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Exhibit 99.3 CERTIFICATE OF DESIGNATION,
OF THE RIGHTS AND PREFERENCES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
O2DIESEL CORPORATION O2Diesel Corporation, a corporation organized and existing under the laws
of the State of Washington (the Company), hereby certifies that the following
resolutions were adopted by the Board of Directors of the Company pursuant to
the authority of the Board of Directors as required by Section 23B.06.020 of
the Washington Business Corporation Act (the WBCA). RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Company (the Board of Directors or the Board) in
accordance with the provisions of its Articles of Incorporation and Bylaws,
each as amended through the date hereof, the Board of Directors hereby
authorizes a series of the Companys previously authorized Preferred Stock,
$.0001 par value (the Preferred Stock), and hereby states the designation and
number of shares, and fixes the relative rights, preferences, privileges,
powers and restrictions thereof as follows: I. CERTAIN DEFINITIONS For purposes of this Certificate of Designation, capitalized terms are
defined in this Certificate of Designation or shall have the following
meanings: "Change of Controlmeans the acquisition, directly or indirectly, by any
Person of ownership of, or the power to direct the exercise of voting power
with respect to, a majority of the issued and outstanding voting shares of the
Company. Common Stockmeans the common stock of the Company, par value $.0001 per
share. Issuance Datemeans the date of the Closing under the Convertible
Preferred Stock Purchase Agreement with respect to the initial issuance of the
Series B Preferred Stock. Per Share Market Valueof the Common Stock means on any particular date
(a) the last sale price of shares of Common Stock on such date or, if no such
sale takes place on such date, the last sale price on the most recent prior
date, in each case as officially reported on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading, or
(b) if the Common Stock is not then listed or admitted to trading on any
national securities exchange, the closing bid price per share as reported by
Nasdaq, or (c) if the Common Stock is not then listed or admitted to trading on
the Nasdaq, the closing bid price per share of the Common Stock on such date as
reported on the OTCBB or if there is no such price on such date, then the last
bid price 1




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on the date nearest preceding such date, or (d) if the Common Stock is not
quoted on the OTCBB, the closing bid price for a share of Common Stock on such
date in the over-the-counter market as reported by the Pinksheets LLC (or
similar organization or agency succeeding to its functions of reporting prices)
or if there is no such price on such date, then the last bid price on the date
nearest preceding such date, or (e) if the Common Stock is no longer publicly
traded, the fair market value of a share of the Common Stock as determined by
an Appraiser (as defined in the Certificate of Designation) selected in good
faith by the holders of a majority of the Series B Preferred Stock;
provided, however, that the Company,
after receipt of the determination by such Appraiser, shall have the right to
select an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser. Personmeans an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind. Purchase Agreementmeans the Convertible Preferred Stock Purchase
Agreement dated as of March, 2004, by and between the Company and the purchaser
set forth in Schedule 1 thereto (the Purchaser). Redemption Pricemeans the Stated Value of any share of Series B
Preferred Stock that is subject to redemption. Trading Daymeans (a) a day on which the Common Stock is quoted on the
OTCBB or principal stock exchange on which the Common Stock has been listed, or
(b) if the Common Stock is not quoted on the OTCBB or any stock exchange, a day
on which the Common Stock is quoted in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. (NASD), or (c) if the
Common Stock is not quoted on the NASD, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the Pinksheets LLC (or any
similar organization or agency succeeding its functions of reporting prices). II. DESIGNATION AND AMOUNT The designation of this series, which consists of seven hundred fifty
thousand (750,000) shares of Preferred Stock, is the Series B 0% Convertible
Preferred Stock (the Series B Preferred Stock) and the stated value shall be
U.S. ten dollars ($10.00) per share (the Stated Value). III. DIVIDENDS The holder of the shares of Series B Preferred Stock as they appear on the
stock records of the Company (Holder or Holders) shall not be entitled to
receive any dividends. 2




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IV. CONVERSION (a) Each outstanding share of Series B Preferred Stock shall be
convertible into the number of shares of Common Stock determined by dividing
the Stated Value by the Conversion Price as defined below, and subject to the
Limitation on Conversion in Section 4.13 of the Purchase Agreement, at the
option of the Holder in whole or in part, at any time commencing on or after
the Issuance Date; provided that, any conversion under this Section IV(a) shall
be for a minimum Stated Value of $10,000.00 of Series B Preferred Stock. The
Holder shall effect conversions by sending the form of conversion notice
attached hereto as Appendix I (the Notice of Conversion)
in the manner set forth in Section IV(j). Each Notice of Conversion shall
specify the Stated Value of Series B Preferred Stock to be converted. The date
on which such conversion is to be effected (the Conversion Date) shall be on
the date the Notice of Conversion is delivered pursuant to Section IV(j)
hereof. Except as provided herein, each Notice of Conversion, once given,
shall be irrevocable. Upon the entire conversion of the Series B Preferred
Stock or the redemption of the Series B Preferred Stock, the certificates for
such Series B Preferred Stock shall be returned to the Company for
cancellation. (b) Not later than ten (10) Business Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates
representing the number of shares of Common Stock being acquired upon the
conversion of the Series B Preferred Stock and (ii) once received from the
Company, the Series B Preferred Stock in principal amount equal to the
principal amount of the Series B Preferred Stock not converted;
provided, however, that the Company shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of any Series B Preferred Stock until the Series B
Preferred Stock are either delivered for conversion to the Company or any
transfer agent for the Series B Preferred Stock or Common Stock, or the Holder
notifies the Company that such Series B Preferred Stock certificates have been
lost, stolen or destroyed and provides an agreement reasonably acceptable to
the Company to indemnify the Company from any loss incurred by it in connection
therewith. In the case of a conversion pursuant to a Notice of Conversion, if
such certificate or certificates are not delivered by the date required under
this Section IV(b), the Holder shall be entitled, by providing written notice
to the Company at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the Company
shall immediately return the Series B Preferred Stock tendered for conversion. (c) Intentionally omitted. (d) (i) The Conversion Price for each share of Series B Preferred Stock in
effect on any Conversion Date shall be the lesser of (a)
U.S. three dollars and sixty-five cents ($3.65) (the Fixed Conversion Price)
or (b) eighty percent (80%) of the lowest closing bid price for the Common
Stock in the ten (10) business days preceding the date of conversion, but in no
event, less than fifty percent (50%) of the Fixed Conversion Price (the
Floating Conversion Price). For purposes of determining the closing bid
price on any day, reference shall be to the closing bid price for a share of
Common Stock 3




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on such date on the NASD OTC Bulletin Board, as reported on
Bloomberg, L.P. (or similar organization or agency succeeding to its
functions of reporting prices). (ii) If the Company, at any time while any Series B Preferred Stock are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Securities (as defined below) payable in
shares of its capital stock (whether payable in shares of its Common Stock or
of capital stock of any class), (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of Common
Stock into a smaller number of shares, or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, the Fixed
Conversion Price designated in Section IV(d)(i) shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
of the Company outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section IV(d)(ii) shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. (iii) Intentionally omitted. (iv) If the Company, at any time while Series B Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders of Series B Preferred Stock) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security then in each such
case the Conversion Price at which each Series B Preferred Stock shall
thereafter be convertible shall be determined by multiplying the Fixed
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value of Common
Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors in
good faith; provided, however that in the
event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an Appraiser) selected in
good faith by the Holders of a majority of the principal amount of the Series B
Preferred Stock then outstanding; and provided,
further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. In either case the adjustments
shall be described in a statement provided to the Holder and all other Holders
of Series B Preferred Stock of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock.
Such adjustment 4




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shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above. (v) All calculations under this Article IV shall be made to the nearest
1/1000th of a cent or the nearest 1/1000th of a share, as the case may be. Any
calculation over .005 shall be rounded up to the next cent or share and any
calculation less than .005 shall be rounded down to the previous cent or share. (vi) In the event the Fixed Conversion Price is not adjusted pursuant to
Section IV(d)(ii), (iv), or (v), within ten (10) Business Days following the
occurrence of an event described therein, and is still not adjusted following
thirty (30) days notice from the Holder to the Company requesting that such
adjustment be made, then the Holder shall have the right to require the Company
to redeem all of the Holders Series B Preferred Stock at the Stated Value of
such Holders Series B Preferred Stock, and the Company shall pay such amount
to the Holder pursuant to the written instructions provided by the Holder. (vii) Whenever the Fixed Conversion Price is adjusted pursuant to Section
IV(d)(ii), (iv) or (v), the Company shall within two (2) days after the
determination of the new Fixed Conversion Price mail and fax to the Holder and
to each other Holder of Series B Preferred Stock, a notice setting forth the
Fixed Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. (viii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then each holder of Series B Preferred
Stock then outstanding shall have the right thereafter to convert such Series B
Preferred Stock only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange
(except in the event the property is cash, then the Holder shall have the right
to convert the Series B Preferred Stock and receive cash in the same manner as
other stockholders), and the Holder shall be entitled upon such event to
receive such amount of securities or property as the shares of the Common Stock
into which such Series B Preferred Stock could have been converted immediately
prior to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation,
merger, sale, transfer or share exchange shall include such terms so as to
continue to give to the holder the right to receive the securities or property
set forth in this Section IV(d)(viii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges. Notwithstanding the foregoing, in the
event of any merger, consolidation or change of control of the Company, then as
provided in the Purchase Agreement, the Company shall have the right to demand
that the Holder convert all Series B Preferred Stock then held by the Purchaser
into Common Stock upon the terms and conditions set 5




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forth in this Certificate of Designation. If the Holder does not comply
with such demand, the Company may redeem all Series B Preferred Stock held by
the Purchaser at their Stated Value. (ix) If:  (A)
    
    the Company shall declare a
dividend (or any other distribution) on its Common
Stock; or(B)
    
    the Company shall declare a
special nonrecurring cash dividend on or a redemption
of its Common Stock; or(C)
    
    the Company shall authorize the
granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or(D)
    
    the approval of any stockholders
of the Company shall be required in connection with
any reclassification of the Common Stock of the
Company (other than a subdivision or combination of
the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially
all of the assets of the Company, or any compulsory
share exchange whereby the Common Stock is converted
into other securities, cash or property; or(E)
    
    the Company shall authorize the
voluntary or involuntary dissolution, liquidation or
winding-up of the affairs of the Company; then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Series B Preferred Stock, and shall cause to
be mailed and faxed to the Holders of Series B Preferred Stock at their last
addresses as it shall appear upon the Series B Preferred stock register, at
least thirty (30) calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up; provided, however, that
the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. 6




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(e) If at any time conditions shall arise by reason of action or inaction
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially
and adversely affect the rights of the Holders of Series B Preferred Stock
(different than or distinguished from the effect generally on rights of holders
of any class of the Companys capital stock), the Company shall, at least
thirty (30) calendar days prior to the effective date of such action, mail and
fax a written notice to each Holder of Series B Preferred Stock briefly
describing the action contemplated and the material adverse effects of such
action on the rights of such Holders and an Appraiser selected by the Holders
of majority of the outstanding Series B Preferred Stock shall give its opinion
as to the adjustment, if any (not inconsistent with the standards established
in this Article IV), of the Fixed Conversion Price (including, if necessary,
any adjustment as to the securities into which Series B Preferred Stock may
thereafter be convertible) and any distribution which is or would be required
to preserve without diluting the rights of the Holders of Series B Preferred
Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case the adjustment shall be
equal to the average of the adjustments recommended by each such Appraiser.
The Board of Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such action
contemplated, as the case may be; provided,
however, that no such adjustment of the Fixed Conversion
Price shall be made which in the opinion of the Appraiser(s) giving the
aforesaid opinion or opinions would result in an increase of the Fixed
Conversion Price. (f) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Series B Preferred Stock as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders of Series B Preferred Stock, such
number of shares of Common Stock as shall be issuable (taking into account the
adjustments and restrictions of Section IV(d) and Section IV(e) hereof) upon
the conversion of all outstanding shares of Series B Preferred Stock. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid and
nonassessable. (g) No fractional shares of Common Stock shall be issuable upon a
conversion hereunder and the number of shares to be issued shall be rounded up
to the nearest whole share. If a fractional share interest arises upon any
conversion hereunder, the Company shall eliminate such fractional share
interest by issuing the Holder an additional full share of Common Stock. (h) The issuance of certificates for shares of Common Stock on conversion
of Series B Preferred Stock shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of 7




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such tax or shall have established to
the satisfaction of the Company that such tax has been paid. (i) Series B Preferred Stock converted into Common Stock shall be canceled
upon conversion. (j) Each Notice of Conversion shall be given by facsimile to the Company
no later than 4:00 pm New York time. Any such notice shall be deemed given and
effective upon the transmission of such facsimile at the facsimile telephone
number specified in the Purchase Agreement. In the event that the Company
receives the Notice of Conversion after 4:00 p.m. New York time, the Conversion
Date shall be deemed to be the next Business Day. In the event that the
Company receives the Notice of Conversion after the end of the Business Day,
notice will be deemed to have been given the next Business Day. V. EVENTS OF DEFAULT AND REMEDIES (a) Event of Default, wherever used herein, means any one of the
following events: (i) the Company shall fail to observe or perform any material covenant,
agreement or warranty contained in this Series B Preferred Stock Certificate of
Designation, and such failure shall not have been remedied within ten (10)
Business Days after the date on which written notice of such failure shall have
been given; (ii) the occurrence of any material breach or event of default by the
Company under the Purchase Agreement or any other Transaction Document (as
defined in the Purchase Agreement) and such failure or breach shall not have
been remedied within the applicable cure period provided for therein, if any; (iii) the Company or any of its material subsidiaries shall commence a
voluntary case under the United States Bankruptcy Code as now or hereafter in
effect or any successor thereto (the Bankruptcy Code); or an involuntary case
is commenced against the Company under the Bankruptcy Code and the Company
fails to pursue dismissal of the case within sixty (60) days after commencement
of the case; or the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Company or there is
commenced against the Company any such proceeding and the Company fails to
pursue dismissal of the case within sixty (60) days after commencement of the
case; or the Company suffers any appointment of any custodian or the like for
it or any substantial part of its property and the Company fails to pursue
dismissal of the custodian within sixty (60) days after the appointment; or the
Company makes a general assignment for
the benefit of creditors; or any corporate or other action is taken by the
Company for the purpose of effecting any of the foregoing; (iv) trading in the common stock of the Company shall have been suspended,
delisted, or otherwise ceased by the Securities and Exchange Commission or 8




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the
NASD or other exchange or the Nasdaq (whether the National Market or
otherwise), and trading is not reinstated within thirty (30) Trading Days,
except for (i) any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company, and trading is
reinstated promptly after such dissemination and (ii) any general suspension of
trading for all companies trading on such exchange or market or OTCBB; or (v) the Company shall issue a press release, or otherwise make publicly
known, that it is not honoring properly executed Notice of Conversions for any
reason whatsoever. (b) If any Event of Default occurs and continues, beyond any cure period,
if any, then so long as such Event of Default shall then be continuing any
Holder may, by notice to the Company, demand redemption of the shares of Series
B Preferred Stock held by such Holder at the Redemption Price (as defined
herein), and such Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by such Holder at any time prior to payment hereunder.
No such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon. This shall include, but not be limited to
the right to temporary, preliminary and permanent injunctive relief without the
requirement of posting any bond or undertaking. (c) Such Holder may thereupon proceed to protect and enforce its rights
either by suit in equity, or by action at law, or by other appropriate
proceedings whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Series B Preferred Stock
Certificate of Designation or in aid of the exercise of any power granted in
this Series B Preferred Stock Certificate of Designation, and proceed to
enforce the redemption of any of the Series B Preferred Stock held by it, and
to enforce any other legal or equitable right of such Holder. (d) To effectuate the terms and provisions of this Certificate of
Designation of Series B Preferred Stock, the Holder may send notice of any
default to the Attorney-in-Fact (as defined in the Purchase Agreement) and send
a copy of such notice to the Company and its counsel, simultaneously, and
request the Attorney-in-Fact, to comply with the terms of this Certificate of
Designation of Series B Preferred Stock and the Purchase Agreement and all
agreements entered into pursuant to the Purchase Agreement on behalf of the
Company. VI. REDEMPTION (a) Except as otherwise provided in this Section VI (a), Section V(b) or
Section IV(d) neither the Holder nor the Company may demand that the Series B
Preferred Stock be redeemed. Until all of the Series B Preferred Stock has
been converted, in the event that the Company engages in a single transaction
or a series of 9




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related transactions that cause it to (i) consolidate with or
merge with or into any other Person, (ii) permit any other Person to
consolidate with or merge into it, or (iii) undergo a Change in Control, then
at the option of the Company exercisable by giving thirty (30) days written
notice to the Holder, the Company may demand that the Holder convert all shares
of Series B Preferred Stock then held by the Holder into Common Stock upon the
terms and conditions set forth in this Certificate of Designation. If the
Holder does not comply with such demand, the Company may redeem all Series B
Preferred Stock held by the Purchaser at their Stated Value (the Redemption
Price). The Company is not obligated to provide for redemption of the Series B
Preferred Stock through a sinking fund. (b) Shares of Series B Preferred Stock which have been redeemed or
converted shall be deemed retired pursuant to the WBCA and shall thereafter
resume the status of authorized and unissued shares of Preferred Stock,
undesignated as to series, and may be redesignated and reissued as part of any
new series of Preferred Stock other than Series B Preferred Stock. (c) No redemption shall be made and no sum set aside for such redemption
at any time that the terms or provisions of any indenture or agreement of the
Company, including any agreement relating to indebtedness, specifically
prohibits such redemption or setting aside or provides that such redemption or
setting aside would constitute a breach or default thereunder (after notice or
lapse of time or both), except with the written consent of the lender or other
parties to said agreement as the case may be. (f) If any redemption shall at any time be prohibited by the WBCA, the
same shall be deferred until such time as the redemption can occur in full
compliance with such statute. (g) In the event the Company shall redeem shares of Series B Preferred
Stock as provided herein, notice of such redemption shall be given by first
class mail, postage prepaid, or by confirmed facsimile transmission, not less
than thirty (30) business days prior to the date fixed by the Board for
redemption to each holder of Series B Preferred Stock at the address that
appears on the Companys stock record books; provided,
however, that no failure to provide such notice nor any
defect therein shall affect the validity of the redemption proceeding except as
to the holder to whom the Company has failed to send such notice or whose
notice was defective. Each notice shall state (i) the redemption date, (ii)
the number of shares of Series B Preferred Stock to be redeemed; (iii) the
Redemption Price; and (iv) the place or places where certificates for shares of
Series B Preferred Stock are to be surrendered for payment. When notice has
been provided as aforesaid then from and after the redemption date (unless
default shall be made by the Company in providing money for the payment
of the Redemption Price of the shares called for redemption) said shares
shall no longer be deemed to be outstanding and all rights of the holders
thereof shall cease (other than the right to receive the Redemption Price or
common Stock with respect to converted Series B Preferred Stock). Upon
surrender of the certificates for Series B Preferred Stock accompanied by
appropriate stock powers, the shares shall be redeemed by the Company at the
Redemption Price. 10




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VII. RANK The Series B Preferred Stock shall, as to redemptions and the distribution
of assets upon liquidation, dissolution or winding up of the Company, rank (i)
prior to the Companys Common Stock; (ii) prior to any class or series of
capital stock of the Company hereafter created that, by its terms, ranks junior
to the Series B Preferred Stock (Junior Securities); (iii) junior to any
class or series of capital stock of the Company hereafter created which by its
terms ranks senior to the Series B Preferred Stock (Senior Securities); and
(iv) pari passu with the Series A Preferred Stock and with any other series of
preferred stock of the Company hereafter created which by its terms ranks on a
parity (Pari Passu Securities) with the Series B Preferred Stock. VIII. LIQUIDATION PREFERENCE If the Company shall commence a voluntary case under the U.S. Federal
bankruptcy laws or any other applicable bankruptcy, insolvency or similar law,
or consent to the entry of an order for relief in an involuntary case under any
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Company or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Company shall
be entered by a court having jurisdiction in the premises in an involuntary
case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Company shall liquidate, dissolve
or wind up, or if the Company shall otherwise liquidate, dissolve or wind up,
including, but not limited to, the sale or transfer of all or substantially all
of the Companys assets in one transaction or in a series of related
transactions (a Liquidation Event), no distribution shall be made to the
holders of any shares of capital stock of the Company (other than Senior
Securities and Pari Passu Securities) upon liquidation, dissolution or winding
up unless prior thereto the Holders of shares of Series B Preferred Stock and
Series A Preferred Stock shall have received the Liquidation Preference (as
defined below) with respect to each share. If, upon the occurrence of a
Liquidation Event, the assets and funds available for distribution
among the Holders of the Series B Preferred Stock, Series A Preferred
Stock and Holders of Pari Passu Securities shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Company legally available for distribution to
the Series B Preferred Stock and Series A Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares. The purchase or 11




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redemption by the Company of stock of any class, in any manner permitted by
law, shall not, for the purposes hereof, be regarded as a liquidation,
dissolution or winding up of the Company. Neither the consolidation or merger
of the Company with or into any other entity nor the sale or transfer by the
Company of substantially all of its assets shall, for the purposes hereof, be
deemed to be a liquidation, dissolution or winding up of the Company. The
Liquidation Preference with respect to a share of Series B Preferred Stock
and Series A Preferred Stock means an amount equal to the Stated Value thereof.
The Liquidation Preference with respect to any Pari Passu Securities shall be
as set forth in the Certificate of Designation filed in respect thereof. IX. VOTING RIGHTS The Holders of the Series B Preferred Stock have no voting power
whatsoever, except as provided by the WBCA. To the extent that under the WBCA
the vote of the Holders of the Series B Preferred Stock, voting separately as a
class or series, as applicable, is required to authorize a given action of the
Company, the affirmative vote or consent of the Holders of at least a majority
of the then outstanding shares of the Series B Preferred Stock represented at a
duly held meeting at which a quorum is present or by written consent of the
Holders of at least a majority of the then outstanding shares of Series B
Preferred Stock (except as otherwise may be required under the WBCA) shall
constitute the approval of such action by the class. To the extent that under
the WBCA Holders of the Series B Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share
of Series B Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible (subject to
the limitations contained in Article IV) using the record date for the taking
of such vote of shareholders as the date as of which the Conversion Price is
calculated. X. MISCELLANEOUS (a) If any shares of Series B Preferred Stock are converted pursuant to
Article IV, the shares so converted shall be canceled, shall return to the
status of authorized, but unissued preferred stock of no designated series. (b) Upon receipt by the Company of (i) evidence of the loss, theft,
destruction or mutilation of any Preferred Stock certificate(s) and (ii) (y) in
the case of loss, theft or destruction, of indemnity (without any bond or other
security) reasonably satisfactory to the Company, or (z) 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. However, the Company shall not be
obligated to
reissue such lost or stolen Preferred Stock certificate(s) if the Holder
contemporaneously requests the Company to convert such Series B Preferred
Stock. (c) Upon submission of a Notice of Conversion by a Holder of Series B
Preferred Stock, (i) the shares covered thereby shall be deemed converted into
shares of Common Stock and (ii) the Holders rights as a Holder of such
converted shares of Series B Preferred Stock shall cease and terminate,
excepting only the right to receive 12




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certificates for such shares of Common
Stock and to any remedies provided herein or otherwise available at law or in
equity to such Holder because of a failure by the Company to comply with the
terms of this Certificate of Designation. Notwithstanding the foregoing, if a
Holder has not received certificates for all shares of Common Stock prior to
the tenth (10th) business day after the expiration of the Delivery Period with
respect to a conversion of Series B Preferred Stock for any reason, then
(unless the Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Company within five (5) business days after the
expiration of such ten (10) business day period) the Holder shall regain the
rights of a Holder of Series B Preferred Stock with respect to such unconverted
shares of Series B Preferred Stock and the Company shall, as soon as
practicable, return such unconverted shares to the Holder. In all cases, the
Holder shall retain all of its rights and remedies for the Companys failure to
convert Series B Preferred Stock. (d) 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), 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. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holders of Series B Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Company therefore agrees, in
the event of any such breach or threatened breach, that the Holders of 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. (e) Whenever the Company is obligated to purchase or redeem a Holders
Series B Preferred Stock, and the Redemption Price is not paid to the Holder by
the tenth (10th) day after the Redemption Price is due and payable to such
Holder, the Company shall thereafter pay interest to such Holder on the unpaid
portion of the Redemption Price at the rate of ten percent (10%) per annum,
compounded annually, until the Redemption Price is paid in full. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13




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IN WITNESS WHEREOF, the undersigned, being the Secretary of O2Diesel
Corporation, hereby declares under penalty of perjury that the foregoing is a
true and correct copy of the Certificate of Designation of the Rights and
Preferences of the Series B Convertible Preferred Stock of O2Diesel Corporation
duly adopted by the Board of Directors of O2Diesel Corporation on March 11,
2004, and this Certificate of Designation is executed by the undersigned on
behalf of O2Diesel Corporation this 11th day of March, 2004. O2Diesel CorporationBy:
    
    /s/ David L. Koontz

David L. KoontzSecretary
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APPENDIX I NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER (To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock of O2Diesel Corporation) The undersigned hereby irrevocably elects to convert the Series B Preferred
Stock into shares of Common Stock, par value $.0001 per share (the Common
Stock), of O2Diesel Corporation (the Company) according to the provisions of
the Certificate of Designation hereof, as of the date written below. If shares
are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. Conversion calculations:Date
to Effect ConversionNumber
of Shares to be ConvertedApplicable
Conversion PriceNumber
of Shares to be Issued Upon ConversionSignatureNameAddress
 15