**TERAGLOBAL COMMUNICATIONS,CORP.CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OFSERIES A CONVERTIBLE PREFERRED STOCK**

Pursuantto Section 151 of the Delaware General Corporation Law

             TeraGlobalCommunications Corp., a corporation organized and existing under the laws ofthe State of Delaware (the “Corporation”), does hereby certify that, pursuantto the authority conferred on the Board of Directors of the Corporation by theCertificate of Incorporation of the Corporation and in accordance with Section151 of the Delaware General Corporation Law, the Board of Directors of theCorporation adopted the following resolution establishing a series of 13million shares of preferred stock of the Corporation designated as “Series AConvertible Preferred Stock”:

             RESOLVED,that pursuant to the authority conferred on the Board of Directors of thisCorporation by the Certificate of Incorporation, as amended, a series ofPreferred Stock of the Corporation is hereby established and created, and thatthe designation and number of shares thereof and the voting and other powers,preferences and relative, participating, optional or other rights of the sharesof such series and the qualifications, limitations and restrictions thereof areas follows:

SeriesA Convertible Preferred Stock

                           Section1.  Designation and Amount. Thereshall be a series of Preferred Stock designated as “Series A ConvertiblePreferred Stock” and the number of shares constituting such series shall beThirteen Million (13,000,000).  Suchseries is referred to herein as the “Series A Preferred Stock” and shall have apar value of $.001 per share.  Suchnumber of shares may be increased, decreased or eliminated by resolution of theBoard of Directors of the Corporation or a duly-authorized committee thereof incompliance with the Delaware General Corporation Law stating that such increaseor reduction has been authorized; provided, however, that no decrease shallreduce the number of shares of Series A Preferred Stock to less than the numberof shares then issued and outstanding or agreed as of the date of thisCertificate of Designations, Preferences and Rights to be issued andoutstanding.

                           Section2.  Certain Definitions.  For purposes hereof the followingdefinitions shall apply:

                           “Board”shall mean the Board of Directors of the Corporation.

 

                           “ClosingBid Price” of any security, for each Trading Day, shall mean the price atwhich such security was last exchanged on the Stock Market during such TradingDay, or, if there were no transactions on such Trading Day, the average of thereported closing bid and asked prices, regular way, of such security on therelevant Stock Market on such Trading Day or if no closing bid price, the lastsale price of such security, regular way.
                           “CommonStock” shall mean the Common Stock, $.001 par value, of the Corporation.

                           “ConversionPrice” shall have the meaning assigned to such term in Section 7(b) hereof.

                           “ConversionRate” shall have the meaning assigned to such term in Section 7(b) hereof.

                           “ConvertibleSecurities” shall have the meaning assigned to such term in Section 7 (f)hereof.

                           “Corporation”shall mean TeraGlobal Communications Corp., a Delaware corporation.

                           “Eventof Default” shall have the meaning assigned to such term in Section 10hereof.

                           “FairMarket Value” of any asset (including any security) means the fair marketvalue thereof as mutually determined by the Corporation and the holders of amajority of the Series A Preferred Stock then outstanding.  If the Corporation and the holders of a majorityof the Series A Preferred Stock then outstanding are unable to reach agreementon any valuation matter, such valuation shall be submitted to and determined bya nationally recognized independent investment bank selected by the Board ofDirectors and the holders of a majority of the Series A Preferred Stock (or, ifsuch selection cannot be agreed upon promptly, or in any event within ten days,then such valuation shall be made by a nationally recognized independentinvestment banking firm selected by the American Arbitration Association in NewYork City in accordance with its rules), the costs of which valuation shall bepaid for by the Corporation.

                           “InitialClosing” shall mean the date of this Certificate of Designations,Preferences and Rights.

                           “InvestmentAmount” shall mean the lesser of $0.51 per share of Series A PreferredStock or the Market Price on the closing date.

                           “JuniorStock” shall mean the Common Stock and any shares of any other series orclass of preferred stock of the Corporation, whether presently outstanding orhereafter issued.

                           “LiquidationAmount” shall have the meaning ascribed to such term in Section 4(a)hereof.

                           “Majority”shall mean more than 50% of the shares of Series A Preferred Stock from time totime issued and outstanding.
                           “MarketPrice” of any security shall mean the average Closing Bid Price for the 20consecutive Trading Days ending with the Trading Day prior to the date as ofwhich the Market Price is being determined (with appropriate adjustments forsubdivisions or combinations of shares effected during such period), providedthat if the prices referred to in the definition of Closing Bid Price cannot bedetermined for such period, “Market Price” shall mean Fair Market Value as of5:00 pm (New York City time) on the Trading Day prior to the date on which theMarket Price is being determined.

                           “RedemptionDate” shall have the meaning assigned to such term in Section 5(b) hereof.

                           “RedemptionPrice” shall have the meaning assigned to such term in Section 5(b) hereof.

                           “RedemptionNotice” shall have the meaning assigned to such term in Section 5(c)hereof.

                           “RegisteredHolders” shall mean, at any time, the holders of record of the Series APreferred Stock.

                           “SeriesA Preferred Stock” shall mean the Series A Convertible Preferred Stock ofthe Corporation.

                           “SeriesA Substantial Stockholder” shall mean each purchaser from the Corporationof  $1 million or more of Series APreferred Stock, together with such purchaser’s successors and assigns.

                           “StockMarket” shall mean, with respect to any security, the principal nationalsecurities exchange on which such security is listed or admitted to trading or,if such security is not listed or admitted to trading on any nationalsecurities exchange, shall mean The Nasdaq National Market System (“NNM”) orThe Nasdaq SmallCap Market (“SCM” and, together with NNM, “Nasdaq”) or, if suchsecurity is not quoted on Nasdaq, shall mean the OTC Bulletin Board or, if suchsecurity is not quoted on the OTC Bulletin Board, shall mean theover-the-counter market as furnished by any NASD member firm selected from timeto time by the Corporation for that purpose.

                           “Subsidiary”shall mean any corporation, limited liability company or other entity, amajority of the voting stock or interest of which is, at the time as of whichany determination is being made, owned by the Corporation either directly orthrough one or more Subsidiaries.

                           “TradingDay” shall mean a day on which the relevant Stock Market is open for thetransaction of business.

 

                           Section3.  Dividends.

                           (a)The holders of shares of Series A Preferred Stock shall be entitled to receive,as, when and if declared by the Board, out of assets legally available for thatpurpose, dividends or distribution in cash, stock or otherwise.  All dividends or distributions declared uponthe Series A Preferred Stock shall be declared pro rata per share.

                           (b)The Series A Preferred Stock shall be entitled to cumulative dividends payablein cash at a rate of 10% per annum on the Investment Amount. Dividends shall bepayable only when, as and if declared by the Board of Directors.  Accrued and unpaid dividends thereon shallbe compounded semi-annually until paid. Upon conversion, liquidation, sale of theCorporation or redemption of the Series A Preferred Stock, accrued but unpaiddividends on the Series A Preferred Stock shall be payable in full in cash.

                           (c)  If and when the Corporation shall declareany dividend or distribution on any Junior Stock, the Corporation shall,concurrently with the declaration of such dividend or distribution on theJunior Stock, declare a like dividend or distribution, as the case may be, onthe Series A Preferred Stock in an amount per share equal to (x) the amount ofthe dividend or distribution per share of Common Stock multiplied by (y) thenumber of shares of Common Stock into which one share of Series A PreferredStock is then convertible.

                           (d)  No dividend or distribution, as the case maybe, may be declared on any Junior Stock unless a dividend or distribution, asthe case may be, is declared on the Series A Preferred Stock. Any dividend ordistribution payable to the holders of the Series A Preferred Stock pursuant tothis Section 3(d) shall be paid to such holders at the same time as thedividend or distribution on the Junior Stock by which it is measured ispaid.  Notwithstanding the foregoing,the Corporation shall not declare any dividend or distribution on any JuniorStock unless and until a special dividend or distribution equal to the pershare Liquidation Amount (subject to appropriate adjustment to reflect anystock split, combination, reclassification or reorganization of the Series APreferred Stock) has been declared on the Series A Preferred Stock.

                           (e)         So long as any shares of the Series A PreferredStock are outstanding, no dividends shall be declared or paid or set apart forpayment on any Junior Stock, for any period unless all dividends have been orcontemporaneously are declared and paid, or declared and a sum sufficient forthe payment thereof set apart for such payment, on the Series A PreferredStock.

                           (f)  So long as any shares of the Series APreferred Stock are outstanding, no other Junior Stock shall be redeemed,purchased or otherwise acquired for any consideration (or any moneys be paid toor made available for a sinking fund or otherwise for the purchase orredemption of any shares of any such stock) by the Corporation unless thedividends, if any, accrued on all outstanding shares of the Series A PreferredStock shall have been paid or set apart for payment.
                           Section4.  Liquidation Rights of Series APreferred Stock.

                           (a)  Liquidation Event and Liquidation Amount.In the event of any liquidation, or winding up of the Corporation (whethervoluntary or involuntary) or any sale, exchange, conveyance or otherdisposition of all or substantially all of the assets of the Corporation or ofthe outstanding capital stock of the Corporation in which more than 50% of thevoting power of the Corporation is disposed of (each a “Liquidation Event”),each holder of a share of Series A Preferred Stock, after provision for theCorporation’s debts and other liabilities, will be entitled to receive theInvestment Amount per share, plus compounded accrued and unpaid dividendsthereon prior to any distributions being made in respect of any Junior Stock(collectively, the “Liquidation Amount”).

                           (b)  Preference of Series A Preferred Stock.All shares of Series A Preferred Stock shall rank as to payment, upon theoccurrence of a Liquidation Event, senior to the Junior Stock. If upon anyLiquidation Event, whether voluntary or involuntary, the assets to bedistributed to the holders of the Series A Preferred Stock shall beinsufficient to permit the payment to such shareholders of the full LiquidationAmount, then all of the assets of the Corporation to be distributed shall be sodistributed ratably to the holders of the Series A Preferred Stock on the basisof the number of outstanding shares of Series A Preferred Stock held by suchholders.

                           Section5.  Redemption.

                           (a)  Restriction on Redemption and Purchase.  Except as expressly provided in this Section5, the Corporation shall not have the right to purchase, call, redeem orotherwise acquire for value any or all of the Series A Preferred Stock.

                          (b)  Mandatory Redemption. The Series A Preferred Stock will bemandatorily redeemable at the election of the then holders of a Majority of theshares of Series A Preferred Stock, commencing on the third anniversary of theInitial Closing in equal installments over a period of three years upon notless than 30 days nor more than 60 days written notice at a redemption price(the “Redemption Price”) equal to the Liquidation Amount.  The date on which the Series A PreferredStock is to be redeemed pursuant to this Section 5(b) is herein called the“Redemption Date.”

                           (c)  Redemption Notice.  The Corporation shall, not less than 30 daysnor more than 60 days prior to the Redemption Date, give written notice(“Redemption Notice”) to each holder of record of Series A Preferred Stock tobe redeemed.  The Redemption Noticeshall state:

                                        (i)  that one-third of the outstanding shares ofSeries A Preferred Stock are to be redeemed and the total number of sharesbeing redeemed;

                                        (ii)  the number of shares of Series A PreferredStock held by the holder that the Corporation intends to redeem;

                                        (iii)  the Redemption Date and Redemption Price;
                                        (iv)that the holder’s right to convert the Series A Preferred Stock into shares ofthe Common Stock as provided in Section 7 hereof will terminate on theRedemption Date; and

                                        (v)the time, place and manner in which the holder is to surrender to theCorporation the certificate or certificates representing the shares of Series APreferred Stock to be redeemed.

                           (d)  Payment of Redemption Price and Surrenderof Stock.  On the Redemption Date,the Redemption Price of the Series A Preferred Stock scheduled to be redeemedor called for redemption shall be payable to the holders of the Series APreferred Stock.  On or before theRedemption Date, each holder of Series A Preferred Stock to be redeemed, unlesssuch holder has exercised its right to convert the shares as provided inSection 7 hereof, shall surrender the certificate or certificates representingsuch shares to the Corporation, in the manner and at the place designated inthe Redemption Notice, and thereupon the Redemption Price for such shares shallbe payable to the order of the person or entity whose name appears on suchcertificate or certificates as the owner thereof, and each surrenderedcertificate shall be canceled and retired.

                           (e)  Termination of Rights.  If the Redemption Notice is duly given, and,if at least 10 days prior to the Redemption Date, the Redemption Price iseither paid or made available for payment through the arrangement specified insubsection (f) below, then notwithstanding that the certificates evidencing anyof the shares of Series A Preferred Stock so called or scheduled for redemptionhave not been surrendered, all rights with respect to such shares shallforthwith after the Redemption Date cease and terminate, except only (i) theright of the holders to receive the Redemption Price without interest uponsurrender of their certificates therefor or (ii) the right to receive shares ofCommon Stock upon exercise of the conversion rights provided in Section 7hereof on or before the Redemption Date.

                           (f)  Deposit of Funds.  At least 10 days prior to the RedemptionDate, the Corporation shall deposit with any bank or trust company in New York,New York, a sum equal to the aggregate Redemption Price of all shares of theSeries A Preferred Stock scheduled to be redeemed or called for redemption andnot yet redeemed, with irrevocable instructions and authority to the bank ortrust company to pay the Redemption Price to the respective holders upon thesurrender of their share certificates. The deposit shall constitute full payment for the shares of Series APreferred Stock to the holders thereof, and from and after the date of suchdeposit (even if prior to the Redemption Date), the shares of Series APreferred Stock shall be deemed to be redeemed and no longer outstanding, andthe holders thereof shall cease to be stockholders with respect to such sharesof Series A Preferred Stock and shall have no rights with respect thereto,except the right to receive from the bank or trust company payment of theRedemption Price of the shares of Series A Preferred Stock, without interest,upon surrender of their certificates therefor and the right to convert such sharesof Series A Preferred Stock into shares of Common Stock as provided in Section7 hereof.  Any monies so deposited andunclaimed at the end of one year from the Redemption Date shall be released orrepaid to the Corporation, after which time the holders of shares of Series APreferred Stock called for redemption shall be entitled to receive payment ofthe Redemption Price only from the Corporation.

 

                           Section6.  Voting Rights.

                           (a)  Series A Preferred Stock.  Each holder of shares of Series A PreferredStock shall be entitled to vote on all matters and, except as otherwiseexpressly provided herein, shall be entitled to the number of votes equal tothe largest number of full shares of Common Stock into which the shares ofSeries A Preferred Stock of such holder could be converted, pursuant to theprovisions of Section 7 hereof, at the record date for the determination of thestockholders entitled to vote on such matters or, if no such record date isestablished, at the date such vote is taken.

                           (b) Voting Together.  Except as otherwise expressly providedherein or as required by law, the holders of Series A Preferred Stock andCommon Stock shall vote together and not as separate classes.  The Corporation may not issue any additionalshares of preferred stock which vote separately as a class with the Series APreferred Stock.

                           (c)  Board Right.  For so long as at least 50% of the shares ofSeries A Preferred Stock remain outstanding, the holders of the Series APreferred Stock shall vote as a separate class for the purpose of appointing atwo of the six members to the Board of Directors.  Those two members shall have the right to ratify any appointmentof an additional member, in the event that the size of the Board of Directorsis increased to seven members.

                           (d)  Amendment of Certificate of Incorporation.  Any amendment to the Certificate ofIncorporation of the Corporation that adversely affects the dividend rights,liquidation preference, Conversion Rate, conversion rights, redemption orvoting rights with respect to the Series A Preferred Stock, or would alter orchange any other powers, preferences or special rights of the Series APreferred Stock, shall require the approval of the holders of a Majority of theSeries A Preferred Stock.

                           (e)  Approval Rights.  For so long as at least 50% of the Series APreferred Stock remains outstanding, the Corporation shall obtain approval ofthe holders of a Majority of the Preferred Stock prior to taking any of thefollowing corporate actions:

                                        (A)approving any liquidation, dissolution, merger or sale of all or substantiallyall of the assets of the Corporation;

                                        (B)approving any recapitalization or restructuring of the Corporation’soutstanding shares of capital stock; or

                                        (C)  incurring from time to time or at any timeany indebtedness, which in the aggregate, exceeds $250,000, excluding tradedebt.

                           Section7.  Conversion.  The Series A Preferred Stock shall besubject to the following conversion rights:
                           (a)  Holder’s Right to Convert.  Each share of Series A Preferred Stock shallbe convertible, at any time at the option of the holder thereof, into validlyissued, fully paid and nonassessable shares of Common Stock and such othersecurities and property as hereinafter provided.

                           (b)  Conversion Rate.  The initial conversion price per share ofCommon Stock shall be equal to the Investment Amount per share (the “ConversionPrice”) and shall be subject to adjustment as provided in this Section 7.  The rate at which each share of Series APreferred Stock is convertible at any time into Common Stock (the “ConversionRate”) shall be determined by dividing the then existing Conversion Price intothe Investment Amount per share.

                           (c)  Dividends Upon Conversion.  Upon conversion, all accrued and unpaid dividends(whether or not declared), if any, on the Series A Preferred Stock, includingthe Preferred Dividends described in Section 3(b) above, shall be paid in full.

                           (d)  Mechanics of Conversion.  Each holder of Series A Preferred Stock thatdesires to convert its shares of Series A Preferred Stock into shares of CommonStock shall surrender the certificate or certificates therefor, duly endorsed,at the office of the Corporation or of any transfer agent for the Series APreferred Stock, and shall give written notice to the Corporation at suchoffice that such holder elects to convert the same and shall state therein thenumber of shares of Series A Preferred Stock being converted.  Thereupon the Corporation shall promptlyissue and deliver to such holder a certificate or certificates for the numberof shares of Common Stock to which such holder is entitled, together with acash adjustment of any fraction of a share as hereinafter provided.  Such conversion shall be deemed to have beenmade immediately prior to the close of business on the date of such surrenderof the certificate or certificates representing the shares of Series APreferred Stock to be converted, and the person or entity entitled to receivethe shares of Common Stock issuable upon such conversion shall be treated forall purposes as the record holder of such shares of Common Stock on suchdate.  In the event that a notice toconvert is given following a Redemption Notice and such redemption is not consummatedon the terms described in such notice, then the conversion shall, at the optionof the holder of the Series A Preferred Stock who tendered for conversion, bevoidable and such holder shall have the right to maintain ownership of theshares of Series A Preferred Stock tendered for conversion.

                           (e)  Automatic Conversion. After the fifthanniversary of the date of this Certificate of Designations, Preferences andRights, if at any time the closing bid price for the Corporation’s Common Stockexceeds $10.00 per share for 20 consecutive Trading Days, each share of theoutstanding Series A Preferred Stock, subject to adjustments as hereinafterprovided and together with accrued and unpaid interest, will automaticallyconvert to shares of the Corporation’s Common Stock at the Conversion Rate.  In the event of an automatic conversion, theoutstanding shares of Series A Preferred Stock shall be converted automaticallywithout any further action by the holders of such shares and whether or not thecertificates representing such shares are surrendered to the Corporation or itstransfer agent; provided, however, that the Corporation shall not be obligatedto issue certificates evidencing the shares of Common Stock issuable upon suchconversion unless the certificates evidencing such shares of Series A PreferredStock are either delivered to the Corporation or its transfer agent as providedbelow, or the holder thereof notifies the Corporation or its transfer agentthat such certificates have been lost, stolen, mutilated or destroyed andexecutes an agreement satisfactory to the Corporation to indemnify theCorporation from any loss incurred by it in connection with suchcertificates.  Upon the occurrence ofsuch automatic conversion of the Series A Preferred Stock, the holders ofSeries A Preferred Stock shall surrender the certificates representing suchshares at the office of the Corporation or any transfer agent for the Series APreferred Stock.  Thereupon, there shallbe issued and delivered to such holder promptly at such office and in its nameas shown on such surrendered certificate or certificates, a certificate orcertificates for the number of shares of Common Stock into which the shares ofSeries A Preferred Stock surrendered were convertible on the date on which suchautomatic conversion occurred.
                           (f)         Adjustment of Conversion Rate andConversion Price.

                                        (i)          Except as otherwise provided herein,in the event the Corporation shall, at any time or from time to time after thedate hereof, (A) without the consent of the holders of a Majority of the sharesof Series A Preferred Stock, sell or issue any shares of Common Stock for aconsideration per share less than the Conversion Price in effect on the date ofsuch sale or issuance, (B) issue any shares of Common Stock as a stock dividendto the holders of Common Stock, or (C) subdivide or combine the outstandingshares of Common Stock into a greater or lesser number of shares (any suchsale, issuance, subdivision or combination being herein called a “Change ofShares”), then, and thereafter upon each further Change of Shares, theConversion Price in effect immediately prior to such Change of Shares shall bechanged to a price (rounded to the nearest cent) determined by multiplying theConversion Price in effect immediately prior thereto by a fraction, thenumerator of which shall be the sum of the number of shares of Common Stockoutstanding immediately prior to the sale or issuance of such additional sharesor such subdivision or combination and the number of shares of Common Stockwhich the aggregate consideration received (determined as provided inSubsection 7(f)(iv)(D)) for the issuance of such additional shares wouldpurchase at the Conversion Price in effect on the date of such issuance, andthe denominator of which shall be the number of shares of Common Stockoutstanding immediately after the sale or issuance of such additional shares orsuch subdivision or combination.  Suchadjustment shall be made successively whenever such an issuance is made.

                                        (ii)         If as of the first anniversary of the dateof this Certificate of Designations, Preferences and Rights the Market Price isless than the Conversion Price, the Conversion Price shall be adjusted bymultiplying the then existing Conversion Rate by a fraction, the numerator ofwhich is the Market Price and the denominator of which is the Conversion Price.

                                        (iii)        After each adjustment of the ConversionPrice pursuant to this Section 7(f), the Corporation shall promptly prepare acertificate signed by the Chairman or President, and by the Treasurer or anAssistant Treasurer or the Secretary or an Assistant Secretary, of theCorporation setting forth: (A) the Conversion Price as so adjusted, (B) theConversion Rate corresponding to such Conversion and (C) a brief statement ofthe facts accounting for such adjustment. The Corporation shall promptly file such certificate with the TransferAgent and cause a brief summary thereof to be sent by ordinary first class mailto each registered holder of Series A Preferred Stock at his or her lastaddress as it shall appear on the registry books of the Transfer Agent.  No failure to mail such notice nor anydefect therein or in the mailing thereof shall affect the validity of suchadjustment.  The affidavit of an officerof the Transfer Agent or the Secretary or an Assistant Secretary of theCorporation that such notice has been mailed shall, in the absence of fraud, beprima facie evidence of the facts stated therein.  The Transfer Agent may rely on the information in the certificateas true and correct and has no duty or obligation to independently verify theamounts or calculations set forth therein.
                                        (iv)       For purposes of Subsection 7(f)(i)hereof, the following provisions (A) to (D) shall also be applicable:

                                                     (A)       The number of shares of Common Stock deemedoutstanding at any given time shall include all shares of capital stockconvertible into, or exchangeable for, Common Stock (on an as converted basis)as well as all shares of Common Stock issuable upon the exercise of (1) anyconvertible debt, (2) warrants outstanding on the date hereof and (3) optionsoutstanding on the date hereof.

                                                     (B)        No adjustment of the Conversion Priceshall be made unless such adjustment would require an increase or decrease ofat least $.01 in such price; provided that any adjustments which by reason ofthis Subparagraph (B) are not required to be made shall be carried forward andshall be made at the time of and together with the next subsequent adjustmentwhich, together with adjustments so carried forward, shall require an increaseor decrease of at least $.01 in the Conversion Price then in effect hereunder.

                                                     (C)        In case of the sale or other issuance bythe Corporation (including as a component of a unit) of any rights or warrantsto subscribe for or purchase, or any options for the purchase of, Common Stockor any securities convertible into or exchangeable for Common Stock (suchsecurities convertible, exercisable or exchangeable into Common Stock beingherein called “Convertible Securities”), and the consideration per share forwhich Common Stock is issuable upon the exercise of such rights, warrants oroptions or upon the conversion or exchange of such Convertible Securities(determined by dividing (x) the minimum aggregate consideration, as set forthin the instrument relating thereto without regard to any anti-dilution orsimilar provisions contained therein for a subsequent adjustment of suchamount, payable to the Corporation upon the exercise of such rights, warrantsor options, plus the consideration received by the Corporation for the issuanceor sale of such rights, warrants or options, plus, in the case of suchConvertible Securities, the minimum aggregate amount, as set forth in theinstrument relating thereto without regard to any anti-dilution or similar provisionscontained therein for a subsequent adjustment of such amount, of additionalconsideration, if any, other than such Convertible Securities, payable upon theconversion or exchange thereof, by (y) the total maximum number, as set forthin the instrument relating thereto without regard to any anti-dilution orsimilar provisions contained therein for a subsequent adjustment of suchamount, of shares of Common Stock issuable upon the exercise of such rights,warrants or options or upon the conversion or exchange of such ConvertibleSecurities issuable upon the exercise of such rights, warrants or options) isless than the Conversion Price, then such total maximum number of shares ofCommon Stock issuable upon the exercise of such rights, warrants or options orupon the conversion or exchange of such Convertible Securities (as of the dateof the issuance or sale of such rights, warrants or options) shall be deemed tobe “Common Stock” for purposes of Subsection 7(f)(i) and shall be deemed tohave been sold for an amount equal to such consideration per share and shallcause an adjustment to be made in accordance with Subsection 7(f)(i).
                                                     (D)        In case of the sale of any shares ofCommon Stock, any Convertible Securities, any rights or warrants to subscribefor or purchase, or any options for the purchase of, Common Stock orConvertible Securities, the consideration received by the Corporation thereforshall be deemed to be the gross sales price therefor without deductingtherefrom any expense paid or incurred by the Corporation or any underwritingdiscounts or commissions or concessions paid or allowed by the Corporation inconnection therewith.  In the event thatany securities shall be issued in connection with any other securities of theCorporation, together comprising one integral transaction in which no specificconsideration is allocated among the securities, then each of such securitiesshall be deemed to have been issued for such consideration as the Board ofDirectors of the Corporation determines in good faith.

                                        (v)        Notwithstanding any other provisionhereof, no adjustment to the Conversion Price will be made:

                                                     (A)       upon the issuance of up to an aggregateof 2,000,000 options and shares issued from and after the date of thisCertificate of Designations, Preferences and Rights pursuant to theCorporation’s Board-approved stock option and similar equity based plans oremployee stock purchase plans; or

                                                     (B)        upon the issuance or sale of CommonStock or Convertible Securities pursuant to the exercise of any rights, optionsor warrants to receive, subscribe for or purchase, or any options for thepurchase of, Common Stock or Convertible Securities, which rights, warrants oroptions were outstanding on the date of this Certificate of Designations, Preferencesand Rights; or

                                                     (C)        upon the issuance or sale, from andafter the date of this Certificate of Designations, Preferences and Rights, ofCommon Stock or common stock equivalents issued in respect of debt, theincurrence of which is not prohibited pursuant to (or is approved under) therestrictions contained in Section 6 (e) hereof, or equity issued in conjunctionwith Board-approved joint ventures, acquisitions, strategic partnerships andthe like, which shall not exceed 1,500,000 shares of Common Stock on a fullydiluted basis.

                           (g)       Prior Notice of Certain Events.  In case:

                                        (i)          the Corporation shall declare anydividend (or any other distribution); or

                                        (ii)         the Corporation shall authorize thegranting to the holders of Common Stock of rights or warrants to subscribe foror purchase any shares of stock of any class or of any other rights orwarrants; or
                                        (iii)        of any reclassification of Common Stock(other than a subdivision or combination of the outstanding Common Stock, or achange in par value, or from par value to no par value, or from no par value topar value); or

                                        (iv)       of any consolidation or merger to whichthe Corporation is a party and for which approval of any stockholders of theCorporation shall be required, or of the sale or transfer of all orsubstantially all of the assets of the Corporation or of any compulsory shareexchange whereby the Common Stock is converted into other securities, cash orother property; or

                                        (v)        of the voluntary or involuntarydissolution, liquidation or winding up of the Corporation; then the Corporationshall cause to be filed with the transfer agent for the Series A PreferredStock, and shall cause to be mailed to the Registered Holders, at their lastaddresses as they shall appear upon the stock transfer books of theCorporation, at least 30 days prior to the applicable record date hereinafterspecified, a notice stating (x) the date on which a record (if any) is to betaken for the purpose of such dividend, distribution or granting of rights or warrantsor, if a record is not to be taken, the date as of which the holders of CommonStock of record to be entitled to such dividend, distribution, rights orwarrants are to be determined and a description of the cash, securities orother property to be received by such holders upon such dividend, distributionor granting of rights or warrants or (y) the date on which suchreclassification, consolidation, merger, sale, transfer, share exchange,dissolution, liquidation or winding up is expected to become effective, thedate as of which it is expected that holders of Common Stock of record shall beentitled to exchange their shares of Common Stock for securities or otherproperty deliverable upon such exchange, dissolution, liquidation or winding upand the consideration, including securities or other property, to be receivedby such holders upon such exchange; provided, however, that no failure to mailsuch notice or any defect therein or in the mailing thereof shall affect thevalidity of the corporate action required to be specified in such notice.

                           (h)  Fractional Shares.  No fractional shares or scrip representingfractional shares of Common Stock shall be issued upon conversion of the SeriesA Preferred Stock.  In lieu of anyfractional share or scrip to which the holder would otherwise be entitled, theCorporation shall pay a cash adjustment in respect of such fractional interestin an amount equal to the same fraction of the Market Price as of the close ofbusiness on the day of conversion.

                           (i)  Reservation of Common Stock Issuable UponConversion.  The Corporation shallat all times reserve and keep available out of its authorized but unissuedshares of Common Stock, solely for the purpose of effecting the conversion ofthe shares of the Series A Preferred Stock, such number of its shares of CommonStock as shall from time to time be sufficient to effect the conversion of alloutstanding shares of the Series A Preferred Stock. The Corporation shall,from time to time, in accordance with the laws of the State of Delaware, toincrease the authorized number of shares of Common Stock if at any time thenumber of shares of authorized, unissued and unreserved Common Stock shall notbe sufficient to permit the conversion of all the then-outstanding shares ofSeries A Preferred Stock.
                           (j)  Notices.  Any notice or other communication given hereunder shall be deemedsufficient if in writing and sent by registered or certified mail, returnreceipt requested, or delivered by hand against written receipt therefor,addressed to: the Corporation at TeraGlobal Communications Corp., 9171 TowneCentre Drive, Suite 600, San Diego, California 92122, Attn: Chief ExecutiveOfficer, and to the holder at such holder’s address as appearing on the booksof the Corporation.  Notices shall bedeemed to have been given or delivered on the date of mailing, except noticesof change of address, which shall be deemed to have been given or deliveredwhen received.

                           (k)  Payment of Taxes.  The Corporation will pay all taxes (otherthan taxes based upon income) and other governmental charges that may beimposed with respect to the issue or delivery of shares of Common Stock uponconversion of shares of Series A Preferred Stock, including, withoutlimitation, any tax or other charge imposed in connection with any transferinvolved in the issue and delivery of shares of Common Stock in a name otherthan that in which the shares of Series A Preferred Stock so converted wereregistered.

                           Section8.  Status of Acquired Shares.  Shares of Series A Preferred Stock receivedupon redemption, purchase, conversion or otherwise acquired by the Corporationwill be retired and cancelled restored to the status of authorized but unissuedshares of Preferred Stock, without designation as to class or series, and maythereafter be issued, but not as shares of Series A Preferred Stock.

                           Section9.  Preemptive Rights. So long asat least 50% of the Series A Preferred Stock remains outstanding, each Series ASubstantial Stockholder (and its permitted assigns) shall have the right tomaintain its percentage ownership of shares of Common Stock (computed on afully diluted basis), provided, however, that no pre-emptive right shall applyto the issuance of securities enumerated in Section 7 (f) (v) (A), (B) and (C).

                           Section10.  Events of Default.  The following events shall constitute an“Event of Default”:

                           (i)failure to maintain a 1.25/1.00 ratio of current assets over currentliabilities;

                           (ii)failure to make a required redemption payment; or

                           (iii)making any capital expenditures together with cash expenditures that exceed$1,000,000 per month during the year 2001, unless approved in advance by theholders of a Majority of the outstanding shares of Series A Preferred Stock.

             Ifan Event of Default shall occur, then the holders of a Majority of theoutstanding shares of Series A Preferred Stock shall have the right to demandimmediate redemption of all of the outstanding shares of Series A PreferredStock at the Redemption Price.  Further,during the continuance of any Event of Default, a Majority of the holders ofthe Series A Preferred Stock shall have the right to elect a sufficient numberof directors to constitute a majority of the members of the Board of Directors.

                           INWITNESS WHEREOF, TeraGlobal Communications Corp. has caused its duly authorizedrepresentatives to sign this certificate on its behalf this 28th day of June,2001.

 

**TERAGLOBAL COMMUNICATIONS CORP**.

 
By: /s/  ROBERT E. RANDALL    Robert  E. Randall, Chief Executive Officer
 
By: /s/  JAMES A. MERCER III    James  A. Mercer III, Secretary