Exhibit 10.3

CERTIFICATE OF DESIGNATION

 

SERIES A CONVERTIBLE PREFERRED STOCK

(No Par Value)

OF

TRANSAX INTERNATIONAL, LTD.

The undersigned, a duly authorized officer of Transax International, Ltd., a
Colorado corporation (the “Company”), in accordance with the provisions of
Section 7-128-102 of the Colorado Corporation Code of the State of Colorado,
DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board
of Directors of the Company (the “Board”) by unanimous written consent pursuant
to Section 7-128-102 of the Colorado Corporation Code of the State of Colorado
on January 13, 2006:

WHEREAS, the Certificate of Incorporation authorizes 20,000,000 shares of
preferred stock, no par value (“Preferred Stock”) issuable from time to time in
one or more series;

WHEREAS, the Board deems it advisable to establish a series of Preferred Stock
designated as Series A Preferred Stock, no par value; and

WHEREAS, the shares of such series are to be issued to Cornell Capital Partners,
LP (“Cornell”) at the closings of the transactions contemplated by the
Investment Agreement, dated as of January 13, 2006 (the “Investment Agreement”)
between the Company and Cornell.

RESOLVED, that the Board has determined that it is in the best interests of the
Company to provide for the designation of Sixteen Thousand (16,000) shares of
certain Series A Convertible Preferred Shares, no par value (the “Series A
Preferred Shares”) and the issuance, to consist of up to Sixteen Thousand
(16,000) shares in accordance with the Investment Agreement, and hereby fixes
the powers, designations, preferences, and relative, participating, optional and
other special rights of the shares of such Series A Preferred Shares, as
follows:

Article I.                     DESIGNATION AND RANK

Section 1.01     Designation. This resolution shall provide for a single series
of Preferred Shares, the designation of which shall be “Series A Preferred
Shares,” no par value. The number of authorized shares constituting the Series A
Preferred Shares is Sixteen Thousand (16,000) and an issuance of up to Sixteen
Thousand (16,000) shares in accordance with the Investment Agreement. The Series
A Preferred Shares shall have a stated value of $100 and have a liquidation
preference as determined in Section 3.01 below.

Section 1.02    Rank. With respect to the payment of dividends and other
distributions on the capital stock of the Company, including distribution of the
assets of the Company upon liquidation, the Series A Preferred Shares shall be
senior to the common stock of the Company, par value $.0001 per share (the
“Common Stock”), and senior to all other series of Preferred Shares (the “Junior
Stock”).

 

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Article II.                   DIVIDEND RIGHTS

Section 2.01     Dividends or Distributions. The Holders of Series A Preferred
Shares shall be entitled to receive dividends or distributions on a pro rata
basis according to their holdings of shares of Series A Preferred Shares in the
amount of seven percent (7%) per year (computed on the basis of a 365-day year
and the actual days elapsed). Dividends shall be paid in cash. Dividends shall
be cumulative. No cash dividends or distributions shall be declared or paid or
set apart for payment on the Common Stock in any calendar year unless cash
dividends or distributions on the Series A Preferred Shares for such calendar
year are likewise declared and paid or set apart for payment. No declared and
unpaid dividends shall bear or accrue interest.

Article III.                  LIQUIDATION RIGHTS

Section 3.01    Liquidation Preference. Upon any liquidation, dissolution, or
winding up of the Company, whether voluntary or involuntary (collectively, a
“Liquidation”), before any distribution or payment shall be made to any of the
holders of Common Stock or any series of Preferred Shares, the holders of Series
A Preferred Shares shall be entitled to receive out of the assets of the
Company, whether such assets are capital, surplus or earnings, an amount equal
to One Hundred Dollars ($100) per share of Series A Preferred Shares (the
“Liquidation Amount”) plus all accumulated and unpaid dividends thereon, for
each share of Series A Preferred Shares held by them.

Section 3.02     Pro Rata Distribution. If, upon any Liquidation, the assets of
the Company shall be insufficient to pay the Liquidation Amount, together with
accumulated and unpaid dividends thereon, in full to all holders of Series A
Preferred Shares, then the entire net assets of the Corporation shall be
distributed among the holders of the Series A Preferred Shares, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled and such distributions may be made in cash or in property taken at its
fair value (as determined in good faith by the Company’s Board of Directors), or
both, at the election of the Company’s Board of Directors.

Section 3.03     Merger, Consolidation or Reorganization. For purposes of this
Article III, a Liquidation shall not be deemed to be occasioned by or to include
the merger, consolidation or reorganization of the Company into or with another
entity through one or a series of related transactions, or the sale, transfer or
lease of all or substantially all of the assets of the Company.

Article IV.                 REGISTRATION RIGHTS AND CONVERSION RIGHTS

Section 4.01    Registration Rights. The Series A Preferred Shares shall have
registration rights pursuant to the Investor Registration Rights Agreement
(“Registration Rights Agreement”) dated January 13, 2006 between the Company and
Cornell.

Section 4.02      Conversion. The Holders of Series A Preferred Shares shall
have sole right and in their discretion to elect conversion pursuant to the
conversion rights as follow (the “Conversion Rights”):

 

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(a)    Each share of Series A Preferred Shares shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share (subject to Section 4.03 hereof), at the office of the Company’s transfer
agent, pursuant to the Irrevocable Transfer Agent Instructions dated January 13,
2006 (“Transfer Agent Instructions”) for the Series A Preferred Shares into such
number of fully paid and non-assessable shares of Common Stock equal to the sum
of (i) the Liquidation Amount of the Series A Preferred Shares plus (ii) all
accrued but unpaid dividends thereon, divided by the Conversion Price (as
defined herein). The “Conversion Price” shall be equal to the lower of (i)
$0.192 ( the “Fixed Conversion Price”), or (ii) eighty percent (80%) of the
lowest daily volume weighted average price (“VWAP”) of the Common Stock during
the ten (10) Trading Days immediately preceding the date of conversion (the
“Market Conversion Price”). The VWAP shall be determined using price quotations
from Bloomberg, LP. “Trading Day” shall mean any day during which the Nasdaq OTC
Bulletin Board shall be open for trading.

(b)    Each share of Series A Preferred Shares shall automatically convert into
shares of Common Stock at the Conversion Price then in effect immediately upon
the consummation of the occurrence of a stock acquisition, merger, consolidation
or reorganization of the Company into or with another entity through one or a
series of related transactions, or the sale, transfer or lease (but not
including a transfer by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Company.

(c)    Each shares of Series A Preferred Shares shall automatically convert into
shares of Common Stock at the Conversion Price then in effect immediately upon
the third anniversary of the date of Investment Agreement.

Section 4.03    Adjustments. The Conversion Price of the Series A Preferred
Shares as described in Section 4.02 above shall be adjusted from time to time as
follows:

(a)     In the event of any reclassification of the Common Stock or
recapitalization involving Common Stock (excluding a subdivision, or combination
of shares or any other event described in this Section 4.02) the holders of the
Series A Preferred Shares shall thereafter be entitled to receive, and provision
shall be made therefor in any agreement relating to the reclassification or
recapitalization, upon conversion of the Series A Preferred Shares, the kind and
number of shares of Common Stock or other securities or property (including
cash) to which such holders of Series A Preferred Shares would have been
entitled if they had held the number of shares of Common Stock into which the
Series A Preferred Shares was convertible immediately prior to such
reclassification or recapitalization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the Series
A Preferred Shares, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares, other securities, or property thereafter receivable upon conversion of
the Series A Preferred Shares. An adjustment made pursuant to this subparagraph
(a) shall become effective at the time at which such reclassification or
recapitalization becomes effective.

(b)    In the event the Company shall declare a distribution payable in
securities of other entities or persons, evidences of indebtedness issued by the
Company or other entities or persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4.02 above, the holders of the
Series A Preferred Shares shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock

 

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of the Company into which their shares of Series A Preferred Shares are
convertible as of the record date fixed for the determination of the holders of
shares of Common Stock of the Company entitled to receive such distribution or
if no such record date is fixed, as of the date such distribution is made.

 

Section 4.04

Procedures for Conversion.

(a)     In order to exercise conversion rights pursuant to Section 4.02 above,
the holder of the Series A Preferred Shares to be converted shall deliver an
irrevocable written notice of such exercise to the transfer agent of the Company
(the “Transfer Agent”) pursuant to the Transfer Agent Instructions, with a copy
to the Company. The holder of any shares of Series A Preferred Shares shall,
upon any conversion of such Series A Preferred Shares in accordance with this
Section 4, surrender certificates representing the Series A Preferred Shares to
the Company’s Transfer Agent, and specify the name or names in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
In case such holder shall specify a name or names other than that of such
holder, such notice shall be accompanied by payment of all transfer taxes (if
transfer is to a person or entity other than the holder thereof) payable upon
the issuance of shares of Common Stock in such name or names. As promptly as
practicable, and, if applicable, after payment of all transfer taxes (if
transfer is to a person or entity other than the holder thereof), the Company
shall cause its Transfer Agent to deliver or cause to be delivered certificates
representing the number of validly issued, fully paid and nonassessable shares
of Common Stock to which the holder of the Series A Preferred Shares so
converted shall be entitled. Such conversion, to the extent permitted by law,
shall be deemed to have been effected as of the date of receipt by the Transfer
Agent or the Company of any notice of conversion pursuant to this Section 4.
Upon conversion of any shares of Series A Preferred Shares, such shares shall
cease to constitute shares of Series A Preferred Shares and shall represent
shares of common stock into which they have been converted.

(b)    In connection with the conversion of any shares of Series A Preferred
Shares, no fractions of shares of Common Stock shall be issued, but the Company
shall pay cash in lieu of such fractional interest in an amount equal to the
product of the Conversion Price and such fractional interest.

(c)    The Company shall at all times reserve and keep available out of its
authorized Common Stock the full number of shares of Common Stock of the Company
issuable upon the conversion of all outstanding shares of Series A Preferred
Shares. In the event that the Company does not have a sufficient number of
shares of authorized and unissued Common Stock necessary to satisfy the full
conversion of the shares of Series A Preferred Shares, then the Company shall
call and hold a meeting of the shareholders within thirty (30) calendar days of
such occurrence for the sole purpose of increasing the number of authorized
shares of Common Stock. The Company’s Board of Directors shall recommend to
shareholders a vote in favor of such proposal and shall vote all shares held by
them, in proxy or otherwise, in favor of such proposal. This remedy is not
intended to limit the remedies available to the holders of the Series A
Preferred Shares, but is intended to be in addition to any other remedies,
whether in contract, at law or in equity.

Section 4.05     Notices of Record Date. In the event that the Company shall
propose at any time: (i) to declare any dividend or distribution upon any class
or series of capital stock, whether in cash, property, stock or other
securities; (ii) to effect any reclassification or

 

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recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or (iii) to merge or consolidate with or into any other
corporation, or to sell, lease or convey all or substantially all of its
property or business, or to liquidate, dissolve or wind up; then, in connection
with each such event, the Company shall mail to each holder of Series A
Preferred Shares:

(a)     at least twenty (20) days’ prior written notice of the date on which a
record shall be taken for such dividend or distribution (and specifying the date
on which the holders of the affected class or series of capital stock shall be
entitled thereto) or for determining the rights to vote, if any, in respect of
the matters referred to in Sections 4.03 (b); and

(b)    in the case of the matters referred to in Section 4.03 (b) above, written
notice of such impending transaction not later than twenty (20) days prior to
the shareholders’ meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and shall
also notify such holder in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction (and specify the date on which the holders of shares
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event) and the Company
shall thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Company has given the first notice provided for herein or sooner than ten (10)
days after the Company has given notice of any material changes provided for
herein.

Section 4.06    Limitations of Conversion. Subject to the Termination Rights
specified in Section 4.06(b) hereof, the Conversion Rights specified herein
shall be subject to the following limitations:

(a)     No holder of the shares of Series A Preferred Shares shall be entitled
to convert the Series A Preferred Shares to the extent, but only to the extent,
that such conversion would, upon giving effect to such conversion, cause the
aggregate number of shares of Common Stock beneficially owned by such holder to
exceed 4.99% of the outstanding shares of Common Stock following such conversion
(which provision may be waived by such holder by written notice from such holder
to the Company, which notice shall be effective sixty one (61) days after the
date of such notice).

(b)    The limitations on the Conversion Rights specified in Section 4.06(a)
hereof shall terminate (the “Termination Rights”) if there is a Change in
Control of the Company (as defined below). For the purpose of hereof, a “Change
in Control” of the Company has occurred when: (i) any person (defined herein to
mean any person within the meaning of Section 13(d) of the Securities Exchange
Act of 1934 (the “Exchange Act”)), other than the Company, or an employee
benefit plan established by the Board of Directors of the Company, acquires,
directly or indirectly, the beneficial ownership (determined under Rule 13d-3 of
the regulations promulgated by the Securities and Exchange Commission under
Section 13(d) of the Exchange Act) of securities issued by the Company having
forty percent (40%) or more of the voting power of all of the voting securities
issued by the Company in the election of directors at the meeting of the holders
of voting securities to be held for such purpose; or (ii) a majority of the
directors elected at any meeting of the holders of voting securities of the
Company are persons who were not nominated for such election by the Board of
Directors of the Company or a duly constituted committee of the Board of
Directors of the Company having authority in such

 

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matters; or (iii) the Company merges or consolidates with or transfers
substantially all of its assets to another person.

Article V.                   EVENTS OF DEFAULT

Section 5.01     Events of Default. An “Event of Default”, wherever used herein,
means any one of the following events (whatever the reason and whether it shall
be voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):

(a)    The Company shall fail to observe or perform any covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any
provision contained herein or in the Registration Rights Agreement or the
Transfer Agent Instructions which is not cured within any applicable cure
period;

(b)    The Company or any subsidiary of the Company shall commence, or there
shall be commenced against the Company or any subsidiary of the Company under
any applicable bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Company or any subsidiary of the Company commences
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other similar
proceeding which remains undismissed for a period of sixty one (61) days; or the
Company or any subsidiary of the Company is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary of the Company suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;

(c)    The Common Stock shall cease to be quoted for trading or listed for
trading on the American Stock Exchange, Nasdaq OTC Bulletin Board, Nasdaq
Capital Market, the Nasdaq National Market, or New York Stock Exchange (each, a
“Subsequent Market”) and shall not again be quoted or listed for trading thereon
within five (5) Trading Days of such delisting; or

(d)    The Company shall fail for any reason to deliver Common Stock
certificates to a holder prior to the fifth (5th) Trading Day after a conversion
or the Company shall provide notice to the holder, including by way of public
announcement, at any time, of its

 

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intention not to comply with requests for conversions of the Series A Preferred
Shares in accordance with the terms hereof.

Section 5.02      During the time that any portion of the Series A Preferred
Shares is outstanding, if any Event of Default has occurred, the holders shall
have the right (but not the obligation) to convert the entire amount of the
Series A Preferred Shares outstanding as provided for herein. Upon an Event of
Default, notwithstanding any other provision contained herein or the
Registration Rights Agreement or the Transfer Agent Instructions, the holder
shall have no obligation to comply with or adhere to any limitations, if any, on
the conversion of the Series A Preferred Shares.

Article VI.                 NO VOTING RIGHTS

Section 6.01     General. The Series A Preferred Shares shall not have any
voting rights except as provided under the laws of the state of Colorado.

Article VII.                REDEMPTION RIGHTS

Section 7.01     The Company at its option shall have the right to redeem
(unless otherwise prevented by law), with three (3) business days advance
written notice (the “Redemption Notice”), any shares of Series A Preferred
Shares provided that the closing bid price of the of the Company’s Common Stock,
as reported by Bloomberg, LP, is less than the Fixed Conversion Price at the
time of the Redemption Notice. The Company shall pay an amount equal to One
Hundred Fifteen percent (115%) of the Liquidation Amount, plus accrued but
unpaid dividends thereon (the “Redemption Amount”). The Company shall deliver to
the holder the Redemption Amount on the third (3rd) business day after the
Redemption Notice. After receipt of a Redemption Notice, the holder shall be
entitled to continue to convert outstanding shares of Series A Preferred Shares
until the Redemption Price is received, subject to the conversion limitations
set forth in Section 4.03.

Article VIII.              MISCELLANEOUS

Section 8.01     Headings of Subdivisions. The headings of the various Sections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.

Section 8.02      Severability of Provisions. If any right, preference or
limitation of the Series A Preferred Shares set forth herein (as this resolution
may be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other rights,
preferences and limitations set forth in this resolution (as so amended) which
can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.

 

 

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IN WITNESS WHEREOF, this Certificate of Designations has been singed by a duly
authorized officer on the date written below.

Dated: January 15, 2006

TRANSAX INTERNATIONAL, LTD.

 

 

 

 

 

By:  /s/ Stephen Walters

 

Name:

Stephen Walters

 

 

Title:

President & CEO

 

 

 

 

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