Document:

EXHIBIT 10.8

                               EXCHANGE AGREEMENT

                                 by and between

                               EXTERRA ENERGY INC.
                                    as Buyer

                                       and

                          ROYALCO OIL & GAS CORPORATION
                                    as Seller

                              Dated: March 13, 2009

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                               EXCHANGE AGREEMENT

         THIS EXCHANGE  AGREEMENT  (this  "Agreement")  is made this 13th day of
March,  2009 (the "Effective  Date"),  by and between  EXTERRA  ENERGY,  INC., a
Nevada  corporation  ("Exterra"),  and  ROYALCO OIL & GAS  CORPORATION,  a Texas
corporation ("Royalco").

                                    Recitals:

         WHEREAS,  Exterra  is an  oil  and  gas  acquisition,  exploration  and
development company in the central and northern areas of Texas;

         WHEREAS, Royalco is an oil and gas company focusing on the acquisition,
development and operation of various oil and gas wells the majority of which are
in central Texas and the surrounding areas (the "Business");

         WHEREAS,  in 2007,  Stockhome Trading Corporation leased to Triad Rovan
Services LP ("TRS"),  under a 99 year lease (the  "Lease"),  the rights to drill
and maintain a saltwater  disposal well (the "Well") on  approximately  thirteen
(13) acres of land situated in Johnson County, Texas (the "Property"),  in order
to dispose of salt water  through the Well,  and to reproduce  or process  fresh
water for resale;

         WHEREAS, in 2008, TRS conveyed 50% of all of its rights and interest in
the Lease to Royalco under that certain  Service  Agreement dated April 18, 2008
(the "Services Agreement") and Royalco began operation of the Well; and

         WHEREAS, Exterra and Royalco now desire to exchange with each other, on
the terms and  conditions  set forth in this  Agreement,  the Shares (as defined
herein), on one hand, with the right to receive consideration from Royalco in an
amount equivalent to 25% of the operating revenues actually received by Royalco,
as determined on the cash basis of accounting, in connection with the Lease (the
"Profits Interest"), on the other hand.

                                    Agreement

         NOW  THEREFORE,  In  consideration  of the  foregoing  recitals and the
respective  covenants,  agreements,  representations  and  warranties  contained
herein, the parties, intending to be legally bound, agree as follows:

                                   ARTICLE I.
                          EXCHANGE OF PROFITS INTEREST
                                   AND SHARES

         1.1 Exchange.  Subject to the terms and  conditions of this  Agreement,
and in reliance upon the  representations,  warranties  and covenants  contained
herein,  Royalco and Exterra hereby exchange the Profits Interest for the Shares
on the Effective  Date, such that Royalco hereby sells and transfers the Profits
Interests  to Exterra  and  Exterra  hereby  sells and  transfers  the Shares to
Royalco and each hereby acquires and accepts the other (the "Transaction").  For
purposes of this Agreement,  the term "Shares" means,  44,343,451  shares of its
common  stock,  $0.001 par value per share of  Exterra  (the  "Shares").  On the
Effective  Date,  Exterra  will  deliver  to  Royalco  original  executed  stock
certificate(s)  representing the Shares, and such other documents as Royalco may
reasonably  request in order to consummate the  Transaction.  Similarly,  on the
Effective Date, Royalco will deliver, or cause to be delivered,  to Exterra such

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documents as Exterra may reasonably  request to evidence  Exterra's right to the
Profits Interest.  Exterra acknowledges and agrees that no interests,  rights or
otherwise in or to the Services Agreement, the Lease or the Well are transferred
by this  Section  1.1 and that the sole right  acquired  by  Exterra  under this
Section 1.1 is the Profits Interests.

         1.2 Option. Beginning on the Settlement Date, and continuing thereafter
for a period of one-hundred eighty days (180) (the "Option Period"), Exterra has
the right (the "Option"), but not the obligation,  to purchase from Royalco, and
Royalco (if  exercised  by  Exterra),  has the  obligation  to sell,  assign and
transfer,  upon  delivery of a written  notice by Exterra to Royalco  during the
Option Period, stating its intent to exercise the Option (the "Notice"),  25% of
all of Royalco's  right,  title and interest in and to the Lease,  including but
not limited to those rights of Royalco under the Services Agreement (the "Option
Rights").  The "Settlement Date" is the date on which Royalco fully and finally,
including all potential  appeals,  settles its current litigation styled Royalco
Oil & Gas Corporation v. Stockhome  Trading  Corporation,  including all counter
claims,   cross  claims  and  derivative  claims  (collectively  the  "Stockhome
Dispute"),  such that the settlement  provides that Royalco retain or be awarded
ongoing  development or management rights, or both, with respect to the Well and
the Lease.  Royalco must provide  written notice to Exterra within five (5) days
of the  Settlement  Date that such  matter is fully  and  finally  settled.  The
purchase  price  payable by Exterra to Royalco for the Option  Rights is $100.00
cash,  payable at the time the Notice is delivered  to Royalco.  Royalco may not
voluntarily transfer or assign all or any portion of the Option Rights until the
date  next  following  the end of the  Option  Period.  In the  event  that  the
Stockhome  Dispute does not result in Royalco retaining or being awarded ongoing
development and management  rights in and to the Lease and Well, then the Option
Rights  will be replaced  with  alternative  assets of  Royalco,  having a value
approximately  equivalent  to the value of the  Option  Rights,  as is  mutually
agreeable between Exterra and Royalco.

         1.3 Other  Actions.  Each of the parties  hereto will their  respective
commercially  reasonable efforts to (a) take, or cause to be taken, all actions,
(b) do, or cause to be done,  all  things,  and (c) execute and deliver all such
documents;  instruments  and other  papers,  as in each  case may be  necessary,
proper or advisable under applicable laws, or reasonably required to in order to
carry out the terms and  provisions of this Agreement and to consummate and make
effective the Transaction.

         1.4 Payments and Reports.  Following the Effective  Date,  Royalco will
deliver Profits Interest payments to Exterra on a quarterly basis, within twenty
(20) days  following  the last day of each calendar  quarter,  beginning for the
quarter  ending March 31, 2009.  Each payment will be  accompanied  by a written
report showing the prior quarter's  receipts and expenses in connection with the
Lease and the Well, paid or incurred by Royalco.

                                  ARTICLE II.
                    REPRESENTATIONS AND WARRANTIES BY ROYALCO

         Royalco  hereby  represents and warrants to Exterra as of the Effective
Date, the following:

         2.1  Organization of Royalco.  Royalco is a corporation duly organized,
validly  existing and in good standing  under the laws of the state of Texas and
is duly qualified or licensed to do business in each  jurisdiction  in which the
nature and scope of the Business  requires such  qualification.  Royalco has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on the Business as it is now being  conducted.

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         2.2  Authorization;  Validity of  Agreement.  Royalco has the requisite
capacity and  authority to execute,  delivery and perform this  Agreement and to
consummate the  Transaction.  This Agreement has been duly executed,  authorized
and  delivered  by Royalco  and is a valid and  binding  obligation  of Royalco,
enforceable  against  Royalco  in  accordance  with its  terms,  except  as such
enforceability   may  be  subject  to  or  limited  by  applicable   bankruptcy,
insolvency,  reorganization  or other similar laws affecting the  enforcement of
creditors'  rights  generally.  Until such time as Exterra  exercise the Option,
Exterra  disclaims  any direct  interest in the Lease or the Well,  and its sole
rights will be to receive payment of the Profits Interest.

         2.3 Independent  Investigation.  Royalco hereby represents and warrants
to  Exterra  that:  (a)  Royalco  has had an  opportunity  to  review  all  such
information  about Exterra and the Shares as it desires and to ask questions and
receive  answers  about  Exterra,  and that (b) except as set forth  herein,  no
warranties  or  representations  have been made by Exterra  with  respect to the
value of the Shares, and the actual value of the Shares may be more or less than
the Profits  Interest and Option being  transferred to Exterra  pursuant to this
Agreement.

         2.4  Litigation.  To  Royalco's  Knowledge,  other than as set forth on
Schedule 2.4,  there is no action,  suit,  investigation  or  proceeding  filed,
initiated or pending,  involving Royalco,  that in any way may affect Royalco or
the Transaction,  by or before any Governmental  Entity or arbitration  panel or
any other Person.

         2.5 Taxes.  Royalco,  to its  Knowledge,  has (a) duly and timely filed
with the  Internal  Revenue  Service  or other  applicable  Governmental  Entity
(collectively, "Taxing Authorities") all Tax Returns (as defined below) that are
required  to be filed by it or that  include or relate to  Royalco,  its income,
assets or business,  which Tax Returns are true,  correct and complete,  and (b)
duly and timely paid in full,  or recorded a provision  for such  payment on the
books and records of Royalco,  as applicable,  for the payment of, all Taxes (as
defined below) for which Royalco is or may be liable. There is no Lien for Taxes
upon any property of Royalco.

         2.6 No Brokers.  Exterra will not incur any liability for any financial
advisory fees, brokerage fees, commissions or finders' fees due or claimed to be
due to any broker, finder, agent, representative,  consultant, or similar person
retained by or whose claims arise from contact with Royalco or any affiliates of
Royalco, as a result of the Transaction.

                                  ARTICLE III.
                    REPRESENTATIONS AND WARRANTIES OF EXTERRA

         Exterra  represents  and warrants to Royalco as of the Effective  Date,
the following:

         3.1  Organization of Exterra.  Exterra is a corporation duly organized,
validly  existing and in good standing under the laws of the state of Nevada and
is duly qualified or licensed to do business in each  jurisdiction  in which the
nature and scope of the business  requires such  qualification.  Exterra has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted.

         3.2  Authorization;  Validity of  Agreement.  Exterra has the requisite
corporate power and authority to execute, deliver and perform this Agreement and
to  consummate  the  transactions  contemplated  hereby.  No other  proceedings,
consents  or actions on the part of  Exterra  are  necessary  to  authorize  the
execution,  delivery  and  performance  of this  Agreement  by  Exterra  and the
consummation  of the  Transaction.  This  Agreement  has been duly  executed and
delivered by Exterra and, assuming due authorization,  execution and delivery of

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this  Agreement  by  Royalco,  is a valid  and  binding  obligation  of  Exterra
enforceable  against  Exterra  in  accordance  with its  terms,  except  as such
enforceability   may  be  subject  to  or  limited  by  applicable   bankruptcy,
insolvency,  reorganization,  or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights generally.

         3.3 No Violations;  Consents and Approvals. The execution, delivery and
performance  of this  Agreement  by Exterra does not,  and the  consummation  by
Exterra of the  transactions  contemplated  hereby  will not,  (a)  violate  any
provision of the certificated of formation or bylaws of Exterra, (b) result in a
violation  or breach of, or  constitute  (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,  cancellation
or  acceleration)  under,  any of the terms,  conditions  or  provisions  of any
material  note,  bond,  mortgage,   indenture,   guarantee,  other  evidence  of
indebtedness,  license, contract, agreement or other instrument to which Exterra
is a party or by which  Exterra or any of its  properties or assets may be bound
or otherwise  subject,  or (c) violate any order,  writ,  judgment,  injunction,
decree,  law, statute,  rule or regulation  applicable to Exterra, or any of its
properties or assets.

         3.4 Well and Lease.  Exterra  acknowledges  and agrees  that  except as
expressly stated in this Agreement,  the Profits Interests and Option Rights are
being sold and transferred to Exterra "as-is" and "with all faults," and Royalco
makes no  representations,  warranties or covenants  regarding the operations or
conditions of the Well, the Lease, the Property;  the Stockhome Dispute,  or the
Profits Interests. Exterra has had an opportunity to review all such information
about Royalco as it desires and to ask questions and receive  answers of Royalco
and is satisfied with its responses. Exterra has had an opportunity discuss this
Agreement   with  an  attorney  of  Exterra's   selection.   No   warranties  or
representations have been made by Royalco with respect to the value of the Well,
the Lease or the Profits  Interests and the actual value of the Profits Interest
and  the  Option  may be more  or  less  than  the  value  of the  Shares  being
transferred to Royalco pursuant to this Agreement. Exterra is relying on its own
evaluation of the value of the Profits Interests, as well as the underlying Well
and  Lease,  and the costs of  completion  of each.  Specifically,  Exterra  has
relying on that certain  third-party  correspondence  of  Caruthers  Consulting,
attached to this  Agreement  as Exhibit A (the  "Caruthers  Estimate").  Exterra
acknowledges and agrees that Royalco has made no  representations  regarding the
accuracy of the  Caruthers  Estimate and that any weight placed on the relevance
and value of the Caruthers  Estimate is  undertaken  at Exterra's  sole risk and
discretion.

         3.5  Capitalization.  The authorized capital stock of buyer consists of
75,000,000 shares of common stock .001 par value per share (the "Common Stock"),
of which 30,656,549  shares of Common Stock are issued and outstanding  prior to
giving  effect to the  Transaction.  There are no options,  warrants,  preferred
shares or another other securities convertible into Common Stock granted, issued
or promised.  All of the outstanding shares of Common Stock of Exterra have been
validly  issued,  and are fully paid and  nonassessable  and free of  preemptive
rights.  No shares of capital  stock of Exterra  were issued in violation of any
preemptive  rights,  rights of first  refusal  or  similar  rights.  None of the
outstanding  equity  securities  or other  securities  of Exterra  was issued in
violation of the Securities Act.

         3.6 Shares. When the Transaction is consummated  according to the terms
and conditions described in this Agreement, all right, title and interest in and
to the Shares will vest in ROYALCO and ROYALCO will receive good and  marketable
title to the Shares without lien,  claim or encumbrance,  except as set forth in
the Securities Act and under  applicable  state or federal  securities laws, and
the  Shares  will  be  duly   authorized,   validly   issued,   fully  paid  and
nonassessable.  Exterra will file, on a timely basis, all required  Exchange Act
reports,  and comply with the  reporting  requirements  of Section 13 or Section
15(d) of the Exchange Act or Exterra will maintain current public information at
all times as is required under Rule 144(c) of the Securities Act.

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         3.7  Public  Filings / Absence  of  Certain  Changes.  All  information
contained in those reports and filings made by Exterra with the  Securities  and
Exchange  Commission  were true and  correct  when made.  Except as set forth on
Schedule  3.7 hereto,  since May 31,  2008,  Exterra has not:  (a)  suffered any
Material  Adverse  Effect in its financial  condition,  assets,  liabilities  or
business;  (b)  contracted  for or paid any  capital  expenditure  in  excess of
$50,000 or contracted for or paid more than $50,000 for all capital expenditures
to any Person or any Affiliate of any such Person; (c) incurred any indebtedness
for borrowed money, issued or sold any debt securities,  or maintained the aging
of its accounts  payable other than (i) in the ordinary  course of it's business
consistent  with prior  practices,  (ii) in  connection  with the  purchase of a
capital asset for which all of the proceeds of such borrowed money were applied,
or (iii) agreed to do any of the foregoing; (d) mortgaged,  pledged or subjected
to any Lien,  lease, or other charge or encumbrance any of Exterra's  properties
or assets  or agreed to do any of the  foregoing;  (e)  suffered  any  damage or
destruction to or loss of any assets  (whether or not covered by insurance) that
could or does  materially  and adversely  affect its  business;  (f) acquired or
disposed of any assets or incurred any  liabilities  or obligations or agreed to
do any of the  foregoing,  except in the ordinary  course of Exterra's  business
consistent with prior practice;  (g) accelerated any item of income or gain into
the period prior to the Effective  Date, or deferred any item of expense or loss
into the period after the Effective  Date, and such  acceleration or deferral is
not made in the ordinary course of Exterra's business  consistent with Exterra's
treatment of such items in prior  periods;  (h) lost or terminated any full-time
employees,  consultants,  agents,  representatives,  customers or suppliers that
could or does  materially  and  adversely  affect its  business  or assets;  (i)
increased  or agreed to increase  the  compensation  of any  consultant,  agent,
representative  or  employee,  except in the  ordinary  course  of the  business
consistent  with prior  practice;  (j) formed or  acquired  or  disposed  of any
interest in any  corporation,  partnership,  joint venture or other Person;  (k)
entered into any employment,  compensation,  consulting or collective bargaining
agreement with any Person or group, or modified or amended the terms of any such
existing  agreement or agreed to do any of the  foregoing;  or (l) been notified
that it is a responsible  party or potentially  responsible  party in connection
with any federal or state  "Superfund" site or with respect to any environmental
law, liable or responsible (or potentially  liable or responsible) for clean up,
capping, or remediation of an environmental matters.

         3.8 Litigation.  There is no action, suit, or proceeding pending or, to
the  Knowledge  of  Exterra,  threatened,  which in any way  involves or affects
Exterra, by or before any court, governmental entity or arbitration panel or any
other Person.

         3.9 Ability to  Evaluate  Investment.  Exterra is able to evaluate  the
merits and risks of an investment  in the Profits  Interest and the Option Right
by reason of Exterra's  knowledge and  experience in similar  business  matters.
Exterra  acknowledges receipt of (1) a copy of Plaintiff's Original Petition and
Application for Temporary  Injunction,  and related pleadings in connection with
that certain disputed matter styled:  Royalco Oil & Gas Corporation v. Stockhome
Trading  Corporation;  and (2) a copy of a letter addressed to Mr. Robert Royal,
in his status as the CEO of Royalco,  from K. Lawson Pedigo, of Miller,  Keffer,
Bullock,  Pedigo,  LLC,  evaluating  Royalco's  legal  position in the Stockhome
Dispute.  Exterra  acknowledges and agrees that Royalco makes no representations
or warranties  regarding the likely outcome of the Stockhome Dispute and that an
unfavorable  result  could  have a material  adverse  effect on the value of the
Profits Interests and the Option Rights.

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         3.10 Broker or Finders  Fees.  Royalco will not incur any liability for
any financial advisory fees, brokerage fees, commissions or finders' fees due or
claimed to be due to any broker, finder, agent,  representative,  consultant, or
similar person retained by or whose claims arise from contact with a Exterra, or
any affiliates of Exterra, as a result of the closing of the Transaction.

                                  ARTICLE IV.
                            INDEMNIFICATION; REMEDIES

         4.1   Survival;   Right  to   Indemnification.   All   representations,
warranties, covenants and obligations of the parties contained in this Agreement
and in any document or instrument  executed and delivered in connection herewith
will survive the Effective  Date,  regardless of any  investigation  made by the
parties hereto.  This Section 4.1 shall have no effect upon any other obligation
of the parties  hereto,  whether to be performed  before or after the  Effective
Date.  The right to  indemnification,  payment of Damages (as defined in Section
4.2),  or  other  remedy  based on any  representation,  warranty,  covenant  or
obligation  of a  party  hereunder  are  not be  affected  by any  investigation
conducted  with  respect  to, or any  knowledge  acquired  (or  capable of being
acquired) at any time,  whether before or after the Effective Date, with respect
to the accuracy or inaccuracy of or compliance  with,  any such  representation,
warranty, covenant or obligation.

         4.2  Indemnification  by Royalco.  Royalco hereby indemnifies and holds
harmless Exterra and its successors, heirs, assigns, officers, owners, employees
and representatives  (collectively,  the "Exterra Indemnified Persons") for, and
will pay to Exterra  Indemnified  Persons,  the amount of, any loss,  liability,
claim,  damage  (including,  without  limitation,  incidental and  consequential
damages),  cost, expense (including;  without limitation,  interest,  penalties,
costs of  investigation  and defense  and the  reasonable  fees and  expenses of
attorneys and other professional experts) or diminution of value, whether or not
involving a third-party claim (collectively,  "Damages"), directly or indirectly
arising from,  attributable to or in connection with the Stockhome Dispute,  any
representation  or warranty made by Royalco in this Agreement that is, as of the
Effective Date, false or inaccurate, or any breach of, or misrepresentation with
respect to, any such representation or warranty, or any breach by Royalco of any
covenant, agreement or obligation of Royalco contained in this Agreement.

         4.3  Indemnification  by Exterra.  Exterra hereby indemnifies and holds
harmless Royalco and its successors, heirs, assigns, officers, owners, employees
and representatives  (collectively,  the "Royalco Indemnified Persons") for, and
will pay to Royalco Indemnified Persons the amount of, any Damages,  directly or
indirectly   arising  from,   attributable   to  or  in   connection   with  any
representation  or warranty made by Exterra in this Agreement that is, as of the
Effective Date, false or inaccurate, or any breach of, or misrepresentation with
respect to, any such representation or warranty, or any breach by Exterra of any
covenant, agreement or obligation of Exterra contained in this Agreement.

         4.4  Time   Limitations.   Royalco   shall   have  no   liability   for
indemnification  with respect to any  representation  or warranty unless,  on or
before the first (1st) anniversary date of the Effective Date,  Exterra notifies
Royalco of a claim  specifying  the basis  thereof in  reasonable  detail to the
extent then known by Exterra.

         4.5  Limitations  on  Amount.  Royalco  shall  have  no  liability  for
indemnification  with respect to the matters  described in Section 4.2 until the
total  of all  Damages  with  respect  to  such  matters  exceeds  $50,000  (the

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"Deductible  Amount"),  and then only to the  extent  such  indemnified  Damages
exceed  the  Deductible  Amount.  Anything  to  the  contrary   notwithstanding,
Royalco's aggregate liability with respect to Damages may not exceed $500,000.

         4.6 Procedure for Indemnification--Third Party Claims.

             (a) Promptly  after receipt by an  indemnified  party under Section
4.2 or 4.3 of written notice (the "Notice of Claim") of the  commencement of any
action,  suit  or  proceeding  against  it,  or  written  threat  thereof,  such
indemnified  party will, if a claim is to be made against an indemnifying  party
under either of said sections,  as applicable,  give notice to the  indemnifying
party of the  commencement of such action,  suit or proceeding.  The indemnified
party  shall  furnish  to the  indemnifying  party  in  reasonable  detail  such
information   as  the   indemnified   party  may  have  with   respect  to  such
indemnification  claims  (including  copies of any  summons,  complaint or other
pleading  which  may have  been  served  on it and any  written  claim,  demand,
invoice, billing or other document evidencing or assenting the same). Subject to
the limitations set forth in Section 4.4, no failure or delay by the indemnified
party in the performance of the foregoing  shall reduce or otherwise  affect the
obligation of the indemnifying party to indemnify and hold the indemnified party
harmless  except to the extent that such failure or delay shall have  materially
and  adversely  affected the  indemnifying  party's  ability to defend  against,
settle  or  satisfy  any  action,  suit or  proceeding  the  claim for which the
indemnified party is entitled to indemnification hereunder.

             (b) If the claim or demand set forth in the  Notice of Claim  given
by the  indemnified  party is a claim or demand  asserted by a third party,  the
indemnifying  party has  thirty  (30) days  after the Date of Notice of Claim to
notify the  indemnified  party in writing of its  election  to defend such third
party claim or demand on behalf of the indemnified party (the "Notice Period ");
provided,  however, that the indemnified party is authorized to file any motion,
answer or other pleading which it deems  necessary or appropriate to protect its
interests during the Notice Period.  If the indemnifying  party elects to defend
such third party claim or demand,  the indemnified party shall make available to
the indemnifying party and its agents and  representatives all records and other
materials which are reasonably required in the defense of such third party claim
or demand and shall  otherwise  cooperate  (at the sole cost and  expense of the
indemnifying  party)  with,  and  assist  (at the sole cost and  expense  of the
indemnifying  party) the indemnifying  party in the defense of, such third party
claim or demand, and so long as the indemnifying  party is diligently  defending
such third  party  claim in good  faith,  the  indemnified  party shall not pay,
settle or compromise such third party claim or demand. The indemnified party has
the right to employ counsel  separate from counsel  employed by the indemnifying
party in any such action and to participate  therein,  but the fees and expenses
of such counsel will be at the indemnified  party's own expense,  unless (a) the
employment thereof has been specifically  authorized by the indemnifying  party,
(b) such  indemnified  party  will  have  been  advised  by  counsel  reasonably
satisfactory  to the  indemnifying  party  that  there may be one or more  legal
defenses  available  to it that  are  different  from  or  additional  to  those
available  to the  indemnifying  party and in the  reasonable  judgment  of such
counsel it is advisable for such Indemnified  Party to employ separate  counsel,
or (c) the  indemnifying  party has failed to assume the  defense of such action
and employ counsel  reasonably  satisfactory to the indemnified  party, in which
case the fees will be paid by the indemnifying  party. If the indemnifying party
assumed the defense of any claim or proceeding  in accordance  with this Section
4.6, the indemnifying party will be authorized to consent to a settlement of, or
the entry of any judgment  arising from, any such claim or proceeding,  with the
prior  written  consent  of  such  indemnified  party,  not  to be  unreasonably
withheld;  provided,  however,  that the indemnifying party is not authorized to
encumber  any  of the  assets  of  any  indemnified  party  or to  agree  to any
restriction  that  would  apply to any  indemnified  party or to its  conduct of
business;  and provided  further,  that a condition to any such  settlement is a

Exchange Agreenment                                                       Page 7
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<PAGE>

complete  release  of such  indemnified  party  and its  affiliates,  directors,
officers,  employees  and agents  with  respect  to such  claim,  including  any
reasonably foreseeable collateral consequences thereof.

             If the indemnifying party does not elect to defend such third party
claim or demand or does not  defend  such  third  party  claim or demand in good
faith,  the  indemnified  party  shall have the right,  in addition to any other
right or remedy it may have hereunder at the indemnifying  party's  expense,  to
defend such third party claim or demand. The failure of the indemnified party to
notify  the  indemnifying   party  as  provided  herein  will  not  relieve  the
indemnifying  party of its obligations  hereunder  except to the extent that the
indemnifying party is actually prejudiced by such failure to notify.

             (c) The term  "Date of  Notice of  Claim"  shall  mean the date the
Notice of Claim is effective pursuant to Section 4.4 of this Agreement.

         4.7  Procedure   for   Indemnification--Other   Claims.   A  claim  for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.

         4.8  Exclusive  Remedies.  Notwithstanding  anything  to  the  contrary
contained  herein,  the remedies  provided in this Article IV are the  exclusive
remedies of the  parties to this  Agreement  for breach of any  representations,
warranties,  covenants  or  agreement  in this  Agreement  and  limit  any other
remedies that may be available to any indemnified party.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 Dispute  Resolution.  In the case of any  dispute,  controversy  or
claim between or among the parties to this Agreement or the Transaction,  except
for  disputes   related  to  obtaining  the   equitable   remedies  of  specific
performance,  an injunction or a restraining  order (a  "Dispute"),  the parties
will use the  procedures  set  forth  in this  Article  V, in lieu of any  party
pursuing  other  available  remedies  and as the sole  remedy,  to  resolve  the
Dispute.  Any Dispute will be settled by  arbitration  before three  arbitrators
(unless the parties agree to a smaller  number) in accordance  with the rules of
the American  Arbitration  Association ("AAA") then in effect and as modified by
this Article V or by further  agreement  of the parties.  In addition to what is
allowed by the rules of the AAA,  discovery  may be  conducted  according to the
Federal Rules of Civil  Procedure,  to be enforced by the AAA, and if necessary,
by a court having jurisdiction. Any such arbitration will be conducted in Parker
county, Texas, unless otherwise agreed by the parties. The arbitrators will have
no authority to award punitive  damages or any other damages not measured by the
prevailing  party's actual  damages and may not, in any event,  make any ruling,
finding  or award  that does not  conform  to the terms and  conditions  of this
Agreement.  The  arbitrators  will have the authority to award to the prevailing
party its attorneys' fees and costs incurred in any arbitration. Absent any such
award,  each party will bear its own costs incurred in the  arbitration.  If any
party  hereto  refuses  to submit to  arbitration  any  Dispute  required  to be
submitted to arbitration pursuant to this Section 5.1, and instead commences any
other  proceeding,  including,  without  limitation,  litigation  (except to the
extent otherwise expressly provided in this Agreement), then the party who seeks
enforcement  of the  obligation to arbitrate  will be entitled to its attorneys'
fees and costs incurred in any such proceeding.

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-------------------                                                       ------

<PAGE>

         5.2 Certain Definitions:

         "Affiliate"  means,  with  respect to any Person,  any other  Person or
group of  affiliated  Persons  directly  or  indirectly  controlling  (including
without  limitation  all  directors  and  executive  officers  of such  Person),
controlled by or under direct or indirect common control with such Person.

         "Exchange  Act"  means  the  Securities  Exchange  Act of  1934  or any
successor  law, and  regulations  and rules  issued  pursuant to that Act or any
successor law, or any other legal requirement.

         "Governmental Entity" means any legislature,  agency,  bureau,  branch,
department,  division, commission, court, tribunal,  magistrate,  justice, multi
national  organization,  quasi  governmental  body, or other similar  recognized
organization or body of any federal, state, county, municipal, local, or foreign
government or other similar  recognized  organization or body exercising similar
powers or authority.

         "Knowledge"  whether  capitalized or not, means the actual awareness of
such fact or matter of a Person,  without  investigation or inquiry.  A business
entity will have  knowledge  of a  particular  fact or other  matter if any duly
elected  officer  or  other  individual  person  changed  with  monitoring  such
particular  facts, of such business entity has actual  awareness of such fact or
matter.

         "Lien"  means any  mortgage,  lien,  pledge,  claim,  charge,  security
interest or encumbrance or any kind,  including without  limitation the interest
of a vendor or lessor  under  any  conditional  sale  agreement,  capital  lease
obligation  or other title  retention  agreement,  or any agreement to create or
grant any of the foregoing.

         "Material Adverse Change (or Effect)" means, taken in the aggregate,  a
material  adverse change (or effect) on the Shares or the results of operations,
financial condition, or reasonable prospects of the business of Exterra.

         "Person" means an individual,  a trust,  an estate,  a partnership,  an
association,  a company,  a limited  liability  company,  a corporation,  a sole
proprietorship,  a professional  corporation,  a professional association or any
other entity.

         "Securities Act" means the Securities Act of 1933 or any successor law,
and  regulations  and rules issued pursuant to that Act or any successor law, or
any other legal requirement.

         "Tax"  means any tax  (including  any income  tax,  capital  gains tax,
value-added  tax,  sales tax,  property  tax,  gift tax, or estate  tax),  levy,
assessment, tariff, duty (including any customs duty), deficiency, or other fee,
and any related charge or amount  (including  any fine,  penalty,  interest,  or
addition to tax), imposed,  assessed,  or collected by or under the authority of
any governmental  body or payable  pursuant to any tax-sharing  agreement or any
other  contract  relating  to the  sharing  or  payment  of any such tax,  levy,
assessment, tariff, duty, deficiency, or fee.

         "Tax  Return"  means any return  (including  any  information  return),
report,  statement,  schedule,  notice,  form, or other  document or information
filed with or submitted  to, or required to be filed with or  submitted  to, any

Exchange Agreenment                                                       Page 9
-------------------                                                       ------

<PAGE>

governmental body in connection with the determination,  assessment, collection,
or payment of any Tax or in connection with the administration,  implementation,
or enforcement of or compliance with any legal requirement relating to any Tax.

         5.3  Fees  and  Expenses.  Except  as  otherwise  contemplated  by,  or
expressly  provided for in, this Agreement,  all costs and expenses  incurred in
connection  with  this  Agreement  and  the  consummation  of  the  transactions
contemplated  hereby shall be paid by the party  incurring  such  expenses.  The
prevailing party in any arbitration or other legal proceeding hereunder or under
any agreement executed pursuant hereto will, however, be entitled to recover its
reasonable attorneys' fees and expenses.

         5.4 Post Closing Covenants.

             (a) Books and Records. For a period of four (4) years following the
Effective Date, Exterra shall provide Royalco and its representatives reasonable
access  during  normal  business  hours and upon three (3) days'  prior  written
notice to Exterra to those books and records of Royalco relating to the Well and
the Lease,  solely for the purpose of allowing and assisting  Royalco to prepare
its tax returns and respond to litigation and other disputes involving the Well,
the Lease or the Profits Interests.  In addition,  Exterra will, upon reasonable
request of Royalco, furnish to Royalco copies of any such books or records.

             (b)  Assistance.  Following  the  Effective  Date,  upon  Exterra's
reasonable request and at Exterra's expense,  Royalco will provide assistance to
Exterra and Exterra's representatives in connection with the Stockhome Dispute.

         5.5  Amendments.  This  Agreement  can  be  amended,   supplemented  or
modified,  any  provision  hereof  may be waived,  only by a written  instrument
making specific reference to this Agreement signed by the party against whom the
same is sought to be enforced.

         5.6 Notices. All notices and other communications hereunder shall be in
writing  and shall be deemed  given  upon (a)  transmitter's  confirmation  of a
receipt  of a  facsimile  transmission,  (b)  confirmed  delivery  by a standard
overnight  carrier  or when  delivered  by hand  or (c) the  expiration  of five
business  days after the day when mailed in the United  States by  certified  or
registered mail,  postage prepaid,  addressed at the following  addresses (or at
such other address for a party as shall be specified by like notice)

             (a) if to Royalco, to:

                 RoyalCo Oil & Gas Corporation
                 Attn: Robert Royal, CEO_____
                 4906 Mineral Wells Hwy
                 Weatherford, Texas  76088
                 Facsimile:  (817-599-5756)W

Exchange Agreenment                                                      Page 10
-------------------                                                      -------

<PAGE>

                 With a copy to:

                 K. Lawson Pedigo
                 Miller Keffer Bullock Pedigo, LLC
                 8401 N. Central Expressway
                 Suite 630
                 Dallas, Texas  75225
                 Facsimile:  (214) 696-2482

             (b) if to Exterra, to:

                 Exterra Energy Inc.
                 Attn: Robert Royal, CEO
                 1717 St. James Place
                 Houston, Texas  77056
                 with copies to:
                 866-537-6910
                 _________________________
                 _________________________
                 _________________________

         5.7  Headings.  The  headings  contained  in  this  Agreement  are  for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

         5.8  Counterparts.  This  Agreement  may be  executed  in  two or  more
counterparts,  each of which shall be deemed an original  but all of which shall
be considered one and the same Agreement.  A photocopy or facsimile signature of
a party  hereto has the same force and effect as an original  signature  of such
party.

         5.9 Entire Agreement.  This Agreement  (together with the Schedules and
Exhibits  hereto) and the  agreements and documents  delivered  pursuant to this
Agreement,  constitute  the entire  agreement of the parties with respect to the
subject  matter  hereof,   and   collectively   supersede  all  other  prior  or
contemporaneous   negotiations,   commitments,   agreements  and  understandings
(whether  written or oral),  between  the  parties  with  respect to the subject
matter hereof.

         5.10 Severability.  If any term, provision,  covenant or restriction of
this Agreement is held by a court of competent  jurisdiction  or other authority
to be  invalid,  void,  unenforceable  or against  its  regulatory  policy,  the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,  impaired
or invalidated.

         5.11 Binding Effect.  This Agreement will be binding upon, inure to the
benefit of and be enforceable  by, the parties and their  respective  successors
and assigns.

         5.12 Governing  Law. This Agreement  shall be governed by and construed
in accordance with the laws of the state of Texas  applicable to agreements made
and to be performed entirely in that state,  without giving effect to any choice
or conflict of law provision or rule (whether of the State of Texas or any other
jurisdiction)  that would cause the application of the laws of any  jurisdiction
other than the State of Texas.

         5.13  Jurisdiction.  The  parties  agree  to  submit  to the  exclusive
jurisdiction of the State Courts of Texas in Parker County regarding any dispute
arising under this Agreement.

Exchange Agreenment                                                      Page 11
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<PAGE>

         5.14 Multiple  Counterparts.  This  Agreement may be executed in one or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute a single agreement.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

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<PAGE>

         IN WITNESS  WHEREOF,  the  parties  have caused  this  Agreement  to be
executed as of the date first written above.

                                            BUYER:

                                            EXTERRA ENERGY, INC.
                                            a Nevada corporation

                                            By:  /s/  Robert Royal
                                               --------------------------------
                                                      Robert Royal, CEO

                                            SELLER:

                                            ROYALCO OIL & GAS CORPORATION
                                            a Texas corporation

                                            By:  /s/  Robert Royal
                                               --------------------------------
                                                      Robert Royal, CEO

Exchange Agreenment                                                      Page 13
-------------------                                                      -------

<PAGE>

                                    EXHIBIT A
                                    ---------

                               Caruthers Estimate

                                    Exhibit A
                                    ---------

<PAGE>

                                  SCHEDULE 2.4
                                  ------------

                               Royalco Litigation

Royalco  Oil & Gas  Corporation  v.  Stockhome  Trading  Corporation,  cause no.
C2008-00586,  filed  October 20, 2008 in the District  Court of Johnson  County,
Texas 249th Judicial District.

                                  Schedule 2.4
                                  ------------

<PAGE>

                                  SCHEDULE 3.7
                                  ------------

                               Absence of Changes

                                  Schedule 3.7
                                  ------------United States Securities & Exchange Commission EDGAR Filing

Exhibit 4.1

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF

SERIES A-1 CONVERTIBLE PREFERRED STOCK

OF

GLOWPOINT, INC.

The undersigned, the President of Glowpoint, Inc., a Delaware corporation (the "Company"), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Company, the following resolution creating a series of Series A-1 Convertible Preferred Stock, was duly adopted on March 12, 2009.

RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Amended and Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there hereby is created out of the shares of Preferred Stock, par value $0.0001 per share, of the Company authorized in Article IV of the Certificate of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series A-1 Convertible Preferred Stock,” consisting of Seven Thousand Five Hundred (7,500) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

1.

Designation and Rank. The designation of such series of the Preferred Stock shall be the Series A-1 Convertible Preferred Stock, par value $0.0001 per share (the "Series A-1 Preferred Stock"). The maximum number of shares of Series A-1 Preferred Stock shall be Seven Thousand Five Hundred (7,500) shares. The Series A-1 Preferred Stock shall rank senior to the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock “), Series C Convertible Preferred Stock, par value $0.0001 per share (the "Series C Preferred Stock"), the Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”) and the common stock, par value $0.0001 per share (the "Common Stock"), and to all other classes and series of equity securities of the Company which by their terms rank junior to the Series A-1 Preferred Stock ("Junior Stock"). Subject to Section 3(a), the Series A-1 Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding.  The date of original issuance of the Series A-1 Preferred Stock is referred to herein as the “Issuance Date”.  Notwithstanding the foregoing, the “Issuance Date” of shares of Series A-1 Preferred Stock issued upon the exchange of Series A Preferred Stock shall be the date of issuance of the Series A Preferred Stock.

2.

Dividends.  

(a)

Payment of Dividends.  The holders of record of shares of Series A-1 Preferred Stock shall be entitled to receive, out of any assets at the time legally available therefor, cumulative dividends at the rate of five (5%) percent of the stated Liquidation Preference Amount (as defined in Section 4 hereof) per share per annum commencing on the first anniversary of the Issuance Date (the "Dividend Payment"), payable quarterly.  All dividends payable on or before September 30, 2010 shall be payable at the Company’s option in cash or 

through the issuance of a number of additional shares of Series A-1 Preferred Stock with an aggregate Liquidation Preference Amount equal to the dividend amount payable on the applicable Dividend Payment Date.  After September 30, 2010, all dividends shall be payable, at the option of the holder in cash or through the issuance of a number of additional shares of Series A-1 Preferred Stock with an aggregate Liquidation Preference Amount equal to the dividend amount payable on the applicable Dividend Payment Date.  In the event of a Voluntary Conversion (as defined in Section 5(a) hereof) pursuant to Section 5(a), all accrued but unpaid dividends on the Series A-1 Preferred Stock being converted shall be payable in cash within five (5) business days of such Voluntary Conversion Date (as defined in Section 5(b)(i) hereof).  Dividends on the Series A-1 Preferred Stock are prior and in preference to any declaration or payment of any distribution (as defined below) on any outstanding shares of Junior Stock. Such dividends shall accrue on each share of Series A-1 Preferred Stock from day to day whether or not earned or declared so that if such dividends with respect to any previous dividend period at the rate provided for herein have not been paid on, or declared and set apart for, all shares of Series A-1 Preferred Stock at the time outstanding, the deficiency shall be fully paid on, or declared and set apart for, such shares on a pro rata basis with all other equity securities of the Company ranking on a parity with the Series A-1 Preferred Stock as to the payment of dividends before any distribution shall be paid on, or declared and set apart for Junior Stock.

(b)

So long as any shares of Series A-1 Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any dividend or make any distribution on any Junior Stock (other than dividends or distributions payable in additional shares of Junior Stock), unless at the time of such dividend or distribution the Company shall have paid all accrued and unpaid dividends on the outstanding shares of Series A-1 Preferred Stock.

(c)

In the event of a dissolution, liquidation or winding up of the Company pursuant to Section 4, all accrued and unpaid dividends on the Series A-1 Preferred Stock shall be payable on the day immediately preceding the date of payment of the preferential amount to the holders of Series A-1 Preferred Stock.  In the event of (i) a mandatory redemption pursuant to Section 9 or (ii) a redemption upon the occurrence of a Change of Control (as defined in Section 8(b)), all accrued and unpaid dividends on the Series A-1 Preferred Stock shall be payable on the day immediately preceding the date of such redemption.  

(d)

For purposes hereof, unless the context otherwise requires, “distribution” shall mean the transfer of cash or property without consideration, whether by way of dividend or otherwise, payable other than in shares of Common Stock or other equity securities of the Company, or the purchase or redemption of shares of the Company (other than redemptions set forth in Section 8 below or repurchases of Common Stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase or upon the cashless exercise of options held by employees or consultants) for cash or property.

3.

Voting Rights.

(a)

Class Voting Rights. So long as shares of the Series A-1 Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least two-thirds (2/3rds) of the shares of the Series A-1 Preferred Stock outstanding 

2

at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series A-1 Preferred Stock vote separately as a class, (i) authorize, create, issue or increase the authorized or issued amount of any class of debt or equity securities, ranking pari passu or senior to the Series A-1 Preferred Stock, with respect to the distribution of assets on liquidation, dissolution or winding up; (ii) amend, alter or repeal the provisions of the Series A-1 Preferred Stock, whether by merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or voting power of the Series A-1 Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; (iii) repurchase, redeem or pay dividends on, shares of Common Stock or any other shares of the Company's Junior Stock (other than (1) in connection with any employee stock option plan or employee stock purchase plan which is approved by the Board of Directors and is existing as of the date hereof, (2) de minimus repurchases from employees of the Company, and (3) any contractual redemption obligations existing as of the date hereof as disclosed in the Company’s public filings with the Securities and Exchange Commission); (iv) amend the Certificate of Incorporation or By-Laws of the Company so as to affect materially and adversely any right, preference, privilege or voting power of the Series A-1 Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; (v) effect any distribution with respect to Junior Stock other than as permitted hereby; (vi) subject to the Company’s fiduciary duties under Delaware law, take any action to liquidate, dissolve or wind up the affairs of the Company; or (vii) incur any indebtedness for borrowed money or issue any debt securities, or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person for borrowed money.  Notwithstanding the foregoing to the contrary, the Company may (i) issue the Notes and the Warrants (each as defined in Section 5(e)(x) below); (ii) obtain and utilize a credit facility any banking institution on terms that are no less favorable to the Company than the terms of the credit facility it had with JPMorgan Chase Bank; and (iii) obtain and utilize any line of credit, factoring arrangement or other similar financing arrangement in connection with servicing the Company’s receivables in an amount up to $1,000,000.

(b)

General Voting Rights. 

(i)

Each holder of Series A-1 Preferred Stock shall be entitled to vote on all matters, together with the holders of Common Stock, on an as converted basis up to 9.99% of (A) the Common Stock issuable upon conversion of the Series A-1 Preferred Stock held by such holder, plus (B) all other shares of Common Stock beneficially owned by the holder at such time; provided, however, that upon a holder of Series A-1 Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (a "Waiver Notice") that such holder would like to waive Section 3(b)(i) of this Certificate of Designations with regard to any or all shares of Common Stock issuable upon conversion of Series A-1 Preferred Stock, this Section 3(b)(i) shall be of no force or effect with regard to those shares of Series A-1 Preferred Stock referenced in the Waiver Notice provided. 

(ii)

Except (A) with respect to transactions upon which the Series A-1 Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above, (B) with respect to the general voting rights granted pursuant to Section 3(b)(i) above and Section 10 

3

below and (C) as otherwise required by Delaware law, the Series A-1 Preferred Stock shall have no voting rights.  

(iii)

The Common Stock into which the Series A-1 Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company, and none of the rights of the Preferred Stock.

4.

Liquidation, Dissolution; Winding-Up.

(a)

In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of the Series A-1 Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, an amount equal to $7,500 per share (the "Liquidation Preference Amount") plus all accrued and unpaid dividends before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the Company are not sufficient to pay in full the Liquidation Preference Amount payable to the holders of outstanding shares of the Series A-1 Preferred Stock and any series of preferred stock or any other class of stock on a parity, as to rights on liquidation, dissolution or winding up, with the Series A-1 Preferred Stock, then all of said assets will be distributed among the holders of the Series A-1 Preferred Stock and the other classes of stock on a parity with the Series A-1 Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation payment with respect to each outstanding fractional share of Series A-1 Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series A-1 Preferred Stock. All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined reasonably and in good faith by the Board of Directors of the Company) or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series A-1 Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein. After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series A-1 Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

(b)

A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, shall, at the election of the holder of the Series A-1 Preferred Stock in writing within ten (10) days following the Company’s notice to such holder, be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. In the event of the merger or consolidation of the Company with or into another corporation, subject to Section 5(e)(v), and in the event the holder of the Series A-1 Preferred Stock does not elect to deem such transaction a liquidation event pursuant to this Section 4(b), the Series A-1 Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

4

(c)

Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall, to the extent possible, be given by mail, postage prepaid, no less than twenty (20) days prior to the payment date stated therein, to the holders of record of the Series A-1 Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

5.

Conversion. The holder of Series A-1 Preferred Stock shall have the following conversion rights (the "Conversion Rights"):

(a)

Right to Convert. At any time on or after the Issuance Date, the holder of any shares of Series A-1 Preferred Stock may, at such holder's option, subject to the limitations set forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all or any portion of the shares of Series A-1 Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series A-1 Preferred Stock being converted divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert. In the event of a notice of redemption of any shares of Series A-1 Preferred Stock pursuant to Section 8 hereof, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Company, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A-1 Preferred Stock. In the event of such a redemption or liquidation, dissolution or winding up, the Company shall provide to each holder of shares of Series A-1 Preferred Stock notice of such redemption or liquidation, dissolution or winding up, which notice shall (i) be sent at least fifteen (15) days prior to the termination of the Conversion Rights and (ii) state the amount per share of Series A-1 Preferred Stock that will be paid or distributed on such redemption or liquidation, dissolution or winding up, as the case may be.

(b)

Mechanics of Voluntary Conversion. The Voluntary Conversion of Series A-1 Preferred Stock shall be conducted in the following manner:

(i)

Holder's Delivery Requirements. To convert Series A-1 Preferred Stock into full shares of Common Stock on any date (the "Voluntary Conversion Date"), the holder thereof shall transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice"), to the Company.  As soon as practicable following such Voluntary Conversion Date, surrender to a common carrier for delivery to the Company the original certificates representing the shares of Series A-1 Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates") and the originally executed Conversion Notice.

5

(ii)

Company's Response. Upon receipt by the Company of a copy of the fully executed Conversion Notice, the Company or its designated transfer agent (the "Transfer Agent"), as applicable, shall within three (3) business days following the date of receipt by the Company of a copy of the fully executed Conversion Notice, issue and deliver to the Depository Trust Company ("DTC") account on the holder's behalf via the Deposit Withdrawal Agent Commission System ("DWAC") as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled. Notwithstanding the foregoing to the contrary, the Company or its Transfer Agent shall only be required to issue and deliver the shares to the DTC on a holder's behalf via DWAC if (i) such conversion is in connection with a sale, (ii) the shares of Common Stock may be issued without restrictive legends and (iii) the Company and the Transfer Agent are participating in DTC through the DWAC system.  If all of the conditions set forth in clauses (i), (ii) and (iii) above are not satisfied, the Company shall deliver physical certificates to the holder or its designee. If the number of shares of Preferred Stock represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of shares of Series A-1 Preferred Stock being converted, then the Company shall, as soon as practicable and in no event later than three (3) business days after receipt of the Preferred Stock Certificate(s) and at the Company's expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of shares of Series A-1 Preferred Stock not converted.

(iii)

Dispute Resolution. In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall cause its Transfer Agent to promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than two (2) business days after receipt of such holder's Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within two (2) business days of such disputed arithmetic calculation being submitted to the holder, then the Company shall within two (2) business days submit via facsimile the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company's independent, outside accountant (the "Accountant"). The Company shall cause the Accountant to perform the calculations and notify the Company and the holder of the results no later than five (5) business days from the time it receives the disputed calculations. The Accountant's calculation shall be binding upon all parties absent manifest error. The reasonable expenses of such Accountant in making such determination shall be paid by the Company, in the event the holder's calculation was correct, or by the holder, in the event the Company's calculation was correct, or equally by the Company and the holder in the event that neither the Company's or the holder's calculation was correct. The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designations shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).

(iv)

Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series A-1 Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

6

(v)

Company's Failure to Timely Convert.  If within five (5) business days of the Company's receipt of an executed copy of the Conversion Notice (so long as the applicable Preferred Stock Certificates and original Conversion Notice are received by the Company on or before such third business day), the Transfer Agent shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder's conversion of the Series A-1 Preferred Stock or to issue a new Preferred Stock Certificate representing the number of shares of Series A-1 Preferred Stock to which such holder is entitled pursuant to Section 5(b)(ii) (a "Conversion Failure"), in addition to all other available remedies which such holder may pursue hereunder and under the Series A-1 Convertible Preferred Stock Purchase Agreement (the "Series A-1 Purchase Agreement") among the Company and the initial holders of the Series A-1 Preferred Stock (including indemnification pursuant to Section 6 thereof), the Company shall pay additional damages to such holder on each business week after such fifth (5th) business day that such conversion is not timely effected (so long as the applicable Preferred Stock Certificates and original Conversion Notice are received by the Company on or before such fifth business day) in an amount equal 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such holder is entitled and, in the event the Company has failed to deliver a Preferred Stock Certificate to the holder on a timely basis pursuant to Section 5(b)(ii), the number of shares of Common Stock issuable upon conversion of the shares of Series A-1 Preferred Stock represented by such Preferred Stock Certificate, as of the last possible date which the Company could have issued such Preferred Stock Certificate to such holder without violating Section 5(b)(ii) and (B) the Closing Bid and Ask Price (as defined below) of the Common Stock on the last possible date which the Company could have issued such Common Stock and such Preferred Stock Certificate, as the case may be, to such holder without violating Section 5(b)(ii).  If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within seven (7) business days of the date incurred, then such payment shall bear interest at the rate of 1.0% per month (pro rated for partial months) until such payments are made. 

(vi)

Buy-In Rights.  In addition to any other rights available to the holders of Series A-1 Preferred Stock, if within three (3) business days of the Company's receipt of an executed copy of the Conversion Notice (so long as the applicable Preferred Stock Certificates and original Conversion Notice are received by the Company on or before such third business day), the Transfer Agent shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder's conversion of the Series A-1 Preferred Stock (a "Conversion Failure"), and if after such date the holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the holder of the shares of Common Stock issuable upon conversion of Series A-1 Preferred Stock which the holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (1) pay in cash to the holder the amount by which (x) the holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of Series A-1 Preferred Stock that the Company was required to deliver to the holder in connection with the conversion at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) deliver to the holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations hereunder.  For 

7

example, if the holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay to the holder $1,000. The holder shall provide the Company written notice indicating the amounts payable to the holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of the Series A-1 Preferred Stock as required pursuant to the terms hereof.

(c)

Mandatory Conversion.

(i)

Each share of Series A-1 Preferred Stock outstanding on the Mandatory Conversion Date (as defined below) shall, automatically and without any action on the part of the holder thereof, convert into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series A-1 Preferred Stock outstanding on the Mandatory Conversion Date divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date.

(ii)

As used herein, "Mandatory Conversion Date" shall be the first date that the Closing Bid and Ask Price (as defined below) of the Common Stock exceeds (A) $1.50 (as adjusted for stock splits, stock dividends, combinations and similar transactions) and (B) the value of the average daily trading volume for a period of ten (10) consecutive trading days equals or exceeds $1 million; provided that a registration statement covering the resale of the shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock is effective on the Mandatory Conversion Date and on each trading day of such ten (10) trading day period or the shares of Common Stock into which the Series A-1 Preferred Stock can be converted may be offered for sale to the public without any volume limitation pursuant to Rule 144 under the Securities Act of 1933, as amended. If on the Mandatory Conversion Date, a holder is prohibited from converting all of its shares of Series A-1 Preferred Stock as a result of the restrictions contained in Section 7 of this Certificate of Designations, such shares of Series A-1 Preferred Stock shall be exchanged for shares of a new series of preferred stock with preferences, rights and limitations substantially similar to those of the Series A-1 Preferred Stock. The Mandatory Conversion Date and the Voluntary Conversion Date collectively are referred to in this Certificate of Designations as the "Conversion Date."  Notwithstanding the foregoing to the contrary, the Company may effect a mandatory conversion pursuant to this Section 5(c) only if (A) a registration statement providing for the resale of the shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock is then in effect or such shares are freely tradeable without any volume limitation pursuant to Rule 144, (B) trading in the Common Stock shall not have been suspended by the Securities and Exchange Commission or the OTC Bulletin Board (or other exchange or market on which the Common Stock is trading), and (C) the Company is in material compliance with the terms and conditions of this Certificate of Designations, that certain Registration Rights Agreement, dated as of November 25, 2008, between the Company and the purchasers set forth therein, as amended, and that certain Note 

8

Exchange Agreement, dated as of March 16, 2009, by and between the Company and the purchasers set forth therein (collectively, the Transaction Documents”). 

(iii)

The term "Closing Bid and Ask Price" shall mean, for any security as of any date, the last average of the closing bid and ask price of such security on the OTC Bulletin Board or other principal exchange on which such security is traded as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid and ask prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid and Ask Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid and Ask Price of such security on such date shall be the fair market value as determined in good faith by the Board of Directors of the Company.

(iv)

On the Mandatory Conversion Date, the outstanding shares of Series A-1 Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its Transfer Agent; provided, however, that the Company shall not be obligated to issue the shares of Common Stock issuable upon conversion of any shares of Series A-1 Preferred Stock unless certificates evidencing such shares of Series A-1 Preferred Stock are either delivered to the Company or the holder notifies the Company that such certificates have been lost, stolen, or destroyed, and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. Upon the occurrence of the automatic conversion of the Series A-1 Preferred Stock pursuant to this Section 5, the holders of the Series A-1 Preferred Stock shall surrender the certificates representing the Series A-1 Preferred Stock for which the Mandatory Conversion Date has occurred to the Company and the Company shall cause its Transfer Agent to deliver the shares of Common Stock issuable upon such conversion (in the same manner set forth in Section 5(b)(ii)) to the holder promptly following the holder's delivery of the applicable Preferred Stock Certificates.

(d)

Conversion Price.

(i)

The term "Conversion Price" shall mean $0.75 per share, subject to adjustment under Section 5(e) hereof.

(ii)

Notwithstanding the foregoing to the contrary, if during any period (a "Black-out Period"), a holder of Series A-1 Preferred Stock is unable to trade any Common Stock issued or issuable upon conversion of the Series A-1 Preferred Stock immediately because the Company has informed such holder of Series A-1 Preferred Stock that an existing prospectus cannot be used at that time in the sale or transfer of such Common Stock (provided that such postponement, delay, suspension or fact that the prospectus cannot be used is not due to factors solely within the control of the holder of Series A-1 Preferred Stock or due to the Company exercising its rights under Section 3(n) of (A) the Registration Rights Agreement, dated as of March 31, 2006, between the Company and the purchasers set forth therein, (B) the Registration Rights Agreement, dated as of February 17, 2004, between the Company and the purchasers set forth therein, (C) the Registration Rights Agreement, dated as of December 17, 2002, between 

9

the Company and the purchasers set forth therein, or (D) the Registration Rights Agreement, dated as of November 25, 2008, as amended, between the Company and the purchasers set forth therein (each of the foregoing as may be amended from time to time, a "Registration Rights Agreement"), such holder of Series A-1 Preferred Stock shall have the option but not the obligation on any Conversion Date within ten (10) trading days following the expiration of the Black-out Period of using the Conversion Price applicable on such Conversion Date or any Conversion Price selected by such holder of Series A-1 Preferred Stock that would have been applicable had such Conversion Date been at any earlier time during the Black-out Period.

(e)

Adjustments of Conversion Price.

(i)

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

(ii)

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

(1)

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

(2)

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

provided, however, that no such adjustment shall be made if the holders of Series A-1 Preferred Stock simultaneously receive (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series A-1 Preferred Stock had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of Series A-1 Preferred Stock which are convertible, as of the date of such event, into such number of shares of Common Stock as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution.

(iii)

Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date 

10

for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series A-1 Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series A-1 Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series A-1 Preferred Stock; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.

(iv)

Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of the Series A-1 Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A-1 Preferred Stock shall have the right thereafter to convert such share of Series A-1 Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series A-1 Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

(v)

Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation where the holders of outstanding voting securities prior to such merger or consolidation do not own over 50% of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company's properties or assets to any other person (an "Organic Change") and the holder of the Series A-1 Preferred Stock does not elect to treat such event as a liquidation event pursuant to Section 4(b), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made if necessary and provision shall be made if necessary (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A-1 Preferred Stock shall have the right thereafter to convert such share of Series A-1 Preferred Stock into the kind and amount of shares of stock and other securities or property which such holder would have had the right to receive had such holder converted its 

11

shares of Series A-1 Preferred Stock immediately prior to the consummation of such Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5(e)(v) with respect to the rights of the holders of the Series A-1 Preferred Stock after the Organic Change to the end that the provisions of this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Series A-1 Preferred Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

(vi)

Adjustments for Issuance of Additional Shares of Common Stock.

(A)

In the event the Company, shall, at any time or from time to time, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 5(e) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (the "Additional Shares of Common Stock"), at a price per share less than the Conversion Price, or without consideration, the Conversion Price then in effect upon each such issuance shall be adjusted to that price  (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:

(1)

the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the then Conversion Price, and

(2)

the denominator of which shall be equal to the number of shares of Common Stock outstanding immediately after the issuance of such Additional Shares of Common Stock.

(B)

No adjustment of the number of shares of Common Stock shall be made under paragraph (A) of this Section 5(e)(vi) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Common Stock Equivalents (as defined below), if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefore) pursuant to Section 5(e)(vii).

(vii)

Issuance of Common Stock Equivalents. If the Company, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock ("Convertible Securities"), other than the Series A-1 Preferred Stock, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold (collectively, the "Common Stock Equivalents") and the aggregate of the price per share for which Additional Shares of Common Stock may be issuable thereafter pursuant to such Common Stock Equivalent, plus the consideration received by the Company for issuance of such Common Stock Equivalent divided by the number of 

12

shares of Common Stock issuable pursuant to such Common Stock Equivalent (the "Aggregate Per Common Share Price") shall be less than the Conversion Price, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended or adjusted shall make the Aggregate Per Common Share Price be less than Conversion Price in effect at the time of such amendment or adjustment, then the Conversion Price then in effect shall be adjusted pursuant to Section 5(e)(vi)(A) above assuming that all Additional Shares of Common Stock have been issued pursuant to the Convertible Securities or Common Stock Equivalents for a purchase price equal to the Aggregate Per Common Share Price. No adjustment of the Conversion Price shall be made under this subsection (vii) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefore, if any adjustment shall previously have been made to the exercise price of such warrants then in effect upon the issuance of such warrants or other rights pursuant to this subsection (vii). No adjustment shall be made to the Conversion Price upon the issuance of Common Stock pursuant to the exercise, conversion or exchange of any Convertible Security or Common Stock Equivalent where an adjustment to the Conversion Price was made as a result of the issuance or purchase of any Convertible Security or Common Stock Equivalent.

(viii)

Consideration for Stock. In case any shares of Common Stock or Convertible Securities other than the Series A-1 Preferred Stock, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold:

(1)

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

(2)

in the event of any consolidation or merger of the Company in which the Company is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Company shall be changed into or exchanged for the stock or other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Company for stock or other securities of any corporation, the Company shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation. If any such calculation results in adjustment of the applicable Conversion Price, or the number of shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock, the determination of the applicable Conversion Price or the number of shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock immediately prior to such merger, consolidation or sale, shall be made after giving effect to such adjustment of the number of shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock. In the 

13

event any consideration received by the Company for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board of Directors of the Company. In the event Common Stock is issued with other shares or securities or other assets of the Company for consideration which covers both, the consideration computed as provided in this Section 5(e)(viii) shall be allocated among such securities and assets as determined in good faith by the Board of Directors of the Company.

(ix)

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

(x)

Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment to the Conversion Price upon (i) the Company's issuance of any Additional Shares of Common Stock and warrants therefore in connection with a merger and/or acquisition, consolidation, sale or disposition of all or substantially all of the Company's assets; provided that the Conversion Price shall be adjusted in accordance with Section 5(e)(v), (ii) the Company's issuance of Additional Shares of Common Stock or warrants therefore in connection with strategic agreements (e.g., any issuances of securities to consultants or public relations consultants to the Company so long as such issuances do not in the aggregate exceed ten percent (10%) of the Company's issued and outstanding shares of Common Stock as of the Issuance Date) so long as such issuances are not for the purpose of raising capital, (iii) Common Stock or grants of options to purchase Common Stock pursuant to any stock option plans and employee stock purchase plans approved by the Company’s board of directors, so long as such issuances in the aggregate do not exceed the number of shares of Common Stock (or options to purchase such number of shares of Common Stock) issuable pursuant to such plans as they exist on the date hereof, (iv) any issuances of securities of Common Stock pursuant to Company 401(k) matches, (v) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date hereof (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the holders), (vi) the issuance of the Notes and the Warrants (as defined below), (vii) securities issued pursuant to a bona fide firm underwritten public offering of the Company’s securities, (viii) the payment of liquidated damages pursuant to a Registration Rights Agreement, and (ix) the issuance of common stock upon the exercise or conversion of any securities described in clauses (i) through (viii) above.  For purposes of this Certificate of Designations, (A) “Notes” shall mean collectively, each of the following, as the same may be amended from time to time: (1) the outstanding senior secured convertible promissory notes issued pursuant to those certain Note and Warrant Purchase Agreements dated as of March 31, 2006, April 12, 2006 and September 21, 2007 (collectively, the "Purchase Agreements”), by and among the Company and the purchasers listed therein, and (2) any additional senior secured convertible promissory notes issued from time to time as interest on the outstanding principal balance of the foregoing promissory notes; and (B) “Warrants” shall mean, collectively, each of the following, as the same may be amended from time to time: (1) the Company’s Series A warrants to purchase shares of Common Stock; (2) the Company’s Series A-2 warrants to purchase shares of Common Stock; (3) the Company’s Series A-3 warrants to 

14

purchase shares of Common Stock; and (4) the Company’s financial advisory warrants to purchase shares of Common Stock.

(f)

No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A-1 Preferred Stock against impairment.  In the event a holder shall elect to convert any shares of Series A-1 Preferred Stock as provided herein, the Company cannot refuse conversion (subject to the limitations set forth in Section 7 herein) based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless (i) an order from the Securities and Exchange Commission prohibiting such conversion or (ii) an injunction from a court, on notice, restraining and/or adjoining conversion of all or of said shares of Series A-1 Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in an amount equal to 100% of the Liquidation Preference Amount of the Series A-1 Preferred Stock such holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains judgment.  If the Company is the prevailing party in any legal action or other legal proceeding relating to the Conversion Rights of the holders of the Series A-1 Preferred Stock, then the Company shall be entitled to recover from the holders of Series A-1 Preferred Stock reasonable attorneys’ fees, costs and disbursements (in addition to any other relief to which the Company may be entitled).

(g)

Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series A-1 Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the holder of such affected Series A-1 Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series A-1 Preferred Stock. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

(h)

Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series A-1 Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

15

(i)

Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series A-1 Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series A-1 Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

(j)

Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series A-1 Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the average of the Closing Bid and Ask Prices of the Common Stock for the five (5) consecutive trading immediately preceding the Voluntary Conversion Date.

(k)

Reservation of Common Stock. The Company shall, so long as any shares of Series A-1 Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series A-1 Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series A-1 Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 100% of the number of shares of Common Stock for which the shares of Series A-1 Preferred Stock are at any time convertible. The initial number of shares of Common Stock reserved for conversions of the Series A-1 Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Series A-1 Preferred Stock based on the number of shares of Series A-1 Preferred Stock held by each holder of record at the time of issuance of the Series A-1 Preferred Stock or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's shares of Series A-1 Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any shares of Series A-1 Preferred Stock shall be allocated to the remaining holders of Series A-1 Preferred Stock, pro rata based on the number of shares of Series A-1 Preferred Stock then held by such holder.

(l)

Retirement of Series A-1 Preferred Stock. Conversion of Series A-1 Preferred Stock shall be deemed to have been effected on the applicable Conversion Date. Upon conversion of only a portion of the number of shares of Series A-1 Preferred Stock represented by a certificate surrendered for conversion, the Company shall issue and deliver to such holder at the expense of the Company, a new certificate covering the number of shares of Series A-1 

16

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

(m)

Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series A-1 Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

6.

No Preemptive Rights. Except as provided in Section 5 hereof, no holder of the Series A-1 Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.

7.

Conversion Restriction.  Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designations, at no time, other than in a bona fide Change of Control (as defined below) transaction, may a holder of shares of Series A-1 Preferred Stock convert shares of the Series A-1 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder and its affiliates at such time, the number of shares of Common Stock which would result in such holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series A-1 Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof)(a "Waiver Notice") that such holder would like to waive Section 7 of this Certificate of Designations with regard to any or all shares of Common Stock issuable upon conversion of Series A-1 Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series A-1 Preferred Stock referenced in the Waiver Notice provided.  In the event a holder is unable to fully convert its shares of Series A-1 Preferred Stock in connection with a conversion election following the delivery of a Company's Redemption Notice pursuant to Section 8(d) hereof due to the restrictions set forth in this Section 7, such holder may elect to receive Series D Convertible Preferred Stock of the Company in lieu of shares of Common Stock convertible into the number of shares of Common Stock that would have been delivered to such holder but for the limitations set forth in this Section 7.  The foregoing sentence shall not preclude a holder from waiving at any time its rights to limit its ownership to 9.99% of all of the Common Stock issued and outstanding at such time in accordance with this Section 7.

8.

Redemption.

17

(a)

Redemption Option Upon Change of Control. In addition to any other rights of the Company or the holders of Series A-1 Preferred Stock contained herein, simultaneous with the occurrence of a Change of Control (as defined below), the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series A-1 Preferred Stock in cash at a price per share of Series A-1 Preferred Stock equal to 100% of the Liquidation Preference Amount plus all accrued and unpaid dividends (the "Change of Control Redemption Price").  Notwithstanding the foregoing to the contrary, the Company may effect a redemption pursuant to this Section 8(a) only if the Company is in material compliance with the terms and conditions of this Certificate of Designations, the Series A-1 Purchase Agreement and the other Transaction Documents (as defined in the Series A-1 Purchase Agreement). 

(b)

"Change of Control".  A "Change of Control" shall be deemed to have occurred at such time as a third party not affiliated with the Company or any holders of the Series A-1 Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than 50% of the outstanding voting securities of the Company.

(c)

Mechanics of Redemption at Option of Company Upon Change of Control. At any time within ten (10) days prior to a Change of Control transaction, the Company may redeem, effective immediately prior to the consummation of such Change of Control, all of the holder's Series A-1 Preferred Stock then outstanding by delivering written notice thereof via facsimile and overnight courier ("Notice of Redemption at Option of Company Upon Change of Control") to each holder of Series A-1 Preferred Stock, which Notice of Redemption at Option of Company Upon Change of Control shall indicate (i) the number of shares of Series A-1 Preferred Stock that the Company is electing to redeem and (ii) the Change of Control Redemption Price, as calculated pursuant to Section 8(a) above.  The Change of Control Redemption Price shall be paid in cash in accordance with Section 8(a) of this Certificate of Designations. On or prior to the Change of Control, the holders of Series A-1 Preferred Stock shall surrender to the Company the certificate or certificates representing such shares, in the manner and at the place designated in the Notice of Redemption at Option of Company Upon Change of Control.  The Company shall deliver the Change of Control Redemption Price immediately prior to or simultaneously with the consummation of the Change of Control; provided that a holder's Preferred Stock Certificates shall have been so delivered to the Company (or an indemnification undertaking with respect to such Preferred Stock Certificates in the event of their loss, theft or destruction).  From and after the Change of Control transaction, unless there shall have been a default in payment of the Change of Control Redemption Price, all rights of the holders of Series A-1 Preferred Stock as a holder of such Series A-1 Preferred Stock (except the right to receive the Change of Control Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to any redeemed shares of Series A-1 Preferred Stock, and such shares shall not thereafter be transferred on the books of the Company or be deemed to be outstanding for any purpose whatsoever.  Notwithstanding the foregoing to the contrary, nothing contained herein shall limit a holder’s ability to convert its shares of Series A-1 Preferred Stock following the receipt of the Notice of Redemption at Option of Company Upon Change of Control and prior to the consummation of the Change of Control transaction.

(d)

Company's Redemption Option.  The Company may redeem all or a portion of the Series A-1 Preferred Stock outstanding upon five (5) business days prior written 

18

notice (the "Company's Redemption Notice") in cash at a price per share of Series A-1 Preferred Stock equal to 110% of the Liquidation Preference Amount plus all accrued and unpaid dividends  (the “Company’s Redemption Price”); provided, that if a holder has delivered a Conversion Notice to the Company for all or a portion of the shares of Series A-1 Preferred Stock, such shares of Series A-1 Preferred Stock designated to be redeemed may be converted by such holder. If a holder delivers a Conversion Notice but is prohibited from converting all of its shares of Series A-1 Preferred Stock as a result of the restrictions contained in Section 7 of this Certificate of Designations, such shares of Series A-1 Preferred Stock shall be exchanged for shares of a new series of preferred stock with preferences, rights and limitations substantially similar to those of the Series A-1 Preferred Stock. The Company's Redemption Notice shall state the date of redemption which date shall be five (5) business days after the Company has delivered the Company's Redemption Notice (the "Company's Redemption Date"), the Company's Redemption Price and the number of shares to be redeemed by the Company. The Company shall deliver the Company's Redemption Price to the holder(s) within five (5) business days after the Company has delivered the Company's Redemption Notice, provided, that if the holder(s) delivers a Conversion Notice before the Company's Redemption Date, then the portion of the Company's Redemption Price which would be paid to redeem the shares of Series A-1 Preferred Stock covered by such Conversion Notice shall be returned to the Company upon delivery of the Common Stock issuable in connection with such Conversion Notice to the holder(s). On the Redemption Date, the Company shall pay the Company's Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the holder(s) on a pro rata basis, provided, however, that upon receipt by the Company of the Preferred Stock Certificates to be redeemed pursuant to this Section 8(d), the Company shall, on the next business day following the date of receipt by the Company of such Preferred Stock Certificates, pay the Company's Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the holder(s) on a pro rata basis.  Notwithstanding the foregoing to the contrary, the Company may effect a redemption pursuant to this Section 8(d) only if (A) a registration statement providing for the resale of the shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock is then in effect or such shares can be resold pursuant to Rule 144 under the Securities Act of 1933, as amended, without any volume limitations, (B) trading in the Common Stock shall not have been suspended by the Securities and Exchange Commission or the OTC Bulletin Board (or other exchange or market on which the Common Stock is trading), (C) the Company is in material compliance with the terms and conditions of this Certificate of Designations, the Series A-1 Purchase Agreement and the other Transaction Documents (as defined in the Series A-1 Purchase Agreement), and (D) the Company is not in possession of any material non-public information.  Nothing contained herein shall limit a holder’s ability to convert its shares of Series A-1 Preferred Stock following the receipt of the Company’s Redemption Notice and prior to the Company's Redemption Date.

9.

Inability to Fully Convert.

(a)

Holder's Option if Company Cannot Fully Convert. If, upon the Company's receipt of a Conversion Notice, the Company cannot issue shares of Common Stock registered for resale under a registration statement for any reason (unless such registration statement is not then required to be effective pursuant to the Registration Rights Agreement), including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available or (y) is otherwise prohibited by applicable 

19

law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities from issuing all of the Common Stock which is to be issued to a holder of Series A-1 Preferred Stock pursuant to a Conversion Notice, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with respect to the unconverted Series A-1 Preferred Stock (other than unconverted Series A-1 Preferred Stock as a result of the restrictions contained in Sections 7 hereof), the holder, solely at such holder's option, can elect, within five (5) business days after receipt of notice from the Company thereof to:

(i)

require the Company to redeem from such holder those shares of Series A-1 Preferred Stock for which the Company is unable to issue Common Stock in accordance with such holder's Conversion Notice ("Mandatory Redemption") at a price per share equal to the Change of Control Redemption Price as of such Conversion Date (the "Mandatory Redemption Price"); provided that the Company shall have the sole option to pay the Mandatory Redemption Price in cash or shares of Common Stock.  The number of shares of Common Stock to be issued as the Mandatory Redemption Price shall be determined by dividing (i) the total amount of the Mandatory Redemption Price by (ii) the average Closing Bid and Ask Price of the Common Stock for the five (5) trading days immediately preceding the date such Mandatory Redemption Price is due;

(ii)

if the Company's inability to fully convert Series A-1 Preferred Stock is pursuant to Section 9(a)(y) above, require the Company to issue restricted shares of Common Stock in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above; 

(iii)

void its Conversion Notice and retain or have returned, as the case may be, the shares of Series A-1 Preferred Stock that were to be converted pursuant to such holder's Conversion Notice (provided that a holder's voiding its Conversion Notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice); or

(iv)

exercise its Buy-In rights pursuant to and in accordance with the terms and provisions of Section 5(b)(vi) hereof.

(b)

Mechanics of Fulfilling Holder's Election. The Company shall promptly send via facsimile to a holder of Series A-1 Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 9(a) above, a notice of the Company's inability to fully satisfy such holder's Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder's Conversion Notice, (ii) the number of Series A-1 Preferred Stock which cannot be converted and (iii) the applicable Mandatory Redemption Price. Such holder shall notify the Company of its election pursuant to Section 9(a) above by delivering written notice via facsimile to the Company ("Notice in Response to Inability to Convert").

20

(c)

Pro-rata Conversion and Redemption. In the event the Company receives a Conversion Notice from more than one holder of Series A-1 Preferred Stock on the same day and the Company can convert and redeem some, but not all, of the Series A-1 Preferred Stock pursuant to this Section 9, the Company shall convert and redeem from each holder of Series A-1 Preferred Stock electing to have Series A-1 Preferred Stock converted and redeemed at such time an amount equal to such holder's pro-rata amount (based on the number shares of Series A-1 Preferred Stock held by such holder relative to the number shares of Series A-1 Preferred Stock outstanding) of all shares of Series A-1 Preferred Stock being converted and redeemed at such time.

(d)

Payment of Redemption Price. If such holder shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the Mandatory Redemption Price to such holder within thirty (30) days of the Company's receipt of the holder's Notice in Response to Inability to Convert, provided that prior to the Company's receipt of the holder's Notice in Response to Inability to Convert the Company has not delivered a notice to such holder stating, to the satisfaction of the holder, that the event or condition resulting in the Mandatory Redemption has been cured and all Common Stock issuable to such holder in accordance with such holder's Conversion Notice can and will be delivered to the holder.  If the Company shall fail to pay the applicable Mandatory Redemption Price to such holder on a timely basis as described in this Section 9(d) (other than pursuant to a good faith dispute of the arithmetic calculation of the Mandatory Redemption Price), in addition to any remedy such holder of Series A-1 Preferred Stock may have under this Certificate of Designation, such unpaid amount shall bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full.  Until the full Mandatory Redemption Price is paid in full to such holder, such holder may (i) void the Mandatory Redemption with respect to those shares of Series A-1 Preferred Stock for which the full Mandatory Redemption Price has not been paid, (ii) receive back such shares of Series A-1 Preferred Stock, and (iii) require that the Conversion Price of such returned shares of Series A-1 Preferred Stock be adjusted to the lesser of (A) the Conversion Price and (B) the average Closing Bid and Ask Price during the five day period ending on the date the holder voided the Mandatory Redemption.

10.

Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose, or the written consent without a meeting, of the holders of not less than two-thirds (2/3rds) of the then outstanding shares of Series A-1 Preferred Stock, shall be required (a) for any change to this Certificate of Designations or the Company's Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series A-1 Preferred Stock or (b) for the issuance of additional shares of Series A-1 Preferred Stock.

11.

Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series A-1 Preferred Stock, and, in the case of loss, theft or destruction, of an indemnification undertaking by the holder to the Company (in form and substance satisfactory to the Company) and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to 

21

re-issue Preferred Stock Certificates if the holder contemporaneously requests the Company to convert such shares of Series A-1 Preferred Stock into Common Stock.

12.

Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series A-1 Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach, the holders of the Series A-1 Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach or the Series A-1 Preferred Stockholders' reasonable perception of a threatened breach by the Company of the provisions of this Certificate of Designations, without the necessity of showing economic loss and without any bond or other security being required.

13.

Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein.   This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series A-1 Preferred Stock and shall not be construed against any person as the drafter hereof.

14.

Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series A-1 Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

22

IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 16th day of March, 2009.

			
	 
	GLOWPOINT, INC.

	 
	 
	 

	 
	 
	 

	 
	By:

	/s/ MICHAEL BRANDOFINO

	 
	 
	Michael Brandofino

Chief Executive Officer

EXHIBIT I

GLOWPOINT, INC.

CONVERSION NOTICE

Reference is made to the Certificate of Designations, Preferences and Rights of the Series A-1 Preferred Stock of Glowpoint, Inc. (the "Certificate of Designations"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series A-1 Preferred Stock, par value $.0001 per share (the "Preferred Shares"), of Glowpoint, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $.0001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

												
	Date of Conversion:

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

									
	Number of Preferred Shares to be converted:

	 
	 
	 
	 
	 
	 
	 
	 

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

	 
	 
	 
	 
	 
	 

									
	Please confirm the following information:

	 
	 
	 
	 
	 
	 
	 
	 

												
	Conversion Price:

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

								
	Number of shares of Common Stock to be issued:

	 
	 
	 
	 
	 
	 
	 

						
	Number of shares of Common Stock beneficially owned or deemed

	 
	 
	 
	 
	 

	beneficially owned by the Holder on the Date of Conversion:

	 
	 
	 
	 
	 

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

		
	Issue to:

	 

	 
	 

	 
	 

		
	Facsimile Number:

	 

		
	Name of bank/broker due to receive the underlying Common Stock:

	 

									
	Bank/broker's four digit "DTC" participant number

	 
	 
	 
	 
	 
	 
	 

	(obtained from the receiving bank/broker): 

	 
	 
	 
	 
	 
	 
	 
	 

													
	Authorization:

	 

	 
	By:

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

	 
	Title:

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

									
	Dated:

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