Document:

EXCHANGE
      AGREEMENT

    

    THIS
      EXCHANGE AGREEMENT, dated as of June __, 2008, is
      made
      by and between Lattice Incorporated, a Delaware corporation (“Company”),
      and
      Barron Partners LP, a Delaware Limited Partnership (the “Holder”).

    

    WHEREAS,
      the Holder is the owner of 7,861,698 shares of the Company’s Series A Preferred
      Stock (the “Series A Preferred”) and 1,955,132 Warrants A to purchase shares of
      the Company’s common stock with an exercise price of $0.35 per share expiring
      9/19/2011 registered pursuant to an SB2 registration statement filed on 2/12/07
      and subsequently amended. (the “Registered Warrant”).

    

    WHEREAS,
      the Holder also owns 10,544,868 unregistered Warrants A to purchase shares
      of
      the Company’s common stock with an exercise price of $0.35 per share expiring
      9/19/2011, 12,500,000 Warrants B to purchase shares of the Company’s common
      stock with an exercise price of $0.875 per share expiring 9/19/2011 and
      1,900,000 warrants to purchase shares of the Company’s common stock with an
      exercise price of $0.50 expiring 2/8/2012(collectively, the “Unregistered
      Warrants”).
      

    

    WHEREAS,
      pursuant to the Certificate of Designation, the Conversion Price of the Series
      A
      Preferred, as adjusted in accordance with Section 7(c) of the Certificate of
      Designation is currently $0.161 per share and the Conversion Ratio is
      3.5714;

    

    WHEREAS,
      the Company and the Holder currently desire that the Holder return the
      Unregistered Warrants to the Company for cancellation;

    

    WHEREAS,
      in consideration for the cancellation of the Unregistered Warrants, the Company
      desires to issue 520,000 of its newly designated Series C Preferred Stock
      (“Series C Preferred”) to the Holder, 5,200,000 shares of the Company’s common
      stock will be issuable to the Holder upon conversion of the Series C Preferred
      shares owned by the Holder;

    

    NOW,
      THEREFORE, for good and valuable consideration, the receipt and sufficiency
      of
      which the parties hereby acknowledge, the parties agree as follows:

    

    1. a. Cancellation
      and Reissue of Warrants.
      The
      Company and the Holder agree that the Holder will return the Unregistered
      Warrants to the Company for cancellation. The Company and the Holder also agree
      that the Holder will return the Registered Warrants to be reissued by the
      Company with the same terms as currently stated within 5 days of the
      receipt.

    

    b. Filing
      of Certificate of Designation and Issuance of Series C shares.
      The
      Company and the Holder agree that upon the return and cancellation of the
      Unregistered Warrants, the Company shall within five (5) days of the signing
      of
      this Agreement, file the Certificate of Designation for the Series C Preferred,
      a copy of which is annexed hereto as Exhibit A, such that each share of Series
      C
      Preferred shall be convertible into 10 shares of the Company’s common stock
      subject to adjustment pursuant to the Certificate of Designation. Upon the
      effectiveness of the Certificate of Designation, the Company shall promptly
      issue certificates to the Holder representing the Series C Preferred
      shares.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3. Further
      Assurances.
      In
      connection with the exchange and the cancellation of the Unregistered Warrants
      and amendment to the Certificate of Designation, the Holder, by entering into
      this Exchange Agreement, agrees to execute all agreements and other documents
      as
      reasonably requested by the Company. 

    

    4. Investor
      Representations and Warranties and Covenants.
      The
      Holder represents, warrants and covenants to the Company as
      follows:

    

    a.
       No
      Registration.
      The
      Holder understands that the Series C Preferred Shares have not been, and will
      not be, registered under the Securities Act of 1933, as amended (the
“Securities
      Act”)
      by
      reason of a specific exemption from the registration provisions of the
      Securities Act, the availability of which depends upon, among other things,
      the
      bona fide nature of the investment intent and the accuracy of such Holder’s
      representations as expressed herein or otherwise made pursuant
      hereto.

    

    b. Investment
      Intent.
      The
      Holder acquired the Series C Preferred Shares, for investment for its own
      account, not as a nominee or agent, and not with the view to, or for resale
      in
      connection with,
      any
      distribution thereof, and such Holder has no present intention of selling,
      granting any participation in, or otherwise distributing the same. Such Holder
      further represents that it will not violate the Securities Act and does not
      have
      any contract, undertaking, agreement or arrangement with any person or entity
      to
      sell, transfer or grant participation to such person or entity or to any third
      person or entity with respect to the Preferred Shares.

    

    c. Investment
      Experience.
      Such
      Holder has substantial experience in evaluating and investing in private
      placement transactions of securities in companies similar to the Company and
      acknowledges that such Holder can protect its own interests. Such Holder has
      such knowledge and experience in financial and business matters so that such
      Holder is capable of evaluating the merits and risks of its investment in the
      Company. 

    

    d. Transfer
      Restrictions.
      The
      Holder acknowledges that the shares of the Company’s common stock issuable upon
      conversion of the Series C Preferred have not been registered under the 1933
      Act, and may not be transferred unless (i) they are subject to a current and
      effective registration statement under the 1933 Act, or (ii) the Investor shall
      have delivered to the Company an opinion of counsel, which counsel and opinion
      shall be reasonably satisfactory to the Company, to the effect that the
      securities to be sold or transferred may be sold or transferred pursuant to
      an
      exemption from such registration; and (b) any sale of the securities made in
      reliance on Rule 144 promulgated under the 1933 Act may be made only in
      accordance with the terms of said Rule, to the extent that such Rule is
      applicable.

     

    e. Access
      to Data.
      The
      Holder and its advisors, if any, have been furnished with or have been given
      access to all materials relating to the business, finances and
      operations of
      the
      Company and any reasonably requested materials requested by the Holder. The
      Holder and its advisors, if any, have been afforded the opportunity to ask
      questions of the Company and its management and have received complete and
      satisfactory answers to any such inquiries. 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    f. Accredited
      Investor.
      The
      Holder is an “accredited investor’ within the meaning of Regulation D, Rule
      501(a), promulgated by the Securities and Exchange Commission under the
      Securities Act and shall submit to the Company such further assurances of such
      status as may be reasonably requested by the Company. 

    

    g. Restrictive
      Legend. The
      Holder acknowledges and agrees that the Series A Preferred Shares and the shares
      of the Company’s common stock issuable upon conversion of the Series C Preferred
      Shares shall bear a restrictive legend and a stop-transfer order may be placed
      against transfer of any such securities except that the requirement for a
      restrictive legend shall not apply to shares sold pursuant to a current and
      effective registration statement or a sale pursuant Rule 144 or any successor
      rule

    

    h. Authorization.

    

    i. The
      Holder has all requisite power and authority to execute and deliver this
      Exchange Agreement, and to carry out and perform its obligations under the
      terms
      hereof. All action on the part of the Holder necessary for the authorization,
      execution, delivery and performance of this Exchange Agreement, and the
      performance of all of the Holder’s obligations herein, has been
      taken.

    

    ii. This
      Exchange Agreement, when executed and delivered by the Holder, will constitute
      valid and legally binding obligations of the Holder, enforceable in accordance
      with its terms except: (i) as limited by applicable bankruptcy, insolvency,
      reorganization, moratorium and other laws of general application affecting
      enforcement of creditors’ rights generally, and (ii) as limited by laws relating
      to the availability of specific performance, injunctive relief or other
      equitable remedies or by general principles of equity.

    

    iii. No
      consent, approval, authorization, order, filing, registration or qualification
      of or with any court, governmental authority or third person is required to
      be
      obtained by the Holder in connection with the execution and delivery of this
      Exchange Agreement by the Holder or the performance of the Holder’s obligations
      hereunder.

    

    i. Tax
      Advisors.
      Such
      Holder has reviewed with its own tax advisors the U.S. federal, state, local
      and
      foreign tax consequences of this investment and the transactions contemplated
      by
      this Exchange Agreement. With respect to such matters, such Holder relies solely
      on such advisors and not on any statements or representations of the Company
      or
      any of its agents, written or oral. The Holder understands that it (and not
      the
      Company) shall be responsible for its own tax liability that may arise as a
      result of this investment or the transactions contemplated by this Exchange
      Agreement.

     

    j.  All
      parties acknowledge and represent that: (a) they have read this Exchange
      Agreement; (b) they clearly understand the Exchange Agreement and each of its
      terms; (c) they fully and unconditionally consent to the terms of this Exchange
      Agreement; (d) they have had the benefit and advice of counsel of their own
      selection; (e) they have executed this Exchange Agreement, freely, with
      knowledge, and without influence or duress; (f) they have not relied upon any
      other representations, either written or oral, express or implied, made to
      them
      by any person; and (g) the consideration received by them has been actual and
      adequate.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    k.  This
      Exchange Agreement contains the entire agreement and understanding concerning
      the subject matter hereof between the parties and supersedes and replaces all
      prior negotiations, proposed agreement and agreements, written or oral. Each
      of
      the parties hereto acknowledges that neither any of the parties hereto, nor
      agents or counsel of any other party whomsoever, has made any promise,
      representation or warranty whatsoever, express or implied, not contained herein
      concerning the subject hereto, to induce it to execute this Exchange Agreement
      and acknowledges ands warrants that it is not executing this Exchange Agreement
      in reliance on any promise, representation or warranty not contained
      herein.

    

    l.  This
      Exchange Agreement may not be modified or amended in any manner except by an
      instrument in writing specifically stating that it is a supplement, modification
      or amendment to the Exchange Agreement and signed by each of the parties
      hereto.

    

    m.  Should
      any provision of this Exchange Agreement be declared or be determined by any
      court or tribunal to be illegal or invalid, the validity of the remaining parts,
      terms or provisions shall not be affected thereby and said illegal or invalid
      part, term or provision shall be severed and deemed not to be part of this
      Exchange Agreement.

    

    n.  This
      Exchange Agreement shall be governed by and construed in accordance with the
      laws of the State of New York, without regard to principles of conflicts of
      laws. Any action brought by either party against the other concerning the
      transactions contemplated by this Agreement shall be brought only in the state
      courts of New York or in the federal courts located in the state of New York.
      Both parties, and the individuals executing this Exchange Agreement and other
      agreements on behalf of the Company, agree to submit to the jurisdiction of
      such
      courts and waive trial by jury. The prevailing party shall be entitled to
      recover from the other party its reasonable attorney’s fees and costs.

    

    o.  This
      Exchange Agreement may be executed in counterparts, each of which, when all
      parties have executed at least one such counterpart, shall be deemed an
      original, with the same force and effect as if all signatures were appended
      to
      one instrument, but all of which together shall constitute one and the same
      Exchange Agreement.

    

    

    

    

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    IN WITNESS
      WHEREOF, the parties have caused this Exchange Agreement to be duly executed
      by
      their respective officers thereonto duly authorized as of the day and year
      first
      above written.

     

    

    
      	
              LATTICE
                INCORPORATED

               

               

            
	
              By:__________________________________________

                Name:
                Paul Burgess

               
                Title: Chief Executive Officer

            

    

     

     

    
 

    [REMAINDER
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    SIGNATURE
      PAGES FOR HOLDERS TO FOLLOW]

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    [SIGNATURE
      PAGE OF HOLDERS TO LATTICE INCORPORATED EXCHANGE AGMT]

    

    Name
      of
      Holder: BARRON
      PARTNERS LP

    By:
      Barron Capital Advisors, LLC, its General Partner 

    

    

    

    By:________________________________

    Andrew
      Barron Worden

    Managing
      Partner 

    730
      Fifth
      Avenue, 25th Floor

    New
      York
      NY 10019LATTICE
      INCORPORATED

     

    Statement
      of Designations

     

    Section
      1.
      Definitions.
      For the
      purposes hereof, the following terms shall have the following
      meanings:

     

    “Affiliate”
means
      a
      Person or Persons directly or indirectly, through one or more intermediaries,
      controlling, controlled by or under common control with the Person(s) in
      question. The term “control,” as used in the immediately preceding sentence,
      means, with respect to a Person that is a corporation, the right to the
      exercise, directly or indirectly, of more than 50% of the voting rights
      attributable to the shares of such controlled corporation and, with respect
      to a
      Person that is not a corporation, the possession, directly or indirectly, of
      the
      power to direct or cause the direction of the management or policies of such
      controlled Person.

     

    “4.9%
      Limitation”
shall
      mean that no Holder of Series C Preferred Stock shall be entitled to convert
      the
      Series C Preferred Stock into shares of Common Stock to the extent that such
      conversion would result in beneficial ownership by the Holder and its Affiliates
      of more than 4.9% of the then outstanding number of share of Common Stock on
      such date. For purposes of this Statement of Designation beneficial ownership
      shall be determined in accordance with Section 13(d) of the Securities Exchange
      Act of 1934, as amended, and Regulation 13d-3 thereunder.

     

    “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.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the Company’s common stock, par value $.01 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.

     

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

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

     

    “Conversion
      Ratio”
shall
      mean the number of shares of Common Stock issuable upon conversion of one share
      of Series C Preferred Stock. Each share of Series C Preferred Stock shall be
      convertible into ten (10) shares of Common Stock (the “Conversion Ratio”),
      subject to adjustment as provided in this Statement of
      Designations.

     

    “Conversion
      Price”
shall
      mean sixteen and one tenth cents ($.161), subject to adjustment as provided
      in
      this Statement of Designations.

     

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

     

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

     

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

     

    “Exchange
      Agreement”
means
      the Exhange Agreement by and between the Company and Barron Partners
      LP.

     

    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers,
      directors of and consultants (other than consultants whose services relate
      to
      the raising of funds) of the Company pursuant to the any stock or option plan
      that was or may be adopted by a majority of the independent members of the
      Board
      of Directors of the Company or a majority of the members of a committee of
      independent directors established for such purpose, (b) securities upon the
      exercise of or conversion of any securities issued hereunder and (c) securities
      issued pursuant to acquisitions, licensing agreements, or other strategic
      transactions, provided any such issuance shall only be to a Person which is,
      itself or through its subsidiaries, an operating company in a business which
      the
      Company’s board of directors believes is beneficial to the Company and in which
      the Company receives benefits in addition to the investment of funds, but shall
      not include a transaction in which the Company is issuing securities primarily
      for the purpose of raising capital or to an entity whose primary business is
      investing in securities. 

     

    “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.

     

    “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 C Preferred Stock. 

     

    “MFN
      Transaction”
means
      a
      transaction in which the Company issues or sells any securities in a capital
      raising transaction or series of related transactions which grants to an
      investor the right to receive additional shares based upon future transactions
      of the Company on terms which are more favorable to the Holder than the terms
      initially provided to the Holder in its initial Exchange Agreement with the
      Company. The Holder shall be entitled to obtain injunctive relief against the
      Company to preclude any such issuance, which remedy shall be in addition to
      any
      right to collect damages.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

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

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule. 

     

    “Securities”
means
      the shares of Series C Preferred Stock and the Shares..

     

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

     

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

     

    “Shares”
means
      the shares of common stock issuable upon conversion of the Series C Preferred
      Stock.

     

    “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”
means
      this Statement of Designations and the Exchange Agreement. 

     

    “Transfer
      Agent”
means
      Continental Stock Transfer and Trust Co., the current transfer agent of the
      Company, with a mailing address of _17 Battery Place, New York, NY 10004 and
      a
      facsimile number of (212) 616-7616, and any successor transfer agent of the
      Company.

     

    “Variable
      Rate Transaction”
means
      a
      transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock.
      

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    “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 C Preferred
      Stock then outstanding.

     

    Section
      2.
      Designation,
      Amount and Par Value.
      The
      series of preferred stock, par value $.01 per share (“Preferred Stock”)
      consisting of five hundred twenty thousand (520,000 shares) shall be designated
      as the Company’s Series C Convertible Preferred Stock (the “Series
      C 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 C Preferred Stock (each a “Holder”
and
      collectively, the “Holders”)).
      In
      the event of the conversion of shares of Series C 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 C Preferred
      Stock, the shares of Series C 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 C 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 C Preferred Stock, reduce the number of shares
      of
      Series C 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 C Preferred Stock then issued or reserved for issuance.
      The
      number of shares by which the Series C 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 C Preferred Stock. The Series C Preferred Stock
      shall be pari passu to the Series A Preferred Stock upon voluntary or
      involuntary liquidation, dissolution or winding up. The Series C Preferred
      Stock
      shall be senior to the Series B Redeemable Preferred Stock (“Series B Preferred
      Stock”) upon voluntary or involuntary liquidation, dissolution or winding up.
      The Company may pay the dividends and redemption price to the holders of the
      Series B Preferred Stock as provided in the statement of designations relating
      to the Series B Preferred Stock, except that, in the event of a liquidation,
      dissolution or winding up, the rights of the holders of the Series B Preferred
      Stock shall be junior to the rights of the holders of the Series CPreferred
      Stock.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    Section
      3.
      Dividends
      and Other Distributions.
      No
      dividends shall be payable with respect to the Series C Preferred Stock. No
      dividends shall be payable with respect to the Common Stock while the Series
      C
      Preferred Stock is outstanding. The Company shall not redeem or purchase any
      shares of Common Stock while the Series C Preferred Stock is
      outstanding.

     

    Section
      4.
      Voting
      Rights.
      The
      Series C Preferred Stock shall have no voting rights. However, so long as any
      shares of Series C Preferred Stock are outstanding, the Company shall not,
      without the affirmative approval of the Holders of 75% of the shares of the
      Series C Preferred Stock then outstanding, (a) alter or change adversely the
      powers, preferences or rights given to the Series C Preferred Stock or alter
      or
      amend this Statement of Designations or the Statement of Designations relating
      to the Series A Preferred Stock or the Series B Preferred Stock, (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 C Preferred Stock, or any of preferred stock possessing greater
      voting rights or the right to convert at a more favorable price than the Series
      C 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 C Preferred Stock, or (e) enter into any agreement
      with respect to the foregoing. The holders of the Series C 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 stock. Notwithstanding any other
      provision of the Statement of Designations; the provisions of Section 6(c)
      of
      this Statement of Designations 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 C Preferred Stock
      an amount equal to fifty seven and one-half ($.575) per share of Series C
      Preferred Stock, 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 C 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 C 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 C Preferred Stock upon such dissolution, liquidation or winding up unless
      proportionate distributive amounts shall be paid on account of the shares of
      Series C 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 C 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. 

     

    
      
         

      

      
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    Section
      6. Conversion.

     

    a) Conversions
      at Option of Holder.
      Each
      share of Series C Preferred Stock shall be initially convertible (subject to
      the
      limitations set forth in Section 6(c)), into such number of shares of Common
      Stock based on 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 C 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 C Preferred Stock to be converted,
      the number of shares of Series C Preferred Stock owned prior to the conversion
      at issue, the number of shares of Series C Preferred Stock owned subsequent
      to
      the conversion at issue, the stock certificate number and the shares of Series
      C
      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 C Preferred
      Stock converted into Common Stock in accordance with the terms hereof shall
      be
      canceled and may not be reissued. 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 determined by
      multiplying the Conversion Ratio in effect by a fraction, the numerator of
      which
      is the Conversion Price in effect before the adjustment and the denominator
      of
      which is the new Conversion Price. Thereafter, subject to any further
      adjustments in the Conversion Price, each share of Series C Preferred Stock
      shall be initially convertible into Common Stock based on the new Conversion
      Ratio.

     

    b) Automatic
      Conversion Upon Change of Control.
      Subject
      to Section 5, all of the outstanding shares of Series C 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 C 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 C 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 C Preferred Stock at its address then shown on the records
      of
      the Company, which notice shall state that certificates evidencing shares of
      Series C Preferred Stock must be surrendered at the office of the Company (or
      of
      its transfer agent for the Common Stock, if applicable).

     

    
      
         

      

      
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    c) Beneficial
      Ownership Limitation.
      Except
      as provided in Section 6(b) of this Statement of Designation, which shall apply
      as stated therein if an Automatic Conversion Event shall occur, the right of
      the
      Holder to convert the Series C Preferred Stock shall be subject to the 4.9%
      Limitation, with the result that Company shall not effect any conversion of
      the
      Series C Preferred Stock, and the Holder shall not have the right to convert
      any
      portion of the Series C 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
      the
      purposes of this Agreement beneficial ownership shall be determined in
      accordance with Section 13(d) of the 1934 Act, and Regulation 13d-3 thereunder.
      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 C 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. The 4.9% Limitation 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
      representing the number of shares of Common Stock being acquired upon the
      conversion of shares of Series C 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). If at the time of Conversion, the
      Shares may be sold pursuant to Rule 144, the Company shall cause its counsel
      to
      issue a legal opinion to the Transfer Agent if required by the Transfer Agent
      to
      effect the removal of the legend on the Shares. 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 C Preferred Stock tendered for
      conversion.

     

    
      
         

      

      
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    ii. Obligation
      Absolute; Partial Liquidated Damages.
      The
      Company’s obligations to issue and deliver the Conversion Shares upon conversion
      of Series C 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 C 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 C 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 C 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 C 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 C 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
      C
      Preferred Stock as required pursuant to the terms hereof.

     

    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 C 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 be issuable (taking into account the adjustments
      and
      restrictions of Section 7) upon the conversion of all outstanding shares of
      Series C 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..

     

    
      
         

      

      
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    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 C 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 C 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 C 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.

     

    vii. Absolute
      Obligation.
      Except
      as expressly provided herein, no provision of this Statement of Designations
      shall alter or impair the obligation of the Company, which is absolute and
      unconditional, to pay the liquidated damages (if any) on, the shares of Series
      C
      Preferred Stock at the time, place, and rate, and in the coin or currency,
      herein prescribed.

     

    Section
      7.
       Certain
      Adjustments.

     

    a) Stock
      Dividends and Stock Splits.
      If the
      Company, at any time while the Series C 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
      C 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.

     

    b) Price
      Adjustment.
      Until
      such
      time as the Investors hold 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 issues warrants, options, convertible
      debt or equity securities with a exercise price per share or conversion price
      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.
      

     

    
      
         

      

      
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    c) Pro
      Rata Distributions.
      If the
      Company, at any time while Series C 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.

     

    d) 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.

     

    e) 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,,
      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, or the
      lowest possible adjustment price in the case of an MFN Transaction.

     

    
      
         

      

      
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    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 C 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.

     

    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 C 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 C 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 C 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 Statement 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 C 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 Statement of Designations, in the event that the agreement
      relating to a Fundamental Transaction provides for the conversion or exchange
      of
      the Series C 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 C Preferred Stock, then the holders of the
      Series C Preferred Stock shall have only the rights set forth in such
      agreement.

     

    
      
         

      

      
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    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 C 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 C 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 Statement of Designations and shall not be deemed to limit or affect any
      of
      the provisions hereof.

     

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

    

    (i)
      prior
      to the shares of Series C 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 C
      Preferred Stock;

    

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    (ii)
      on a
      parity with shares of Series C 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
      C
      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 C Preferred Stock; and

    

    (iii)
      junior to shares of Series C 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 C 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) Amendment.
      This
      Statement of Designations 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 C Preferred Stock, except that the
      conversion limitation set forth in Section 6.2(b) shall not be
      amended.

    

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    ANNEX
      A

     

    NOTICE
      OF
      CONVERSION

     

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

     

    The
      undersigned hereby elects to convert the number of shares of Series C
      Convertible Preferred Stock indicated below, into shares of common stock, par
      value $0.01 per share (the “Common
      Stock”),
      of
      Science Dynamics Corporation, 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 C Preferred Stock to be Converted:
                ________________________

            
	 
	
              Value
                of shares of Series C Preferred Stock to be Converted:
                _________________________

            
	 
	
              Number
                of shares of Common Stock to be Issued:
                _________________________________

            
	 
	
              Certificate
                Number of Series C Preferred Stock attached
                hereto:________________________

            
	 
	
              Number
                of Shares of Series C Preferred Stock represented by attached
                certificate:__________

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

            

    

     

    
      	 	
              [HOLDER]

               

              By:___________________________________

              Name: 

              Title: 

            

    

    

    
      
         

      

      
        -14-

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