Certificate of Designation of Preferences, Rights and Limitations



 EXHIBIT 4.2 
  
 DDS TECHNOLOGIES USA, INC. 
  
 CERTIFICATE OF DESIGNATION OF PREFERENCES, 
 RIGHTS AND LIMITATIONS 
 OF 
 SERIES B 7% CONVERTIBLE PREFERRED STOCK 
  
 PURSUANT TO SECTION 78.1955 OF THE 
 NEVADA REVISED STATUTES 
  
 The undersigned, Spencer L. Sterling and Joseph Fasciglione, do hereby
certify that: 
  
 1. They are the President and Secretary,
respectively, of DDS Technologies USA, Inc., a Nevada corporation (the “Corporation”). 
  
 2. The Corporation is authorized to issue 1,000,000 shares of preferred stock, 2,175 of which have been issued. 
  
 3. The following resolutions were duly adopted by the Board of Directors:

  
 WHEREAS, the Certificate of Incorporation of the Corporation
provides for a class of its authorized stock known as preferred stock, comprised of 1,000,000 shares, $.0001 par value, issuable from time to time in one or more series; 
  
 WHEREAS, the Board of Directors of the Corporation is authorized to fix the dividend rights, dividend rate, voting rights,
conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any Series and the designation thereof, of any of them; and 
  
 WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of, except as otherwise set forth in the Purchase Agreement, up to 2,500 shares
of the preferred stock which the corporation has the authority to issue, as follows: 
  
 NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and
determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows: 
  

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 TERMS OF PREFERRED STOCK 
  
 Section 1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the
Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. For the purposes hereof, the following terms shall have the following meanings: 
  
 “Alternate Consideration” shall have the meaning set forth in Section 7(e).

  
 “Bankruptcy Event” means any
of the following events: (a) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1.02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Corporation or any Significant Subsidiary thereof; (b) there is commenced against the Corporation or any Significant Subsidiary
thereof any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Corporation or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such
case or proceeding is entered; (d) the Corporation or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days;
(e) the Corporation or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Corporation or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (g) the Corporation or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes
any corporate or other action for the purpose of effecting any of the foregoing. 
  
 “Base Conversion Price” shall have the meaning set forth in Section 7(b). 
  
 “Buy-In” shall have the meaning set forth
in Section 6(e)(iii). 
  
 “Change of
Control Transaction” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation, or (ii) the Corporation merges into or
consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the
aggregate voting power of the Corporation or the successor entity of such transaction, or (iii) the Corporation sells or transfers its assets, as an entirety or substantially as an entirety, to another Person and the stockholders of the
Corporation immediately prior to such transaction own less than 66% of the aggregate 

  

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voting power of the acquiring entity immediately after the transaction, (iv) a replacement at one time or within a one year period of more than one-half
of the members of the Corporation’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), or (v) the execution by the Corporation of an agreement to which the
Corporation is a party or by which it is bound, providing for any of the events set forth above in (i) through (iv). 
  
 “Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the Holders’ obligations to pay the Subscription Amount and (ii) the Corporation’s obligations to deliver the Securities have been satisfied or waived. 

 
 “Commission” means the Securities and
Exchange Commission. 
  
 “Common
Stock” means the Corporation’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter have been reclassified or changed into. 
  
 “Common Stock Equivalents” means any
securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. 
  
 “Conversion Amount” means the sum of the Stated Value at issue. 
  
 “Conversion Date” shall have the meaning
set forth in Section 6(a). 
  
 “Conversion Price” shall have the meaning set forth in Section 6(b). 
  
 “Conversion Shares” means, collectively, the shares of Common Stock into which the shares of Preferred Stock are
convertible in accordance with the terms hereof. 
  
 “Conversion Shares Registration Statement” means a registration statement that meets the requirements of the Registration Rights Agreement and registers the resale of all Conversion Shares by the Holder, who shall be named
as a “selling stockholder” thereunder, all as provided in the Registration Rights Agreement. 
  
 “Dilutive Issuance” shall have the meaning set forth in Section 7(b). 
  
 “Dilutive Issuance Notice” shall have the
meaning set forth in Section 7(b). 
  

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 “Dividend Payment Date” shall have the meaning set forth in
Section 3(a). 
  
 “Effective
Date” means the date that the Conversion Shares Registration Statement is declared effective by the Commission. 
  
 “Equity Conditions” shall mean, during the period in question, (i) the Corporation shall have duly honored all
conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (ii) all liquidated damages and other amounts owing to the Holder in respect of the Preferred Stock shall have been paid;
(iii) there is an effective Conversion Shares Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant to the Transaction Documents (and the Corporation
believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (iv) the Common Stock is trading on the Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for
trading on a Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (v) there is a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (vi) there is then existing no Triggering Event or event which, with the passage of time or the giving of
notice, would constitute a Triggering Event, (vii) the issuance of the shares in question to the Holder would not violate the limitations set forth in Section 6(c) and (viii) no public announcement of a pending or proposed Fundamental
Transaction, Change of Control Transaction or acquisition transaction has occurred that has not been consummated. 
  
 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder. 
  
 “Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities issued upon the exercise of or conversion of or as dividends on any securities issued hereunder,
convertible securities, options or warrants issued and outstanding on the date of the Purchase Agreement (including securities issued as a result of any reset or similar provisions under the terms of the Corporation’s outstanding shares of
Series A 6% Convertible Preferred Stock, par value $.0001 per share (the “Series A Preferred Stock”) and warrants issued to the original holders of such Series A Preferred Stock), provided that such securities have not been amended since
the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise or conversion price of any such securities, (c) securities issued pursuant to acquisitions or strategic transactions, provided any such
issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Corporation and in which the 
  

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 Corporation receives benefits in addition to the investment of funds, but shall not include a transaction
in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) up to 20,475 shares of Common Stock or Common Stock Equivalents to be issued to
James von der Heydt, Leo Paul Koulos, Robert Rosen, Charles F. Kuoni III, or any combination thereof, and (e) stock options to Lee Rosen for consulting services to be rendered to the Company not to exceed 400,000 options per year. 

 
 “Forced Conversion Notice” shall have
the meaning set forth in Section 8(a). 
  
 “Forced Conversion Notice Date” shall have the meaning set forth in Section 8(a). 
  
 “Fundamental Transaction” shall have the meaning set forth in Section 7(e). 
  
 “Holder” shall have the meaning given such
term in Section 2. 
  
 “Junior
Securities” means the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities that are both (a) outstanding on the Original Issue Date and (b) which are explicitly senior or
pari passu in rights or liquidation preference to the Preferred Stock. 
  
 “Liquidation” shall have the meaning given such term in Section 5. 
  
 “Notice of Conversion” shall have the meaning given such term in Section 6(a). 
  
 “Original Issue Date” shall mean the date
of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.

  
 “Permitted Indebtedness”
shall mean (a) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(gg) attached to the Purchase Agreement. 
  
 “Permitted Lien” shall mean the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Company) have been established in accordance with GAAP and (b) Liens imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s and mechanics’ Liens,
statutory landlords’ Liens, and other similar Liens arising in the ordinary course of business, and (x) which do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such Lien. 
  

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 “Person” means a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision thereof or a governmental agency. 
  
 “Purchase Agreement” means the Securities Purchase Agreement, dated as of the Original Issue Date, to which the
Corporation and the original Holders are parties, as amended, modified or supplemented from time to time in accordance with its terms. 
  
 “Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement,
to which the Corporation and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms. 
  
 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

  
 “Share Delivery Date” shall
have the meaning given such term in Section 6(e). 
  
 “Stated Value” shall have the meaning given such term in Section 2. 
  
 “Subscription Amount” shall mean, as to each Purchaser, the amount to be paid for the Preferred Stock purchased pursuant
to the Purchase Agreement as specified below such Purchaser’s name on the signature page of the Purchase Agreement and next to the heading “Subscription Amount”, in United States Dollars and in immediately available funds. 

 
 “Subsidiary” shall have the meaning
given to such term in the Purchase Agreement. 
  
 “Threshold Period” shall have the meaning set forth in Section 8(a). 
  
 “Trading Day” means a day on which the Common Stock is traded on a Trading Market. 
  
 “Trading Market” means the following
markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

  
 “Transaction Documents”
shall have the meaning set forth in the Purchase Agreement. 
  

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 “Triggering Event” shall have the meaning set forth in
Section 9(a). 
  
 “Triggering
Redemption Amount” for each share of Preferred Stock means the sum of (i) the greater of (A) 130% of the Stated Value and (B) the product of (a) the VWAP on the Trading Day immediately preceding the date of the
Triggering Event and (b) the Stated Value divided by the then Conversion Price, (ii) all accrued but unpaid dividends thereon and (iii) all liquidated damages and other amounts due in respect of the Preferred Stock. 
  
 “Triggering Redemption Payment Date” shall
have the meaning set forth in Section 9(b). 
  
 “Two Year Redemption” shall have the meaning set forth in Section 8(b). 
  
 “Two Year Redemption Date” shall have the meaning set forth in Section 8(b). 
  
 “Two Year Redemption Amount” shall mean the
sum of (i) 100% of the aggregate Stated Value then outstanding, (ii) accrued but unpaid dividends and (iii) all liquidated damages and other amounts due in respect of the Preferred Stock. 
  
 “VWAP” means, for any date, the price
determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on
the primary Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP function; (b) if the Common Stock is not
then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by a nationally recognized-independent appraiser selected in good faith by Purchasers
holding a majority of the Stated Value of the shares of Preferred Stock then outstanding. 
  
 Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as its Series B 7%
Convertible Preferred Stock (the “Preferred Stock”) and the number of shares so designated shall be up to 2,500 (which shall not be subject to increase without the consent of all of the holders of the Preferred Stock (each, a
“Holder” and collectively, the “Holders”)). Each share of Preferred Stock shall have a par value of $.0001 per share and a stated value equal to $1,000 (the “Stated Value”). Capitalized terms not
otherwise defined herein shall have the meaning given such terms in Section 1 hereof. The only class of capital stock of the Corporation that the Preferred Stock is junior to is the Series A Preferred Stock, as to which the Preferred Stock is
junior in priority as to (i) dividends, (ii) redemption and (iii) Liquidation. 
  

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 Section 3. Dividends. 
  
 a) Dividends in Cash or in Kind. Holders shall be entitled to receive and the Corporation shall pay,
cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 7% per annum (subject to increase pursuant to Section 9(b)), payable quarterly on March 1, June 1, September 1
and December 1, beginning with the first such date after the Original Issue Date and on any Conversion Date (except that, if such date is not a Trading Day, the payment date shall be the next succeeding Trading Day) (“Dividend Payment
Date”) in cash or duly authorized, fully paid and non-assessable shares of Common Stock as set forth in this Section 3(a), or a combination thereof. The form of dividend payments to each Holder shall be made in the following order:
(i) if funds are legally available for the payment of dividends and the Equity Conditions have not been met during the 20 Trading Days immediately prior to the applicable Dividend Payment Date, in cash only, (ii) if funds are legally
available for the payment of dividends and the Equity Conditions have been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date, at the sole election of the Corporation, in cash or shares of Common
Stock which shall be valued solely for such purpose at 90% of the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the Dividend Payment Date; (iii) if funds are not legally
available for the payment of dividends and the Equity Conditions have been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date, in shares of Common Stock which shall be valued at 90% of the average of
the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the Dividend Payment Date; (iv) if funds are not legally available for the payment of dividends and the Equity Conditions relating to
registration have been waived by such Holder, as to such Holder only, in unregistered shares of Common Stock which shall be valued at 90% of the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately
prior to the Dividend Payment Date; and (v) if funds are not legally available for the payment of dividends and the Equity Conditions have not been met during the 20 Trading Days immediately prior to the applicable Dividend Payment Date, then,
at the election of such Holder, such dividends shall accrue to the next Dividend Payment Date or shall be accreted to, and increase, the outstanding Stated Value. The Holders shall have the same rights and remedies with respect to the delivery of
any such shares as if such shares were being issued pursuant to Section 6. On the Closing Date the Corporation shall have notified the Holders whether or not it may lawfully pay cash dividends. The Corporation shall promptly notify the Holders
at any time the Corporation shall become able or unable, as the case may be, to lawfully pay cash dividends. If at any time the Corporation has the right to pay dividends in cash or Common Stock, the Corporation must provide the Holder with at least
20 Trading Days’ notice of its election to pay a regularly scheduled dividend in Common Stock. Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, shall accrue daily commencing on the Original Issue Date, and
shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Except as 
  

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 otherwise provided herein, if at any time the Corporation pays dividends partially in cash and partially
in shares, then such payment shall be distributed ratably among the Holders based upon the number of shares of Preferred Stock held by each Holder. Any dividends, whether paid in cash or shares, that are not paid within three Trading Days following
a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law (such fees to accrue daily, from the Dividend Payment Date
through and including the date of payment). At any time the Corporation delivers a notice to the Holders of its election to pay the dividends in shares of Common Stock, the Corporation shall file a prospectus supplement pursuant to Rule 424
disclosing such election. 
  
 b) So long as any
Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities. So long as any Preferred Stock shall remain outstanding, neither
the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution (other than a dividend or distribution described in Section 6 or dividends due and paid in the ordinary course on
preferred stock of the Corporation at such times when the Corporation is in compliance with its payment and other obligations hereunder) upon, nor shall any distribution be made in respect of, any Junior Securities so long as any dividends due on
the Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares pari passu with the Preferred Stock. 
  
 c) Notwithstanding anything herein to the contrary, so long
as any shares of Series A Preferred Stock are outstanding the Corporation shall not pay any dividends on the Preferred Stock other than in shares of the Corporation’s Common Stock, and such dividends in the form of Common Stock shall only be
issued if the Corporation is then in compliance with its dividend obligations under the terms of the Series A Preferred Stock. 
  
 Section 4. Voting Rights. Except as otherwise provided herein and as otherwise required by law, the Preferred Stock shall have no
voting rights. However, so long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of 85% of the shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as
defined in Section 5) senior to or otherwise pari passu with the Preferred Stock, (c) amend its certificate of incorporation or other charter documents so as to affect adversely any rights of the Holders, (d) increase the authorized
number of shares of Preferred Stock, or (e) enter into any agreement with respect to the foregoing. 
  
 Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a
“Liquidation”), the Holders shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus, for each 
  

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 share of Preferred Stock an amount equal to the Stated Value per share plus any accrued and unpaid dividends thereon and
any other fees or liquidated damages owing thereon before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be distributed among the Holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or
Change of Control Transaction shall not be treated as a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each record Holder. Notwithstanding anything
herein to the contrary, no distribution shall be paid on the Preferred Stock upon any Liquidation unless either (i) the Series A Preferred Stock has been fully redeemed or converted to Common Stock or (ii) the holders of the Series A
Preferred Stock have been paid the amounts owed to them in respect of such Liquidation in full. 
  
 Section 6. Conversion. 
  
 a) Conversions at Option of Holder. Each share of Preferred Stock shall be convertible into that number of shares of Common Stock
(subject to the limitations set forth in Section 6(c)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price, at the option of the Holder, at any time and from time to time from and after the Original
Issue Date. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares
of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be
effected, which date may not be prior to the date the Holder delivers such Notice of Conversion to the Corporation by facsimile (the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect
conversions, as the case may be, of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing such shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented
thereby are so converted, in which case the Holder shall deliver the certificate representing such share of Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed in
accordance with the terms hereof shall be canceled and may not be reissued. 
  
 b) Conversion Price. The conversion price for the Preferred Stock shall equal $0.70, subject to adjustment herein (the “Conversion Price”). 
  
 c) Beneficial Ownership Limitation. The
Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock to the extent that after giving effect to such conversion, 
  

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 such Holder (together with such Holder’s affiliates, and any other person or entity acting as a
group together with such Holder or any of such Holder’s affiliates), as set forth on the applicable Notice of Conversion, would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which the determination
of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Corporation (including the Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by such Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(c) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned
by such Holder together with any affiliates) and of which shares of Preferred Stock is convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of
whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder) and which shares of the Preferred Stock is convertible, in each case subject to such aggregate percentage limitations. To ensure compliance
with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall
have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 6(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in the most recent of the
following: (A) the Corporation’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (B) a more recent public announcement by the Corporation or (C) any other notice by the Corporation or the Corporation’s transfer
agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its
affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the Holder. The Beneficial Ownership Limitation provisions of this 
  

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 Section 6(c) may be waived by such Holder, at the election of such Holder, upon not less than 61
days’ prior notice to the Company to change the Beneficial Ownership Limitation to 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of
Preferred Stock held by the Holder, and the provisions of this Section 6(c) shall continue to apply. Upon such a change by a Holder of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial
Ownership Limitation may not be waived by such Holder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this Section 6(c) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of Preferred Stock. 
  
 d) RESERVED. 
  
 e) Mechanics of
Conversion 
  
 i. Delivery of Certificate
Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver or cause to be delivered to the Holder (A) a certificate or certificates which, after
the Effective Date, shall be free of restrictive legends and trading restrictions (other than those required by the Purchase Agreement) representing the number of shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock, and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation has elected or is required to pay accrued dividends in cash). After the Effective Date, the Corporation shall, upon request of the Holder, deliver any
certificate or certificates required to be delivered by the Corporation under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. If in the case of any Notice
of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on
or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Corporation shall immediately return the certificates representing the shares of Preferred Stock tendered for conversion.

  
 ii. Obligation Absolute; Partial
Liquidated Damages. The Corporation’s obligations to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any 
  

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 setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation
to the Holder in connection with the issuance of such Conversion Shares. In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with the Holder of has been engaged in any violation of law, agreement or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of this
Preferred Stock shall have been sought and obtained and the Corporation posts a surety bond for the benefit of the Holder in the amount of 150% of the Stated Value of Preferred Stock outstanding, which is subject to the injunction, 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 to the extent it obtains judgment. In the absence of an injunction precluding the same, the Corporation shall
issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to the Holder such certificate or certificates pursuant to Section 6(e)(i) within two Trading Days of the Share Delivery
Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $50 per Trading Day (increasing to $100 per
Trading Day after 3 Trading Days and increasing to $200 per Trading Day 6 Trading Days after such damages begin to accrue) for each Trading Day after the Share Delivery Date until such certificates are delivered. Nothing herein shall limit a
Holder’s right to pursue actual damages for the Corporation’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all
remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. 
  
 iii. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. If the Corporation fails to deliver to the
Holder such certificate or certificates pursuant to Section 6(e)(i) by a Share Delivery Date, and if after such Share Delivery Date the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall pay in cash to the Holder the amount by which
(x) the Holder’s total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to
receive from the conversion at issue multiplied by (2) the price at which the sell order giving rise to such purchase obligation was executed. For example, if the Holder purchases Common 
  

 13 








 Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion
of shares of Preferred Stock with respect to which the aggregate sale price giving rise to such purchase obligation is $10,000, under clause (A) of the immediately preceding sentence the Corporation shall be required to pay the Holder $1,000.
The Holder shall provide the Corporation 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 Corporation. Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely
deliver certificates representing shares of Common Stock upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof. 
  
 iv. Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available
out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder (and the other Holders of the Preferred Stock), not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Corporation as to
reservation of such shares set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of all outstanding shares of Preferred Stock. The Corporation covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Conversion Shares Registration Statement is then effective under the Securities Act, registered for
public sale in accordance with such Conversion Shares Registration Statement. 
  
 v. Fractional Shares. Upon a conversion hereunder, the Corporation shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a
cash payment in respect of any final fraction of a share based on the VWAP at such time. If the Corporation elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock. 
  
 vi. Transfer
Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Preferred Stock shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or
delivery of such certificate, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon 
  

 14 








 conversion in a name other than that of the Holder of such shares of Preferred Stock so converted and the
Corporation shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of
the Corporation that such tax has been paid. 
  
 Section 7. Certain Adjustments. 
  
 a) Stock Dividends and Stock Splits. If the Corporation, at any time while this Preferred Stock is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to this Preferred Stock),
(B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or
re-classification. 
  
 b) Subsequent Equity
Sales. If the Corporation or any Subsidiary thereof, as applicable, at any time while this Preferred Stock is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than
the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents
so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Notwithstanding the foregoing, no adjustment will be made under this Section 7(b) in respect of an Exempt Issuance. The Corporation shall notify the
Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, 
  

 15 








 or of applicable reset price, exchange price, conversion price and other pricing terms (such notice the
“Dilutive Issuance Notice”). For purposes of clarification, whether or not the Corporation provides a Dilutive Issuance Notice pursuant to this Section 7(b), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion. 
  
 c) Subsequent Rights Offerings. If the Corporation,
at any time while the Preferred Stock is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the
VWAP at the record date mentioned below, then the Conversion Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock Outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock Outstanding on the date of issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares so offered (assuming receipt by the Corporation in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. 
  
 d) Pro Rata Distributions. If the Corporation, at any
time while Preferred Stock is outstanding, shall distribute to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any
security, then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction
of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the
record date mentioned above. 
  
 e)
Fundamental Transaction. If, at any time while this Preferred Stock is outstanding, (A) the Corporation effects any merger or consolidation of the Corporation with or into another Person, (B) the Corporation effects any sale of all
or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange 
  

 16 








 offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive,
for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon
the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the
Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and
issue to the Holder new preferred stock consistent with the foregoing provisions and evidencing the Holder’s right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(e) and insuring that this Preferred Stock (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction. 
  
 f) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding. 
  
 g) Notice to Holders. 
  
 i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any of this Section 7, the
Corporation shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. 
  

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 ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall
declare a dividend (or any other distribution) on the Common Stock; (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Corporation shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Corporation shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation; then, in each case, the Corporation shall cause to be
filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be mailed to the Holder at its last address as its shall appear upon the stock books of the Corporation, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger,
sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to 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. The Holder is entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing the date of such notice to the effective date of
the event triggering such notice. 
  
 Section 8.
Forced Conversion and Two Year Redemption. 
  
 a) Forced Conversion. Notwithstanding anything herein to the contrary, if after the Effective Date (i) the VWAP for each of any 30 consecutive Trading Days (“Threshold Period”), which 30 consecutive Trading Day
period shall have commenced only after the Effective Date, exceeds $1.75 (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of
the Purchase Agreement) and (ii) the average daily volume for any 20 consecutive Trading Days during the Threshold Period, which Threshold Period shall have commenced only after the Effective Date, exceeds 100,000 shares of Common Stock per
Trading Day (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions 
  

 18 








 of the Common Stock that occur after the date of the Purchase Agreement), the Corporation may, within 2
Trading Days after any such Threshold Period, deliver a written notice to all Holders (a “Forced Conversion Notice” and the date such notice is received by the Holders, the “Forced Conversion Notice Date”) to cause
each Holder to immediately convert all or part of such Holder’s Preferred Stock plus all accrued but unpaid dividends thereon and all liquidated damages and other amounts due in respect of the Preferred Stock pursuant to Section 6, it
being understood that the “Conversion Date” for purposes of Section 6 shall be deemed to occur on the third Trading Day following the Forced Conversion Notice Date (such third Trading Day being referred to as the “Forced
Conversion Date”). The Corporation may not deliver a Forced Conversion Notice, and any Forced Conversion Notice delivered by the Corporation shall not be effective, unless all of the Equity Conditions have been met on each Trading Day
occurring during the Threshold Period through and including the later of the Forced Conversion Date and the date that the Conversion Shares issuable pursuant to such conversion are delivered to the Holder pursuant to the Forced Conversion Notice.
Any Forced Conversion Notices shall be applied ratably to all of the Holders in proportion to each Holder’s initial purchases of Preferred Stock hereunder, provided that any voluntary conversions by a Holder shall be applied against such
Holder’s pro-rata allocation thereby decreasing the aggregate amount forcibly converted hereunder. 
  
 b) Two Year Redemption. On the second anniversary of the Original Issue Date (the “Two Year Redemption Date”), the
Corporation shall redeem all of the then outstanding Preferred Stock, for an amount in cash equal to the Two Year Redemption Amount (such redemption, the “Two Year Redemption”). The Corporation covenants and agrees that it will
honor all Conversion Notices tendered up until such amounts are paid in full. Notwithstanding anything herein to the contrary, no amounts shall be paid on the Preferred Stock in respect of a Two Year Redemption until such time as the Series A
Preferred Stock has been fully redeemed or converted to Common Stock. 
  
 c) Redemption Procedure. The payment of cash pursuant to a Two Year Redemption shall be made on the Two Year Redemption Date. If any portion of the cash payment for a Two Year Redemption shall not be paid by
the Corporation by the respective due date, interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by applicable law, whichever is less) until the such payment, plus all amounts owing thereon, is paid in full.

  
 Section 9. Redemption Upon Triggering
Events. 
  
 a) “Triggering
Event” means any one or more of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body): 
  
 i. the failure of a Conversion Shares Registration Statement to be declared effective by the Commission on or prior to the 180th day after the Original Issue Date; 
  

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 ii. if, during the Effectiveness Period, the effectiveness of the Conversion Shares
Registration Statement lapses for any reason for more than an aggregate of 60 calendar days (which need not be consecutive days) during any 12 month period, or the Holder shall not be permitted to resell Registrable Securities under the Conversion
Shares Registration Statement for more than an aggregate of 60 calendar days (which need not be consecutive days) during any 12 month period; 
  
 iii. the Corporation shall fail to deliver certificates representing Conversion Shares issuable upon a conversion hereunder that comply
with the provisions hereof prior to the 5th Trading Day after such shares are required to be delivered hereunder, or
the Corporation shall provide written notice to any Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of Preferred Stock in accordance with the terms hereof;

  
 iv. one of the Events (as defined in the
Registration Rights Agreement) described in subsections (i), (ii) or (iii) of Section 2(b) of the Registration Rights Agreement shall not have been cured to the reasonable satisfaction of the Holders prior to the expiration of 30 days
from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of a Conversion Shares Registration Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date, which shall be covered by Section 9(a)(i)); 
  
 v. the Corporation shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within 5 days after notice
therefor is delivered hereunder or shall fail to pay all amounts owed on account of an Event within five days of the date due; 
  
 vi. the Corporation shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to such
Holder upon a conversion hereunder; 
  
 vii. the
Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the
Corporation, have been remedied within 30 calendar days after the date on which written notice of such failure or breach shall have been given; 
  

 20 








 viii. the Corporation shall redeem more than a de minimis number of Junior Securities;

  
 ix. the Corporation shall be party to a
Change of Control Transaction; 
  
 x. there shall
have occurred a Bankruptcy Event; or 
  
 xi. the
Common Stock shall fail to be listed or quoted for trading on a Trading Market for more than 5 Trading Days, which need not be consecutive Trading Days. 
  
 b) Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable
law) have the right, exercisable at the sole option of such Holder, to require the Corporation to redeem all of the Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering Redemption Amount. The Triggering
Redemption Amount shall be due and payable within 5 Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the “Triggering Redemption Payment Date”). If the Corporation fails to pay the
Triggering Redemption Amount hereunder in full pursuant to this Section on the date such amount is due in accordance with this Section the Corporation will pay interest thereon at a rate of 18% per annum (or such lesser amount permitted by
applicable law), accruing daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid in full. For purposes of this Section, a share of Preferred Stock is outstanding until such date as the Holder shall have
received Conversion Shares upon a conversion (or attempted conversion) thereof that meets the requirements hereof or has been paid the Triggering Redemption Amount plus all accrued but unpaid dividends and all accrued but unpaid liquidated damages
in cash. Notwithstanding anything herein to the contrary, no amounts shall be paid on the Preferred Stock in respect of a Triggering Event until such time as the Series A Preferred Stock has been fully redeemed or converted to Common Stock
(provided, however, the foregoing prohibition shall not preclude a Holder from commencing an action to recover a Triggering Redemption Amount, provided that such action acknowledges that the Series A Preferred Stock is required to be fully redeemed
or converted to Common Stock before any amounts are paid to a Holder in respect of a Triggering Event). 
  
 Section 10. Negative Covenants. So long as any shares of Preferred Stock are outstanding, the Corporation will not and will not permit
any of its Subsidiaries to directly or indirectly without the prior written consent of the Holders of a majority of the Preferred Stock then outstanding: 
  
 a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; 
  

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 b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any
liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; 
  
 c) amend its certificate of incorporation, bylaws or other charter documents so as to materially and
adversely affect any rights of any Holder; 
  
 d)
repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to the Conversion Shares to the extent permitted or required under the
Transaction Documents, pursuant to the terms of Corporation’s outstanding Series A Preferred Stock or as otherwise permitted by the Transaction Documents; 
  

e) enter into any agreement with respect to any of the foregoing; or 
  
 f) pay cash dividends or distributions on any equity securities of the Corporation other than pursuant to
the terms of the Corporation’s outstanding Series A Convertible Preferred Stock. 
  
 Section 11. Miscellaneous. 
  
 a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth above, facsimile number 561-750-4310, Attn: Spencer Sterling, President and Chief Executive Officer,
or such other address or facsimile number as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the
Corporation hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books
of the Corporation, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. 
  

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 b) Absolute Obligation. Except as expressly provided herein, no provision of this
Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the liquidated damages (if any) on, the shares of Preferred Stock at the time, place, and rate, and in the coin or
currency, herein prescribed. 
  
 c) Lost or
Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated
certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Corporation. 
  
 d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of
Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or
agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this Certificate of Designation and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating
to this Certificate of Designation or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 
  

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 e) Waiver. Any waiver by the Corporation or the Holder of a breach of any
provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation. The failure of the Corporation or the
Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other
term of this Certificate of Designation. Any waiver must be in writing. 
  
 f) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. 
  
 g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day. 
  
 h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

  
 i) Status of Converted or Redeemed
Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement. In case any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of
authorized but unissued shares of preferred stock and shall no longer be designated as Series B Convertible Preferred Stock. 
  
 ********************* 
  

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 RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary,
of the Corporation be and they hereby are authorized and directed to prepare and file a Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Nevada law. 
  
 IN WITNESS WHEREOF, the undersigned have executed this Certificate this 22nd
day of December, 2005. 
  

			
	 /s/ Joseph N. Fasciglione

	  	 /s/ Spencer L. Sterling


	 Name: Joseph N. Fasciglione
	  	Name: Spencer L. Sterling
	 Title: Chief Financial Officer
	  	Title: President & Chief Executive Officer

  

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 ANNEX A 
  
 NOTICE OF CONVERSION 
  
 (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF 
 PREFERRED STOCK)

  
 The undersigned hereby elects to convert the number of shares of Series B 7%
Convertible Preferred Stock indicated below, into shares of common stock, par value $0.0001 per share (the “Common Stock”), of DDS Technologies USA, Inc., a Nevada corporation (the “Corporation”), according to the
conditions 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 Corporation in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any. 
  
 Conversion calculations: 
  
 Date to Effect Conversion: _______________________________________________________________________________ 
  
 Number of shares of Preferred Stock owned prior to Conversion:
__________________________________________________ 
  
 Number of
shares of Preferred Stock to be Converted: __________________________________________________________ 
  
 Stated Value of shares of Preferred Stock to be Converted: ______________________________________________________ 
  
 Number of shares of Common Stock to be Issued:
_____________________________________________________________ 
  
 Applicable Conversion Price: ____________________________________________________________________________ 
  
 Number of shares of Preferred Stock subsequent to Conversion: __________________________________________________ 
  

			
	[HOLDER]
		
	 By:
	 	  


	 Name:
	 	 
	 Title:
	 	 


  

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