Exhibit 4.1


 


CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF THE

SERIES A CONVERTIBLE PREFERRED STOCK OF

THINK PARTNERSHIP INC.


 


Think Partnership Inc.
(formerly known as CGI Holding Corporation), a corporation organized and
existing under the laws of the State of Nevada (the “Company”),
hereby certifies that, pursuant to the authority vested in the Board of
Directors of the Company (the “Board”) by the
Articles of Incorporation of the Company, as amended (the “Articles of
Incorporation”), the following resolution was adopted as of March 20,
2006 by the Board pursuant to the applicable Nevada Revised Statues:


 


RESOLVED, that pursuant to the authority
granted to and vested in the Board in accordance with the provisions of the
Articles of Incorporation, as amended, there shall be created a series of
Preferred Stock, $0.001 par value, which series shall have the following
designations and number thereof, powers, preferences, rights, qualifications,
limitations and restrictions:


 


(1)                                  Designation and
Number of Shares. There shall hereby be created and established a series of
Preferred Stock designated as “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”). The authorized number of
shares of Series A Preferred stock shall be 26,500 shares; provided,
that whatever number of shares of Series A Preferred Stock is not issued
and sold in the offering of Series A Preferred Stock being undertaken
contemporaneously with the creation of the Series A Preferred Stock shall
be cancelled, retired and eliminated by the Company from the shares of Series A
Preferred Stock which the Company shall be authorized to issue. Any such shares
of Series A Preferred stock so cancelled, retired and eliminated shall
have the status of authorized and unissued shares of preferred stock, issuable
in undesignated series and may be redesignated and reissued in any series other
than as Series A Preferred Stock provided that no such redesignated or
reissued shares can be Senior Preferred unless authorized pursuant to Section 12
hereof.


 


(2)                                  Dividends. The
holders of the shares of Series A Preferred Stock (each, a “Holder” and collectively, the “Holders”)
shall be entitled to receive dividends (“Dividends”)
payable on the Stated Value (as defined below) of each share of Series A
Preferred Stock at the Dividend Rate (as defined below). Dividends on the
shares of Series A Preferred Stock shall commence accruing on the Initial
Issuance Date and shall be computed on the basis of a 360-day year consisting
of twelve 30-day months and shall be payable in arrears for each Calendar
Quarter on the first day of the succeeding Calendar Quarter during the period
beginning on the Initial Issuance Date and ending on, and including the
Maturity Date (each, an “Dividend Date”) with
the first Dividend Date being July 1, 2006. Prior to the payment of
Dividends on a Dividend Date, Dividends on the shares of Series A
Preferred Stock shall accrue at the Dividend Rate. If a Dividend Date is not a
Business Day (as defined below), then the Dividend shall be due and payable on
the Business Day immediately following such Dividend Date. Dividends shall be
payable in cash.


 


(3)                                  Conversion. Shares
of Series A Preferred Stock shall be convertible into the Company’s common
shares, $0.001 par value per share (the “Common
Shares”), on the terms and conditions set forth in this Section 3.


 





















 


(a)                                  Certain
Defined Terms. For purposes of this Certificate of Designations, the
following terms shall have the following meanings:


 


(i)                                     “Additional Amount” means, on a per Preferred
Share basis, the product of (x) the result of the following formula: (Dividend
Rate)(N/360) and (y) the Stated Value.


 


(ii)                                  “Approved Acquisitions” means (A) acquisitions
by the Company or its subsidiaries of a business enterprise or assets or (B) joint
ventures by the Company with third Persons.


 


(iii)                               “Approved Share Plan” means any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company’s securities may be issued to any employee,
officer, consultant or director for services provided to the Company.


 


(iv)                              “Bloomberg”
means Bloomberg Financial Markets.


 


(v)                                 “Business Day” means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed.


 


(vi)                              “Calendar Quarter” means each of the
following periods:  the period beginning
on and including January 1 and ending on and including March 31; the
period beginning on and including April 1 and ending on and including June 30;
the period beginning on and including July 1 and ending on and including September 30;
and the period beginning on and including October 1 and ending on and
including December 31.


 


(vii)                           “Cherish and
RESO Business” means (i) the business of Cherish, Inc., a
Florida corporation and its subsidiaries as of the Subscription Date and (ii) the
business of Real Estate School Online Inc. and its subsidiaries as of the
Subscription Date.


 


(viii)                        “Change of Control” means any Fundamental Transaction other
than (A) any reorganization, recapitalization or reclassification in which
holders of the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
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, (B) pursuant
to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company or (C) a Fundamental
Transaction that has been previously authorized by a written consent of


 


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the Required Holders prior to the consummation of such Fundamental
Transaction.


 


(ix)                                “Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of
such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If the Closing Bid Price
or the Closing Sale Price cannot be calculated for a security on a particular
date on any of the foregoing bases, the Closing Bid Price or the Closing Sale
Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Required Holders. If
the Company and the Required Holders are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to Section 3(d)(vii).
All such determinations to be appropriately adjusted for any share dividend,
share split, share combination or other similar transaction during the
applicable calculation period.


 


(x)                                   “Consolidated Net Income” means, for any period, the net
income (loss) of the Company and its Subsidiaries for such period, determined
on a consolidated basis and in accordance with GAAP, but excluding from the
determination of Consolidated Net Income (without duplication) (a) any
extraordinary or non recurring gains or losses or gains or losses from
Dispositions, (b) restructuring charges, (c) any tax refunds, net
operating losses or other net tax benefits, (d) effects of discontinued
operations and (e) interest income (including interest paid-in-kind).


 


(xi)                                “Consolidated
Net Interest Expense” means, for any period, gross interest expense
of the Company and its Subsidiaries for such period determined on a
consolidated basis and in accordance with GAAP, less (i) the sum of (A) interest
income for such period and (B) gains for such period on Hedging Agreements
(to the extent not included


 


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in interest
income above and to the extent not deducted in the calculation of gross
interest expense), plus (ii) the sum of (A) losses for such period on
Hedging Agreements (to the extent not included in gross interest expense) and (B) the
upfront costs or fees for such period associated with Hedging Agreements (to
the extent not included in gross interest expense), in each case, determined on
a consolidated basis and in accordance with GAAP.


 


(xii)                             “Conversion Amount” means the Stated Value.


 


(xiii)                          “Conversion Price” means, with respect to the shares of Series A
Preferred Stock, as of any Conversion Date or other date of determination,
$2.00, subject to adjustment as provided herein.


 


(xiv)                         “Convertible Securities” means any shares or securities (other
than Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Shares.


 


(xv)                            “Disposition”
means any transaction, or series of related transactions, pursuant to which
the Company or any of its Subsidiaries sells, assigns, transfers or otherwise
disposes of any property or assets (whether now owned or hereafter acquired) to
any Person (other than the Company or any of its Subsidiaries), in each case,
whether or not the consideration therefor consists of cash, securities or other
assets owned by the acquiring Person, excluding any sales of inventory in the
ordinary course of business on ordinary business terms.


 


(xvi)                         “Dividend Rate” means (i) ten percent (10%) per annum for
the period from the date hereof until the Effective Date (as defined in the
Registration Rights Agreement) and (ii) thereafter six percent (6%) per
annum; provided, that, subject to the Limitation on Damages (as
hereinafter defined), for the period from and after the occurrence of a
Triggering Event through such time that such Triggering Event is cured (the “Triggering Period”), fifteen percent (15%) per annum (the “Triggering Period Dividend Rate”).


 


(xvii)                      “EBITDA”
means, for any period, the Consolidated Net Income of the Company and its
Subsidiaries for such period, plus (i) without duplication, the sum
of the following amounts of the Company and its Subsidiaries for such
period and to the extent deducted in determining Consolidated Net Income of such
Person for such period:  (A) Consolidated
Net Interest Expense, (B) income tax expense, (C) depreciation
expense, and (D) amortization expense.


 


(xviii)                   “Eligible
Market” means the Principal Market, NYSE, the Nasdaq National
Market, The American Stock Exchange or The Nasdaq Capital Market.


 


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(xix)                           “Equity Conditions” means: 
(i) on each day during the
period beginning one month prior to the applicable date of determination and
ending on and including the applicable date of determination (either (x)
the Registration Statement (as defined in the Registration Rights Agreement,
the “Registration Statement”)
filed pursuant to the Registration Rights Agreement shall be effective and
available for the resale of all of the Registrable Securities in accordance
with the terms of the Registration Rights Agreement and on each day there shall
not have been any Grace Periods (as defined in the Registration Rights
Agreement) or (y) all Common Shares issuable upon conversion of the shares of Series A
Preferred Stock and the exercise of Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws; (ii) on each day during the period beginning
three months prior to the applicable date of determination and ending and
including the applicable date of determination (the “Equity
Conditions Measuring Period”), the Common Shares are designated for
quotation on the Eligible Market and shall not have been suspended from trading
on such exchange or market (other than suspensions of not more than two days
and occurring prior to the applicable
date of determination due to business announcements by the Company) nor
shall delisting or suspension by such exchange or market been threatened or
pending either (A) in writing by such exchange or market or (B) by
falling below the minimum listing maintenance requirements of such exchange or
market; (iii) on each day during the Equity Conditions Measuring Period,
the Company shall have delivered Conversion Shares upon conversion of the
shares of Series A Preferred Stock and Common Shares upon exercise of the
Warrants to the Holders on a timely basis as set forth in Section 3(c)(ii) hereof
and Section 1(a) of the Warrants; (iv) any applicable Common
Shares to be issued in connection with the event requiring determination may be
issued in full without violating Section 6 hereof, Section 14 hereof
or the rules or regulations of the applicable Eligible Market; (v) during
the Equity Conditions Measuring Period, the Company shall not have failed to
timely make any payments within five (5) Business Days of when such
payment is due pursuant to any Transaction Document; (vi) during the
Equity Conditions Measuring Period, there shall not have occurred either (A) the
public announcement of a pending, proposed or intended Fundamental Transaction which has not been abandoned, terminated
or consummated or (B) a Triggering Event or an event that with the passage
of time or giving of notice would constitute a Triggering Event; (vii) the
Company shall have no knowledge of any fact that would cause (x) the
Registration Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of at least all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement or (y) any Common Shares issuable upon conversion of the shares of Series A
Preferred Stock and Common Shares issuable upon


 


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exercise of
the Warrants not to be eligible for sale without restriction pursuant to Rule 144(k)
and any applicable state securities laws; (viii) the Holders shall not be
in possession of material non-public information provided to them by the
Company or any of its Affiliates; and (ix) the Company otherwise shall
have been in material compliance with and shall not have materially breached
any provision, covenant, representation or warranty of any Transaction
Document.


 


(xx)                              “Excluded Securities” means Common Shares
issued or deemed to be issued by the Company, or Options: (A) in
connection with an Approved Share Plan or as consideration in an Approved
Acquisition and Common Shares that may be issued as part of an
earn-out pursuant to an Approved Acquisition (the “Earn-Out
Shares”); provided, however, that the Common Shares or
Earn-Out Shares issued or deemed issued as consideration in any such Approved Acquisition
must be issued for consideration no less than 85% of the arithmetic average of
the Weighted Average Price for the 5 Trading Days immediately prior to the
consummation of such Approved Acquisition or the issuance of the Earn-Out
Shares, as applicable, and the exercise price for any warrants is not less than
85% of the arithmetic average of the Weighted Average Price for the 5 Trading
Days immediately prior to the determination date of the exercise price; (B) upon
issuance of the shares of Series A Preferred Stock or upon conversion of
the shares of Series A Preferred Stock or upon exercise of the Warrants; (C) issued
upon exercise of Options or Convertible Securities which are outstanding on the
date immediately preceding the Subscription Date, provided that such issuance
of Common Shares upon exercise of such Options or Convertible Securities is
made pursuant to the terms of such Options or Convertible Securities in effect
on the date immediately preceding the Subscription Date and the exercise,
conversion or similar price and the number of shares underlying such Option or
Convertible Security are not amended or changed after the date immediately
proceeding the Subscription Date and the other material terms of such Options
or Convertible Securities are not otherwise amended or changed after the date
immediately preceding the Subscription Date; and (D) issued in connection with
any share split, share dividend, recapitalization or similar transaction by the
Company for which adjustment is made pursuant to Section 3(f)(ii).


 


(xxi)                           “Fundamental Transaction” means that (i) the Company shall,
directly or indirectly, in one or more related transactions, (A) consolidate
or merge with or into (whether or not the Company is the surviving corporation)
another Person, or (B) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to
another Person, or (C) allow another Person to make a purchase,
tender or exchange offer that is accepted by the holders of more than the 50%
of the outstanding Common Shares (not including any Common Shares held by
the Person or Persons making or party to, or


 


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associated
or affiliated with the Persons making or party to, such purchase, tender or
exchange offer), (D) consummate a share purchase agreement or other
business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another
Person whereby such other Person acquires more than the 50% of the
outstanding Common Shares (not including any Common Shares held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such share purchase agreement or other
business combination), or (E) reorganize, recapitalize or reclassify its Common
Shares or (ii) any “person” or “group” (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended), directly or indirectly,
of 50% of the issued and outstanding Common Stock or the aggregate ordinary
voting power represented by issued and outstanding Common Stock.


 


(xxii)                        “Hedging
Agreement” means any interest rate, foreign currency, commodity or
equity swap, collar, cap, floor or forward rate agreement, or other agreement
or arrangement designed to protect against fluctuations in interest rates or
currency, commodity or equity values (including, without limitation, any option
with respect to any of the foregoing and any combination of the foregoing
agreements or arrangements), and any confirmation executed in connection with
any such agreement or arrangement.


 


(xxiii)                     “Initial
Issuance Date” means March 20, 2006.


 


(xxiv)                    “Liquidation Event” means the voluntary or
involuntary liquidation, dissolution or winding up of the Company or such
Subsidiaries the assets of which constitute all or substantially all of the
business of the Company and its Subsidiaries taken as a whole, in a single
transaction or series of transactions.


 


(xxv)                       “Litmus Media Business” means (i) the business to be
acquired by the Company upon the consummation of the transactions contemplated
by the Agreement by and among the Company, Litmus Acquisition Sub, Inc.,
Litmus Media, Inc., John Linden and Tobias Teeter, dated as of February 17,
2006, as amended on March 17, 2006.


 


(xxvi)                    “Maturity Date” means, with respect to a Preferred Share, the
second anniversary of the Initial Issuance Date, unless extended pursuant to Section 3(d)(vii).


 


(xxvii)                 “N” means the number of days from, but
excluding, the last Dividend Date with respect to which dividends have been
paid by the Company on the applicable Preferred Share, or the Initial Issuance


 


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Date if no
Dividend Date has occurred, through and including the Conversion Date or other
date of determination for each share of Series A Preferred Stock, as the
case may be, for which such determination is being made.


 


(xxviii)              “NYSE” means The New York Stock Exchange, Inc.


 


(xxix)                      “Options” means any rights, warrants or
options to subscribe for or purchase Common Shares or Convertible Securities.


 


(xxx)                         “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable
Person and whose common shares or equivalent equity security are quoted
or listed on an Eligible Market,
or, if there is more than one such Person or Parent Entity, the Person or
Parent Entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.


 


(xxxi)                      “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.


 


(xxxii)                   “Principal Market” means The American Stock
Exchange.


 


(xxxiii)                “Registration Rights Agreement” means that
certain registration rights agreement by and among the Company and the initial
Holders of the Series A Preferred Stock relating to the filing of a
registration statement covering the resale of the Common Shares issuable upon
conversion of the Series A Preferred Stock and exercise of the Warrants,
as such agreement may be amended from time to time as provided in such
agreement.


 


(xxxiv)               “Required Holders” means the Holders of
shares of Series A Preferred Stock representing at least a majority of the
aggregate shares of Series A Preferred Stock then outstanding.


 


(xxxv)                  “SEC” means the Securities and Exchange Commission.


 


(xxxvi)               “Securities Purchase Agreement” means that
certain securities purchase agreement by and among the Company and the initial
Holders, dated as of the Subscription Date, as such agreement further may be
amended from time to time as provided in such agreement.


 


(xxxvii)            “Stated Value” means $1,000 (as subject to
adjustment is the case of any stock splits, stock combination or similar
recapitalization affecting the Preferred Shares).


 


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(xxxviii)         “Subscription Date” means March 20,
2006.


 


(xxxix)                 “Successor Entity” means the Person, which may be the Company, formed by, resulting
from or surviving any Fundamental Transaction or the Person with which such
Fundamental Transaction shall have been made, provided that if such Person is
not a publicly traded entity whose common shares or equivalent equity
security are quoted or listed for trading on an Eligible Market, Successor
Entity shall mean such Person’s Parent Entity.


 


(xl)                                “Trading Day” means any day on which the Common Shares are
traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Shares, then on the principal
securities exchange or securities market on which the Common Shares are then
traded; provided that “Trading Day” shall not include any day on which the
Common Shares are scheduled to trade on such exchange or market for less than
4.5 hours or any day that the Common Shares are suspended from trading during
the final hour of trading on such exchange or market (or if such exchange or
market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York
Time).


 


(xli)                             “Transaction Documents” means the Securities
Purchase Agreement, this Certificate of Designations, the Warrants, the
Registration Rights Agreement and the Irrevocable Transfer Agent Instructions
delivered in accordance with the Securities Purchase Agreement.


 


(xlii)                          “Warrants” means the warrants to purchase Common Shares
issued by the Company pursuant to the Securities Purchase Agreement, and shall
include all Warrants issued in exchange thereof or replacement thereof.


 


(xliii)                       “Weighted Average Price” means, for any
security as of any date, the dollar volume-weighted average price for such
security on the Principal Market during the period beginning at 9:30:01 a.m.,
New York City Time, and ending at 4:00:00 p.m., New York City Time, as
reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City
Time, and ending at 4:00:00 p.m., New York City Time, as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).
If the


 


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Weighted
Average Price cannot be calculated for such security on such date on any of the
foregoing bases, the Weighted Average Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Required
Holders. If the Company and the Required Holders are unable to agree upon the fair
market value of the security, then such dispute shall be resolved pursuant to Section 2(d)(iii) below
with the term “Weighted Average Price” being substituted for the term “Closing
Sale Price.” All such determinations shall be appropriately adjusted for any
share dividend, share split or other similar transaction during such period.


 


(b)                                 Holder’s
Conversion Right. Subject to the provisions of Section 6 and Section 14,
at any time or times on or after the Initial Issuance Date, any Holder shall be
entitled to convert any whole number of shares of Series A Preferred Stock
into fully paid and nonassessable Common Shares in accordance with Section 3(d) at
the Conversion Rate (as defined below); provided, that no Holder shall
be entitled to convert less than 50 shares of Series A Preferred Stock
unless such Holder owns less than such number of shares of Series A
Preferred Stock.


 


(c)                                  Conversion
Rate. The number of Common Shares issuable upon conversion of each
Preferred Share pursuant to Section 3(b) shall be determined
according to the following formula (the “Conversion
Rate”):


 


Conversion Amount


Conversion Price


 


No fractional shares of Common Stock are to be issued upon the
conversion of any Preferred Share, but rather the number of shares of Common
Stock to be issued shall be rounded to the nearest whole number.


 


(d)                                 Mechanics
of Conversion. The conversion of shares of Series A Preferred Stock
shall be conducted in the following manner:


 


(i)                                     Holder’s
Delivery Requirements. To convert shares of Series A Preferred Stock
into Common Shares on any date (the “Conversion
Date”), the Holder shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 p.m., New York City
Time, on such date, a copy of a properly completed notice of conversion
executed by the registered Holder of the shares of Series A Preferred
Stock subject to such conversion in the form attached hereto as Exhibit I
(the “Conversion Notice”) to the
Company and the Company’s transfer agent, Colonial Stock Transfer, (the “Transfer Agent”) and (B) if
required by Section 3(d)(viii), surrender to a common carrier for delivery
to the Company as soon as practicable following such date the original
certificates representing the shares of Series A Preferred Stock being


 


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converted (or
compliance with the procedures set forth in Section 15) (the “Preferred Share Certificates”).


 


(ii)                                  Company’s
Response. Upon receipt by the Company of copy of a Conversion Notice, the
Company shall as soon as practicable, but in any event within two (2) Business
Days, send, via facsimile, a confirmation of receipt of such Conversion Notice
to such Holder and the Transfer Agent, which confirmation shall constitute an
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein. On or before the fourth (4th)
Business Day following the date of receipt by the Company of such Conversion
Notice (the “Share Delivery Date”),
the Company shall (1) (A) provided the Transfer Agent is
participating in The Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program, credit such aggregate number of
Common Shares to which the Holder shall be entitled to the Holder’s or its
designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (B) if the Transfer Agent is not participating in
the DTC Fast Automated Securities Transfer Program, issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of Common Shares to which
the Holder shall be entitled and (2) pay
to such Holder in cash an amount equal to the any accrued but unpaid Dividends
per Preferred Share. If the number of shares of Series A Preferred
Stock represented by the Preferred Share Certificate(s) submitted for
conversion, as may be required pursuant to Section 3(d)(viii), is
greater than the number of shares of Series A Preferred Stock being
converted, then the Company shall, as soon as practicable and in no event later
than four (4) Business Days after receipt of the Preferred Share
Certificate(s) (the “Preferred Share Delivery
Date”) and at its own expense, cause the Transfer Agent to issue and
deliver to the Holder a new Preferred Share Certificate representing the number
of shares of Series A Preferred Stock not converted.


 


(iii)                               Dispute
Resolution. In the case of a dispute as to the determination of the Closing
Sale Price or the arithmetic calculation of the Conversion Rate, the Company
shall instruct the Transfer Agent to issue to the Holder the number of Common
Shares that is not disputed and shall transmit an explanation of the disputed
determinations or arithmetic calculations to the Holder via facsimile within
one (1) Business Day of receipt of such Holder’s Conversion Notice or
other date of determination. If such Holder and the Company are unable to agree
upon the determination of the Closing Sale Price or arithmetic calculation of
the Conversion Rate within two (2) Business Days of such disputed
determination or arithmetic calculation being transmitted to the Holder, then
the Company shall within one (1) Business Day submit via facsimile (A) the
disputed determination of the Closing Sale Price to an independent, reputable
investment bank selected by the Company and


 


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approved by
the Required Holders or (B) the disputed arithmetic calculation of the
Conversion Rate to the Company’s independent, outside accountant. The Company
shall cause, at the Company’s expense, the investment bank or the accountant,
as the case may be, to perform the determinations or calculations and
notify the Company and the Holders of the results no later than two (2) Business
Days from the time it receives the disputed determinations or calculations. Such
investment bank’s or accountant’s determination or calculation, as the case may be,
shall be binding upon all parties absent error.


 


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


 


(v)                                 Company’s
Failure to Timely Convert.


 


(A)                              Cash
Damages. If (I) within four (4) Trading Days after the Company’s
receipt of the facsimile copy of a Conversion Notice the Company shall fail to
credit a Holder’s balance account with DTC or issue and deliver a certificate
to such Holder for the number of Common Shares to which such Holder is entitled
upon such Holder’s conversion of shares of Series A Preferred Stock (a “Conversion Failure”) or (II) within four (4) Trading
Days of the Company’s receipt of a Preferred Share Certificate the Company
shall fail to issue and deliver a new Preferred Share Certificate representing
the number of shares of Series A Preferred Stock to which such Holder is
entitled pursuant to Section 3(d)(ii), then in addition to all other
available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 9(k)
thereof), the Company shall pay additional damages to such Holder for each day
after the Share Delivery Date that such conversion is not timely effected
and/or each day after the Preferred Share Delivery Date that each share of Series A
Preferred Stock Certificate is not delivered in an amount equal to 1.0% of the
product of (I) the sum of the number of Common Shares not issued to the
Holder on or prior to the Share Delivery Date and to which such Holder is
entitled as set forth in the applicable Conversion Notice and, in the event the
Company has failed to deliver a Preferred Share Certificate to the Holder on or
prior to the Preferred Share Delivery Date, the number of Common Shares
issuable upon conversion of the shares of Series A Preferred Stock
represented by each share of Series A Preferred Stock Certificate as of
the Preferred Share Delivery Date and (II) the Closing Sale Price of the Common
Shares on the Share Delivery Date, in the case of the failure to deliver Common
Shares, or the Preferred Share Delivery


 


12





















 


Date, in the case of failure to
deliver a Preferred Share Certificate. Notwithstanding anything contained
herein, in no event shall the sum of all of the following exceed ten percent
(10%) of the aggregate Purchase Price (as defined in Section 1(c) of
the Securities Purchase Agreement): (A) the aggregate cash damages for a
Conversion Failure; (B) at the date of the payment of any Redemption
Price, the difference between (i) the aggregate Redemption Price and (ii) the
sum of (x) the aggregate Stated Value on such date and (y) all accrued but
unpaid Dividends on such date; (C) the difference between (i) the
amount of all Dividends paid during all Triggering Periods and (ii) the
amount of Dividends that would have been paid during all Triggering Periods had
the Dividend Rate not increased during the Triggering Periods to the Triggering
Period Dividend Rate; (D) the aggregate cash damages paid pursuant to Section 1(c) of
the Warrants, and (E) the aggregate Registration Delay Payments (as
defined in Section 2(f) of the Registration Rights Agreement).
The preceding sentence shall be referred to in the Transaction Documents as the
“Limitation on Damages.”  If the Company fails to pay the additional
damages set forth in this Section 3(d)(v) within five (5) Business
Days of the date incurred, then the Holder entitled to such payments shall have
the right at any time, so long as the Company continues to fail to make such
payments, to require the Company, upon written notice, to immediately issue, in
lieu of such cash damages, the number of Common Shares equal to the quotient of
(X) the aggregate amount of the damages payments described herein divided by
(Y) the Conversion Price in effect on such Conversion Date as specified by the
Holder in the Conversion Notice. In addition to the foregoing, if within three (3) Business
Days after the Company’s receipt of the facsimile copy of a Conversion Notice
the Company shall fail to issue and deliver a certificate to a Holder or credit
such Holder’s balance account with DTC for the number of Common Shares to which
such Holder is entitled upon such Holder’s conversion of shares of Series A
Preferred Stock, and if on or after such Business Day the Holder purchases (in
an open market transaction or otherwise) Common Shares to deliver in
satisfaction of a sale by the Holder of the Common Shares issuable upon such
conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
Common Shares so purchased (the “Buy-In Price”),
at which point the Company’s obligation to


 


13





















 


deliver such certificate (and
to issue such Common Shares) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such Common Shares and pay cash to the Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) such number of Common
Shares, times (B) the Closing Sale Price on the Conversion Date.


 


(B)                                Void
Conversion Notice; Adjustment of Conversion Price. If for any reason a
Holder has not received all of the Common Shares to which such Holder is
entitled prior to the fifth (5th) Business Day after the Share
Delivery Date with respect to a conversion of shares of Series A Preferred
Stock, then the Holder, upon written notice to the Company, with a copy to the
Transfer Agent, may void its Conversion Notice with respect to, and retain
or have returned, as the case may be, any shares of Series A
Preferred Stock that have not been converted pursuant to such Holder’s
Conversion Notice; provided that the voiding of a Holder’s Conversion Notice
shall not effect the Company’s obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 3(d)(v)(A) or
otherwise. Thereafter, the Conversion Price of any shares of Series A
Preferred Stock returned or retained by the Holder for failure to timely
convert shall be adjusted to the lesser of (I) the Conversion Price relating to
the voided Conversion Notice and (II) the lowest Weighted Average Price of the
Common Shares during the period beginning on the Conversion Date and ending on the
date such Holder voided the Conversion Notice, subject to further adjustment as
provided in this Certificate of Designations.


 


(vi)                              Pro Rata Conversion; Disputes. Subject to Section 14, in
the event the Company receives a Conversion Notice from more than one Holder
for the same Conversion Date and the Company can convert some, but not all, of
such shares of Series A Preferred Stock, the Company shall convert from
each Holder electing to have shares of Series A Preferred Stock converted
at such time a pro rata amount of such Holder’s shares of Series A
Preferred Stock submitted for conversion based on the number of shares of Series A
Preferred Stock submitted for conversion on such date by such Holder relative
to the number of shares of Series A Preferred Stock submitted for
conversion on such date. In the event of a dispute as to the number of Common
Shares issuable to a Holder in connection with a conversion of shares of Series A
Preferred Stock, the Company shall issue to such Holder the number of Common Shares
not in dispute and resolve such dispute in accordance with Section 3(d)(iii).


 


(vii)                           Mandatory
Redemption at Maturity. If any shares of Series A Preferred Stock
remains outstanding on the Maturity Date, the Company shall redeem such shares
of Series A Preferred Stock in cash in an amount equal to the outstanding
Conversion Amount for such shares of


 


14





















 


Series A
Preferred Stock plus any accrued but unpaid Dividends per Preferred Share
outstanding (the “Maturity Date Redemption
Price”). The Company shall pay the Maturity Date Redemption Price on
the Maturity Date by wire transfer of immediately available funds to an account
designated in writing by such Holder. If the Company fails to redeem all of the
Preferred Shares outstanding on the Maturity Date by payment of the Maturity
Date Redemption Price for each such Preferred Share, then in addition to any
remedy such Holder may have under any Transaction Document, (I) the
applicable Maturity Date Redemption Price payable in respect of such unredeemed
Preferred Shares shall bear interest at the rate of 1.5% per month, prorated
for partial months, until paid in full, and (II) any Holder shall have the
option to require the Company to convert any or all of such Holder’s Preferred
Shares and for which the Maturity Date Redemption Price (together with any
interest thereon) has not been paid into (on a per Preferred Share basis)
shares of Common Stock equal to the number which results from dividing the
Maturity Date Redemption Price (together with any interest thereon) by the
Conversion Price. If the Company has failed to pay the Maturity Date Redemption
Price in a timely manner as described above, then the Maturity Date shall be
automatically extended for any Preferred Shares until the date the Holders
receive such shares of Common Stock or Maturity Date Redemption Price and shall
be further extended for any Preferred Shares for as long as (A) the
conversion of such Preferred Shares would violate the provisions of Section 5
or (B) a Triggering Event or an event that with the passage of time or
giving of notice would constitute a Triggering Event shall have occurred and be
continuing or (C) the Equity Conditions have not been satisfied (as
indicated in a notice from the Company to the Holders delivered thirty (30)
Trading Days prior to the Maturity Date) or waived by the applicable Holder. All
redemptions shall be made on a pro-rata basis to all holders of outstanding
Preferred Shares.


 


(viii)                        Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of
shares of Series A Preferred Stock in accordance with the terms hereof,
any Holder thereof shall not be required to physically surrender the
certificate representing the shares of Series A Preferred Stock to the
Company unless (A) the full or remaining number of shares of Series A
Preferred Stock represented by the certificate are being converted or (B) such
Holder has provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting reissuance of shares of Series A
Preferred Stock upon physical surrender of any shares of Series A
Preferred Stock. The Holders and the Company shall maintain records showing the
number of shares of Series A Preferred Stock so converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to the
Holders and the Company, so as not to require physical surrender of the
certificate representing the shares of Series A Preferred Stock upon each
such conversion. In the event of any dispute or discrepancy, such records of
the


 


15





















 


Company
establishing the number of shares of Series A Preferred Stock to which the
record holder is entitled shall be controlling and determinative in the absence
of manifest error. Notwithstanding the foregoing, if shares of Series A
Preferred Stock represented by a certificate are converted as aforesaid, a
Holder may not transfer the certificate representing the shares of Series A
Preferred Stock unless such Holder first physically surrenders the certificate
representing the shares of Series A Preferred Stock to the Company,
whereupon the Company will forthwith issue and deliver upon the order of such
Holder a new certificate of like tenor, registered as such Holder may request,
representing in the aggregate the remaining number of shares of Series A
Preferred Stock represented by such certificate. A Holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any shares of Series A
Preferred Stock, the number of shares of Series A Preferred Stock
represented by such certificate may be less than the number of shares of Series A
Preferred Stock stated on the face thereof. Each certificate for shares of Series A
Preferred Stock shall bear the following legend:


 


ANY TRANSFEREE
OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE COMPANY’S
CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE, INCLUDING SECTION 2(d)(viii) THEREOF. THE NUMBER OF
PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE
NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION 2(d)(viii) OF
THE CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE.


 


(e)                                  Taxes.
The Company shall pay any and all documentary, stamp, transfer (but only in
respect of the registered holder thereof) and other similar taxes that may be
payable with respect to the issuance and delivery of Common Shares upon the
conversion of shares of Series A Preferred Stock.


 


(f)                                    Adjustments
to Conversion Price. The Conversion Price will be subject to adjustment
from time to time as provided in this Section 3(f).


 


(i)                                     Adjustment
of Conversion Price upon Issuance of Common Shares. If and whenever on or
after the Subscription Date, the Company issues or sells, or in accordance with
this Section 3(f) is deemed to have issued or sold, any Common Shares
(including the issuance or sale of


 


16





















 


Common Shares
owned or held by or for the account of the Company but excluding Excluded
Securities) for a consideration per share (the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Conversion
Price in effect immediately prior to such time (a “Dilutive Issuance”), then immediately after such issue or
sale, the Conversion Price then in effect shall be reduced to an amount equal to
the New Issuance Price. For purposes of determining the adjusted Conversion
Price under this Section 3(f)(i), the following shall be applicable:


 


(A)                              Issuance
of Options. If the Company in any manner grants or sells any Options (other
than Options which are Excluded Securities) and the lowest price per share for
which one Common Share is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Applicable Price, then such Common
Share shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 3(f)(i)(A), the “lowest price per
share for which one Common Share is issuable upon the exercise of any such
Option or upon conversion, exchange or exercise of any Convertible Securities
issuable upon exercise of such Option” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one Common Share upon granting or sale of the Option, upon
exercise of the Option and upon conversion, exchange or exercise of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Shares or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Shares upon conversion, exchange
or exercise of such Convertible Securities.


 


(B)                                Issuance
of Convertible Securities. If the Company in any manner issues or sells any
Convertible Securities (other than Convertible Securities which are Excluded
Securities) and the lowest price per share for which one Common Share is
issuable upon such conversion, exchange or exercise thereof is less than the
Applicable Price, then such Common Share shall be deemed to be outstanding and
to have been issued and sold by the Company at the time of the issuance of sale
of such Convertible Securities for such price per share. For the purposes of
this Section 3(f)(i)(B), the “lowest price per share for which one Common
Share is issuable upon such conversion, exchange or exercise” shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one Common Share upon the issuance or sale
of the Convertible


 


17





















 


Security and upon the
conversion, exchange or exercise of such Convertible Security. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Shares upon conversion, exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the Conversion Price
had been or are to be made pursuant to other provisions of this Section 3(f)(i),
no further adjustment of the Conversion Price shall be made by reason of such
issue or sale.


 


(C)                                Change
in Option Price or Rate of Conversion. If the purchase or exercise price
provided for in any Options (other than Options which are Excluded Securities),
the additional consideration, if any, payable upon the issue, conversion,
exchange or exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or exercisable for
Common Shares changes at any time, the Conversion Price in effect at the time
of such change shall be adjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities provided for
such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 3(f)(i)(C), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of the
shares of Series A Preferred Stock are changed in the manner described in
the immediately preceding sentence, then such Option or Convertible Security
and the Common Shares deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such change. No
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.


 


(D)                               Calculation
of Consideration Received. In case any Option (other than Options which are
Excluded Securities) is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of $0.01.
If any Common Shares, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the gross amount received by the Company therefor.
If any Common Shares, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of the consideration other than
cash received by the Company will be


 


18





















 


the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the arithmetic average of the Closing Sale Prices of such securities
during the ten (10) consecutive Trading Days ending on the date of receipt
of such securities. The fair value of any consideration other than cash or marketable
securities will be determined jointly by the Company and the Required Holders. If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth (10th)
day following the Valuation Event by an independent, reputable appraiser
selected by the Company and the Required Holders. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and
the fees and expenses of such appraiser shall be borne by the Company.


 


(E)                                 Record
Date. If the Company takes a record of the holders of Common Shares for the
purpose of entitling them (I) to receive a dividend or other distribution
payable in Common Shares, Options or Convertible Securities or (II) to
subscribe for or purchase Common Shares, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue or sale of the
Common Shares deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting
of such right of subscription or purchase, as the case may be.


 


(ii)                                  Floor
Price. No adjustment pursuant to Section 3(f) shall cause the
Conversion Price to be less than $2.00, as adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction.


 


(iii)                               Adjustment
of Conversion Price upon Subdivision or Combination of Common Shares. If
the Company at any time after the Subscription Date subdivides (by any share
split, share dividend, recapitalization or otherwise) its outstanding Common
Shares into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time combines (by combination, reverse share split or otherwise)
its outstanding Common Shares into a smaller number of shares and the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.


 


(iv)                              Other
Events. If any event occurs of the type contemplated by the provisions of
this Section 3(f) but not expressly provided for by such provisions
(including, without limitation, the


 


19





















 


granting of
share appreciation rights, phantom share rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the Holders;
provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 3(f).


 


(v)                                 Notices.


 


(A)                              Immediately
upon any adjustment of the Conversion Price pursuant to this Section 3(f),
the Company will give written notice thereof to each Holder, setting forth in
reasonable detail, and certifying, the calculation of such adjustment. In the
case of a dispute as to the determination of such adjustment, then such dispute
shall be resolved in accordance with the procedures set forth in Section 3(d)(iii).


 


(B)                                The
Company will give written notice to each Holder at least ten (10) Business
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 Shares, (II)
with respect to any pro rata subscription offer to holders of Common Shares or
(III) for determining rights to vote with respect to any Fundamental
Transaction or Liquidation Event, provided that such information shall be made
known to the public prior to or in conjunction with such notice being provided
to such Holder.


 


(C)                                The
Company will also give written notice to each Holder no later than (i) ten
(10) Business Days prior to the date on which any Fundamental Transaction
or Liquidation Event will take place and (ii) the date upon which such
Fundamental Transaction or Liquidation Event is announced to the public; provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such Holder.


 


(4)                                  Redemption at
Option of Holders.


 


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


 


(i)                                     the
failure of the applicable Registration Statement to be declared effective by
the SEC on or prior to the date that is sixty (60) days after the applicable
Effectiveness Deadline (as defined in the Registration Rights Agreement);


 


(ii)                                  while
the Registration Statement is required to be maintained effective pursuant to
the terms of the Registration Rights Agreement, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation,
the issuance of a stop order) or is


 


20





















 


unavailable to
the Holder for sale of all of the Registrable Securities in accordance with the
terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five (5) consecutive Trading Days or for more
than an aggregate of ten (10) days in any 365-day period (excluding days
during an Allowable Grace Period (as defined in the Registration Rights
Agreement));


 


(iii)                               the
suspension from trading or failure of the Common Shares to be listed on an
Eligible Market for a period of five (5) consecutive Trading Days or for
more than an aggregate of ten (10) Trading Days in any 365-day period;


 


(iv)                              the
Company’s (A) failure to cure a Conversion Failure by delivery of the
required number of Common Shares within ten (10) Trading Days after the
applicable Conversion Date or (B) notice, written or oral, to any Holder,
including by way of public announcement or through any of its agents, at any
time, of its intention not to comply, as required, with a request for
conversion of any shares of Series A Preferred Stock into Common Shares
that is tendered in accordance with the provisions of this Certificate of
Designations;


 


(v)                                 at
any time following the tenth (10th) consecutive Business Day that a
Holder’s Authorized Share Allocation is less than the number of Common Shares
that such Holder would be entitled to receive upon a conversion of the full
Conversion Amount of the shares of Series A Preferred Stock (without
regard to any limitations on conversion set forth in Section 6 or
otherwise);


 


(vi)                              the
Company’s failure to pay to the Holder any amounts when and as due pursuant to
this Certificate of Designations or any other Transaction Document (as defined
in the Securities Purchase Agreement);


 


(vii)                           the entry by a court having jurisdiction in
the premises of (i) a decree or order for relief in respect of the Company
or any Subsidiary of a voluntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or
(ii) a decree or order adjudging the Company or any Subsidiary as bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Subsidiary under any applicable Federal or State law or (iii) appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days;


 


21





















 


(viii)                        the commencement by the Company or any
Subsidiary of a voluntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect of the
Company or any Subsidiary in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or State law, or
the consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Company or any Subsidiary in furtherance of any such
action; or


 


(ix)                                the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document, except, in the case of a breach of a
covenant which is curable, only if such breach remains uncured for a period of
at least five (5) Business Days.


 


(b)                                 Redemption
Option Upon Triggering Event. In addition to all other rights of the
Holders contained herein, after a Triggering Event, each Holder shall have the
right, at such Holder’s option, subject to the Limitation on Damages, to
require the Company to redeem all or a portion of such Holder’s shares of Series A
Preferred Stock at a price per Preferred Share equal to the greater of 110% of
(x) the Conversion Amount and (y) the product of (A) the Conversion Rate
in effect at such time as such Holder delivers a Notice of Redemption at Option
of Holder (as defined below) and (B) the Closing Sale Price of the Common
Shares on the Trading Day immediately preceding such Triggering Event, in the
case of each of clauses (x) and (y) above, plus any accrued but unpaid
Dividends per Preferred Share (the “Redemption
Price”).


 


(c)                                  Mechanics
of Redemption at Option of Buyer. Within one (1) Business Day after
the occurrence of a qualifying Triggering Event, the Company shall deliver
written notice thereof via facsimile and overnight courier (“Notice of Triggering Event”) to each Holder.
At any time after the earlier of a Holder’s receipt of a Notice of Triggering
Event and such Holder becoming aware of a Triggering Event, any Holder of
shares of Series A Preferred Stock then outstanding may require the
Company to redeem up to all of such Holder’s shares of Series A Preferred
Stock by delivering written notice thereof via facsimile and overnight courier
(“Notice of Redemption at Option of Holder”)
to the Company, which Notice of Redemption at Option of Holder shall indicate
the


 


22





















 


number of shares of Series A
Preferred Stock that such Holder is electing to redeem.


 


(d)                                 Payment
of Redemption Price. Upon the Company’s receipt of a Notice(s) of
Redemption at Option of Holder from any Holder, the Company shall immediately
notify each Holder by facsimile of the Company’s receipt of such notice(s). The
Company shall deliver on the fifth (5th) Business Day after the
Company’s receipt of the first Notice of Redemption at Option of Holder the
applicable Redemption Price to all Holders that deliver a Notice of Redemption
at Option of Holder prior to the fifth (5th) Business Day after the
Company’s receipt of the first Notice of Redemption at Option of Holder;
provided that, if required by Section 3(d)(viii), a Holder’s Preferred
Share Certificates shall have been delivered to the Transfer Agent. To the
extent redemptions required by this Section 4 are deemed or determined by
a court of competent jurisdiction to be prepayments of the shares of Series A
Preferred Stock by the Company, such redemptions shall be deemed to be
voluntary prepayments. If the Company is unable to redeem all of the shares of Series A
Preferred Stock submitted for redemption, the Company shall (i) redeem a
pro rata amount from each Holder based on the number of shares of Series A
Preferred Stock submitted for redemption by such Holder relative to the total
number of shares of Series A Preferred Stock submitted for redemption by
all Holders and (ii) in addition to any remedy such Holder may have
under this Certificate of Designation and the Securities Purchase Agreement,
pay to each Holder interest at the rate of 3.0% per month (prorated for partial
months) in respect of each unredeemed Preferred Share until paid in full. The
Holders and Company agree that in the event of the Company’s redemption of any
shares of Series A Preferred Stock under this Section 4, the Holders’
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holders. Accordingly,
any redemption premium due under this Section 4 is intended by the parties
to be, and shall be deemed, a reasonable estimate of the Holders’ actual loss
of its investment opportunity and not as a penalty.


 


(e)                                  Void
Redemption. In the event that the Company does not pay the Redemption Price
within the time period set forth in Section 4(d), at any time thereafter
and until the Company pays such unpaid applicable Redemption Price in full, a
Holder shall have the option to, in lieu of redemption, require the Company to
promptly return to such Holder any or all of the shares of Series A
Preferred Stock that were submitted for redemption by such Holder under this Section 4
and for which the applicable Redemption Price (together with any interest
thereon) 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, (i) the Notice of Redemption at Option of Holder shall
be null and void with respect to those shares of Series A Preferred Stock
subject to the Void Optional Redemption Notice, (ii) the Company shall
immediately return any shares of Series A Preferred Stock subject to the
Void Optional Redemption Notice, and (iii) the


 


23





















 


Conversion Price of such
returned shares of Series A Preferred Stock shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the
Void Optional Redemption Notice is delivered to the Company and (B) the
lowest Weighted Average Price of the Common Shares during the period beginning
on the date on which the Notice of Redemption at Option of Holder is delivered
to the Company and ending on the date on which the Void Optional Redemption
Notice is delivered to the Company.


 


(f)                                    Disputes;
Miscellaneous. In the event of a dispute as to the determination of the
arithmetic calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section 3(d)(iii) above with the term “Redemption Price”
being substituted for the term “Conversion Rate”. A Holder’s delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company’s obligations to make any payments which have
accrued prior to the date of such notice. In the event of a redemption pursuant
to this Section 4 of less than all of the shares of Series A
Preferred Stock represented by a particular Preferred Share Certificate, the
Company shall promptly cause to be issued and delivered to the Holder of such
shares of Series A Preferred Stock a Preferred Share Certificate
representing the remaining shares of Series A Preferred Stock which have
not been redeemed, if necessary.


 


(5)                                  Other Rights of
Holders.


 


(a)                                  Assumption.
The Company shall not enter
into or be party to a Fundamental Transaction unless (i)  the Successor
Entity assumes in writing all of the obligations of the Company under this
Certificate of Designations and the other Transaction Documents in accordance with
the provisions of this Section 5(a) pursuant to written agreements in
form and substance satisfactory to the Required Holders and approved by
the Required Holders prior to such Fundamental Transaction and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose
common shares are quoted on or listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Certificate of Designations referring to
the “Company” shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the obligations of
the Company under this Certificate of Designations with the same effect as if
such Successor Entity had been named as the Company herein. Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon conversion or
redemption of the shares of Series A Preferred Stock at any time after the
consummation of the Fundamental Transaction, in lieu of the Common Shares (or
other securities, cash, assets or other property) purchasable upon the
conversion or redemption of the shares of Series A Preferred Stock prior
to such Fundamental Transaction, such publicly traded common shares (or their
equivalent) of the Successor Entity, as adjusted in accordance with the
provisions of this Certificate of Designations. The provisions of this Section shall
apply


 


24





















 


similarly and equally to
successive Fundamental Transactions and shall be applied without regard to any
limitations on the conversion or redemption of the shares of Series A
Preferred Stock.


 


(b)                                 Purchase
Rights. If at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase shares, warrants, securities or
other property pro rata to the record holders of any class of Common
Shares (the “Purchase Rights”),
then the Holders will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of Common Shares acquirable upon
complete conversion of the shares of Series A Preferred Stock (without
taking into account any limitations or restrictions on the convertibility of
the shares of Series A Preferred Stock) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Shares are to be determined for the grant, issue or sale of such
Purchase Rights.


 


(6)                                  Limitation on
Beneficial Ownership. The Company shall not effect and shall have no
obligation to effect any conversion of shares of Series A Preferred Stock,
and no Holder shall have the right to convert any shares of Series A
Preferred Stock, to the extent that after giving effect to such conversion, the
beneficial owner of such shares (together with such Person’s affiliates) would
have acquired, through conversion of shares of Series A Preferred Stock or
otherwise, beneficial ownership of a number of Common Shares that exceeds 4.99%
(“Maximum Percentage”) of the
number of Common Shares outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of Common Shares
beneficially owned by a Person and its affiliates shall include the number of
Common Shares issuable upon conversion of the shares of Series A Preferred
Stock with respect to which the determination of such sentence is being made,
but shall exclude the number of Common Shares which would be issuable upon (A) conversion
of the remaining, nonconverted shares of Series A Preferred Stock
beneficially owned by such Person or any of its affiliates and (B) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by such Person or any of its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 6,
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended. For purposes of this Section 6,
in determining the number of outstanding Common Shares, a Holder may rely
on the number of outstanding Common Shares as reflected in (1) the Company’s
most recent Form 8-K, Form 10-Q, Form 10-QSB, Form 10-K or Form 10-KSB
as the case may be, (2) a more recent public announcement by the
Company, or (3) any other notice by the Company or its Transfer Agent
setting forth the number of Common Shares outstanding. Upon the written request
of any Holder, the Company shall promptly, but in no event later than one (1)


 


25





















 


Business Day following the receipt of such
notice, confirm orally and in writing to any such Holder the number of Common
Shares then outstanding. In any case, the number of outstanding Common Shares
shall be determined after giving effect to conversions of shares of Series A
Preferred Stock by such Holder and its affiliates since the date as of which
such number of outstanding Common Shares was reported. By written notice to the
Company, the Holder may increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase will not be effective until the sixty-first (61st)
day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder and not to any other Holder.


 


(7)                                  Authorized Shares.


 


(a)                                  Reservation.
The Company shall have sufficient authorized and unissued Common Shares for
each of the shares of Series A Preferred Stock equal to the sum of (i) the
maximum number of Common Shares necessary to effect the conversion at the
Conversion Rate with respect to the Conversion Amount of each share of Series A
Preferred Stock as of the Initial Issuance Date and (ii) the maximum number
of Common Shares necessary to effect the exercise of all of the Warrants
(assuming for purposes hereof that the Exercise Price (as defined in the
Warrants) is equal to $2.00, subject to adjustment for stock splits and stock
dividends). So long as any of the shares of Series A Preferred Stock are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Shares, solely for the
purpose of effecting the conversion of the shares of Series A Preferred
Stock, the number of Common Shares as shall from time to time be necessary to
effect the conversion of all of the shares of Series A Preferred Stock
then outstanding; provided, that at no time shall the number of Common
Shares so available be less than the number of shares required to be reserved
by the previous sentence (without regard to any limitations on conversions)
(the “Required Amount”). The initial number
of shares of Common Shares reserved for conversions of the shares of Series A
Preferred Stock and each increase in the number of shares so reserved shall be
allocated pro rata among the Holders based on the number of shares of Series A
Preferred Stock held by each Holder at the time of issuance of the shares of Series A
Preferred Stock or increase in the number of reserved shares, as the case may be
(the “Authorized Share Allocation”).
In the event a Holder shall sell or otherwise transfer any of such Holder’s
shares of Series A Preferred Stock, each transferee shall be allocated a
pro rata portion of the number of reserved Common Shares reserved for such
transferor. Any Common Shares reserved and allocated to any Person which ceases
to hold any shares of Series A Preferred Stock shall be allocated to the
remaining Holders of shares of Series A Preferred Stock, pro rata based on
the number of shares of Series A Preferred Stock then held by such
Holders.


 


(b)                                 Insufficient
Authorized Shares. If at any time while any of the shares of Series A
Preferred Stock remain outstanding the Company does not


 


26





















 


have a sufficient number of
authorized and unissued Common Shares to satisfy its obligation to have
available for issuance upon conversion of the shares of Series A Preferred
Stock at least a number of Common Shares equal to the Required Amount (an “Authorized Share Failure”), then the Company shall as
promptly as practicable take all action necessary to increase the Company’s
authorized Common Shares to an amount sufficient to allow the Company to have
available the Required Amount for the shares of Series A Preferred Stock
then outstanding.


 


(8)                                  Voting Rights.
Holders of shares of Series A Preferred Stock shall have no voting rights,
except as required by law, including but not limited to the Nevada Revised
Statutes (“NRS”), and as expressly provided in
this Certificate of Designations.


 


To the extent that under the NRS the vote of
the holders of the Series A Preferred Stock, voting separately as a class or
series as applicable, is required to authorize a given action of the
Company, the affirmative vote or consent of the holders of at least a majority
of the shares of the Series A Preferred Stock, voting together in the
aggregate and not in separate series unless required under the NRS,
represented at a duly held meeting at which a quorum is presented or by written
consent of a majority of the shares of Series A Preferred Stock (except as
otherwise may be required under the NRS), voting together in the aggregate
and not in separate series unless required under the NRS, shall constitute
the approval of such action by both the class or the series, as applicable.
Subject to Section 6 and the Maximum Percentage, to the extent that under
the NRS holders of the Series A Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share
of Series A Preferred Stock shall entitle the holder thereof to cast that
a number of votes per share as is equal to the number of shares of Common Stock
into which it is then convertible (subject to the ownership limitations specified
in Section 6 hereof) using the recorded date for determining the
stockholders of the Company eligible to vote on such matters as the date as of
which the Conversion Price is calculated. Holders of the Series A
Preferred Stock shall be entitled to written notice of all stockholder meetings
or written consents (and copies of proxy materials and other information sent
to stockholders) with respect to which they would be entitled by vote, which
notice would be provided pursuant to the Company’s bylaws and the NRS).


 


(9)                                  Change of Control
Redemption Right. No sooner than fifteen (15) days nor later than ten (10) days
prior to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holders (a “Change of Control Notice”); provided, that with respect
to a Fundamental Transaction whereby the Company shall consolidate or merge
with or into another Person whereby the Company is the surviving entity and in
which holders of the Company’s voting power immediately prior to such
consolidation or merger continue after such consolidation or merger to hold
publicly traded securities and, 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, then, notwithstanding the foregoing, the Change of
Control Notice shall not be required to be delivered prior to the public
announcement of such Change of Control. At any time during the period (the “Change of Control Period”) beginning after
a Holder’s receipt of a Change of Control Notice and ending on the date that is
twenty (20) Trading Days after the consummation of such Change of Control, such
Holder may require the Company to redeem all


 


27





















 


or any portion of such Holder’s shares of Series A Preferred Stock
by delivering written notice thereof (“Change of Control Redemption Notice”) to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to redeem. Any shares of Series A
Preferred Stock subject to redemption pursuant to this Section 9 shall be
redeemed by the Company in cash at a price equal to 110% of the greater of (i) the
product of (x) the sum of the Conversion Amount being redeemed together with
any accrued but unpaid Dividends per Preferred Share and (y) the quotient
determined by dividing (A) the greater of (I) the Closing Sale Price of
the Common Shares immediately following the public announcement of such
proposed Change of Control, (II) the Closing Sale Price of the Common Shares
immediately prior to the announcement of such proposed Change of Control and
(III) the Closing Sale Price immediately prior to the consummation of such
proposed Change of Control by (B) the Conversion Price and (ii) the
sum of the Conversion Amount being redeemed together with any accrued but
unpaid Dividends per Preferred Share (the “Change
of Control Redemption Price”). The Company shall make payment of the
Change of Control Redemption Price concurrently with the consummation of such
Change of Control if such a Change of Control Redemption Notice is received
prior to the consummation of such Change of Control and within five (5) Trading
Days after the Company’s receipt of such notice otherwise (the “Change of Control Redemption Date”). To the extent
redemptions required by this Section 9 are deemed or determined by a court
of competent jurisdiction to be prepayments of the shares of Series A
Preferred Stock by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in this Section 9,
until the Change of Control Redemption Price (together with any interest
thereon) is paid in full, the Conversion Amount submitted for redemption under
this Section 9 may be converted, in whole or in part, by the Holder
into Common Shares, or in the event the Conversion Date is after the
consummation of the Change of Control, shares or equity interests of the
Successor Entity substantially equivalent to the Company’s Common Shares
pursuant to Section 3(c)(i). The parties hereto agree that in the event of
the Company’s redemption of any portion of the Preferred Shares under this Section 9,
the Holder’s damages would be uncertain and difficult to estimate because of
the parties’ inability to predict future interest rates and the uncertainty of
the availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any redemption premium due under this Section 9 is intended
by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty. In the event
that the Company does not pay the Change of Control Redemption Price on the
Change of Control Redemption Date, then the Holder shall have the right to void
the redemption pursuant to Section 4(e) with the term “Change of
Control Redemption Price” being substituted for “Redemption Price” and “Change
of Control Redemption Notice” being substituted for “Notice of Redemption at
Option of Holder”.


 


(10)                            Company’s Right of
Mandatory Conversion


 


(a)                                  Mandatory
Conversion. If at any time from and after the Effective Date (the “Mandatory Conversion Eligibility Date”), (i) (A) the
Weighted Average Price of the Common Stock equals or exceeds $5.00 (subject to
appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Subscription Date) for each of any
twenty (20) consecutive Trading Days following the Mandatory Conversion
Eligibility Date (the “Mandatory Conversion
Measuring Period”) and (B) the average daily trading volume on
the Principal Market during such Mandatory Conversion Measuring Period


 


28





















 


exceeds 100,000
shares (a “Mandatory Conversion Liquidity Event”)
and (ii) the Equity Conditions shall have been satisfied or waived in
writing by the Holder on each day during the period commencing on the Mandatory
Conversion Notice Date and ending on the Mandatory Conversion Date (each, as
defined below) the Company shall have the right to require the Holder to convert
up to all of the Conversion Amount plus the amount of any accrued but unpaid
Dividends per Preferred Share then remaining into fully paid, validly issued
and nonassessable shares of Common Stock in accordance with Section 4(c) hereof
at the Conversion Rate as of the Mandatory Conversion Date (as defined below)
(a “Mandatory Conversion”). Subject to the
last sentence of this Section 10(a), the Company may exercise
its right to require conversion under this Section 10(a) on
one occasion by delivering with respect to a Mandatory Conversion Liquidity
Event, within not more than two (2) Trading Days following the end of such
Mandatory Conversion Measuring Period, a written notice thereof by facsimile
and overnight courier to all, but not less than all, of the holders of shares
of Series A Preferred Stock and the Transfer Agent (the “Mandatory Conversion Notice” and the date all of the
holders received such notice by facsimile is referred to as the “Mandatory Conversion Notice Date”). The Mandatory Conversion
Notice shall be irrevocable. The Mandatory Conversion Notice shall state (i) the
Trading Day selected for the Mandatory Conversion in accordance with Section 10(a),
which Trading Day shall be at least twenty (20) Business Days but not more than
sixty (60) Business Days following the Mandatory Conversion Notice Date (the “Mandatory Conversion Date”), (ii) the
number of shares of Series A Preferred Stock of such Holder subject to the
Mandatory Conversion (iii) the aggregate Conversion Amount of the shares
of Series A Preferred Stock subject to Mandatory Conversion from all of
the holders of the shares of Series A Preferred Stock pursuant to this Section 10
and (iv) the number of shares of Common Stock to be issued to such Holder
on the Mandatory Conversion Date. Notwithstanding the foregoing, the Company may not
effect a Mandatory Conversion of any applicable Holder under this Section if
the number of shares of Common Stock issuable upon conversion of the shares of Series A
Preferred Stock of any Holder subject to a Mandatory Conversion would cause
such Holder’s beneficial ownership of the Common Stock to exceed the Maximum
Percentage as set forth in Section 6; provided, however, if
the Company is unable to cause the Mandatory Conversion of all of the shares of
Series A Preferred Stock set forth in the Mandatory Conversion Notice
(such unconverted shares of Series A Preferred Stock being referred to as
the “Unconverted Shares”) as a result of the
preceding clause, the Company shall be allowed to cause the Mandatory Conversion
of additional Unconverted Shares (each, an “Additional
Mandatory Conversion”) at such time as the Company shall have
sufficient shares of Common Stock outstanding such that the conversion of the
Unconverted Shares shall not cause such Holder’s beneficial ownership of Common
Stock to exceed the Maximum Percentage as set forth in Section 6, provided
that the Company shall not be allowed to affect more than one Additional
Mandatory Conversion during any six month period.


 


(b)                                 Pro
Rata Conversion Requirement. If the Company elects to cause a conversion of
any Conversion Amount of shares of Series A Preferred Stock pursuant to Section 10(a),
then it must simultaneously take the same action in the same proportion with
respect to all shares of Series A Preferred Stock. All Conversion Amounts
converted by the Holder after the Mandatory Conversion Notice Date shall reduce
the Conversion Amount required to be converted on the Mandatory Conversion Date.
If the Company has elected a Mandatory Conversion, the mechanics of conversion
set forth in Section 3(d) shall apply, to the extent
applicable, as if the Company and the Transfer Agent had received from the
Holder on the


 


29





















 


Mandatory
Conversion Date a Conversion Notice with respect to the Conversion Amount being
converted pursuant to the Mandatory Conversion.


 


(11)                            Liquidation,
Dissolution, Winding-Up. In the event of a Liquidation Event, the Holders
shall be entitled to receive in cash out of the assets of the Company, whether
from capital or from earnings available for distribution to its shareholders
(the “Liquidation Funds”), before
any amount shall be paid to the holders of any of the capital shares of the
Company of any class junior in rank to the shares of Series A
Preferred Stock in respect of the preferences as to distributions and payments
on the liquidation, dissolution and winding up of the Company, an amount per
Preferred Share equal to 125% of the Conversion Amount plus the amount of any
accrued but unpaid Dividends per Preferred Share; provided that, if the
Liquidation Funds are insufficient to pay the full amount due to the Holders
and holders of shares of other classes or series of preferred shares of
the Company that are of equal rank with the shares of Series A Preferred
Stock as to payments of Liquidation Funds (the “Pari Passu Shares”), then each Holder and Pari Passu Shares
shall receive a percentage of the Liquidation Funds equal to the full amount of
Liquidation Funds payable to such Holder as a liquidation preference, in
accordance with their respective certificate of designations (or equivalent),
as a percentage of the full amount of Liquidation Funds payable to all holders
of shares of Series A Preferred Stock and Pari Passu Shares. To the extent
necessary, the Company shall cause such actions to be taken by any of its
Subsidiaries so as to enable, to the maximum extent permitted by law, the
proceeds of a Liquidation Event to be distributed to the Holders in accordance
with this Section. All the preferential amounts to be paid to the Holders under
this Section shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
distribution of any Liquidation Funds of the Company to the holders of shares
of other classes or series of preferred shares of the Company junior in
rank to the shares of Series A Preferred Stock in connection with a
Liquidation Event as to which this Section applies. The purchase or
redemption by the Company of shares of any class, in any manner permitted by
law, shall not, for the purposes hereof, be regarded as a Liquidation Event.


 


(12)                            Preferred Rank. All
Common Shares shall be of junior rank to all shares of Series A Preferred
Stock with respect to the preferences as to dividends, distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the Common Shares shall be subject to the preferences and relative
rights of the shares of Series A Preferred Stock. Without the prior express
written consent of the Required Holders, the Company shall not hereafter
authorize or issue additional or other capital shares that is of senior or
pari-passu rank to the shares of Series A Preferred Stock in respect of
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company (collectively “Senior Preferred”)  The Company shall be permitted to issue
preferred shares that are junior in rank to the shares of Series A
Preferred Stock in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company, provided,
that the maturity date (or any other date requiring redemption, repayment or
any other payment, including without limitation, dividends, in respect of any
such preferred shares) of any such junior preferred shares is not on or before
91 days after the Maturity Date. In the event of the merger or consolidation of
the Company with or into another corporation, the shares of Series A
Preferred Stock shall maintain their relative powers, designations and
preferences provided for herein (except that the shares of Series A
Preferred Stock may be pari passu
with, but not junior to, any capital shares of the successor entity) and no
merger shall result inconsistent therewith.


 


30





















 


(13)                            Participation. The
Holders shall, as holders of Preferred Shares, be entitled to such dividends
paid and distributions made to the holders of Common Shares to the same extent
as if such Holders had converted the Preferred Shares into Common Shares
(without regard to any limitations on conversion herein or elsewhere) and had
held such Common Shares on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Shares.


 


(14)                            Limitation on Number of
Conversion Shares. Notwithstanding anything to the contrary contained
herein, the Company shall not be obligated to issue any Common Shares upon
conversion of the Series A Preferred Stock or exercise of the Warrants if
the issuance of such Common Shares would exceed that number of Common Shares
which the Company may issue upon conversion of the Series A Preferred
Stock without breaching the Company’s obligations under the rules or
regulations of the Principal Market (the “Exchange
Cap”), except that such limitation shall not apply in the event that
the Company (a) obtains the approval of its shareholders as required by
the applicable rules of the Principal Market (or any successor rule or
regulation) for issuances of Common Shares in excess of such amount, or (b) obtains
a written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, no purchaser of Series A
Preferred Stock pursuant to the Securities Purchase Agreement (the “Purchasers”) shall be issued, in the
aggregate, upon conversion of Series A Preferred Stock or upon exercise of
the Warrants, Common Shares in an amount greater than the product of (i) the
Exchange Cap amount multiplied by (ii) a fraction, the numerator of which
is the number of Series A Preferred Stock issued to such Purchaser
pursuant to the Securities Purchase Agreement on the Initial Issuance Date and
the denominator of which is the aggregate amount of all the Series A
Preferred Stock issued to the Purchasers pursuant to the Securities Purchase
Agreement on the Initial Issuance Date (the “Exchange
Cap Allocation”). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s Series A Preferred Stock, the
transferee shall be allocated a pro rata portion of such Purchaser’s Exchange
Cap Allocation. In the event that any Holder shall convert all of such Holder’s
shares of Series A Preferred Stock into a number of Common Shares which,
in the aggregate, is less than such Holder’s Exchange Cap Allocation, then the
difference between such Holder’s Exchange Cap Allocation and the number of
Common Shares actually issued to such Holder shall be allocated to the
respective Exchange Cap Allocations of the remaining Holders on a pro rata
basis in proportion to the number of shares of Series A Preferred Stock
then held by each such Holder.


 


(15)                            Vote to Change the Terms
of or Issue Series A Preferred Stock. In addition to any other rights provided by law, except where the vote
or written consent of the holders of a greater number of shares is required by
law or by another provision of the Certificate of Incorporation, without first
obtaining the affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting of the Required Holders, voting together as a single class, the
Company shall not: (u) amend or repeal any provision of, or add any provision
to, the Articles of Incorporation or bylaws, or file any certificate of
designations or articles of amendment of any series of preferred shares,
if such action would adversely alter or change the preferences, rights,
privileges or powers of, or restrictions provided for the benefit of the Series A
Preferred Stock, regardless of whether any such action shall be by means of
amendment to the Articles of Incorporation or by merger, consolidation or
otherwise; (v) increase or decrease


 


31





















 


(other than by conversion) the authorized number of the Series A
Preferred Stock; (w) create or authorize (by reclassification or otherwise) any
new class or series of shares that has a preference over or is on a
parity with the Series A Preferred Stock with respect to dividends or the
distribution of assets on the liquidation, dissolution or winding up of the
Company; (x) purchase, repurchase or redeem any Common Shares (other than
pursuant to equity incentive agreements with employees giving the Company the
right to repurchase shares upon the termination of services); (y) pay dividends
or make any other distribution on the Common Shares; or (z) whether or not
prohibited by the terms of the Series A Preferred Stock, circumvent a
right of the Series A Preferred Stock.


 


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


 


(17)                            Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The
remedies provided in this Certificate of Designations shall be cumulative and
in addition to all other remedies available under this Certificate of
Designations, 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. 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 Designations. The
Company covenants to each Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. 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 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 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.


 


(18)                            Construction. This
Certificate of Designations shall be deemed to be jointly drafted by the
Company and all Buyers and shall not be construed against any person as the
drafter hereof.


 


(19)                            Failure or Indulgence
Not Waiver. No failure or delay on the part of a Holder 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.


 


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(20)                            Notice. Whenever
notice is required to be given under this Certificate of Designations, unless
otherwise provided herein, such notice must be in writing and will be deemed to
have been delivered:  (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
Business Day after deposit with an overnight courier service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:


 


If to the Company:


 


Think
Partnership Inc.
5 Revere Drive, Suite 510

Northbrook, Illinois 60062

Telephone:                                    (847) 562-0177

Facsimile:                                            (847)
562-0178

Attention:                                         Gerard
M. Jacobs


 


With a copy (for informational purposes only) to:


 


Shefsky &
Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, Illinois 60601

Telephone:                                    (312) 527-4000

Facsimile:                                            (312) 527-5921

Attention:                                         Michael
J. Choate


 


If to the Transfer Agent:


 


Colonial Stock
Transfer

66 Exchange Place, Suite 100

Salt Lake City, VT 84111

Telephone:                                    (801) 355-5740

Facsimile:                                            (801) 355-6505

Attention:                                         Donna
Webster


 


If to a holder
of Securities, to its address and facsimile number set forth in the records of
the Company, with a copy (for informational purposes only) to:


 


Schulte Roth &
Zabel LLP 

919 Third Avenue

New York, New York  10022

Telephone:                                    (212)
756-2000

Facsimile:                                            (212)
593-5955

Attention:                                         Eleazer
N. Klein, Esq.


 


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or to such
other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.


 


(21)                            Transfer of Series A
Preferred Stock. A Holder may assign some or all of the shares of Series A
Preferred Stock and the accompanying rights hereunder held by such Holder
without the consent of the Company; provided that such assignment is in
compliance with applicable securities laws.


 


(22)                            Series A Preferred
Stock Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate
by notice to the Holders), a register for the Series A Preferred Stock, in
which the Company shall record the name, address and facsimile number of the
persons in whose name the shares of Series A Preferred Stock have been
issued, as well as the name and address of each transferee. The Company may treat
the person in whose name any Series A Preferred Stock is registered on the
register as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, but in all events recognizing any properly made
transfers.


 


(23)                            Shareholder Matters.
Any shareholder action, approval or consent required, desired or otherwise
sought by the Company pursuant to the rules and regulations of the
Principal Market, the NRS, this Certificate of Designation or otherwise with
respect to the issuance of Series A Preferred Stock or the Common Shares
issuable upon conversion thereof or the issuance of any Warrants and the Common
Shares issuable upon exercise thereof may be effected by written consent
of the Company’s shareholders or at a duly called meeting of the Company’s
shareholders, all in accordance with the applicable rules and regulations
of the Principal Market and the NRS. This provision is intended to comply with
the applicable sections of the NRS permitting shareholder action, approval and
consent affected by written consent in lieu of a meeting.


 


34





















 


(24)                            Dispute Resolution. In
the case of a dispute regarding any of the provisions hereof, the Company shall
submit such dispute via facsimile within two Business Days of receipt of the
notice giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such dispute within three
Business Days of such dispute being submitted to the Holder, then the Company
shall, within two Business Days submit via facsimile such dispute to an
independent, reputable investment bank selected by the Company and approved by
the Holder or to the Company’s independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant, as the case may be,
and notify the Company and the Holder of the results no later than ten Business
Days from the time it receives the dispute. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon
all parties absent demonstrable error.


 


(25)                            Disclosure. Upon
receipt or delivery by the Company of any notice in accordance with the terms
of this Certificate of Designations, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery
publicly disclose such material, nonpublic information on a Current Report on Form 8-K
or otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries,
the Company so shall indicate to the Holders contemporaneously with delivery of
such notice, and in the absence of any such indication, the Holders shall be
allowed to presume that all matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries.


 


*  *  * 
*  *


 


35

















 


IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer
of the Company, has executed this Certificate of Designations this       
day of               ,
2006.


 


	
   

  	
  THINK PARTNERSHIP INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


36

















 


EXHIBIT I


 


THINK PARTNERSHIP INC. CONVERSION NOTICE


 


Reference is made to the Certificate of Designations, Preferences and
Rights of The Series A Convertible shares of Think Partnership Inc. (the “Certificate of Designations”). In
accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series A
Convertible shares of Series A Convertible Preferred Stock, par value $0.001
per share (the “Series A Preferred Stock”),
of Think Partnership Inc., a Nevada corporation (the “Company”), indicated below into Common
Shares, par value $0.001 per share (the “Common
Shares”), of the Company, as of the date specified below.


 


Date of
Conversion:


 


Number of
shares of Series A Preferred Stock to be converted:


 


Share
certificate no(s). of Series A Preferred Stock to be converted:


 


Tax ID Number
(If applicable):


 


Please confirm the following information:


 


Conversion
Price:


 


Number of
Common Shares to be issued:


 


Please issue the Common Shares into which the shares of Series A
Preferred Stock are being converted in the following name and to the following
address:


 


Issue to:


 


 


Address:


 


Telephone Number:


 


Facsimile Number:


 


Authorization:


 


By:____________________________


 


Title:___________________________


 


Dated:


 


Account Number (if electronic book entry
transfer):


 


Transaction Code Number (if electronic book
entry transfer):


 


[NOTE TO
HOLDER — THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]


 


37

















 


ACKNOWLEDGMENT


 


The Company hereby acknowledges this Conversion Notice and hereby
directs Colonial Stock Transfer to issue the above indicated number of Common
Shares in accordance with the Irrevocable Transfer Agent Instructions dated March     ,
2006 from the Company and acknowledged and agreed to by Colonial Stock
Transfer.


 


	
   

  	
  THINK PARTNERSHIP INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


38