

                 

              
	
                Number
      of shares of Preferred Stock to be Converted:                                                                            

                 

              
	
                Stated
      Value of shares of Preferred Stock to be Converted:                                                                     

                 

              
	
                Number
      of shares of Common Stock to be Issued:                                                                                   

                 

              
	
                Applicable
      Conversion Price:                                                                                                                   

                 

              
	
                Number
      of shares of Preferred Stock subsequent to Conversion:                                                              

                 

              
	
                Address
      for Delivery:                                                                                  

                or

                DWAC
      Instructions:

                Broker
      no:                                      _   

                Account
      no:                                         

              
	 
      	
                 

                [HOLDER]

                 

                By:___________________________________

                     Name:

                     Title:

              


      

    

    


     
 

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