VOTING AGREEMENT

Exhibit 4.5

DIAMETRICS MEDICAL, INC.

VOTING AGREEMENT

THIS VOTING AGREEMENT (this “ Agreement ”), is made as of September 20, 2006, by and between Diametrics Medical, Inc., a Minnesota corporation (the “ Company ”) and the undersigned stockholder of the Company (“ Stockholder ”).

RECITALS

WHEREAS, the Company is presently in negotiations for the acquisition (the “ Acquisition ”) of 100% of the limited liability company membership interests of Vanguard Synfuels, L.L.C.;

WHEREAS, in order to raise equity capital for the financing of the Acquisition (the “ Financing ”), the Company has entered into subscription agreements for the sale of its Series J Convertible Preferred Stock (the “ Subscription Agreements ”);

WHEREAS, the Subscription Agreements require the Company, subsequent to the Acquisition, to use its reasonable commercial efforts to obtain shareholder approval of (i) an amendment to the Company’s Amended and Restated Articles of Incorporation (the “ Charter Amendment ”) or (ii) the merger of the Company into a wholly owned subsidiary of the Company incorporated in the State of Delaware (“ Merger Sub ”), in either case resulting in a sufficient number of authorized shares for the Company to reserve a sufficient number of authorized but unissued shares of Common Stock to issue the shares of Common Stock issuable upon conversion of its Series J Convertible Preferred Stock (the “ Reincorporation ”);

WHEREAS, at a meeting of the Company’s Board of Directors on August 11, 2006, the Company’s Board of Directors adopted the Company’s 2006 Incentive Compensation Plan (the “ 2006 Plan ”), attached as Exhibit A hereto, and resolved to submit the 2006 Plan to the Company’s stockholders for their approval;

WHEREAS, it is contemplated that the 2006 Plan would be amended in connection with the consummation of the Acquisition to (i) increase the number of shares of Common Stock available for issuance under the 2006 Plan to 6,592,755 shares and (ii) adopt a director compensation plan for certain members of the board of directors of the Company (the “ Plan Amendment ”), a copy of which Plan Amendment is attached as Exhibit B hereto;

WHEREAS, as of the date hereof, Stockholder, owns the voting equity securities of the Company (“ Voting Securities ”) set forth on Stockholder’s signature page hereto; and

WHEREAS, Stockholder is entering into this Agreement to vote its Voting Securities in favor of the Charter Amendment, the Reincorporation, the approval of the 2006 Plan and the approval of the Plan Amendment, in order to induce the Company to consummate the Acquisition, the Financing and the transactions contemplated thereby, and Stockholder has required that the Company enter into this Agreement, upon the terms and subject to the conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein and other good and valuable consideration, the parties hereto agree as follows:

ARTICLE I

AGREEMENT TO VOTE SHARES

Section 1.1 Agreement to Vote .

(a) Stockholder hereby agrees that during the time this Agreement is in effect, at any meeting of the stockholders of the Company, however called, and in any action by consent of the stockholders of the Company, Stockholder will vote or cause to be voted: (i) all Voting Securities owned legally or beneficially by Stockholder and (ii) any and all Voting Securities acquired by Stockholder on or after the date hereof, subject to the termination of this Agreement pursuant to Section 5.1 hereof, as follows:

 

(i)

in favor of the Charter Amendment;

 

(ii)

in favor of the Reincorporation;

 

(iii)

in favor of the approval of the 2006 Plan; and

 

(iv)

in favor of the Plan Amendment.

In furtherance of the foregoing, Stockholder acknowledges that the authorized capital stock of Merger Sub is and will be after the merger of the Company, greater than the authorized capital stock of the Company as of the date hereof. Stockholder further acknowledges that (i) Stockholder has reviewed and understands the Certificate of Incorporation of Merger Sub, the Certificate of Designations of the Series A Preferred Stock of Merger Sub, the Certificate of Designations of the Series B Preferred Stock of Merger Sub and the Bylaws of Merger Sub, a copy of each of which are attached hereto as Exhibit C , and (ii) such governing documents of Merger Sub will govern (x) the terms of the equity securities of Merger Sub that will be received by Stockholder at the consummation of the Reincorporation and (y) the rights of Stockholder as a stockholder of Merger Sub.

Section 1.2 Adjustment Upon Changes In Capitalization . In the event of any change in the Voting Securities, by reason of any stock dividends, splits, mergers, recapitalizations or other changes in the corporate or capital structure of the Company, the number and kind of Voting Securities subject to this Agreement shall be appropriately adjusted.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

OF STOCKHOLDER

Stockholder hereby represents and warrants to the Company as follows:

Section 2.1 Title to Equity Securities . As of the date hereof, Stockholder is the record and beneficial owner of the number of Voting Securities set forth on Stockholder’s signature page hereto or has entered into a Subscription Agreement to purchase such securities from the

 

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Company and such Voting Securities are, or will be as of the Consummation of the Financing and the Acquisition (the “ Effective Date ”), as applicable, all of the Voting Securities owned, either of record or beneficially, by Stockholder. Such Voting Securities, are and will be on the Effective Date owned free and clear of any security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on voting rights, charges or other encumbrances of any nature whatsoever other than pursuant to this Agreement, except as disclosed to the Company prior to the execution and delivery of this Agreement in writing. Stockholder has not appointed or granted any proxy, which appointment or grant is still in effect, with respect to such Voting Securities.

Section 2.2 Authority Relative to This Agreement . Stockholder has all requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Stockholder and the consummation of the transactions contemplated hereby have been duly and validly authorized by all proceedings on the part of Stockholder necessary to authorize this Agreement or to consummate such transactions. This Agreement has been duly and validly executed and delivered by Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

Section 2.3 No Conflict .

(a) Neither the execution and delivery of this Agreement nor the consummation by Stockholder of the transactions contemplated hereby will (i) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Stockholder or by which its Voting Securities are bound or affected or (ii) conflict with, or constitute a violation of, or constitute a default under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of its Voting Securities, pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Stockholder is a party or by which Stockholder or its Voting Securities are bound or affected, except for any such conflicts, violations, breaches, defaults or other occurrences that would not prevent or delay the performance by Stockholder of its obligations under this Agreement.

(b) The execution and delivery of this Agreement by Stockholder does not, and the performance of this Agreement by Stockholder will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications would not prevent or delay the performance by Stockholder of its obligations under this Agreement.

 

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ARTICLE III

COVENANTS OF THE STOCKHOLDERS

Section 3.1 No Inconsistent Agreements . Stockholder, for the benefit of the Company, hereby covenants and agrees that, except as contemplated by this Agreement, Stockholder shall not enter into any voting agreement or grant a proxy or power of attorney with respect to its Voting Securities that is inconsistent with this Agreement.

Section 3.2 Transfer Of Title . Stockholder, for the benefit of the Company, hereby covenants and agrees that, so long as this Agreement is in effect, Stockholder will not transfer record or beneficial ownership of any of its Voting Securities unless the transferee agrees in writing to be bound by the terms and conditions of this Agreement.

ARTICLE IV

COVENANTS OF THE COMPANY

Section 4.1 Other Agreements . The Company hereby covenants that it shall not amend, waive, forgive performance of or terminate any agreement it now has or hereafter enters into obligating one or more of its stockholders to vote, or pursuant to which one or more of its stockholders agrees to vote, in favor of approving all of the matters set forth in Section 1.1(a) hereof and that it shall enforce any rights it has pursuant to any such agreement.

ARTICLE V

TERMINATION

Section 5.1 Termination . This Agreement shall terminate automatically upon the earlier of (a) the date on which the Company obtains stockholder approval for all of the matters set forth in Section 1.1(a) hereof in accordance with the Minnesota Business Corporations Act, and (b) the date on which the Company notifies Stockholder in writing that it has abandoned the Acquisition for any reason other than as the result of a breach of this Agreement by Stockholder.

Section 5.2 Effect of Termination . In the event of the termination of this Agreement pursuant to Section 5.1 hereof, this Agreement shall forthwith become void and have no effect, without liability on the part of any party hereto or its trustees, partners, beneficiaries, directors, officers, stockholders or affiliates.

ARTICLE VI

MISCELLANEOUS

Section 6.1 Notices . All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 

 

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Any party from time to time may change its address for the purposes of notices hereunder by giving written notice to the other parties hereto of such new address.

Section 6.2 Entire Agreement . This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and replaces and supersedes all prior agreements or understandings, both written and oral, between the parties hereto, relating to the voting of Stockholder’s Voting Securities with respect to the matters set forth in Section 1.1(a) hereof.

Section 6.3 Stockholder Capacity . Stockholder signs solely in its capacity as the record holder and beneficial owner of the Voting Securities set forth on its signature page hereto.

Section 6.4 Specific Performance . The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any state or federal court of the United States located in Los Angeles County, California or New York, New York, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto: (a) consents to submit such party to the personal jurisdiction of any state or federal court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby; (b) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court; (c) agrees that such party will not bring any action relating to this Agreement or the transactions contemplated hereby in any court other than a state or federal court sitting in Los Angeles County, California or New York, New York; and (d) waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this Agreement or any of the transactions contemplated hereby.

 

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Section 6.5 Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect and shall not in any way be affected or impaired thereby so long as the economic or legal substance of this Agreement is not affected in any manner materially adverse to any party.

Section 6.6 Amendment . This Agreement may be amended only by a written instrument signed by each of the parties hereto.

Section 6.7 Assignment . Except as required by operation of law, this Agreement shall not be assignable by the parties hereto without the prior written consent of the other party. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

Section 6.8 Governing Law . This Agreement shall be governed by the internal laws of the State of New York.

Section 6.9 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Section 6.10 Facsimile Signatures . Any signature page delivered pursuant to this Agreement via facsimile shall be binding to the same extent as an original signature. Any party who delivers such a signature page agrees to later deliver an original counterpart to any party that requests it.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.

 

THE COMPANY		DIAMETRICS MEDICAL, INC.
		By:		/s/ Paul A. Galleberg
		Name:		Paul A. Galleberg
		Title:		Director

[Counterpart Stockholder Signature Page Follows]

IN WITNESS WHEREOF, the undersigned has executed this Voting Agreement, effective as of the date first written above.

INDIVIDUAL :

 

 

 

 

Signature Page to Voting Agreement

EXHIBIT A

2006 INCENTIVE COMPENSATION PLAN

 

E XHIBIT A

EXHIBIT B

PLAN AMENDMENT

 

E XHIBIT B

EXHIBIT C

MERGER SUB GOVERNING DOCUMENTS

 

E XHIBIT C

CERTIFICATE OF INCORPORATION

of

BIODIESEL DEVELOPMENT CORPORATION

ARTICLE I

The name of the Corporation is Biodiesel Development Corporation.

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is 615 South DuPont Highway, City of Dover, County of Kent, 19901. The name of the Corporation’s registered agent at such address is National Corporate Research, Ltd.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

ARTICLE IV

The total number of shares of stock which the Corporation shall have authority to issue is Two Hundred Million (200,000,000) shares, of which One Hundred Fifty Million (150,000,000) shares, par value $0.01 per share, shall be common stock (the “ Common Stock ”) and of which Fifty Million (50,000,000) shares, par value $0.01 per share, shall be preferred stock (the “ Preferred Stock ”).

Authority is hereby granted to and vested in the Board of Directors of the Corporation to issue Preferred Stock in one or more series and in connection therewith to fix by resolutions providing for the issuance of such series the number of shares to be included in each such series, and the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, to the full extent now and hereafter permitted by the laws of the State of Delaware. Without limiting the generality of the grant of authority contained in the preceding sentence, the Board of Directors is authorized to determine any or all of the following, and the shares of each series may vary from the shares of any other series in any or all of the following respects:

1. The number of shares of such series (which may subsequently be increased, except as otherwise provided by the resolutions of the Board of Directors providing for the issue of such series, or decreased to a number not less than the number of shares then outstanding) and the distinctive designation thereof;

2. The dividend rights, if any, of such series, the dividend preferences, if any, as between such series and any other class or series of stock, whether and the extent to which shares of such series shall be entitled to participate in dividends with shares of any other series or class of stock, whether and the extent to which dividends on such series shall be cumulative, and any limitations, restrictions or conditions on the payment of such dividends;

3. The time or times during which, the price or prices at which, and any other terms or conditions on which the shares of such series may be redeemed, if redeemable;

4. The rights of such series, and the preferences, if any, as between such series and any other class or series of stock, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and whether and the extent to which shares of any such series shall be entitled to participate in such event with any other class or series of stock;

5. The voting powers, if any, in addition to the voting powers prescribed by law of shares of such series and, to the extent not prohibited by applicable law, voting powers which may exceed one vote per share, and the terms of exercise of such voting powers;

6. Whether shares of such series shall be convertible into or exchangeable for shares of any other series or class of stock, or any other securities, and the terms and conditions, if any, applicable to such rights; and

7. The terms and conditions, if any, of any purchase, retirement or sinking fund which may be provided for the shares of such series.

ARTICLE V

The name and mailing address of the incorporator are Stephen D. Blevit, Esq., Sidley Austin LLP, 555 West Fifth Street, 40 ^th Floor, Los Angeles, California 90013.

ARTICLE VI

Subject to the rights of the holders of the Preferred Stock or any series thereof to elect additional directors under specific circumstances, the number of directors which shall constitute the whole Board of Directors of the Corporation shall be the number from time to time fixed by the Board of Directors. A decrease in the number of directors shall not affect the term of office of any director then in office.

Subject to the rights of the holders of the Preferred Stock or any series thereof to fill any newly-created directorships or vacancies, any vacancy on the Board of Directors that results from an increase in the number of directors, or for any other reason, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

Subject to the rights of the holders of any series of Preferred Stock, any director may be removed from office at any time, but only for cause and only by the affirmative vote of at least a majority of the then outstanding shares entitled to vote for the election of such director.

Unless the Corporation’s Bylaws specify otherwise, the election of directors of the Corporation need not be by written ballot.

ARTICLE VII

The directors, other than those who may be elected by the holders of any series of Preferred Stock under specific circumstances, shall be divided into three classes, as nearly equal in number as possible, and designated as Class I, Class II and Class III. The initial term of office of the Class I directors shall expire at the 2007 annual meeting of stockholders, the initial term of office of the Class II directors shall expire at the 2008 annual meeting of stockholders and the initial term of office of the Class III directors shall expire at the 2009 annual meeting of stockholders. Members of each class shall hold office until their successors shall have been duly elected and qualified.

At each annual meeting of stockholders, beginning with the 2007 annual meeting of stockholders, the successors of the class of directors whose terms are expiring shall be elected for

 

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a term expiring at the third succeeding annual meeting of stockholders or thereafter in each case until their respective successors are duly elected and qualified, subject to death, resignation, retirement or removal from office.

Any new positions created as a result of the increase in the number of directors shall be allocated to make the classes of directors as nearly equal as possible.

Any director elected to fill a term resulting from an increase in the number of directors shall have the same term as the other members of such director’s class. A director elected to fill any other vacancy shall have the same remaining term as that of such director’s predecessor.

Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Designations applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article VII unless expressly provided by such terms.

ARTICLE VIII

The Board of Directors shall have such powers as are permitted by the General Corporation Law of the State of Delaware, including, without limitation, without the assent or vote of the stockholders, to make, alter, amend, change, add to, or repeal the Bylaws of the Corporation; to fix and vary the amount to be reserved as working capital; to authorize and cause to be executed mortgages and liens upon all the property of the Corporation or any part thereof; to determine the use and disposition of any surplus or net profits over and above the capital stock paid in; and to fix the times for the declaration and payment of dividends.

ARTICLE IX

Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the then outstanding Voting Stock (as defined below), voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, the Bylaws of the Corporation or Articles VI, VII and XIII of this Certificate of Incorporation. For the purposes of this Certificate of Incorporation, “Voting Stock” shall mean the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors.

ARTICLE X

The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the provisions of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. No amendment to or repeal of this Article X shall have the effect of increasing the liability or alleged liability of any director of the Corporation for or with respect to any act or omission of such director occurring prior to such amendment or repeal.

ARTICLE XI

The Corporation shall indemnify and advance expenses to each person who serves as an officer or director of the Corporation or a subsidiary of the Corporation and each person who serves or may have served at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise from any liability incurred as a result of such service to the fullest extent permitted by the General

 

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Corporation Law of the State of Delaware as it may from time to time be amended, except with respect to an action commenced by such director or officer against the Corporation or by such director or officer as a derivative action by or in the right of the Corporation.

Each person who is or was an employee or agent of the Corporation and each officer or director who commences any action against the Corporation or a derivative action by or in the right of the Corporation may be similarly indemnified and receive an advance of expenses at the discretion of the Board of Directors.

The indemnification and advancement of expenses provided by, or granted pursuant to, the Certificate of Incorporation shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office.

The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this Certificate of Incorporation or Delaware law.

The indemnification and advancement of expenses provided by, or granted pursuant to, this Certificate of Incorporation shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE XII

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation. No amendment to this Certificate of Incorporation or repeal of any article of this Certificate of Incorporation shall increase the liability or alleged liability or reduce or limit the right to indemnification of any directors, officers, employees or agents of the Corporation for acts or omissions of such person occurring prior to such amendment or repeal.

THE UNDERSIGNED, being the Incorporator named above, executed this Certificate on September 18, 2006.

 

 

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CERTIFICATE OF DESIGNATIONS

OF THE SERIES A CONVERTIBLE PREFERRED STOCK

OF

BIODIESEL DEVELOPMENT CORPORATION

a Delaware corporation

The undersigned, W. Bruce Comer III, does hereby certify that:

(i) He is the duly elected and acting Chief Executive Officer of Biodiesel Development Corporation, a Delaware corporation (the “ Corporation ”).

(ii) Pursuant to the authority conferred upon the Board of Directors of the Corporation (the “ Board ”) by the Corporation’s Certificate of Incorporation (the “ Certificate ”), the Board on September 20, 2006, adopted the following resolutions creating a series of Preferred Stock as follows:

WHEREAS, the Certificate provides for a class of shares known as Preferred Stock, issuable from time to time in one or more series; and

WHEREAS, the Board is authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of Preferred Stock, to fix the number of shares constituting any such series, and to determine the designation thereof, or any of any of them.

NOW, THEREFORE, BE IT RESOLVED, that the Board hereby fixes and determines the designations of, the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock as follows:

(a) Designation . The series of Preferred Stock is hereby designated Series A Convertible Preferred Stock (the “ Series A Preferred Stock ”).

(b) Authorized Shares . The number of authorized shares constituting the Series A Preferred Stock shall be 28,500,000 shares of such series.

(c) Dividends . The Corporation shall pay on each outstanding share of Series A Preferred Stock (as adjusted for stock splits, combinations, reorganizations and the like) out of funds legally available therefor a cumulative dividend (the “ Dividend ”), at an annual rate equal to the product of (i) $1.00 per share (the “ Series A Purchase Price ”), by (ii) eight percent (8%). The Corporation shall pay the Dividend in cash or in additional shares of Series A Preferred Stock at the option of the Corporation. If the Corporation elects to pay such dividend in additional shares of Series A Preferred Stock, the value of each such share paid as a dividend shall be deemed to be the Conversion Price then in effect. Such Dividends shall commence to accrue on the shares of Series A Preferred Stock and be cumulative from and after the original date of issuance of the Series A Preferred Stock (the “ Original Issuance Date ”), and will accrue until paid whether or not the Board of Directors declares dividends. Such Dividends shall be paid pro rata among the holders of the Series A Preferred Stock. The Dividend shall be payable quarterly in arrears on the last day of each quarter to the holders of record as of the first (1 ^st ) day of such quarter based upon the number of days during such quarter that the Series A Preferred Stock remained outstanding. The Dividend shall be calculated on the basis of a 360-day year.

No dividends other than those payable solely in Common Stock shall be paid on any Common Stock unless and until (i) the aforementioned dividend is paid on each outstanding share of Series A Preferred Stock, and (ii) a dividend is paid with respect to all outstanding shares of Series A Preferred Stock in an amount equal to or greater that the aggregate amount of dividends which would be payable on each share of Series A Preferred Stock if, immediately prior to such dividend payment on Common Stock, it had been converted into Common Stock. The Corporation shall make no Distribution (as defined below) to the holders of shares of Common Stock except in accordance with this Section (c). “ Distribution ” means the transfer of cash or property without consideration, whether by way of dividend or otherwise, or the purchase of shares of the Corporation (other than in connection with the repurchase of shares of Common Stock issued to or held by employees, consultants, officers and directors at a price not greater than the amount paid by such persons for such shares upon termination of their employment or services pursuant to agreements providing for the right of said repurchase) for cash or property.

(d) Liquidation Preference .

(i) Preference upon Liquidation, Dissolution or Winding Up . In the event of any dissolution or winding up of the Corporation, whether voluntary or involuntary, holders of each outstanding share of Series A Preferred Stock shall be entitled to be paid, on a pro rata basis, first out of the assets of the Corporation available for distribution to shareholders, whether such assets are capital, surplus or earnings, an amount equal to the greater of (A) an amount equal to the Series A Purchase Price per share of Series A Preferred Stock held (as adjusted for any stock splits, stock dividends or recapitalizations of the Series A Preferred Stock) and any declared but unpaid dividends on such share, and (B) the amount such holders would be entitled to receive had such holders converted such shares of Series A Preferred Stock into shares of Common Stock in accordance with paragraph (f) hereof immediately prior to such distribution (but disregarding for the purposes of the calculation of the number of shares of Common Stock into which such Series A Preferred Stock would be convertible the limitation set forth in paragraph (f)(i) hereof or any other limitation upon the number of shares of Common Stock which provides that a holder thereof may not beneficially own more than 9.99% of the Corporation’s then outstanding Common Stock), before any payment shall be made to the holders of the Common Stock, or any other series of Preferred Stock of the Corporation (other than the Series B Convertible Preferred Stock of the Corporation), whether issued prior to or subsequent to the Original Issuance Date, with regard to any distribution of assets upon liquidation, dissolution or winding up of the Corporation. If, upon any liquidation, dissolution or winding up of the Corporation, the assets to be distributed to the holders of the Series A Preferred Stock shall be insufficient to permit payment to such shareholders of the full preferential amounts aforesaid, then all of the assets of the Corporation available for distribution to shareholders shall be distributed to the holders of Series A Preferred Stock, on a pro rata basis. Each holder of the Series A Preferred Stock shall be entitled to receive that portion of the assets available for distribution as the number of outstanding shares of Series A Preferred Stock held by such holder bears to the total number of shares of Series A Preferred Stock then outstanding. Such payment shall constitute payment in full to the holders of the Series A Preferred Stock upon the liquidation, dissolution or winding up of the Corporation. After such payment shall have been made in full, or funds necessary for such payment shall have been set aside by the Corporation in trust for the account of the holders of Series A Preferred Stock, so as to be

 

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available for such payment, such holders of Series A Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Corporation.

(ii) Consolidation, Merger and Other Corporate Events . A (x) consolidation or merger of the Corporation (except into or with a subsidiary corporation or effected exclusively for the purpose of changing the domicile of the Corporation) or any reclassification of the stock of the Corporation (other than a change in par value or from no par to par, or from par to no par or as the result of an event described in subsections (iv) through (vii) of paragraph (f)), unless the Corporation’s stockholders of record as constituted immediately prior to such transaction will, immediately after such transaction (by virtue of securities issued as consideration in respect of such transaction or otherwise), hold a majority of the voting power of the surviving or acquiring entity, or (y) a sale, lease, mortgage, pledge, exchange, transfer or other disposition of all or substantially all of the assets of the Corporation, shall be regarded as a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph (d) (a “ Liquidation Event ”). The treatment of any particular transaction or series of related transactions as a Liquidation Event may be waived by the vote or written consent of the holders of a majority of the then outstanding shares of Series A Preferred Stock). In no event shall the issuance in and of itself of any new classes of stock, whether senior, junior or on a parity with the Series A Preferred Stock, be deemed a “reclassification” under the terms hereof.

(iii) Distribution of Cash and Other Assets . In the event of a liquidation, dissolution or winding up of the Corporation resulting in the availability of assets other than cash for distribution to the holders of the Series A Preferred Stock, the holders of the Series A Preferred Stock shall be entitled to a distribution of cash and/or assets equal to the value of the liquidation preference stated in subsection (i) of this paragraph (d), which valuation shall be made solely by the Board of Directors, and provided that such Board of Directors was acting in good faith, shall be conclusive.

(iv) Distribution to Junior Security Holders . After the payment or distribution to the holders of the Series A Preferred Stock of the full preferential amounts aforesaid, the holders of the Common Stock then outstanding, or any other stock of the Corporation ranking as to assets upon liquidation, dissolution or winding up of the Corporation junior to the Series A Preferred Stock, shall be entitled to receive ratably all of the remaining assets of the Corporation.

(v) Preference; Priority . References to a stock that is “ senior ” to, on a “ parity ” with or “ junior ” to other stock as to liquidation shall refer, respectively, to rights of priority of one series or class of stock over another in the distribution of assets on any liquidation, dissolution or winding up of the Corporation. The Series A Preferred Stock shall be senior to the Common Stock of the Corporation, all other series of Preferred Stock of the Corporation and any other capital stock of the Corporation now or hereafter authorized, except the Series B Convertible Preferred Stock of the Corporation or as may be otherwise agreed in writing by holders of a majority of the then outstanding shares of Series A Preferred Stock.

(e) Voting Rights . (i) Except as otherwise expressly provided herein or by law, the holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting

 

3

rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any shareholders’ meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

(ii) The Corporation shall not, without first obtaining the approval of the holders of a majority of the then outstanding shares of Series A Preferred Stock:

(A) alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock;

(b) issue any additional shares of the Series B Preferred Stock of the Corporation;

(B) issue any additional shares of the Series A Preferred Stock (other than in accordance with this Certificate of Designation) to any Person other than the purchasers on the Original Issuance Date;

(C) authorize, create or sell any equity securities of the Corporation or securities convertible into equity of the Corporation which are senior to or on parity with the Series A Preferred Stock as to voting, dividend, liquidation or redemption rights; or

(D) take or permit any action to be taken which allows any subsidiary of the Corporation to take any of the actions enumerated in this Section (e)(ii).

(iii) So long as the holders of the Series A Preferred Stock continue to hold at least fifteen (15) percent shares of the Common Stock on an as converted, fully diluted basis (appropriately adjusted for stock splits, stock dividends, stock combinations, and similar events occurring after the date hereof), the holders of the Series A Preferred Stock, voting separately as a single class, shall be entitled to elect one (1) director to the Board of Directors of the Corporation and to fill any vacancy on the Board of Directors created by the absence of such director.

(f) Conversion Rights . The holders of Series A Preferred Stock will have the following conversion rights:

(i) Right to Convert . Subject to and in compliance with the provisions of this paragraph (f), any issued and outstanding shares of Series A Preferred Stock may, at the option of the holder, be converted at any time or from time to time into fully paid and nonassessable shares of Common Stock at the conversion rate in effect at the time of conversion, determined as provided herein; provided, however , that the right to convert of any holder of Series A Preferred Stock who so elects in writing to the Corporation shall be limited such that such holder of Series A Preferred Stock may at any given time convert only up to that number of shares of Series A

 

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Preferred Stock so that, upon conversion, the aggregate beneficial ownership of the Corporation’s Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of such holder and all persons affiliated with such holder is not more than 9.99% of the Corporation’s Common Stock then outstanding.

(ii) Mandatory Conversion . Provided that (a) there is an effective Registration Statement on Form SB-2 or S-3 (the “ Registration Statement ”) on file with the Securities and Exchange Commission (the “ SEC ”) registering the maximum number of shares of Common Stock to be issued upon conversion of the Series A Preferred Stock and (b) the closing price of the Common Stock for the twenty (20) preceding trading days is equal to or greater than two times the Conversion Price, then the Corporation, at its option, may require any holder of Series A Preferred Stock to convert all, or a portion, of the then outstanding Series A Preferred Stock by delivery of written notice. The conversion shall be made within five (5) trading days after receipt of the notice. Notwithstanding the foregoing, any conversion by a holder of Series A Preferred Stock into Common Stock shall be limited, for each and any holder who so elects in writing to the Corporation, such that the beneficial ownership of such holder and its affiliates of Common Stock acquired from the Corporation (excluding shares of Common Stock issuable upon the conversion of the Series A Preferred Stock and the exercise of warrants which have not yet been converted or exercised) shall in the aggregate not exceed 9.99% of the total Common Stock then outstanding. In the event that the Corporation provides notice of the mandatory conversion of the then outstanding Series A Preferred Stock which is limited by the immediately preceding sentence, the provisions of Section (c) hereof with respect to dividends, Section (d) hereof with respect to liquidation preference of the Series A Preferred Stock, Section (e)(ii) hereof with respect to voting rights, Sections (f)(ix) and (f)(x) hereof with respect to adjustments to the Conversion Price and Section (h) hereof with respect to Events of Default, shall each expire as of the effectiveness of such mandatory conversion.

(iii) Mechanics of Conversion . Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the number of shares of Series A Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder of Series A Preferred Stock a certificate or certificates for the number of shares of Common Stock to which he shall be entitled, which such certificate or certificates shall bear such legends as are usual and customary to indicate any restrictions on transfer thereof, if applicable. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

(iv) Conversion Price . The number of shares into which one share of Series A Preferred Stock shall be convertible shall be determined by dividing the Series A Purchase Price by the then existing Conversion Price (as set forth below), which shall be subject to adjustment from time to time in certain instances, as provided below in this paragraph (f). The “ Conversion Price ” per share for the Series A Preferred Stock shall be equal to $0.758754 per share. If an

 

5

Event of Default (as defined in Section (h) hereof) occurs, the Conversion Price shall be reduced as set forth in Section (h) hereof.

(v) Adjustment for Stock Splits and Combinations . If at any time, or from time to time after the Original Issuance Date, the outstanding shares of Common Stock shall be subdivided (by stock split, stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. If at any time, or from time to time after the Original Issuance Date, the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(vi) Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time, or from time to time after the Original Issuance Date, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price for the Series A Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price for such Series A Preferred Stock then in effect by a fraction:

(A) 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

(B) 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;

provided , however , 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 for the Series A Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter, the Conversion Price for the Series A Preferred Stock shall be adjusted pursuant to this paragraph (f)(v) as of the time of actual payment of such dividends or distributions.

(vii) Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Original Issuance Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such Series A Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series A 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

 

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including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period under this paragraph (f) with respect to the rights of the holders of the Series A Preferred Stock.

(viii) Adjustment for Reclassification Exchange or Substitution . If the Common Stock issuable upon the conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this paragraph (f)), then and in each such event the Holder of each share of Series A Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Series A Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein.

(ix) Adjustment for Issuances of Additional Stock. In the event the Corporation at any time, or from time to time after the Original Issuance Date, shall issue or sell any shares of Common Stock (including shares of Common Stock deemed to have been issued pursuant to Section (f)(x) below) after the Original Issuance Date (the “ Additional Stock ”), then and in each such event the Conversion Price for the Series A Preferred Stock then in effect shall be decreased as of the time of such issuance by multiplying the Conversion Price for such Series A Preferred Stock then in effect by a fraction:

(A) the numerator of which shall be the sum of (i) the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus (ii) all shares of Common Stock issuable upon conversion of the Preferred Stock outstanding immediately prior to the issuance of such Additional Stock, without giving effect to any adjustments to the conversion price of any such series of Preferred Stock as a result of the issuance of such Additional Stock (including shares of Common Stock deemed issued pursuant to Section (f)(x) below) (the sum of the amounts in clauses (i) and (ii) of this paragraph being the “ Outstanding Common ”) plus (iii) the number of shares of Common Stock given by the quotient of (x) the aggregate consideration received by the Corporation for such Additional Stock divided by (y) the Conversion Price in effect immediately prior to the adjustment contemplated hereby, and

(B) the denominator of which shall be the total number of shares of Outstanding Common plus the number of shares of such Additional Stock;

No adjustment to the Conversion Price shall be made pursuant to this Section (f)(ix) on account of any issuance of Additional Stock unless the consideration per share of Additional Stock issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue.

 

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The term “ Additional Stock ” shall not include the following issuances of shares of Common Stock (including shares of Common Stock deemed to have been issued pursuant to Section (f)(x) below):

 

i.

to employees, directors, consultants and other service providers for the purpose of soliciting or retaining their services pursuant to plans or agreements approved by the Board of Directors and, where required the shareholders of the Corporation, including, without limitation, the Corporation’s 2006 Incentive Compensation Plan, provided that the total number of such shares so issuable does not exceed 6,592,755;

 

ii.

issuable upon the conversion or exercise of convertible or exercisable securities outstanding on September 20, 2006;

 

iii.

issuable upon exercise of the warrant to be issued to M.A.G. Capital, LLC (“ MAG ”) in consideration for the assignment by MAG to the Corporation of certain acquisition rights, as contemplated by that certain Subscription Agreement, dated September 20, 2006;

 

iv.

issuable upon exercise of the options granted pursuant to the 2006 Incentive Compensation Plan on or prior to September 20, 2006;

 

v.

issued upon conversion of the warrants granted to Ocean Park Advisors, LLC on or prior to the date hereof;

 

vi.

issuable pursuant to any equipment leasing arrangement or debt financing from a bank or similar institution approved by the Board of Directors; provided such financing is for non-equity financing purposes and does not exceed five percent (5%) of the then Outstanding Common; and

 

vii.

issued or deemed issued pursuant to Section f(x) below as a result of a decrease in the Conversion Price from the operation of this Section f(ix).

(x) Deemed Issuances of Common Stock . In the case of the issuance after the Original Issuance Date of securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (the “ Common Stock Equivalents ”), the following provisions shall apply for all purposes of Section (f)(ix) and this Section (f)(x):

(A) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to convertibility, exchangeability or exercisability, including, without

 

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limitation, the passage of time, but without taking into account potential antidilution adjustments) of any Common Stock Equivalents and subsequent conversion, exchange or exercise thereof shall be deemed to have been issued at the time such securities were issued or such Common Stock Equivalents were issued.

(B) In the event of any change in the number of shares of Common Stock deliverable upon conversion, exchange or exercise of any Common Stock Equivalents including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price for the Series A Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock upon the conversion, exchange or exercise of such Common Stock Equivalents.

(C) Upon the termination or expiration of the convertibility, exchangeability or exercisability of any Common Stock Equivalents, the Conversion Price for the Series A Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Common Stock Equivalents that remain convertible, exchangeable or exercisable) actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(D) The number of shares of Common Stock deemed issued pursuant to Section (f)(x)(A) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section (f)(x)(B) or (f)(x)(C).

(xi) No Increased Conversion Price . Notwithstanding any other provisions of Section (f)(ix) or Section (f)(x), except to the limited extent provided for in Sections (f)(x)(B) and (f)(x)(C), no adjustment of the Conversion Price pursuant to Section (f)(ix) or Section (f)(x) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment.

(xii) Reorganization, Mergers, Consolidations or Sales of Assets . If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this paragraph (f)) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation’s properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of such Series A Preferred Stock, the number of shares of stock or other securities or property of the Corporation or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this paragraph (f) with respect to the rights of the holders of the Series A Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this paragraph (f) (including adjustment of the Conversion Price then in effect and the number of shares

 

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purchasable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

(xiii) No Dilution or Impairment . The Corporation shall not amend its Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, without the approval of a majority of the then outstanding Series A Preferred Stock.

(xiv) Certificate of Adjustment . In each case of an adjustment or readjustment of the Conversion Price or the number of shares of Common Stock or other securities issuable upon conversion of the Series A Preferred Stock, the Corporation shall compute such adjustment or readjustment in acc