Document:

Exhibit
      10.1

    

    VIOQUEST
      PHARMACEUTICALS, INC.

    

    2003
      Stock Option Plan

    

    (as
      amended as of January 12, 2006) 

    

    1. Purpose.
      The
      purpose of the 2003 Stock Option Plan (the “Plan”)
      of
      VioQuest Pharmaceuticals, Inc. (f/k/a Chiral Quest, Inc., the “Company”)
      is to
      increase shareholder value and to advance the interests of the Company by
      furnishing a variety of economic incentives (“Incentives”)
      designed to attract, retain and motivate employees, directors and consultants.
      Incentives may consist of opportunities to purchase or receive shares of Common
      Stock, $0.001 par value, of the Company (“Common
      Stock”),
      monetary payments or both on terms determined under this Plan.

    

    2. Administration.
      

    

    2.1 The
      Plan
      shall be administered by a committee of the Board of Directors of the Company
      (the “Committee”).
      The
      Committee shall consist of not less than two directors of the Company who shall
      be appointed from time to time by the board of directors of the Company. Each
      member of the Committee shall be a “non-employee director” within the meaning of
      Rule 16b-3 of the Exchange Act of 1934, as amended (together with the rules
      and
      regulations promulgated thereunder, the “Exchange
      Act”),
      and
      an “outside director” as defined in Section 162(m) of the Internal Revenue Code
      of 1986, as amended (the “Code”).
      The
      Committee shall have complete authority to determine all provisions of all
      Incentives awarded under the Plan (as consistent with the terms of the Plan),
      to
      interpret the Plan, and to make any other determination which it believes
      necessary and advisable for the proper administration of the Plan. The
      Committee’s decisions and matters relating to the Plan shall be final and
      conclusive on the Company and its participants. No member of the Committee
      will
      be liable for any action or determination made in good faith with respect to
      the
      Plan or any Incentives granted under the Plan. The Committee will also have
      the
      authority under the Plan to amend or modify the terms of any outstanding
      Incentives in any manner; provided, however, that the amended or modified terms
      are permitted by the Plan as then in effect and that any recipient on an
      Incentive adversely affected by such amended or modified terms has consented
      to
      such amendment or modification. No amendment or modification to an Incentive,
      however, whether pursuant to this Section 2 or any other provisions of the
      Plan,
      will be deemed to be a re-grant of such Incentive for purposes of this Plan.
      If
      at any time there is no Committee, then for purposes of the Plan the term
“Committee” shall mean the Company’s Board of Directors.

    

    2.2 In
      the
      event of (i) any reorganization, merger, consolidation, recapitalization,
      liquidation, reclassification, stock dividend, stock split, combination of
      shares, rights offering, extraordinary dividend or divestiture (including a
      spin-off) or any other similar change in corporate structure or shares,
      (ii) any purchase, acquisition, sale or disposition of a significant amount
      of assets or a significant business, (iii) any change in accounting
      principles or practices, or (iv) any other similar change, in each case
      with respect to the Company or any other entity whose performance is relevant
      to
      the grant or vesting of an Incentive, the Committee (or, if the Company is
      not
      the surviving corporation in any such transaction, the board of directors of
      the
      surviving corporation) may, without the consent of any affected participant,
      amend or modify the vesting criteria of any outstanding Incentive that is based
      in whole or in part on the financial performance of the Company (or any
      subsidiary or division thereof) or such other entity so as equitably to reflect
      such event, with the desired result that the criteria for evaluating such
      financial performance of the Company or such other entity will be substantially
      the same (in the sole discretion of the Committee or the board of directors
      of
      the surviving corporation) following such event as prior to such event;
      provided, however, that the amended or modified terms are permitted by the
      Plan
      as then in effect.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3. Eligible
      Participants.
      Employees of the Company or its subsidiaries (including officers and employees
      of the Company or its subsidiaries), directors and consultants, advisors or
      other independent contractors who provide services to the Company or its
      subsidiaries (including members of the Company’s scientific advisory board)
      shall become eligible to receive Incentives under the Plan when designated
      by
      the Committee. Participants may be designated individually or by groups or
      categories (for example, by pay grade) as the Committee deems appropriate.
      Participation by officers of the Company or its subsidiaries and any performance
      objectives relating to such officers must be approved by the Committee.
      Participation by others and any performance objectives relating to others may
      be
      approved by groups or categories (for example, by pay grade) and authority
      to
      designate participants who are not officers and to set or modify such targets
      may be delegated. 

     

    4. Types
      of Incentives.
      Incentives under the Plan may be granted in any one or a combination of the
      following forms: (a) incentive stock options and non-statutory stock options
      (Section 6); (b) stock appreciation rights (“SARs”)
      (Section 7); (c) stock awards (Section 8); (d) restricted stock (Section 8);
      and
      (e) performance shares (Section 9).

    

    5. Shares
      Subject to the Plan.

    

    5.1. Number
      of Shares.
      Subject
      to adjustment as provided in Section 11.6, the number of shares of Common Stock
      which may be issued under the Plan shall not exceed 6,500,000 shares of Common
      Stock. Shares of Common Stock that are issued under the Plan or that are subject
      to outstanding Incentives will be applied to reduce the maximum number of shares
      of Common Stock remaining available for issuance under the Plan. 

    

    5.2. Cancellation.
      To the
      extent that cash in lieu of shares of Common Stock is delivered upon the
      exercise of an SAR pursuant to Section 7.4, the Company shall be deemed, for
      purposes of applying the limitation on the number of shares, to have issued
      the
      greater of the number of shares of Common Stock which it was entitled to issue
      upon such exercise or on the exercise of any related option. In the event that
      a
      stock option or SAR granted hereunder expires or is terminated or canceled
      unexercised or unvested as to any shares of Common Stock, such shares may again
      be issued under the Plan either pursuant to stock options, SARs or otherwise.
      In
      the event that shares of Common Stock are issued as restricted stock or pursuant
      to a stock award and thereafter are forfeited or reacquired by the Company
      pursuant to rights reserved upon issuance thereof, such forfeited and reacquired
      shares may again be issued under the Plan, either as restricted stock, pursuant
      to stock awards or otherwise. The Committee may also determine to cancel, and
      agree to the cancellation of, stock options in order to make a participant
      eligible for the grant of a stock option at a lower price than the option to
      be
      canceled.

    

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    6. Stock
      Options.
      A stock
      option is a right to purchase shares of Common Stock from the Company. The
      Committee may designate whether an option is to be considered an incentive
      stock
      option or a non-statutory stock option. To the extent that any incentive stock
      option granted under the Plan ceases for any reason to qualify as an “incentive
      stock option” for purposes of Section 422 of the Code, such incentive stock
      option will continue to be outstanding for purposes of the Plan but will
      thereafter be deemed to be a non-statutory stock option. Each stock option
      granted by the Committee under this Plan shall be subject to the following
      terms
      and conditions:

    

    6.1. Price.
      The
      option price per share shall be determined by the Committee, subject to
      adjustment under Section 11.6.

    

    6.2. Number.
      The
      number of shares of Common Stock subject to the option shall be determined
      by
      the Committee, subject to adjustment as provided in Section 11.6. The number
      of
      shares of Common Stock subject to a stock option shall be reduced in the same
      proportion that the holder thereof exercises a SAR if any SAR is granted in
      conjunction with or related to the stock option. No individual may receive
      options to purchase more than 900,000 shares in any year.
      

    

    6.3. Duration
      and Time for Exercise.
      Subject
      to earlier termination as provided in Section 11.4, the term of each stock
      option shall be determined by the Committee but shall not exceed ten years
      and
      one day from the date of grant. Each stock option shall become exercisable
      at
      such time or times during its term as shall be determined by the Committee
      at
      the time of grant. The Committee may accelerate the exercisability of any stock
      option. Subject to the foregoing and with the approval of the Committee, all
      or
      any part of the shares of Common Stock with respect to which the right to
      purchase has accrued may be purchased by the Company at the time of such accrual
      or at any time or times thereafter during the term of the option.

    

    6.4. Manner
      of Exercise.
      Subject
      to the conditions contained in this Plan and in the agreement with the recipient
      evidencing such option, a stock option may be exercised, in whole or in part,
      by
      giving written notice to the Company, specifying the number of shares of Common
      Stock to be purchased and accompanied by the full purchase price for such
      shares. The exercise price shall be payable (a) in United States dollars upon
      exercise of the option and may be paid by cash; uncertified or certified check;
      bank draft; (b) at the discretion of the Committee, by delivery of shares of
      Common Stock that are already owned by the participant in payment of all or
      any
      part of the exercise price, which shares shall be valued for this purpose at
      the
      Fair Market Value on the date such option is exercised; or (c) at the discretion
      of the Committee, by instructing the Company to withhold from the shares of
      Common Stock issuable upon exercise of the stock option shares of Common Stock
      in payment of all or any part of the exercise price and/or any related
      withholding tax obligations, which shares shall be valued for this purpose
      at
      the Fair Market Value or in such other manner as may be authorized from time
      to
      time by the Committee. The shares of Common Stock delivered by the participant
      pursuant to Section 6.4(b) must have been held by the participant for a period
      of not less than six months prior to the exercise of the option, unless
      otherwise determined by the Committee. Prior to the issuance of shares of Common
      Stock upon the exercise of a stock option, a participant shall have no rights
      as
      a shareholder. Except as otherwise provided in the Plan, no adjustment will
      be
      made for dividends or distributions with respect to such stock options as to
      which there is a record date preceding the date the participant becomes the
      holder of record of such shares, except as the Committee may determine in its
      discretion.

    

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    6.5. Incentive
      Stock Options.
      Notwithstanding anything in the Plan to the contrary, the following additional
      provisions shall apply to the grant of stock options which are intended to
      qualify as Incentive Stock Options (as such term is defined in Section 422
      of
      the Code):

    

    (a) The
      aggregate Fair Market Value (determined as of the time the option is granted)
      of
      the shares of Common Stock with respect to which Incentive Stock Options are
      exercisable for the first time by any participant during any calendar year
      (under the Plan and any other incentive stock option plans of the Company or
      any
      subsidiary or parent corporation of the Company) shall not exceed $100,000.
      The
      determination will be made by taking incentive stock options into account in
      the
      order in which they were granted. 

    

    (b) Any
      Incentive Stock Option certificate authorized under the Plan shall contain
      such
      other provisions as the Committee shall deem advisable, but shall in all events
      be consistent with and contain all provisions required in order to qualify
      the
      options as Incentive Stock Options.

     

    (c) All
      Incentive Stock Options must be granted within ten years from the earlier of
      the
      date on which this Plan was adopted by board of directors or the date this
      Plan
      was approved by the Company’s shareholders. 

    

    (d) Unless
      sooner exercised, all Incentive Stock Options shall expire no later than 10
      years after the date of grant. No Incentive Stock Option may be exercisable
      after ten (10) years from its date of grant (five (5) years from its date of
      grant if, at the time the Incentive Stock Option is granted, the Participant
      owns, directly or indirectly, more than 10% of the total combined voting power
      of all classes of stock of the Company or any parent or subsidiary corporation
      of the Company).

    

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    (e) The
      exercise price for Incentive Stock Options shall be not less than 100% of the
      Fair Market Value of one share of Common Stock on the date of grant with respect
      to an Incentive Stock Option; provided that the exercise price shall be 110%
      of
      the Fair Market Value if, at the time the Incentive Stock Option is granted,
      the
      participant owns, directly or indirectly, more than 10% of the total combined
      voting power of all classes of stock of the Company or any parent or subsidiary
      corporation of the Company.

    

    7. Stock
      Appreciation Rights.
      An SAR
      is a right to receive, without payment to the Company, a number of shares of
      Common Stock, cash or any combination thereof, the amount of which is determined
      pursuant to the formula set forth in Section 7.4. An SAR may be granted (a)
      with
      respect to any stock option granted under this Plan, either concurrently with
      the grant of such stock option or at such later time as determined by the
      Committee (as to all or any portion of the shares of Common Stock subject to
      the
      stock option), or (b) alone, without reference to any related stock option.
      Each
      SAR granted by the Committee under this Plan shall be subject to the following
      terms and conditions:

    

    7.1. Number;
      Exercise Price.
      Each
      SAR granted to any participant shall relate to such number of shares of Common
      Stock as shall be determined by the Committee, subject to adjustment as provided
      in Section 11.6. In the case of an SAR granted with respect to a stock option,
      the number of shares of Common Stock to which the SAR pertains shall be reduced
      in the same proportion that the holder of the option exercises the related
      stock
      option. The exercise price of an SAR will be determined by the Committee, in
      its
      discretion, at the date of grant but may not be less than 100% of the Fair
      Market Value of one share of Common Stock on the date of grant.

    

    7.2. Duration.
      Subject
      to earlier termination as provided in Section 11.4, the term of each SAR shall
      be determined by the Committee but shall not exceed ten years and one day from
      the date of grant. Unless otherwise provided by the Committee, each SAR shall
      become exercisable at such time or times, to such extent and upon such
      conditions as the stock option, if any, to which it relates is exercisable.
      The
      Committee may in its discretion accelerate the exercisability of any
      SAR.

    

    7.3. Exercise.
      An SAR
      may be exercised, in whole or in part, by giving written notice to the Company,
      specifying the number of SARs which the holder wishes to exercise. Upon receipt
      of such written notice, the Company shall, within 90 days thereafter, deliver
      to
      the exercising holder certificates for the shares of Common Stock or cash or
      both, as determined by the Committee, to which the holder is entitled pursuant
      to Section 7.4.

    7.4. Payment.
      Subject
      to the right of the Committee to deliver cash in lieu of shares of Common Stock
      (which, as it pertains to officers and directors of the Company, shall comply
      with all requirements of the Exchange Act), the number of shares of Common
      Stock
      which shall be issuable upon the exercise of an SAR shall be determined by
      dividing:

    

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    (a) the
      number of shares of Common Stock as to which the SAR is exercised multiplied
      by
      the amount of the appreciation in such shares (for this purpose, the
“appreciation” shall be the amount by which the Fair Market Value of the shares
      of Common Stock subject to the SAR on the exercise date exceeds (1) in the
      case
      of an SAR related to a stock option, the exercise price of the shares of Common
      Stock under the stock option or (2) in the case of an SAR granted alone, without
      reference to a related stock option, an amount which shall be determined by
      the
      Committee at the time of grant, subject to adjustment under Section 11.6);
      by

    

    (b) the
      Fair
      Market Value of a share of Common Stock on the exercise date.

    

    In
      lieu
      of issuing shares of Common Stock upon the exercise of a SAR, the Committee
      may
      elect to pay the holder of the SAR cash equal to the Fair Market Value on the
      exercise date of any or all of the shares which would otherwise be issuable.
      No
      fractional shares of Common Stock shall be issued upon the exercise of an SAR;
      instead, the holder of the SAR shall be entitled to receive a cash adjustment
      equal to the same fraction of the Fair Market Value of a share of Common Stock
      on the exercise date or to purchase the portion necessary to make a whole share
      at its Fair Market Value on the date of exercise.

    

    8. Stock
      Awards and Restricted Stock.
      A stock
      award consists of the transfer by the Company to a participant of shares of
      Common Stock, without other payment therefor, as additional compensation for
      services to the Company. The participant receiving a stock award will have
      all
      voting, dividend, liquidation and other rights with respect to the shares of
      Common Stock issued to a participant as a stock award under this Section 8
      upon
      the participant becoming the holder of record of such shares. A share of
      restricted stock consists of shares of Common Stock which are sold or
      transferred by the Company to a participant at a price determined by the
      Committee (which price shall be at least equal to the minimum price required
      by
      applicable law for the issuance of a share of Common Stock) and subject to
      restrictions on their sale or other transfer by the participant, which
      restrictions and conditions may be determined by the Committee as long as such
      restrictions and conditions are not inconsistent with the terms of the Plan.
      The
      transfer of Common Stock pursuant to stock awards and the transfer and sale
      of
      restricted stock shall be subject to the following terms and
      conditions:

    

    8.1. Number
      of Shares.
      The
      number of shares to be transferred or sold by the Company to a participant
      pursuant to a stock award or as restricted stock shall be determined by the
      Committee.

    

    8.2. Sale
      Price.
      The
      Committee shall determine the price, if any, at which shares of restricted
      stock
      shall be sold or granted to a participant, which may vary from time to time
      and
      among participants and which may be below the Fair Market Value of such shares
      of Common Stock at the date of sale.

    

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    8.3. Restrictions.
      All
      shares of restricted stock transferred or sold hereunder shall be subject to
      such restrictions as the Committee may determine, including, without limitation
      any or all of the following:

    

    (a) a
      prohibition against the sale, transfer, pledge or other encumbrance of the
      shares of restricted stock, such prohibition to lapse at such time or times
      as
      the Committee shall determine (whether in annual or more frequent installments,
      at the time of the death, disability or retirement of the holder of such shares,
      or otherwise);

    

    (b) a
      requirement that the holder of shares of restricted stock forfeit, or (in the
      case of shares sold to a participant) resell back to the Company at his or
      her
      cost, all or a part of such shares in the event of termination of his or her
      employment or consulting engagement during any period in which such shares
      are
      subject to restrictions; or

    

    (c) such
      other conditions or restrictions as the Committee may deem
      advisable.

    

    8.4. Escrow.
      In
      order to enforce the restrictions imposed by the Committee pursuant to Section
      8.3, the participant receiving restricted stock shall enter into an agreement
      with the Company setting forth the conditions of the grant. Shares of restricted
      stock shall be registered in the name of the participant and deposited, together
      with a stock power endorsed in blank, with the Company. Each such certificate
      shall bear a legend in substantially the following form:

    

    The
      transferability of this certificate and the shares of Common Stock represented
      by it are subject to the terms and conditions (including conditions of
      forfeiture) contained in the 2003 Stock Option Plan of VioQuest Pharmaceuticals,
      Inc., (the “Company”), and an agreement entered into between the registered
      owner and the Company. A copy of the 2003 Stock Option Plan and the agreement
      is
      on file in the office of the secretary of the Company.

    

    8.5. End
      of
      Restrictions.
      Subject
      to Section 11.5, at the end of any time period during which the shares of
      restricted stock are subject to forfeiture and restrictions on transfer, such
      shares will be delivered free of all restrictions to the participant or to
      the
      participant’s legal representative, beneficiary or heir.

    8.6. Shareholder.
      Subject
      to the terms and conditions of the Plan, each participant receiving restricted
      stock shall have all the rights of a shareholder with respect to shares of
      stock
      during any period in which such shares are subject to forfeiture and
      restrictions on transfer, including without limitation, the right to vote such
      shares. Dividends paid in cash or property other than Common Stock with respect
      to shares of restricted stock shall be paid to the participant currently. Unless
      the Committee determines otherwise in its sole discretion, any dividends or
      distributions (including regular quarterly cash dividends) paid with respect
      to
      shares of Common Stock subject to the restrictions set forth above will be
      subject to the same restrictions as the shares to which such dividends or
      distributions relate. In the event the Committee determines not to pay dividends
      or distributions currently, the Committee will determine in its sole discretion
      whether any interest will be paid on such dividends or distributions. In
      addition, the Committee in its sole discretion may require such dividends and
      distributions to be reinvested (and in such case the participant consents to
      such reinvestment) in shares of Common Stock that will be subject to the same
      restrictions as the shares to which such dividends or distributions
      relate.

    

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    9. Performance
      Shares.
      A
      performance share consists of an award which shall be paid in shares of Common
      Stock, as described below. The grant of a performance share shall be subject
      to
      such terms and conditions as the Committee deems appropriate, including the
      following:

    

    9.1. Performance
      Objectives.
      Each
      performance share will be subject to performance objectives for the Company
      or
      one of its operating units to be achieved by the participant before the end
      of a
      specified period. The number of performance shares granted shall be determined
      by the Committee and may be subject to such terms and conditions, as the
      Committee shall determine. If the performance objectives are achieved, each
      participant will be paid in shares of Common Stock or cash as determined by
      the
      Committee. If such objectives are not met, each grant of performance shares
      may
      provide for lesser payments in accordance with formulas established in the
      award.

    

    9.2. Not
      Shareholder.
      The
      grant of performance shares to a participant shall not create any rights in
      such
      participant as a shareholder of the Company, until the payment of shares of
      Common Stock with respect to an award.

    

    9.3. No
      Adjustments.
      No
      adjustment shall be made in performance shares granted on account of cash
      dividends which may be paid or other rights which may be issued to the holders
      of Common Stock prior to the end of any period for which performance objectives
      were established.

    

    9.4. Expiration
      of Performance Share.
      If any
      participant’s employment or consulting engagement with the Company is terminated
      for any reason other than normal retirement, death or disability prior to the
      achievement of the participant’s stated performance objectives, all the
      participant’s rights on the performance shares shall expire and terminate unless
      otherwise determined by the Committee. In the event of termination of employment
      or consulting by reason of death, disability, or normal retirement, the
      Committee, in its own discretion may determine what portions, if any, of the
      performance shares should be paid to the participant.

    

    10. Change
      of Control.

    

    10.1 Change
      in Control.
      For
      purposes of this Section 10, a “Change
      in Control”
of
      the
      Company will mean the following:

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (a) the
      sale,
      lease, exchange or other transfer, directly or indirectly, of substantially
      all
      of the assets of the Company (in one transaction or in a series of related
      transactions) to a person or entity that is not controlled by the Company;
      

     

    (b) the
      approval by the shareholders of the Company of any plan or proposal for the
      liquidation or dissolution of the Company;

     

    (c) any
      person becomes after the effective date of the Plan the “beneficial owner” (as
      defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (i)
      20% or more, but not 50% or more, of the combined voting power of the Company’s
      outstanding securities ordinarily having the right to vote at elections of
      directors, unless the transaction resulting in such ownership has been approved
      in advance by the Continuing Directors (as defined below), or (ii) 50% or more
      of the combined voting power of the Company’s outstanding securities ordinarily
      having the right to vote at elections of directors (regardless of any approval
      by the Continuing Directors); provided that a traditional institution or venture
      capital financing transaction shall be excluded from this
      definition;

     

    (d) a
      merger
      or consolidation to which the Company is a party if the shareholders of the
      Company immediately prior to effective date of such merger or consolidation
      have
“beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act),
      immediately following the effective date of such merger or consolidation, of
      securities of the surviving corporation representing (i) 50% or more, but less
      than 80%, of the combined voting power of the surviving corporation’s then
      outstanding securities ordinarily having the right to vote at elections of
      directors, unless such merger or consolidation has been approved in advance
      by
      the Continuing Directors, or (ii) less than 50% of the combined voting
      power of the surviving corporation’s then outstanding securities ordinarily
      having the right to vote at elections of directors (regardless of any approval
      by the Continuing Directors); or

     

    (e) after
      the
      date the Company’s securities are first sold in a registered public offering,
      the Continuing Directors cease for any reason to constitute at least a majority
      of the Board. 

     

    10.2 Continuing
      Directors.
      For
      purposes of this Section 10, “Continuing
      Directors”
of
      the
      Company will mean any individuals who are members of the Board on the effective
      date of the Plan and any individual who subsequently becomes a member of the
      Board whose election, or nomination for election by the Company’s shareholders,
      was approved by a vote of at least a majority of the Continuing Directors
      (either by specific vote or by approval of the Company’s proxy statement in
      which such individual is named as a nominee for director without objection
      to
      such nomination).

     

    10.3 Acceleration
      of Incentives.
      Without
      limiting the authority of the Committee under the Plan, if a Change in Control
      of the Company occurs whereby the acquiring entity or successor to the Company
      does not assume the Incentives or replace them with substantially equivalent
      incentive awards, then, unless otherwise provided by the Committee in its sole
      discretion in the agreement evidencing an Incentive at the time of grant, then
      as of the date of the Change of Control (a) all outstanding options and SARs
      will vest and will become immediately exercisable in full and will remain
      exercisable for the remainder of their terms, regardless of whether the
      participant to whom such options or SARs have been granted remains in the employ
      or service of the Company or any subsidiary of the Company or any acquiring
      entity or successor to the Company; (b) the restrictions on all shares of
      restricted stock awards shall lapse immediately; and (c) all performance shares
      shall be deemed to be met and payment made immediately.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    10.4 Cash
      Payment for Options.
      If a
      Change in Control of the Company occurs, then the Committee, if approved by
      the
      Committee in its sole discretion either in an agreement evidencing an option
      at
      the time of grant or at any time after the grant of an option, and without
      the
      consent of any participant affected thereby, may determine that:

     

    (a) some
      or
      all participants holding outstanding options will receive, with respect to
      some
      or all of the shares of Common Stock subject to such options, as of the
      effective date of any such Change in Control of the Company, cash in an amount
      equal to the excess of the Fair Market Value of such shares immediately prior
      to
      the effective date of such Change in Control of the Company over the exercise
      price per share of such options; and

     

    (b) any
      options as to which, as of the effective date of any such Change in Control,
      the
      Fair Market Value of the shares of Common Stock subject to such options is
      less
      than or equal to the exercise price per share of such options, shall terminate
      as of the effective date of any such Change in Control.

     

    
      	 	
              If
                the Committee makes a determination as set forth in subparagraph
                (a) of
                this Section 10.4, then as of the effective date of any such Change
                in
                Control of the Company such options will terminate as to such shares
                and
                the participants formerly holding such options will only have the
                right to
                receive such cash payment(s). If the Committee makes a determination
                as
                set forth in subparagraph (b) of this Section 10.4, then as of the
                effective date of any such Change in Control of the Company such
                options
                will terminate, become void and expire as to all unexercised shares
                of
                Common Stock subject to such options on such date, and the participants
                formerly holding such options will have no further rights with respect
                to
                such options.

            

    

    

    11. General.

    

    11.1. Effective
      Date.
      The
      Plan will become effective upon approval by the Company’s board of directors.

    

    11.2. Duration.
      The
      Plan shall remain in effect until all Incentives granted under the Plan have
      either been satisfied by the issuance of shares of Common Stock or the payment
      of cash or been terminated under the terms of the Plan and all restrictions
      imposed on shares of Common Stock in connection with their issuance under the
      Plan have lapsed. No Incentives may be granted under the Plan after the tenth
      anniversary of the date the Plan is approved by the shareholders of the
      Company.

    

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    11.3. Non-transferability
      of Incentives.
      Except,
      in the event of the holder’s death, by will or the laws of descent and
      distribution to the limited extent provided in the Plan or the Incentive, unless
      approved by the Committee, no stock option, SAR, restricted stock or performance
      award may be transferred, pledged or assigned by the holder thereof, either
      voluntarily or involuntarily, directly or indirectly, by operation of law or
      otherwise, and the Company shall not be required to recognize any attempted
      assignment of such rights by any participant. During a participant’s lifetime,
      an Incentive may be exercised only by him or her or by his or her guardian
      or
      legal representative.

    

    11.4. Effect
      of Termination or Death.
      In the
      event that a participant ceases to be an employee of or consultant to the
      Company, or the participants other service with the Company is terminated,
      for
      any reason, including death, any Incentives may be exercised or shall expire
      at
      such times as may be determined by the Committee in its sole discretion in
      the
      agreement evidencing an Incentive. Notwithstanding the other provisions of
      this
      Section 10.4, upon a participant’s termination of employment or other
      service with the Company and all subsidiaries, the Committee may, in its sole
      discretion (which may be exercised at any time on or after the date of grant,
      including following such termination), cause options and SARs (or any part
      thereof) then held by such participant to become or continue to become
      exercisable and/or remain exercisable following such termination of employment
      or service and Restricted Stock Awards, Performance Shares and Stock Awards
      then
      held by such participant to vest and/or continue to vest or become free of
      transfer restrictions, as the case may be, following such termination of
      employment or service, in each case in the manner determined by the Committee;
      provided, however, that no Incentive may remain exercisable or continue to
      vest
      beyond its expiration date. Any Incentive Stock Option that remains unexercised
      more than one (1) year following termination of employment by reason of death
      or
      disability or more than three (3) months following termination for any reason
      other than death or disability will thereafter be deemed to be a Non-Statutory
      Stock Option. 

     

    11.5. Additional
      Conditions.
      Notwithstanding anything in this Plan to the contrary: (a) the Company may,
      if
      it shall determine it necessary or desirable for any reason, at the time of
      award of any Incentive or the issuance of any shares of Common Stock pursuant
      to
      any Incentive, require the recipient of the Incentive, as a condition to the
      receipt thereof or to the receipt of shares of Common Stock issued pursuant
      thereto, to deliver to the Company a written representation of present intention
      to acquire the Incentive or the shares of Common Stock issued pursuant thereto
      for his or her own account for investment and not for distribution; and (b)
      if
      at any time the Company further determines, in its sole discretion, that the
      listing, registration or qualification (or any updating of any such document)
      of
      any Incentive or the shares of Common Stock issuable pursuant thereto is
      necessary on any securities exchange or under any federal or state securities
      or
      blue sky law, or that the consent or approval of any governmental regulatory
      body is necessary or desirable as a condition of, or in connection with the
      award of any Incentive, the issuance of shares of Common Stock pursuant thereto,
      or the removal of any restrictions imposed on such shares, such Incentive shall
      not be awarded or such shares of Common Stock shall not be issued or such
      restrictions shall not be removed, as the case may be, in whole or in part,
      unless such listing, registration, qualification, consent or approval shall
      have
      been effected or obtained free of any conditions not acceptable to the Company.
      Notwithstanding any other provision of the Plan or any agreements entered into
      pursuant to the Plan, the Company will not be required to issue any shares
      of
      Common Stock under this Plan, and a participant may not sell, assign, transfer
      or otherwise dispose of shares of Common Stock issued pursuant to any Incentives
      granted under the Plan, unless (a) there is in effect with respect to such
      shares a registration statement under the Securities Act of 1933, as amended
      (the “Securities
      Act”),
      and
      any applicable state or foreign securities laws or an exemption from such
      registration under the Securities Act and applicable state or foreign securities
      laws, and (b) there has been obtained any other consent, approval or permit
      from any other regulatory body which the Committee, in its sole discretion,
      deems necessary or advisable. The Company may condition such issuance, sale
      or
      transfer upon the receipt of any representations or agreements from the parties
      involved, and the placement of any legends on certificates representing shares
      of Common Stock, as may be deemed necessary or advisable by the Company in
      order
      to comply with such securities law or other restrictions.

    

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    11.6. Adjustment.
      In the
      event of any merger, consolidation or reorganization of the Company with any
      other corporation or corporations, there shall be substituted for each of the
      shares of Common Stock then subject to the Plan, including shares subject to
      restrictions, options, or achievement of performance share objectives, the
      number and kind of shares of stock or other securities to which the holders
      of
      the shares of Common Stock will be entitled pursuant to the transaction. In
      the
      event of any recapitalization, reclassification, stock dividend, stock split,
      combination of shares or other similar change in the corporate structure of
      the
      Company or shares of the Company, the exercise price of an outstanding Incentive
      and the number of shares of Common Stock then subject to the Plan, including
      shares subject to restrictions, options or achievements of performance shares,
      shall be adjusted in proportion to the change in outstanding shares of Common
      Stock in order to prevent dilution or enlargement of the rights of the
      participants. In the event of any such adjustments, the purchase price of any
      option, the performance objectives of any Incentive, and the shares of Common
      Stock issuable pursuant to any Incentive shall be adjusted as and to the extent
      appropriate, in the discretion of the Committee, to provide participants with
      the same relative rights before and after such adjustment.

    

    11.7. Incentive
      Plans and Agreements.
      Except
      in the case of stock awards or cash awards, the terms of each Incentive shall
      be
      stated in a plan or agreement approved by the Committee. The Committee may
      also
      determine to enter into agreements with holders of options to reclassify or
      convert certain outstanding options, within the terms of the Plan, as Incentive
      Stock Options or as non-statutory stock options and in order to eliminate SARs
      with respect to all or part of such options and any other previously issued
      options.

    

    11.8. Withholding.

    

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    (a) The
      Company shall have the right to (i) withhold and deduct from any payments made
      under the Plan or from future wages of the participant (or from other amounts
      that may be due and owing to the participant from the Company or a subsidiary
      of
      the Company), or make other arrangements for the collection of, all legally
      required amounts necessary to satisfy any and all foreign, federal, state and
      local withholding and employment-related tax requirements attributable to an
      Incentive, or (ii) require the participant promptly to remit the amount of
      such
      withholding to the Company before taking any action, including issuing any
      shares of Common Stock, with respect to an Incentive. At any time when a
      participant is required to pay to the Company an amount required to be withheld
      under applicable income tax laws in connection with a distribution of Common
      Stock or upon exercise of an option or SAR, the participant may satisfy this
      obligation in whole or in part by electing (the “Election”)
      to
      have the Company withhold from the distribution shares of Common Stock having
      a
      value up to the amount required to be withheld. The value of the shares to
      be
      withheld shall be based on the Fair Market Value of the Common Stock on the
      date
      that the amount of tax to be withheld shall be determined (“Tax
      Date”).

    

    (b) Each
      Election must be made prior to the Tax Date. The Committee may disapprove of
      any
      Election, may suspend or terminate the right to make Elections, or may provide
      with respect to any Incentive that the right to make Elections shall not apply
      to such Incentive. An Election is irrevocable.

     

    (c) If
      a
      participant is an officer or director of the Company within the meaning of
      Section 16 of the Exchange Act, then an Election is subject to the following
      additional restrictions:

    

    (1) No
      Election shall be effective for a Tax Date which occurs within six months of
      the
      grant or exercise of the award, except that this limitation shall not apply
      in
      the event death or disability of the participant occurs prior to the expiration
      of the six-month period.

    

    (2) The
      Election must be made either six months prior to the Tax Date or must be made
      during a period beginning on the third business day following the date of
      release for publication of the Company’s quarterly or annual summary statements
      of sales and earnings and ending on the twelfth business day following such
      date.

    

    11.9. No
      Continued Employment, Engagement or Right to Corporate Assets.
      No
      participant under the Plan shall have any right, because of his or her
      participation, to continue in the employ of the Company for any period of time
      or to any right to continue his or her present or any other rate of
      compensation. Nothing contained in the Plan shall be construed as giving an
      employee, a consultant, such persons’ beneficiaries or any other person any
      equity or interests of any kind in the assets of the Company or creating a
      trust
      of any kind or a fiduciary relationship of any kind between the Company and
      any
      such person.

    

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    11.10. Deferral
      Permitted.
      Payment
      of cash or distribution of any shares of Common Stock to which a participant
      is
      entitled under any Incentive shall be made as provided in the Incentive. Payment
      may be deferred at the option of the participant if provided in the
      Incentive.

    

    11.11. Amendment
      of the Plan.
      The
      Board may amend, suspend or discontinue the Plan at any time; provided, however,
      that no amendments to the Plan will be effective without approval of the
      shareholders of the Company if shareholder approval of the amendment is then
      required pursuant to Section 422 of the Code or the rules of any stock exchange
      or Nasdaq or similar regulatory body. No termination, suspension or amendment
      of
      the Plan may adversely affect any outstanding Incentive without the consent
      of
      the affected participant; provided, however, that this sentence will not impair
      the right of the Committee to take whatever action it deems appropriate under
      Section 11.6 of the Plan. 

     

    11.12. Definition
      of Fair Market Value.
      For
      purposes of this Plan, the “Fair
      Market Value”
of
      a
      share of Common Stock at a specified date shall, unless otherwise expressly
      provided in this Plan, be the amount which the Committee or the board of
      directors of the Company determines in good faith in the exercise of its
      reasonable discretion to be 100% of the fair market value of such a share as
      of
      the date in question; provided, however, that notwithstanding the foregoing,
      if
      such shares are listed on a U.S. securities exchange or are quoted on the Nasdaq
      National Market System or Nasdaq SmallCap Stock Market (“Nasdaq”),
      then
      Fair Market Value shall be determined by reference to the last sale price of
      a
      share of Common Stock on such U.S. securities exchange or Nasdaq on the
      applicable date. If such U.S. securities exchange or Nasdaq is closed for
      trading on such date, or if the Common Stock does not trade on such date, then
      the last sale price used shall be the one on the date the Common Stock last
      traded on such U.S. securities exchange or Nasdaq.

    

    11.13 Breach
      of Confidentiality, Assignment of Inventions, or Non-Compete
      Agreements.
      Notwithstanding anything in the Plan to the contrary, in the event that a
      participant materially breaches the terms of any confidentiality, assignment
      of
      inventions, or non-compete agreement entered into with the Company or any
      subsidiary of the Company, whether such breach occurs before or after
      termination of such participant’s employment or other service with the Company
      or any subsidiary, the Committee in its sole discretion may immediately
      terminate all rights of the participant under the Plan and any agreements
      evidencing an Incentive then held by the participant without notice of any
      kind.

    

    11.13 Governing
      Law.
      The
      validity, construction, interpretation, administration and effect of the Plan
      and any rules, regulations and actions relating to the Plan will be governed
      by
      and construed exclusively in accordance with the laws of the State of Minnesota,
      notwithstanding the conflicts of laws principles of any
      jurisdictions.

    

    11.14 Successors
      and Assigns.
      The
      Plan will be binding upon and inure to the benefit of the successors and
      permitted assigns of the Company and the participants in the Plan.

    

    
      
        
        

      

      -14-EXHIBIT
      4.1

     

    LOUNSBERRY
      HOLDINGS I, INC.

     

    Certificate
      of Designation

     

    of

     

    Series
      A Convertible Preferred Stock

     

    Pursuant
      to Section 151(g) of the Delaware General Corporation Law, Lounsberry Holdings
      I, Inc., a Delaware corporation (the “Corporation”), does hereby certify as
      follows:

     

    1.    The
      following resolution was duly adopted by the Board of Directors of the
      Corporation on  January 10, 2006:

     

    RESOLVED,
      that pursuant to Article 5 of the Certificate of Incorporation of this
      Corporation, there be created a series of the Preferred Stock, par value $.0001
      per share (“Preferred Stock”), consisting of eight million (8,000,000) shares,
      to be designated as the Series A Convertible Preferred Stock (“Series A
      Preferred Stock”), and that the holders of shares the Series A Preferred Stock
      shall have the rights, preferences and privileges set forth in Statement of
      Designations set forth in Exhibit A to this Resolution; and it was
      further

     

    RESOLVED,
      that the officers of this Corporation be, and they hereby are, authorized and
      empowered to execute and file with the Secretary of State of the State of
      Delaware, a certificate of designation setting forth the rights, preferences
      and
      privileges of the holders of the Series A Preferred Stock.

     

    2.    Set
      forth
      as Exhibit A to this Certificate of Designation is a true and correct copy
      of
      the Statement of Designations relating to the Series A Preferred
      Stock.

     

    IN
      WITNESS WHEREOF, Lounsberry Holdings I, Inc. has caused this certificate to
      be
      signed by its president  this 10th
      day of
      January, 2006.

     

    

     

    By:

      
        

      

    

    Paul
      B.
      Silverman, President

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
      A

     

    STATEMENT
      OF DESIGNATIONS

     

    Section
      1.
      Definitions.
      Capitalized terms used and not otherwise defined herein that are defined in
      the
      Purchase Agreement (as defined below) shall have the meanings given such terms
      in the Purchase Agreement. For the purposes hereof, the following terms shall
      have the following meanings:

     

    “Bankruptcy
      Event”
means
      any of the following events: (a) the Company or any Significant Subsidiary
      (as
      such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences a
      case
      or other proceeding under any bankruptcy, reorganization, arrangement,
      adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
      or
      similar law of any jurisdiction relating to the Company or any Significant
      Subsidiary thereof; (b) there is commenced against the Company or any
      Significant Subsidiary thereof any such case or proceeding that is not stayed
      or
      dismissed within 90 days after commencement; (c) the Company or any Significant
      Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
      or other order approving any such case or proceeding is entered; (d) the Company
      or any Significant Subsidiary thereof suffers any appointment of any custodian
      or the like for it or any substantial part of its property that is not
      discharged or stayed within 90 days; (e) the Company or any Significant
      Subsidiary thereof makes a general assignment for the benefit of creditors;
      (f)
      the Company or any Significant Subsidiary thereof calls a meeting of its
      creditors with a view to arranging a composition, adjustment or restructuring
      of
      its debts; or (g) the Company or any Significant Subsidiary thereof, by any
      act
      or failure to act, expressly indicates its consent to, approval of or
      acquiescence in any of the foregoing or takes any corporate or other action
      for
      the purpose of effecting any of the foregoing.

     

    “Closing
      Date”
means
      the Closing Date, as defined in the Purchase Agreement.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the Company’s common stock, par value $.0001 per share, and stock of any other
      class into which such shares may hereafter have been reclassified or
      changed.

     

    “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock.

     

    “Conversion
      Date”
shall
      have the meaning set forth in Section 6(a).

     

    “Conversion
      Ratio”
shall
      have the meaning set forth in Section 6(a).

     

    “Conversion
      Price”
shall
      mean the price paid for one share of Preferred Stock divided by the number
      of
      shares of Common Stock issuable upon conversion of one share of Preferred
      Stock.

     

    “Conversion
      Shares”
means,
      collectively, the shares of Common Stock into which the shares of Series A
      Preferred Stock are convertible in accordance with the terms
      hereof.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    “Conversion
      Shares Registration Statement”
means
      a
      registration statement that meets the requirements of the Registration Rights
      Agreement and registers the resale of all Conversion Shares by the Holder,
      who
      shall be named as a “selling stockholder” thereunder, all as provided in the
      Registration Rights Agreement.

     

    “Dilutive
      Issuance”
shall
      have the meaning set forth in Section 7(b) hereof.

     

    “Effective
      Date”
means
      the date that the Conversion Shares Registration Statement is declared effective
      by the Commission.

     

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

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Exempt
      Issuance”
shall
      have the meaning set forth in Section 1.3.10 of the Purchase
      Agreement.

     

    “Fundamental
      Transaction”
shall
      have the meaning set forth in Section 7(f)(iv) hereof.

     

    “Holder”
shall
      have the meaning given such term in Section 2 hereof.

     

    “Investor”
shall
      mean Barron Partners, LP.

     

    “Junior
      Securities”
means
      the Common Stock and all other equity or equity equivalent securities of the
      Company other than those securities that are explicitly senior in rights or
      liquidation preference to the Series A Preferred Stock. 

     

    “Original
      Issue Date”
shall
      mean the date of the first issuance of any shares of the Series A Preferred
      Stock regardless of the number of transfers of any particular shares of Series
      A
      Preferred Stock and regardless of the number of certificates which may be issued
      to evidence such Series A Preferred Stock.

     

    “Person”
means
      a
      corporation, an association, a partnership, a limited liability company, a
      business association, an individual, a trust, a government or political
      subdivision thereof or a governmental agency.

     

    “Purchase
      Agreement”
means
      the Preferred Stock Purchase Agreement, dated as of the January 10, 2006, to
      which the Company and the original Holders are parties, as amended, modified
      or
      supplemented from time to time in accordance with its terms, a copy of which
      is
      on file at the principal offices of the Company.

     

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated as of the Closing Date, to which the
      Company and the original Holder are parties, as amended, modified or
      supplemented from time to time in accordance with its terms.

     

    “Securities”
shall
      have the meaning set forth in Section 1.3.17 of the Purchase
      Agreement.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    “Series
      A Preferred Stock”
shall
      have the meaning set forth in Section 2.

     

    “Subscription
      Amount”
shall
      mean the one million three hundred thousand dollars ($1,300,000) to be paid
      for
      the Preferred Stock purchased pursuant to the Purchase Agreement, in United
      States Dollars and in immediately available funds.

     

    “Subsidiary”
shall
      mean a corporation, limited liability company, partnership, joint venture or
      other business entity of which the Company owns beneficially or of record more
      than a majority of the equity interest.

     

    “Trading
      Day”
means
      a
      day on which the Common Stock is traded on a Trading Market.

     

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the Nasdaq SmallCap Market, the American
      Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
      the
      OTC Bulletin Board.

     

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

     

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the primary Trading Market on which the Common
      Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
      on
      a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
      function; (b) if the Common Stock is not then listed or quoted on the
      Trading Market and if prices for the Common Stock are then reported in the
“Pink
      Sheets” published by the National Quotation Bureau Incorporated (or a similar
      organization or agency succeeding to its functions of reporting prices), the
      most recent bid price per share of the Common Stock so reported; or (c) in
      all other cases, the fair market value of a share of Common Stock as determined
      by a nationally recognized-independent appraiser selected in good faith by
      Purchasers holding a majority of the principal amount of Series A Preferred
      Stock then outstanding.

     

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

     

    Section
      2.
      Designation,
      Amount and Par Value.
      The
      series of preferred stock shall be designated as the Company’s Series A
      Convertible Preferred Stock (the “Series
      A Preferred Stock”
or
      “Preferred
      Stock”)
      and
      the number of shares so designated shall be (which shall not be subject to
      increase without the consent of all of the holders of 75% of the then
      outstanding shares of Series A Preferred Stock (each a “Holder”
and
      collectively, the “Holders”)).
      Each
      share of Series A Preferred Stock shall have a par value of $.0001 per share.
      In
      the event of the conversion of shares of Series A Preferred Stock into this
      Company’s Common Stock, pursuant to Section 6 hereof, or in the event that the
      Company shall otherwise acquire and cancel any shares of Series A Preferred
      Stock, the shares of Series A Preferred Stock so converted or otherwise acquired
      and canceled shall have the status of authorized but unissued shares of
      preferred stock, without designation as to series until such stock is once
      more
      designated as part of a particular Series by the Company’s Board of Directors.
      In addition, if the Company shall not issue the maximum number of shares of
      Series A Preferred Stock, the Company may, from time to time, by resolution
      of
      the Board of Directors and the approval of the holders of a majority of the
      outstanding shares of Series A Preferred Stock, reduce the number of shares
      of
      Series A Preferred Stock authorized, provided, that no such reduction shall
      reduce the number of authorized shares to a number which is less than the number
      of shares of Series A Preferred Stock then issued or reserved for issuance.
      The
      number of shares by which the Series A Preferred Stock is reduced shall have
      the
      status of authorized but unissued shares of Preferred Stock, without designation
      as to series, until such stock is once more designated as part of a particular
      Series by the Company’s Board of Directors. The Board of Directors shall cause
      to be filed with the Secretary of State of the State of Delaware such
      certificate as shall be necessary to reflect any reduction in the number of
      shares constituting the Series A Preferred Stock.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    Section
      3.
      Dividends
      and Other Distributions.
      No
      dividends shall be payable with respect to the Series A Preferred Stock. No
      dividends shall be payable with respect to the Common Stock while the Series
      A
      Preferred Stock is outstanding. The Common Stock shall not be redeemed while
      the
      Series A Preferred Stock is outstanding.

     

    Section
      4.
      Voting
      Rights.
      The
      Series A Preferred Stock shall have no voting rights. However, so long as any
      shares of Series A Preferred Stock are outstanding, the Company shall not,
      without the affirmative approval of the Holders of 75% of the shares of the
      Series A Preferred Stock then outstanding, (a) alter or change adversely the
      powers, preferences or rights given to the Series A Preferred Stock or alter
      or
      amend this Certificate of Designation, (b) authorize or create any class of
      stock ranking as to dividends or distribution of assets upon a Liquidation
      (as
      defined in Section 5) senior to or otherwise pari passu with the Series A
      Preferred Stock, or any of preferred stock possessing greater voting rights
      or
      the right to convert at a more favorable price than the Series A Preferred
      Stock, (c) amend its certificate of incorporation or other charter documents
      in
      breach of any of the provisions hereof, (d) increase the authorized number
      of
      shares of Series A Preferred Stock, or (e) enter into any agreement with respect
      to the foregoing. The holders of the Series A Preferred Stock will not be
      entitled to vote as a class with respect to the increase or decrease in the
      number of authorized shares of preferred stockl; provided, however, that the
      provisions of Section 6(c) of this Certificate of Designation may not be amended
      or waived.

     

    Section
      5.
      Liquidation.
      Upon
      any liquidation, dissolution or winding-up of the Company, whether voluntary
      or
      involuntary (a “Liquidation”),
      the
      Holders shall be entitled to receive out of the assets of the Company, whether
      such assets are capital or surplus, for each share of Series A Preferred Stock
      an amount equal to twenty four cents ($.24), which amount is referred to as
      the
“Liquidation
      Value,”
before
      any distribution or payment shall be made to the holders of any Junior
      Securities and after any distributions or payments made to holders of any class
      or series of securities which are senior to the Series A Preferred Stock upon
      voluntary or involuntary liquidation, dissolution or winding up, and if the
      assets of the Company shall be insufficient to pay in full such amounts, then
      the entire assets to be distributed to the Holders shall be distributed among
      the Holders ratably in accordance with the respective amounts that would be
      payable on such shares if all amounts payable thereon were paid in full. In
      the
      event the assets of the Company available for distribution to the holders of
      shares of Series A Preferred Stock upon dissolution, liquidation or winding
      up
      of the Company, whether voluntary or involuntary, shall be insufficient to
      pay
      in full all amounts to which such holders are entitled pursuant to Section
      5, no
      such distribution shall be made on account of any shares of any other class
      or
      series of capital stock of the Company ranking on a parity with the shares
      of
      Series A Preferred Stock upon such dissolution, liquidation or winding up unless
      proportionate distributive amounts shall be paid on account of the shares of
      Series A Preferred Stock, ratably, in proportion to the full distributable
      amounts for which holders of all such parity shares are respectively entitled
      upon such dissolution, liquidation or winding up. At the election of a Holder
      made by written notice delivered to the Company at least two (2) business days
      prior to the effective date of the subject transaction, as to the shares of
      Series A Preferred Stock held by such Holder, a Fundamental Transaction
      (excluding for purposes of this Section 5 any Fundamental Transaction described
      in Section 7(f)(iv)(A) or 7(f)(iv)(B)) or Change of Control shall be treated
      as
      a Liquidation as to such Holder.

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    Section
      6. Conversion.

     

    a)    Conversions
      at Option of Holder.
      Each
      share of Series A Preferred Stock shall be initially convertible (subject to
      the
      limitations set forth in Section 6(c)), into two (2) shares of Common Stock
      (as
      adjusted as provided below, the “Conversion
      Ratio”)
      at the
      option of the Holders, at any time and from time to time from and after the
      Original Issue Date. Holders shall effect conversions by providing the Company
      with the form of conversion notice attached hereto as Annex
      A
      (a
“Notice
      of Conversion”)
      as
      fully and originally executed by the Holder, together with the delivery by
      the
      Holder to the Company of the stock certificate(s) representing the number of
      shares of Series A Preferred Stock so converted, with such stock certificates
      being duly endorsed in full for transfer to the Company or with an applicable
      stock power duly executed by the Holder in the manner and form as deemed
      reasonable by the transfer agent of the Common Stock. Each Notice of Conversion
      shall specify the number of shares of Series A Preferred Stock to be converted,
      the number of shares of Series A Preferred Stock owned prior to the conversion
      at issue, the number of shares of Series A Preferred Stock owned subsequent
      to
      the conversion at issue, the stock certificate number and the shares of Series
      A
      Preferred Stock represented thereby which are accompanying the Notice of
      Conversion, and the date on which such conversion is to be effected, which
      date
      may not be prior to the date the Holder delivers such Notice of Conversion
      and
      the applicable stock certificates to the Company by overnight delivery service
      (the “Conversion
      Date”).
      If no
      Conversion Date is specified in a Notice of Conversion, the Conversion Date
      shall be the Trading Day immediately following the date that such Notice of
      Conversion and applicable stock certificates are received by the Company. The
      calculations and entries set forth in the Notice of Conversion shall control
      in
      the absence of manifest or mathematical error. Shares of Series A Preferred
      Stock converted into Common Stock in accordance with the terms hereof shall
      be
      canceled and may not be reissued. The Conversion Price of the Series A Preferred
      Stock shall be equal to twelve cents ($.12) per share. If the initial Conversion
      Price is adjusted pursuant to Section 7 or as otherwise provided herein, the
      Conversion Ratio shall likewise be adjusted and the new Conversion Ratio shall
      equal the Liquidation Value divided by the new Conversion Price. Thereafter,
      subject to any further adjustments in the Conversion Price, each share of Series
      A Preferred Stock shall be initially convertible into that number of shares
      of
      Common Stock equal to the new Conversion Ratio.

     

    b)    Automatic
      Conversion Upon Change of Control.
      Subject
      to Section 5, all of the outstanding shares of Series A Preferred Stock shall
      be
      automatically converted into the Conversion Shares upon the close of business
      on
      the business day immediately preceding the date fixed for consummation of any
      transaction resulting in a Change of Control of the Company (an “Automatic
      Conversion Event”). A “Change in Control” means a consolidation or merger of the
      Company with or into another company or entity in which the Company is not
      the
      surviving entity or the sale of all or substantially all of the assets of the
      Company to another company or entity not controlled by the then existing
      stockholders of the Company in a transaction or series of transactions. The
      Company shall not be obligated to issue certificates evidencing the Conversion
      Shares unless certificates evidencing the shares of Series A Preferred Stock
      so
      converted are either delivered to the Company or its transfer agent or the
      holder notifies the Company or its transfer agent in writing 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 conversion of the Series A Preferred Stock
      pursuant to this Section 6(b), the Company shall promptly send written notice
      thereof, by hand delivery or by overnight delivery, to the holder of record
      of
      all of the Series A Preferred Stock at its address then shown on the records
      of
      the Company, which notice shall state that certificates evidencing shares of
      Series A Preferred Stock must be surrendered at the office of the Company (or
      of
      its transfer agent for the Common Stock, if applicable).

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    c)    Beneficial
      Ownership Limitation.
      Except
      as provided in Section 6(b) above, the Company shall not effect any conversion
      of the Series A Preferred Stock, and the Holder shall not have the right to
      convert any portion of the Series A Preferred Stock to the extent that after
      giving effect to such conversion, the Holder (together with the Holder’s
      affiliates), as set forth on the applicable Notice of Conversion, would
      beneficially own in excess of 4.9% of the number of shares of the Common Stock
      outstanding immediately after giving effect to such conversion.  For
      purposes of the foregoing sentence, the number of shares of Common Stock
      beneficially owned by the Holder and its affiliates shall include the number
      of
      shares of Common Stock issuable upon conversion of the Series A Preferred Stock
      with respect to which the determination of such sentence is being made, but
      shall exclude the number of shares of Common Stock which would be issuable
      upon
      (A) conversion of the remaining, non-converted shares of Series A Preferred
      Stock beneficially owned by the Holder or any of its affiliates, so long as
      such
      shares of Series A Preferred Stock are not convertible within sixty (60) days
      from the date of such determination, and (B) exercise or conversion of the
      unexercised or non-converted portion of any other securities of the Company
      (including the Warrants) subject to a limitation on conversion or exercise
      analogous to the limitation contained herein beneficially owned by the Holder
      or
      any of its affiliates, so long as such other securities of the Company are
      not
      exercisable nor convertible within sixty (60) days from the date of such
      determination.  For purposes of this Section 6(c), in determining the
      number of outstanding shares of Common Stock, the Holder may rely on the number
      of outstanding shares of Common Stock as reflected in the most recent of the
      following: (A) the Company’s most recent quarterly reports, Form 10-Q, Form
      10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case may be, as filed
      with the Commission under the Exchange Act (B) a more recent public announcement
      by the Company or (C) any other written notice by the Company or the Company’s
      transfer agent setting forth the number of shares of Common Stock
      outstanding.  Upon the written or oral request of the Holder, the Company
      shall within two (2) Trading Days confirm orally and in writing to the Holder
      the number of shares of Common Stock then outstanding.  In any case, the
      number of outstanding shares of Common Stock shall be determined after giving
      effect to the conversion or exercise of securities of the Company, including
      the
      Series A Preferred Stock, by the Holder or its affiliates since the date as
      of
      which such number of outstanding shares of Common Stock was publicly reported
      by
      the Company. This Section 6(c) may be not be waived or amended.

     

    d)    Mechanics
      of Conversion

     

    i. Delivery
      of Certificate Upon Conversion.
      Except
      as otherwise set forth herein, not later than three Trading Days after each
      Conversion Date (the “Share
      Delivery Date”),
      the
      Company shall deliver to the Holder (A) a certificate or certificates which,
      after the Effective Date, shall be free of restrictive legends and trading
      restrictions (other than those required by the Purchase Agreement) representing
      the number of shares of Common Stock being acquired upon the conversion of
      shares of Series A Preferred Stock, and (B) a bank check in the amount of
      accrued and unpaid dividends (if the Company has elected or is required to
      pay
      accrued dividends in cash). After the Effective Date, the Company shall, upon
      request of the Holder, deliver any certificate or certificates required to
      be
      delivered by the Company under this Section electronically through the
      Depository Trust Company or another established clearing Company performing
      similar functions if the Company’s transfer agent has the ability to deliver
      shares of Common Stock in such manner. If in the case of any Notice of
      Conversion such certificate or certificates are not delivered to or as directed
      by the applicable Holder by the third Trading Day after the Conversion Date,
      the
      Holder shall be entitled to elect by written notice to the Company at any time
      on or before its receipt of such certificate or certificates thereafter, to
      rescind such conversion, in which event the Company shall immediately return
      the
      certificates representing the shares of Series A Preferred Stock tendered for
      conversion.

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    ii. Obligation
      Absolute; Partial Liquidated Damages.
      The
      Company’s obligations to issue and deliver the Conversion Shares upon conversion
      of Series A Preferred Stock in accordance with the terms hereof are absolute
      and
      unconditional, irrespective of any action or inaction by the Holder to enforce
      the same, any waiver or consent with respect to any provision hereof, the
      recovery of any judgment against any Person or any action to enforce the same,
      or any setoff, counterclaim, recoupment, limitation or termination, or any
      breach or alleged breach by the Holder or any other Person of any obligation
      to
      the Company or any violation or alleged violation of law by the Holder or any
      other person, and irrespective of any other circumstance which might otherwise
      limit such obligation of the Company to the Holder in connection with the
      issuance of such Conversion Shares. In the event a Holder shall elect to convert
      any or all of its Series A Preferred Stock, the Company may not refuse
      conversion based on any claim that such Holder or any one associated or
      affiliated with the Holder of has been engaged in any violation of law,
      agreement or for any other reason (other than the inability of the Company
      to
      issue shares of Common Stock as a result of the limitation set forth in Section
      6(c) hereof) unless, an injunction from a court, on notice, restraining and
      or
      enjoining conversion of all or part of this Series A Preferred Stock shall
      have
      been sought and obtained and the Company posts a surety bond for the benefit
      of
      the Holder in the amount of 150% of the Conversion Value of Series A Preferred
      Stock outstanding, which is subject to the injunction, which bond shall remain
      in effect until the completion of arbitration/litigation of the dispute and
      the
      proceeds of which shall be payable to such Holder to the extent it obtains
      judgment. In the absence of an injunction precluding the same, the Company
      shall
      issue Conversion Shares or, if applicable, cash, upon a properly noticed
      conversion. If the Company fails to deliver to the Holder such certificate
      or
      certificates pursuant to Section 6(d)(i) within two Trading Days of the Share
      Delivery Date applicable to such conversion, the Company shall pay to such
      Holder, in cash, as liquidated damages and not as a penalty, for each $5,000
      of
      Conversion Value of Series A Preferred Stock being converted, $50 per Trading
      Day (increasing to $100 per Trading Day after three (3) Trading Days and
      increasing to $200 per Trading Day six (6) Trading Days after such damages
      begin
      to accrue) for each Trading Day after the Share Delivery Date until such
      certificates are delivered. Nothing herein shall limit a Holder’s right to
      pursue actual damages for the Company’s failure to deliver certificates
      representing shares of Common Stock upon conversion within the period specified
      herein and such Holder shall have the right to pursue all remedies available
      to
      it hereunder, at law or in equity including, without limitation, a decree of
      specific performance and/or injunctive relief.

     

    iii. Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Conversion.
      If the
      Company fails to deliver to the Holder such certificate or certificates pursuant
      to Section 6(d)(i) by a Share Delivery Date, and if after such Share Delivery
      Date the Holder purchases (in an open market transaction or otherwise) Common
      Stock to deliver in satisfaction of a sale by such Holder of the Conversion
      Shares which the Holder was entitled to receive upon the conversion relating
      to
      such Share Delivery Date (a “Buy-In”),
      then
      the Company shall pay in cash to the Holder the amount by which (x) the Holder’s
      total purchase price (including brokerage commissions, if any) for the Common
      Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
      of Common Stock that such Holder was entitled to receive from the conversion
      at
      issue multiplied by (2) the price at which the sell order giving rise to such
      purchase obligation was executed. For example, if the Holder purchases Common
      Stock having a total purchase price of $11,000 to cover a Buy-In with respect
      to
      an attempted conversion of shares of Series A Preferred Stock with respect
      to
      which the aggregate sale price giving rise to such purchase obligation is
      $10,000, under clause (A) of the immediately preceding sentence the Company
      shall be required to pay 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 shares of Series
      A
      Preferred Stock as required pursuant to the terms hereof.

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    iv. Reservation
      of Shares Issuable Upon Conversion.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock solely for the purpose of
      issuance upon conversion of the Series A Preferred Stock, each as herein
      provided, free from preemptive rights or any other actual contingent purchase
      rights of persons other than the Holders, not less than such number of shares
      of
      the Common Stock as shall (subject to any additional requirements of the Company
      as to reservation of such shares set forth in the Purchase Agreement) be
      issuable (taking into account the adjustments and restrictions of Section 7)
      upon the conversion of all outstanding shares of Series A Preferred Stock.
      The
      Company covenants that all shares of Common Stock that shall be so issuable
      shall, upon issue, be duly and validly authorized, issued and fully paid,
      nonassessable and, if the Conversion Shares Registration Statement is then
      effective under the Securities Act, registered for public sale in accordance
      with such Conversion Shares Registration Statement.

     

    v. Fractional
      Shares.
      Upon a
      conversion hereunder, the Company shall not be required to issue stock
      certificates representing fractions of shares of the Common Stock. All
      fractional shares shall be carried forward and any fractional shares which
      remain after a Holder converts all of his or her Series A Preferred Stock shall
      be dropped and eliminated.

     

    vi. Transfer
      Taxes.
      The
      issuance of certificates for shares of the Common Stock on conversion of the
      Series A Preferred Stock shall be made without charge to the Holders thereof
      for
      any documentary stamp or similar taxes that may be payable in respect of the
      issue or delivery of such certificate, provided that the Company shall not
      be
      required to pay any tax that may be payable in respect of any transfer involved
      in the issuance and delivery of any such certificate upon conversion in a name
      other than that of the Holder of such shares of Series A Preferred Stock so
      converted and the Company shall not be required to issue or deliver such
      certificates unless or until the person or persons requesting the issuance
      thereof shall have paid to the Company the amount of such tax or shall have
      established to the satisfaction of the Company that such tax has been
      paid.

     

    Section
      7.
       Certain
      Adjustments.

     

    a)    Stock
      Dividends and Stock Splits.
      If the
      Company, at any time while the Series A Preferred Stock is outstanding: (A)
      shall pay a stock dividend or otherwise make a distribution or distributions
      on
      shares of its Common Stock or any other equity or equity equivalent securities
      payable in shares of Common Stock (which, for avoidance of doubt, shall not
      include any shares of Common Stock issued by the Company pursuant to this Series
      A Preferred Stock), (B) subdivide outstanding shares of Common Stock into a
      larger number of shares, (C) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (D)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Company, then the Conversion Value shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      treasury shares, if any) outstanding before such event and of which the
      denominator shall be the number of shares of Common Stock outstanding after
      such
      event. Any adjustment made pursuant to this Section shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution and shall become effective immediately
      after the effective date in the case of a subdivision, combination or
      re-classification.

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    b)    Price
      Adjustment.
      Until
      such
      time as the Investor holds no Securities, except for (i) Exempt Issuances,
      (ii)
issuances
      covered by Sections 7(a), 7(c) and 7(d) hereof or (iii) an issuance of Common
      Stock upon exercise or upon conversion of warrants, options or other convertible
      securities for which an adjustment has already been made pursuant to this
      Section 7,
      as to
      all of which this Section 7(b) does not apply, if the Company closes on the
      sale
      or issuance of Common Stock at a price, or warrants, options, convertible debt
      or equity securities with a exercise price per share or exercise price per
      share
      which is less than the Conversion Price then in effect (such lower sales price,
      conversion or exercise price, as the case may be, being referred to as the
      “Lower Price”), the Conversion Price in effect from and after the date of such
      transaction shall be reduced to the Lower Price. For purpose of determining
      the
      exercise price of warrants issued by the Company, the price, if any, paid per
      share for the warrants shall be added to the exercise price of the
      warrants.
      The
“Conversion Price” shall mean the price paid for one share of Preferred Stock
      divided by the number of shares of Common Stock issuable upon conversion of
      one
      share of Preferred Stock. The “Conversion Rate” is the number of shares of
      Common Stock issuable upon conversion of one (1) share of Preferred Stock.
      The
      initial Conversion Rate is two (2) shares of Common Stock per share of Preferred
      Stock and the initial Conversion Price is twelve cents ($.12).

     

    c)    Conversion
      Price Adjustment Based on EBITDA Per Share. In
      the
      event the Company’s
      EBITDA per
      share
      of Common Stock, determined as provided in Section 6.15 of the Purchase
      Agreement, is between $0.039 and $0.031 per share, the conversion price shall
      be
      reduced proportionately by 0% if the EBITDA is $0.039 per share and by 20%
      if  EBITDA is $0.031 per share or lower. The number of shares used in
      determining EBITDA per share of Common Stock shall be determined in the same
      manner as for fully-diluted earnings per share, except as otherwise provided
      in
      this Section 7(c).  For example, if the Company’s EBITDA is $0.033 per
      share, or 15% below $0.039 per share, then the Conversion Price shall be reduced
      by 15%. Such reduction shall be made at the time the Company files its Form
      10-K
      or Form 10-KSB for the year ended December 31, 2006.  In the event that
      EBITDA per share is less than $0.031, or the Company has a loss, the Conversion
      Price shall be reduced by a maximum of 20%. This Section 7(c) shall apply to
      the
      all of the Preferred Stock which is outstanding on the date the Form 10-KSB
      or
      Form 10-K is filed, or, if not filed on time, on the date that filing was
      required.

     

    d)    Pro
      Rata Distributions.
      If the
      Company, at any time while Series A Preferred Stock is outstanding, shall
      distribute to all holders of Common Stock (and not to Holders) evidences of
      its
      indebtedness or assets or rights or warrants to subscribe for or purchase any
      security, then in each such case the Conversion Price shall be determined by
      multiplying such Conversion Price in effect immediately prior to the record
      date
      fixed for determination of stockholders entitled to receive such distribution
      by
      a fraction of which the denominator shall be the VWAP determined as of the
      record date mentioned above, and of which the numerator shall be such VWAP
      on
      such record date less the then fair market value at such record date of the
      portion of such assets or evidence of indebtedness so distributed applicable
      to
      one outstanding share of the Common Stock as determined by the Board of
      Directors in good faith. In either case the adjustments shall be described
      in a
      statement provided to the Holders of the portion of assets or evidences of
      indebtedness so distributed or such subscription rights applicable to one share
      of Common Stock. Such adjustment shall be made whenever any such distribution
      is
      made and shall become effective immediately after the record date mentioned
      above.

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    e)    Calculations.
      All
      calculations under this Section 7 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. The number of shares of Common
      Stock outstanding at any given time shall not include shares owned or held
      by or
      for the account of the Company or any of its subsidiaries. For purposes of
      this
      Section 7, the number of shares of Common Stock deemed to be issued and
      outstanding as of a given date shall be the sum of the number of shares of
      Common Stock (excluding treasury shares and shares owned by subsidiaries, if
      any) actually issued and outstanding.

     

    f)    Notice
      to Holders.

     

    i. Adjustment
      to Conversion Price.
      Whenever the Conversion Price is adjusted pursuant to any of this Section 7,
      the
      Company shall promptly mail to each Holder a notice setting forth the Conversion
      Price after such adjustment and setting forth a brief statement of the facts
      requiring such adjustment. If the Company issues a variable rate security,
      despite the prohibition thereon in the Purchase Agreement, the Company shall
      be
      deemed to have issued Common Stock or Common Stock Equivalents at the lowest
      possible conversion or exercise price at which such securities may be converted
      or exercised in the case of a Variable Rate Transaction (as defined in the
      Purchase Agreement), or the lowest possible adjustment price in the case of
      an
      MFN Transaction (as defined in the Purchase Agreement).

     

    ii. Notices
      of Other Events.
      If (A)
      the Company shall declare a dividend (or any other distribution) on the Common
      Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
      the
      Company shall authorize the granting to all holders of the Common Stock rights
      or warrants to subscribe for or purchase any shares of capital stock of any
      class or of any rights; (D) the approval of any stockholders of the Company
      shall be required in connection with any reclassification of the Common Stock
      or
      any Fundamental Transaction, (E) the
      Company shall authorize the voluntary or involuntary dissolution, liquidation
      or
      winding up of the affairs of the Company; then in each case, the Company shall
      cause to be filed at each office or agency maintained for the purpose of
      conversion of the Series A Preferred Stock, and shall cause to be mailed
      to
      the Holders at their last addresses as they shall appear upon the stock
      books of
      the
      Company, at least 30 calendar days prior to the applicable record or effective
      date hereinafter specified, a notice stating (x)
      the
      date on which a record is to be taken for the purpose of such dividend,
      distribution, redemption, rights or warrants, or if a record is not to be taken,
      the date as of which the holders of the Common Stock of record to be entitled
      to
      such dividend, distributions, redemption, rights or warrants are to be
      determined or (y) the date on which such reclassification is expected to become
      effective or close, and the date as of which it is expected that holders of
      the
      Common Stock of record shall be entitled to exchange their shares of the Common
      Stock for securities, cash or other property deliverable upon such
      reclassification or Fundamental Transaction; provided,
      that
      the failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice.

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    iii. Exempt
      Issuance.
      Notwithstanding the foregoing, no adjustment in the Conversion Price will be
      made in respect of an Exempt Issuance.

     

    iv. Fundamental
      Transaction.
      If, at
      any time while this Series A Preferred Stock is outstanding, (A) the Company
      effects any merger or consolidation of the Company with or into another Person,
      (B) the Company effects any sale of all or substantially all of its assets
      in
      one or a series of related transactions, (C) any tender offer or exchange offer
      (whether by the Company or another Person) is completed pursuant to which
      holders of Common Stock are permitted to tender or exchange their shares for
      other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (in any such case, a “Fundamental
      Transaction”),
      then
      upon any subsequent conversion of this Series A Preferred Stock, the Holder
      shall have the right to receive, for each Conversion Share that would have
      been
      issuable upon such conversion absent such Fundamental Transaction, the same
      kind
      and amount of securities, cash or property as it would have been entitled to
      receive upon the occurrence of such Fundamental Transaction if it had been,
      immediately prior to such Fundamental Transaction, the holder of one share
      of
      Common Stock (the “Alternate
      Consideration”).
      For
      purposes of any such conversion, the determination of the Conversion Price
      shall
      be appropriately adjusted to apply to such Alternate Consideration based on
      the
      amount of Alternate Consideration issuable in respect of one share of Common
      Stock in such Fundamental Transaction, and the Company shall apportion the
      Conversion Price among the Alternate Consideration in a reasonable manner
      reflecting the relative value of any different components of the Alternate
      Consideration. If holders of Common Stock are given any choice as to the
      securities, cash or property to be received in a Fundamental Transaction, then
      the Holder shall be given the same choice as to the Alternate Consideration
      it
      receives upon any conversion of this Series A Preferred Stock following such
      Fundamental Transaction. To the extent necessary to effectuate the foregoing
      provisions, any successor to the Company or surviving entity in such Fundamental
      Transaction shall file a new Certificate of Designations with the same terms
      and
      conditions and issue to the Holder new preferred stock consistent with the
      foregoing provisions and evidencing the Holder’s right to convert such preferred
      stock into Alternate Consideration. The terms of any agreement pursuant to
      which
      a Fundamental Transaction is effected shall include terms requiring any such
      successor or surviving entity to comply with the provisions of this paragraph
      (f)(iv) and insuring that this Series A Preferred Stock (or any such replacement
      security) will be similarly adjusted upon any subsequent transaction analogous
      to a Fundamental Transaction. Notwithstanding the foregoing or any other
      provisions of this Certificate of Designations, in the event that the agreement
      relating to a Fundamental Transaction provides for the conversion or exchange
      of
      the Series A Preferred Stock into equity or debt securities, cash or other
      consideration and the agreement is approved by the holders of a majority of
      the.
      then-outstanding shares of Series A Preferred Stock, then the holders of the
      Series A Preferred Stock shall have only the rights set forth in such
      agreement.

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

    Section
      8.
       Miscellaneous.
      

     

    a)    Notices.
      Any and
      all notices or other communications or deliveries to be provided by the Holders
      hereunder, including, without limitation, any Notice of Conversion, shall be
      in
      writing and delivered personally, by facsimile, sent by a nationally recognized
      overnight courier service, addressed to the Company, at its principal address
      as
      reflected in its most recent filing with the Commission. Any and all notices
      or
      other communications or deliveries to be provided by the Company hereunder
      shall
      be in writing and delivered personally, by facsimile, sent by a nationally
      recognized overnight courier service addressed to each Holder at the facsimile
      telephone number or address of such Holder appearing on the books of the
      Company, or if no such facsimile telephone number or address appears, at the
      principal place of business of the Holder. Any notice or other communication
      or
      deliveries hereunder shall be deemed given when received, and any notice by
      telecopier shall be effective if confirmation of receipt is given by the party
      to whom the notice is transmitted. 

     

    b)    Lost
      or Mutilated Preferred Stock Certificate.
      If a
      Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen
      or destroyed, the Company shall execute and deliver, in exchange and
      substitution for and upon cancellation of a mutilated certificate, or in lieu
      of
      or in substitution for a lost, stolen or destroyed certificate, a new
      certificate for the shares of Series A Preferred Stock so mutilated, lost,
      stolen or destroyed but only upon receipt of evidence of such loss, theft or
      destruction of such certificate, and of the ownership thereof, and indemnity,
      if
      requested, all reasonably satisfactory to the Company.

     

    c)    Next
      Business Day.
      Whenever any payment or other obligation hereunder shall be due on a day other
      than a Business Day, such payment shall be made on the next succeeding Business
      Day.

     

    d)    Headings.
      The
      headings contained herein are for convenience only, do not constitute a part
      of
      this Certificate of Designations and shall not be deemed to limit or affect
      any
      of the provisions hereof.

     

    e)    Rank
      of Series.
      For
      purposes of this Certificate of Designation, any stock of any series or class
      of
      the Company shall be deemed to rank 

    

    (i)
      prior
      to the shares of Series A Preferred Stock, as to dividends or upon liquidation,
      dissolution or winding up, as the case may be, if the holders of such class
      or
      classes shall be entitled to the receipt of dividends or of amounts
      distributable upon dissolution, liquidation or winding up of the Company, as
      the
      case may be, in preference or priority to the holders of shares of Series A
      Preferred Stock;

    

    (ii)
      on a
      parity with shares of Series A Preferred Stock, as to dividends or upon
      liquidation, dissolution or winding up, as the case may be, whether or not
      the
      dividend rates, dividend payment dates or redemption or liquidation prices
      per
      share or sinking fund provisions, if any, be different from those of Series
      A
      Preferred Stock, if the holders of such stock shall be entitled to the receipt
      of dividends or of amounts distributable upon dissolution, liquidation or
      winding up of the Company, as the case may be, in proportion to their respective
      dividend rates or liquidation prices, without preference or priority, one over
      the other, as between the holders of such stock and the holders of shares of
      Series A Preferred Stock; and

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    

    (iii)
      junior to shares of Series A Preferred Stock as to dividends or upon
      liquidation, dissolution or winding up, as the case may be, if such class shall
      be Common Stock or if the holders of shares of Series A Preferred Stock shall
      be
      entitled to receipt of dividends or of amounts distributable upon dissolution,
      liquidation or winding up of the Company, as the case may be, in preference
      or
      priority to the holders of shares of such class or classes.

    

    f)    No
      Preemptive Rights. No Holder of the Series A Preferred Stock shall, as such
      holder, be entitled as of right to purchase or subscribe for any shares of
      stock
      of the Company of any class or any series now or hereafter authorized or any
      securities convertible into or exchangeable for any shares, or any warrants,
      options, rights or other instruments evidencing rights to subscribe for or
      purchase any such shares, whether such shares, securities, warrants, options,
      rights or other instruments be unissued or issued and thereafter acquired by
      the
      Company. Nothing in this Section 8(f) shall be construed to impair any rights
      granted to the Holders pursuant to the Purchase Agreement.

    

    g)    Amendment.
      This
      Certificate of Designation may be amended with the approval of the Company’s
      board of directors and the consent of the holders of seventy-five percent (75%)
      of the outstanding shares of Series A Preferred Stock, except that any amendment
      to the conversion limitation set forth in Section 6.2(b) shall also require
      the
      consent of the holders of a majority of the Company’s Common Stock.

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

     

    ANNEX
      A

     

    NOTICE
      OF CONVERSION

     

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

     

    The
      undersigned hereby elects to convert the number of shares of Series A
      Convertible Preferred Stock indicated below, into shares of common stock, par
      value $0.0001 per share (the “Common
      Stock”),
      of
      Lounsberry Holdings I, Inc., a Delaware corporation (the “Company”),
      according to the conditions hereof, as of the date written below. If shares
      are
      to be issued in the name of a person other than undersigned, the undersigned
      will pay all transfer taxes payable with respect thereto and is delivering
      herewith such certificates and opinions as reasonably requested by the Company
      in accordance therewith. No fee will be charged to the Holder for any
      conversion, except for such transfer taxes, if any.

     

    Conversion
      calculations:

     

    
      	
              Date
                to Effect Conversion:
                ________________________________________

               

            
	
              Number
                of shares of Common Stock owned prior to Conversion:
                _______________

               

            
	
              Number
                of shares of Series A Preferred Stock to be Converted:
                ________________

               

            
	
              Value
                of shares of Series A Preferred Stock to be Converted:
                ____________________

               

            
	
              Number
                of shares of Common Stock to be Issued:
                ___________________________

               

            
	
              Certificate
                Number of Series A Preferred Stock attached
                hereto:_________________

               

            
	
              Number
                of Shares of Series A Preferred Stock represented by attached
                certificate:_________

            
	 
	
              Number
                of shares of Series A Preferred Stock subsequent to Conversion:
                ________________

            

    

    

    
      	 	
              [HOLDER]

               

              By:___________________________________

              Name:_________________________________

              Title:__________________________________

            

    

    

    
      
         

      

        -15-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00096-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00096-of-00352.parquet"}]]