f8k0410ex4i_silverpearl.htm


     

    Exhibit
4.1

     

    CERTIFICATE
OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE

    6%
SERIES A CONVERTIBLE PREFERRED STOCK

    OF

    SILVER
PEARL ENTERPRISES, INC.

    


     

    The
Articles of Incorporation of Silver Pearl Enterprises, Inc., a Nevada
corporation (the “Company”),
provide that the Company is authorized to issue 20,000,000 shares of preferred
stock with a par value of $0.001, and that the Board of Directors have the
authority to attach such terms as they deem fit with respect to the preferred
stock.

     

    Pursuant
to the authority conferred upon the Board of Directors by the Articles of
Incorporation, and pursuant to Section 78.1955 of the Nevada Revised Statutes,
the Board of Directors, by Unanimous Written Consent, dated April 22, 2010,
adopted a resolution providing for the designation, rights, powers and
preferences and the qualifications, limitations and restrictions of 11,000,000
shares of 6% Series A Convertible Preferred Stock, and that a copy of such
resolution is as follows:

     

    RESOLVED, that pursuant to the
authority vested in the Board of Directors of the Company, the provisions of its
Articles of Incorporation, and in accordance with the Nevada Revised Statutes,
the Board of Directors hereby authorizes the filing of a Certificate of
Designations, Preferences and Rights of 6% Series A Convertible Preferred Stock
of the Company.  Accordingly, the Company is authorized to issue 6%
Series A Convertible Preferred Stock with par value of $0.001 per share, which
shall have the powers, preferences and rights and the qualifications,
limitations and restrictions thereof, as follows:

     

    1. Designation and Rank.
The designation of such series of the Preferred Stock shall be the 6% Series A
Convertible Preferred Stock, par value $0.001 per share (the “Series A
Preferred Stock”). The maximum number of shares of Series A Preferred
Stock shall be 11,000,000 shares. The Series A Preferred Stock shall rank senior
to the Company’s common stock, par value $0.001 per share (the “Common
Stock”), and to all other classes and series of equity securities of the
Company which by their terms do not rank pari passu or senior to the Series A
Preferred Stock (“Junior
Stock”). The Series A Preferred Stock shall be subordinate to and rank
junior to all indebtedness of the Company now or hereafter
outstanding.

     

    2. Dividends.

     

    (a) Dividends
on the Series A Preferred Stock shall accrue and be cumulative from and after
the date of the initial issuance of the Series A Preferred Stock (the “Issuance
Date”). For each outstanding share of Series A Preferred Stock, dividends
shall be payable quarterly, at the rate of 6% per annum, on or before each date
that is thirty (30) days (or if such thirtieth (30th) day
does not fall on a business day, the next following date that is a business day)
following the last day of each June, September, December and March of each year
(each, a "Dividend
Payment Date"), with the first Dividend Payment Date to occur promptly
following the quarter ended September 30, 2010, and continuing until such share
is fully converted.  The Company shall have the right, at its sole and
exclusive option, to pay all or any portion of each and every quarterly dividend
that is payable on each Dividend Payment Date, either (i) in cash, or (ii) by
issuing to the Holder of Series A Preferred Stock such number of additional
Conversion Shares which, when multiplied by $3.50 would equal the amount of such
quarterly dividend not paid in cash.

     

    
      
         


      

      
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    (b) Subject
to Section 2(a) above, Dividends are payable quarterly in arrears commencing on
three (3) business days following the filing of this Series A Certificate of
Designation with the Secretary of State of the State of Nevada, as contemplated
by that certain Securities Purchase Agreement, dated on or about the date hereof
(the “Dividend
Commencement Date”),
by and among the Company and the other Parties thereto, including Purchasers
named therein (the "Securities
Purchase Agreement"), pursuant to which the Company issued, and such
Purchasers purchased, inter alia, the Series A Preferred Stock upon the terms
and conditions stated therein. Such initial dividend shall be prorated from the
Dividend Commencement Date to the first Dividend Payment Date.

     

    3. Voting
Rights.

    


    (a) Class Voting Rights.
The Series A Preferred Stock shall have the following class voting rights (in
addition to the voting rights set forth in Section 3(b) hereof). So long as any
shares of the Series A Preferred Stock remain outstanding, the Company shall
not, without the affirmative vote or consent of the holders of a majority of the
shares of the Series A Preferred Stock outstanding at the time (the “Majority
Holders”), given in person or by proxy, either in writing or at a meeting
in which the holders of the Series A Preferred Stock vote separately as a
class:

    


    (i)
authorize, create, issue or increase the authorized or issued amount of any
class or series of Preferred Stock, which class or series, in any such case,
ranks pari passu or senior to the Series A Preferred Stock, with respect to the
distribution of assets on Liquidation (as defined below);

    


    (ii)
amend, alter or repeal the provisions of the Series A Preferred Stock, whether
by merger, consolidation or otherwise, so as to adversely affect any right,
preference, privilege or voting power of the Series A Preferred Stock; provided, however, that any
creation and issuance of another series of Junior Stock shall not be deemed to
adversely affect such rights, preferences, privileges or voting
powers;

    


    (iii)
issue any shares of Series A Preferred Stock (or any securities convertible into
or exercisable for, directly or indirectly, any shares of Series A Preferred
Stock or other security, other than Junior Stock) other than pursuant to the
Securities Purchase Agreement;

     

    
      
         


      

      
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    (iv)
repurchase, redeem or pay dividends on, shares of Common Stock or any other
shares of the Company's Junior Stock (other than de minimis repurchases from
employees of the Company in certain circumstances or repurchases pursuant to a
plan approved by the Board of Directors);

    


    (v) amend
the Articles of Incorporation or By-Laws of the Company so as to affect
materially and adversely any right, preference, privilege or voting power of the
Series A Preferred Stock; provided, however, that any
creation and issuance of another series of Junior Stock shall not be deemed to
adversely affect such rights, preferences, privileges or voting
powers;

    


    (vi)
effect any distribution with respect to Junior Stock other than as permitted
pursuant to clause (iv) above;

    


    (vii)
reclassify the Company's outstanding securities;

    


    (viii)
voluntarily file for bankruptcy, liquidate the Company’s assets or make an
assignment for the benefit of the Company’s creditors; or

    


    (ix)
materially change the nature of the Company’s business.

    


    Notwithstanding
the foregoing, no change pursuant to Section 9 herein shall be effective to the
extent that, by its terms, it applies to less than all of the Holders of shares
of Series A Preferred Stock then outstanding.

    


    (b) General Voti
 ng Rights. Except
with respect to transactions upon which the Series A Preferred Stock shall be
entitled to vote separately as a class pursuant to Section 3(a) above and as
otherwise required by Nevada law, the Series A Preferred Stock shall have no
voting rights with the Common Stock or other equity securities of the
Company.  The Common Stock into which the Series A Preferred Stock is
convertible shall, when issued, have all of the same voting rights as other
issued and outstanding Common Stock of the Company, and none of the rights of
the Series A Preferred Stock.

     

    4. Liquidation
Preference.

     

    (a) In the
event of the liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary (each, a “Liquidation”), the holders of shares of
Series A Preferred Stock then outstanding shall be entitled to receive, out of
the assets of the Company available for distribution to its stockholders, an
amount equal to $3.50 per share of the Series A Preferred Stock, plus any
accrued but unpaid dividends thereon, whether or not declared, together with any
other dividends declared but unpaid thereon, as of the date of Liquidation
(collectively, the “Series A
Liquidation Preference Amount”) before any payment shall be made or any
assets distributed to the holders of the Common Stock or any other Junior Stock.
If the assets of the Company are not sufficient to pay in full the Series A
Liquidation Preference Amount payable to the holders of outstanding shares of
the Series A Preferred Stock and any series of Preferred Stock or any other
class of stock ranking pari passu, as to rights on Liquidation, with the Series
A Preferred Stock, then all of said assets will be distributed among the holders
of the Series A Preferred Stock and the other classes of stock ranking pari
passu with the Series A Preferred Stock, if any, ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. The liquidation payment with respect to each
outstanding fractional share of Series A Preferred Stock shall be equal to a
ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series A Preferred Stock. All payments for which this
Section 4(a) provides shall be in cash, property (valued at its fair market
value as determined by an independent appraiser chosen by the Company and
reasonably acceptable to the holders of a majority of the Series A Preferred
Stock) or a combination thereof; provided, however, that no cash
shall be paid to holders of Junior Stock unless each holder of the outstanding
shares of Series A Preferred Stock has been paid in cash the full Series A
Liquidation Preference Amount to which such holder is entitled as provided
herein.

     

    
      
         


      

      
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    (b) A
consolidation or merger of the Company with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Company, or the effectuation by the Company of a transaction or series of
related transactions in which more than 50% of the voting shares of the Company
is disposed of or conveyed, shall not be deemed to be a Liquidation (but, for
the avoidance of doubt, shall be deemed to be an Organic Change in accordance
with, and on the conditions set forth in, Section 5(d)(v) below).

     

    (c) The
Company shall provide written notice of any redemption or Liquidation, stating a
payment date and the place where the distributable amounts shall be payable, by
mail, postage prepaid, no less than forty-five (45) calendar days prior to the
payment date stated therein, to the holders of record of the Series A Preferred
Stock at their respective addresses as the same shall appear on the books of the
Company, which notice shall also state the amount per share of Series A
Preferred Stock that will be paid or distributed on such redemption or
Liquidation if such amount differs from the Series A Liquidation Preference
Amount.

     

    5. Conversion. The
holder of Series A Preferred Stock shall have the following conversion rights
(the “Conversion
Rights”):

     

    (a) Right to Convert. At
any time on or after the Issuance Date, the holder of any such shares of Series
A Preferred Stock may, at such holder's option, subject to the limitations set
forth in Section 7 herein, elect to convert (a “Voluntary
Conversion”) all or any portion of the shares of Series A Preferred Stock
held by such person into a number of fully paid and nonassessable shares of
Common Stock equal to the quotient of (i) the Series A Liquidation Preference
Amount of the shares of Series A Preferred Stock divided by (ii) the Conversion
Price (as defined in Section 5(c) below) in effect as of the date of the
delivery by such holder of its Conversion Notice (as hereinafter
defined).  In the event of a notice of redemption of any shares of
Series A Preferred Stock pursuant to Section 8 hereof, the Conversion Rights of
the shares designated for redemption shall terminate at the close of business on
the last full day preceding the date fixed for redemption, unless the redemption
price is not paid on such redemption date, in which case the Conversion Rights
for such shares shall continue until such price is paid in full. In the event of
a Liquidation, the Conversion Rights shall terminate at the close of business on
the last full day preceding the date fixed for the payment of any such amounts
distributable on such event to the holders of Series A Preferred
Stock.

     

     

     

    
      
         


      

      
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    (b) Mechanics of Voluntary
Conversion. The Voluntary Conversion of Series A Preferred Stock shall be
conducted in the following manner:

     

    (i) Holder's Delivery
Requirements. To convert Series A Preferred Stock into full shares of
Common Stock on any date (the “Voluntary
Conversion Date”), the holder thereof shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such
date, a copy of a fully executed notice of conversion in the form attached
hereto as Exhibit
I (the “Conversion
Notice”), to the Company at c/o Keyuan Plastics Co., Ltd., Qingshi
Industrial Park, Ninbo Economic & Technological Development Zone, Ningbo,
Zhejiang Province, P.R. China 315803, Attn: Chief Executive Officer, Telephone
No.: (86) 574-8623-2955, Facsimile No.: 86-674-8623-2616; and (B) surrender to a
common carrier for delivery to the Company’s designated transfer agent (the
“Transfer
Agent”) as soon
as practicable following such Voluntary Conversion Date the original
certificates representing the shares of Series A Preferred Stock being converted
(or an indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the “Preferred
Stock Certificates”) and the originally executed Conversion
Notice.

     

    (ii) Company's Response.
Upon receipt by the Company of a facsimile copy of a Conversion Notice, the
Company shall immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder. Upon receipt by the Company of a copy of the
fully executed Conversion Notice and by the Transfer Agent of the Preferred
Stock Certificates, the Company shall, within three (3) trading days following
the later of the (x) date of receipt by the Company of the fully executed
Conversion Notice, and (y) date of receipt of the Preferred Stock Certificates
by the Transfer Agent, issue and deliver to the Depository Trust Company (“DTC”)
account on the holder’s behalf via the Deposit Withdrawal Agent Commission
System (“DWAC”)
as specified in the Conversion Notice, certificates registered in the name of
the holder or its designee, representing the number of shares of Common Stock to
which the holder shall be entitled. Notwithstanding the foregoing, the Company
or its Transfer Agent shall only be obligated to issue and deliver the shares to
the DTC on a holder’s behalf via DWAC if a registration statement providing for
the resale of the shares of Common Stock issuable upon conversion of the Series
A Preferred Stock is effective or other exemption from registration by which the
shares may be issued without a restrictive legend is available. If the number of
shares of Preferred Stock represented by the Preferred Stock Certificate(s)
submitted for conversion is greater than the number of shares of Series A
Preferred Stock being converted, then the Company shall instruct the Transfer
Agent, as soon as practicable and in no event later than three (3) business days
after receipt of the Preferred Stock Certificate(s) and at the Company's
expense, issue and deliver to the holder a new Preferred Stock Certificate
representing the number of shares of Series A Preferred Stock not
converted.

     

    
      
         


      

      
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    (iii) Dispute Resolution.
In the case of a dispute as to the arithmetic calculation of the number of
shares of Common Stock to be issued upon conversion, the Company shall cause its
Transfer Agent to promptly issue to the holder the number of shares of Common
Stock that is not disputed and shall submit the arithmetic calculations to the
holder via facsimile as soon as possible, but in no event later than three (3)
business days after receipt of such holder's Conversion Notice. If such holder
and the Company are unable to agree upon the arithmetic calculation of the
number of shares of Common Stock to be issued upon such conversion within one
(1) business day of such disputed arithmetic calculation being submitted to the
holder, then the Company shall within one (1) business day thereafter submit via
facsimile the disputed arithmetic calculation of the number of shares of Common
Stock to be issued upon such conversion to the Company’s independent, outside
accountant. The Company shall cause the accountant to perform the calculations
and notify the Company and the holder of the results no later than seventy-two
(72) hours from the time it receives the disputed calculations. Such
accountant's calculation shall be binding upon all parties absent manifest
error. The reasonable expenses of such accountant in making such determination
shall be paid by the Company, in the event the holder's calculation was correct,
or by the holder, in the event the Company's calculation was correct, or equally
by the Company and the holder in the event that neither the Company's or the
holder's calculation was correct. The period of time in which the Company is
required to effect conversions or redemptions under this Certificate of
Designation shall be tolled with respect to the subject conversion or redemption
pending resolution of any dispute by the Company made in good faith and in
accordance with this Section 5(b)(iii).

     

    (iv) Record Holder. The
person or persons entitled to receive the shares of Common Stock issuable upon a
conversion of the Series A Preferred Stock shall be treated for all purposes as
the record holder or holders of such shares of Common Stock from and after the
Conversion Date.

     

    (v) Company's Failure to Timely
Convert. If within three (3) business days, with respect to Common Stock
being issued upon conversion, and within five (5) business days in the event a
new Preferred Stock Certificate is being issued, after the later of the (x) date
of receipt by the Company of the fully executed Conversion Notice, and (y) date
of receipt of the original Preferred Stock Certificates by the Transfer Agent,
so long as there are no disputes regarding such calculation (the “Delivery
Date”) the Transfer Agent shall fail to issue and deliver to a holder the
number of shares of Common Stock to which such holder is entitled upon such
holder's conversion of the Series A Preferred Stock (a “Conversion
Failure”), in addition to all other available remedies which such holder
may pursue hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Article VI thereof), the Company shall pay
additional damages to such holder on each business day after such third (3rd)
business day that such conversion is not timely effected in an amount equal to
0.5% of the product of (A) the number of shares of Common Stock not issued to
the holder on a timely basis pursuant to Section 5(b)(ii) and to which such
holder is entitled and (B) the Closing Bid Price (as defined in Section
5(b)(vii) below) of the Common Stock on the last possible date which the Company
could have issued such Common Stock, as the case may be, to such holder without
violating Section 5(b)(ii).  If the Company fails to pay the
additional damages set forth in this Section 5(b)(v) within ten (10) business
days of the date incurred, then such payment shall bear interest at the rate of
2.0% per month (pro rated for partial months) until such payments are
made.

     

    
      
         


      

      
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    (vi) Buy-In Rights. In
addition to any other rights available to the holders of Series A Preferred
Stock, if the Company fails to cause its Transfer Agent to transmit to the
holder a certificate or certificates representing the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock on or before the
Delivery Date, and if after such date the holder is required by its broker to
purchase (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the holder of the shares of Common Stock
issuable upon conversion of Series A Preferred Stock which the holder
anticipated receiving upon such conversion (a “Buy-In”),
then the Company shall (1) pay in cash to the holder the amount by which (x) the
holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of shares of Common Stock issuable upon conversion of
Series A Preferred Stock that the Company was required to deliver to the holder
in connection with the conversion at issue times (B) the price at which the sell
order giving rise to such purchase obligation was executed (such amount to be
offset by any payment already made to holder under Section 5(b)(v)), and (2) at
the option of the holder, either reinstate the shares of Series A Preferred
Stock and equivalent number of shares of Common Stock for which such conversion
was not honored or deliver to the holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its conversion
and delivery obligations hereunder. For example, if the holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay to the
holder $1,000. The holder shall provide the Company written notice indicating
the amounts payable to the holder in respect of the Buy-In, together with
applicable confirmations and other evidence reasonably requested by the Company.
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
Company’s failure to timely deliver certificates representing shares of Common
Stock upon conversion of the Series A Preferred Stock as required pursuant to
the terms hereof.

     

    (vii) The term
"Closing
Bid Price" shall mean, for any security as of any date, the last
closing bid price of such security on the NYSE or any successor market thereto,
the NYSE AMEX or any successor market thereto, Nasdaq Capital Market, the Nasdaq
Global Market, the Nasdaq Global Select or any successor market thereto
(collectively, “Nasdaq,”
and together with NYSE and NYSE AMEX, each a “National
Stock Exchange”), OTC Bulletin Board or other principal exchange on which
such security is traded as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices). If the Closing Bid Price cannot be calculated for such
security on any date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined by
the Company and the holders of a majority of the outstanding shares of the
Series A Preferred Stock.

     

    
      
         


      

      
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    (viii) Mandatory
Conversion.  Provided that the Common Stock underlying the
Series A Preferred Stock is registered in an effective registration statement or
is available for resale under Rule 144, without limitation, all outstanding
shares of the Series A Preferred Stock shall automatically convert to shares of
Common Stock, subject to the conversion restrictions set forth in Section 7
hereof (the “Mandatory
Conversion”), at the earlier to occur of (x) the twenty-four (24) month
anniversary of the Closing Date, and (y) at such time that the VWAP of the
Company’s Common Stock is no less than $5.00 for a period of ten (10)
consecutive trading days with the daily volume of the Common Stock of at least
50,000 shares per day.  Holders of shares of the Series A Preferred
Stock so converted may deliver to the Company at its executive office, or to the
Company’s Transfer Agent, as applicable, the certificate or certificates for the
Series A Preferred Stock so converted. As promptly as practicable thereafter,
the Company shall issue, or shall cause its Transfer Agent to issue and deliver
to such holder a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled, together with any cash dividends and
payment in lieu of fractional shares to which such holder may be entitled
pursuant to Section 5(i). Until such time as a holder of shares of the Series A
Preferred Stock shall surrender its certificates therefor as provided above,
such certificates shall be deemed to represent the shares of Common Stock
issuable pursuant to this Section 5(b).  For purposes hereof, “VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a National
Securities Exchange, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on a National Securities Exchange
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 4:00 p.m. New York
City time); (b) if on the Common Stock is then quoted on the OTC Bulletin Board,
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 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 of the then-outstanding Series A Preferred Shares, the
fees and expenses of which shall be paid by the Company.

     

    
      
         


      

      
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    (c) Conversion
Price.

     

    (i) The term
“Conversion
Price” shall mean $3.50 per share subject to adjustment under Section
5(d) hereof. Notwithstanding any adjustment hereunder, at no time shall the
Conversion Price be greater than $3.50 per share except if it is adjusted
pursuant to Section 5(d)(i).

     

    (ii) Notwithstanding
the foregoing to the contrary, if during any period (a “Black-out
Period”), a holder of Series A Preferred Stock is unable to trade any
Common Stock issued or issuable upon conversion of the Series A Preferred Stock
immediately due to the delay or suspension of effectiveness of the Registration
Statement (as defined in the Securities Purchase Agreement), or because the
Company has otherwise informed such holder of Series A Preferred Stock that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock (provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within the control of
the holder of Series A Preferred Stock or due to the Company exercising its
rights under Section 3(n) of the Registration Rights Agreement (as defined in
the Securities Purchase Agreement)), such holder of Series A Preferred Stock
shall have the option but not the obligation on any Conversion Date within ten
(10) trading days following the expiration of the Black-out Period of using the
Conversion Price applicable on such Conversion Date or any Conversion Price
selected by such holder of Series A Preferred Stock that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten (10) trading days thereafter.

     

    (d) Adjustments of Conversion
Price.

     

    (i) ­Adjustments for Stock Splits
and Combinations. If the Company shall, at any time or from time to time
after the Issuance Date, effect a split of the outstanding Common Stock, the
Conversion Price shall be proportionately decreased. If the Company shall, at
any time or from time to time after the Issuance Date, combine the outstanding
shares of Common Stock, the Conversion Price shall be proportionately increased.
Any adjustments under this Section 5(d)(i) shall be effective at the close of
business on the date the stock split or combination becomes
effective.

     

    (ii) Adjustments for Certain
Dividends and Distributions. If the Company shall, at any time or from
time to time after the Issuance Date, make or issue or set a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in shares of Common Stock, then, and in each event, the
Conversion Price shall be decreased as of the time of such issuance or, in the
event such record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction:

     

    
      
         


      

      
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    (1) the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and

     

    (2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.

     

    (iii) Adjustment for Other
Dividends and Distributions. If the Company shall, at any time or from
time to time after the Issuance Date, make or issue or set a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution by the Company, payable in securities of the Company, other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the holders of Series
A Preferred Stock shall receive upon conversions thereof, in addition to the
number of shares of Common Stock receivable thereon, the number of securities of
the Company which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had such holder
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any distributions
payable thereon during such period), giving application to all adjustments
called for during such period under this Section 5(d)(iii) with respect to the
rights of the holders of the Series A Preferred Stock; provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive (i) a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as they
would have received if all outstanding shares of Series A Preferred Stock had
been converted into Common Stock on the date of such event or (ii) a
dividend or other distribution of shares of Series A Preferred Stock which are
convertible, as of the date of such event, into such number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being
issued with respect to each share of Common Stock in such dividend or
distribution.

     

    (iv) Adjustments for
Reclassification, Exchange or Substitution. If the Common Stock issuable
upon conversion of the Series A Preferred Stock at any time or from time to time
after the Issuance Date shall be changed to the same or different number of
shares of any class or classes of stock, whether by reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 5(d)(i), (ii) and (iii), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
5(d)(v)), then, and in each event, an appropriate revision to the Conversion
Price shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of Series A
Preferred Stock shall have the right thereafter to convert such share of Series
A Preferred Stock into the kind and amount of shares of stock and other
securities receivable upon reclassification, exchange, substitution or other
change, by holders of the number of shares of Common Stock into which such share
of Series A Preferred Stock might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.

     

    
      
         


      

      
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    (v) Adjustments for
Reorganization, Merger, Consolidation or Sales of Assets. If at any
time or from time to time after the Issuance Date there shall be (i) a capital
reorganization of the Company (other than by way of a stock split or combination
of shares or stock dividends or distributions provided for in Section 5(d)(i), (ii) and
(iii), or a reclassification, exchange or substitution of shares provided
for in Section 5(d)(iv),
or (ii) a merger or consolidation of the Company with or into another
corporation where the holders of the Company’s outstanding voting securities
prior to such merger or consolidation do not own over 50% of the outstanding
voting securities of the merged or consolidated entity, immediately after such
merger or consolidation, or (iii) the sale of all or substantially all of the
Company’s properties or assets to any other person (an “Organic
Change”), then as a part of such Organic Change an appropriate revision
to the Conversion Price shall be made if necessary and provision shall be made
if necessary (by adjustments of the Conversion Price or otherwise) so that the
holder of each share of Series A Preferred Stock shall have the right thereafter
to convert such share of Series A Preferred Stock into the kind and amount of
shares of stock and other securities or property of the Company or any successor
corporation resulting from the Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
5(d)(v) with respect to the rights of the holders of the Series A Preferred
Stock after the Organic Change to the end that the provisions of this Section
5(d)(v) (including any adjustment in the Conversion Price then in effect and the
number of shares of stock or other securities deliverable upon conversion of the
Series A Preferred Stock) shall be applied after that event in as nearly an
equivalent manner as may be practicable.  In any such case, the
resulting or surviving corporation (if not the Company) shall expressly assume
the obligations to deliver, upon the exercise of the conversion privilege, such
securities or property as the holders of the Series A Preferred Stock remaining
outstanding (or of other convertible preferred stock received by such holders in
place thereof) shall be entitled to receive pursuant to the provisions hereof,
and to make provisions for the protection of the conversion rights as provided
above.  In addition to all other rights of the holders of the Series A
Preferred contained herein, simultaneous with the occurrence of an Organic
Change, each holder of the Series A Preferred Stock shall have the right, at
such holder's option, to require the Company to redeem all or a portion of such
holder's shares of the Series A Preferred Stock at a price per share of the
Series A Preferred equal to one hundred ten percent (110%) of the Liquidation
Preference Amount.

     

     

     

    
      
         


      

      
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      (vi) Adjustments for Issuance of
Additional Shares of Common Stock. For a period of twelve (12) months
following the effective date of the Registration Statement filed under the
Registration Rights Agreement (the “Anti-Dilution
Period”), in the event the Company shall issue or sell any additional
shares of Common Stock (otherwise than as provided in the foregoing subsections
(i) through (v) of this Section 5(d) or pursuant to (X) Common Stock Equivalents
(as hereafter defined) granted or issued prior to the Issuance Date or (Y)
subsection (xi) below) (“Additional
Shares of Common Stock”) at a price per share less than the
then-applicable Conversion Price or without consideration, then the Conversion
Price upon each such issuance shall be reduced to that price (rounded to the
nearest cent) determined by multiplying the Conversion Price by a fraction: (1)
the numerator of which shall be equal to the sum of (A) the number of
shares of Outstanding Common Stock immediately prior to the issuance of such
Additional Shares of Common Stock
plus (B) the number of
shares of Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the outstanding Conversion
Price in effect immediately prior to such issuance; and (2) the denominator of
which shall be equal to the number of shares of Outstanding Common Stock
immediately after the issuance of such Additional Shares of Common Stock. No
adjustment of the Conversion Price shall be made upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise of
any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Common Stock Equivalents,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Common Stock Equivalents
(or upon the issuance of any warrant or other rights
therefore).

    

     

    (vii) Issuance of Common Stock
Equivalents. The provisions of this Section 5(d)(vii) shall apply if the
Company during the Anti-Dilution Period, shall (a) issue any securities
convertible into or exchangeable for, directly or indirectly, Common Stock
(“Convertible
Securities”), other than the Series A Preferred Stock, or (b) issue or
sell any rights or warrants or options to purchase any such Common Stock or
Convertible Securities (collectively, the “Common
Stock Equivalents”). If the price per share for which Additional Shares
of Common Stock may be issuable pursuant to any such Convertible Securities or
Common Stock Equivalent shall be less than the applicable Conversion Price then
in effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
applicable Conversion Price in effect at the time of such amendment or
adjustment, then the applicable Conversion Price upon each such issuance or
amendment shall be adjusted as provided in subsection (vi) of this Section 5(d).
No adjustment shall be made to the Conversion Price upon the issuance of any
Common Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of such Convertible Security or
Common Stock Equivalent.

     

    (viii) Superseding
Adjustment. Upon the expiration of any Common Stock Equivalents, or the
right of conversion or exchange in such Common Stock Equivalents granted or
issued pursuant to Section 5(d)(vi) or (vii), the Conversion Price shall
forthwith be readjusted to such amount as would have been obtained had the
adjustment made upon the granting or issuance of such Common Stock Equivalents,
or the right of conversion or exchange in such Common Stock Equivalents, been
made upon the basis of the issuance or sale of only the number of shares of
Additional Shares of Common Stock issued upon the exercise or conversion of such
Common Stock Equivalents, or such right of conversion or exchange with respect
to such Common Stock Equivalents, subject to any further adjustments pursuant to
this Section 5.

     

    
      
         


      

      
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    (ix) Consideration for
Stock. In case any shares of Common Stock or Convertible Securities other
than the Series A Preferred Stock, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold:

     

    (1) in
connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefore shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the nonsurviving
corporation as the Board of Directors may determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or warrants or options,
as the case may be; or

     

    (2) in the
event of any consolidation or merger of the Company in which the Company is not
the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock, the determination of
the applicable Conversion Price or the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock immediately prior to such
merger, consolidation or sale, shall be made after giving effect to such
adjustment of the number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock. In the event any consideration received by the
Company for any securities consists of property other than cash, the fair market
value thereof at the time of issuance or as otherwise applicable shall be as
determined in good faith by the Board of Directors of the Company. In the event
Common Stock is issued with other shares or securities or other assets of the
Company for consideration which covers both, the consideration computed as
provided in this Section (5)(d)(ix) shall be allocated among such securities and
assets as determined in good faith by the Board of Directors of the
Company.

     

    (x) Record Date. In case
the Company shall take record of the holders of its Common Stock or any other
Preferred Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.

     

    
      
         


      

      
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    (xi) Certain Issues
Excepted. Anything herein to the contrary notwithstanding, the Company
shall not be required to make any adjustment to the Conversion Price upon (i)
securities issued pursuant to a bona fide acquisition of another business entity
or business segment of any such entity by the Company pursuant to a merger,
purchase of substantially all the assets or any type of reorganization (each an
“Acquisition”)
provided that (A) the Company will own more than fifty percent (50%) of the
voting power of such business entity or business segment of such entity and (B)
such Acquisition is approved by the Board of Directors; (ii) securities issued
pursuant to the conversion or exercise of convertible or exercisable securities
issued or outstanding on or prior to the date of the Securities Purchase
Agreement or issued pursuant to the Securities Purchase Agreement (so long as
the terms governing the conversion or exercise price in such securities are not
amended to lower such price and/or adversely affect the holders of the Series A
Preferred Stock); (iii) securities issued in connection with bona fide strategic
license agreements or other partnering arrangements so long as such issuances
are not for the primary purpose of raising capital; (iv) Common Stock issued or
the issuance or grants of options to purchase Common Stock, in each case, at no
less than the then-applicable fair market value, pursuant to equity incentive
plans that are adopted by the Company’s Board of Directors; (v) securities
issued to any placement agent and its respective designees for the transactions
contemplated by the Securities Purchase Agreement; (vi) securities issued at no
less than the then-applicable fair market value to advisors or consultants
(including, without limitation, financial advisors and investor relations firms)
in connection with any engagement letter or consulting agreement, provided that
any such issuance is approved by the Board of Directors; (vii) securities issued
to financial institutions or lessors in connection with reasonable commercial
credit arrangements, equipment financings or similar transactions, provided that
any such issue is approved by the Board of Directors; (viii) securities issued
to vendors or customers or to other persons in similar commercial situations as
the Company, provided that any such issue is approved by the Board of Directors;
and (ix) securities issued in connection with any recapitalization.

     

    (e) No Impairment. The
Company shall not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment. In the event a
holder shall elect to convert any shares of Series A Preferred Stock as provided
herein, the Company cannot 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, unless (i) the Company receives an order from the Securities
and Exchange Commission prohibiting such conversion or (ii) an injunction from a
court, on notice, restraining and/or adjoining conversion of all or of said
shares of Series A Preferred Stock shall have been issued and the Company posts
a surety bond for the benefit of such holder in an amount equal to 100% of the
Series A Liquidation Preference Amount of the shares of Series A Preferred Stock
such holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such holder in the event it obtains judgment.

     

    
      
         


      

      
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    (f) Certificates as to
Adjustments. Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock pursuant to this Section 5, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment and readjustment, showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon written request of the holder of such affected Series A Preferred
Stock, at any time, furnish or cause to be furnished to such holder a like
certificate setting forth such adjustments and readjustments, the Conversion
Price in effect at the time, and the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon the conversion of a share of such Series A Preferred Stock.
Notwithstanding the foregoing, the Company shall not be obligated to deliver a
certificate unless such certificate would reflect an increase or decrease of at
least one percent of such adjusted amount; if the Company so postpones
delivering a certificate, such prior adjustment shall be carried forward and
made as soon as such adjustment, together with other adjustments required by
this Section 5 and not previously made, would result in an adjustment of one
percent or more.

     

    (g) Issue Taxes. The
Company shall pay any and all issue and other taxes, excluding federal, state or
local income taxes, that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series A Preferred Stock
pursuant hereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such
conversion.

     

    (h) Notices. All notices
and other communications hereunder shall be in writing and shall be deemed given
if delivered personally or by facsimile or three (3) business days following
being mailed by certified or registered mail, postage prepaid, return-receipt
requested, addressed to the holder of record at its address appearing on the
books of the Company. The Company shall give written notice to each holder of
Series A Preferred Stock at least twenty (20) calendar days prior to the date on
which the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change or Liquidation, and in no
event shall such notice be provided to such holder prior to such information
being made known to the public. The Company shall also give written notice to
each holder of Series A Preferred Stock at least twenty (20) days prior to the
date on which any Organic Change or Liquidation will take place, and in no event
shall such notice be provided to such holder prior to such information being
made known to the public.

     

    
      
         


      

      
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    (i) Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion of the Series
A Preferred Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Company shall round the number of shares to be issued
upon conversion up to the nearest whole number of shares.

     

    (j) Reservation of Common
Stock. The Company shall, so long as any shares of Series A Preferred
Stock are outstanding, reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Stock, such number of shares of Common Stock equal to at
least one hundred ten percent (110%) of the aggregate number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the shares of Series A Preferred Stock then outstanding. The initial number
of shares of Common Stock reserved for conversions of the Series A Preferred
Stock and any increase in the number of shares so reserved shall be allocated
pro rata among the holders of the Series A Preferred Stock based on the number
of shares of Series A Preferred Stock held by each holder of record at the time
of issuance of the Series A Preferred Stock or increase in the number of
reserved shares, as the case may be. In the event a holder shall sell or
otherwise transfer any of such holder's shares of Series A Preferred Stock, each
transferee shall be allocated a pro rata portion of the number of shares of
Common Stock reserved for such transferor. Any shares of Common Stock reserved
and which remain allocated to any person or entity which does not hold any
shares of Series A Preferred Stock shall be allocated to the remaining holders
of Series A Preferred Stock, pro rata based on the number of shares of Series A
Preferred Stock then held by such holder.

     

    (k) Retirement of Series A
Preferred Stock. Conversion of Series A Preferred Stock shall be deemed
to have been effected on the Conversion Date. Upon conversion of only a portion
of the number of shares of Series A Preferred Stock represented by a certificate
surrendered for conversion, the Company shall issue and deliver to such holder,
at the expense of the Company, a new certificate covering the number of shares
of Series A Preferred Stock representing the unconverted portion of the
certificate so surrendered as required by Section 5(b)(ii).

     

    (l) Regulatory
Compliance. If any shares of Common Stock to be reserved for the purpose
of conversion of Series A Preferred Stock require registration or listing with
or approval of any governmental authority, stock exchange or other regulatory
body under any federal or state law or regulation or otherwise before such
shares may be validly issued or delivered upon conversion, the Company shall, at
its sole cost and expense, in good faith and as expeditiously as possible,
endeavor to secure such registration, listing or approval, as the case may
be.

     

    6. No Preemptive Rights.
No holder of the Series A Preferred Stock shall be entitled to rights to
subscribe for, purchase or receive any part of any new or additional shares of
any class, whether now or hereinafter authorized, or of bonds or debentures, or
other evidences of indebtedness convertible into or exchangeable for shares of
any class, but all such new or additional shares of any class, or any bond,
debentures or other evidences of indebtedness convertible into or exchangeable
for shares, may be issued and disposed of by the Board of Directors on such
terms and for such consideration (to the extent permitted by law), and to such
person or persons as the Board of Directors in their absolute discretion may
deem advisable.

     

    
      
         


      

      
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    7. Conversion
Restriction. Notwithstanding anything to the contrary set forth in
Section 5 of this Certificate of Designation, at no time may a holder of shares
of Series A Preferred Stock convert shares of the Series A Preferred Stock if
the number of shares of Common Stock to be issued pursuant to such conversion
would cause the number of shares of Common Stock beneficially owned by such
holder and its affiliates at such time, when aggregated with all other shares of
Common Stock beneficially owned by such holder and its affiliates at such time,
result in such holder beneficially owning (as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules
thereunder) in excess of 9.99% of the then issued and outstanding shares of
Common Stock outstanding at such time (the “Maximum
Amount”); provided, however, that upon a
holder of Series A Preferred Stock providing the Company with sixty-one (61)
days notice (pursuant to Section 5(h) hereof) (the "Waiver
Notice") that such holder would like to waive Section 7 of this
Certificate of Designation with regard to any or all shares of Common Stock
issuable upon conversion of Series A Preferred Stock, this Section 7 shall be of
no force or effect with regard to those shares of Series A Preferred Stock
referenced in the Waiver Notice.

     

    8. Inability to Fully
Convert.

     

    (a) Holder's Option if Company
Cannot Fully Convert. If, upon the Company's receipt of a Conversion
Notice, the Company cannot issue shares of Common Stock registered for resale
under the Registration Statement for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of Common
Stock authorized and available, (y) is otherwise prohibited by applicable law or
by the rules or regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the Company or its
securities from issuing all of the Common Stock which is to be issued to a
holder of Series A Preferred Stock pursuant to a Conversion Notice or (z)
subsequent to the effective date of the Registration Statement, fails to have a
sufficient number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of Common
Stock as it is able to issue in accordance with such holder's Conversion Notice
and pursuant to Section 5(b)(ii) above and, with respect to the unconverted
Series A Preferred Stock, the holder, solely at such holder's option, can elect,
within five (5) business days after receipt of notice from the Company thereof
to:

     

    (i) require
the Company to redeem from such holder those Series A Preferred Stock for which
the Company is unable to issue Common Stock in accordance with such holder's
Conversion Notice (“Mandatory
Redemption”) at a price per share equal the Series A Liquidation
Preference Amount (“Mandatory
Redemption Price”); provided that the Company shall have the sole option
to pay the Mandatory Redemption Price in cash or, subject to Section 7 hereof,
shares of Common Stock;

     

    
      
         


      

      
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    (ii) if the
Company's inability to fully convert Series A Preferred Stock is pursuant to
Section 8(a)(z) above, require the Company to issue restricted shares of Common
Stock in accordance with such holder's Conversion Notice and pursuant to Section
5(b)(ii) above;

     

    (iii) void its
Conversion Notice and retain or have returned, as the case may be, the shares of
Series A Preferred Stock that were to be converted pursuant to such holder's
Conversion Notice (provided that a holder's voiding its Conversion Notice shall
not effect the Company's obligations to make any payments which have accrued
prior to the date of such notice); or

     

    (iv) if the
Company’s inability to convert results in a Buy-In, exercise its Buy-In rights
pursuant to and in accordance with the terms and provisions of Section 5(b)(vi)
hereof.

     

    (b) Mechanics of Fulfilling
Holder's Election. The Company shall immediately send via facsimile to a
holder of Series A Preferred Stock, upon receipt of an original or facsimile
copy of a Conversion Notice from such holder which cannot be fully satisfied as
described in Section 8(a) above, a notice of the Company's inability to fully
satisfy such holder's Conversion Notice (the “Inability
to Fully Convert Notice”). Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy such holder's
Conversion Notice, (ii) the number of Series A Preferred Stock which cannot be
converted and (iii) the applicable Mandatory Redemption Price. Such holder shall
notify the Company of its election pursuant to Section 8(a) above by delivering
written notice via facsimile to the Company (“Notice in
Response to Inability to Convert”).

     

    (c) Payment of Redemption
Price. If such holder shall elect to have its shares redeemed pursuant to
Section 8(a)(i) above, the Company shall pay the Mandatory Redemption Price to
such holder within thirty (30) days of the Company's receipt of the holder's
Notice in Response to Inability to Convert, provided that prior
to the Company's receipt of the holder's Notice in Response to Inability to
Convert, the Company has not delivered a notice to such holder stating, to the
satisfaction of the holder, that the event or condition resulting in the
Mandatory Redemption has been cured and all Conversion Shares issuable to such
holder can and will be delivered to the holder in accordance with the terms of
Section 5(b)(ii). Until the full Mandatory Redemption Price is paid in full to
such holder, such holder may (i) void the Mandatory Redemption with respect to
those Series A Preferred Stock for which the full Mandatory Redemption Price has
not been paid, (ii) receive back such Series A Preferred Stock, and (iii)
require that the Conversion Price of such returned Series A Preferred Stock be
adjusted to the lesser of (A) the Conversion Price and (B) the lowest Closing
Bid Price during the period beginning on the Conversion Date and ending on the
date the holder voided the Mandatory Redemption.

     

    
      
         


      

      
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    (d) Pro-rata Conversion and
Redemption. In the event the Company receives a Conversion Notice from
more than one holder of Series A Preferred Stock on the same day and the Company
can convert and redeem some, but not all, of the Series A Preferred Stock
pursuant to this Section 8, the Company shall convert and redeem from each
holder of Series A Preferred Stock electing to have Series A Preferred Stock
converted and redeemed at such time an amount equal to such holder's pro-rata
amount (based on the number shares of Series A Preferred Stock held by such
holder relative to the number shares of Series A Preferred Stock then
outstanding) of all shares of Series A Preferred Stock being converted and
redeemed at such time.

     

    9. Vote to Change the Terms of
or Issue Preferred Stock. The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting, of the Majority
Holders (in addition to any other corporate approvals then required to effect
such action), shall be required for any change to this Certificate of
Designation or the Company's Articles of Incorporation which would amend, alter,
change or repeal any of the powers, designations, preferences and rights of the
Series A Preferred Stock.

     

    10. Lost or Stolen
Certificates. Upon receipt by the Company of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing the shares of Series A Preferred Stock, and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
holder to the Company and, in the case of mutilation, upon surrender and
cancellation of the Preferred Stock Certificate(s), the Company shall execute
and deliver new preferred stock certificate(s) of like tenor and date; provided, however, that the
Company shall not be obligated to re-issue Preferred Stock Certificates if the
holder contemporaneously requests the Company to convert such shares of Series A
Preferred Stock into Common Stock.

     

    11. Remedies, Characterizations,
Other Obligations, Breaches and Injunctive Relief. The remedies provided
in this Certificate of Designation shall be cumulative and in addition to all
other remedies available under this Certificate of Designation, at law or in
equity (including a decree of specific performance and/or other injunctive
relief). No remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall limit a
holder's right to pursue actual damages for any failure by the Company to comply
with the terms of this Certificate of Designation. Amounts set forth or provided
for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the holder thereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the holders of the Series A Preferred Stock and that the remedy at law for any
such breach may be inadequate. The Company therefore agrees that, in the event
of any such breach or threatened breach, the holders of the Series A Preferred
Stock shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

     

    12. Specific Shall Not Limit
General; Construction. No specific provision contained in this
Certificate of Designation shall limit or modify any more general provision
contained herein. This Certificate of Designation shall be deemed to be jointly
drafted by the Company and all initial purchasers of the Series A Preferred
Stock and shall not be construed against any person as the drafter
hereof.

     

    
      
         


      

      
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    13. Failure or Indulgence Not
Waiver. No failure or delay on the part of a holder of Series A Preferred
Stock in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

     

    
 

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    IN
WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate
and does affirm the foregoing as true this 22th day
of April, 2010.

     

     

     

    
      
        	 	Silver Pearl Enterprises,
      Inc.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Denis D.
      Smith                                                     	 
	 	 	Name:
      Denise D. Smith	 
	 	 	Title:  Chief
      Executive Officer	 
	 	 	 	 


      

    

     

    
      
         


      

      
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    EXHIBIT
I

    


    SILVER
PEARL ENTERPRISES, INC.

    CONVERSION
NOTICE

    


    Reference
is made to the Certificate of Designations, Preferences and Rights of the 6%
Series A Convertible Preferred Stock of Silver Pearl Enterprises, Inc. (the
“Certificate of Designation”). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series A Preferred Stock, par value $0.001 per share (the
“Preferred Shares”), of Silver Pearl Enterprises, Inc., a Nevada corporation
(the “Company”), indicated below into shares of Common Stock, par value $0.001
per share (the “Common Stock”), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.

    


    Date of
Conversion:                                                
                                                                

    


    Number of
Preferred Shares to be converted:                                                     


     

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

    


    The
Common Stock has been sold pursuant to the Registration Statement:

    YES
____                                                                NO____

    


    Please
confirm the following information:

    


    Conversion
Price:                                                       
                  
      

    


    Number of
shares of Common Stock

    to be
issued:                                                                                    
         

    


    Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________

    


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

     

     

    
      	Issue
      to: 	                                                                                
             
	 	                                                                                       
	 	 
	Facsimile
      Number:   	                                                                                       
	 	 
	Authorization:    	                                                                                       
	 	By:                                                                                 
	 	Title:                                                                     
                
	 	 
	Dated:	 


    

     

     

     

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