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ex4two.htm

     

     

     

    
      

      

    

    
 

    CERTIFICATE
OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

    OF
THE

    SERIES
B CONVERTIBLE PREFERRED STOCK

    OF

    EDGEWATER
FOODS INTERNATIONAL, INC.

     

    The
undersigned, the Acting Chief Financial Officer of Edgewater Foods
International, Inc., a Nevada corporation (the "Company"), in accordance with
the provisions of the Nevada Revised Statutes, does hereby certify that,
pursuant to the authority conferred upon the Board of Directors by the Articles
of Incorporation of the Company, the following resolution creating a series of
preferred stock, designated as Series B Convertible Preferred Stock, was duly
adopted on January 12, 2007, as follows:

    

    RESOLVED,
that pursuant to the authority expressly granted to and vested in the Board of
Directors of the Company by provisions of the Articles of Incorporation of the
Company (the "Articles of Incorporation"), there hereby is created out of the
shares of the Company’s preferred stock, par value $0.001 per share, of the
Company authorized in Article IV of the Articles of Incorporation (the
"Preferred Stock"), a series of Preferred Stock of the Company, to be named
"Series B Convertible Preferred Stock," consisting of Two Hundred Twenty (220)
shares, which series shall have the following designations, powers, preferences
and relative and other special rights and the following qualifications,
limitations and restrictions:

    

    1.           ­Designation and
Rank.  The designation of such series of the Preferred Stock
shall be the Series B Convertible Preferred Stock, par value $0.001 per share
(the "Series B Preferred Stock").  The maximum number of shares of
Series B Preferred Stock shall be Two Hundred Twenty (220)
shares.  The Series B Preferred Stock shall rank senior to the
Company’s common stock, par value $0.001 per share (the "Common Stock"), and to
all other classes and series of equity securities of the Company which by their
terms do not rank senior to the Series B Preferred Stock ("Junior
Stock").  The Series B Preferred Stock shall be subordinate to and
rank junior to all indebtedness of the Company now or hereafter
outstanding.

    

    2.           ­Dividends.

    

    (a)           ­Payment of
Dividends.  Commencing on the date of the initial issuance (the
“Issuance Date”) of the Series B Preferred Stock, the holders of record of
shares of Series B Preferred Stock shall be entitled to receive, out of any
assets at the time legally available therefor and as declared by the Board of
Directors, dividends at the rate of six percent (6%) of the stated
Liquidation Preference Amount (as defined in Section 4 hereof) per share per
annum (the "Dividend Payment"), and no more, payable semi-annually (unless
converted by the holder pursuant to Section 5(a) hereof prior to the date the
applicable Dividend Payment is due) on June 30 and December 31 of each year in
shares of Common Stock.  Upon the payment of any dividend on the
Series B Preferred Stock, the number of shares of Common Stock to be issued to
the holder shall be an amount equal to ninety percent (90%) of the quotient of
(i) the Dividend Payment divided by (ii) the average of the VWAP (as defined
below) for the twenty (20) trading days immediately preceding the date the
Dividend Payment is due, but in no event less than $0.65.  Any shares
of

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     Common Stock issued as a Dividend Payment shall have
piggyback registration rights if not otherwise registered pursuant to an
effective registration statement.  In
the case of shares of Series B Preferred Stock outstanding for less than a full
year, dividends shall be pro rated based on the portion of each year during
which such shares are outstanding.  Dividends on the Series B
Preferred Stock shall be cumulative, shall accrue and be payable
semi-annually.  Dividends on the Series B Preferred Stock are prior
and in preference to any declaration or payment of any distribution (as defined
below) on any outstanding shares of Junior Stock.  Such dividends
shall accrue on each share of Series B Preferred Stock from day to day whether
or not earned or declared so that if such dividends with respect to any previous
dividend period at the rate provided for herein have not been paid on, or
declared and set apart for, all shares of Series B Preferred Stock at the time
outstanding, the deficiency shall be fully paid on, or declared and set apart
for, such shares on a pro rata basis with all other equity securities of the
Company ranking pari passu with the Series B Preferred Stock as to the payment
of dividends before any distribution shall be paid on, or declared and set apart
for Junior Stock.

    

    (b)           For
purposes hereof, “VWAP” means, for any
date, (i) the daily volume weighted average price of the Common Stock for such
date on the OTC Bulletin Board as reported by Bloomberg Financial L.P. (based on
a trading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(ii) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (iii) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Company.

    

    (c)           So
long as any shares of Series B Preferred Stock are outstanding, the Company
shall not declare, pay or set apart for payment any dividend or make any
distribution on any Junior Stock (other than dividends or distributions payable
in additional shares of Junior Stock), unless at the time of such dividend or
distribution the Company shall have paid all accrued and unpaid dividends on the
outstanding shares of Series B Preferred Stock.

    

    (d)           In
the event of a dissolution, liquidation or winding up of the Company pursuant to
Section 4 hereof, all accrued and unpaid dividends on the Series B Preferred
Stock shall be payable on the date of payment of the preferential amount to the
holders of Series B Preferred Stock. In the event of (i) a mandatory redemption
pursuant to Section 9 hereof or (ii) a redemption upon the occurrence of a Major
Transaction (as defined in Section 8(c) hereof) or a Triggering Event (as
defined in Section 8(d) hereof), all accrued and unpaid dividends on the Series
B Preferred Stock shall be payable on the date of such redemption.  In
the event of a voluntary conversion pursuant to Section 5(a) hereof, all accrued
and unpaid dividends on the Series B Preferred Stock being converted shall be
payable on the Voluntary Conversion Date (as defined in Section 5(b)(i)
hereof).

    

    (e)           For
purposes hereof, unless the context otherwise requires, "distribution" shall
mean the transfer of cash or property without consideration, whether by way of
dividend or otherwise, payable other than in shares of Common Stock or other
equity securities of the Company, or the purchase or redemption of shares of the
Company (other than redemptions set forth in Section 8 below or 
repurchases of Common Stock held by

     

     

    
      
         

      

      
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     employees
or consultants of the Company upon termination of their employment or services
pursuant to agreements providing for such repurchase or upon the cashless
exercise of options held by employees or consultants) for cash or
property.

    

    3.           ­Voting
Rights.

    

    (a)           ­Class Voting
Rights.  The Series B Preferred Stock shall have the following
class voting rights (in addition to the voting rights set forth in Section 3(b)
hereof).  So long as any shares of the Series B Preferred Stock remain
outstanding, the Company shall not, without the affirmative vote or consent of
the holders of at least seventy-five percent (75%) of the shares of the Series B
Preferred Stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting, in which the holders of the Series B Preferred Stock
vote separately as a class: (i) authorize, create, issue or increase the
authorized or issued amount of any class or series of stock, including but not
limited to the issuance of any more shares of Preferred Stock, ranking pari
passu or senior to the Series B Preferred Stock, with respect to the
distribution of assets on liquidation, dissolution or winding up; (ii) amend,
alter or repeal the provisions of the Series B Preferred Stock, whether by
merger, consolidation or otherwise, so as to adversely affect any right,
preference, privilege or voting power of the Series B Preferred Stock; provided, however, that any
creation and issuance of another series of Junior Stock shall not be deemed to
adversely affect such rights, preferences, privileges or voting powers; (iii)
repurchase, redeem or pay dividends on, shares of Common Stock or any other
shares of the Company's Junior Stock (other than de minimus repurchases from
employees of the Company in certain circumstances, and any contractual
redemption obligations existing as of the date hereof as disclosed in the
Company’s public filings with the Securities and Exchange Commission); (iv)
amend the Articles of Incorporation or By-Laws of the Company so as to affect
materially and adversely any right, preference, privilege or voting power of the
Series B Preferred Stock; provided, however, that any
creation and issuance of another series of Junior Stock shall not be deemed to
adversely affect such rights, preferences, privileges or voting powers; (v)
effect any distribution with respect to Junior Stock other than as permitted
hereby; (vi) reclassify the Company's outstanding securities; (vii) voluntarily
file for bankruptcy, liquidate the Company’s assets or make an assignment for
the benefit of the Company’s creditors; or (viii) materially change the nature
of the Company’s business.

    

    (b)           ­General Voting
Rights.  Except with respect to transactions upon which the
Series B Preferred Stock shall be entitled to vote separately as a class
pursuant to Section 3(a) above and except as otherwise required by Nevada law,
the Series B Preferred Stock shall have no voting rights.  The Common
Stock into which the Series B Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and outstanding
Common Stock of the Company, and none of the rights of the Preferred
Stock.

     

    4.           ­Liquidation
Preference.

     

     

                   
(a)           In the
event of the liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to receive, out of the assets
of the Company available for distribution to its stockholders, an amount equal
to $10,000 per share (the "Liquidation Preference Amount") of the Series B
Preferred Stock plus any accrued and unpaid

     

    
      
         

      

      
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    dividends
before any payment shall be made or any assets distributed to the holders of the
Common Stock or any other Junior Stock.  If the assets of the Company
are not sufficient to pay in full the Liquidation Preference Amount plus any
accrued and unpaid dividends payable to the holders of outstanding shares of the
Series B Preferred Stock and any series of Preferred Stock or any other class of
stock ranking pari passu, as to rights on liquidation, dissolution or winding
up, with the Series B Preferred Stock, then all of said assets will be
distributed among the holders of the Series B Preferred Stock and the other
classes of stock ranking pari passu with the Series B Preferred Stock, if any,
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full.  The
liquidation payment with respect to each outstanding fractional share of Series
B Preferred Stock shall be equal to a ratably proportionate amount of the
liquidation payment with respect to each outstanding share of Series B Preferred
Stock.  All payments for which this Section 4(a) provides shall be in
cash, property (valued at its fair market value as determined by an independent
appraiser reasonably acceptable to the holders of a majority of the Series B
Preferred Stock) or a combination thereof; provided, however, that no cash
shall be paid to holders of Junior Stock unless each holder of the outstanding
shares of Series B Preferred Stock has been paid in cash the full Liquidation
Preference Amount plus any accrued and unpaid dividends to which such holder is
entitled as provided herein.  After payment of the full Liquidation
Preference Amount plus any accrued and unpaid dividends to which each holder is
entitled, such holders of shares of Series B Preferred Stock will not be
entitled to any further participation as such in any distribution of the assets
of the Company.

    

    (b)           A
consolidation or merger of the Company with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Company, or the effectuation by the Company of a transaction or series of
related transactions in which more than 50% of the voting shares of the Company
is disposed of or conveyed, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 4.  In
the event of the merger or consolidation of the Company with or into another
corporation, the Series B Preferred Stock shall maintain its relative powers,
designations and preferences provided for herein and no merger shall result
which is inconsistent therewith.

    

    (c)           Written
notice of any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, stating a payment date and the place where the
distributable amounts shall be payable, shall be given by mail, postage prepaid,
no less than forty-five (45) days prior to the payment date stated therein, to
the holders of record of the Series B Preferred Stock at their respective
addresses as the same shall appear on the books of the Company.

    

    5.           ­Conversion.  The
holder of Series B Preferred Stock shall have the following conversion rights
(the "Conversion Rights"):

     

                   
(a)           ­Right to
Convert.  At any time on or after the Issuance Date, the holder
of any such shares of Series B Preferred Stock may, at such holder's option,
subject to the limitations set forth in Section 7 herein, elect to convert (a
"Voluntary Conversion") all or any portion of the shares of Series B Preferred
Stock held by such person into a number of fully paid and nonassessable shares
of Common Stock equal to the quotient of (i) the 

    
      
         

      

      
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    Liquidation
Preference Amount of the shares of Series B Preferred Stock being converted plus
any accrued but unpaid dividends divided by (ii) the Conversion Price (as
defined in Section 5(d) below) then in effect as of the date of the delivery by
such holder of its notice of election to convert.  In the event of a
notice of redemption of any shares of Series B Preferred Stock pursuant to
Section 8 hereof, the Conversion Rights of the shares designated for redemption
shall terminate at the close of business on the last full day preceding the date
fixed for redemption, unless the redemption price is not paid on such redemption
date, in which case the Conversion Rights for such shares shall continue until
such price is paid in full.  In the event of a liquidation,
dissolution or winding up of the Company, the Conversion Rights shall terminate
at the close of business on the last full day preceding the date fixed for the
payment of any such amounts distributable on such event to the holders of Series
B Preferred Stock.  In the event of such a redemption or liquidation,
dissolution or winding up, the Company shall provide to each holder of shares of
Series B Preferred Stock notice of such redemption or liquidation, dissolution
or winding up, which notice shall (i) be sent at least fifteen (15) days prior
to the termination of the Conversion Rights (or, if the Company obtains lesser
notice thereof, then as promptly as possible after the date that it has obtained
notice thereof) and (ii) state the amount per share of Series B Preferred Stock
that will be paid or distributed on such redemption or liquidation, dissolution
or winding up, as the case may be.

    

    (b)           ­Mechanics of Voluntary
Conversion.  The Voluntary Conversion of Series B Preferred
Stock shall be conducted in the following manner:

    

    (i)           ­Holder's Delivery
Requirements.  To convert Series B Preferred Stock into full
shares of Common Stock on any date (the " Voluntary Conversion Date"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully
executed notice of conversion in the form attached hereto as Exhibit I (the
"Conversion Notice"), to the Company at (240) 864-0450, Attention: Chief
Financial Officer, and (B) surrender to a common carrier for delivery to the
Company as soon as practicable following such Voluntary Conversion Date the
original certificates representing the shares of Series B Preferred Stock being
converted (or an indemnification undertaking with respect to such shares in the
case of their loss, theft or destruction) (the "Preferred Stock Certificates")
and the originally executed Conversion Notice.

    

    (ii)           ­Company's
Response.  Upon receipt by the Company of a facsimile copy of a
Conversion Notice, the Company shall immediately send, via facsimile, a
confirmation of receipt of such Conversion Notice to such
holder.  Upon receipt by the Company of a copy of the fully executed
Conversion Notice, the Company or its designated transfer agent (the "Transfer
Agent"), as applicable, shall, within three (3) business days following the date
of receipt by the Company of the fully executed Conversion Notice, issue and
deliver to the Depository Trust Company (“DTC”) account on the Holder’s behalf
via the Deposit Withdrawal Agent Commission 

    
      
         

      

      
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    System
(“DWAC”) as specified in the Conversion Notice, 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.  Notwithstanding the foregoing to the
contrary, the Company or its Transfer Agent shall only be obligated to issue and
deliver the shares to the DTC on a holder’s behalf via DWAC if such conversion
is in connection with a sale and the Company and the Transfer Agent are
participating in DTC through the DWAC system.  If the number of shares
of Preferred Stock represented by the Preferred Stock Certificate(s) submitted
for conversion is greater than the number of shares of Series B Preferred Stock
being converted, then the Company shall, as soon as practicable and in no event
later than three (3) business days after receipt of the Preferred Stock
Certificate(s) and at the Company's expense, issue and deliver to the holder a
new Preferred Stock Certificate representing the number of shares of Series B
Preferred Stock not converted.

    

    (iii)           ­Dispute
Resolution.  In the case of a dispute as to the arithmetic
calculation of the number of shares of Common Stock to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the arithmetic calculations to the holder via facsimile as soon as
possible, but in no event later than two (2) business days after receipt of such
holder's Conversion Notice.  If such holder and the Company are unable
to agree upon the arithmetic calculation of the number of shares of Common Stock
to be issued upon such conversion within one (1) business day of such disputed
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) business day submit via facsimile the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to the Company’s independent, outside accountant.  The
Company shall cause the accountant to perform the calculations and notify the
Company and the holder of the results no later than seventy-two (72) hours from
the time it receives the disputed calculations.  Such accountant's
calculation shall be binding upon all parties absent manifest
error.  The reasonable expenses of such accountant in making such
determination shall be paid by the Company, in the event the holder's
calculation was correct, or by the holder, in the event the Company's
calculation was correct, or equally by the Company and the holder in the event
that neither the Company's or the holder's calculation was
correct.  The period of time in which the Company is required to
effect conversions or redemptions under this Certificate of Designation shall be
tolled with respect to the subject conversion or redemption pending resolution
of any dispute by the Company made in good faith and in accordance with this
Section 5(b)(iii).

    

    (iv)           ­Record
Holder.  The person or persons entitled to receive the shares
of Common Stock issuable upon a conversion of the Series B Preferred Stock shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.

    

    (v)           ­Company's Failure to Timely
Convert.  If within three (3) business days of the Company's
receipt of an executed copy of the Conversion Notice (so long as the applicable
Preferred Stock Certificates and original Conversion Notice are received by the
Company on or before such third business day) (the "Delivery Date") the Transfer
Agent shall fail to issue and deliver to a holder the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion of the
Series B Preferred Stock or to issue a new Preferred Stock Certificate
representing the number of shares of Series B Preferred Stock to which such
holder is entitled pursuant to Section 5(b)(ii) (a "Conversion Failure"), in
addition to all other available remedies which such holder may pursue hereunder
and under the Series B Convertible Preferred Stock Purchase Agreement (the
"Purchase 

     

     

    
      
        
           

        

        
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    Agreement")
among the Company and the initial holders of the Series B Preferred Stock
(including indemnification pursuant to Section 6 thereof), the Company shall pay
additional damages to such holder on each business day after such third (3rd)
business day that such conversion is not timely effected in an amount equal 0.5%
of the product of (A) the sum of the number of shares of Common Stock not issued
to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such
holder is entitled and, in the event the Company has failed to deliver a
Preferred Stock Certificate to the holder on a timely basis pursuant to Section
5(b)(ii), the number of shares of Common Stock issuable upon conversion of the
shares of Series B Preferred Stock represented by such Preferred Stock
Certificate, as of the last possible date which the Company could have issued
such Preferred Stock Certificate to such holder without violating Section
5(b)(ii) and (B) the Closing Bid Price (as defined below) of the Common Stock on
the last possible date which the Company could have issued such Common Stock and
such Preferred Stock Certificate, as the case may be, to such holder without
violating Section 5(b)(ii).  If the Company fails to pay the
additional damages set forth in this Section 5(b)(v) within five (5) business
days of the date incurred, then such payment shall bear interest at the rate of
2.0% per month (pro rated for partial months) until such payments are
made.  The term "Closing Bid Price" shall mean, for any security as of
any date, the last closing bid price of such security on the OTC Bulletin Board
or other principal exchange on which such security is traded as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc.  If the Closing Bid Price cannot be calculated for such security
on such date on any of the foregoing bases, the Closing Bid Price of such
security on such date shall be the fair market value as mutually determined by
the Company and the holders of a majority of the outstanding shares of Series B
Preferred Stock.

    

                
(vi)           Buy-In
Rights.  In addition to any other rights available to the
holders of Series B Preferred Stock, if the Company fails to cause its Transfer
Agent to transmit to the holder a certificate or certificates representing the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock
on or before the Delivery Date, and if after such date the holder is required by
its broker to purchase (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the holder of the shares of
Common Stock issuable upon conversion of Series B Preferred Stock which the
holder anticipated receiving upon such conversion (a “Buy-In”), then the Company
shall (1) pay in cash to the holder the amount by which (x) the holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of Series B Preferred
Stock that the Company was required to deliver to the holder in connection with
the 

     

    
      
         

      

      
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    conversion
at issue times (B) the price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option of the holder, either
reinstate the shares of Series B Preferred Stock and equivalent number of shares
of Common Stock for which such conversion was not honored or deliver to the
holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its conversion and delivery obligations
hereunder.  For example, if the holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay to the holder $1,000.
The holder shall provide the Company written notice indicating the amounts
payable to the holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the
Company.  Nothing herein shall limit a holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of the Series B Preferred Stock as
required pursuant to the terms hereof.

     

    (c)           Mandatory
Conversion.

    

    (i)           Subject
to Section 7 hereof, the number of outstanding shares of Series B Preferred
Stock referred to below in Section 5(c)(ii) on the Mandatory Conversion Date
shall, automatically and without any action on the part of the holder thereof,
convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the Liquidation Preference Amount of the number of
shares of Series B Preferred Stock being converted on the Mandatory Conversion
Date divided by (ii) the Conversion Price in effect on the Mandatory Conversion
Date.

    

    (ii)           As
used herein, "Mandatory Conversion Date" shall mean, with respect to all
outstanding shares of Series B Preferred Stock at such time, that date that is
five (5) years following the Issuance Date; provided, that, (i) the
registration statement providing for the resale of shares of the Common Stock
issuable upon conversion of the Series B Preferred Stock is effective and has
been effective, without lapse or suspension of any kind, for a period sixty (60)
consecutive calendar days, or the shares of Common Stock into which the Series B
Preferred Stock can be converted may be offered for sale to the public pursuant
to Rule 144(k) ("Rule 144(k)") under the Securities Act of 1933, as amended,
(ii) trading in the Common Stock shall not have been suspended by the Securities
and Exchange Commission or the OTC Bulletin Board (or other exchange or market
on which the Common Stock is trading), and (iii) the Company is in material
compliance with the terms and conditions of this Certificate of Designation and
the other Transaction Documents (as defined in the Purchase
Agreement).  Notwithstanding the foregoing, the Mandatory Conversion
Date shall be extended for as long as (a) a Triggering Event (as defined in
Section 8(d) hereof) shall have occurred and be continuing, or (b) any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in a Triggering Event.  The Mandatory
Conversion Date and the Voluntary Conversion Date collectively are referred to
in this Certificate of Designation as the "Conversion Date."

                                                   
(iii)           On the
Mandatory Conversion Date, the outstanding shares of Series B Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its Transfer Agent; provided, however, that the
Company shall not be obligated to issue the shares of Common Stock issuable upon
conversion of any shares of Series B Preferred Stock unless certificates
evidencing such shares of Series B Preferred Stock are either delivered to the
Company or the holder notifies the Company that such certificates have been
lost, stolen, or destroyed, and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith.  Upon the occurrence of a Mandatory Conversion of the
Series B Preferred Stock

     

     

     

    
      
         

      

      
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     pursuant
to this Section 5, the holders of the Series B Preferred Stock shall surrender
the certificates representing the Series B Preferred Stock for which the
Mandatory Conversion Date has occurred to the Company and the Company shall
cause its Transfer Agent to deliver the shares of Common Stock issuable upon
such conversion (in the same manner set forth in Section 5(b)(ii)) to the holder
within three (3) business days of the holder's delivery of the applicable
Preferred Stock Certificates.

    

    (d)           ­Conversion
Price.

    

    (i)           The
term "Conversion Price" shall mean $1.15, subject to adjustment under Section
5(e) hereof.  Notwithstanding any adjustment hereunder, at no time
shall the Conversion Price be greater than $1.15 per share except if it is
adjusted pursuant to Section 5(e)(i).

    

    (ii)           Notwithstanding
the foregoing to the contrary, if during any period (a "Black-out Period"), a
holder of Series B Preferred Stock is unable to trade any Common Stock issued or
issuable upon conversion of the Series B Preferred Stock immediately due to the
postponement of filing or delay or suspension of effectiveness of the
Registration Statement or because the Company has otherwise informed such holder
of Series B Preferred Stock that an existing prospectus cannot be used at that
time in the sale or transfer of such Common Stock (provided that such
postponement, delay, suspension or fact that the prospectus cannot be used is
not due to factors solely within the control of the holder of Series B Preferred
Stock or due to the Company exercising its rights under Section 3(n) of the
Registration Rights Agreement (as defined in the Purchase Agreement)), such
holder of Series B Preferred Stock shall have the option but not the obligation
on any Conversion Date within ten (10) trading days following the expiration of
the Black-out Period of using the Conversion Price applicable on such Conversion
Date or any Conversion Price selected by such holder of Series B Preferred Stock
that would have been applicable had such Conversion Date been at any earlier
time during the Black-out Period or within the ten (10) trading days
thereafter.

    

    (e)           ­Adjustments of Conversion
Price.

    

    (i)           ­Adjustments for Stock Splits
and Combinations.  If the Company shall at any time or from
time to time after the Issuance Date, effect a stock split of the outstanding
Common Stock, the Conversion Price shall be proportionately
decreased.  If the Company shall at any time or from time to time
after the Issuance Date, combine the outstanding shares of
Common Stock, the Conversion Price shall be proportionately
increased.  Any adjustments under this Section 5(e)(i) shall be
effective at the close of business on the date the stock split or combination
becomes effective.

    

    (ii)           ­Adjustments for Certain
Dividends and Distributions.  If the Company shall at any time
or from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in shares of Common Stock, then, and in each
event, the Conversion Price shall be decreased as of the time of such issuance
or, in the event such record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion Price then in effect
by a fraction:

     

     

    
      
         

      

      
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    (1)           the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and

    

    (2)           the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.

    

    (iii)           ­Adjustment for Other
Dividends and Distributions.  If the Company shall at any time
or from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in securities of the Company other than shares of
Common Stock, then, and in each event, an appropriate revision to the applicable
Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the holders of Series B Preferred
Stock shall receive upon conversions thereof, in addition to the number of
shares of Common Stock receivable thereon, the number of securities of the
Company which they would have received had their Series B Preferred Stock been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the Conversion Date,
retained such securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for during such
period under this Section 5(e)(iii) with respect to the rights of the holders of
the Series B Preferred Stock; provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions; and provided further, however,
that no such adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive (i) a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as they
would have received if all outstanding shares of Series B Preferred Stock had
been converted into Common Stock on the date of such event or (ii) a
dividend or other distribution of shares of Series B Preferred Stock which are
convertible, as of the date of such event, into such number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being
issued with respect to each share of Common Stock in such dividend or
distribution.

    

    (iv)           ­Adjustments for
Reclassification, Exchange or Substitution.  If the Common
Stock issuable upon conversion of the Series B Preferred Stock at any time or
from time to time after the Issuance Date shall be changed to the same or
different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of
assets provided for in Section 5(e)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series B Preferred Stock shall have the right thereafter to convert
such share of Series B Preferred Stock into the 

     

     

    
      
         

      

      
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    kind and
amount of shares of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of shares of
Common Stock into which such share of Series B Preferred Stock might have been
converted immediately prior to such reclassification, exchange, substitution or
other change, all subject to further adjustment as provided herein.

    

    (v)           ­Adjustments for
Reorganization, Merger, Consolidation or Sales of Assets.  If
at any time or from time to time after the Issuance Date there shall be a
capital reorganization of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the
Company with or into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over 50% of the
outstanding voting securities of the merged or consolidated entity, immediately
after such merger or consolidation, or the sale of all or substantially all of
the Company's properties or assets to any other person (an "Organic Change"),
then as a part of such Organic Change an appropriate revision to the Conversion
Price shall be made if necessary and provision shall be made if necessary (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series B Preferred Stock shall have the right thereafter to convert
such share of Series B Preferred Stock into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from Organic Change.  In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5(e)(v) with respect to the rights of the holders of the Series B
Preferred Stock after the Organic Change to the end that the provisions of this
Section 5(e)(v) (including any adjustment in the Conversion Price then in effect
and the number of shares of stock or other securities deliverable upon
conversion of the Series B Preferred Stock) shall be applied after that event in
as nearly an equivalent manner as may be practicable.

    

    (vi)           Adjustments for Issuance of
Additional Shares of Common Stock.

    

    (A)           In
the event the Company, shall, at any time, from time to time, issue or sell any
additional shares of Common Stock (otherwise than as provided in the foregoing
subsections (i) through (v) of this Section 5(e) or pursuant to Common Stock
Equivalents (hereafter defined) granted or issued prior to the Issuance Date)
(the "Additional Shares of Common Stock"), at a price per share less than the
Conversion Price, or without consideration, the
Conversion Price then in effect upon each such issuance shall be adjusted to
that price (rounded to the nearest cent) determined by multiplying the
Conversion Price by a fraction:

    

    (1)           the
numerator of which shall be equal to the sum of (A) the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus (B) the number
of shares of Common Stock (rounded to the nearest whole share) which the
aggregate consideration for the total number of such Additional Shares of Common
Stock so issued would purchase at a price per share equal to the then Conversion
Price, and

    

    (2)           the
denominator of which shall be equal to the number of shares of Common Stock
outstanding immediately after the issuance of such Additional Shares of Common
Stock;

     

     

    
      
         

      

      
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    No
adjustment of the number of shares of Common Stock shall be made under paragraph
(A) of Section 5(e)(vi) upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Common Stock Equivalents (as defined below), if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Common Stock Equivalents (or upon the
issuance of any warrant or other rights therefore) pursuant to Section
5(e)(vii).

    

    (vii)           Issuance of Common Stock
Equivalents.  If the Company, at any time after the Issuance
Date, shall issue any securities convertible into or exchangeable for, directly
or indirectly, Common Stock ("Convertible Securities"), other than the Series B
Preferred Stock, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold (collectively,
the "Common Stock Equivalents") and the aggregate of the price per share for
which Additional Shares of Common Stock may be issuable thereafter pursuant to
such Common Stock Equivalent, plus the consideration received by the Company for
issuance of such Common Stock Equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent (the "Aggregate
Per Common Share Price") shall be less than the Conversion Price, or if, after
any such issuance of Common Stock Equivalents, the price per share for which
Additional Shares of Common Stock may be issuable thereafter is amended or
adjusted, and such price as so amended or adjusted shall cause the Aggregate Per
Common Share Price to be less than Conversion Price in effect at the time of
such amendment or adjustment, then the Conversion Price then in effect shall be
adjusted pursuant to Section (5)(e)(vi) above assuming that all Additional
Shares of Common Stock have been issued pursuant to the Convertible Securities
or Common Stock Equivalents for a purchase price equal to the Aggregate Per
Common Share Price.  No adjustment of the Conversion Price shall be
made under this subsection (vii) upon the issuance of any Convertible Security
which is issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefore, if any adjustment shall previously have been made
to the exercise price of such warrants then in effect upon the issuance of such
warrants or other rights pursuant to this subsection (vii).  No
adjustment shall be made to the Conversion Price upon the issuance of Common
Stock pursuant to the exercise, conversion or exchange of anyConvertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.

    

    (viii)            ­Consideration for
Stock.  In case any shares of Common Stock or Convertible
Securities other than the Series B Preferred Stock, or any rights or warrants or
options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold:

    

    (1)           in
connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefore shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or

     

     

     

    
      
         

      

      
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    (2)           in
the event of any consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation.  If any such calculation results in
adjustment of the applicable Conversion Price, or the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock, the
determination of the applicable Conversion Price or the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock
immediately prior to such merger, consolidation or sale, shall be made after
giving effect to such adjustment of the number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock.  In the
event any consideration received by the Company for any securities consists of
property other than cash, the fair market value thereof at the time of issuance
or as otherwise applicable shall be as determined in good faith by the Board of
Directors of the Company.  In the event Common Stock is issued with
other shares or securities or other assets of the Company for consideration
which covers both, the consideration computed as provided in this Section
(5)(e)(viii) shall be allocated among such securities and assets as determined
in good faith by the Board of Directors of the Company.

    

    (ix)           ­Record
Date.  In case the Company shall take record of the holders of
its Common Stock or any other Preferred Stock for the purpose of entitling them
to subscribe for or purchase Common Stock or Convertible Securities, then the
date of the issue or sale of the shares of Common Stock shall be deemed to be
such record date.

                                                    (x)           Certain Issues
Excepted.  Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment to the Conversion Price
upon (i) securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities issued or outstanding on or
prior to the date of the Purchase Agreement or issued pursuant to the Purchase
Agreement (so long as the conversion or exercise price in such securities are
not amended to lower such price and/or adversely affect the holders), (iii)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (iv) Common Stock issued or the issuance or grants of
options to purchase Common Stock pursuant to the Issuer’s stock option plans and
employee stock purchase plans outstanding as they exist on the date of the
Purchase Agreement, (v) Common Stock issued as payment of dividends on the
Series B Preferred Stock issued pursuant to the Purchase Agreement or the Series
A Convertible Preferred Stock issued to the holders thereof and (vi) any
warrants issued to the placement agent and its designees for the transactions
contemplated by the Purchase Agreement.

     

     

     

    
      
         

      

      
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    (f)           ­No
Impairment.  The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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 to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.  In the event a holder
shall elect to convert any shares of Series B Preferred Stock as provided
herein, the Company cannot refuse conversion based on any claim that such holder
or any one associated or affiliated with such holder has been engaged in any
violation of law, unless (i) an order from the Securities and Exchange
Commission prohibiting such conversion or (ii) an injunction from a court, on
notice, restraining and/or adjoining conversion of all or of said shares of
Series B Preferred Stock shall have been issued and the Company posts a surety
bond for the benefit of such holder in an amount equal to 120% of the
Liquidation Preference Amount of the Series B Preferred Stock such holder has
elected to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such holder in the event it obtains judgment.

    

    (g)           ­Certificates as to
Adjustments.  Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series B Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.  The Company shall, upon written request of the
holder of such affected Series B Preferred Stock, at any time, furnish or cause
to be furnished to such holder a like certificate setting forth such adjustments
and readjustments, the Conversion Price in effect at the time, and the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon the conversion of a share of such
Series B Preferred Stock.  Notwithstanding
the foregoing, the Company shall not be obligated to deliver a certificate
unless such certificate would reflect an increase or decrease of at least one
percent of such adjusted amount.

    

    (h)           ­Issue
Taxes.  The Company shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series B Preferred Stock pursuant hereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such
conversion.

    

    (i)           ­Notices.  All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally or by facsimile or e-mail or three (3)
business days following being mailed by certified or registered mail, postage
prepaid, return-receipt requested, addressed to the holder of record at its
address appearing on the books of the Company.  The Company will give
written notice to each holder of Series B Preferred 

     

     

    
      
         

      

      
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    Stock at
least twenty (20) days prior to the date on which the Company closes its books
or takes a record (I) with respect to any dividend or distribution upon the
Common Stock, (II) with respect to any pro rata subscription offer to holders of
Common Stock or (III) for determining rights to vote with respect to any Organic
Change, dissolution, liquidation or winding-up and in no event shall such notice
be provided to such holder prior to such information being made known to the
public.  The Company will also give written notice to each holder of
Series B Preferred Stock at least twenty (20) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will take place and
in no event shall such notice be provided to such holder prior to such
information being made known to the public.

    

    (j)           ­Fractional
Shares.  No fractional shares of Common Stock shall be issued
upon conversion of the Series B Preferred Stock.  In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall round the number of shares to be issued upon conversion up to the nearest
whole number of shares.

    

    (k)           ­Reservation of Common
Stock.  The Company shall, so long as any shares of Series B
Preferred Stock are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series B Preferred Stock, such number of shares of Common
Stock equal to at least one hundred twenty percent (120%) of the aggregate
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Series B Preferred Stock then
outstanding.  The initial number of shares of Common Stock reserved
for conversions of the Series B Preferred Stock and any increase in the number
of shares so reserved shall be allocated pro rata among the holders of the
Series B Preferred Stock based on the number of shares of Series B Preferred
Stock held by each holder of record at the time of issuance of the Series B
Preferred Stock or increase in the number of reserved shares, as the case may
be.  In the event a holder shall sell or otherwise transfer any of
such holder's shares of Series B Preferred Stock, each transferee shall be
allocated a pro rata portion of the number of reserved shares of Common Stock
reserved for such transferor.  Any shares of Common Stock reserved and
which remain allocated to any person or
entity which does not hold any shares of Series B Preferred Stock shall be
allocated to the remaining holders of Series B Preferred Stock, pro rata based
on the number of shares of Series B Preferred Stock then held by such
holder.

    

    (l)           ­Retirement of Series B
Preferred Stock.  Conversion of Series B Preferred Stock shall
be deemed to have been effected on the Conversion Date.  Upon
conversion of only a portion of the number of shares of Series B Preferred Stock
represented by a certificate surrendered for conversion, the Company shall issue
and deliver to such holder at the expense of the Company, a new certificate
covering the number of shares of Series B Preferred Stock representing the
unconverted portion of the certificate so surrendered as required by Section
5(b)(ii).

    

    (m)           ­Regulatory
Compliance.  If any shares of Common Stock to be reserved for
the purpose of conversion of Series B Preferred Stock require registration or
listing with or approval of any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the Company
shall, at its sole cost and expense, in 

     

     

    
      
         

      

      
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    good
faith and as expeditiously as possible, endeavor to secure such registration,
listing or approval, as the case may be.

     

    6.           ­No Preemptive
Rights.  Except as provided in Section 5 hereof and in the
Purchase Agreement, no holder of the Series B Preferred Stock shall be entitled
to rights to subscribe for, purchase or receive any part of any new or
additional shares of any class, whether now or hereinafter authorized, or of
bonds or debentures, or other evidences of indebtedness convertible into or
exchangeable for shares of any class, but all such new or additional shares of
any class, or any bond, debentures or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and disposed of by
the Board of Directors on such terms and for such consideration (to the extent
permitted by law), and to such person or persons as the Board of Directors in
their absolute discretion may deem advisable.

    

    7.           ­Conversion
Restriction.  Notwithstanding anything to the contrary set
forth in Section 5 of this Certificate of Designation, at no time may a holder
of shares of Series B Preferred Stock convert shares of the Series B Preferred
Stock if the number of shares of Common Stock to be issued pursuant to such
conversion would cause the number of shares of Common Stock owned by
such  holder and its affiliates at such time to exceed, when
aggregated with all other shares of Common Stock owned by such holder and its
affiliates at such time, the number of shares of Common Stock which would result
in such holder and its affiliates beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) in excess of 9.9% of the then issued and
outstanding shares of Common Stock outstanding at such time; provided, however, that upon a
holder of Series B Preferred Stock providing the Company with sixty-one (61)
days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such
holder would like to waive Section 7 of this Certificate of Designation with
regard to any or all shares of Common Stock issuable upon conversion of Series B
Preferred Stock, this Section 7(a) shall be of no force or effect with regard to
those shares of Series B Preferred Stock referenced in the Waiver
Notice.

    

    8.           ­Redemption.

    

    (a)           ­Redemption Option Upon Major
Transaction.  In addition to all other rights of the holders of
Series B Preferred Stock contained herein, simultaneous with the occurrence of a
Major Transaction (as defined below), each holder of Series B Preferred Stock
shall have the right, at such holder's option, to require the Company to redeem
all or a portion of such holder's shares of Series B Preferred Stock at a price
per share of Series B Preferred Stock equal to one hundred percent (100%) of the
Liquidation Preference Amount, plus any accrued but unpaid dividends and
liquidated damages (the "Major Transaction Redemption Price"); provided that the
Company shall have the sole option to pay the Major Transaction Redemption Price
in cash or shares of Common Stock.  If the Company elects to pay the
Major Transaction Redemption Price in shares of Common Stock, the price per
share shall be based upon the Conversion Price then in effect on the
day preceding the date of delivery of the Notice of Redemption at Option of
Buyer Upon Major Transaction (as hereafter defined) and the holder of such
shares of Common Stock shall have demand registration rights with respect to
such shares.

     

     

    
      
         

      

      
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    (b)           ­
Redemption Option Upon
Triggering Event.  In addition to all other rights of the
holders of Series B Preferred Stock contained herein, after a Triggering Event
(as defined below), each holder of Series B Preferred Stock shall have the
right, at such holder's option, to require the Company to redeem all or a
portion of such holder's shares of Series B Preferred Stock at a price per share
of Series B Preferred Stock equal to one hundred twenty percent (120%) of the
Liquidation Preference Amount, plus any accrued but unpaid dividends and
liquidated damages the "Triggering Event Redemption Price" and, collectively
with the "Major Transaction Redemption Price," the "Redemption Price"); provided
that with respect to the Triggering Events described in clauses (i), (ii), (iii)
and (vii) of Section 8(d), the Company shall have the sole option to pay the
Triggering Event Redemption Price in cash or shares of Common Stock; and
provided, further, that with respect to the Triggering Event described in
clauses (iv), (v) and (vi) of Section 8(d), the Company shall pay the Triggering
Event Redemption Price in cash.  If the Company elects to pay the
Triggering Event Redemption Price in shares of Common Stock in accordance with
this Section 8(b), the price per share shall be based upon the Conversion
Price then in
effect on the day preceding the date of delivery of the Notice of Redemption at
Option of Buyer Upon Triggering Event and the holder of such shares of Common
Stock shall have demand registration rights with respect to such
shares.

    

    (c)           "Major
Transaction".  A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:

    

    (i)           the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities).

    

    (ii)           the
sale or transfer of more than 50% of the Company's assets other than inventory
in the ordinary course of business in one or a related series of transactions;
or

    

    (iii)           closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.

    

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

    

    (i)           so
long as any shares of Series B Preferred Stock are outstanding, the
effectiveness of the Registration Statement, after it becomes effective, (i)
lapses for any reason (including, without limitation, the issuance of a stop
order) and such lapse continues for a period of twenty (20) consecutive trading
days, or (ii) is unavailable to the holder of the Series B Preferred Stock for
sale of the shares of Common Stock, and such lapse or 

     

     

    
      
         

      

      
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    unavailability
continues for a period of twenty (20) consecutive trading days, and the shares
of Common Stock into which such holder's Series B Preferred Stock can be
converted cannot be sold in the public securities market pursuant to Rule 144(k)
(“Rule 144(k)”) under the Securities Act of 1933, as amended, provided that the
cause of such lapse or unavailability is not due to factors solely within the
control of such holder of Series B Preferred Stock.

    

    (ii)           the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of, the OTC Bulletin
Board, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock
Exchange, Inc. or the American Stock Exchange, Inc., for a period of five (5)
consecutive trading days;

    

    (iii)           the
Company's notice to any holder of Series B Preferred Stock, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 9) or its intention not to comply with
proper requests for conversion of any Series B Preferred Stock into shares of
Common Stock; or

    

    (iv)           the
Company's failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Certificate of Designation within ten (10) business days
after the receipt by the Company of the Conversion Notice and the Preferred
Stock Certificates; or

     

    (v)           the
Company deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or

    

    (vi)           the
Company consummates a “going private” transaction and as a result the Common
Stock is no longer registered under Sections 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended; or

    

    (vii)           the
Company breaches any representation, warranty, covenant or other term or
condition of the Purchase Agreement, this Certificate of Designation or any
other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby or hereby, except to the
extent that such breach would not have a Material Adverse Effect (as defined in
the Purchase Agreement) and except, in the case of a breach of a covenant which
is curable, only if such breach continues for a period of a least ten (10)
business days.

    

    (e)           Mechanics of Redemption at
Option of Buyer Upon Major Transaction.  No sooner than fifteen
(15) days nor later than ten (10) days prior to the consummation of a Major
Transaction, but not prior to the public announcement of such Major Transaction,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Major Transaction") to each holder of Series B Preferred
Stock.  At any time after receipt of a Notice of Major Transaction
(or, in the event a Notice of Major Transaction is not delivered at least ten
(10) days prior to a Major Transaction, at any time within ten (10) days prior
to a Major Transaction), any holder of Series B Preferred Stock then outstanding
may require the Company to redeem, effective immediately prior to the
consummation of such Major Transaction, all of the holder's Series B Preferred
Stock then outstanding by delivering 

     

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    written
notice thereof via facsimile and overnight courier ("Notice of Redemption at
Option of Buyer Upon Major Transaction") to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the
number of shares of Series B Preferred Stock that such holder is electing to
redeem and (ii) the applicable Major Transaction Redemption Price, as calculated
pursuant to Section 8(a) above.

    

    (f)           ­­Mechanics of Redemption at
Option of Buyer Upon Triggering Event.  Within one (1) business
day after the Company obtains knowledge of the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to each holder of Series B Preferred
Stock.  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 Series B Preferred Stock then outstanding may require the Company
to redeem all of the Series B Preferred Stock by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of shares of
Series B Preferred Stock that such holder is electing to redeem and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to Section
8(b) above.

    

    (g)           Payment of Redemption
Price.  Upon the Company's receipt of a Notice(s) of Redemption
at Option of Buyer Upon Triggering Event or a Notice(s) of Redemption at Option
of Buyer Upon Major Transaction from any holder of Series B Preferred Stock, the
Company shall immediately notify each holder of Series B Preferred Stock by
facsimile of the Company's receipt of such Notice(s) of Redemption at Option of
Buyer Upon Triggering Event or Notice(s) of Redemption at Option of Buyer Upon
Major Transaction and each holder which has sent such a notice shall promptly
submit to the Company such holder's Preferred Stock Certificates
which such holder has elected to have redeemed.  Other than with
respect to the Triggering Event described in clause (iv) of Section 8(d), the
Company shall have the sole option to pay the Redemption Price in cash or shares
of Common Stock in accordance with Sections 8(a) and (b) and Section 9 of this
Certificate of Designation.  The Company shall deliver the applicable
Major Transaction Redemption Price immediately prior to the consummation of the
Major Transaction; provided that a
holder's Preferred Stock Certificates shall have been so delivered to the
Company; provided further that if the
Company is unable to redeem all of the Series B Preferred Stock to be redeemed,
the Company shall redeem an amount from each holder of Series B Preferred Stock
being redeemed equal to such holder's pro-rata amount (based on the number of
shares of Series B Preferred Stock held by such holder relative to the number of
shares of Series B Preferred Stock outstanding) of all Series B Preferred Stock
being redeemed.  If the Company shall fail to redeem all of the Series
B Preferred Stock submitted for redemption (other than pursuant to a dispute as
to the arithmetic calculation of the Redemption Price), in addition to any
remedy such holder of Series B Preferred Stock may have under this Certificate
of Designation and the Purchase Agreement, the applicable Redemption Price
payable in respect of such unredeemed Series B Preferred Stock shall bear
interest at the rate of 1.0% per month (prorated for partial months) until paid
in full.  Until the Company pays such unpaid applicable Redemption
Price in full to a holder of shares of Series B Preferred Stock submitted for
redemption, such holder shall have the option (the "Void Optional Redemption
Option") to, in lieu of redemption, require the Company to promptly return to
such holder(s) all of the shares of Series B Preferred Stock that were submitted
for redemption by such holder(s) under this Section 8 and for which the
applicable Redemption Price has not been paid, by sending written notice thereof
to the Company via facsimile (the 

     

     

    
      
         

      

      
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    "Void
Optional Redemption Notice").  Upon the Company's receipt of such Void
Optional Redemption Notice(s) and prior to payment of the full applicable
Redemption Price to such holder, (i) the Notice(s) of Redemption at Option of
Buyer Upon Major Transaction shall be null and void with respect to those shares
of Series B Preferred Stock submitted for redemption and for which the
applicable Redemption Price has not been paid and (ii) the Company shall
immediately return any Series B Preferred Stock submitted to the Company by each
holder for redemption under this Section 8(d) and for which the applicable
Redemption Price has not been paid and (iii) the Conversion Price of such
returned shares of Series B Preferred Stock shall be adjusted to the lesser of
(A) the Conversion Price and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option of Buyer
Upon Major Transaction is delivered to the Company and ending on the date on
which the Void Optional Redemption Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.  A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice other than interest
payments.  Payments provided for in this Section 8 shall have priority
to payments to other stockholders in connection with a Major
Transaction.

    

    (h)           Demand Registration
Rights.  If the Redemption Price upon the occurrence of a Major
Transaction or a Triggering Event is paid in shares of Common Stock and such
shares have not been previously registered on a registration statement under the
Securities Act, a holder of Series B Preferred Stock may make a written request
for registration under the Securities
Act pursuant to this Section 8(h) of all of its shares of Common Stock issued
upon such Major Transaction or Triggering Event.  The Company shall
use its reasonable best efforts to cause to be filed and declared effective as
soon as reasonably practicable (but in no event later than the ninetieth
(90th) day
after such holder’s request is made) a registration statement under the
Securities Act, providing for the sale of all of the shares of Common Stock
issued upon such Major Transaction or Triggering Event by such
holder.  The Company agrees to use its reasonable best efforts to keep
any such registration statement continuously effective for resale of the Common
Stock for so long as such holder shall request, but in no event later than the
date that the shares of Common Stock issued upon such Major Transaction or
Triggering Event may be offered for resale to the public pursuant to Rule
144(k).

    

    

    

    9.           ­Inability to Fully
Convert.

    

    (a)           ­Holder's Option if Company
Cannot Fully Convert.  If, upon the Company's receipt of a
Conversion Notice or on the Mandatory Conversion Date, the Company cannot issue
shares of Common Stock registered for resale under the Registration Statement
for any reason, including, without limitation, because the Company (w) does not
have a sufficient number of shares of Common Stock authorized and available, (x)
is otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities from issuing
all of the Common  

     

     

     

    
      
         

      

      
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    Stock
which is to be issued to a holder of Series B Preferred Stock pursuant to a
Conversion Notice or (y) subsequent to the effective date of the Registration
Statement, fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Company shall
issue as many shares of Common Stock as it is able to issue in accordance with
such holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with
respect to the unconverted Series B Preferred Stock, the holder, solely at such
holder's option, can elect, within five (5) business days after receipt of
notice from the Company thereof to:

    

    (i)           require
the Company to redeem from such holder those Series B Preferred Stock for which
the Company is unable to issue Common Stock in accordance with such holder's
Conversion Notice ("Mandatory Redemption") at a price per share equal to the
Major Transaction Redemption Price as of such Conversion Date (the "Mandatory
Redemption Price"); provided that the Company shall have the sole option to pay
the Mandatory Redemption Price in cash or shares of Common Stock;

    

    (ii)           if
the Company's inability to fully convert Series B Preferred Stock is pursuant to
Section 9(a)(y) above, require the Company to issue restricted shares of Common
Stock in accordance with such holder's Conversion Notice and pursuant to Section
5(b)(ii) above;

    

    (iii)           void
its Conversion Notice and retain or have returned, as the case may be, the
shares of Series B Preferred Stock that were to be converted pursuant to such
holder's
Conversion Notice (provided that a holder's voiding its Conversion Notice shall
not effect the Company's obligations to make any payments which have accrued
prior to the date of such notice); or

    

    (iv)           exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions of
Section 5(b)(vi) hereof.

    

    (b)           ­Mechanics of Fulfilling
Holder's Election.  The Company shall immediately send via
facsimile to a holder of Series B Preferred Stock, upon receipt of a facsimile
copy of a Conversion Notice from such holder which cannot be fully satisfied as
described in Section 9(a) above, a notice of the Company's inability to fully
satisfy such holder's Conversion Notice (the "Inability to Fully Convert
Notice").  Such Inability to Fully Convert Notice shall indicate (i)
the reason why the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Series B Preferred Stock which cannot be converted
and (iii) the applicable Mandatory Redemption Price.  Such holder
shall notify the Company of its election pursuant to Section 9(a) above by
delivering written notice via facsimile to the Company ("Notice in Response to
Inability to Convert").

    

    (c)           ­Payment of Redemption
Price.  If such holder shall elect to have its shares redeemed
pursuant to Section 9(a)(i) above, the Company shall pay the Mandatory
Redemption Price to such holder within thirty (30) days of the Company's receipt
of the holder's Notice in Response to Inability to Convert, provided that prior
to the Company's receipt of the holder's Notice in Response to Inability to
Convert the Company has not delivered a 

     

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

     

    notice to
such holder stating, to the satisfaction of the holder, that the event or
condition resulting in the Mandatory Redemption has been cured and all
Conversion Shares issuable to such holder can and will be delivered to the
holder in accordance with the terms of Section 2(g).  If the Company
shall fail to pay the applicable Mandatory Redemption Price to such holder on a
timely basis as described in this Section 9(c) (other than pursuant to a dispute
as to the determination of the arithmetic calculation of the Redemption Price),
in addition to any remedy such holder of Series B Preferred Stock may have under
this Certificate of Designation and the Purchase Agreement, such unpaid amount
shall bear interest at the rate of 2.0% per month (prorated for partial months)
until paid in full.  Until the full Mandatory Redemption Price is paid
in full to such holder, such holder may (i) void the Mandatory Redemption with
respect to those Series B Preferred Stock for which the full Mandatory
Redemption Price has not been paid, (ii) receive back such Series B Preferred
Stock, and (iii) require that the Conversion Price of such returned Series B
Preferred Stock be adjusted to the lesser of (A) the Conversion Price and (B)
the lowest Closing Bid Price during the period beginning on the Conversion Date
and ending on the date the holder voided the Mandatory Redemption.

    

    (d)           ­Pro-rata Conversion and
Redemption.  In the event the Company receives a Conversion
Notice from more than one holder of Series B Preferred Stock on the same day and
the Company can convert and redeem some, but not all, of the Series B Preferred
Stock pursuant to this Section 9, the Company shall convert and redeem from each
holder of Series B Preferred Stock electing to have Series B Preferred Stock
converted and redeemed at such time an amount equal to such holder's pro-rata
amount (based on the number shares of Series B Preferred Stock held by
such holder relative to the number shares of Series B Preferred Stock
outstanding) of all shares of Series B Preferred Stock being converted and
redeemed at such time.

    

    10.           ­Vote to Change the Terms of
or Issue Preferred Stock.  The affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting, of the
holders of not less than seventy-five percent (75%) of the then outstanding
shares of Series B Preferred Stock (in addition to any other corporate approvals
then required to effect such action), shall be required (a) for any change to
this Certificate of Designation or the Company's Articles of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series B Preferred Stock or (b) for the issuance
of shares of Series B Preferred Stock other than pursuant to the Purchase
Agreement.

    

    11.           ­Lost or Stolen
Certificates.  Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the shares of Series B Preferred
Stock, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided,
however, the
Company shall not be obligated to re-issue Preferred Stock Certificates if the
holder contemporaneously requests the Company to convert such shares of Series B
Preferred Stock into Common Stock.

    

    12.           ­Remedies, Characterizations,
Other Obligations, Breaches and Injunctive Relief.  The
remedies provided in this Certificate of Designation shall be cumulative and in
addition to all other remedies available under this 

     

     

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

    Certificate
of Designation, at law or in equity (including a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance with the provisions giving rise to such remedy and nothing
herein shall limit a holder's right to pursue actual damages for any failure by
the Company to comply with the terms of this Certificate of
Designation.  Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holders of the
Series B Preferred Stock 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 holders of the Series B Preferred Stock
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.

    

    13.           ­Specific Shall Not Limit
General; Construction.  No specific provision contained in this
Certificate of Designation shall limit or modify any more general provision
contained herein.  This Certificate of Designation shall be deemed to
be jointly drafted by the Company and all initial purchasers of the Series B
Preferred Stock and shall not be construed against any person as the drafter
hereof.

    

    14.           ­Failure or Indulgence Not
Waiver.  No failure or delay on the part of a holder of Series
B Preferred Stock in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate
and does affirm the foregoing as true this ___ day of January,
2007.

    

    

    EDGEWATER
FOODS INTERNATIONAL, INC.

    

    

    By:
_________________________________

     Name:
Michael Boswell

     Title:   Acting
Chief Financial Officer

    

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    EXHIBIT
I

    

    EDGEWATER
FOODS INTERNATIONAL, INC.

    CONVERSION
NOTICE

    

    Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series B Preferred Stock of Edgewater Foods International, Inc. (the
"Certificate of Designation").  In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series B Preferred Stock, par value $0.001 per share (the
"Preferred Shares"), of Edgewater Foods International, Inc., a Nevada
corporation (the "Company"), indicated below into shares of Common Stock, par
value $0.001 per share (the "Common Stock"), of the Company, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.

    

    Date of
Conversion:                                                   
_____________________________________                                                 

    

    Number of
Preferred Shares to be
converted:         _______                                                                                                                       

    

    Stock
certificate no(s). of Preferred Shares to be
converted:    _______                                                                                                                           

    

    The
Common Stock have been sold pursuant to the Registration Statement: YES
____NO____

    

    Please
confirm the following information:

    

    Conversion
Price:                                                       
_____________________________________                                                      

    

    Number of
shares of Common Stock

    to be
issued:                                                               
_____________________________________                                               

    

    Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________

    

    Please
issue the Common Stock into which the Preferred Shares are being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:

    

    Issue
to:                                                                               
_________________________________                                       

    

    

    Facsimile
Number:                                                               _________________________________ 

    

    Authorization:                                                                     
_________________________________              

     

    By:   
_____________________________                                                             

    Title: _____________________________                                                               

    

    Dated:

    

    

    

    

    
      
         

      

      
        25ex4three.htm

     

     

     

    
      

      

    

    

      CERTIFICATE
OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

      OF
THE

      SERIES
C CONVERTIBLE PREFERRED STOCK

      OF

      EDGEWATER
FOODS INTERNATIONAL, INC.

       

      The
undersigned, the Acting Chief Financial Officer of Edgewater Foods
International, Inc., a Nevada corporation (the "Company"), in accordance with
the provisions of the Nevada Revised Statutes, does hereby certify that,
pursuant to the authority conferred upon the Board of Directors by the Articles
of Incorporation of the Company, the following resolution creating a series of
preferred stock, designated as Series C Convertible Preferred Stock, was duly
adopted on October 31, 2007, as follows:

      

      RESOLVED,
that pursuant to the authority expressly granted to and vested in the Board of
Directors of the Company by provisions of the Articles of Incorporation of the
Company (the "Articles of Incorporation"), there hereby is created out of the
shares of the Company’s preferred stock, par value $0.001 per share, of the
Company authorized in Article IV of the Articles of Incorporation (the
"Preferred Stock"), a series of Preferred Stock of the Company, to be named
"Series C Convertible Preferred Stock," consisting of One Million (1,000,000)
shares, which series shall have the following designations, powers, preferences
and relative and other special rights and the following qualifications,
limitations and restrictions:

      

      1.           ­Designation and
Rank.  The designation of such series of the Preferred Stock
shall be the Series C Convertible Preferred Stock, par value $0.001 per share
(the "Series C Preferred Stock").  The maximum number of shares of
Series C Preferred Stock shall be One Million (1,000,000) shares.  The
Series C Preferred Stock shall rank senior to the Company’s common stock, par
value $0.001 per share (the "Common Stock"), and to all other classes and series
of equity securities of the Company which by their terms do not rank senior to
the Series C Preferred Stock ("Junior Stock").  The Series C Preferred
Stock shall be subordinate to and rank junior to all indebtedness of the Company
now or hereafter outstanding.

      

      2.           ­Dividends.

      

      (a)           ­Payment of
Dividends.  Commencing on the date of the initial issuance (the
“Issuance Date”) of the Series C Preferred Stock, the holders of record of
shares of Series C Preferred Stock shall be entitled to receive, out of any
assets at the time legally available therefor and as declared by the Board of
Directors, dividends at the rate of six percent (6%) of the stated
Liquidation Preference Amount (as defined in Section 4 hereof) per share per
annum (the "Dividend Payment"), and no more, payable semi-annually (unless
converted by the holder pursuant to Section 5(a) hereof prior to the date the
applicable Dividend Payment is due) on June 30 and December 31 of each year in
shares of Common Stock.  Upon the payment of any dividend on the
Series C Preferred Stock, the number of shares of Common Stock to be issued to
the holder shall be an amount equal to ninety percent (90%) of the quotient of
(i) the Dividend Payment divided by (ii) the average of the VWAP (as defined
below) for the twenty (20) trading days immediately preceding the date the
Dividend Payment is due, but in no event less than $0.65.  Any shares
of 

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

       

       Common
Stock issued as a Dividend Payment shall have piggyback registration rights if
not otherwise registered pursuant to an effective registration statement.  In the case of shares of Series C Preferred
Stock outstanding for less than a full year, dividends shall be pro rated based
on the portion of each year during which such shares are
outstanding.  Dividends on the Series C Preferred Stock shall be
cumulative, shall accrue and be payable semi-annually.  Dividends on
the Series C Preferred Stock are prior and in preference to any declaration or
payment of any distribution (as defined below) on any outstanding shares of
Junior Stock.  Such dividends shall accrue on each share of Series C
Preferred Stock from day to day whether or not earned or declared so that if
such dividends with respect to any previous dividend period at the rate provided
for herein have not been paid on, or declared and set apart for, all shares of
Series C Preferred Stock at the time outstanding, the deficiency shall be fully
paid on, or declared and set apart for, such shares on a pro rata basis with all
other equity securities of the Company ranking pari passu with the Series C
Preferred Stock as to the payment of dividends before any distribution shall be
paid on, or declared and set apart for Junior Stock.

      

      (b)           For
purposes hereof, “VWAP” means, for any
date, (i) the daily volume weighted average price of the Common Stock for such
date on the OTC Bulletin Board as reported by Bloomberg Financial L.P. (based on
a trading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(ii) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (iii) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Company.

      

      (c)           So
long as any shares of Series C Preferred Stock are outstanding, the Company
shall not declare, pay or set apart for payment any dividend or make any
distribution on any Junior Stock (other than dividends or distributions payable
in additional shares of Junior Stock), unless at the time of such dividend or
distribution the Company shall have paid all accrued and unpaid dividends on the
outstanding shares of Series C Preferred Stock.

      

      (d)           In
the event of a dissolution, liquidation or winding up of the Company pursuant to
Section 4 hereof, all accrued and unpaid dividends on the Series C Preferred
Stock shall be payable on the date of payment of the preferential amount to the
holders of Series C Preferred Stock. In the event of (i) a mandatory redemption
pursuant to Section 9 hereof or (ii) a redemption upon the occurrence of a Major
Transaction (as defined in Section 8(c) hereof) or a Triggering Event (as
defined in Section 8(d) hereof), all accrued and unpaid dividends on the Series
C Preferred Stock shall be payable on the date of such redemption.  In
the event of a voluntary conversion pursuant to Section 5(a) hereof, all accrued
and unpaid dividends on the Series C Preferred Stock being converted shall be
payable on the Voluntary Conversion Date (as defined in Section 5(b)(i)
hereof).

      

      (e)           For
purposes hereof, unless the context otherwise requires, "distribution" shall
mean the transfer of cash or property without consideration, whether by way of
dividend or otherwise, payable other than in shares of Common Stock or other
equity securities of the Company, or the purchase or redemption of shares of the
Company (other than redemptions set forth in Section 8 below or repurchases of
Common Stock held by employees 

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

       or consultants
of the Company upon termination of their employment or services pursuant to
agreements providing for such repurchase or upon the cashless exercise of
options held by employees or consultants) for cash or property.

      

      3.           ­Voting
Rights.

      

      (a)           ­Class Voting
Rights.  The Series C Preferred Stock shall have the following
class voting rights (in addition to the voting rights set forth in Section 3(b)
hereof).  So long as any shares of the Series C Preferred Stock remain
outstanding, the Company shall not, without the affirmative vote or consent of
the holders of at least seventy-five percent (75%) of the shares of the Series C
Preferred Stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting, in which the holders of the Series C Preferred Stock
vote separately as a class: (i) authorize, create, issue or increase the
authorized or issued amount of any class or series of stock, including but not
limited to the issuance of any more shares of Preferred Stock, ranking pari
passu or senior to the Series C Preferred Stock, with respect to the
distribution of assets on liquidation, dissolution or winding up; (ii) amend,
alter or repeal the provisions of the Series C Preferred Stock, whether by
merger, consolidation or otherwise, so as to adversely affect any right,
preference, privilege or voting power of the Series C Preferred Stock; provided, however, that any
creation and issuance of another series of Junior Stock shall not be deemed to
adversely affect such rights, preferences, privileges or voting powers; (iii)
repurchase, redeem or pay dividends on, shares of Common Stock or any other
shares of the Company's Junior Stock (other than de minimus repurchases from
employees of the Company in certain circumstances, and any contractual
redemption obligations existing as of the date hereof as disclosed in the
Company’s public filings with the Securities and Exchange Commission); (iv)
amend the Articles of Incorporation or By-Laws of the Company so as to affect
materially and adversely any right, preference, privilege or voting power of the
Series C Preferred Stock; provided, however, that any
creation and issuance of another series of Junior Stock shall not be deemed to
adversely affect such rights, preferences, privileges or voting powers; (v)
effect any distribution with respect to Junior Stock other than as permitted
hereby; (vi) reclassify the Company's outstanding securities; (vii) voluntarily
file for bankruptcy, liquidate the Company’s assets or make an assignment for
the benefit of the Company’s creditors; or (viii) materially change the nature
of the Company’s business.

      

      (b)           ­General Voting
Rights.  Except with respect to transactions upon which the
Series C Preferred Stock shall be entitled to vote separately as a class
pursuant to Section 3(a) above and except as otherwise required by Nevada law,
the Series C Preferred Stock shall have no voting rights.  The Common
Stock into which the Series C Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and outstanding
Common Stock of the Company, and none of the rights of the Preferred
Stock.

       

      4.           ­Liquidation
Preference.

      

      (a)           In
the event of the liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to receive, out of the assets
of the Company available for distribution to its stockholders, an amount equal
to $1.20 per share (the "Liquidation Preference Amount") of the Series C
Preferred Stock plus any accrued and unpaid 

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      dividends
before any payment shall be made or any assets distributed to the holders of the
Common Stock or any other Junior Stock.  If the assets of the Company
are not sufficient to pay in full the Liquidation Preference Amount plus any
accrued and unpaid dividends payable to the holders of outstanding shares of the
Series C Preferred Stock and any series of Preferred Stock or any other class of
stock ranking pari passu, as to rights on liquidation, dissolution or winding
up, with the Series C Preferred Stock, then all of said assets will be
distributed among the holders of the Series C Preferred Stock and the other
classes of stock ranking pari passu with the Series C Preferred Stock, if any,
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full.  The
liquidation payment with respect to each outstanding fractional share of Series
C Preferred Stock shall be equal to a ratably proportionate amount of the
liquidation payment with respect to each outstanding share of Series C Preferred
Stock.  All payments for which this Section 4(a) provides shall be in
cash, property (valued at its fair market value as determined by an independent
appraiser chosen by the Company and reasonably acceptable to the holders of a
majority of the Series C Preferred Stock) or a combination thereof; provided, however, that no cash
shall be paid to holders of Junior Stock unless each holder of the outstanding
shares of Series C Preferred Stock has been paid in cash the full Liquidation
Preference Amount plus any accrued and unpaid dividends to which such holder is
entitled as provided herein.  After payment of the full Liquidation
Preference Amount plus any accrued and unpaid dividends to which each holder is
entitled, such holders of shares of Series C Preferred Stock will not be
entitled to any further participation as such in any distribution of the assets
of the Company.

      

      (b)           A
consolidation or merger of the Company with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Company, or the effectuation by the Company of a transaction or series of
related transactions in which more than 50% of the voting shares of the Company
is disposed of or conveyed, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 4.  In
the event of the merger or consolidation of the Company with or into another
corporation, the Series C Preferred Stock shall maintain its relative powers,
designations and preferences provided for herein and no merger shall result
which is inconsistent therewith.

      

      (c)           Written
notice of any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, stating a payment date and the place where the
distributable amounts shall be payable, shall be given by mail, postage prepaid,
no less than forty-five (45) days prior to the payment date stated therein, to
the holders of record of the Series C Preferred Stock at their respective
addresses as the same shall appear on the books of the Company.

      

      5.           ­Conversion.  The
holder of Series C Preferred Stock shall have the following conversion rights
(the "Conversion Rights"):

      

      (a)           ­Right to
Convert.  At any time on or after the Issuance Date, the holder
of any such shares of Series C Preferred Stock may, at such holder's option,
subject to the limitations set forth in Section 7 herein, 

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

       

      elect to
convert (a "Voluntary Conversion") all or  any portion of the shares
of Series C Preferred Stock held by such person into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i) the
Liquidation Preference Amount of the shares of Series C Preferred Stock being
converted plus any accrued but unpaid dividends divided by (ii) the Conversion
Price (as defined in Section 5(d) below) then in effect as of the date of the
delivery by such holder of its notice of election to convert.  In the
event of a notice of redemption of any shares of Series C Preferred Stock
pursuant to Section 8 hereof, the Conversion Rights of the shares designated for
redemption shall terminate at the close of business on the last full day
preceding the date fixed for redemption, unless the redemption price is not paid
on such redemption date, in which case the Conversion Rights for such shares
shall continue until such price is paid in full.  In the event of a
liquidation, dissolution or winding up of the Company, the Conversion Rights
shall terminate at the close of business on the last full day preceding the date
fixed for the payment of any such amounts distributable on such event to the
holders of Series C Preferred Stock.  In the event of such a
redemption or liquidation, dissolution or winding up, the Company shall provide
to each holder of shares of Series C Preferred Stock notice of such redemption
or liquidation, dissolution or winding up, which notice shall (i) be sent at
least fifteen (15) days prior to the termination of the Conversion Rights (or,
if the Company obtains lesser notice thereof, then as promptly as possible after
the date that it has obtained notice thereof) and (ii) state the amount per
share of Series C Preferred Stock that will be paid or distributed on such
redemption or liquidation, dissolution or winding up, as the case may
be.

      

      (b)           ­Mechanics of Voluntary
Conversion.  The Voluntary Conversion of Series C Preferred
Stock shall be conducted in the following manner:

      

      (i)           ­Holder's Delivery
Requirements.  To convert Series C Preferred Stock into full
shares of Common Stock on any date (the "Voluntary Conversion Date"), the holder
thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on
or prior to 5:00 p.m., New York time on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I (the
"Conversion Notice"), to the Company at (240) 864-0450, Attention: Chief
Financial Officer, and (B) surrender to a common carrier for delivery to the
Company as soon as practicable following such Voluntary Conversion Date the
original certificates representing the shares of Series C Preferred Stock being
converted (or an indemnification undertaking with respect to such shares in the
case of their loss, theft or destruction) (the "Preferred Stock Certificates")
and the originally executed Conversion Notice.

      

      (ii)           ­Company's
Response.  Upon receipt by the Company of a facsimile copy of a
Conversion Notice, the Company shall immediately send, via facsimile, a
confirmation of receipt of such Conversion Notice to such
holder.  Upon receipt by the Company of a copy of the fully executed
Conversion Notice, the Company or its designated transfer agent (the "Transfer
Agent"), as applicable, shall, within three (3) business days following the date
of receipt by the Company of the fully executed Conversion Notice, issue and
deliver to the Depository Trust Company (“DTC”) account on the Holder’s behalf
via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the
Conversion Notice, 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.  Notwithstanding the foregoing to the contrary, the Company
or its Transfer Agent shall only be obligated to issue and deliver the shares to
the DTC on a holder’s behalf via DWAC if such conversion is in connection with a
sale and the Company and the Transfer Agent 

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

       

      are
participating in DTC through the DWAC system.  If the number of shares
of Preferred Stock represented by the Preferred Stock Certificate(s) submitted
for conversion is greater than the number of shares of Series C Preferred Stock
being converted, then the Company shall, as soon as practicable and in no event
later than three (3) business days after receipt of the Preferred Stock
Certificate(s) and at the Company's expense, issue and deliver to the holder a
new Preferred Stock Certificate representing the number of shares of Series C
Preferred Stock not converted.

      

      (iii)           ­Dispute
Resolution.  In the case of a dispute as to the arithmetic
calculation of the number of shares of Common Stock to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the arithmetic calculations to the holder via facsimile as soon as
possible, but in no event later than two (2) business days after receipt of such
holder's Conversion Notice.  If such holder and the Company are unable
to agree upon the arithmetic calculation of the number of shares of Common Stock
to be issued upon such conversion within one (1) business day of such disputed
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) business day submit via facsimile the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to the Company’s independent, outside accountant.  The
Company shall cause the accountant to perform the calculations and notify the
Company and the holder of the results no later than seventy-two (72) hours from
the time it receives the disputed calculations.  Such accountant's
calculation shall be binding upon all parties absent manifest
error.  The reasonable expenses of such accountant in making such
determination shall be paid by the Company, in the event the holder's
calculation was correct, or by the holder, in the event the Company's
calculation was correct, or equally by the Company and the holder in the event
that neither the Company's or the holder's calculation was
correct.  The period of time in which the Company is required to
effect conversions or redemptions under this Certificate of Designation shall be
tolled with respect to the subject conversion or redemption pending resolution
of any dispute by the Company made in good faith and in accordance with this
Section 5(b)(iii).

      

      (iv)           ­Record
Holder.  The person or persons entitled to receive the shares
of Common Stock issuable upon a conversion of the Series C Preferred Stock shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.

      

      (v)           ­Company's Failure to Timely
Convert.  If within three (3) business days of the Company's
receipt of an executed copy of the Conversion Notice (so long as the applicable
Preferred Stock Certificates and original Conversion Notice are received by the
Company on or before such third business day and there are no disputes regarding
such calculation) (the "Delivery Date") the Transfer Agent shall fail to issue
and deliver to a holder the number of shares of Common Stock to which such
holder is entitled upon such holder's conversion of the Series C Preferred Stock
or to issue a new Preferred Stock Certificate representing the number of shares
of Series C Preferred Stock to which such holder is entitled pursuant to Section
5(b)(ii) (a "Conversion Failure"), in addition to all other available remedies
which such holder may pursue hereunder and under the Series C Convertible

        
          
             

          

          
            6

            
              

            

          

          
             

          

        

       

      Preferred
Stock Purchase Agreement (the "Purchase Agreement") among the Company and the
initial holders of the Series C Preferred Stock (including indemnification
pursuant to Section 6 thereof), the Company shall pay additional damages to such
holder on each business day after such third (3rd)
business day that such conversion is not timely effected in an amount equal 0.5%
of the product of (A) the sum of the number of shares of Common Stock not issued
to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such
holder is entitled and, in the event the Company has failed to deliver a
Preferred Stock Certificate to the holder on a timely basis pursuant to Section
5(b)(ii), the number of shares of Common Stock issuable upon conversion of the
shares of Series C Preferred Stock represented by such Preferred Stock
Certificate, as of the last possible date which the Company could have issued
such Preferred Stock Certificate to such holder without violating Section
5(b)(ii) and (B) the Closing Bid Price (as defined below) of the Common Stock on
the last possible date which the Company could have issued such Common Stock and
such Preferred Stock Certificate, as the case may be, to such holder without
violating Section 5(b)(ii).  If the Company fails to pay the
additional damages set forth in this Section 5(b)(v) within five (5) business
days of the date incurred, then such payment shall bear interest at the rate of
2.0% per month (pro rated for partial months) until such payments are
made.  The term "Closing Bid Price" shall mean, for any security as of
any date, the last closing bid price of such security on the OTC Bulletin Board
or other principal exchange on which such security is traded as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc.  If the Closing Bid Price cannot be calculated for such security
on such date on any of the foregoing bases, the Closing Bid Price of such
security on such date shall be the fair market value as mutually determined by
the Company and the holders of a majority of the outstanding shares of Series C
Preferred Stock.

      

      (vi)                      Buy-In
Rights.  In addition to any other rights available to the
holders of Series C Preferred Stock, if the Company fails to cause its Transfer
Agent to transmit to the holder a certificate or certificates representing the
shares of Common Stock issuable upon conversion of the Series C Preferred Stock
on or before the Delivery Date, and if after such date the holder is required by
its broker to purchase (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the holder of the shares of
Common Stock issuable upon conversion of Series C Preferred Stock which the
holder anticipated receiving upon such conversion (a “Buy-In”), then the Company
shall (1) pay in cash to the holder the amount by which (x) the holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of Series C Preferred
Stock that the Company was required to deliver to the holder in connection with
the conversion at issue times (B) the price at which the sell order giving rise
to such purchase obligation was executed (such amount to be offset by any
payment already made to holder under Section 5(b)(v)), and (2) at the option of
the holder, either reinstate the shares of Series C Preferred Stock and
equivalent number of shares of Common Stock for which such conversion was not
honored or deliver to the holder the number of shares of Common Stock that would
have been issued had the Company timely complied with its conversion and
delivery obligations hereunder.   For example, if the holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect 

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

       

      to an
attempted conversion of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay to the
holder $1,000. The holder shall provide the Company written notice indicating
the amounts payable to the holder in respect of the Buy-In, together with
applicable confirmations and other evidence reasonably requested by the
Company.  Nothing herein shall limit a holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of the Series C Preferred Stock as
required pursuant to the terms hereof.

       

      (c)           Mandatory
Conversion.

      

      (i)           Subject
to Section 7 hereof, the number of outstanding shares of Series C Preferred
Stock referred to below in Section 5(c)(ii) on the Mandatory Conversion Date
shall, automatically and without any action on the part of the holder thereof,
convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the Liquidation Preference Amount of the number of
shares of Series C Preferred Stock being converted on the Mandatory Conversion
Date divided by (ii) the Conversion Price in effect on the Mandatory Conversion
Date.

      

      (ii)           As
used herein, "Mandatory Conversion Date" shall mean, with respect to all
outstanding shares of Series C Preferred Stock at such time, that date that is
five (5) years following the Issuance Date; provided, that, (i) the
registration statement providing for the resale of shares of the Common Stock
issuable upon conversion of the Series C Preferred Stock is effective and has
been effective, without lapse or suspension of any kind, for a period sixty (60)
consecutive calendar days, or the shares of Common Stock into which the Series C
Preferred Stock can be converted may be offered for sale to the public pursuant
to Rule 144(k) ("Rule 144(k)") under the Securities Act of 1933, as amended,
(ii) trading in the Common Stock shall not have been suspended by the Securities
and Exchange Commission or the OTC Bulletin Board (or other exchange or market
on which the Common Stock is trading), and (iii) the Company is in material
compliance with the terms and conditions of this Certificate of Designation and
the other Transaction Documents (as defined in the Purchase
Agreement).  Notwithstanding the foregoing, the Mandatory Conversion
Date shall be extended for as long as (a) a Triggering Event (as defined in
Section 8(d) hereof) shall have occurred and be continuing, or (b) any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in a Triggering Event.  The Mandatory
Conversion Date and the Voluntary Conversion Date collectively are referred to
in this Certificate of Designation as the "Conversion Date."

      

      (iii)           On
the Mandatory Conversion Date, the outstanding shares of Series C Preferred
Stock shall be converted automatically without any further action by the holders
of such shares and whether or not the certificates representing such shares are
surrendered to the Company or its Transfer Agent; provided, however, that the
Company shall not be
obligated to issue the shares of Common Stock issuable upon conversion of any
shares of Series C Preferred Stock unless certificates evidencing such shares of
Series C Preferred Stock are either delivered to the Company or the holder
notifies the Company that such certificates have been lost, stolen, or

       

       

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      destroyed,
and executes an agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection therewith.  Upon the
occurrence of a Mandatory Conversion of the Series C Preferred Stock pursuant to
this Section 5, the holders of the Series C Preferred Stock shall surrender the
certificates representing the Series C Preferred Stock for which the Mandatory
Conversion Date has occurred to the Company and the Company shall cause its
Transfer Agent to deliver the shares of Common Stock issuable upon such
conversion (in the same manner set forth in Section 5(b)(ii)) to the holder
within three (3) business days of the holder's delivery of the applicable
Preferred Stock Certificates.

      

      (d)           ­Conversion
Price.

      

      (i)           The
term "Conversion Price" shall mean $1.20, subject to adjustment under Section
5(e) hereof.  Notwithstanding any adjustment hereunder, at no time
shall the Conversion Price be greater than $1.20 per share except if it is
adjusted pursuant to Section 5(e)(i).

      

      (ii)           Notwithstanding
the foregoing to the contrary, if during any period (a "Black-out Period"), a
holder of Series C Preferred Stock is unable to trade any Common Stock issued or
issuable upon conversion of the Series C Preferred Stock immediately due to the
postponement of filing or delay or suspension of effectiveness of the
Registration Statement or because the Company has otherwise informed such holder
of Series C Preferred Stock that an existing prospectus cannot be used at that
time in the sale or transfer of such Common Stock (provided that such
postponement, delay, suspension or fact that the prospectus cannot be used is
not due to factors solely within the control of the holder of Series C Preferred
Stock or due to the Company exercising its rights under Section 3(n) of the
Registration Rights Agreement (as defined in the Purchase Agreement)), such
holder of Series C Preferred Stock shall have the option but not the obligation
on any Conversion Date within ten (10) trading days following the expiration of
the Black-out Period of using the Conversion Price applicable on such Conversion
Date or any Conversion Price selected by such holder of Series C Preferred Stock
that would have been applicable had such Conversion Date been at any earlier
time during the Black-out Period or within the ten (10) trading days
thereafter.

      

      (e)           ­Adjustments of Conversion
Price.

      

      (i)           ­Adjustments for Stock Splits
and Combinations.  If the Company shall at any time or from
time to time after the Issuance Date, effect a stock split of the outstanding
Common Stock, the Conversion Price shall be proportionately
decreased.  If the Company shall at any time or from time to time
after the Issuance Date, combine the outstanding shares of Common Stock, the
Conversion Price shall be proportionately increased.  An

      adjustments
under this Section 5(e)(i) shall be effective at the close of business on the
date the stock split or combination becomes effective.

                                                     
(ii)         ­Adjustments for Certain
Dividends and Distributions.  If the Company shall at any time
or from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in shares of Common Stock, then, and in each
event, the Conversion Price shall be decreased as of the time of such issuance
or, in the event such record 

       

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

       

      date
shall have been fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction:

      

      (1)           the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and

      

      (2)           the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.

      

      (iii)           ­Adjustment for Other
Dividends and Distributions.  If the Company shall at any time
or from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in securities of the Company other than shares of
Common Stock, then, and in each event, an appropriate revision to the applicable
Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the holders of Series C Preferred
Stock shall receive upon conversions thereof, in addition to the number of
shares of Common Stock receivable thereon, the number of securities of the
Company which they would have received had their Series C Preferred Stock been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the Conversion Date,
retained such securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for during such
period under this Section 5(e)(iii) with respect to the rights of the holders of
the Series C Preferred Stock; provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions; and provided further, however,
that no such adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive (i) a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as they
would have received if all outstanding shares of Series C Preferred Stock had
been converted into Common Stock on the date of such event or (ii) a
dividend or other distribution of shares of Series C Preferred Stock which are
convertible, as of the date of such event, into such number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being
issued with respect to each share of Common Stock in such dividend or
distribution.

      

      (iv)           ­Adjustments for
Reclassification, Exchange or Substitution.  If the Common
Stock issuable upon conversion of the Series C Preferred Stock at any time or
from time to time after the Issuance Date shall be changed to the same or
different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of
assets provided for in Section 5(e)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series C Preferred Stock shall have the right thereafter to convert
such share of Series C Preferred Stock into the 

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

       

      kind and
amount  of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such share of Series C Preferred
Stock might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.

      

      (v)           ­Adjustments for
Reorganization, Merger, Consolidation or Sales of Assets.  If
at any time or from time to time after the Issuance Date there shall be a
capital reorganization of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the
Company with or into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over 50% of the
outstanding voting securities of the merged or consolidated entity, immediately
after such merger or consolidation, or the sale of all or substantially all of
the Company's properties or assets to any other person (an "Organic Change"),
then as a part of such Organic Change an appropriate revision to the Conversion
Price shall be made if necessary and provision shall be made if necessary (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series C Preferred Stock shall have the right thereafter to convert
such share of Series C Preferred Stock into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from Organic Change.  In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5(e)(v) with respect to the rights of the holders of the Series C
Preferred Stock after the Organic Change to the end that the provisions of this
Section 5(e)(v) (including any adjustment in the Conversion Price then in effect
and the number of shares of stock or other securities deliverable upon
conversion of the Series C Preferred Stock) shall be applied after that event in
as nearly an equivalent manner as may be practicable.

      

      (vi)           Adjustments for Issuance of
Additional Shares of Common Stock.

      

      (A)           In
the event the Company, shall, at any time, from time to time, issue or sell any
additional shares of Common Stock (otherwise than as provided in the foregoing
subsections (i) through (v) of this Section 5(e) or pursuant to Common Stock
Equivalents (hereafter defined) granted or issued prior to the Issuance Date)
(the "Additional Shares of Common Stock"), at a price per share less than the
Conversion Price, or without consideration, the Conversion Price then in effect
upon each such issuance shall be adjusted to that price (rounded to the nearest
cent) determined by multiplying the Conversion Price by a fraction:

      

      (1)           the
numerator of which shall be equal to the sum of (A) the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus (B) the number
of shares of Common Stock (rounded to the
nearest whole share) which the aggregate consideration for the total number of
such Additional Shares of Common Stock so issued would purchase at a price per
share equal to the then Conversion Price, and

       

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      

      (2)           the
denominator of which shall be equal to the number of shares of Common Stock
outstanding immediately after the issuance of such Additional Shares of Common
Stock;

      

      No
adjustment of the number of shares of Common Stock shall be made under paragraph
(A) of Section 5(e)(vi) upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Common Stock Equivalents (as defined below), if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Common Stock Equivalents (or upon the
issuance of any warrant or other rights therefore) pursuant to Section
5(e)(vii).

      

      (vii)           Issuance of Common Stock
Equivalents.  If the Company, at any time after the Issuance
Date, shall issue any securities convertible into or exchangeable for, directly
or indirectly, Common Stock ("Convertible Securities"), other than the Series C
Preferred Stock, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold (collectively,
the "Common Stock Equivalents") and the aggregate of the price per share for
which Additional Shares of Common Stock may be issuable thereafter pursuant to
such Common Stock Equivalent, plus the consideration received by the Company for
issuance of such Common Stock Equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent (the "Aggregate
Per Common Share Price") shall be less than the Conversion Price, or if, after
any such issuance of Common Stock Equivalents, the price per share for which
Additional Shares of Common Stock may be issuable thereafter is amended or
adjusted, and such price as so amended or adjusted shall cause the Aggregate Per
Common Share Price to be less than the Conversion Price in effect at the time of
such amendment or adjustment, then the Conversion Price then in effect shall be
adjusted pursuant to Section (5)(e)(vi) above assuming that all Additional
Shares of Common Stock have been issued pursuant to the Convertible Securities
or Common Stock Equivalents for a purchase price equal to the Aggregate Per
Common Share Price.  No adjustment of the Conversion Price shall be
made under this subsection (vii) upon the issuance of any Convertible Security
which is issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefore, if any adjustment shall previously have been made
to the exercise price of such warrants then in effect upon the issuance of such
warrants or other rights pursuant to this subsection (vii).  No
adjustment shall be made to the Conversion Price upon the issuance of Common
Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.

      

      (viii)          Consideration for
Stock.  In case any shares of Common Stock or Convertible
Securities other than the Series C Preferred Stock, or any rights or warrants or
options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold:

       

      
         

        (1)           in
connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefore shall be, deemed to be the fair value, as
determined reasonably and in 

      

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      good
faith by the Board of  Directors of the Company, of such portion of
the assets and business of the nonsurviving corporation as such Board may
determine to be attributable to such shares of Common Stock, Convertible
Securities, rights or warrants or options, as the case may be; or

      

      (2)           in
the event of any consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation.  If any such calculation results in
adjustment of the applicable Conversion Price, or the number of shares of Common
Stock issuable upon conversion of the Series C Preferred Stock, the
determination of the applicable Conversion Price or the number of shares of
Common Stock issuable upon conversion of the Series C Preferred Stock
immediately prior to such merger, consolidation or sale, shall be made after
giving effect to such adjustment of the number of shares of Common Stock
issuable upon conversion of the Series C Preferred Stock.  In the
event any consideration received by the Company for any securities consists of
property other than cash, the fair market value thereof at the time of issuance
or as otherwise applicable shall be as determined in good faith by the Board of
Directors of the Company.  In the event Common Stock is issued with
other shares or securities or other assets of the Company for consideration
which covers both, the consideration computed as provided in this Section
(5)(e)(viii) shall be allocated among such securities and assets as determined
in good faith by the Board of Directors of the Company.

      

      (ix)           ­Record
Date.  In case the Company shall take record of the holders of
its Common Stock or any other Preferred Stock for the purpose of entitling them
to subscribe for or purchase Common Stock or Convertible Securities, then the
date of the issue or sale of the shares of Common Stock shall be deemed to be
such record date.

      

      (x)           Certain Issues
Excepted.  Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment to the Conversion Price
upon (i) securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities issued or outstanding on or
prior to the date of the Purchase Agreement or issued pursuant to the Purchase
Agreement (so long as the conversion or exercise price in such securities are
not amended to lower such price and/or adversely affect the holders), (iii)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (iv) Common Stock issued or the issuance or grants of
options to purchase Common Stock pursuant to the Issuer’s stock option plans and
employee stock purchase plans outstanding as they exist on the date of the
Purchase Agreement, (v) the issuance of up to 500,000 shares of Common Stock
relating to investor

      
        
           

        

        
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       relations
or public relations activities (vi) Common Stock issued as payment of dividends
on: (1) the Series C Preferred Stock issued pursuant to the Purchase Agreement,
(2) the Series A Convertible Preferred Stock, or (3) the Series B Convertible
Preferred Stock issued to the holders thereof and (vii) any warrants issued to
the placement consultant and its designees for the transactions contemplated by
the Purchase Agreement.

      

      (f)           ­No
Impairment.  The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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 to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series C Preferred Stock against impairment.  In the event a holder
shall elect to convert any shares of Series C Preferred Stock as provided
herein, the Company cannot refuse conversion based on any claim that such holder
or any one associated or affiliated with such holder has been engaged in any
violation of law, unless (i) an order from the Securities and Exchange
Commission prohibiting such conversion or (ii) an injunction from a court, on
notice, restraining and/or adjoining conversion of all or of said shares of
Series C Preferred Stock shall have been issued and the Company posts a surety
bond for the benefit of such holder in an amount equal to 120% of the
Liquidation Preference Amount of the Series C Preferred Stock such holder has
elected to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such holder in the event it obtains judgment.

      

      (g)           ­Certificates as to
Adjustments.  Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Series C Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series C Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.  The Company shall, upon written request of the
holder of such affected Series C Preferred Stock, at any time, furnish or cause
to be furnished to such holder a like certificate setting forth such adjustments
and readjustments, the Conversion Price in effect at the time, and the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon the conversion of a share of such
Series C Preferred Stock.  Notwithstanding the foregoing, the Company
shall not be obligated to deliver a certificate unless such certificate would
reflect an increase or decrease of at least one percent of such adjusted amount;
if the Company so postpones delivering a certificate, such prior adjustment
shall be carried forward and made as soon as such adjustment, together with
other adjustments required by this Section
5 and not previously made, would result in an adjustment of one percent
or more.

       

      (h)           ­Issue
Taxes.  The Company shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series C Preferred Stock pursuant hereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such
conversion.

       

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      

      (i)           ­Notices.  All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally or by facsimile or e-mail or three (3)
business days following being mailed by certified or registered mail, postage
prepaid, return-receipt requested, addressed to the holder of record at its
address appearing on the books of the Company.  The Company will give
written notice to each holder of Series C Preferred Stock at least twenty (20)
days prior to the date on which the Company closes its books or takes a record
(I) with respect to any dividend or distribution upon the Common Stock, (II)
with respect to any pro rata subscription offer to holders of Common Stock or
(III) for determining rights to vote with respect to any Organic Change,
dissolution, liquidation or winding-up and in no event shall such notice be
provided to such holder prior to such information being made known to the
public.  The Company will also give written notice to each holder of
Series C Preferred Stock at least twenty (20) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will take place and
in no event shall such notice be provided to such holder prior to such
information being made known to the public.

      

      (j)           ­Fractional
Shares.  No fractional shares of Common Stock shall be issued
upon conversion of the Series C Preferred Stock.  In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall round the number of shares to be issued upon conversion up to the nearest
whole number of shares.

      

      (k)           ­Reservation of Common
Stock.  The Company shall, so long as any shares of Series C
Preferred Stock are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series C Preferred Stock, such number of shares of Common
Stock equal to at least one hundred twenty percent (120%) of the aggregate
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Series C Preferred Stock then
outstanding.  The initial number of shares of Common Stock reserved
for conversions of the Series C Preferred Stock and any increase in the number
of shares so reserved shall be allocated pro rata among the holders of the
Series C Preferred Stock based on the number of shares of Series C Preferred
Stock held by each holder of record at the time of issuance of the Series C
Preferred Stock or increase in the number of reserved shares, as the case may
be.  In the event a holder shall sell or otherwise transfer any of
such holder's shares of Series C Preferred Stock, each transferee shall be
allocated a pro rata portion of the number of reserved shares of Common Stock
reserved for such transferor.  Any shares of Common Stock reserved and
which remain allocated to any person or entity which does not hold any shares of
Series C Preferred Stock shall be allocated to the remaining holders of Series C
Preferred Stock, pro rata based on the number of shares of Series C Preferred
Stock then held by such holder.

                                      
(l)           ­Retirement of Series C
Preferred Stock.  Conversion of Series C Preferred Stock shall
be deemed to have been effected on the Conversion Date.  Upon
conversion of only a portion of the number of shares of Series C Preferred Stock
represented by a certificate surrendered for conversion, the Company shall issue
and deliver to such holder at the expense of the Company, a new certificate
covering the number of shares of Series C Preferred 

       

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

       

       

      Stock
representing the unconverted portion of the certificate so surrendered as
required by Section 5(b)(ii).

      

      (m)           ­Regulatory
Compliance.  If any shares of Common Stock to be reserved for
the purpose of conversion of Series C Preferred Stock require registration or
listing with or approval of any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the Company
shall, at its sole cost and expense, in good faith and as expeditiously as
possible, endeavor to secure such registration, listing or approval, as the case
may be.

      

      6.           ­No Preemptive
Rights.  Except as provided in Section 5 hereof and in the
Purchase Agreement, no holder of the Series C Preferred Stock shall be entitled
to rights to subscribe for, purchase or receive any part of any new or
additional shares of any class, whether now or hereinafter authorized, or of
bonds or debentures, or other evidences of indebtedness convertible into or
exchangeable for shares of any class, but all such new or additional shares of
any class, or any bond, debentures or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and disposed of by
the Board of Directors on such terms and for such consideration (to the extent
permitted by law), and to such person or persons as the Board of Directors in
their absolute discretion may deem advisable.

      

      7.           ­Conversion
Restriction.  Notwithstanding anything to the contrary set
forth in Section 5 of this Certificate of Designation, at no time may a holder
of shares of Series C Preferred Stock convert shares of the Series C Preferred
Stock if the number of shares of Common Stock to be issued pursuant to such
conversion would cause the number of shares of Common Stock owned by
such  holder and its affiliates at such time to exceed, when
aggregated with all other shares of Common Stock owned by such holder and its
affiliates at such time, the number of shares of Common Stock which would result
in such holder and its affiliates beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) in excess of 4.99% of the then issued and
outstanding shares of Common Stock outstanding at such time; provided, however, that upon a
holder of Series C Preferred Stock providing the Company with sixty-one (61)
days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such
holder would like to waive Section 7 of this Certificate of Designation with
regard to any or all shares of Common Stock issuable upon conversion of Series C
Preferred Stock, this Section 7(a) shall be of no force or effect with regard to
those shares of Series C Preferred Stock referenced in the Waiver
Notice.

      

      8.           ­Redemption.

      

      (a)           ­Redemption Option Upon Major
Transaction.  In addition to all other rights of the holders of
Series C Preferred Stock contained herein, simultaneous with the occurrence of a
Major Transaction (as defined below), each holder of Series C Preferred Stock
shall have the right, at such holder's option, to require the Company to redeem
all or a portion of such holder's shares of Series C Preferred Stock at a price
per share of Series C Preferred Stock equal to one hundred percent (100%) of the
Liquidation Preference Amount, plus any accrued but unpaid dividends and
liquidated damages (the "Major Transaction Redemption Price"); provided that the
Company shall have 

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

       

       

      the sole
option  to pay the Major Transaction Redemption Price in cash or
shares of Common Stock.  If the Company elects to pay the Major
Transaction Redemption Price in shares of Common Stock, the price per share
shall be based upon the Conversion Price then in effect on the
day preceding the date of delivery of the Notice of Redemption at Option of
Buyer Upon Major Transaction (as hereafter defined) and the holder of such
shares of Common Stock shall have demand registration rights with respect to
such shares.

      

      (b)           ­
Redemption Option Upon
Triggering Event.  In addition to all other rights of the
holders of Series C Preferred Stock contained herein, after a Triggering Event
(as defined below), each holder of Series C Preferred Stock shall have the
right, at such holder's option, to require the Company to redeem all or a
portion of such holder's shares of Series C Preferred Stock at a price per share
of Series C Preferred Stock equal to one hundred twenty percent (120%) of the
Liquidation Preference Amount, plus any accrued but unpaid dividends and
liquidated damages the "Triggering Event Redemption Price" and, collectively
with the "Major Transaction Redemption Price," the "Redemption Price"); provided
that with respect to the Triggering Events described in clauses (i), (ii), (iii)
and (vii) of Section 8(d), the Company shall have the sole option to pay the
Triggering Event Redemption Price in cash or shares of Common Stock; and
provided, further, that with respect to the Triggering Event described in
clauses (iv), (v) and (vi) of Section 8(d), the Company shall pay the Triggering
Event Redemption Price in cash.  With respect to the Triggering Events
described in clauses (i) and (ii) the holders of Series C Preferred Stock shall
only have the right to require such redemption after such time as the aggregate
amount of liquidated damages payable by the Company to such holders pursuant to
Section 7(e) of the Registration Rights Agreement among the Company and the
purchasers listed on Schedule I thereto, reaches twenty percent (20%) of the
amount of such purchaser’s initial investment in the Preferred
Stock.  If the Company elects to pay the Triggering Event Redemption
Price in shares of Common Stock in accordance with this Section 8(b), the price
per share shall be based upon the Conversion Price then in effect on the
day preceding the date of delivery of the Notice of Redemption at Option of
Buyer Upon Triggering Event and the holder of such shares of Common Stock shall
have demand registration rights with respect to such shares.

      

      (c)           "Major
Transaction".  A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:

      

      (i)           the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities).

      

      (ii)           the
sale or transfer of more than 50% of the Company's assets other than inventory
in the ordinary course of business in one or a related series of transactions;
or

       

       

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

      
 

      (iii)           closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.

      

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

      

      (i)           so
long as any shares of Series C Preferred Stock are outstanding, the
effectiveness of the Registration Statement, after it becomes effective, (i)
lapses for any reason (including, without limitation, the issuance of a stop
order) and such lapse continues for a period of twenty (20) consecutive trading
days, or (ii) is unavailable to the holder of the Series C Preferred Stock for
sale of the shares of Common Stock, and such lapse or unavailability continues
for a period of twenty (20) consecutive trading days, and the shares of Common
Stock into which such holder's Series C Preferred Stock can be converted cannot
be sold in the public securities market pursuant to Rule 144(k) (“Rule 144(k)”)
under the Securities Act of 1933, as amended, provided that the
cause of such lapse or unavailability is not due to factors solely within the
control of such holder of Series C Preferred Stock.

      

      (ii)           the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of, the OTC Bulletin
Board, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock
Exchange, Inc. or the American Stock Exchange, Inc., for a period of five (5)
consecutive trading days;

      

      (iii)           the
Company's notice to any holder of Series C Preferred Stock, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 9) or its intention not to comply with
proper requests for conversion of any Series C Preferred Stock into shares of
Common Stock; or

      

      (iv)           the
Company's failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Certificate of Designation within ten (10) business days
after the receipt by the Company of the Conversion Notice and the Preferred
Stock Certificates; or

       

      (v)           the
Company deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or

      

      (vi)           the
Company consummates a “going private” transaction and as a result the Common
Stock is no longer registered under Sections 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended; or

       

      
                                                       
(vii)          the Company breaches
any representation, warranty, covenant or other term or condition of the
Purchase Agreement, this Certificate of Designation or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated thereby or hereby, except to the extent that such
breach would not have a Material Adverse Effect (as defined in the Purchase
Agreement) and except, in 

          
            
               

            

            
              18

              
                

              

            

            
               

            

          

the case of a breach of a covenant which is
curable, only if such breach continues for a period of a least ten (10) business
days.

      

      

      (e)           Mechanics of Redemption at
Option of Buyer Upon Major Transaction.  No sooner than fifteen
(15) days nor later than ten (10) days prior to the consummation of a Major
Transaction, but not prior to the public announcement of such Major Transaction,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Major Transaction") to each holder of Series C Preferred
Stock.  At any time after receipt of a Notice of Major Transaction
(or, in the event a Notice of Major Transaction is not delivered at least ten
(10) days prior to a Major Transaction, at any time within ten (10) days prior
to a Major Transaction) but prior to such Major Transaction, any holder of
Series C Preferred Stock then outstanding may require the Company to redeem,
effective immediately prior to the consummation of such Major Transaction, all
of the holder's Series C Preferred Stock then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Redemption at
Option of Buyer Upon Major Transaction") to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the
number of shares of Series C Preferred Stock that such holder is electing to
redeem and (ii) the applicable Major Transaction Redemption Price, as calculated
pursuant to Section 8(a) above.

      

      (f)           ­­Mechanics of Redemption at
Option of Buyer Upon Triggering Event.  Within one (1) business
day after the Company obtains knowledge of the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to each holder of Series C Preferred
Stock.  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 Series C Preferred Stock then outstanding may require the Company
to redeem all of the Series C Preferred Stock by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of shares of
Series C Preferred Stock that such holder is electing to redeem and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to Section
8(b) above.

      

      (g)           Payment of Redemption
Price.  Upon the Company's receipt of a Notice(s) of Redemption
at Option of Buyer Upon Triggering Event or a Notice(s) of Redemption at Option
of Buyer Upon Major Transaction from any holder of Series C Preferred Stock, the
Company shall immediately notify each holder of Series C Preferred Stock by
facsimile of the Company's receipt of such Notice(s) of Redemption at Option of
Buyer Upon Triggering Event or Notice(s) of Redemption at Option of Buyer Upon
Major Transaction and each holder which has sent such a notice shall promptly
submit to the Company such holder's Preferred Stock Certificates which such
holder has elected to have redeemed.  Other than with respect to the
Triggering Event described in clause (iv) of Section 8(d), the Company shall
have the sole option to pay the Redemption Price in cash or shares of Common
Stock in accordance with Sections 8(a) and (b) and Section 9 of this Certificate
of Designation.  The Company shall deliver the applicable Major
Transaction Redemption Price immediately prior to the consummation of the Major
Transaction; provided that a
holder's Preferred Stock Certificates shall have been so delivered to the
Company; provided further that if the
Company is unable to redeem all of the Series C Preferred Stock to be redeemed,
the Company shall redeem

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

       

       an
amount from each holder of Series C Preferred Stock being redeemed equal to such
holder's pro-rata amount (based on the number of shares of Series C Preferred
Stock held by such holder relative to the number of shares of Series C Preferred
Stock outstanding) of all Series C Preferred Stock being redeemed.  If
the Company shall fail to redeem all of the Series C Preferred Stock submitted
for redemption (other than pursuant to a dispute as to the arithmetic
calculation of the Redemption Price), in addition to any remedy such holder of
Series C Preferred Stock may have under this Certificate of Designation and the
Purchase Agreement, the applicable Redemption Price payable in respect of such
unredeemed Series C Preferred Stock shall bear interest at the rate of 1.0% per
month (prorated for partial months) until paid in full.  Until the
Company pays such unpaid applicable Redemption Price in full to a holder of
shares of Series C Preferred Stock submitted for redemption, such holder shall
have the option (the "Void Optional Redemption Option") to, in lieu of
redemption, require the Company to promptly return to such holder(s) all of the
shares of Series C Preferred Stock that were submitted for redemption by such
holder(s) under this Section 8 and for which the applicable Redemption Price has
not been paid, by sending written notice thereof to the Company via facsimile
(the "Void Optional Redemption Notice").  Upon the Company's receipt
of such Void Optional Redemption Notice(s) and prior to payment of the full
applicable Redemption Price to such holder, (i) the Notice(s) of Redemption at
Option of Buyer Upon Major Transaction shall be null and void with respect to
those shares of Series C Preferred Stock submitted for redemption and for which
the applicable Redemption Price has not been paid and (ii) the Company shall
immediately return any Series C Preferred Stock submitted to the Company by each
holder for redemption under this Section 8(d) and for which the applicable
Redemption Price has not been paid and (iii) the Conversion Price of such
returned shares of Series C Preferred Stock shall be adjusted to the lesser of
(A) the Conversion Price and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option of Buyer
Upon Major Transaction is delivered to the Company and ending on the date on
which the Void Optional Redemption Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.  A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice other than interest
payments.  Payments provided for in this Section 8 shall have priority
to payments to other stockholders in connection with a Major
Transaction.

      

      (h)           Demand Registration
Rights.  If the Redemption Price upon the occurrence of a Major
Transaction or a Triggering Event is paid in shares of Common Stock and such
shares have not been previously registered on a registration statement under the
Securities Act, a holder of Series C Preferred Stock may make a written request
for registration under the Securities Act pursuant to this Section 8(h) of all
of its shares of Common Stock issued upon such Major Transaction or Triggering
Event.  The Company shall use its reasonable best efforts to cause to
be filed and declared effective as soon as reasonably practicable (but in no
event later than the ninetieth (90th) day
after such holder’s request is made) a registration statement under the
Securities Act, providing for the sale of all of the shares of Common Stock
issued upon such Major Transaction or Triggering Event by such
holder.  The Company agrees to use its reasonable best efforts to keep
any such registration statement continuously effective for resale of the Common
Stock for so long as such holder shall request, but in no event later than the
date that the 

       

      
 

      
        
          
             

          

          
            20

            
              

            

          

          
             

          

        

      

      

       

       shares
of Common Stock issued upon such Major Transaction or Triggering Event may be
offered for resale to the public pursuant to Rule 144(k).

      

      9.           ­Inability to Fully
Convert.

      

      (a)           ­Holder's Option if Company
Cannot Fully Convert.  If, upon the Company's receipt of a
Conversion Notice or on the Mandatory Conversion Date, the Company cannot issue
shares of Common Stock registered for resale under the Registration Statement
for any reason, including, without limitation, because the Company (w) does not
have a sufficient number of shares of Common Stock authorized and available, (x)
is otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities from issuing
all of the Common Stock which is to be issued to a holder of Series C Preferred
Stock pursuant to a Conversion Notice or (y) subsequent to the effective date of
the Registration Statement, fails to have a sufficient number of shares of
Common Stock registered for resale under the Registration Statement, then the
Company shall issue as many shares of Common Stock as it is able to issue in
accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii)
above and, with respect to the unconverted Series C Preferred Stock, the holder,
solely at such holder's option, can elect, within five (5) business days after
receipt of notice from the Company thereof to:

      

      (i)           require
the Company to redeem from such holder those Series C Preferred Stock for which
the Company is unable to issue Common Stock in accordance with such holder's
Conversion Notice ("Mandatory Redemption") at a price per share equal to the
Major Transaction Redemption Price as of such Conversion Date (the "Mandatory
Redemption Price"); provided that the Company shall have the sole option to pay
the Mandatory Redemption Price in cash or shares of Common Stock;

      

      (ii)           if
the Company's inability to fully convert Series C Preferred Stock is pursuant to
Section 9(a)(y) above, require the Company to issue restricted shares of Common
Stock in accordance with such holder's Conversion Notice and pursuant to Section
5(b)(ii) above;

      

      (iii)           void
its Conversion Notice and retain or have returned, as the case may be, the
shares of Series C Preferred Stock that were to be converted pursuant to such
holder's Conversion Notice (provided that a holder's voiding its Conversion
Notice shall not effect the Company's obligations to make any payments which
have accrued prior to the date of such notice); or

      

      (iv)           exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions of
Section 5(b)(vi) hereof.

                                     
(b)            Mechanics of Fulfilling
Holder's Election.  The Company shall immediately send via
facsimile to a holder of Series C Preferred Stock, upon receipt of a facsimile
copy of a Conversion Notice from such holder which cannot be fully satisfied as
described in Section 9(a) above, a notice of the Company's inability to fully
satisfy such holder's Conversion Notice (the "Inability to Fully Convert
Notice").  Such Inability to Fully Convert Notice 

       

       

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

       

       

       

      shall
indicate (i) the reason why the Company is unable to fully satisfy such holder's
Conversion Notice, (ii) the number of Series C Preferred Stock which cannot be
converted and (iii) the applicable Mandatory Redemption Price.  Such
holder shall notify the Company of its election pursuant to Section 9(a) above
by delivering written notice via facsimile to the Company ("Notice in Response
to Inability to Convert").

      

      (c)           ­Payment of Redemption
Price.  If such holder shall elect to have its shares redeemed
pursuant to Section 9(a)(i) above, the Company shall pay the Mandatory
Redemption Price to such holder within thirty (30) days of the Company's receipt
of the holder's Notice in Response to Inability to Convert, provided that prior
to the Company's receipt of the holder's Notice in Response to Inability to
Convert the Company has not delivered a notice to such holder stating, to the
satisfaction of the holder, that the event or condition resulting in the
Mandatory Redemption has been cured and all Conversion Shares issuable to such
holder can and will be delivered to the holder in accordance with the terms of
Section 5(b)(ii).  If the Company shall fail to pay the applicable
Mandatory Redemption Price to such holder on a timely basis as described in this
Section 9(c) (other than pursuant to a dispute as to the determination of the
arithmetic calculation of the Redemption Price), in addition to any remedy such
holder of Series C Preferred Stock may have under this Certificate of
Designation and the Purchase Agreement, such unpaid amount shall bear interest
at the rate of 2.0% per month (prorated for partial months) until paid in
full.  Until the full Mandatory Redemption Price is paid in full to
such holder, such holder may (i) void the Mandatory Redemption with respect to
those Series C Preferred Stock for which the full Mandatory Redemption Price has
not been paid, (ii) receive back such Series C Preferred Stock, and (iii)
require that the Conversion Price of such returned Series C Preferred Stock be
adjusted to the lesser of (A) the Conversion Price and (B) the lowest Closing
Bid Price during the period beginning on the Conversion Date and ending on the
date the holder voided the Mandatory Redemption.

      

      (d)           ­Pro-rata Conversion and
Redemption.  In the event the Company receives a Conversion
Notice from more than one holder of Series C Preferred Stock on the same day and
the Company can convert and redeem some, but not all, of the Series C Preferred
Stock pursuant to this Section 9, the Company shall convert and redeem from each
holder of Series C Preferred Stock electing to have Series C Preferred Stock
converted and redeemed at such time an amount equal to such holder's pro-rata
amount (based on the number shares of Series C Preferred Stock held by such
holder relative to the number shares of Series C Preferred Stock outstanding) of
all shares of Series C Preferred Stock being converted and redeemed at such
time.

      

      10.           ­Vote to Change the Terms of
or Issue Preferred Stock.  The affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting, of the
holders of not less than seventy-five percent (75%) of the then outstanding
shares of Series C Preferred Stock (in addition to any other corporate approvals
then required to effect such action), shall be required (a) for any change to
this Certificate of Designation or the Company's Articles of Incorporation which
would amend, alter, change or repeal any of the powers, designations, preferences
and rights of the Series C Preferred Stock or (b) for the issuance of shares of
Series C Preferred Stock other than pursuant to the Purchase
Agreement.

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

       

      

      11.           ­Lost or Stolen
Certificates.  Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the shares of Series C Preferred
Stock, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided,
however, the
Company shall not be obligated to re-issue Preferred Stock Certificates if the
holder contemporaneously requests the Company to convert such shares of Series C
Preferred Stock into Common Stock.

      

      12.           ­Remedies, Characterizations,
Other Obligations, Breaches and Injunctive Relief.  The
remedies provided in this Certificate of Designation shall be cumulative and in
addition to all other remedies available under this Certificate of Designation,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Company to comply with the terms of this Certificate of
Designation.  Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holders of the
Series C Preferred Stock 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 holders of the Series C Preferred Stock
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.

      

      13.           ­Specific Shall Not Limit
General; Construction.  No specific provision contained in this
Certificate of Designation shall limit or modify any more general provision
contained herein.  This Certificate of Designation shall be deemed to
be jointly drafted by the Company and all initial purchasers of the Series C
Preferred Stock and shall not be construed against any person as the drafter
hereof.

      

      14.           ­Failure or Indulgence Not
Waiver.  No failure or delay on the part of a holder of Series
C Preferred Stock in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

      IN
WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate
and does affirm the foregoing as true this 1 day of November, 2007.

      

      

      EDGEWATER
FOODS INTERNATIONAL, INC.

      

      

      By:
_________________________________

       Name:
Michael Boswell

       Title:   Acting
Chief Financial Officer

      

      
        
           

        

        
          24

          
            

          

        

        
           

        

      

      EXHIBIT
I

      

      EDGEWATER
FOODS INTERNATIONAL, INC.

      CONVERSION
NOTICE

      

      Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series C Preferred Stock of Edgewater Foods International, Inc. (the
"Certificate of Designation").  In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series C Preferred Stock, par value $0.001 per share (the
"Preferred Shares"), of Edgewater Foods International, Inc., a Nevada
corporation (the "Company"), indicated below into shares of Common Stock, par
value $0.001 per share (the "Common Stock"), of the Company, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.

      

      Date of
Conversion:                                                       __________________________________    

      

      Number of
Preferred Shares to be converted:  
__________                                                                                                          

      

      Stock
certificate no(s). of Preferred Shares to be
converted:    __________                                                                                                                            

      

      The
Common Stock have been sold pursuant to the Registration Statement: YES
____NO____

      

      Please
confirm the following information:

      

      Conversion
Price:                                                            __________________________________                                                

      

      Number of
shares of Common Stock

      to be
issued:                                                                   
__________________________________                               

      

      Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________

      

      Please
issue the Common Stock into which the Preferred Shares are being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:

      

      Issue
to:                                                                                           
___________________________________                     

      
                                                                                                                          
___________________________________

                                                                                                              

      Facsimile
Number:                                                                          
___________________________________                                   

                        

      Authorization:                                                                                
 ___________________________________                                              

      By:      ___________________________________                                                          

      Title:   ___________________________________                                                             

      

      Dated:

      

      

      

      

      

      
        
           

        

        
          25

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