Document:

exv4w1

Exhibit
4.1

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, 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.

GREENHUNTER ENERGY, INC.

Warrant To Purchase Common Stock

Warrant No.: A- ___

Number of Shares of Common Stock: 1,410,000

Date of Issuance: August 21, 2008 (“Issuance Date”)

     GreenHunter Energy, Inc., a Delaware corporation (the “Company”), hereby certifies that, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, West
Coast Opportunity Fund, LLC, 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), 1,410,000 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 15. This Warrant is
issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of August 21,
2008 (the “Subscription Date”), by and between the Company and the Holder (the “Securities Purchase
Agreement”).

     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) payment to
the Company of an amount equal to the applicable Exercise Price multiplied by the number

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of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise
Price”) in cash or wire transfer of immediately available funds. 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 first Business Day following the date on which the Company has received each of
the Exercise Notice and the Aggregate Exercise Price (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 Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company
shall 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 Notice and Aggregate Exercise
Price referred to in clause (ii) above, 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 of delivery of the certificates
evidencing such Warrant Shares. 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
five 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 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 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
$25.00, subject to adjustment as provided herein.

     (c) Company’s Failure to Timely Deliver Securities. 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
The Depository Trust Company for the number of shares of Common Stock to which the Holder is
entitled upon such holder’s exercise hereunder, and if on or after such trading day the
Holder purchases (in an open market transaction or in another bona fide transaction) 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 three Business Days after the Holder’s request and
in the Holder’s discretion, either (i)

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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 shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of Common Stock
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 Bid
Price on the date of exercise.

     (d) 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.

     (e) Limitations on Exercises.

     (i) Beneficial Ownership. 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 9.99% (“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 Person’s beneficial
ownership is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person and its affiliates and (ii) 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 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-Q, Current Report on Form 8-K or other public filing
with the Securities and Exchange Commission, 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 Day confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including the

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SPA Securities and the Warrant, 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 increase or decrease the Maximum
Percentage to any other percentage 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. Notwithstanding anything to the
contrary contained herein, the Company shall not be obligated to issue any shares of
Common Stock upon exercise of the Warrant if the issuance of such shares of Common
Stock would exceed that number of shares of Common Stock which the Company may issue
upon conversion of the shares of the Company’s Series B Convertible Preferred Stock
(the “Series B Preferred”) or exercise of the Warrant without breaching the
Company’s obligations under the rules or regulations of the Principal Market, or the
market or exchange where the Common Stock is then traded (the “Exchange Cap”), which
number of shares of Common Stock was equal to 3,979,519 in the aggregate as of the
Subscription Date, 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 (or any successor rule or regulation) for issuances 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 Holders. Unless and until such approval or written
opinion is obtained, the Holder shall not be issued, upon exercise of Warrants or
conversion of shares of Series B Preferred, shares of Common Stock in an amount
greater than the Exchange Cap.

     (f) Forced Exercise by the Company. The Company may force the Holder to exercise its
Warrants, in whole or in part, at any time all of the Exercise Conditions are satisfied.
Provided the Exercise Conditions have all been satisfied, the Company may provide notice
(the “Company Conversion Notice”) to the Holder at any time within (7) Business Days after
the occurrence of such events indicating the Company’s desire to have the Warrants
exercised. The Holder shall have fifteen (15) Business Days after receipt of such Company
Conversion Notice to exercise the Warrants with either the payment of the Aggregate Exercise
Price or through a Cashless Exercise as provided in Section 1(a) above. The Company shall
promptly deliver the Warrant Shares issued on exercise of a Warrant to the Holder (without
further action by the Holder being required).

     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 New Warrants. If and whenever on or after the
Subscription Date the Company issues or sells, or in accordance with this Section 2 is
deemed to have issued or sold, any warrants for an exercise price per share (the “New
Securities 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

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(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 Securities
Issuance Price.

     (b) Adjustment upon Issuance of shares of Common Stock. Other than as provided
in Section 2(a), if and whenever on or after the Subscription 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 excluding Excluded Securities (as defined in the
Certificate of Designations) for a consideration per share less than a price (the
“Applicable Price”) equal to $25.00 (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 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.

     (c) Upon each such adjustment of the Exercise Price hereunder, in the case of Section 2(a) or 2(b),
as applicable, 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, 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(c)(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” 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 shares 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

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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.

     (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(c)(ii), the “lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange” 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(c)(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 Company,
together comprising one integrated transaction in which no specific consideration

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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 publicly traded
securities, in which case the amount of consideration received by the Company will
be the Closing Sale 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 Holder. 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 day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder. 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.

     (d) Adjustment upon Subdivision or Combination of Shares 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 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

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decreased. Any adjustment under this Section 2(d) shall become effective at the close
of business on the date the subdivision or combination becomes effective.

     (e) 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(e) will
increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2.

     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 stock or other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other similar transaction,
other than a distribution of cash) (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 Closing Bid 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 Closing Bid 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 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 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

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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 (with the
purchase of at least a majority of the outstanding shares of the Company’s Common Stock
automatically constituting an assumption in writing) all of the obligations of the Company
under this Warrant in accordance with the provisions of this Section (4)(b), including
agreements to deliver to each holder of 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 reasonably satisfactory to the Holder. Upon the occurrence of
any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for
(so 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)
purchasable upon the exercise of the 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
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

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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) purchasable
upon the exercise of the 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 the 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.

     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 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 this Warrant is 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 this Warrant, 120% of the number of
shares of Common Stock as shall from time to time be necessary to effect the exercise of this
Warrant (without regard to any limitations on exercise).

     6. WARRANT HOLDER NOT DEEMED A SHAREHOLDER. 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

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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.

7. REISSUANCE OF WARRANTS.

     (a) Transfer of Warrant. Subject to compliance with applicable securities
laws, 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 then 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 that 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

Page 11

 

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 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 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 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. The terms of this Warrant and all other Warrants may be
amended, and the observance of any term therein may be waived, but only with the written consent of
both the Company and the holders of Warrants evidencing 75% in number of the total number of shares
of Common Stock at the time purchasable upon the exercise of all then outstanding Warrants,
provided that no such action may change the Current Warrant Price, without the written consent of
both the Company and the holders of Warrants representing at least 90% in number of the total
number of shares of Common Stock at the time purchasable upon the exercise of all then outstanding
Warrants.

     10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
NOTWITHSTANDING SUCH CHOICE OF LAW, THE COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER
RELATED PERSON TO THE NON EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE
STATE OF TEXAS AND THE COUNTY OF DALLAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE
UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY LEGAL PROCEEDING RELATING TO THE OPERATIVE DOCUMENTS OR
THE OBLIGATIONS BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

     11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and the Holder 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 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 five (5) Business Days of such disputed

Page 12

 

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 (10) 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 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.

     14. 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 applicable securities
laws and Section 2(g) of the Securities Purchase Agreement.

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

     (a) “Bloomberg” means Bloomberg Financial Markets.

     (b) “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.

     (c) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last closing trade price, respectively, for such
security on the 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 4:00:00 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

Page 13

 

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 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.

     (d) “Common Stock” means (i) the Company’s shares of Common Stock, par value $.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.

     (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 Common Stock
deemed to be outstanding pursuant to Sections 2(c)(i) and 2(c)(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 conversion and exercise, as applicable, of the SPA Securities and this
Warrant.

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

     (g) “Exercise Conditions” means all of the following conditions (i) the Closing Sale
Price per share of the Common Stock is greater than or equal to thirty dollars ($30.00) (as
adjusted for splits, recapitalization and the like) for a consecutive period of thirty-one
(31) trading days and (ii) the average daily trading volume for the shares of Common Stock
over the same 31-day period referenced in (i) above equals or exceeds 65,000 shares.

     (h) “Expiration Date” means the date three (3) years 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 Market (a “Holiday”), the next date that is not a Holiday.

     (i) “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 (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%

Page 14

 

of either the outstanding shares of Common Stock (not including any shares of Common
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 Common
Stock (not including any shares of Common 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), or (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 Exchange Act) is or shall become
the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% of the aggregate ordinary voting power represented by issued and
outstanding Common Stock. [Notwithstanding anything stated herein to the contrary, a sale
of all or any portion of the Company’s Legacy Operations or Legacy Operations Assets (as
either term is defined in the Certificate of Designations setting forth the terms of the
Company’s Series A Convertible Preferred Stock) shall not constitute a Fundamental
Transaction.]

     (j) “Market” means with respect to any security, The New York Stock Exchange, Inc., the
Nasdaq Global Select Market, the Nasdaq Global Market or The Nasdaq Capital Market, the
American Stock Exchange or the OTC Bulletin Board.

     (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 a 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 American Stock Exchange.

     (o) “SPA Securities” means the Preferred Shares issued pursuant to the Securities
Purchase Agreement.

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

     16. MAINTENANCE OF OFFICE. So long as any of the Warrants remains outstanding, the
Company shall maintain an office in Grapevine, Texas where the Warrants may

Page 15

 

be presented for exercise, transfer, division or combination as in this Warrant provided.
Such office shall be at 1048 Texan Trail., Grapevine, Texas 76051 unless and until the Company
shall designate and maintain some other office for such purposes and give written notice thereof to
the holders of all outstanding Warrants.

[Signature Page Follows]

Page 16

 

     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.

	 	 	 	 	 
	 	GREENHUNTER ENERGY, INC.

 	 
	 	By:  	/s/
Morgan F. Johnston	 
	 	 	Name:  	Morgan F. Johnston	 
	 	 	Title:  	Senior Vice President, General Counsel
and
Secretary	 

Page 17

 

	 	 	 	 	 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

GREENHUNTER ENERGY, INC.

     The
undersigned holder hereby exercises the right to purchase                                          of the shares
of Common Stock (“Warrant Shares”) of GreenHunter Energy, 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

     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:	 	 

Page 18

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Securities Transfer
Corporation, 2591 Dallas Parkway, Suite 102, Frisco, TX 75034, to issue the above indicated number
of shares of Common Stock in accordance with the Transfer Agent Instructions dated August 21, 2008
from the Company and acknowledged and agreed to by Securities Transfer Corporation.

	 	 	 	 	 
	 	GREENHUNTER ENERGY, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Page 19exv4w2

Exhibit 4.2

AMENDED AND RESTATED 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, Gary C. Evans, Chairman, President and Chief Executive Officer 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 August 21,
2008 duly adopted the following preamble and resolution to amend and restate the certificate of
designations of that certain 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, the Certificate of Designations of 2007 Series A 8% Convertible Preferred Stock of the
Corporation, filed with the Delaware Secretary of State on March 9, 2007, shall be amended and
restated in its entirety, 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)(1) and 6(d)(i)(2) 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, upon exercise of the Warrants, or upon issuance of shares of the Series B
Preferred or, upon conversion of the Series B Preferred; (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).

- 2 -

 

     “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, including the Series B Preferred.

     “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.

     “Series B Preferred” means the 2008 Series B Convertible Preferred Stock 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

- 3 -

 

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 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.

- 4 -

 

     (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 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.

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     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 16 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) the
Closing Sale Price per share of the Common Stock is greater than or equal to twenty dollars
($20.00) for a consecutive period of thirty-one (31) Trading Days (as adjusted for splits,
recapitalization and the like), and (ii) the average daily trading volume for the shares of Common
Stock over the same 31-day period referenced in (i) above equals or exceeds 65,000 shares.

     Upon the happening of (i) and (ii), 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 no
earlier than ninety (90) days after the date of the Conversion Notice 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, provided, however, notwithstanding
the period of at least ninety (90) days after the date of the Conversion Notice prior to which the
Series A Preferred cannot be converted pursuant to this Section 6(b), all dividends on the Series A
Preferred shall cease to accrue on the date of the Conversion Notice.

     (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 16 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. 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
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

- 12 -

 

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 6(k) 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, including 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 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

- 13 -

 

(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 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

- 14 -

 

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 Gary C. Evans, its Chairman, President and CEO and
Morgan F. Johnston, its Secretary, this 21 day of August, 2008.

	 	 	 	 	 
	 	 	 
	 	  	/s/
Gary C. Evans	 
	 	 	Gary C. Evans 	 
	 	 	Chairman, President  and CEO 	 
	 

	 	 	 	 	 
	 	 	 
	 	  	/s/
Morgan F. Johnston	 
	 	 	Morgan F. Johnston 	 
	 	 	Secretary 	 
	 

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	State of Texas

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	County of Tarrant

	 		)	 	 	 

     This
instrument was acknowledged before me on August 21, 2008, by Gary C. Evans of GREENHUNTER
ENERGY, INC., a Delaware corporation, on behalf of said corporation.

	 	 	 	 	 
	 	 	 
	 	  	/s/
C. Lori Tatum	 
	 	 	Notary Public, State of Texas 	 
	 	 	 	 
	 
	 	 	 
	 	  	C. Lori Tatum	 
	 	 	(printed name) 	 
	 	 	 	 
	 

My Commission Expires:

          4/23/2010

- 16 -

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