Document:

Exhibit 10.7

 

Exhibit 10.7

[FORM OF AMENDED AND RESTATED WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH
COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

CASH SYSTEMS, INC.

Amended and Restated Warrant To Purchase Common Stock

Warrant No.:                     

Number of Shares of Common Stock:                     

Date of Issuance: October 10, 2006 (“Issuance Date”)

          Cash Systems, Inc., a Delaware corporation (the “Company”), hereby certifies that, for good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [PORTSIDE
GROWTH AND OPPORTUNITY FUND] [OTHER BUYERS], the registered holder hereof or its permitted assigns
(the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the “Warrant”), at any time or times on or after the date hereof but not after
11:59 p.m., New York time, on the Expiration Date (as defined below), [            ] ([            ]) fully paid nonassessable
shares of Common Stock (as defined below) (the “Warrant Shares”).
Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 14. This Warrant amends, supplements, modifies and completely restates and
supersedes the warrants, dated as of the Issuance Date (the “Existing Warrants”), issued by the
Company to the Holder for the exercise of [                    ] shares of Common Stock, but shall not,
except as specifically amended hereby or as set forth in the Holder’s Amendment and Exchange
Agreement (as defined below), constitute a release, satisfaction or novation of any of the
obligations under the Existing Warrants or any other Transaction Document (as defined in the
Securities Purchase Agreement). This Warrant is one of an issue of Warrants to Purchase Common
Stock (the “SPA Warrants”) amending and restating the terms of the Existing

 

 

Warrants pursuant to Section 1 of those certain Amendment and Exchange Agreements, dated as of
August 20, 2007 (the “Replacement Date”), by and between each of the Buyers (as defined in the
Securities Purchase Agreement) and the Company (the “Amendment and Exchange Agreements”).

          1. EXERCISE OF WARRANT.

          (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this Warrant may
be exercised by the Holder on any day on or after the date hereof, in whole or in part, by (i)
delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise
Notice”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in
cash or by wire transfer of immediately available funds or (B) by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).
The Holder shall not be required to deliver the original Warrant in order to effect an
exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than
all of the Warrant Shares shall have the same effect as cancellation of the original Warrant
and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant
Shares. On or before the second (2nd) Business Day following the date on which the
Company has received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the “Exercise Delivery Documents”), the Company shall transmit by
facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third
(3rd) Trading Day following the date on which the Company has received all of the
Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) provided that
the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such aggregate number of
Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or
its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission
system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as specified in the
Exercise Notice, a certificate, registered in the Company’s share register in the name of the
Holder or its designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted
in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of Warrant
Shares being acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three (3) Business Days after any exercise and at its own expense, issue a
new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable

- 2 -

 

immediately prior to such exercise under this Warrant, less the number of Warrant Shares
with respect to which this Warrant is exercised. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock
to be issued shall be rounded up to the nearest whole number. The Company shall pay any and
all taxes which may be payable with respect to the issuance and delivery of Warrant Shares
upon exercise of this Warrant.

          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $7.38,
subject to adjustment as provided herein.

          (c) Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder within five (5) Business Days of
receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common
Stock to which the Holder is entitled and register such shares of Common Stock on the
Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this
Warrant, then, in addition to all other remedies available to the Holder, the Company shall
pay in cash to the Holder on each day after such fifth (5th) Business Day that the
issuance of such shares of Common Stock is not timely effected an amount equal to 1.0% of the
product of (A) the sum of the number of shares of Common Stock not issued to the Holder on a
timely basis and to which the Holder is entitled and (B) the Weighted Average Price of the shares of Common Stock on the Trading Day immediately preceding the last possible date which
the Company could have issued such shares of Common Stock to the Holder without violating
Section 1(a). In addition to the foregoing, if within three (3) Trading Days after the
Company’s receipt of the facsimile copy of a Exercise Notice the Company shall fail to issue
and deliver a certificate to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder,
and if on or after such Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares
of Common Stock issuable upon such exercise that the Holder anticipated receiving from the
Company (a “Buy-In"), then the Company shall, within five (5) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal
to the Holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased (the “Buy-In Price"), at which point the Company’s obligation to
deliver such certificate (and to issue such Warrant Shares) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates representing such
Warrant Shares and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the
Weighted Average Price on the date of exercise.

          (d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if a registration statement covering the resale of the Warrant Shares that are the
subject of the Exercise Notice by the Holder pursuant to the 1933 Act (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares, the
Holder may, in its sole discretion, exercise this Warrant in whole or in

- 3 -

 

part and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the “Net Number” of shares of Common Stock determined according to
the following formula (a “Cashless Exercise”):

	 	 	 	 	 	 	 
	 

	 	Net Number =
	 	(A x B) - (A x C)
	 	 
	 

	 	 	 	B	 	 

          For purposes of the foregoing formula:

	 	 	 	 	 
	 

	 	A=
	 	the total number of shares with respect to which
this Warrant is then being exercised.
	 
	 	 	 	 
	 

	 	B=
	 	the Weighted Average Price of the shares of Common
Stock (as reported by Bloomberg) on the date immediately preceding
the date of the Exercise Notice.
	 
	 	 	 	 
	 

	 	C=
	 	the Exercise Price then in effect for
the applicable Warrant Shares at the time of such
exercise.

          (e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to
the Holder the number of Warrant Shares that are not disputed and resolve such dispute in
accordance with Section 12.

          (f) Limitations on Exercises; Beneficial Ownership.

(i) The Company shall not effect the exercise of this Warrant, and the
Holder shall not have the right to exercise this Warrant, to the extent that
after giving effect to such exercise, such Person (together with such
Person’s affiliates) would beneficially own in excess of 4.99% the “Maximum
Percentage”) of the shares of Common Stock outstanding immediately after
giving effect to such exercise. For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of
Common Stock which would be issuable upon (x) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and
its affiliates and (y) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially
owned by such Person and its affiliates (including, without limitation, any
convertible notes or convertible preferred stock or warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with

- 4 -

 

Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Warrant, 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 (1) the Company’s most recent Form 10-K, Form
10-KSB, Form 10-Q, Form 10-QSB, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission (“SEC”) as the case may
be, (2) a more recent public announcement by the Company or (3) any other
notice by the Company or the Transfer Agent setting forth the number of
 shares of Common Stock outstanding. For any reason at any time, upon the
written or oral request of the Holder, the Company shall within two (2)
Business 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 by the Holder and
its affiliates since the date as of which such number of outstanding shares
of Common Stock was reported. By written notice to the Company, the Holder
may from time to time increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided
that any such increase will not be effective until the sixty-first
(61st) day after such notice is delivered to the Company.

(ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this Warrant
and the Holder shall not have the right to receive upon exercise of this
Warrant any shares of Common Stock, if the issuance of such shares of Common
Stock would exceed the aggregate number of shares of Common Stock which the
Company may issue upon exercise of this Warrant (including, as applicable,
any shares of Common Stock issued upon conversion of the SPA Securities)
without breaching the Company’s obligations under the rules or regulations
of the Principal Market (the “Exchange Cap”), except that such limitation
shall not apply in the event that the Company (A) obtains the approval of
its stockholders as required by the applicable rules of the Principal Market
for issuances of shares of Common Stock in excess of such amount or (B)
obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to
the Required Holders. Until such approval or written opinion is obtained,
no Holder shall be issued, upon exercise or conversion, as applicable, of
any SPA Warrants or SPA Securities, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock issued to
such Holder pursuant to the Securities Purchase Agreement on the Issuance
Date and the denominator of which is the aggregate number of shares of
Common Stock issued to the Holders pursuant to the Securities Purchase
Agreement on the Issuance Date (with respect to each Holder, the “Exchange
Cap Allocation”). In the event that any Holder shall sell or otherwise
transfer

- 5 -

 

any of such Holder’s SPA Warrants, the transferee shall be allocated a pro
rata portion of such Holder’s Exchange Cap Allocation, and the restrictions
of the prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such transferee. In the
event that any Holder of SPA Warrants shall exercise all of such Holder’s
SPA Warrants into a number of shares of Common Stock which, in the
aggregate, is less than such Holder’s Exchange Cap Allocation, then the
difference between such Holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder shall be allocated to
the respective Exchange Cap Allocations of the remaining Holders of SPA
Warrants on a pro rata basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such Holder. In the event
that the Company is prohibited from issuing any Warrant Shares for which an
Exercise Notice has been received as a result of the operation of this
Section 1(f)(ii), the Company shall pay cash in exchange for cancellation of
such Warrant Shares, at a price per Warrant Share equal to the difference
between the Closing Sale Price and the Exercise Price as of the date of the
attempted exercise.

          (g) Insufficient Authorized Shares. If at any time while this Warrant remain
outstanding the Company does not have a sufficient number of authorized and unreserved shares
of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this
Warrant at least a number of shares of Common Stock equal to 112% (the “Required Reserve
Amount”) of the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of this Warrant then outstanding (an “Authorized Share Failure”),
then the Company shall immediately take all action necessary to increase the Company’s
authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the
Required Reserve Amount for this Warrant then outstanding. Without limiting the generality of
the foregoing sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than ninety (90) days after the occurrence of
such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock. In connection
with such meeting, the Company shall provide each stockholder with a proxy statement and shall
use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders
that they approve such proposal.

          2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and
the number of Warrant Shares shall be adjusted from time to time as follows:

          (a) Adjustment upon Issuance of shares of Common Stock. If and whenever on or
after the Subscription Date and through the first anniversary of the Issuance Date, the
Company issues or sells, or in accordance with this Section 2 is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but

- 6 -

 

excluding shares of Common Stock deemed to have been issued by the Company in connection
with any Excluded Securities (as defined in the SPA Securities) for a consideration per share
(the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Exercise
Price in effect immediately prior to such issue or sale or deemed issuance or sale (the
foregoing a “Dilutive Issuance"), then immediately after such Dilutive Issuance, the Exercise
Price then in effect shall be reduced to an amount equal to the New Issuance Price. In the
event of any Dilutive Issuance after the first anniversary of the Issuance Date, then
immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced
to an amount equal to the product of (A) the Exercise Price in effect immediately prior to
such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Exercise Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed Outstanding immediately prior to such
Dilutive Issuance plus (II) the consideration, if any, received by the Company upon such
Dilutive Issuance, by (2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of shares of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance. Upon each such adjustment of the
Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the number of shares of Common Stock determined by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares acquirable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise
Price resulting from such adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:

(i) Issuance of Options. If the Company in any manner grants
any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by
the Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the “lowest price
per share for which one share of Common Stock is issuable upon exercise of
such Options or upon conversion, exercise or exchange of such Convertible
Securities issuable upon exercise of any such Option” shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon the
granting or sale of the Option, upon exercise of the Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Exercise Price or
number of Warrant Shares shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise
of such Options or upon the actual issuance of such shares of Common Stock
upon conversion, exercise or exchange of such Convertible Securities.

- 7 -

 

(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(a)(ii), the “lowest price per share for which one share of Common
Stock is issuable upon the conversion, exercise or exchange thereof” shall
be equal to the sum of the lowest amounts of consideration (if any) received
or receivable by the Company with respect to one share of Common Stock upon
the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further adjustment of
the Exercise Price or number of Warrant Shares shall be made upon the actual
issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise Price
or number of Warrant Shares shall be made by reason of such issue or sale.

(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be,
at the time initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the shares of Common Stock
deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price then in effect or a
decrease in the number of Warrant Shares.

(iv) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities of the

- 8 -

 

Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $0.01. If
any shares of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the
Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the Weighted Average Price of such security on the date of
receipt. If any shares of Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other
than cash or securities will be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The determination of such
appraiser shall be final and binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the Company.

(v) Record Date. If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase shares of
Common Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.

          (b) Adjustment upon Subdivision or Combination of Common Stock. If the Company
at any time on or after the Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time

- 9 -

 

on or after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of business on the
date the subdivision or combination becomes effective.

          (c) Other Events. If any event occurs of the type contemplated by the provisions
of this Section 2 but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights
of the Holder; provided that no such adjustment pursuant to this Section 2(c) will increase
the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.

          (d) De Minimis Adjustments. No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least $0.01 in such price;
provided, however, that any adjustment which by reason of this Section 7(d) is not required to
be made shall be carried forward and taken into account in any subsequent adjustments under
this Section 7. All calculations under this Section 7 shall be made by the Company in good
faith and shall be made to the nearest cent or to the nearest one hundredth of a share, as
applicable. No adjustment need be made for a change in the par value or no par value of the
Company’s Common Stock.

          3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares
of Common Stock, by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a dividend, spin
off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

          (a) any Exercise Price in effect immediately prior to the close of business on the record
date fixed for the determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Weighted Average Price of the shares of Common Stock on the Trading Day
immediately preceding such record date minus the value of the Distribution (as determined in
good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and
(ii) the denominator shall be the Weighted Average Price of the shares of Common Stock on the
Trading Day immediately preceding such record date; and

          (b) the number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of shares of

- 10 -

 

Common Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding paragraph (a); provided that in the event that
the Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common
Stock”) of a company whose common shares are traded on a national securities exchange or a
national automated quotation system, then the Holder may elect to receive a warrant to
purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares,
the terms of which shall be identical to those of this Warrant, except that such warrant shall
be exercisable into the number of shares of Other Shares of Common Stock that would have been
payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant
immediately prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased with respect
to the Distribution pursuant to the terms of the immediately preceding paragraph (a) and the
number of Warrant Shares calculated in accordance with the first part of this paragraph (b).

          4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

          (a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above,
if at any time the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to
any limitations on the exercise of this Warrant) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of shares of Common Stock are to be determined
for the grant, issue or sale of such Purchase Rights.

          (b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the
obligations of the Company under this Warrant and the other Transaction Documents in
accordance with the provisions of this Section (4)(b) pursuant to written agreements in form
and substance satisfactory to the Required Holders and approved by the Required Holders prior
to such Fundamental Transaction, including agreements to deliver to each holder of the SPA
Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant, including,
without limitation, an adjusted exercise price equal to the value for the shares of Common
Stock reflected by the terms of such Fundamental Transaction, and exercisable for a
corresponding number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly
traded corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so

- 11 -

 

that from and after the date of such Fundamental Transaction, the provisions of this
Warrant referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had been named as
the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) issuable upon
the exercise of the Warrant prior to such Fundamental Transaction, such shares of the publicly
traded Common Stock (or its equivalent) of the Successor Entity (including its Parent Entity)
which the Holder would have been entitled to receive upon the happening of such Fundamental
Transaction had this Warrant been converted immediately prior to such Fundamental Transaction,
as adjusted in accordance with the provisions of this Warrant. In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common Stock (a
“Corporate Event”), the Company shall make appropriate provision to insure that the Holder
will thereafter have the right to receive upon an exercise of this Warrant at any time after
the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of
the shares of the Common Stock (or other securities, cash, assets or other property) issuable
upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or other
purchase or subscription rights) which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Warrant been exercised immediately prior to
such Fundamental Transaction. Provision made pursuant to the preceding sentence shall be in a
form and substance reasonably satisfactory to the Holder. The provisions of this Section
shall apply similarly and equally to successive Fundamental Transactions and Corporate Events
and shall be applied without regard to any limitations on the exercise of this Warrant.

          (c) Notwithstanding the foregoing, in the event of a Fundamental Transaction, at the
request of the Holder delivered before the forty-fifth (45th) day after the
consummation of such Fundamental Transaction, the Company (or the Successor Entity) shall
purchase this Warrant from the Holder by paying to the Holder, within ten (10) Business Days
after such request (or, if later, on the effective date of the Fundamental Transaction), cash
in an amount equal to the Black Scholes value of the remaining unexercised portion of this
Warrant on the date of such Fundamental Transaction calculated using the Black Scholes Option
Pricing Model.

          5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, and will at all times in good faith carry out all the provisions
of this Warrant and take all action as may be required to protect the rights of the Holder.
Without limiting the generality of the foregoing, the Company (i) shall not increase the

- 12 -

 

par value of any shares of Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant and (iii) shall, so long as any of the SPA Warrants
are outstanding, take all action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA
Warrants, 112% of the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on
exercise.

          6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices and other information given to the
shareholders of the Company generally, contemporaneously with the giving thereof to the
shareholders.

- 13 -

 

          7. REISSUANCE OF WARRANTS.

          (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as
the Holder may request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares then underlying
this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the
Holder representing the right to purchase the number of Warrant Shares not being transferred.

          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by
the Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

          (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase
the number of Warrant Shares then underlying this Warrant, and each such new Warrant will
represent the right to purchase such portion of such Warrant Shares as is designated by the
Holder at the time of such surrender; provided, however, that no Warrants for fractional
            shares of Common Stock shall be given.

          (d) Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor
with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the
right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new
Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the
face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same
rights and conditions as this Warrant.

          8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at
least fifteen (15) days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the shares of

- 14 -

 

Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property to holders of shares
of Common Stock (other than Excluded Securities) or (C) for determining rights to vote with respect
to any Fundamental Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with such notice being
provided to the Holder.

          9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the Required Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon exercise of any SPA
Warrant without the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then outstanding.

          10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

          11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and all the Buyers and shall not be construed against any person as the drafter hereof.
The headings of this Warrant are for convenience of reference and shall not form part of, or affect
the interpretation of, this Warrant.

          12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within two (2)
Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by the Holder or (b)
the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside
accountant. The Company shall cause at its expense the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the Company and the Holder of
the results no later than ten Business Days from the time it receives the disputed determinations
or calculations. Such investment bank’s or accountant’s determination or calculation, as the case
may be, shall be binding upon all parties absent demonstrable error.

          13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other

- 15 -

 

remedies available under this Warrant and the other Transaction Documents, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein
shall limit the right of the Holder right to pursue actual damages for any failure by the Company
to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any
such breach may be inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.

          (a) TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by Section 2(f) of the
Securities Purchase Agreement.

          14. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have
the following meanings:

          (a) “1933 Act” means the Securities Act of 1933, as amended.

          (b) “Bloomberg” means Bloomberg Financial Markets.

          (c) “Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to remain closed.

          (d) “Closing Sale Price” means, for any security as of any date, the last closing trade
price for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not designate the
closing trade price then the last trade price of such security prior to 4:00:00 p.m., New York
time, as reported by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last trade price of such security on the
principal securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last trade price of such security
in the over-the-counter market on the electronic bulletin board for such security as reported
by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.). If the Closing Sale Price cannot be calculated for a security on a particular
date on any of the foregoing bases, the the Closing Sale Price of such security on such date
shall be the fair market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 12. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

- 16 -

 

          (e) “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per
share, and (ii) any share capital into which such Common Stock shall have been changed or any
share capital resulting from a reclassification of such Common Stock.

          (f) “Common Stock Deemed Outstanding” means, at any given time, the number of shares of
Common Stock actually outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the Company or
issuable upon exercise of the SPA Warrants.

          (g) “Convertible Securities” means any stock or securities (other than Options) directly
or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

          (h) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., The
NASDAQ Global Select Market or The NASDAQ Capital Market.

          (i) “Expiration Date” means the date sixty (60) months after the Issuance Date or, if
such date falls on a day other than a Business Day or on which trading does not take place on
the Principal Market (a “Holiday”), the next date that is not a Holiday.

          (j) “Fundamental Transaction” means that the Company shall, directly or indirectly, in
one or more related transactions, (i) consolidate or merge with or into (whether or not the
Company is the surviving corporation) another Person or Persons, if the holders of the Voting
Stock (not including any shares of Voting Stock held by the Person or Persons making or party
to, or associated or affiliated with the Persons making or party to, such consolidation or
merger) immediately prior to such consolidation or merger shall hold or have the right to
direct the voting of less than 50% of the Voting Stock or such voting securities of such other
surviving Person immediately following such transaction, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or assets of the
Company to another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50% of the outstanding shares
of Voting Stock (not including any shares of Voting Stock held by the Person or Persons making
or party to, or associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires more than the
50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held
by the other Person or other Persons making or party to, or associated or affiliated with the
other Persons making or party to, such stock purchase agreement or other business
combination), (v) reorganize, recapitalize or reclassify its Common Stock or (vi) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended)

- 17 -

 

is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock.

          (k) “Options” means any rights, warrants or options to subscribe for or purchase shares
of Common Stock or Convertible Securities.

          (l) “Parent Entity” of a Person means an entity that, directly or indirectly, controls
the applicable Person and whose common stock or equivalent equity security is quoted or listed
on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person
or Parent Entity with the largest public market capitalization as of the date of consummation
of the Fundamental Transaction.

          (m) “Person” means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other entity and a
government or any department or agency thereof.

          (n) “Principal Market” means The NASDAQ Global Market.

          (o) “Required Holders” means the holders of the SPA Warrants representing at least
two-thirds of shares of Common Stock underlying the SPA Warrants then outstanding.

          (p) “Securities Purchase Agreement” means that certain securities purchase agreement
dated as of the Subscription Date by and among the Company and the initial holders of the
Warrants pursuant to which the Company issued the Warrants, as amended from time to time in
accordance with its terms, including, without limitation, pursuant to the Amendment and
Exchange Agreements.

          (q) “SPA Securities” means the Notes issued pursuant to the Securities Purchase
Agreement.

          (r) “Subscription Date” means October 6, 2006.

          (s) “Successor Entity” means the Person (or, if so elected by the Required Holders, the
Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the
Person (or, if so elected by the Required Holders, the Parent Entity) with which such
Fundamental Transaction shall have been entered into.

          (t) “Trading Day” means any day on which the Common Stock are traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the Common Stock,
then on the principal securities exchange or securities market on which the Common Stock are
then traded; provided that “Trading Day” shall not include any day on which the Common Stock
are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock are suspended from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York
time).

- 18 -

 

          (u) “Voting Stock” of a Person means capital stock of such Person of the class or classes
pursuant to which the holders thereof have the general voting power to elect, or the general
power to appoint, at least a majority of the board of directors, managers or trustees of such
Person (irrespective of whether or not at the time capital stock of any other class or classes
shall have or might have voting power by reason of the happening of any contingency).

          (v) “Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during the period
beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time,
as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported
by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the “pink sheets” by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average Price
cannot be calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Required Holders. If the Company and the Required
Holders are unable to agree upon the fair market value of the such security, then such dispute
shall be resolved pursuant to Section 12 with the term “Weighted Average Price” being
substituted for the term “Exercise Price.” All such determinations shall be appropriately
adjusted for any share dividend, share split or other similar transaction during such period.

[Signature Page Follows]

- 19 -

 

          IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly
executed as of the Issuance Date set out above.

	 	 	 	 	 
	 	CASH SYSTEMS, INC.

 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

CASH SYSTEMS, INC.

     The undersigned holder hereby exercises the right to purchase                      of the shares
of Common Stock (“Warrant Shares”) of Cash Systems, Inc., a Delaware corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used
herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

     1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be
made as:

                               a “Cash Exercise” with respect to                      Warrant
Shares; and/or

                               a “Cashless Exercise” with respect to                      Warrant
Shares.

     2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the
Aggregate Exercise Price in the sum of $                      to the Company in accordance with the
terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder                      Warrant
Shares in accordance with the terms of the Warrant.

Date:                      __, ______

                                                                    
                                

   Name of Registered Holder

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 

 

 

ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs Computershare Trust
Company, N.A. to issue the above indicated number of shares of Common Stock in accordance with the
Transfer Agent Instructions dated August 20, 2007 from the Company and acknowledged and agreed to
by Computershare Trust Company, N.A.

	 	 	 	 	 
	 	CASH SYSTEMS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:exv4w1

 

Exhibit 4.1

CERTIFICATE OF DESIGNATIONS

2007 SERIES A 8% CONVERTIBLE PREFERRED STOCK

(Par Value $.001 Per Share)

of

GREENHUNTER ENERGY, INC.

 

Pursuant to Section 151

of the Delaware General Corporation Law

 

     We, Michael K. Studer, President and Morgan F. Johnston, Sr. Vice President and Secretary, of
GreenHunter Energy, Inc., a corporation organized and existing under the laws of the State of
Delaware (the “Corporation”), DO HEREBY CERTIFY that, pursuant to the authority conferred on the
Board of Directors of the Corporation by the Certificate of Incorporation, as amended, of the
Corporation and in accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation on March 9, 2007 duly adopted the following
preamble and resolution establishing and creating a series of 12,500 shares of Preferred Stock, par
value $.001 per share, of the Corporation, designated “2007 Series A 8% Convertible Preferred
Stock”:

     RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation
(the “Board of Directors”) in accordance with the provisions of its Certificate of Incorporation,
as amended, a series of Preferred Stock, par value $.001 per share, of the Corporation is hereby
created, and that the designation and number of shares thereof and the voting powers, designations,
preferences, limitations, restrictions and relative rights thereof are as follows:

     Section 1. Designation, Number of Shares and Stated Value of 2007 Series A 8%
Convertible Preferred Stock. There is hereby authorized and established a series of Preferred
Stock that shall be designated as “2007 Series A 8% Convertible Preferred Stock” (hereinafter
referred to as “Series A 8% Preferred”), and the number of shares constituting such series shall be
12,500. Such number of shares may be increased or decreased, but not to a number less than the
number of shares of Series A 8% Preferred then issued and outstanding, by resolution adopted by the
full Board of Directors. The “Stated Value” per share of the Series A 8% Preferred, shall
initially be equal to One Thousand Dollars ($1,000.00), as it may be adjusted from time to time
pursuant to the terms hereof.

     Section 2. Definitions. In addition to the definitions set forth elsewhere
herein, the following terms shall have the meanings indicated:

     “10-Day Average Price” per share of Common Stock, for purposes of any provision herein at the
date specified in such provision, shall mean the average closing price of the Common Stock on the
Market on which the Common Stock is listed or quoted for the ten day period immediately prior to
such date in question.

     “Affiliate” shall mean, with respect to any person, any other person that directly or
indirectly controls or is controlled by or is under complete control with such person. For the
purposes of this definition, “control” when used with respect to any person means the ownership of
at least a majority of the issued and outstanding voting securities or capital interests of such
person.

     “Approved Share Plan” means any employee benefit plan which has been approved by the Board of
Directors of the Corporation, pursuant to which the Corporation’s securities may be issued to any
employee, officer, consultant or director for services provided to the Corporation.

     “Bloomberg” means Bloomberg Financial Markets.

 

 

     “Business Day” shall mean any day other than a Saturday, Sunday or a day on which
banking institutions in Dallas, Texas are authorized or obligated by law or executive order to
close.

     “Closing Bid Price” and “Closing Sale Price” shall mean, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on its Market,
as reported by Bloomberg, or, if the Market begins to operate on an extended hours basis and does
not designate the closing bid price or the closing trade price, as the case may be, then the last
bid price or last trade price, respectively, of such security prior to 5:00:00 p.m., New York Time,
as reported by Bloomberg, or, if the Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price, respectively, of such
security on the principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or
last trade price, respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security as reported in the
“pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by the Corporation and
the Required Holders. All such determinations shall be appropriately adjusted for any share
dividend, share split, share combination or other similar transaction during the applicable
calculation period.

     “Common Stock” shall mean the common stock, par value $0.001 per share, of the Corporation.

     “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 6(d)(i)(A) and 6(d)(i)(B) hereof regardless of whether the Options
or Convertible Securities are actually exercisable at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Corporation or issuable upon conversion of the
Series A 8% Preferred.

     “Conversion Amount” means the Stated Value as it may be adjusted from time to time pursuant to
the terms hereof.

     “Conversion Price” shall mean the conversion price per share of Common Stock into which the
Series A 8% Preferred is convertible, as such conversion price may be adjusted pursuant to the
provisions hereof. The initial Conversion Price is Five Dollars and No/100 Cents ($5.00).

     “Convertible Securities” means any shares or securities (other than Options) directly or
indirectly convertible into or exchangeable or exercisable for shares of Common Stock.

     “Excluded Securities” means any Common Stock issued or deemed to be issued in accordance with
Section 6(d) hereof by the Corporation: (A) in connection with an Approved Share Plan; (B) upon
issuance of shares of the Series A 8% Preferred or Dividend Shares or, upon conversion of the
Series A 8% Preferred or upon exercise of the Warrants; (C) issued upon exercise of Options or
Convertible Securities which are outstanding on the date immediately preceding the Subscription
Date, provided that such issuance of Common Stock upon exercise of such Options or Convertible
Securities is made pursuant to the terms of such Options or Convertible Securities in effect on the
date immediately preceding the Subscription Date and such Options or Convertible Securities are not
amended after the date immediately preceding the Subscription Date; (D) in connection with any
acquisition by the Company, whether through an acquisition of stock or a merger of any business,
assets or technologies the primary purpose of which is not to raise equity capital; and (E) issued
in connection with any share split, share dividend, recapitalization or similar transaction by the
Corporation for which adjustment is made pursuant to Section 6(d).

     “Junior Securities” means any capital stock of the Corporation issued after the Original Issue
Date and any other series of stock issued by the Corporation ranking junior as to the Series A 8%
Preferred upon liquidation, dissolution or winding up of the Corporation.

 

 

     “Market” shall mean the any of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or The National
Association of Securities Dealers Inc.’s Over-The-Counter Bulletin Board.

     “Options” means any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities.

     “Original Issue Date” shall mean the date on which shares of the Series A 8% Preferred are
first issued.

     “Original Holders” shall mean the person or persons to whom shares of the Series A 8%
Preferred are issued on the Original Issue Date and, as long as there is a direct chain of
ownership by such persons or persons and their Affiliates, any Affiliate of such person or persons
to whom shares of the Series A 8% Preferred are transferred.

     “Parity Security” means any class or series of stock issued by the Corporation ranking on a
parity with the Series A 8% Preferred upon liquidation, dissolution or winding up of the
Corporation.

     “Person” means any individual, corporation, association, partnership, joint venture, limited
liability company, trust, estate, or other entity or organization, other than the Corporation, any
subsidiary of the Corporation, any employee benefit plan of the Corporation or any subsidiary of
the Corporation, or any entity holding shares of Common Stock for or pursuant to the terms of any
such plan.

     “Registration Rights Agreement” means that certain registration rights agreement by and among
the Corporation and the initial Holders of the Series A 8% Preferred relating to the filing of a
registration statement covering the resale of the Common Stock issuable upon conversion of the
Series A 8% Preferred, Common Stock issuable upon exercise of the Warrants and the Dividend Shares,
as such agreement may be amended from time to time as provided in such agreement.

     “Required Holders” means the Holders of shares of Series A 8% Preferred representing at least
a majority of the aggregate shares of Series A 8% Preferred then outstanding.

     “Securities Purchase Agreement” means that certain securities purchase agreement by and among
the Corporation and the initial Holders, dated as of the Subscription Date, as such agreement
further may be amended from time to time as provided in such agreement.

     “Senior Securities” means any class or series of stock issued and outstanding after the
Original Issue Date by the Corporation ranking senior to the Series A 8% Preferred upon
liquidation, dissolution or winding up of the Corporation.

     “Subscription Date” means March 9, 2007.

     “Trading Day” means any day on which the shares of Common Stock are traded on a Market;
provided that “Trading Day” shall not include any day on which the shares of Common Stock are
scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common
Stock is suspended from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of trading on such exchange
or market, then during the hour ending at 5:00:00 p.m., New York Time).

     “Underlying Shares” means, collectively, the shares of Common Stock issuable upon conversion
of the Series A 8% Preferred.

     “Warrants” means the warrants to purchase shares of Common Stock issued by the Corporation
pursuant to the Securities Purchase Agreement, and shall include all Warrants issued in exchange
thereof or replacement thereof.

     “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted
average price for such security on its Market during the period beginning at 9:30:01 a.m., New York
City Time, and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the

- 3 -

 

electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00
p.m., New York City Time, as reported by Bloomberg, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Weighted Average Price cannot be calculated for such security on such date on any of the foregoing
bases, the term “Weighted Average Price” shall be being substituted for the term “Closing Bid
Price.” All such determinations shall be appropriately adjusted for any share dividend, share split
or other similar transaction during such period.

     Section 3. Dividends and Distributions.

     (a) The holders of shares of the Series A 8% Preferred (each, a “Holder” and
collectively, the “Holders”) shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefore, cumulative cash dividends at an annual rate of
eight percent (8%) (the “Dividend Rate”)of the Stated Value, as adjusted pursuant to Section 3(c).
Such dividends on shares of Series A 8% Preferred shall be cumulative from the date such shares are
issued, whether or not in any period there shall be funds of the Corporation legally available for
the payment of such dividends and whether or not such dividends are declared, and shall be payable
quarterly, when, as and if declared by the Board of Directors, on March 31, June 30, September 30
and December 31 in each year (each a “Dividend Payment Date”) or if such date is not a Business
Day, then on the Business Day immediately following such Dividend Payment Date, commencing June 30,
2007. Except for the dividend payable on June 30, 2007 (which dividend shall cover the period from
the Original Issue Date through June 30, 2007, inclusive), the amount of each dividend for any full
quarter shall be Twenty and No/100 Dollars ($20) per share. Such dividends shall accrue whether or
not there shall be (at the time such dividend becomes payable or at any other time) profits,
surplus or other funds of the Corporation legally available for the payment of dividends.

     (b) Dividends shall be calculated for the period from the Original Issue Date
through June 30, 2007 and for any period that is not a full quarter on the basis of the time
elapsed from and including the date immediately following the most recent Dividend Payment Date
(or, in the case of the dividend payable on June 30, 2007, from and including the Original Issue
Date) to and including the final distribution date relating to conversion or to a dissolution,
liquidation or winding up of the Corporation (or, in the case of the dividend payable on June 30,
2007, to and including June 30, 2007). Dividends payable on the shares of Series A 8% Preferred
for the period from the Original Issue Date through June 30, 2007 and for any period that is not a
full quarter shall be calculated at the Dividend Rate on the basis of a 365-day or 366-day, as
appropriate, year.

     (c) (i) Any dividend payment or payments on the Series A 8% Preferred which are in
arrears shall accrue and, in the event dividends on shares of the Series A 8% Preferred have not
been paid for two consecutive quarters, for each such accrued and unpaid dividend payment from and
including the second consecutive Dividend Payment Date on which no dividend payment is made to and
including the date on which such dividend payment in arrears is paid, shall be added to the Stated
Value (such additional portion of the adjusted Stated Value, the “Added Stated Value”), and
thereafter shall no longer be considered accrued dividends. The Dividend Rate with respect of the
Added Stated Value portion of the total Stated Value shall be adjusted to 10% per annum (the “Added
Stated Value Dividend Rate”).

     (ii) If the Corporation fails to pay to the Holder any amounts when and as due pursuant to
this Certificate of Designations or any other Transaction Document (as defined in the Securities
Purchase Agreement), other than a failure
to pay a dividend (which shall be governed by Section 3(c)(i)), then, following a grace period
of thirty (30) days of being notified by the Holder of such failure to pay, the Dividend Rate shall
be increased to 10% until such failure is cured.

     (d) Dividends payable on each Dividend Payment Date shall be paid to record Holders
of the shares of Series A 8% Preferred as they appear on the books of the Corporation at the close
of business on the tenth Business Day immediately preceding the respective Dividend Payment Date or
on such other record date as may be fixed by the Board of Directors of the Corporation in advance
of a Dividend Payment Date, provided that no such record date shall be less than ten nor more than
60 calendar days preceding such Dividend Payment Date. Dividends payable to Original Holders shall
be paid by the Corporation by wire transfer in same-day funds to one account to be designated in
writing by the

- 4 -

 

Original Holders to the Corporation at least three days prior to any Dividend
Payment Date, or by such other means mutually agreed upon by the parties.

     (e) So long as any shares of Series A 8% Preferred are outstanding, no dividend or
other distribution, whether in liquidation or otherwise, shall be declared or paid, or set apart
for payment on or in respect of, any Junior Securities, nor shall any Junior Securities be
redeemed, purchased or otherwise acquired for any consideration (or any money be paid to a sinking
fund or otherwise set apart for the purchase or redemption of any such Junior Securities), unless
(i) the full cumulative dividends, if any, accrued on all outstanding shares of the Series A 8%
Preferred shall have been paid or set apart for payment for all past dividend periods and (ii)
sufficient funds shall have been set apart for the payment of the dividend for the then current
dividend period with respect to the Series A 8% Preferred.

     (f) Such dividends shall be payable, at the option of the Corporation, on any Dividend Payment
Date, in (i) cash or (ii) shares of Common Stock (“Dividend Shares”). Dividends payable in
Dividend Shares shall be paid by calculating the cash dividend that is due on the Dividend Payment
Date, dividing such amount by the 10-Day Average Price per share of Common Stock and multiplying
such result by 115% (the Corporation shall round such shares to the nearest whole share). The
Dividend Shares shall be transferable only in compliance with the provisions of the Securities Act
and applicable state securities laws. If any dividends are to be issued in shares of Common Stock
on a Dividend Payment Date, then the Corporation shall within two (2) Business Days of the
applicable Dividend Payment Date, (X) provided that the Corporation’s designated transfer agent
(the “Transfer Agent”) is participating in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares
of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver
to such Holder, a certificate, registered in the name of the Holder or its designee, for the number
of shares of Common Stock to which the Holder shall be entitled.

     The stock certificate or certificates for Common Stock so delivered shall be endorsed with a
legend in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I)
IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL,
IN A FORM REASONABLY ACCEPTABLE TO THE CORPORATION, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

- 5 -

 

     Section 4. Certain Covenants and Restrictions.

     (a) So long as any shares of Series A 8% Preferred are outstanding;

     (i) The Corporation shall at all times reserve and keep available for issuance upon the
conversion of the shares of Series A 8% Preferred such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the conversion of all outstanding
shares of Series A 8% Preferred, and all other securities and instruments convertible into
shares of Common Stock and the payment of Dividend Shares, and shall take all action
necessary to increase the authorized number of shares of Common Stock necessary to permit
the conversion of all such shares of Series A 8% Preferred and all other securities and
instruments convertible into shares of Common Stock and the payment of Dividend Shares.

     (ii) The Corporation represents, warrants and agrees that all shares of Common
Stock that may be issued upon exercise of the conversion rights of shares of Series A 8%
Preferred and any Dividend Shares will, upon issuance, be fully-paid and nonassessable.

     (iii) The Corporation shall pay all taxes and other governmental charges (other than
any income or franchise taxes) that may be imposed with respect to the issue or delivery of
shares of Common Stock upon conversion of Series A 8% Preferred and any Dividend Shares as
provided herein. The Corporation shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any certificate for
shares of Common Stock in any name other than that of the registered Holder of the shares of
the Series A 8% Preferred surrendered in connection with the conversion thereof, and in such
case the Corporation shall not be required to issue or deliver any stock certificate until
such tax or other charge has been paid, or it has been established to the Corporation’s
reasonable satisfaction that no tax or other charge is due.

     Section 5. Liquidation Preference.

     (a) In the event of any liquidation, dissolution or winding up of the Corporation
(in connection with the bankruptcy or insolvency of the Corporation or otherwise), whether
voluntary or involuntary, before any payment or distribution of the assets of the Corporation
(whether capital or surplus) shall be made to or set apart for the holders of shares of any Junior
Securities, the Holders of the shares of Series A 8% Preferred shall be entitled to receive an
amount equal to the Stated Value, as adjusted pursuant to Section 3(c), multiplied by the number of
shares of Series A 8% Preferred held by them, plus all cumulative dividends (whether or not
declared) that are accrued and unpaid thereon. To the extent the available assets are insufficient
to fully satisfy such amounts, then the Holders of the Series A 8% Preferred shall share ratably in
such distribution in the proportion that the number of each Holder’s Series A 8% Preferred Shares
bears to the total number of shares of Series A 8% Preferred outstanding. No further payment on
account of any such liquidation, dissolution or winding up of the Corporation shall be paid to the
Holders of the shares of Series A 8% Preferred or the holders of any Parity Securities unless there
shall be paid at the same time to the Holders of the shares of Series A 8% Preferred and the
holders of any Parity Securities proportionate amounts determined ratably in proportion to the full
amounts to which the Holders of all outstanding shares of Series A 8% Preferred and the holders of
all such outstanding Parity Securities are respectively entitled with respect to such distribution.
For purposes of this Section, neither a consolidation or merger of the Corporation with one or
more partnerships, corporations or other entities nor a sale, lease, exchange or transfer of all or
any substantial part of the Corporation’s assets for cash, securities or other property shall be
deemed to be a liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary.

     (b) After the payment of all amounts owing to the holders of stock ranking prior to
the Common Stock, the holders of Common Stock shall share ratably in the distribution of the
remaining available assets of the Corporation in the proportion that each holder’s shares bear to
the total number of shares of Common Stock outstanding.

     (c) Written notice of any liquidation, dissolution or winding up of the Corporation,
stating the payment date or dates when and the place or places where the amounts distributable in
such circumstances shall be payable, shall be given, not less than 15 days prior to any payment date stated therein, to
the Holders of record of the shares of Series A 8% Preferred in accordance with Section 12 hereof.

- 6 -

 

     Section 6. Conversion Rights. The outstanding shares of Series A 8%
Preferred are subject to conversion in accordance with the following provisions:

     (a) At the option of the Holder, each share of Series A 8% Preferred shall be convertible at
any time into that number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest one-hundredth (1/100) of a share) obtained by dividing the Stated
Value, as adjusted pursuant to Section 3(c), by the Conversion Price in effect at such time (the
“Conversion Rate”).

     (b) Each share of this Series A 8% Preferred may be converted, in whole or in part, at the
option of the Corporation, at any time all of the following conditions are satisfied: (i) two
years have elapsed from the Original Issue Date, (ii) the 10-Day Average Price per share of the
Common Stock is greater than or equal to seven dollars and fifty cents ($7.50) (as adjusted for
splits, recapitalization and the like), (iii) the average daily trading volume for the shares of
Common Stock over the same 10 day period referenced in (ii) above equals or exceeds 10,000 shares
and (iv) all of the Underlying Shares have been registered for resale pursuant to the
Securities Act of 1933, as amended.

     Upon the happening of (i), (ii), (iii) and (iv), the Corporation may provide notice (the
“Conversion Notice”) to the Holder of the Series A 8% Preferred at any time within seven (7)
business days after the occurrence of such events indicating the Corporation’s desire to have the
Series A 8% Preferred converted. Each share of Series A 8% Preferred so converted shall be
convertible at any time into that number of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion to the nearest one-hundredth (1/100) of a share) obtained by
dividing the Stated Value, as adjusted pursuant to Section 3(c), by the Conversion Price in effect
at such time.

     (c) In case at any time the Corporation shall (i) subdivide the outstanding shares of Common
Stock into a greater number of shares, (ii) combine the outstanding shares of Common Stock into a
smaller number of shares or (iii) pay a dividend in Common Stock on its outstanding shares of
Common Stock, then the Conversion Price in effect immediately prior thereto shall be multiplied by
the fraction obtained:

     by dividing

(X), which is the numerator equal to the total number of issued and outstanding shares of
Common Stock immediately prior to the effectiveness of such action by the Corporation,

by

(Y), which is the denominator that equals the actual total number of issued and outstanding
shares of Common Stock immediately after such effectiveness.

Such adjustment shall become effective immediately after the effective date of a subdivision,
combination or stock dividend. In the event of a consolidation or merger of the Corporation with
or into another corporation or entity as a result of which a greater or lesser number of shares of
common stock of the surviving corporation or entity are issuable to holders of capital stock of the
Corporation in respect of the number of shares of its capital stock outstanding immediately prior
to such consolidation or merger, then the Conversion Price in effect immediately prior to such
consolidation or merger shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of capital stock of the Corporation. The Corporation shall
not effect any such consolidation or merger unless prior to or simultaneously with the consummation
thereof the successor (if other than the Corporation) resulting from such consolidation or merger
shall expressly assume, by written instrument executed and delivered (and satisfactory in form) to
the Series A 8% Preferred Holders, (i) the obligation to deliver to such Holders such stock as, in
accordance with the
foregoing provisions, such Holders may be entitled to purchase and (ii) all other obligations of
the Corporation hereunder.

- 7 -

 

     (d) Adjustment of Conversion Price upon Issuance of Common Stock. (i) If and whenever
on or after the Subscription Date, the Corporation issues or sells, or in accordance with this
Section 6(d) is deemed to have issued or sold, any shares of Common Stock (including the issuance
or sale of shares of Common Stock owned or held by or for the account of the Corporation but
excluding Excluded Securities) for a consideration per share (the “New Securities Issuance Price”)
less than a price (the “Applicable Price”) equal to the Conversion Price in effect immediately
prior to such time (a “Dilutive Issuance”), then immediately after such issue or sale, the
Conversion Price then in effect shall be reduced to an amount equal to the New Securities Issuance
Price. For purposes of determining the adjusted Conversion Price under this Section 6(d)(i), the
following shall be applicable:

     (1) Issuance of Options. If the Corporation in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exchange or exercise of any Convertible
Securities issuable upon exercise of such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Corporation at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 6(d)(i)(1), the “lowest price per share for which
one share of Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable upon exercise of
such Option” shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Corporation with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or
exercise of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of such Convertible
Securities.

     (2) Issuance of Convertible Securities. If the Corporation in any manner
issues or sells any Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less
than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the issuance of sale of such
Convertible Securities for such price per share. For the purposes of this Section
6(d)(i)(2), the “lowest price per share for which one share of Common Stock is issuable upon
such conversion, exchange or exercise” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Corporation with respect to any one
share of Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion, exchange or exercise of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Stock upon
conversion, exchange or exercise of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for which
adjustment of the Conversion Price had been or are to be made pursuant to other provisions
of this Section 6(d)(i), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.

     (3) Change in Option Price or Rate of Conversion. If the purchase or exercise
price provided for in any Options, the additional consideration, if any, payable upon the
issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable or exercisable for Common
Stock changes at any time, the Conversion Price in effect at the time of such change shall
be adjusted to the Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 6(d)(i)(3), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of the Preferred Shares
are changed in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.

     (4) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation, together
comprising one integrated transaction in which no

- 8 -

 

specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed to have been issued for a
consideration of $0.01. If any Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the consideration received therefor
will be deemed to be the gross amount received by the Corporation therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Corporation will be
the fair value of such consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Corporation will be
the arithmetic average of the Closing Sale Prices of such securities during the ten (10)
consecutive Trading Days ending on the date of receipt of such securities. The fair value
of any consideration other than cash or securities will be determined jointly by the
Corporation and the Required Holders. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”),
the fair value of such consideration will be determined within five (5) Business Days after
the tenth (10th) day following the Valuation Event by an independent, reputable
appraiser selected by the Corporation and the Required Holders. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Corporation.

     (ii) Record Date. If the Corporation takes a record of the holders of Common Stock
for the purpose of entitling them (I) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (II) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date of the issue or sale
of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

     (iii) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 6(d) but not expressly provided for by such provisions (including, without limitation,
the granting of share appreciation rights, phantom share rights or other rights with equity
features, other than Excluded Securities), then the Corporation’s Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the rights of the Holders; provided
that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this
Section 6(d).

     (e) In the event that the Corporation proposes to take any action specified in this Section 6
which requires any adjustment of the Conversion Price, then and in each such case the Corporation
shall at least 30 days prior to any such event, and within five business days after it has
knowledge of any such pending transaction, provide to the Series A 8% Preferred Holders written
notice of the date on which the books of the Corporation shall close or a record shall be taken for
such dividend or for determining rights to vote in respect of any such consolidation or merger.
Such notice shall also specify, as applicable, the date on which the holders of capital stock shall
be entitled thereto or the date on which the holders of capital stock shall be entitled to exchange
their stock for securities deliverable upon such consolidation or merger, as the case may be. Such
notice shall also state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as amended, or to a
favorable vote of security holders, if either is required. Furthermore, any notice shall state the
Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number
of shares obtainable at such price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

     (f) The conversion of any share of Series A 8% Preferred may be effected by the Holder
thereof by the surrender of the certificate or certificates therefor, duly endorsed, at the
principal offices of the Corporation or to such agent or agents of the Corporation as may be
designated by the Board of Directors and by giving written notice to the Corporation that such
Holder elects to convert the same.

     (g) After the surrender of shares of Series A 8% Preferred for conversion, the Corporation
shall (i) as promptly as practicable issue and deliver or cause to be issued and delivered to the
Holder of such shares certificates representing the number of fully paid and non-assessable shares
of Common Stock into which such shares of Series A 8% Preferred have been converted in accordance
with the provisions of this Section, and either (A) provided the Transfer Agent is participating in
DTC Fast Automated Securities Transfer Program, crediting such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through

- 9 -

 

its Deposit Withdrawal Agent Commission system, or (B) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issuing and delivering to the
address as specified in the Conversion Notice, a certificate, registered in the name of the Holder
or its designee, for the number of shares of Common Stock to which the Holder shall be
entitled, and (ii) within two business days pay to the Holder of such shares all accrued
and unpaid dividends (whether or not earned or declared) to the date of such surrender. Subject to
the following provisions of this Section, such conversion shall be deemed to have been made as of
the close of business on the date on which the shares of Series A 8% Preferred shall have been
surrendered for conversion in the manner herein provided, so that the rights of the Holder of the
shares of Series A 8% Preferred so surrendered shall cease at such time, and the person or persons
entitled to receive the shares of Common Stock upon conversion thereof shall be treated for all
purposes as having become the record holder or holders of such shares of Common Stock at such time;
provided, however, that any such surrender on any date when the stock transfer books of the
Corporation are closed shall be deemed to have been made, and shall be effective to terminate the
rights of the Holder or Holders of the shares of Series A 8% Preferred so surrendered for
conversion and to constitute the person or persons entitled to receive such shares of Common Stock
as the record holder or holders thereof for all purposes, at the opening of business on the next
succeeding day on which such transfer books are open.

     (h) Corporation’s Failure to Timely Deliver Securities. If within three (3) Trading
Days after the Corporation’s receipt of the facsimile copy of a conversion notice the Corporation
shall fail to transfer the Conversion Shares to the Holder, and if on or after such third Trading
Day the Holder is required to purchase (in an open market transaction or otherwise) shares of
Common Stock in order to deliver in satisfaction of a sale initiated by the Holder in anticipation
of receiving from the Corporation the shares of Common Stock issuable upon such conversion (a
“Buy-In”), then the Corporation shall, within three (3) Business Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”), at which point the Corporation’s obligation to deliver
such Conversion Shares resulting from such conversion shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such Conversion
Shares and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the Closing Sale Price on
the date of exercise. Nothing herein shall limit the holder’s right to pursue actual damages for
the Corporation’s failure to maintain a sufficient number of authorized shares of Common Stock or
to otherwise issue shares of Common Stock upon conversion of the Series A 8% Preferred in
accordance with the terms hereof, and the Holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or injunctive
relief). Notwithstanding the foregoing, the Corporation shall have no obligations to deliver
Conversion Shares or to pay any Buy-In Price under this Section 6(h) if the Corporation has timely
delivered in good faith a bonafide objection to such conversion notice.

     (i) The Corporation shall not be required to issue fractional shares of stock upon the
conversion of the Series A 8% Preferred. As to any final fraction of a share which the Holder of
one or more shares of Series A 8% Preferred would otherwise be entitled to receive upon conversion,
the Corporation shall, in lieu of issuing any fractional share, pay the Holder otherwise entitled
to such fraction a sum in cash equal to the same fraction of the Conversion Price on the day of
conversion.

     (j) In case the Corporation shall be a party to any transaction (including without limitation,
a merger, consolidation, statutory share exchange, sale of all or substantially all of the
Corporation’s assets or recapitalization of the Common Stock), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock, securities or other
property (including cash or any combination thereof) (each of the foregoing transactions being
referred to as a “Fundamental Change Transaction”), then the shares of Series A 8% Preferred
remaining outstanding will thereafter no longer be subject to conversion into Common Stock pursuant
to this Section, but instead each share shall be convertible into the kind and amount of stock and
other securities and property receivable (including cash) upon the consummation of such Fundamental
Change Transaction by a holder of that number of shares of Common Stock into which one share of
Series A 8%
Preferred was convertible immediately prior to such Fundamental Change Transaction
(including an immediate adjustment of the Conversion Price if by reason of or in connection with
such merger, consolidation, statutory share exchange, sale or recapitalization any securities are
issued or event occurs which would, under the terms hereof, require an adjustment of the Conversion
Price), assuming such Holder of Series A 8%

- 10 -

 

Preferred has failed to elect to have all or a part of
such Holder’s shares redeemed or otherwise acquired. The provisions of this paragraph shall
similarly apply to successive Fundamental Change Transactions.

     (k) Dispute Resolution. In the case of a dispute as to the determination of the
Closing Sale Price or the arithmetic calculation of the Conversion Price, the Corporation shall
instruct the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not
disputed and shall transmit an explanation of the disputed determinations or arithmetic
calculations to the Holder via facsimile within three (3) Business Days of receipt of such Holder’s
Conversion Notice or other date of determination. If such Holder and the Corporation are unable to
agree upon the determination of the Closing Sale Price or arithmetic calculation of the Conversion
Price within two (2) Business Days of such disputed determination or arithmetic calculation being
transmitted to the Holder, then the Corporation shall within ten (10) Business Day submit via
facsimile (A) the disputed determination of the Closing Sale Price to an independent, reputable
investment bank selected by the Corporation and approved by the Required Holders or (B) the
disputed arithmetic calculation of the Conversion Price to the Corporation’s independent, outside
accountant. The Corporation shall cause, at the Corporation ‘s expense, the investment bank or the
accountant, as the case may be, to perform the determinations or calculations and notify the
Corporation and the Holders of the results no later than two (2) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all parties absent error.

     Section 7. Optional Redemption by the Corporation.

     Subject to the terms hereof, the Corporation may at its option, so long as it has sufficient
funds legally available therefore, elect to redeem, in whole or in part, the outstanding shares of
Series A 8% Preferred at any time after the fifth anniversary of the Original Issue Date at the
redemption price per share of 100.00% of the Stated Value, as adjusted pursuant to Section 3(c),
plus an amount equal to accrued and unpaid dividends, if any, to the date fixed for redemption,
whether or not earned or declared. The Redemption Price shall be paid in cash from any source of
funds legally available therefore.

     Not less than 30 nor more than 60 days prior to the date fixed for any redemption of
any shares of Series A 8% Preferred, a notice specifying the time (the “Redemption Date”) and place
of such redemption and the number of shares to be redeemed shall be given in accordance with
Section 12 hereof to the Holders of record of the shares of Series A 8% Preferred to be redeemed at
their respective addresses as the same shall appear on the books of the Corporation (but no failure
to mail such notice or any defect therein shall affect the validity of the proceedings for
redemption except as to the Holder to whom the Corporation has failed to mail such notice or except
as to the Holder whose notice was defective), calling upon each such Holder of record to surrender
to the Corporation on the Redemption Date at the place designated in such notice such Holder’s
certificate or certificates representing the then outstanding shares of Series A 8% Preferred held
by such Holder being redeemed by the Corporation. On or after the Redemption Date, each Holder of
shares of Series A 8% Preferred called for redemption shall surrender such Holder’s certificate or
certificates for such shares to the Corporation at the place designated in the redemption notice
and shall thereupon be entitled to receive payment of the Redemption Price, provided, that at any
time prior to the Redemption Date a Holder may exercise its option to convert its shares of Series
A 8% Preferred pursuant to Section 6(c). From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the Holders of Series A 8%
Preferred designated for redemption (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever.

Section 8.  Redemption at Option of Holders.

     (a) Triggering Event. A “Triggering Event” shall be deemed to have occurred at such
time as any of the following events:

     (i) the entry by a court having jurisdiction in the premises of (i) a decree or order
for relief in respect of the Corporation or any Subsidiary of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree or order ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order for relief or any

- 11 -

 

such other decree or order
unstayed and in effect for a period of 60 consecutive days;

     (ii) the commencement by the Corporation or any Subsidiary of a voluntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in respect of
the Corporation or any Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by
it of a petition or answer or consent seeking reorganization or relief under any applicable
Federal or State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Corporation or any Subsidiary or of any
substantial part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Corporation or any Subsidiary in
furtherance of any such action; or

     (iii) the Corporation fails to complete the Channel Refinery Acquisition by May 15,
2007 or such later date as may mutually agreed by the Corporation and the Buyers in
connection with such Acquisition.

     (b) Redemption Option Upon Triggering Event. In addition to all other rights of the
Holders contained herein, after a Triggering Event, each Holder shall have the right, at such
Holder’s option, to require the Corporation to redeem all or a portion of such Holder’s shares of
Series A 8% Preferred at a price per Preferred Share equal to (i) in the case of a Triggering Event
pursuant to Section 8(a)(i) or 8(a)(ii), 115% of, and (ii) in the case of a Triggering Event
pursuant to Section 8(a)(iii), 101% of, the greater of (x) the Stated Value, as adjusted pursuant
to Section 3(c), and (y) the product of (A) the Conversion Rate in effect at such time as such
Holder delivers a Notice of Redemption at Option of Holder (as defined below) and (B) the Closing
Sale Price of the Common Stock on the Trading Day immediately preceding such Triggering Event, in
the case of each of clauses (x) and (y) above, plus any accrued but unpaid dividends per Preferred
Share (the “Redemption Price”).

     (c) Mechanics of Redemption at Option of Buyer. Within two (2) Business Days after the
occurrence of a qualifying Triggering Event, the Corporation shall deliver written notice thereof
via facsimile and overnight courier (“Notice of Triggering Event”) to each Holder, provided that in
the event of a Triggering Event pursuant to Section 8(a)(iii), such Notice of Triggering Event
shall be delivered within 90 days of the date of such Triggering Event. At any time after the
earlier of a Holder’s receipt of a Notice of Triggering Event and such Holder becoming aware of a
Triggering Event, any Holder of shares of Series A 8% Preferred then outstanding may require the
Corporation to redeem up to all of such Holder’s shares of Series A 8% Preferred by delivering
written notice thereof via facsimile and overnight courier (“Notice of Redemption at Option of
Holder”) to the Corporation, which Notice of Redemption at Option of Holder shall indicate the
number of shares of Series A 8% Preferred that such Holder is electing to redeem and a description
of the facts relating to the Triggering Event pursuant to which the Holder is electing to redeem
the shares of Series A 8% Preferred.

     (d) Payment of Redemption Price. Upon the Corporation’s receipt of a Notice(s) of
Redemption at
Option of Holder from any Holder, the Corporation shall promptly notify each Holder by
facsimile of the Corporation’s receipt of such notice(s). The Corporation shall deliver on the
fifth (5th) Business Day after the Corporation’s receipt of the first Notice of
Redemption at Option of Holder the applicable Redemption Price to all Holders that deliver a Notice
of Redemption at Option of Holder prior to the fifth (5th) Business Day after the
Corporation’s receipt of the first Notice of Redemption at Option of Holder; provided that, if
required by Section[3(d)(vi)], a Holder’s Certificates for the Series A 8% Preferred shall have
been delivered to the Transfer Agent. To the extent redemptions required by this Section 8 are
deemed or determined by a court of competent jurisdiction to be prepayments of the shares of Series
A 8% Preferred by the Corporation, such redemptions shall be deemed to be voluntary prepayments. If
the Corporation is unable to redeem all of the shares of Series D Preferred Stock submitted for
redemption, the Corporation shall (i) redeem a pro rata amount from each Holder based on the number
of shares of Series A 8% Preferred submitted for redemption by such Holder relative to the total
number of shares of Series A 8% Preferred submitted for redemption by all Holders and (ii) in
addition to any remedy such

- 12 -

 

Holder may have under this Certificate of Designation and the
Securities Purchase Agreement, pay to each Holder interest at the rate of 2.0% per month (prorated
for partial months) in respect of each unredeemed shares of Series A 8% Preferred tendered for
redemption until paid in full. The Holders and Corporation agree that in the event of the
Corporation’s inability to redeem any shares of Series A 8% Preferred tendered for redemption under
this Section 8, the Holders’ damages resulting therefrom would be uncertain and difficult to
estimate because of the parties’ inability to predict future interest rates and the uncertainty of
the availability of a suitable substitute investment opportunity for the Holders. Accordingly, any
redemption premium due under this Section 8 is intended by the parties to be, and shall be deemed,
a reasonable estimate of the Holders’ actual loss of its investment opportunity and not as a
penalty.

     (e) Void Redemption. In the event that the Corporation does not pay the Redemption
Price within the time period set forth in Section 8(d), at any time thereafter and until the
Corporation pays such unpaid applicable Redemption Price in full, a Holder shall have the option
to, in lieu of redemption, require the Corporation to promptly return to such Holder any or all of
the shares of Series A 8% Preferred that were submitted for redemption by such Holder under this
Section 8 and for which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Corporation via facsimile (the “Void
Optional Redemption Notice”). Upon the Corporation’s receipt of such Void Optional Redemption
Notice, (i) the Notice of Redemption at Option of Holder shall be null and void with respect to
those shares of Series A 8% Preferred subject to the Void Optional Redemption Notice, (ii) the
Corporation shall immediately return any shares of Series A 8% Preferred subject to the Void
Optional Redemption Notice, and (iii) the Conversion Price of such returned shares of Series A 8%
Preferred shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the Void Optional Redemption Notice is delivered to the Corporation and (B) the lowest
Weighted Average Price of the Common Stock during the period beginning on the date on which the
Notice of Redemption at Option of Holder is delivered to the Corporation and ending on the date on
which the Void Optional Redemption Notice is delivered to the Corporation.

     (f) Disputes; Miscellaneous. In the event of a dispute as to the determination of the
arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section
3(d)(iii) above with the term “Redemption Price” being substituted for the term “Conversion Rate”.
A Holder’s delivery of a Void Optional Redemption Notice and exercise of its rights following such
notice shall not effect the Corporation’s obligations to make any payments which have accrued prior
to the date of such notice. In the event of a redemption pursuant to this Section 8 of less than
all of the shares of Series A 8% Preferred represented by a particular Certificate, the Corporation
shall promptly cause to be issued and delivered to the Holder of such shares of Series A 8%
Preferred a Certificate representing the remaining shares of Series A 8% Preferred which have not
been redeemed, if necessary.

     Section
9. Purchase Rights. If at any time the Corporation grants, issues
or sells any Options, Convertible Securities or rights to purchase shares, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”),
then the Holders will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the
number of shares of Common Stock acquirable upon complete conversion of the shares of Series A 8%
Preferred (without taking into account any limitations or restrictions on the convertibility of the
shares of Series A 8%
Preferred) immediately before the date on which a record is taken for the grant, issuance or
sale of such Purchase Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

     Section 10. Limitation on Beneficial Ownership. The Corporation shall not
effect and shall have no obligation to effect any conversion of shares of Series A 8% Preferred,
and no Holder shall have the right to convert any shares of Series A 8% Preferred, to the extent
that after giving effect to such conversion, the beneficial owner of such shares (together with
such Person’s affiliates) would have acquired, through conversion of shares of Series A 8%
Preferred or otherwise, beneficial ownership of a number of shares of Common Stock that exceeds
9.99% (“Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after
giving effect to such conversion, other than with respect to a conversion at the option of the
Corporation pursuant to Section 6(b). For purposes of the foregoing sentence, the number of shares
of Common Stock beneficially owned by a Person and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of the shares of Series A 8% Preferred that are

- 13 -

 

subject to a pending conversion notice for which the determination of whether the Maximum
Percentage had been exceeded is being determined, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) conversion of any remaining, nonconverted shares of Series A
8% Preferred beneficially owned by such Person or any of its affiliates not subject to a pending
conversion notice and (B) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Corporation (including, without limitation, any warrants) beneficially
owned by such Person or any of its affiliates that are similarly subject to a limitation on
conversion or exercise analogous to the limitation contained in this Section 10. Except as set
forth in the preceding sentence, for purposes of this Section 10, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 10, in determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the
Corporation’s most recent Form 8-K, Form 10-Q, Form 10-QSB, Form 10-K or Form 10-KSB as the case
may be, (2) a more recent public announcement by the Corporation, or (3) any other notice by the
Corporation or its Transfer Agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any Holder, the Corporation shall promptly, but in no event later than
one (1) Business Day following the receipt of such notice, confirm orally and in writing to any
such Holder the number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to all conversions of
shares of Series A 8% Preferred by such Holder and its affiliates that had occurred since the date
as of which such number of outstanding shares of Common Stock was reported. By written notice to
the Corporation, the Holder may increase or decrease the Maximum Percentage to any other percentage
specified in such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Corporation, and (ii) any such
increase or decrease will apply only to the Holder and not to any other Holder.

     Section 11. Reacquired Shares. Any shares of Series A 8% Preferred
repurchased, redeemed, converted or otherwise acquired by the Corporation shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock, without designation as to series.

     Section 12. Voting Rights.

     (a) Except as otherwise provided in this Section or required by law or any provision
of the Certificate of Incorporation of the Corporation, and subject to any shareholder and voting
or similar agreement existing now or hereinafter entered into by any Original Holder and the
Corporation, the Holders shall vote together with the shares of Common Stock as a single class at
any annual or special meeting of shareholders of the Corporation, and each Holder shall be entitled
to that number of votes equal to the number of shares of Common Stock into which the shares of
Series A 8% Preferred held by such Holder on the record date fixed for such meeting are
convertible.

     (b) The Corporation shall not, without the affirmative vote or consent of at least a
simple majority of the shares of Series A 8% Preferred voting together as a separate class:

     (i) amend, repeal or change any of the provisions of the Certificate of Incorporation
of the Corporation in any way which would materially and adversely affect the rights or
preferences of the Series A 8% Preferred (including the Certificate of Designations relating
to the Series A 8% Preferred) as a class; or

     (ii) authorize, create or issue, or increase the authorized or issued amount of, any
class or series of stock of Senior Securities or Parity Securities, or any security
convertible into or exchangeable for Senior Securities or Parity Securities or reclassify or
modify any Junior Securities so as to become Parity Securities or Senior Securities.

     Section 13. Ranking. For purposes of dividends and the distribution of
assets upon liquidation, dissolution or winding up of the Corporation, (i) the Junior Securities
shall rank junior to the Series A 8% Preferred and (ii) the Parity Securities shall rank on a
parity with the Series A 8% Preferred.

     Section 14. Participation. The Holders shall, as Holders of Series A
8% Preferred, be entitled to such dividends paid and distributions made to the holders of Common
Stock (other than a dividend or distribution of Common

- 14 -

 

Stock, in which case Section 6(c)(iii) shall
apply) to the same extent as if such Holders had converted the Series A 8% Preferred into Common
Stock (without regard to any limitations on conversion herein or elsewhere) and had held such
Common Stock on the record date for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the holders of Common
Stock.

     Section 15. Record Holders. The Corporation may deem and treat the record
Holder of any shares of Series A 8% Preferred as the true and lawful owner thereof for all
purposes, and the Corporation shall not be affected by any notice to the contrary. Upon receipt by
the Corporation of evidence reasonably satisfactory to the Corporation of the loss, theft,
destruction or mutilation of any Certificates representing the shares of Series A 8% Preferred,
and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to
the Corporation in customary form and, in the case of mutilation, upon surrender and cancellation
of the Certificate(s), the Corporation shall execute and deliver new Certificate(s) of like tenor
and date; provided, however, the Corporation shall not be obligated to re-issue Certificates if
the Holder contemporaneously requests the Corporation to convert such shares of Series A 8%
Preferred into Common Stock.

     Section 16. Notice. Except as may otherwise be provided by law or provided
for herein, all notices referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt, in the case of a notice of conversion given to the
Corporation, or, in all other cases, upon the earlier of receipt of such notice or three Business
Days after the mailing of such notices sent by Registered Mail (unless first-class mail shall be
specifically permitted for such notice under the terms hereof) with postage prepaid, addressed: if
to the Corporation, to its principal executive offices or to any agent of the Corporation
designated as permitted hereby; or if to a Holder of the Series A 8% Preferred, to such Holder at
the address or telecopy of such Holder of the Series A 8% Preferred as listed in the stock record
books of the Corporation, or to such other address or telecopy as the Corporation or Holder, as the
case may be, shall have designated by notice similarly given. Notices given by facsimile
transmission on weekends, holidays or after 5:00 p.m. Central Time shall be deemed received on the
next business day.

     Section 17. Successors and Transferees. Except as otherwise expressly
provided herein, and subject to any shareholder and voting or similar agreement entered into by any
Original Holders and the Corporation, the provisions applicable to shares of Series A 8% Preferred
shall bind and inure to the benefit of and be enforceable by the Corporation, the respective
successors to the Corporation, and by any record Holder of shares of Series A 8% Preferred.

[SIGNATURE PAGE FOLLOWS]

- 15 -

 

     IN WITNESS WHEREOF, GreenHunter Energy, Inc. has caused its corporate seal to be hereunto
affixed and this certificate to be signed by Michael K. Studer, its President and Morgan F.
Johnston, its Secretary, this 9th day of March, 2007.

	 	 	 	 	 	 	 
	 

	 	 	 	 

Michael K. Studer

President
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Morgan F. Johnston

Secretary
	 	 
	State of Texas

County of

	 	)

)

)	 	 	 	 

     This instrument was acknowledged before me on March 9, 2007, by Michael K. Studer of
GREENHUNTER ENERGY, INC., a Delaware corporation, on behalf of said corporation.

	 	 	 	 	 	 	 
	 

	 	 	 	 

Notary Public, State of Texas
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

(printed name)
	 	 
	My Commission Expires:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

- 16 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}]]