YOU On Demand Holdings, Inc.: Exhibit 4.1 - Filed by newsfilecorp.com






Exhibit 4.1

CERTIFICATE OF DESIGNATION 

OF 

SERIES E CONVERTIBLE PREFERRED STOCK 

OF 

YOU ON DEMAND HOLDINGS, INC. 

Pursuant to Section 78.1955 of the Private Corporations Law of
the State of Nevada 

YOU ON DEMAND HOLDINGS, INC. (the “Corporation”),
a corporation organized and existing under the Private Corporations Law of the
State of Nevada, in accordance with the provisions of Section 78.1955 thereof,
DOES HEREBY CERTIFY: 

That pursuant to the authority vested in the Board of Directors
of the Corporation (the “Board”) in accordance with the provisions of the
Articles of Incorporation of the Corporation (the “Articles of
Incorporation”), the Board on January 31, 2014 adopted the following
resolution creating a series of 16,500,000 shares of Preferred Stock designated
as “Series E Convertible Preferred Stock”: 

RESOLVED, that pursuant to the
authority vested in the Board of Directors of this Corporation in accordance
with the provisions of the Articles of Incorporation of the Corporation, a
series of preferred stock, par value $0.001 per share, of the Corporation be and
hereby is created, and that the designation and number of shares thereof and the
voting and other powers, preferences and relative, participating, optional or
other rights of the shares of such Series E and the qualifications, limitations
and restrictions thereof are as follows: 

TERMS OF SERIES E CONVERTIBLE 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). “Base Conversion Price” shall have the meaning set
forth in Section 7(b). “Board” means the board of directors of the
Corporation. 









“Bridge Note” means that certain Convertible Promissory Note, dated November 4, 2013, issued by the Corporation to C Media, in the principal amount of $2,000,000.


“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). 


“C Media” shall have the meaning set forth in Section 6(d). 


“Change of Control” means the occurrence after the date hereof of any of (a) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective
control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 50% of the voting securities of the Corporation (other than by means of conversion of Series E Preferred Stock and
any Parity Securities), (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 50% 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 and
the stockholders of the Corporation immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) other than as contemplated by the Transaction Documents, 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
Purchase Price (as defined in the Purchase Agreement) and (ii) the Corporation’s obligations to deliver the Securities have been satisfied or waived. 


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


“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. 


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“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). 


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


“Conversion Shares Registration Statement” means a registration statement that registers the resale of Conversion Shares of the Holders. 


“Dilutive Issuance” shall have the meaning set forth in Section 7(b). 


“Dilutive Issuance Notice” shall have the meaning set forth in Section 7(b). 


“Effective Date” means the date that the Conversion Shares Registration Statement filed by the Corporation pursuant to the registration rights provisions of the Purchase Agreement is first declared effective by the Commission. 


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


“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, directors, consultants or advisors of the Corporation pursuant to any stock or option plan or agreement duly adopted by a
majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of
any securities or other right to acquire shares issued pursuant to the Purchase Agreement and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase
Agreement, provided that such securities or rights to acquire shares have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of
any such securities (for the avoidance of doubt, the issuance of, and adjustments to, the Corporation’s securities as set forth in the Corporation’s Information Statement filed with the Commission on May 3, 2013, and the issuance of any
securities which may be issuable to Weicheng Liu pursuant to that certain Ordinary Share Purchase Agreement, dated August 30, 2010, shall be deemed to be Exempt Issuances pursuant to this subsection (b)), (c) securities issued upon a dividend
payment on any of the outstanding shares of Series D Preferred Stock, (d) securities issued upon the declaration of a dividend on any of the outstanding Series E Preferred Stock, (e) securities issued upon conversion of the McMahon Note (f)
securities issued upon conversion of the Bridge Note (g) securities issued in connection
with technology licenses, development, marketing or other similar agreements or strategic partnerships approved by the board of directors of the Corporation and not made for capital raising purposes, (h) securities issued to consultants of the
Corporation in the ordinary course of business, (i) securities issued in connection with a merger, consolidation or similar transaction between the Corporation and C Media Inc., C Media, any Holder or any Affiliate of C Media Inc., C Media or any
Holder, and (j) securities issued to officers of the Corporation in lieu of cash payments for salary or any other compensation; provided that, the aggregate number of shares of Common Stock, underlying shares of Common Stock, and number of
securities issued in connection with subsections (a), (g) and (h) shall not exceed 15% of the fully diluted equity interest of the Corporation. Additionally, in no event shall an exchange of Common Stock or Common Stock Equivalents for outstanding
Indebtedness (i.e. Securities Act Section 3(a)(9) or 3(a)(10) exchange) be deemed an Exempt Issuance except as set forth under (e) and (f) above. 


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


“GAAP” means United States generally accepted accounting principles. 


“Holder” shall have the meaning given such term in Section 2. 


“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (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 $50,000 due under leases required to be capitalized in accordance with GAAP. 


“Issuable Maximum” shall have the meaning set forth in Section 6(d). 


“Junior Securities” means the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and all other Common Stock Equivalents of the Corporation other
than Parity Securities and Senior Securities. 


“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. 


“McMahon Note” means that certain Convertible Promissory Note, dated May 10, 2012, as amended, issued by the Corporation to Shane McMahon in principal amount of $3,000,000. 


“New York Courts” shall have the meaning set forth in Section 9(d). 


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


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


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 “Parity Securities” means any shares of preferred stock or other securities of the Corporation that, as to the payment of dividends, distribution of assets, redemptions, interest payments, liquidation payments and/or any other
type of payment or right, including, without limitation, distributions to be made upon the Liquidation of the Corporation, or upon the merger, Change of Control, consolidation or sale of the assets thereof, is on a parity with the Series E Preferred
Stock.  This definition of Parity Securities shall include, without limitation, any securities exercisable or exchangeable for or convertible into any Parity Securities. 


 “Permitted Indebtedness” means (a) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.9 attached to the Purchase Agreement and (b) lease obligations and purchase money indebtedness of up to
$50,000 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. 


“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. 


“Purchase Agreement” means the Series E Preferred Stock Purchase Agreement, dated as of January 31, 2014, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with
its terms. 


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


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


“Securities” means the Series E Preferred Stock to be issued and sold pursuant to the Purchase Agreement, and the Underlying Shares. 


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


“Senior Securities” means any shares of preferred stock or other securities of the Corporation that, as to the payment of dividends, distribution of assets, redemptions, interest payments, liquidation payments and/or any other
type of payment or right, including, without limitation, distributions to be made upon the Liquidation of the Corporation, or upon the merger, Change of Control, consolidation or sale of the assets thereof, is senior to the Series E Preferred Stock.
 This definition of Senior Securities shall include, without limitation, any securities exercisable or exchangeable for or convertible into any Senior Securities. 


“Series D Preferred Stock” means the Corporation’s Series D 4% Convertible Preferred Stock, par value $0.001 per share. 


“Series E Closing Date” means the Trading Day on which the Series E Closing (as defined in the Purchase Agreement) shall occur, all additional required documents have been executed and delivered by the applicable parties thereto
and all conditions precedent to (i) each Holder’s obligations to pay the purchase price for the Series E Preferred Stock and (ii) the Corporation’s obligations to deliver the Series E Preferred Stock have been satisfied or waived. 


“Series E Directors” shall have the meaning set forth in Section 4(b). 


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


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


“Stated Value” shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3. 


“Subsidiary” means any subsidiary of the Corporation as set forth on Schedule 3.2 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 MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing). 


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“Transaction Documents” means this Certificate of Designation, the Purchase Agreement, the Investor 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. 


“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion of the Series E Preferred Stock and issued and issuable as dividends on the Series E Preferred Stock in accordance with the terms of this
Certificate of Designation. 


“Variable Rate Transaction” means a transaction in which the Corporation (i) issues or sells any Common Stock or Common Stock Equivalents either (A) at a conversion price, exercise price or exchange rate or other price that is
based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such Common Stock or Common Stock Equivalents or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such Common Stock or Common Stock Equivalents or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Corporation or the
market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Corporation may issue securities at a future determined price. 


“VWAP” means, for any Trading 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 preceding date) on the Trading Market on which the Common Stock is then 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 a majority 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. 


Section 2. Designation, Amount and Par Value. The series of preferred stock created hereunder shall be designated as its Series E Convertible Preferred Stock (the “Series E Preferred
Stock”) and the number of shares so designated shall be 16,500,000 (which shall not be subject to increase without the written consent of the holders of a majority of the Series E Preferred Stock (each, a “Holder” and
collectively, the “Holders”)).  Each share of Series E Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $1.75 per share, subject to increase as set forth in Section 3 below (the
“Stated Value”). 


Section 3. Dividends. 


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a) Dividends in Cash or in Kind.
From (and including) the Series E Closing Date, Holders shall be entitled to
receive, and the Corporation shall pay, non- cumulative dividends only when, as
and if declared by the Board out of funds legally available. The form of
dividend payments to each Holder shall be at the sole election of the
Corporation, in cash or shares of Common Stock. Except as otherwise provided
herein, if at any time the Corporation pays dividends partially in cash and
partially in shares, then such payment shall be distributed ratably among the
Holders based upon the number of shares of Series E Preferred Stock held by each
Holder on the date such dividend is declared payable by the Board. 

b) Other Securities. Neither the
Corporation nor any Subsidiary thereof shall directly or indirectly pay or
declare any dividend or make any distribution upon, nor shall any distribution
be made in respect of, any Junior Securities as long as any dividends declared
on the Series E Preferred Stock remain unpaid, 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 Parity Securities.

Section 4. Voting
Rights.

a) As-Converted Voting. Except
as otherwise required by law or expressly provided herein, each share of Series
E Preferred Stock shall be entitled to vote on all matters submitted or required
to be submitted to a vote of the stockholders of the Corporation and shall be
entitled to the number of votes equal to the lesser of (i) the number of whole
shares of Common Stock into which such shares of Series E Preferred Stock are
convertible pursuant to the provisions hereof, at the record date for the
determination of stockholders entitled to vote on such matters or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, and (ii) the number of whole shares of
Common Stock issuable if the Conversion Price of the Series E Preferred Stock is
the closing price as of the end of the Trading Day immediately preceding the
Closing Date (as adjusted for stock dividends or distributions, stock
splits or subdivisions, combinations, or reclassifications in the same manner as
set forth in Section 7(a)). In each such case, except as otherwise required by
law or expressly provided herein, the holders of shares of Series E Preferred
Stock and Common Stock shall vote together and not as separate classes.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares of Common
Stock into which shares of Series E Preferred Stock held by each Holder could be
converted) shall be rounded down to the nearest whole number.

b) Election of Directors. The
Holders of shares of Series E Preferred Stock, exclusively and as a separate
class, shall be entitled to elect the number of directors of the Corporation
(the “Series E Directors”) as shall be permissible under NASDAQ voting
rights policy, including NASDAQ Stock Market Listing Rule 5640, up to a maximum
of three directors. A Series E Director may be removed without cause by, and
only by, the affirmative vote of the Holders of a majority of the Series E
Preferred Stock, given either at a special meeting of such stockholders duly
called for that purpose or pursuant to a written consent of such stockholders.
If a Series E Director has not been elected or a Series E directorship is vacant for any reason,
such directorship may not be filled by stockholders of the Corporation other
than by the Holders of Series E Preferred Stock, voting exclusively and as a
separate class. Subject to the specific voting rights of any other
preferred stock of the Corporation, the holders of record of the shares of
Common Stock and of any other class or series of voting stock, exclusively and
voting together as a single class, shall be entitled to elect the balance of the
total number of directors of the Corporation. Notwithstanding the foregoing, the
number of directors which Holders of Series E Preferred Stock are entitled to
appoint pursuant to this Section 4(b) shall at all times be in compliance with
NASDAQ Stock Market Listing Rule 5640, including without limitation, the
requirement that at such time as the Holders of shares of Series E Preferred
Stock hold less than 5% at such time as the Holders of Shares of Series E
Preferred Stock hold less than 5% of the total voting securities of the
Corporation, the Holders shall no longer have the right to elect or remove the
Series E Directors pursuant to this Section 4(b). 

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c) Protective Voting Rights. So
long as at least 25% of the shares of Series E Preferred Stock issued by the
Corporation pursuant to the Purchase Agreement remains outstanding after the
Original Issue Date, except as required to consummate transactions contemplated
by the Purchase Agreement, the Corporation will not, directly or indirectly,
including without limitation through merger, consolidation or otherwise, without
the affirmative vote or written consent of the Holders of more than fifty
percent (50%) of the outstanding Stated Value of all Series E Preferred Stock
then outstanding, voting as a separate class: 

i. liquidate, dissolve or wind-up the
business and affairs of the Corporation, effect any material merger acquisition
or consolidation or any Change of Control, or sale of material assets, or
consent to any of the foregoing, except as provided in the Purchase
Agreement;

ii. amend, alter or repeal any
provision of the Articles of Incorporation or Bylaws of the Corporation; 

iii. alter or change the powers,
preferences or rights given to the Series E Preferred Stock or alter or amend
this Certificate of Designation,

iv. directly and/or indirectly,
designate, issue, authorize, create or otherwise permit to exist, any additional
shares of Senior Securities or Parity Securities, except in connection with an
Exempt Issuance; 

v. directly and/or indirectly increase
the number of authorized shares of Series E Preferred Stock or increase the
authorized number of shares of any other class or series of capital stock (other
than in connection with an issuance of the securities pursuant to the proviso in
Section 4(c)(iv); 

vi. except pursuant to the Investor
Rights Agreement, purchase or redeem (or permit any subsidiary to purchase or
redeem) any Junior Securities, Senior Securities or Parity Securities other than
redemptions of restricted stock held by employees, directors, consultants or advisors of the
Corporation as required by the Corporation’s 2010 Equity Incentive Plan; 

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vii. directly and/or indirectly
create, incur or assume any liability or indebtedness for borrowed money that is
secured other than equipment leases and Permitted Indebtedness; 

viii. directly and/or indirectly
create, incur or assume any liability or indebtedness, other than Permitted
Indebtedness, for borrowed money that is unsecured; 

ix. enter into any agreement,
undertaking, or contract, written or otherwise, with respect to the acquisition
of any material business, assets or property (real, personal or mixed, tangible
or intangible, including stock or other equity interests in, or evidences of the
indebtedness of, any other corporation, partnership or entity); 

x. sell, lease, license, surrender,
relinquish, encumber, pledge, transfer, amend, convey or otherwise dispose of
any business, property or assets (whether tangible or intangible) having a
material market value, except in the ordinary course of business of the
Corporation and its Subsidiaries; provided that, the restrictions in this
Section 4(c)(x) shall not apply to Jinan Guangdian Jia He Broadband Co., Ltd.,
Beijing China Broadband Network Technology Co., Ltd., and Shandong Lushi Media
Co., Ltd. and their respective direct or indirect subsidiaries; 

xi. 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 expressly approved
by a majority of the disinterested directors of the Corporation (even if less
than a quorum otherwise required for board approval);

xii. create or hold capital stock in
any subsidiary that is not wholly owned (either directly or through one or more
subsidiaries) by the Corporation, or sell, transfer or otherwise dispose of any
capital stock of any direct or indirect subsidiary of the Corporation or permit
any direct or indirect subsidiary to sell, lease, transfer, exclusively license
or otherwise dispose (in a single transaction or series of related transactions)
of all or substantially all of the assets of such subsidiary; provided,
however, that, the restrictions in this Section 4(c)(xii) shall not apply
to Jinan Guangdian Jia He Broadband Co., Ltd., Beijing China Broadband Network
Technology Co., Ltd., and Shandong Lushi Media Co., Ltd. and their respective
direct or indirect subsidiaries; 

xiii. increase or decrease the
authorized number of directors constituting the Board of Directors;

xiv. effect any material change to the
Corporation’s business plan or nature of its business; 

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xv. increase the number of shares of
Common Stock or Common Stock Equivalents authorized under the Corporation’s
stock option plan; 

xvi. alter or change the powers,
preferences or rights or increase the number of outstanding shares of any series
of Preferred Stock; 

xvii. enter into any agreement
committing the Corporation to do any of the foregoing; or 

xviii. approve or finalize the annual
budget of the Corporation, except with the approval of the Corporation’s
financial oversight committee as described in Section 5.9 of the Purchase
Agreement. 

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 Stated Value, plus any
declared and unpaid dividends thereon and any other fees or liquidated damages
then due and owing thereon under this Certificate of Designation, for each share
of Series E 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 and
the holders of the Parity Securities 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 Series E 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
Section 6(d)), determined by dividing the Stated Value of such share of Series E
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”). Each Notice of Conversion
shall specify the number of shares of Series E Preferred Stock to be converted,
the number of shares of Series E Preferred Stock owned prior to the conversion
at issue, the number of shares of Series E 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 by
facsimile such Notice of Conversion to the Corporation (such effective 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 Series E Preferred
Stock, a Holder shall not be required to surrender the certificate(s)
representing the shares of Series E Preferred Stock to the Corporation unless all of the shares of Series E Preferred
Stock represented thereby are so converted, in which case such Holder shall
deliver the certificate representing such shares of Series E Preferred Stock, or
an affidavit of loss, promptly following the Conversion Date at issue. Shares of
Series E Preferred Stock converted into Common Stock in accordance with the
terms hereof shall be canceled and shall not be reissued. 

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b) Conversion Price. The
conversion price for the Series E Preferred Stock shall equal $1.75, 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 representing the number
of Conversion Shares being acquired upon the conversion of the Series E
Preferred Stock. 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 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 Series E 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. 

iii. Obligation Absolute; Partial
Liquidated Damages. Subject to Section 6(d), the Corporation’s obligation to
issue and deliver the Conversion Shares upon conversion of Series E 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, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, 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 Series E Preferred Stock, the
Corporation may not refuse conversion based on any claim that such Holder or
anyone associated or affiliated with such Holder has been engaged in any
violation of law, agreement or for any other reason. The Corporation shall issue
Conversion Shares and, if applicable, cash, upon a properly noticed conversion.
Nothing herein shall limit a Holder’s right to pursue actual damages and 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 obtain
damages pursuant to any other Section hereof or under applicable law. 

- 12 - 




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 such 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 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 and that were sold 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 Series E Preferred Stock
equal to the number of shares of Series E 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 Series E 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 Series E
Preferred Stock as required pursuant to the terms hereof. Notwithstanding
anything contained herein to the contrary, if the Corporation is required to
make payment in respect of a Buy-In for the failure to timely deliver
certificates hereunder and, if the Corporation has previously paid such Holder
liquidated damages under Section 6(c)(iii) in respect of the certificates
resulting in such Buy-In prior to such Buy-In, such amounts paid under Section
6(c)(iii) shall be deducted from the amount to be paid in respect of such
certificates pursuant to this Section 6(c)(iv)). 

- 13 - 




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 Series E Preferred Stock as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of Persons other than the Holders of the Series E 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 and restrictions of Section 7)
upon the conversion of the then outstanding shares of Series E Preferred Stock.
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. 

vi. Fractional Shares. No
fractional shares or scrip representing fractional shares shall be issued upon
the conversion of the Series E 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 the
Series E 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 Series E 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) Automatic Conversion of Series E
Shares. For so long as C Media Limited (“C Media”) or its Affiliates
remain the Holders of a majority of the outstanding shares of Series E Preferred
Stock, if C Media or its Affiliates elect to convert any shares of Series E
Preferred Stock into Common Stock pursuant to this Section 6, then each other
Holder of shares of Series E Preferred Stock then outstanding shall convert its
Pro Rata Portion into shares of Common Stock at the applicable
Conversion Price. Upon conversion by C Media or its Affiliates, as described in
this Section 6(d), each other Holder of Series E Shares shall be obligated to
take all such further action as may be required to effect the conversion of such
Holder’s Pro Rata Portion of Series E Shares into Common Stock on the terms and
according to the procedures set forth herein. For purposes of this Section 6(d),
the term “Pro Rata Portion” shall mean (i) the number of shares of Series E
Preferred Stock held by such Holder at the Conversion Date, multiplied by (ii)
the percentage of the aggregate shares of Series E Preferred Stock held by C
Media and its Affiliates that are converted pursuant to this Section 6.

- 14 - 




Section 7. Certain
Adjustments. 

a) Stock Dividends and Stock
Splits. If the Corporation, at any time while the Series E Preferred Stock
is outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock or any other Common Stock
Equivalents on shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Corporation upon conversion of,
or payment of a dividend on, the Series D Preferred Stock or the Series E
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) Subsequent Equity Sales. From
the Original Issue Date until the date which is forty-two (42) months
thereafter, if the Corporation or any Subsidiary, as applicable sells or grants
any option to purchase or sells or grants any right to reprice, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase or
other disposition), any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock at an effective price per share that is
lower than the then Conversion Price (such lower price, the “Base Conversion
Price” and such issuances, collectively, a “Dilutive Issuance”) (if
the holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will
be made under this Section 7(b) in respect of any Exempt Issuance. If the
Corporation enters into a Variable Rate Transaction, the Corporation shall be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible price at which such securities may be sold, converted, exercised or
exchanged. The Corporation shall notify the Holders in writing, no later than
the Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 7(b), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice, the “Dilutive Issuance Notice”). For
purposes of clarification, whether or not the Corporation provides a Dilutive
Issuance Notice pursuant to this Section 7(b), upon the occurrence of any
Dilutive Issuance, the Holders are entitled to receive a number of Conversion
Shares based upon the Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether a Holder accurately refers to the Base
Conversion Price in the Notice of Conversion. 

- 15 - 




c) Subsequent Rights Offerings.
If the Corporation, at any time while the Series E 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
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 the Series E 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 (other than the Common Stock,
which shall be subject to Section 7(b)), 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. 

- 16 - 




e) Fundamental Transaction. If,
at any time while the Series E 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(other than the
grant of Permitted Liens), (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 the
Series E 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, 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 the
Series E Preferred Stock had been convertible immediately prior to such
Fundamental Transaction. 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 may receive upon any conversion of the Series E
Preferred Stock following such Fundamental Transaction. 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 in
accordance with the provisions of this Section 7(e). 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 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. 

- 17 - 




f) Calculations. Subject to
Section 6(c)(vi), 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 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, 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. The Holder shall remain entitled to convert the
Conversion Amount of the Series E 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. 

- 18 - 




Section 8. No
Redemption. The Series E Preferred Stock shall not be redeemable.

Section 9.
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: Chief Financial Officer, facsimile number (212) 206-9112 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 9.
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 Series E Preferred Stock at the time,
place, and rate, and in the coin or currency, herein prescribed. 

c) Lost or Mutilated Series E
Preferred Stock Certificate. If a Holder’s Series E 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 Series E 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
thereof reasonably satisfactory to the Corporation. 

- 19 - 




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 Nevada, 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 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.


- 20 - 




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 Series E
Preferred Stock. Shares of Series E Preferred Stock may only be issued
pursuant to the Purchase Agreement, upon conversion of the Bridge Note and upon
conversion of the McMahon Note. If any shares of Series E Preferred Stock shall
be converted, 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 E Convertible Preferred Stock. 

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

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 in accordance with the foregoing resolution and the
provisions of Nevada law. 

- 21 - 




IN WITNESS WHEREOF, the undersigned have executed this
Certificate this 31st day of January, 2014. 

	/s Marc Urbach 	 	/s/
      Rene Marshman 
	Name: Marc Urbach 	 	Name: Rene Marshman 
	Title: President and Chief Financial Officer 	 	Title: Secretary 


[Signature Page to Certificate of Designation] 




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 E Convertible Preferred Stock indicated below into shares of common
stock, par value $0.001 per share (the “Common Stock”), of YOU On
Demand Holdings, Inc., a Nevada 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 Series E Preferred Stock owned prior to
Conversion: _______________

Number of shares of Series E Preferred Stock to be Converted:
________________________

Stated Value of shares of Series E Preferred Stock to be
Converted: ____________________

Number of shares of Common Stock to be issued:
___________________________

Applicable Conversion Price:
____________________________________________

Number of shares of Series E Preferred Stock subsequent to
Conversion: ________________

Address for Delivery: ______________________
or 
DWAC
Instructions: 
Broker no: _________
Account no: ___________


[HOLDER] 

By:______________________________
      
Name: 
       Title: