Document:

EMPLOYMENT
      AGREEMENT

    

    This
      EMPLOYMENT
      AGREEMENT
      (the
“Agreement”)
      is
      effective as of June 26, 2006 (the “Effective
      Date”),
      between DOCUMENT
      SECURITY SYSTEMS, INC.,
      a New
      York corporation (together with its subsidiaries, the “Company”),
      and
      Mr. Peter Ettinger (“Mr.
      Ettinger”).

    

    R
      E C I T A L S :

    

    WHEREAS,
      the
      Company is in the business of developing, licensing and selling anti-
      counterfeiting technology and products;

     

    WHEREAS,
      the
      Company desires to engage Mr. Ettinger as its President and Mr. Ettinger desires
      to accept such employment on the terms and conditions set forth
      herein.

    

    P
      R O V I S I O N S :

    

    NOW,
      THEREFORE,
      in
      consideration of the mutual promises and covenants set forth herein, the parties
      agree as follows:

    

    1. Employment;
      Duties.
      

    

    (a) The
      Company hereby agrees to employ Mr. Ettinger as its President. Mr. Ettinger
      hereby accepts such employment. Mr. Ettinger will report to the Company’s Chief
      Executive Officer or such other person designated by the Chief Executive
      Officer. Mr. Ettinger will perform those duties and have such authority and
      powers as are customarily associated with his position, including, without
      limitation, leading the Company’s sales and business development efforts, and
      assisting in preparing business forecasts operating plans, raising capital
      and
      mergers and acquisitions efforts and other duties as the Chief Executive Officer
      may reasonably request from time to time. 

     

    (b) Mr.
      Ettinger shall be employed on a full time basis and shall devote substantially
      all of his professional business time to the performance of his duties. Mr.
      Ettinger shall be based in the Washington D.C metropolitan area and will spend
      approximately one half (50%) of his office hours in the Company’s Rochester, New
      York headquarters with respect to the performance of his duties. Mr. Ettinger
      acknowledges he shall be required to undertake substantial travel during the
      normal course of his duties to promote the affairs of the Company.

    

    2. Term.
       The
      term
      (the “Term”)
      of
      this Agreement shall commence on the Effective Date and shall continue for
      three
      (3) years from the Effective Date unless otherwise terminated as provided herein
      (together with any Renewal Term, as hereafter defined, shall be referred to
      as
      the “Term”).
      This
      Agreement shall automatically be extended for successive one (1) year terms
      pursuant to the terms and conditions of this Agreement (each, a “Renewal
      Term”),
      unless otherwise terminated by written notice from one party to the other no
      less than sixty (60) days prior to the end of the Term or any subsequent Renewal
      Term.

    

    
      
         

      

      
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    3. Compensation.
      

    

    (a) Annual
      Salary.
      In
      consideration for the services rendered by Mr. Ettinger on behalf of the Company
      during the Term of this Agreement, the Company shall pay Mr. Ettinger,
      commencing on the Effective Date, an annual salary equal to $170,000, payable
      in
      accordance with the Company’s regular payroll practices. Effective as of each
      annual anniversary date of this Agreement during the Term, Mr. Ettinger’s annual
      salary may be increased in the sole discretion of either the Chief Executive
      Officer or the Company’s Board of Directors. All forms of compensation referred
      to in this Agreement are subject to reduction to reflect applicable federal,
      state and local withholding and payroll taxes.

    

    (b) Bonuses.
      In
      addition to his Base Salary, Mr. Ettinger shall be eligible to receive a bonus
      calculated pursuant to the Bonus Plan attached as Schedule A to this Agreement
      (“Bonus Plan”).
      Payment of the Bonus will be made no later than ten business days after the
      conclusion of the Company’s annual audit of it financial statements, which is
      generally March 31 of the immediately following year (each, a “Bonus
      Calculation Date”).
      Partial payments under the Bonus Plan may be made prior to the applicable Bonus
      Calculation Date at the sole discretion of the Chief Executive Officer or the
      Company’s Board of Directors. 

    

    (c) Restricted
      Stock.
      Upon
      execution of this Agreement, Mr. Ettinger shall be awarded 50,000 restricted
      shares of the Company’s Common Stock (the “Restricted
      Shares”)
      issued
      under the Company’s 2004 Employee Stock Option Plan (the “Incentive
      Plan”).
      The
      Restricted Shares shall vest in three equal installments on the first, second
      and third anniversaries of the Effective Date. Upon certain circumstances,
      the
      Restricted Shares are subject to immediate vesting as detailed in Sections
      8 and
      9 of this Agreement. The Restricted Shares shall be subject to the applicable
      rules and regulations of the Internal Revenue Service and the Securities and
      Exchange Commission. 

    

    (d) Incentive
      Plan.
      Mr.
      Ettinger shall be eligible to participate in the Incentive Plan. Any grant
      of
      options or restricted stock issued under the Incentive Plan shall be subject
      to
      approval by the Board of Directors or the Compensation Committee and shall
      be
      subject to the terms and conditions of the Incentive Plan and applicable rules
      and regulations of the Internal Revenue Service and the Securities and Exchange
      Commission. 

     

    4. Benefits.
      In
      addition to the compensation set forth above, the Company shall provide Mr.
      Ettinger with the following benefits during the Term:

    

    (a) Mr.
      Ettinger shall be entitled to three (3) weeks of
      vacation during each calendar year (pro-rated for any partial calendar year)
      that he is employed hereunder during which vacation his annual salary shall
      be
      paid in full. Any vacation not taken by Mr. Ettinger shall not carryover into
      the succeeding year. All unused and accrued vacation shall be paid to Mr.
      Ettinger (or his estate) upon Mr. Ettinger's termination of employment. Such
      vacation may only be taken with pre-approval from the Chief Executive Officer
      and at such time or times as are not inconsistent with the reasonable business
      needs of the Company.

     

    
      
         

      

      
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    (b) The
      Company shall provide Mr. Ettinger with up to 5 days of paid sick leave each
      calendar year (pro-rated for any partial calendar year); unused sick days shall
      not carryover into the succeeding year. The Company also shall provide Mr.
      Ettinger with holiday pay as provided by the Company to its other
      executives.

    

    (c) 
      The
      Company shall make available family medical insurance for Mr. Ettinger under
      the
      medical insurance plan provided to other executives of the Company. In addition,
      Mr. Ettinger and his dependents shall be entitled to participate in such other
      benefits as may be extended to active employees of the Company and their
      dependents including pension, retirement, profit-sharing, 401(k), group
      insurance, hospitalization, medical or other benefits made available by the
      Company to its employees generally. Further, in the event that the Company
      desires to obtain “key man” life insurance on the life of Mr. Ettinger during
      the term, Mr. Ettinger shall cooperate with the Company in obtaining such
      insurance. 

    

    5. Expenses.
      Mr.
      Ettinger will be entitled to be paid or reimbursed for all expenses reasonably
      incurred by him in connection with Mr. Ettinger’s responsibilities to the
      Company, including, without limitation, for travel, lodging, food, and
      entertainment. In no event will Mr. Ettinger incur any expense in excess of
      $2,500 without the prior written consent of the Chief Executive
      Officer.

    

    6. Confidential
      Information.
      Mr.
      Ettinger shall not, during the Term or at anytime after termination of his
      employment, disclose, except as required or necessary in the course of his
      employment by the Company or as otherwise authorized by the Company, any
      Confidential Information (as defined herein). “Confidential
      Information”
shall
      mean any information existing as of the date of this Agreement, or thereafter
      developed, in which the Company has a proprietary interest, including, but
      not
      limited to, information relating to its patents, technology, research and
      development, technical data, trade secrets, know-how, products, services,
      finances, operations, sales and marketing, customers and customer information,
      licenses, orders for the purchase or sale of products, personnel matters and/or
      other information relating to the Company, whether communicated orally,
      electronically or in writing, or otherwise obtained by Mr.
      Ettinger as a result of his employment, or through observation or examination
      of
      the Company’s business. 

    

    7. Non-Competition
      Covenant; Non Solicitation Covenant.

    

    (a) During
      the term of his employment and for a period of one year thereafter, Mr. Ettinger
      agrees that he will not, directly or indirectly, (including, without limitation,
      whether as consultant, an officer, employee or director) engage in any business
      that sells or develops software, manufactures or distributes products or
      provides services in the anti-counterfeiting and document security businesses
      or
      that are engaged in businesses that the same as those operated or provided
      by
      the Company at such time. 

    

    (b) Notwithstanding
      anything herein to the contrary, Mr. Ettinger shall not be prevented or limited
      from (i) investing in the stock or other securities of any corporation whose
      stock or securities are publicly owned and regularly traded on any public
      exchange, (ii) serving as a director, officer or member of professional, trade,
      charitable and civic organizations, or (iii) passively investing (not to exceed
      being a beneficial owner of more than 3% of the outstanding Common Stock) his
      assets in such a form and manner as will not conflict with the terms of this
      Agreement and will not require services (whether as consultant, an officer,
      employee or director) on the part of Mr. Ettinger in the operation of the
      business of the entities in which such investments are made.

    

    
      
         

      

      
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    (c)
       In
      furtherance of the foregoing, Mr. Ettinger shall not, during the aforesaid
      one-year period of non-competition, directly or indirectly, in connection with
      any business involved in the manufacture, development and/or distribution of
      anti-counterfeiting technology and document security businesses, or any business
      similar to the business in which the Company was engaged, or in the process
      of
      developing during Mr.Ettinger’s tenure with the Company, solicit any customer or
      employee of the Company who was a customer or employee of the Company during
      the
      tenure of his employment.

    

    (d)
       Mr.
      Ettinger agrees that the prohibitions contained herein are reasonable and
      valuable to the Company, and are express conditions of the Company’s decision to
      employ him. If any court shall hold that the duration, scope or any other
      provision of non-competition or any other restriction contained in this Section
      7 is unenforceable, it is our intention that same shall not thereby be
      terminated but shall be deemed amended to delete therefrom such provision or
      portion adjudicated to be invalid or unenforceable or, in the alternative,
      such
      judicially substituted term may be substituted therefor.

    

    8. Termination
      of Agreement.
       This
      Agreement shall terminate upon the occurrence of any of the following events:
      

    

    (a) This
      Agreement shall terminate upon Mr. Ettinger’s death.

    

    (b) The
      Company may terminate this Agreement upon Mr. Ettinger’s “total disability”
(“Disability”),
      which
      shall mean incapacity due to physical or mental illness or disability, which
      renders him absent, or unable to perform his duties hereunder on a full time
      basis for a period of six (6) months, whether consecutive or cumulative, within
      any twelve (12) month period. However, if such Disability was the result of
      injury incurred during the performance of work duties for the Company, then
      any
      termination resulting from such work related disability would be subject to
      the
      provisions of Section 9(b) below.

    

    (c)
       The
      Company may terminate this Agreement for “Good Cause” as defined below upon
      thirty (30) days prior written notice to Mr. Ettinger, which notice shall
      specify the reason(s) for termination. For purposes of this Agreement, “Good
      Cause” means (i) willful disobedience by Mr. Ettinger of a material and lawful
      instruction of the Board of Directors or Chief Executive Officer of the Company;
      (ii) conviction of Mr. Ettinger of any misdemeanor involving fraud, embezzlement
      or similar crime or a crime of moral turpitude or any felony; (iii) an order
      is
      entered by the Securities and Exchange Commission, a state regulatory agency
      or
      an exchange on which the Company’s securities are traded finding that Mr.
      Ettinger has violated the securities laws; and (iv) breach by Mr. Ettinger
      of
      any material term of Sections 6 or 7 of this Agreement. 

    

    
      
         

      

      
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    (d) Mr.
      Ettinger may terminate this Agreement upon thirty (30) days prior written notice
      to the Company.

    

    (e) This
      Agreement may be terminated upon the mutual agreement of Company and Mr.
      Ettinger.

    

    9.  Obligations
      Following Termination of Agreement.

    

    (a)  If
      this
      Agreement is terminated pursuant to any of Sections 8(a), 8(b), 8(c), 8(d)
      or
      8(e), the Company shall have no obligation to pay any Severance Payments (as
      defined below) or benefits to Mr. Ettinger; provided, however, Company shall
      be
      obligated to pay Mr. Ettinger (or in the case of his death, his spouse, estate
      or representative) all unpaid salary, earned bonuses, vacation and other
      benefits accrued through the date of termination of this Agreement and shall
      provide such other benefits, such as health insurance continuation coverage
      under COBRA, as may be required by law. In addition, if this Agreement is
      terminated pursuant to Sections 8(a) or 8(b), any unvested Restricted Shares,
      shall immediately vest.

    

    (b)  If
      this
      Agreement is terminated by Company without “Good Cause” as defined in Section
      8(c):

    

    (i)  Mr.
      Ettinger shall be paid all unpaid salary, earned bonuses, vacation and other
      benefits accrued through the date of termination and shall receive such other
      benefits, such as health insurance continuation coverage under COBRA, as may
      be
      required by law; if such termination occurs prior to six months after the
      Effective Date, Mr. Ettinger shall receive as severance payment an amount equal
      to twelve (12) months of Mr. Ettinger’s salary at the rate in effect as of the
      date of Mr. Ettinger’s termination; Any severence payments are payable at Mr.
      Ettinger’s sole discretion in either a lump sum at the time of termination or on
      normal pay dates in accordance with the Company’s pay policies in effect prior
      to termination date. In addition, for the twelve (12) month period immediately
      after the termination of this Agreement, the Company shall continue to provide
      and pay the premium for the health insurance provided to Mr. Ettinger (and
      his
      family, if applicable) immediately prior to the termination of this Agreement
      (collectively, the payments under this clause (ii) are referred to as
“Severance
      Payments”);

    

    (ii)  Mr.
      Ettinger shall not be required to mitigate damages of the amount of any salary
      continuation payments provided for under this Section by seeking other
      employment or otherwise, nor shall the amount of any payments provided for
      under
      this Section be reduced by any compensation earned by Mr. Ettinger as a result
      of employment by another employer or by any self employment after the date
      of
      termination;

    

    (iii)  All
      options and restricted stock granted to Mr. Ettinger pursuant to the Incentive
      Plan that remain unvested shall immediately vest, and Mr. Ettinger shall have
      a
      period of 90 days following termination to exercise his vested options, subject
      to the provisions of the Incentive Plans and applicable IRS
      regulations.

    

    
      
         

      

      
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    (c)  Upon
      the
      termination of this Agreement for any reason, any and all restrictions (other
      than restrictions which are the result of applicable Federal securities laws
      and
      regulations and those restrictions which Mr. Ettinger has entered into with
      a
      third party on a contractual basis) on the transfer of shares of Company’s
      capital stock then owned by Mr. Ettinger (other than the Restricted Shares
      and
      any other options or restricted stock granted pursuant to the Incentive Plan)
      shall be terminated as of the date of termination of this
      Agreement.

    

    (d)  In
      the
      event of a Corporate Transaction (as defined below), the Restricted Shares
      shall
      automatically become fully vested and shall be released from any restrictions
      on
      transfer and repurchase or forfeiture rights, immediately prior to the specified
      effective date of such Corporate Transaction. However, all such awards shall
      not
      terminate if the awards are, in connection with the Corporate Transaction,
      assumed by the successor corporation or Parent thereof. A “Corporate
      Transaction” means any of the following transactions: (i) a merger or
      consolidation of the Company with any other corporation or other entity, other
      than (A) a merger or consolidation which would result in the voting securities
      of the Company outstanding immediately prior thereto continuing to represent
      (either by remaining outstanding or by being converted into voting securities
      of
      the surviving or parent entity) 51% or more of the combined voting power of
      the
      voting securities of the Company or such surviving or parent entity outstanding
      immediately after such merger or consolidation or (B) a merger or consolidation
      effected to implement a recapitalization of the Company (or similar transaction)
      in which no “person” (as defined in the Exchange Act) acquired 25% or more of
      the combined voting power of the Company’s then outstanding securities, or (ii)
      a plan of complete liquidation of the Company or an agreement for the sale
      or
      disposition by the Company of all or substantially all of its assets (or any
      transaction having a similar effect).

    

    10. Indemnification.
      The
      Company shall, to the maximum extent permitted by law, indemnify Mr. Ettinger
      against all expenses, including, without limitation, reasonable attorneys’ fees,
      judgments, fines, settlements, and other amounts actually and reasonably
      incurred in connection with any proceeding arising by reason of Mr. Ettinger’s
      employment by the Company other than the willful violation of law by Mr.
      Ettinger. The Company agrees to maintain Directors and Officers Liability
      insurance, and to include Mr. Ettinger in the coverage of this policy for as
      long as he is an Officer of the company. 

    

    11. Work-for
      Hire.
      Except
      as otherwise may be agreed by the Company in writing, in consideration of the
      employment of Mr. Ettinger by the Company, and free of any additional
      obligations of the Company to make additional payment to him, Mr. Ettinger
      agrees to irrevocably assign to the Company any and all inventions, software,
      manuscripts, documentation, improvements or other intellectual property whether
      or not protected by any state or federal laws relating to the protection of
      intellectual property, relating to the present or future business of the Company
      that are developed by Mr. Ettinger prior to the termination of his employment
      with the Company, either alone or jointly with others, and whether or not
      developed during normal business hours or arising within the scope of his/her
      duties of employment. Mr. Ettinger agrees that all such inventions, software,
      manuscripts, documentation, improvement, trade secrets or other intellectual
      property shall be and remain the sole and exclusive property of the Company
      and
      shall be deemed the product of work for hire. Mr. Ettinger hereby agrees to
      execute such assignments and other documents as the Company may consider
      appropriate to vest all right, title and interest therein to the Company and
      hereby appoints the Company Mr. Ettinger’s attorney-in-fact with full powers to
      execute such document itself in the event Mr. Ettinger fails or is unable to
      provide the Company with such signed documents. This provision does not apply
      to
      an invention for which no equipment, supplies, facility, or intellectual
      property or trade secret information of the Company was used and which was
      developed entirely on Mr. Ettinger's own time, unless (a) the invention relates
      (i) to the business of the Company, or (ii) to the Company's actual or
      demonstrably anticipated research or development, or (b) the invention results
      from any work performed by Mr. Ettinger for the Company.

    

    
      
         

      

      
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    12. Miscellaneous.

    

    (a) This
      Agreement:

    

    (i) shall
      constitute the entire agreement between the parties hereto and supersedes all
      prior agreements, written or oral, concerning the subject matter herein between
      the Company and the Mr. Ettinger and there are no oral understandings,
      statements or stipulations bearing upon the effect of this Agreement which
      have
      not been incorporated herein;

    

    (ii) may
      be
      modified or amended only by a written instrument signed by each of the parties
      hereto;

    

    (iii) shall
      bind and inure to the benefit of the parties hereto and their respective heirs,
      successors and assigns; and

    

    (iv) may
      not
      be assigned by either party without a written agreement signed by all parties
      hereto. Any assignment not signed by all parties is null and void.

    

    (b) If
      any
      provision of this Agreement shall be held invalid or unenforceable by competent
      authority, such provision shall be construed so as to be limited or reduced
      to
      be enforceable to the maximum extent compatible with the law as it shall then
      appear. The total invalidity or unenforceability of any particular provision
      of
      this Agreement shall not affect the other provisions hereof and this Agreement
      shall be construed in all respects as if such invalid or unenforceable provision
      were omitted.

    

    (c) This
      Agreement shall be construed in accordance with and governed by the laws of
      the
      State of New York without reference to conflict of laws principles. Any
      litigation involving this Agreement shall be adjudicated in a court with
      jurisdiction located in Monroe County, New York and the parties irrevocably
      consent to the personal jurisdiction and venue of such court.

    

    (d) All
      notices and other communications under this Agreement must be in writing and
      must be given by personal delivery or first class mail, certified or registered
      with return receipt requested, or by overnight currier service and will be
      deemed to have been duly given upon receipt if personally delivered, five (5)
      days after mailing, if mailed, or upon delivery if sent by overnight courier
      service, to the respective persons named below:

    

    
      
         

      

      
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    If
      to the
      Company:

    

    Document
      Security Systems, Inc.

    Attn:
      Chief Executive Officer

    First
      Federal Plaza

    Suite
      1525

    28
      Main
      Street East

    Rochester,
      New York 14614

    

    If
      to
      Mr.Ettinger:

    

    7914
      Long
      Branch Parkway

    Takoma
      Park, MD 20912

     

     

    Any
      party
      may change such party’s address for notices by notice duly given pursuant to
      this Section.

    

    (e) In
      the
      event of litigation to enforce the terms and conditions of this Agreement,
      the
      losing party agrees to pay the substantially prevailing party's costs and
      expenses incurred including, without limitation, reasonable attorneys’
fees.

    

    (f) This
      Agreement may be executed simultaneously in one or more counterparts, each
      one
      of which shall be deemed an original, but all of which together shall constitute
      one and the same instrument. The parties may execute this Agreement by facsimile
      signature.

    

    (g) Failure
      of either party at any time to require performance of any provision of this
      Agreement shall not limit the party's right to enforce the provision, nor shall
      any waiver of any breach of any provision be a waiver of any succeeding breach
      of any provision or a waiver of the provision itself for any other
      provision.

    

    (h) If
      any
      provision of this Agreement, or the application of such provision to any person
      or circumstance, shall be held invalid, the remainder of this Agreement, or
      the
      application of such provision to persons or circumstances other than those
      as to
      which it is held invalid, shall not be affected thereby.

    

    (i) THE
      PARTIES ACKNOWLEDGE THAT THE COMPANY HAS BEEN REPRESENTED IN THIS TRANSACTION
      BY
      ITS COUNSEL MICHAEL T. HUGHES, ESQ., AND THAT THE MR. ETTINGER HAS
NOT
      BEEN REPRESENTED IN THIS TRANSACTION BY THE COMPANY’S COUNSEL, AND MR. ETTINGER
      HAS BEEN ADVISED THAT IT IS IMPORTANT FOR HIM TO SEEK SEPARATE LEGAL ADVISE
      AND
      REPRESENTATION IN THIS MATTER.

    

    
      
         

      

      
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    [Signature
      Page Follows]

    

    
 

    
      
         

      

      
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    IN
      WITNESS WHEREOF,
      the
      parties have executed this Agreement on the day and year first above
      written.

    

    DOCUMENT
      SECURITY SYSTEMS, INC.

    

    By: /s/
      Patrick A. White

    Name:
      Patrick White 

    Title:
      Chief Executive Officer

    

    

     /s/
      Peter H. Ettinger

     Peter
      H.
      EttingerExhibit
        4.1

       

      CERTIFICATE
        OF DESIGNATION

      OF
        THE

      SERIES
        A CONVERTIBLE PREFERRED STOCK 

      (Par
        Value $.001 Per Share)

       

      OF

       

      ENIGMA
        SOFTWARE GROUP, INC.

       

      Pursuant
        to Section 151 of Title 8 of the

      General
        Corporation Law of the State of

      Delaware

       

      The
        undersigned duly authorized officer of Enigma Software Group, Inc., a Delaware
        corporation (the “Company”),
        in
        accordance with the provisions of Section 151 thereof, DOES HEREBY CERTIFY
        that
        the following resolution was duly adopted by the Company’s Board of Directors
        (the “Board
        of Directors”),
        pursuant to Section 141(f) of the General Corporation Law of the State of
        Delaware (the “DGCL”)
        on
        June 27, 2006:

       

      RESOLVED,
        that, pursuant to the authority conferred upon the Board of Directors by
        the
        Company's Certificate of Incorporation (the “Certificate
        of Incorporation”),
        the
        Board of Directors hereby provides for the issuance of a series of convertible
        preferred stock, and hereby fixes the powers, designations, preferences and
        relative optional or other special rights of, and qualifications, limitations
        or
        restrictions on, the shares of convertible preferred stock, in addition to
        any
        set forth in the Certificate of Incorporation that are applicable to such
        shares, as follows:

       

      ARTICLE
        1

       

      DESIGNATION
        AND RANK

       

      1.1  Designation.
        This
        resolution shall provide for a single series of preferred stock, the designation
        of which shall be Series A Convertible Preferred Stock, par value $.001 per
        share (the “Series
        A Preferred Stock”).
        The
        number of authorized shares constituting the Series A Preferred Stock is
        10,000,000
        shares.
        The Series A Preferred Stock will have the relative rights and preferences
        to
        all other classes and series of the capital stock of the Company as set forth
        herein.

       

      1.2  Rank.

       

      (a)  Dividends
        and Other Distributions.
        With
        respect to the payment of dividends and other distributions on the capital
        stock
        of the Company, other than the distribution of the assets upon a liquidation,
        dissolution or winding-up of the affairs of the Company, the Series A Preferred
        Stock shall rank: (i) senior to the common stock of the Company, par value
        $.001
        per share (the “Common
        Stock”),
        (ii)
        senior to any new class or series of stock of the Company that by its terms
        ranks junior to the Series A Preferred Stock, or that does not provide any
        terms
        for seniority, as to payment of dividends, (iii) on a parity with any new
        class
        or series of stock of the Company that by its terms ranks on a parity with
        the
        Series A Preferred Stock as to payment of dividends and (iv) with the consent
        or
        approval of the holders of all of the then outstanding shares of the Series
        A
        Preferred Stock, junior to any new class of stock of the Company that by
        its
        terms ranks senior to the Series A Preferred Stock with respect to
        dividends.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

         

      

      (b)  Liquidation.
        With
        respect to the distribution of assets upon a liquidation, dissolution or
        winding-up of the affairs of the Company, whether voluntary or involuntary,
        the
        Series A Preferred Stock shall rank (i) on a parity the Common Stock, (ii)
        senior to any new class or series of stock of the Company that by its terms
        ranks junior to the Series A Preferred Stock, or that does not provide any
        terms
        for seniority, as to distribution of assets upon liquidation, dissolution
        or
        winding-up, (iii) on a parity with any new class or series of stock of the
        Company that by its terms ranks on a parity with the Series A Preferred Stock
        as
        to distribution of assets upon liquidation, dissolution or winding-up of
        the
        Company and (iv) with the consent of the holders of all of the then outstanding
        shares of the Series A Preferred Stock, junior to any new class of stock
        of the
        Company that by its terms ranks senior to the Series A Preferred Stock as
        to
        distribution of assets upon liquidation, dissolution or winding-up of the
        Company. 

       

      ARTICLE
        2

       

      DIVIDEND
        RIGHTS

       

      2.1  Dividends
        or Distributions.
        

       

      (a)  The
        holders of the Series A Preferred Stock shall be entitled to receive, if,
        when
        and as declared by the Board of Directors, out of funds of the Company legally
        available therefore, dividends or distributions. No dividends or distributions
        in cash, securities or other property shall be declared or paid or set apart
        for
        payment on any class or series of stock that is junior to or on a parity
        with
        the Series A Preferred Stock with respect to dividends, unless such dividend
        or
        distribution is likewise declared, paid or set apart for payment on the Series
        A
        Preferred Stock (i) in an amount (and form) equal to the dividend or
        distribution that would be payable if the Series A Preferred Stock were
        converted into Common Stock on the date of payment, declaration or distribution,
        if the dividend or distribution is to Common Stock, or (ii) at a rate
        proportionate to the relative per share Stated Value (as defined in Section
        3.1(a) hereof) of the Series A Preferred Stock as the dividend or distribution
        to be declared, paid or set apart for payment is to the original issuance
        price
        of the recipient class or series is other than Common Stock.

       

      (b)  No
        dividend shall be paid or declared on any share of Common Stock (other than
        dividends payable in Common Stock for which an adjustment is made pursuant
        to
        Section 3.2(a) hereof), unless a dividend, payable in the same consideration
        and
        manner, is simultaneously paid or declared, as the case may be, on each share
        of
        Series A Preferred Stock in an amount determined as set forth in paragraph
        (a)
        above. For purposes hereof, the term “dividend(s)” shall include any
pro rata
        distribution by the Company, out of funds of the Company legally available
        therefor, of cash, property, securities (including, but not limited to, rights,
        warrants or options) or other property or assets to the holders of the Common
        Stock, whether or not paid out of capital, surplus or earnings.

       

      
        
           

        

        
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      (c)  Prior
        to
        declaring any dividend or making any distribution on or with respect to shares
        of any capital stock that is junior to or on a parity with the Series A
        Preferred Stock or Common Stock, the Company shall take all prior corporate
        action necessary to authorize the issuance of any securities that are issuable
        as a dividend or distribution in respect of the Series A Preferred Stock.
        

       

      (d)  The
        record date for any dividends or distribution payable in respect of the Series
        A
        Preferred Stock shall be the record date for the applicable dividend or
        distribution on the Common Stock and any such dividends or distributions
        shall
        be payable to the individual, entity or group in whose name the Series A
        Preferred Stock is registered at the close of business on the applicable
        record
        date.

       

      ARTICLE
        3

       

      CONVERSION
        RIGHTS

       

      3.1  Conversion
        of Series A Preferred Stock into Common Stock.
        The
        holders of Series A Preferred Stock shall have the conversion rights as
        follows:

       

      (a)  Right
        to Convert.
        As long
        as the Debenture, as defined herein, is outstanding, subject to and upon
        compliance with the provisions of this Article 3, each share of Series A
        Preferred Stock shall be convertible, at the option of the holder thereof,
        at
        any time and from time to time after the date of issuance of such share,
        at the
        principal office of the Company or any transfer agent for the Series A Preferred
        Stock, into such number of fully-paid and non-assessable shares of Common
        Stock
        as is determined by the ratio obtained by dividing the number of shares of
        Series A Preferred Stock by the Series A Conversion Price, determined as
        hereinafter provided. The “Series
        A Conversion Price”
shall
        initially be equal to the $0.07 and shall be subject to adjustment as
        hereinafter provided. 

       

      (b)  Automatic
        Conversion.
        Each
        share of Series A Preferred Stock shall automatically convert into shares
        of
        Common Stock at the then-effective Series A Conversion Price, immediately
        upon
        the earlier to occur of (i) the repayment in full (the “Repayment”)
        by the
        Company of its obligations under the Debenture, dated as of June 28, 2006,
        issued to Dutchess Private Equities Fund, LP and Dutchess Private Equities
        Fund,
        II, LP and identified as Debenture Number June - 2006 - 101 (the “Debenture”),
        or
        (ii) the Conversion (as defined in the Debenture) in full of the Debenture
        and
        any accrued interest thereon. In the event of the automatic conversion of
        the
        Series A Preferred Stock, the person(s) entitled to receive the Common Stock
        issuable upon such conversion of Series A Preferred Stock shall be deemed
        not to
        have converted such Series A Preferred Stock until immediately prior to the
        occurrence of the Repayment or Conversion, and the conversion will be
        conditioned upon the occurrence of such respective occurrence. 

       

      3.2  Adjustments.
        

       

      (a)  In
        the
        event that the outstanding shares of Common Stock shall be subdivided (by
        forward stock split, stock dividend or other like occurrence) into a greater
        number of shares of Common Stock, and no equivalent subdivision or increase
        is
        made with respect to the Series A Preferred Stock, the Series A Conversion
        Price
        then in effect for the Series A Preferred Stock shall, concurrently with
        the
        effectiveness of such subdivision or other increase, be proportionately
        decreased. In the event that the outstanding shares of Common Stock shall
        be
        combined or consolidated into a lesser number of shares of Common Stock (by
        reverse split or otherwise), and no equivalent combination or consolidation
        is
        made with respect to the Series A Preferred Stock, the Series A Conversion
        Price
        then in effect shall, concurrently with the effectiveness of such combination
        or
        consolidation, be proportionately increased. Notwithstanding the foregoing,
        no
        adjustment will be made pursuant to this Section 3.2(a) with respect to any
        capital reorganization or reclassification with respect to which an adjustment
        shall have been made under Section 3.2(b) hereof. In the event of the (i)
        issuance to holders of Common Stock of rights or warrants entitling them
        to
        subscribe for or purchase Common Stock or (ii) distribution to holders of
        Common
        Stock of capital stock (other than Common Stock), evidences of indebtedness
        of
        the Company, assets or rights or warrants to subscribe for or purchase any
        of
        its securities, then, as a condition of such issuance or distribution, lawful
        and adequate provisions shall be made, whereby each holder of a share of
        Series
        A Preferred Stock shall thereafter, upon conversion, receive the type and
        amount
        of the securities, assets, rights or warrants, to which the holder of the
        number
        of shares of Common Stock deliverable upon the conversion of such shares
        of
        Series A Preferred Stock would have been so entitled at the time of such
        issuance or distribution.

       

      
        
           

        

        
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      (b)  If
        (x)
        any capital reorganization or reclassification of the capital stock of the
        Company (other than as a result of a stock dividend, subdivision or combination
        of shares or any other event described in Section 3.2(a) above) or (y) any
        Sale
        or Merger (as hereinafter defined) (each a “Corporate
        Change”)
        of the
        Company shall be effected in such a way that holders of Common Stock shall
        be
        entitled to receive capital stock, other securities or property with respect
        to
        or in exchange for Common Stock, then, as a condition of such Corporate Change,
        lawful and adequate provisions shall be made, whereby each holder of a share
        or
        shares of Series A Preferred Stock shall, upon conversion thereof, receive
        such
        kind and shares of capital stock, other securities or property as may be
        issued
        or payable with respect to or in exchange for the number of shares of such
        Common Stock into which the Series A Preferred Stock held at the time of
        such
        Corporate Change shall have been convertible. In the event of any Corporate
        Change, appropriate adjustment shall be made in the application of the
        provisions herein set forth with respect to the rights and interests thereafter
        of the holders of the Series A Preferred Stock, to the end that the provisions
        set forth herein shall thereafter be applicable, as nearly as reasonably
        may be,
        in relation to any shares of capital stock, other securities or property
        thereafter receivable upon conversion of shares of the Series A Preferred
        Stock.
        The Company shall not effect any Corporate Change unless, prior to the
        consummation of such Corporate Change, the successor or combined corporation
        (if
        other than the Company) or the acquiring corporation, by written instrument
        (in
        form and substance reasonably satisfactory to holders of all of the shares
        of
        Series A Preferred Stock then outstanding), undertakes the obligations of
        the
        Company described in the first sentence of this Section 3.2(b) and assumes
        the
        obligation to deliver to each holder of Series A Preferred Stock such shares
        of
        capital stock, other securities or property that the holder is entitled to
        receive in accordance with this Section 3.2(b). An adjustment made pursuant
        to
        this Section 3.2(b) shall become effective at the time at which such Corporate
        Change becomes effective. For purposes of this Certificate of Designations,
        a
“Sale
        or Merger”
shall
        mean (i) the sale or other disposition of all or substantially all of the
        Company’s assets or (ii) the acquisition of the Company by another entity by way
        of merger or consolidation, or any other transaction or series of related
        transactions, resulting in the exchange of the outstanding shares of the
        Company
        for securities or other consideration issued, or caused to be issued, by
        the
        acquiring corporation or its parent or subsidiary. 

       

      
        
           

        

        
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      (c)  In
        the
        event that the Company shall make a distribution payable in securities of
        other
        entities or persons, evidences of indebtedness issued by other entities or
        persons, assets (excluding cash dividends) or options or rights not referred
        to
        in Sections 4.2(a) or (b) above, the holders of the Series A Preferred Stock
        shall be entitled to a proportionate share of any such distribution as though
        they were the holders of the number of shares of Common Stock of the Company
        into which their shares of Series A Preferred Stock were convertible as of
        the
        record date fixed for the determination of the holders of shares of Common
        Stock
        entitled to receive such distribution or, if no such record date is fixed,
        as of
        the date such distribution is made. Upon making such distribution available
        to
        the holders of the Series A Preferred Stock, no adjustment shall be made
        in the
        Series A Conversion Ratio.

       

      (d)  The
        Series A Conversion Price shall also be subject to adjustment as
        follows:

       

      (i)       
        Special
        Definitions.
        For
        purposes of this Section 3.2(d), the following definitions shall
        apply:

       

      (A)  “Options”
shall
        mean rights, options or warrants to subscribe for, purchase or otherwise
        acquire
        either Common Stock or Convertible Securities (as defined herein), other
        than
        rights, options or warrants to subscribe for, purchase or otherwise acquire
        securities that are excluded from the definition of “Additional
        Shares of Common Stock”
(as
        defined herein).

       

      (B)  “Original
        Issue Date”
shall
        mean the date on which a share of Series A Preferred Stock was first
        issued.

       

      (C)  “Convertible
        Securities”
shall
        mean any evidence of indebtedness, or shares (other than Common Stock) or
        other
        securities convertible into or exchangeable for Common Stock.

       

      (D)  “Additional
        Shares of Common Stock”
shall
        mean all shares of Common Stock or Common Stock equivalents issued or issuable
        by the Company on or after the Original Issue Date, other than shares of
        Common
        Stock or Common Stock equivalents issued or issuable at any time pursuant
        to the
        following: 

       

      (1)  upon
        conversion of the Series A Preferred Stock authorized herein;

       

      (2)  to
        officers, directors, employees, consultants or advisors of the Company or
        its
        subsidiaries, directly (or pursuant to the exercise of options or conversion
        of
        Convertible Securities) or pursuant to any stock purchase or stock option
        plan
        or other arrangement approved by the Board of Directors before or after the
        date
        of this Certificate of Designations;

       

      
        
           

        

        
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      (3)  pursuant
        to the exercise or conversion, whichever is applicable, of rights, options,
        warrants or Convertible Securities outstanding as of the date of the filing
        of
        this Certificate of Designations;

       

      (4)  in
        connection with the acquisition by the Company of all or part of another
        entity,
        by stock acquisition or exchange, merger or other reorganization, or by the
        purchase of all or part of the assets of such other entity (including securities
        issued to persons formerly employed by such other entity and subsequently
        hired
        by the Company and to any brokers or finders in connection therewith), pursuant
        to which the Company or its stockholders own 50% or more of the voting power
        of
        the acquired, surviving or successor company; or

       

      (5)  in
        connection with a stock dividend, stock split, or other transaction addressed
        in
        Sections 4.1(b) or 4.2(a), (b) or (c) hereof.

       

      (E)  “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 the Common Stock issuable at such
        time
        upon conversion of any Convertible Securities then outstanding, plus the
        number
        of shares of the Common Stock issuable at such time upon the exercise of
        all
        then outstanding Options, including
        any options or warrants outstanding as of the date of the filing of this
        Certificate of Designations.

       

      (ii)  Issue
        of Options and Convertible Securities.
        In the
        event that the Company at any time or from time to time after the Original
        Issue
        Date shall issue any Options or Convertible Securities (other than Options
        or
        Convertible Securities excluded from the definition of Additional Shares
        of
        Common Stock under Section 3.2(d)(i)(D) hereof and Options or Convertible
        Securities that provide for the issuance of securities excluded from the
        definition of Additional Shares of Common Stock under Section 3.2(d)(i)(D)
        hereof), then the number of shares of Common Stock issuable upon the exercise
        of
        such Options or, in the case of Convertible Securities therefor, the number
        of
        shares of Common Stock into which such Convertible Securities are convertible
        or
        exchangeable, shall be deemed to be Additional Shares of Common Stock.

       

      (iii)  Adjustment
        of Series A Conversion Price Upon Issuance of Additional Shares of Common
        Stock.
        

       

      (A)  Participating
        Holders.
        In the
        event the Company, at any time after the Original Issue Date shall issue
        Additional Shares of Common Stock without consideration or for a consideration
        per share less than the Series A Conversion Price in effect immediately prior
        to
        such issuance, then and in such event, the Series A Conversion Price shall
        be
        reduced, concurrently with such issuance in order to increase the number
        of
        shares of Common Stock into which a share of Series A Preferred Stock is
        convertible, to a price (calculated to the nearest cent) determined by
        multiplying:

       

      (1)  the
        Series A Conversion Price in effect immediately prior to the issuance of
        such
        Additional Shares of Common Stock by

       

      (2)  a
        fraction of which (x) the numerator shall be the sum of (1) the number of
        shares
        of Common Stock Deemed Outstanding and (2) the number of Additional Shares
        of
        Common Stock that the aggregate consideration for the number of shares of
        Common
        Stock so offered would purchase at the Series A Conversion Price in effect
        immediately prior to such issuance; and (y) the denominator shall be the
        number
        of shares of Common Stock Deemed Outstanding immediately prior to such issuance
        plus the number of shares of such Additional Shares of Common Stock so issued
        or
        sold or deemed issued or sold.

       

      
        
           

        

        
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      (iv)  Determination
        of Consideration.
        For
        purposes of this Section 3.2, the consideration received by the Company for
        the
        issuance of any Additional Shares of Common Stock shall be computed as
        follows:

       

      (A)  Cash
        and Property.
        

       

      (1)  Such
        consideration shall, insofar as it consists of cash, be computed at the gross
        amount of cash received by the Company, excluding expenses, discounts and
        commissions payable by the Company in connection with such issuance;

       

      (2)  such
        consideration shall, insofar as it consists of property other than cash,
        be
        computed at the fair value thereof at the time of such issuance, as determined
        in good faith by the Board of Directors; and

       

      (3)  in
        the
        event Additional Shares of Common Stock are issued together with other shares
        of
        capital stock or other securities or assets of the Company for consideration
        that covers in the aggregate the Additional Shares of Common Stock and such
        other shares or securities or other assets, the proportion of such consideration
        allocated to the Additional Shares of Common Stock shall be computed as provided
        in clauses (i) and (ii) above, as determined in good faith by the Board of
        Directors.

       

      (B)  Options
        and Convertible Securities.
        The
        consideration per share receivable by the Company for Additional Shares of
        Common Stock issuable pursuant to Section 3.2(d)(ii) relating to Options
        and
        Convertible Securities shall be determined by dividing:

       

      (1)  the
        total
        amount, if any, received by the Company as consideration for the issuance
        of
        such Options or Convertible Securities, plus the aggregate amount of additional
        consideration payable to the Company upon the exercise of such Options or
        the
        conversion or exchange of such Convertible Securities, or in the case of
        Options
        for Convertible Securities, the exercise of such Options for Convertible
        Securities and the conversion or exchange of such Convertible Securities,
        by

       

      (2)  the
        number of shares of Common Stock issuable upon the exercise of such Options,
        the
        conversion or exchange of such Convertible Securities and, in the case of
        Options for Convertible Securities, the exercise of such Options for Convertible
        Securities and the conversion or exchange of such Convertible Securities.
        

       

      (v)  Readjustment
        for Expiration of Options, Rights or Warrants.
        Upon
        the expiration or termination of any Options, or any such rights to convert
        or
        exchange Convertible Securities, the Series A Conversion Price, to the extent
        in
        any way affected by or computed using such Options or Convertible Securities,
        shall then be recomputed to reflect the issuance of only the number of shares
        of
        Common Stock (and Options and Convertible Securities that remain in effect)
        that
        were actually issued upon the exercise of such Options or upon the conversion
        or
        exchange of such Convertible Securities. 

       

      
        
           

        

        
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      (vi)  Readjustment
        for Conversion of Debenture.
        In
        addition to any of the other adjustments provided for herein, in the event
        of a
        conversion of the Series A Preferred Stock pursuant to Section 3.1(b) hereof,
        and provided that the weighted average of the price per share of the shares
        of
        Common Stock underlying the Debenture upon the conversion of such Debenture
        is
        less than the then-effective Series A Conversion Price, the Series A Conversion
        Price shall be adjusted equitably such that it is equal to the weighted average
        of the price per share of the shares of Common Stock underlying the Debenture
        upon the conversion of such Debenture. 

       

      (vii)  No
        Adjustment of Series A Conversion Price.
        

       

      (A)  No
        adjustment in the Series A Conversion Price shall be made in respect of the
        issuance of Additional Shares of Common Stock, unless the consideration per
        share for an Additional Share of Common Stock issued or deemed to be issued
        by
        the Company is less than the Series A Conversion Price in effect on the date
        of,
        and immediately prior to, such issuance.

       

      (B)  Notwithstanding
        anything to the contrary in this Article 4, the Series A Conversion Price
        shall
        not be reduced or increased if any such change would result in the Series
        A
        Conversion Price being decreased or increased by less than one cent (subject
        to
        proportionate adjustment in the case of recapitalizations, stock splits,
        stock
        dividends, and combinations of shares of Common Stock), but any such amount
        shall be carried forward and any such reduction or increase with respect
        thereto
        shall be made at the time of and together with any subsequent change which,
        together with such amount, and any other amount or amounts so carried forward,
        shall aggregate one cent or more. Upon adjustment, the Series A Conversion
        Price
        shall be rounded up or down to the nearest whole cent, which rounding shall
        be
        considered in all subsequent adjustments by calculating from the original
        Series
        A Conversion Price so that the cumulative effect of rounding is equitably
        negated to the maximum extent possible.

       

      (e)  Certificate
        as to Adjustments.
        Upon
        the occurrence of each adjustment or readjustment of the Series A Conversion
        Price pursuant to this Section 3.2, the Company at its expense shall promptly
        compute such adjustment or readjustment of the Series A Conversion Price
        in
        accordance with the terms hereof and furnish to each holder of Series A
        Preferred Stock a certificate setting forth such adjustment or readjustment
        and
        showing in detail the facts upon which such adjustment or readjustment is
        based,
        including a statement of: (i) the consideration received or deemed to be
        received by the Company for any Additional Shares of Common Stock issued
        or
        deemed to have been issued; (ii) the Series A Conversion Price in effect
        immediately prior to such adjustment or readjustment; (iii) the number of
        Additional Shares of Common Stock issued or deemed issued; and (iv) the number
        of shares of Common Stock and the amount, if any, of other property which
        at the
        time would be received upon the conversion of the Series A Preferred Stock.
        The
        Company shall, upon the written request at any time of any holder of Series
        A
        Preferred Stock, furnish or cause to be furnished to such holder a like
        certificate setting forth (x) all such adjustments and readjustments of the
        Series A Conversion Price since the Original Issue Date and (y) the Series
        A
        Conversion Price then in effect.

       

      
        
           

        

        
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      3.3  Procedures
        for Conversion.
        

       

      (a)  In
        order
        to exercise conversion rights pursuant to Section 3.1(a) hereof, the holder
        of
        shares of the Series A Preferred Stock to be converted shall deliver an
        irrevocable written notice of such exercise to the Company at its principal
        office. The holder of any shares of Series A Preferred Stock shall, upon
        any
        conversion of such Series A Preferred Stock in accordance with this Article
        4,
        surrender certificates representing the shares of Series A Preferred Stock
        to
        the Company, at its principal office, and specify the name or names in which
        such holder wishes the certificate or certificates for shares of Common Stock
        to
        be issued. In case such holder shall specify a name or names other than that
        of
        such holder, such notice shall be accompanied by payment of all transfer
        taxes
        (if transfer is to a person or entity other than the holder thereof) payable
        upon the issuance of shares of Common Stock in such name or names. As promptly
        as practicable and, if applicable, after payment of all transfer taxes (if
        such
        transfer is to a person or entity other than the holder thereof), the Company
        shall deliver or cause to be delivered certificate(s) representing the number
        of
        validly issued, fully paid and non-assessable shares of Common Stock to which
        the holder of the Series A Preferred Stock so converted shall be entitled.
        Such
        conversion, to the extent permitted by applicable law, shall be deemed to
        have
        been effected as of the date of receipt by the Company of any notice of
        conversion pursuant to Section 3.1(a) hereof or, in the case of an automatic
        conversion pursuant to Section 3.1(b) hereof, upon the occurrence of any
        event
        specified therein. Upon conversion of any shares of Series A Preferred Stock,
        such shares shall cease to constitute shares of Series A Preferred Stock
        and
        shall represent only the right to receive shares of Common Stock into which
        they
        will be converted.

       

      (b)  In
        connection with the conversion of any shares of Series A Preferred Stock,
        no
        fractions of shares of Common Stock shall be issued, but the Company shall
        round
        up to the nearest whole share such fractional interest. 

       

      (c)  The
        Company shall at all times reserve and keep available out of its authorized
        Common Stock the full number of shares of Common Stock issuable upon the
        conversion of all outstanding shares of Series A Preferred Stock.

       

      3.4  Notices
        of Record Date.
        In the
        event that the Company shall at any time: (i) declare any dividend or
        distribution upon any class or series of capital stock, whether in cash,
        property, capital stock or other securities; (ii) effect any reclassification
        or
        recapitalization of its Common Stock outstanding involving a change in the
        Common Stock; (iii) merge or consolidate with or into any other corporation
        or
        other entity; (iv) sell, lease or convey all or substantially all of its
        property or business; or (v) liquidate, dissolve or wind up; 

       

      then,
        in
        connection with each such event, the Company shall mail to each holder of
        Series
        A Preferred Stock:

       

      (a)  at
        least
        twenty (20) days’ prior written notice of the date on which a record shall be
        taken for such dividend or distribution (and specifying the date on which
        the
        holders of the affected class or series of capital stock shall be entitled
        thereto) or for determining the rights to vote, if any, in respect of the
        matters referred to in clauses (ii), (iii), (iv) and (v) in this Section
        3.4;
        and

       

      
        
           

        

        
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      (b)  in
        the
        case of the matters referred to in clauses (ii), (iii) and (iv) in this Section
        3.4 written notice of such impending transaction not later than twenty (20)
        days
        prior to the stockholders’ meeting called to approve such transaction, or twenty
        (20) days prior to the closing of such transaction, whichever is earlier,
        and
        shall also notify such holder in writing of the final approval of such
        transaction. The first of such notices shall describe the material terms
        and
        conditions of the impending transaction (and specify the date on which the
        holders of shares of Common Stock shall be entitled to exchange their Common
        Stock for capital stock, other securities or property deliverable upon the
        occurrence of such event) and the Company shall thereafter give such holders
        prompt notice of any material changes. The transaction shall in no event
        take
        place sooner than twenty (20) days after the Company has given the first
        notice
        provided for herein or ten (10) days after the Company has given notice of
        any
        material changes provided for herein.

       

      3.5  No
        Impairment.
        The
        Company shall not, by amendment of its Certificate of Incorporation or through
        any reorganization, transfer of assets, consolidation, merger, dissolution,
        issuance or sale of securities or any other voluntary action, avoid or seek
        to
        avoid the observance or performance of any of the terms to be observed or
        performed hereunder by the Company, but will at all times in good faith assist
        in the carrying out of all the provisions of this Article 4 and in the taking
        of
        all such action as may be necessary or appropriate in order to protect the
        conversion rights of the holders of the Series A Preferred Stock against
        impairment.

       

      3.6  Issuer
        Taxes.
        The
        Company shall pay any and all issuer and other taxes that may be payable
        in
        respect of any issuance or delivery of shares of Common Stock upon conversion
        of
        the Series A Preferred Stock pursuant hereto; provided,
        however,
        that
        the Company shall not be obligated to pay any transfer taxes resulting from
        any
        transfer requested by any holder in connection with any such
        conversion.

       

      ARTICLE
        4

       

      REDEMPTION
        RIGHTS

       

      The
        Company shall not be obligated or entitled to redeem any shares of the Series
        A
        Preferred Stock.

       

      ARTICLE
        5

       

      VOTING
        RIGHTS

       

      5.1  General.
        Subject
        to Section 5.2 hereof, the holders of shares of Series A Preferred Stock
        (and
        the holders of any other shares of preferred stock that may have similar
        voting
        rights) shall vote together with the holders of shares of Common Stock and
        any
        other series of preferred stock or common stock that, by its terms, votes
        on an
        as-if-converted basis with the Common Stock on all matters to be voted on
        or
        consented to by the stockholders of the Company, except as may otherwise
        be
        required under the DGCL. With respect to any such vote or consent, each holder
        of Series A Preferred Stock shall be entitled to the number of votes that
        such
        holder would have if the Series A Preferred Stock held by such holder were
        converted into Common Stock in accordance with Article 4 hereof on the record
        date for determination of holders of Common Stock entitled to participate
        in
        such vote or action by consent.

       

      
        
           

        

        
          -
            10
            -

          
            

          

        

        
           

        

      

       

      5.2  Stockholder
        Approvals.
        So long
        as any shares of the Series A Preferred Stock are outstanding, except where
        the
        vote or written consent of the holders of a greater number of shares of the
        Company is required by the DGCL or its Certificate of Incorporation and in
        addition to any other vote that may be required by the DGCL, without the
        prior
        approval of the holders of all of the then outstanding shares of Series A
        Preferred Stock, given in person or by proxy, either in writing or at a special
        meeting called for that purpose, the Company shall not:

       

      (a)  authorize
        or issue any equity security having any preference over the Series A Preferred
        Stock with respect to dividends or liquidation preference (or create any
        obligation or any security convertible into or exchangeable for, or having
        any
        option or right to purchase, any such equity security having any preference
        over
        the Series A Preferred Stock with respect to dividends or liquidation
        preference) or increase the number of authorized shares of Series A Preferred
        Stock; provided,
        however,
        that
        any approval of any action set forth in this Section 5.2(a) shall not be
        unreasonably withheld or delayed; or

       

      (b)  amend,
        alter or repeal any provision of, or add any provision to, the Company’s
        Certificate of Incorporation, any Certificate of Designations or Bylaws if
        such
        action would adversely alter or change in any material respect the rights,
        preferences or privileges of the holders of the Series A Preferred
        Stock.

       

      ARTICLE
        6

       

      MISCELLANEOUS

       

      6.1  Headings
        of Sections.
        The
        headings of the various Articles and Sections hereof are for convenience
        of
        reference only and shall not affect the interpretation of any of the provisions
        hereof.

       

      6.2  Severability
        of Provisions.
        If any
        right, preference or limitation of the Series A Preferred Stock set forth
        herein
        is invalid, unlawful or incapable of being enforced by reason of any rule
        of law
        or public policy, all other rights, preferences and limitations set forth
        in
        this Certificate of Designations that can be given effect without the invalid,
        unlawful or unenforceable right, preference or limitation shall, nevertheless,
        remain in full force and effect, and no right, preference or limitation set
        forth herein shall be deemed dependent upon any other such right, preference
        or
        limitation unless so expressed herein.

       

      6.3  Amendment.
        This
        Certificate of Designations constitutes an agreement between the Company
        and the
        holders of the Series A Preferred Stock. It may be amended by vote of the
        Board
        of Directors with the affirmative consent of the holders of all of the
        outstanding shares of the Series A Preferred Stock.

       

      
        
           

        

        
          -
            11
            -

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF, the Company has caused this Certificate of Designations
        to be
        signed by a duly authorized officer of the Company.

    

     

    
      
        	 	 	 
	Dated:
                June 29, 2006 	ENIGMA
                SOFTWARE
                GROUP, INC.
	 
 	 
 	 
 
	 	By:  	/s/ Colorado
                Stark
	 	
                
Name: Colorado
                Stark
	 	Title: Executive
                Chairman

      

       

      
        
           

        

        
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            12
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