Unassociated Document


     

    CERTIFICATE
OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

    OF
THE

    SERIES
B CONVERTIBLE PREFERRED STOCK

    OF

    CHINA
BIO ENERGY HOLDING GROUP CO., LTD.

    


    The
undersigned, the Chairman of the Board of China Bio Energy Holding Group Co.,
Ltd. a Delaware corporation (the “Company”),
does hereby certify that, pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Company (the “Certificate
of Incorporation”) and in accordance with Section 151 of the Delaware
General Corporation Law, the Board of Directors has taken action by written
consent on October 1, 2008, to authorize a new series of preferred stock, the
Series B Convertible Preferred Stock, par value $0.001 per share, and to set
forth the designations, powers, preferences and relative and other special
rights set forth in its Certificate of Designations as authorized in Article IV
of the Certificate of Incorporation (the “Preferred
Stock”)  as follows:

    


    1.           Designation and Rank.
The designation of such series of the Preferred Stock shall be the Series B
Convertible Preferred Stock, par value $0.001 per share (the “Series B
Preferred Stock”). The maximum number of shares of Series B Preferred
Stock shall be 7,000,000 shares. The Series B Preferred Stock shall rank (i)
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 senior to the Series B Preferred Stock
(“Junior
Stock”) and (ii) pari
passu with the Company’s Series A Convertible Preferred Stock, par value
$0.001 (the “Series A
Preferred Stock”). The Series B Preferred Stock shall be subordinate to
and rank junior to all indebtedness of the Company now or hereafter
outstanding.

     

    2.           Intentionally Left
Blank.

     

    3.           Voting
Rights.

    


    (a)           Class Voting Rights.
The Series B 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 B 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 B Preferred Stock outstanding at the time, given in person
or by proxy, either in writing or at a meeting in which the holders of the
Series B 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 B Preferred Stock, with respect to the Distribution of
assets on liquidation, dissolution or winding up; (ii) amend, alter or repeal
the provisions of the Series B Preferred Stock, whether by merger, consolidation
or otherwise, so as to adversely affect any right, preference, privilege or
voting power of the Series B 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)
repurchase, redeem or pay dividends on, shares of Common Stock or any other
shares of the Company's Junior Stock (other than de minimus repurchases from
employees of the Company in certain circumstances or repurchases pursuant to a
plan approved by the Board); (iv) amend the Certificate 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 B 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; (v)
effect any Distribution with respect to Junior Stock other than as permitted
hereby; (vi) reclassify the Company's outstanding securities; (vii) voluntarily
file for bankruptcy, liquidate the Company’s assets or make an assignment for
the benefit of the Company’s creditors; or (viii) materially change the nature
of the Company’s business.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    (b)           General Voting
Rights. Except with respect to transactions upon which the Series B
Preferred Stock shall be entitled to vote separately as a class pursuant to
Section 3(a) above and except as otherwise required by Delaware law, the Series
B Preferred Stock shall have no voting rights. The Common Stock into which the
Series B Preferred Stock is convertible shall, upon issuance, have all of the
same voting rights as other issued and outstanding Common Stock of the Company,
and none of the rights of the 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, the holders of shares of Series B
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 $3.65 per share of the Series B Preferred Stock (the “Series B 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 B Liquidation
Preference Amount payable to the holders of outstanding shares of the Series B
Preferred Stock, the Series A Preferred Stock liquidation preference of $10.00
per share (the “Series A
Liquidation Preference”) and any series of Preferred Stock or any other
class of stock ranking pari passu, as to rights on liquidation, dissolution or
winding up, with the Series B Preferred Stock, then all of said assets will be
distributed among the holders of the Series B Preferred Stock, the Series A
Preferred Stock and the other classes of stock ranking pari passu with the
Series B 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 B Preferred Stock shall be equal to a ratably
proportionate amount of the liquidation payment with respect to each outstanding
share of Series B 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 B 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 B Preferred Stock has been paid in cash the full Series B
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,
dissolution, or winding up within the meaning of this Section 4. In the event of
the merger or consolidation of the Company with or into another corporation, the
Series B Preferred Stock shall maintain its relative powers, designations and
preferences provided for herein and no merger shall result which is inconsistent
therewith.

     

    (c)           The
Company shall provide written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, stating a
payment date and the place where the distributable amounts shall be payable, by
mail, postage prepaid, no less than forty-five (45) days prior to the payment
date stated therein, to the holders of record of the Series B 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 B Preferred Stock
that will be paid or distributed on such liquidation, dissolution or winding up,
as the case may be.

     

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

     

    (a)           Right to Convert. At
any time on or after the date of the initial issuance of the Series B Preferred
Stock (the “Issuance
Date”), the holder of any such shares of Series B Preferred Stock may, at
such holder's option, subject to the limitations set forth in Section 7 herein,
elect to convert (a “Voluntary
Conversion”) each share of Series B Preferred Stock held by such person
into a number of fully paid and nonassessable shares of Common Stock equal to
(i) the Series B Liquidation Preference Amount of the shares of Series B
Preferred Stock being converted divided by (ii) the Conversion Price (as defined
in Section 5(d) below) in effect as of the date of the delivery by such holder
of its notice of election to convert. In the event of a notice of redemption of
any shares of Series B 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 redemption price
is paid in full. In the event of a liquidation, dissolution or winding up of the
Company, 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 B Preferred
Stock.

     

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


    
      
         


      

      
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    (i)           Holder's Delivery
Requirements. To convert Series B 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
A (the “Conversion
Notice”), to the Company at China Bio Energy Holding Group Co., Ltd., c/o
Xi’an Baorun Industrial Development Co., Ltd., Dongxin Century Square, 7th floor,
Xi’an East City High-tech Industrial Development Park, Shaanxi Province, PRC,
Attention: Chief Executive Officer, Tel. No.:  86-29-8268-9320, Fax
No.: 86 -29-8268-3629 and (B) surrender to a common carrier for delivery to the
Company as soon as practicable following such Voluntary Conversion Date the
original certificates representing the shares of Series B 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 the Preferred Stock Certificates, the
Company or its designated transfer agent (the “Transfer
Agent”), as applicable, shall, within three (3) trading days following
the date of receipt by the Company of the fully executed Conversion Notice and
the Preferred Stock Certificates, 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 to the
contrary, 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 B Preferred Stock is effective.  If there is
no effective registration statement at the time of delivery, the Company or its
Transfer Agent shall deliver unregistered shares.  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 B
Preferred Stock being converted, then the Company shall, as soon as practicable
and in no event later than three (3) trading 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 B 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 two (2)
trading 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) trading day of such disputed arithmetic calculation being submitted to the
holder, then the Company shall within one (1) trading 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 B 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, except that in the case of a dispute as to the arithmetic
calculation of the number of shares of Common Stock to be issued upon a
conversion, such person or persons will not be treated as a record holder or
record holders of such shares unless the dispute is resolved in their favor in
accordance with Section 5(b)(iii).

     

    (v)            Company's Failure to Timely
Convert. If within three (3) trading days, in the event shares of Common
Stock are being issued, and within five trading days in the event a new
Preferred Stock Certificate is being issued, after the Company's receipt of an
executed copy of the Conversion Notice (so long as the applicable Preferred
Stock Certificates and original Conversion Notice are received by the Company on
or before such third trading day and 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 B Preferred Stock or the Company shall fail to
issue a new Preferred Stock Certificate representing the number of shares of
Series B Preferred Stock to which such holder is entitled pursuant to Section
5(b)(ii) (a “Conversion
Failure”), in addition to all other available remedies which such holder
may pursue hereunder and under the Series B Convertible Preferred Stock Purchase
Agreement (the “Purchase
Agreement”) among the Company and the initial holders of the Series B
Preferred Stock (including indemnification pursuant to Section 6 thereof), the
Company shall pay additional damages to such holder on each trading day after
such Delivery Date (until such shares of Common Stock and a Preferred Stock
Certificate, as applicable are delivered) in an amount equal to 0.5% of the
product of (A) the sum of 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, in the event the Company has failed to deliver a Preferred
Stock Certificate to the holder on a timely basis pursuant to Section 5(b)(ii),
the number of shares of Common Stock issuable upon conversion of the shares of
Series B Preferred Stock represented by such Preferred Stock Certificate, as of
the last possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 5(b)(ii) 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 and
such Preferred Stock Certificate, 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 five (5) trading 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 B 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 B 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 B 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 B 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)), or (2) at
the option of the holder, either reinstate the shares of Series B 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 B 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 NASDAQ 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 the National
Quotation Bureau, Inc.  If the Closing Bid Price cannot be calculated
for such security on such 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 Series B Preferred Stock.


    
      
         


      

      
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    (c)           Intentionally
Omitted.

     

    (d)           Conversion
Price.

     

    (i)           The
term “Conversion
Price” shall mean $3.65per share subject to adjustment under Section 5(e)
hereof. Notwithstanding any adjustment hereunder, at no time shall the
Conversion Price be greater than $3.65per share except if it is adjusted
pursuant to Section 5(e)(i).

     

    (ii)           Notwithstanding
the foregoing to the contrary, if during any period (a “Black-out
Period”), a holder of Series B Preferred Stock is unable to trade any
Common Stock issued or issuable upon conversion of the Series B Preferred Stock
immediately due to the delay or suspension of effectiveness of the Registration
Statement or because the Company has otherwise informed such holder of Series B
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 B Preferred Stock or due to
the Company exercising its rights under Section 3(n) of the Registration Rights
Agreement (as defined in the Purchase Agreement)), such holder of Series B
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 B 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.

     

    (e)           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(e)(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 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 B 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 B 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(e)(iii) with respect to the
rights of the holders of the Series B 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 B 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 B 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 B 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 B 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(e)(i), (ii) and (iii), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
5(e)(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 B
Preferred Stock shall have the right thereafter to convert such share of Series
B 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 B 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 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(e)(i),
(ii) and (iii), or a reclassification, exchange or substitution of shares
provided for in Section 5(e)(iv)), or 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 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 B Preferred Stock shall have the right thereafter
to convert such share of Series B 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 Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
5(e)(v) with respect to the rights of the holders of the Series B Preferred
Stock after the Organic Change to the end that the provisions of this Section
5(e)(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 B Preferred Stock) shall be applied after that event in as nearly an
equivalent manner as may be practicable.

     

    (vi)           Adjustments for Issuance of
Additional Shares of Common Stock. For a period of one (1) year following
the Issuance Date (the “Full
Ratchet 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(e) or pursuant to (X) Common Stock
Equivalents (as hereafter defined) granted or issued prior to the Issuance Date
or (Y) subsection (xii) below) (“Additional
Shares of Common Stock”) at a price per share less than the Conversion
Price then in effect or without consideration, then the Conversion Price upon
each such issuance shall be reduced to a price equal to the consideration per
share paid for such Additional Shares of Common Stock.


    
      
         


      

      
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    (vii)           Issuance of Common Stock
Equivalents. The provisions of this Section 5(e)(vii) shall apply if the
Company during the Full Ratchet Period, shall (a) issue any securities
convertible into or exchangeable for, directly or indirectly, Common Stock
(“Convertible
Securities”), other than the Series B 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 the first sentence of subsection (vi)
of this Section 5(e). 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)          Subsequent Common Stock and
Common Stock Equivalents Issues. In the event the Company shall, for a
period of one (1) year after the Full Ratchet Period, issue or sell any
Additional Shares of Common Stock or Common Stock Equivalents (otherwise than as
provided in the foregoing subsections (i) through (v) of this Section 5(e)) at a
price per share less than the then-applicable Conversion Price, or without
consideration, the Conversion Price shall be adjusted 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).

     

    (ix)           Superseding
Adjustment. If, at any time after any adjustment of the Conversion Price
then in effect shall have been made pursuant to Section 5(e)(vi), (vii) or
(viii) as the result of any issuance of Common Stock Equivalents, and such
Common Stock Equivalents, or the right of conversion or exchange in such Common
Stock Equivalents, shall expire, and all of such or the right of conversion or
exchange with respect to all of such Common Stock Equivalents shall not have
been converted or exercised, then such previous adjustment shall be rescinded
and annulled and the Conversion Price then in effect shall be adjusted to the
Conversion Price in effect immediately prior to the issuance of such Common
Stock Equivalents, subject to any further adjustments pursuant to this Section
5.

     

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


    
      
         


      

      
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    (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 such Board 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 B Preferred Stock, the determination of
the applicable Conversion Price or the number of shares of Common Stock issuable
upon conversion of the Series B 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 B 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)(e)(x) shall be allocated among such securities and
assets as determined in good faith by the Board of Directors of the
Company.

     

    (xi)           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.

     

    (xii)           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 (other than for cash) in connection with a merger,
acquisition, or consolidation, (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 Purchase Agreement or issued pursuant to the 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 B 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 purpose of raising capital and so long as
such agreements and arrangements are pre-approved in writing by the Purchasers,
and (iv) Common Stock issued or the issuance or grants of options to purchase
Common Stock pursuant to the Company’s stock option plans and employee stock
purchase plans outstanding as they exist on the date of the Purchase
Agreement.


    
      
         


      

      
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    (f)           No Impairment. The
Company shall not, by amendment of its Certificate 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 by the Company, but will 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 B Preferred Stock against
impairment. In the event a holder shall elect to convert any shares of Series B
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 B Preferred Stock shall have been
issued and the Company posts a surety bond for the benefit of such holder in an
amount equal to 120% of the Series B Liquidation Preference Amount of the shares
of Series B 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.

     

    (g)           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 B 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 B 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 B 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 B 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.

     

    (h)           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 B 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.

     

    
      
         


      

      
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    (i)           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) trading 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 will give written notice to each holder of
Series B Preferred Stock at least twenty (20) 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, dissolution, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Company will also give written
notice to each holder of Series B Preferred Stock at least twenty (20) days
prior to the date on which any Organic Change, dissolution, liquidation or
winding-up 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.

     

    (j)           Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion of the Series
B 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.

     

    (k)           Reservation of Common
Stock. The Company shall, so long as any shares of Series B 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 B 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 B Preferred Stock then outstanding. The initial number
of shares of Common Stock reserved for conversions of the Series B Preferred
Stock and any increase in the number of shares so reserved shall be allocated
pro rata among the holders of the Series B Preferred Stock based on the number
of shares of Series B Preferred Stock held by each holder of record at the time
of issuance of the Series B 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 B 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 B Preferred Stock shall be allocated to the remaining holders
of Series B Preferred Stock, pro rata based on the number of shares of Series B
Preferred Stock then held by such holder.


    
      
         


      

      
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    (l)           Retirement of Series B
Preferred Stock. Conversion of Series B 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 B 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 B Preferred Stock representing the unconverted portion of the
certificate so surrendered as required by Section 5(b)(ii).

     

    (m)           Regulatory
Compliance. If any shares of Common Stock to be reserved for the purpose
of conversion of Series B 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.
Except as provided in Section 5 hereof and in the Purchase Agreement, no holder
of the Series B 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.

     

    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 B Preferred Stock convert shares of the Series B 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 owned by such holder and its
affiliates at such time, when aggregated with all other shares of Common Stock
owned by such holder and its affiliates at such time, result in such holder and
its affiliates 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; provided, however, that upon a
holder of Series B Preferred Stock providing the Company with sixty-one (61)
days notice (pursuant to Section 5(i) 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 B Preferred Stock, this Section 7 shall be of
no force or effect with regard to those shares of Series B Preferred Stock
referenced in the Waiver Notice.


    
      
         


      

      
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    8.           Redemption.

     

    (a)           Redemption Option Upon Major
Transaction. In addition to all other rights of the holders of Series B
Preferred Stock contained herein, simultaneous with the occurrence of a Major
Transaction (as defined below), each holder of Series B 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 Series B Preferred Stock at a price per
share of Series B Preferred Stock equal to one hundred percent (100%) of the
Series B Liquidation Preference Amount  (the “Major
Transaction Redemption Price”); provided that the Company shall have the
sole option to pay the Major Transaction Redemption Price in cash or shares of
Common Stock. If the Company elects to pay the Major Transaction Redemption
Price in shares of Common Stock, the price per share shall be based upon the
Conversion Price then in effect on the
day preceding the date of delivery of the Notice of Redemption at Option of
Buyer Upon Major Transaction (as hereafter defined) and the holder of such
shares of Common Stock shall have demand registration rights with respect to
such shares.

     

    (b)            Redemption Option Upon
Triggering Event. In addition to all other rights of the holders of
Series B Preferred Stock contained herein, after a Triggering Event (as defined
below), each holder of Series B 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 Series B Preferred Stock at a price per share of Series B
Preferred Stock equal to one hundred twenty percent (120%) of the Liquidation
Preference Amount, plus any liquidated damages (the “Triggering
Event Redemption Price” and, collectively with the Major Transaction
Redemption Price, the “Redemption
Price”); provided that with respect to the Triggering Events described in
clauses (i), (ii), (iii), (iv) and (vii) of Section 8(d), the Company shall have
the sole option to pay the Triggering Event Redemption Price in cash or shares
of Common Stock; and provided, further, that with respect to the Triggering
Events described in clauses (v) and (vi) of Section 8(d), the Company shall pay
the Triggering Event Redemption Price in cash. If the Company elects to pay the
Triggering Event Redemption Price in shares of Common Stock in accordance with
this Section 8(b), the price per share shall be the lesser of (i) the Conversion
Price in effect on the day preceding the date of delivery of the Notice of
Redemption at Option of Buyer Upon Triggering Event or (ii) the Closing Bid
Price on the day preceding the date of delivery of the Notice of Redemption at
Option of Buyer Upon Triggering Event and the holder of such shares of Common
Stock shall have demand registration rights with respect to such
shares.

     

    (c)           Major Transaction. A
“Major
Transaction” shall be deemed to have occurred at such time as any of the
following events:

     

    (i)           the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities).


    
      
         


      

      
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    (ii)           the
sale or transfer of more than 50% of the Company's assets other than inventory
in the ordinary course of business in one or a related series of transactions;
or

     

    (iii)           closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.

     

    (d)            Triggering Event. A
“Triggering
Event” shall be deemed to have occurred at such time as any of the
following events:

     

    (i)           so
long as any shares of Series B Preferred Stock are outstanding, after the
effectiveness of the Registration Statement, if the Registration Statement (i)
lapses for any reason (including, without limitation, the issuance of a stop
order) and such lapse continues for a period of twenty (20) consecutive trading
days, or (ii) is unavailable to the holder of the Series B Preferred Stock for
sale of the shares of Common Stock, and such lapse or unavailability continues
for a period of twenty (20) consecutive trading days, and the shares of Common
Stock into which such holder's Series B Preferred Stock can be converted cannot
be sold in the public securities market pursuant to Rule 144 (“Rule
144”) under the Securities Act of 1933, as amended, provided that the
cause of such lapse or unavailability is not due to factors solely within the
control of such holder of Series B Preferred Stock; or

     

    (ii)           the
suspension from listing or trading, without subsequent listing on any one of, or
the failure of the Common Stock to be listed or traded on at least one of, the
OTC Bulletin Board, the Nasdaq National Market, the Nasdaq Capital Market, the
New York Stock Exchange, Inc. or the American Stock Exchange, Inc., for a period
of five (5) consecutive trading days; or

     

    (iii)           the
Company's notice to any holder of Series B Preferred Stock, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 9), or its intention not to comply, with
proper requests for conversion of any Series B Preferred Stock into shares of
Common Stock; or

     

    (iv)           the
Company's failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Certificate of Designation within ten (10) trading days
after the receipt by the Company of the Conversion Notice and the Preferred
Stock Certificates; or

     

    (v)           the
Company deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or

     

    
      
         


      

      
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    (vi)           the
Company consummates a “going private” transaction and as a result the Common
Stock is no longer registered under Sections 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended; or

     

    (vii)           all
of the following conditions are satisfied: (A) the Company breaches any
representation, warranty, covenant or other term or condition of the Purchase
Agreement, this Certificate of Designation or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby or hereby; (B) such breach gives rise to a Material Adverse
Effect (as defined in the Purchase Agreement); and (C) if such breach relates to
a covenant and is curable, such breach continues for a period of at least ten
(10) trading days.

     

    (e)           Mechanics of Redemption at
Option of Buyer Upon Major Transaction. No sooner than fifteen (15) days
nor later than ten (10) days prior to the consummation of a Major Transaction,
but not prior to the public announcement of such Major Transaction, the Company
shall deliver written notice thereof via facsimile and overnight courier (“Notice of
Major Transaction”) to each holder of Series B Preferred Stock. At any
time after receipt of a Notice of Major Transaction (or, in the event a Notice
of Major Transaction is not delivered at least ten (10) days prior to a Major
Transaction, at any time within ten (10) days prior to a Major Transaction), any
holder of Series B Preferred Stock then outstanding may require the Company to
redeem, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Series B Preferred Stock then outstanding by
delivering written notice thereof via facsimile and overnight courier (“Notice of
Redemption at Option of Buyer Upon Major Transaction”) to the Company,
which Notice of Redemption at Option of Buyer Upon Major Transaction shall
indicate (i) the number of shares of Series B Preferred Stock that such holder
is electing to redeem and (ii) the applicable Major Transaction Redemption
Price, as calculated pursuant to Section 8(a) above.

     

    (f)           Mechanics of Redemption at
Option of Buyer Upon Triggering Event. Within one (1) trading day after
the Company obtains knowledge of the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight courier
(“Notice of
Triggering Event”) to each holder of Series B Preferred Stock. At any
time after the earlier of a holder's receipt of a Notice of Triggering Event and
such holder becoming aware of a Triggering Event, any holder of Series B
Preferred Stock then outstanding may require the Company to redeem all of such
holder’s Series B Preferred Stock by delivering written notice thereof via
facsimile and overnight courier (“Notice of
Redemption at Option of Buyer Upon Triggering Event”) to the Company,
which Notice of Redemption at Option of Buyer Upon Triggering Event shall
indicate (i) the number of shares of Series B Preferred Stock that such holder
is electing to redeem and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 8(b) above


    
      
         


      

      
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    (g)           Payment of Redemption
Price. Upon the Company's receipt of a Notice(s) of Redemption at Option
of Buyer Upon Triggering Event or a Notice(s) of Redemption at Option of Buyer
Upon Major Transaction from any holder of Series B Preferred Stock, the Company
shall immediately notify such holder of Series B Preferred Stock by facsimile of
the Company's receipt of such Notice(s) of Redemption at Option of Buyer Upon
Triggering Event or Notice(s) of Redemption at Option of Buyer Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Company such holder's Preferred Stock Certificates which such holder has
elected to have redeemed. Other than with respect to the Triggering Event
described in clauses (v) and (vi) of Section 8(d), the Company shall have the
sole option to pay the Redemption Price in cash or shares of Common Stock in
accordance with Sections 8(a) and (b) and Section 9 of this Certificate of
Designation. The Company shall deliver the applicable Major Transaction
Redemption Price immediately prior to the consummation of the Major Transaction;
provided that a
holder's Preferred Stock Certificates shall have been so delivered to the
Company; provided further that if the
Company is unable to redeem all of the Series B Preferred Stock to be redeemed,
the Company shall redeem an amount from each holder of Series B Preferred Stock
being redeemed equal to such holder's pro-rata amount (based on the number of
shares of Series B Preferred Stock held by such holder relative to the number of
shares of Series B Preferred Stock outstanding) of all Series B Preferred Stock
being redeemed. If the Company shall fail to redeem all of the Series B
Preferred Stock submitted for redemption (other than pursuant to a dispute as to
the arithmetic calculation of the Redemption Price), in addition to any remedy
such holder of Series B Preferred Stock may have under this Certificate of
Designation and the Purchase Agreement, the applicable Redemption Price payable
in respect of such unredeemed Series B Preferred Stock shall bear interest at
the rate of 1.0% per month (prorated for partial months) until paid in full.
Until the Company pays such unpaid applicable Redemption Price in full to a
holder of shares of Series B Preferred Stock submitted for redemption, such
holder shall have the option (the “Void
Optional Redemption Option”), in lieu of redemption, to require the
Company to promptly return to such holder(s) all of the shares of Series B
Preferred Stock that were submitted for redemption by such holder(s) under this
Section 8 and for which the applicable Redemption Price has not been paid, by
sending written notice thereof to the Company via facsimile (the “Void
Optional Redemption Notice”). Upon the Company's receipt of such Void
Optional Redemption Notice(s) prior to payment of the full applicable Redemption
Price to such holder, (i) the Notice(s) of Redemption at Option of Buyer Upon
Major Transaction or Notice(s) of Redemption at Option of Buyer Upon Triggering
Event (as applicable) shall be null and void with respect to those shares of
Series B Preferred Stock submitted for redemption and for which the applicable
Redemption Price has not been paid and (ii) the Company shall immediately return
any Series B Preferred Stock submitted to the Company by each holder for
redemption under this Section 8(d) and for which the applicable Redemption Price
has not been paid and (iii) the Conversion Price of such returned shares of
Series B Preferred Stock shall be adjusted to the lesser of (A) the Conversion
Price and (B) the lowest Closing Bid Price during the period beginning on the
date on which the Notice(s) of Redemption of Option of Buyer Upon Major
Transaction or Notice(s) of Redemption of Option of Buyer Upon Triggering Event
is delivered to the Company and ending on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company, provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect. A holder's delivery of a Void Optional
Redemption Notice and exercise of its rights following such notice shall not
effect the Company's obligations to make any payments which have accrued prior
to the date of such notice other than interest payments. Payments provided for
in this Section 8 shall have priority to payments to other stockholders in
connection with a Major Transaction.


    
      
         


      

      
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    (h)           Demand Registration
Rights. If the Redemption Price upon the occurrence of a Major
Transaction or a Triggering Event is paid in shares of Common Stock and such
shares have not been previously registered on a registration statement under the
Securities Act, a holder of Series B Preferred Stock may make a written request
pursuant to this Section 8(h) for registration under the Securities Act of all
of its shares of Common Stock issued upon such Major Transaction or Triggering
Event. The Company shall use its reasonable best efforts to cause to be filed
and declared effective as soon as reasonably practicable a registration
statement under the Securities Act, providing for the sale of all of the shares
of Common Stock issued upon such Major Transaction or Triggering Event by such
holder. The Company agrees to use its reasonable best efforts to keep any such
registration statement continuously effective for resale of the Common Stock for
so long as such holder shall request, but in no event shall the Company be
required to maintain the effectiveness of such registration statement later than
the date that the shares of Common Stock issued upon such Major Transaction or
Triggering Event may be offered for resale to the public pursuant to Rule
144.  If the shares cannot be registered on a registration statement,
the Company shall deliver unregistered shares.

     

    9.           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, or (y) 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 B Preferred Stock, the holder, solely at
such holder's option, can elect, within five (5) trading days after receipt of
notice from the Company thereof to:

     

    (i)           Pursuant
to 9(a)(x), require the Company to redeem from such holder those Series B
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 to the Major Transaction
Redemption Price as of such Conversion Date (the “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;

     

    (ii)           if
the Company's inability to fully convert Series B Preferred Stock is pursuant to
Section 9(a)(y) 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;


    
      
         


      

      
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    (iii)           void
its Conversion Notice and retain or have returned, as the case may be, the
shares of Series B 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)           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 or
overnight courier to a holder of Series B 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 9(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 B 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 9(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 9(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 8(g). If the Company shall fail to pay the applicable Mandatory
Redemption Price to such holder on a timely basis as described in this Section
9(c) (other than pursuant to a dispute as to the determination of the arithmetic
calculation of the Redemption Price), in addition to any remedy such holder of
Series B Preferred Stock may have under this Certificate of Designation and the
Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0%
per month (prorated for partial months) until paid in full. 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 B Preferred Stock for
which the full Mandatory Redemption Price has not been paid, (ii) receive back
such Series B Preferred Stock, and (iii) require that the Conversion Price of
such returned Series B 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 B Preferred Stock on the same day and the Company
can convert and redeem some, but not all, of the Series B Preferred Stock
pursuant to this Section 9, the Company shall convert and redeem from each
holder of Series B Preferred Stock electing to have Series B 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 B Preferred Stock held by such
holder relative to the number shares of Series B Preferred Stock then
outstanding) of all shares of Series B Preferred Stock being converted and
redeemed at such time.

     

    10.           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 holders of not
less than a majority (51%) of the then outstanding shares of Series B Preferred
Stock (in addition to any other corporate approvals then required to effect such
action), shall be required (a) for any change to this Certificate of Designation
or the Company's Certificate of Incorporation which would amend, alter, change
or repeal any of the powers, designations, preferences and rights of the Series
B Preferred Stock or (b) for the issuance of shares of Series B Preferred Stock
other than pursuant to the Purchase Agreement.

     

    11.           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 B 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 B
Preferred Stock into Common Stock.

     

    12.           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 B 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 B 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.

     

    13.           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 B Preferred
Stock and shall not be construed against any person as the drafter
hereof.


    
      
         


      

      
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    14.           Failure or Indulgence Not
Waiver. No failure or delay on the part of a holder of Series B 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 14th day of
October, 2008.

    


    
      
        
          	
                  CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

                
	 
      
	
                  By:

                	/s/
      Gao Xincheng  
	
                  Name:

                	
                  Mr.
      Gao Xincheng

                
	
                  Title:

                	
                  CEO

                


        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
A

    


    CHINA
BIO ENERGY HOLDING GROUP CO., LTD.

    CONVERSION
NOTICE

    


    Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series B Convertible Preferred Stock of China Bio Energy Holding Group
Co., Ltd. (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 B Preferred Stock, par value $0.001 per share (the
“Preferred Shares”), of China Bio Energy Holding Group Co., Ltd., a Delaware
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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