Document:

Exhibit 10.2

 

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 15,000 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

 

5

 

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

 

6

 

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.

 

7

 

(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
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.

 

8

 

(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).

 

(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

 

9

 

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

 

10

 

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
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

 

11

 

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 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

 

12

 

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 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

 

13

 

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 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

 

14

 

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
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)

 

15

 

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 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.

 

16

 

(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 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

 

17

 

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 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

 

18

 

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 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

 

19

 

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
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

 

20

 

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 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

 

21

 

(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;

 

(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

 

22

 

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 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

 

23

 

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
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

 

24

 

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
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

 

25

 

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) 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

 

26

 

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 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

 

27

 

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 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”.

 

28

 

(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 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

 

29

 

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 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

 

30

 

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.

 

(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

 

31

 

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 (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

 

32

 

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.

 

(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

  

 

33

 

	
  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.

  

 

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

 

34

 

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.

 

(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:

  

 

38Exhibit 10.3

 

REGISTRATION
RIGHTS AGREEMENT

 

REGISTRATION RIGHTS AGREEMENT (this “Agreement”),
dated as of March 20, 2006, by and among Think Partnership Inc. (formerly
known as CGI Holding Corporation), a Nevada corporation, with headquarters
located at 5 Revere Drive, Suite 510, Northbrook, Illinois 60052
(the ”Company”), and the
undersigned buyers (each, a “Buyer”,
and collectively, the “Buyers”).

WHEREAS:

 

A.                                   In connection with the Securities Purchase
Agreement by and among the parties hereto of even date herewith (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue and sell to each Buyer
(i) preferred shares of the Company, the terms of which are set forth in
the certificate of designations for such series of preferred shares (the “Certificate of Designations”) in the
form attached as Exhibit A to the Securities Purchase Agreement (the
“Preferred Shares”) which, among
other things, will be convertible into shares of the Company’s common stock,
par value $0.001 per share (the “Common Stock”)
(as converted, the “Conversion Shares”), in accordance with the terms of the
Certificate of Designations, and (ii) warrants (the “Warrants”) which will be exercisable to
purchase shares of Common Stock (as exercised collectively, the “Warrant Shares”).

 

B.                                     To induce the Buyers to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the “1933 Act”),
and applicable state securities laws.

 

NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
each of the Buyers hereby agree as follows:

 

1.               Definitions.

 

Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement. As used in this Agreement, the following terms shall have
the following meanings:

 

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

 

b.                          “Closing
Date” shall have the meaning set forth in the Securities Purchase
Agreement.

 

 

c.                           “Effective
Date” means the date that the Registration Statement has been
declared effective by the SEC.

 

d.                          “Effectiveness
Deadline” means the date which is 120 days after the Closing Date.

 

e.                           “Filing
Deadline” means the date that is 45 Business Days after the Closing
Date.

 

f.                             “Investor”
means a Buyer or any transferee or assignee of the Preferred Shares or
Warrants, as applicable, to whom a Buyer assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 and any transferee or assignee thereof to whom a
transferee or assignee of the Preferred Shares or Warrants, as applicable,
assigns its rights under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 9.

 

g.                          “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.

 

h.                          “register,”
“registered,” and “registration” refer to a registration
effected by preparing and filing one or more Registration Statements (as
defined below) in compliance with the 1933 Act and pursuant to Rule 415
and the declaration of effectiveness of such Registration Statement(s) by the
SEC.

 

i.                              “Registrable
Securities” means (i) the Conversion Shares issued or issuable
upon conversion of the Preferred Shares, (ii) the Warrant Shares issued or
issuable upon exercise of the Warrants and (iii) any capital stock of the
Company issued or issuable, with respect to the Preferred Shares, the Conversion
Shares, the Warrant Shares or the Warrants as a result of any share split,
share dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Preferred Shares or
exercises of the Warrants.

 

j.                              “Registration
Statement” means a registration statement or registration statements
of the Company filed under the 1933 Act covering the Registrable Securities.

 

k.                           “Required
Holders” means the holders of at least a majority of the Registrable
Securities.

 

l.                              “Required
Registration Amount” means the sum of (i) the maximum number of
Conversion Shares issued and issuable pursuant to the Certificate of
Designations, as of the trading day immediately preceding the applicable date
of determination and (ii) the maximum number of Warrant Shares issued and
issuable pursuant to the Warrants as of the trading day immediately preceding
the applicable date of determination (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 and without regard to any
limitations on conversion of the Preferred Shares or the exercise of the
Warrants), all subject to adjustment as provided in Section 2(e).

 

2

 

m.                        “Rule 415”
means Rule 415 under the 1933 Act or any successor rule providing for
offering securities on a continuous or delayed basis.

 

n.                          “SEC”
means the United States Securities and Exchange Commission.

 

2.                           Registration.

 

a.                           Mandatory Registration. The Company shall prepare, and, as soon
as practicable, but in no event later than the Filing Deadline, file with the
SEC the Registration Statement on Form S-3 covering the resale of all of
the Registrable Securities. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available
for such a registration on another appropriate form reasonably acceptable
to the Required Holders, subject to the provisions of Section 2(d). The
Registration Statement prepared pursuant hereto shall register for resale at
least the number of shares of Common Stock equal to the Required Registration
Amount as of the date the Registration Statement is initially filed with the
SEC. The Registration Statement shall contain (except if otherwise directed by
the Required Holders) the “Selling Stockholders” and “Plan of
Distribution” sections in substantially the form attached hereto as Exhibit B.
The Company shall use its best efforts to have the Registration Statement
declared effective by the SEC as soon as practicable, but in no event later
than the Effectiveness Deadline. By 9:30 a.m. on the Business Day
following the Effective Date, the Company shall file with the SEC in accordance
with Rule 424 under the 1933 Act the final prospectus to be used in
connection with sales pursuant to such Registration Statement.

 

b.                          Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase in the
number of Registrable Securities included therein shall be allocated pro rata
among the Investors based on the number of Registrable Securities held by each
Investor at the time the Registration Statement covering such initial number of
Registrable Securities or increase thereof is declared effective by the SEC. In
the event that an Investor sells or otherwise transfers any of such Investor’s
Registrable Securities, each transferee that becomes an Investor shall be
allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor. Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered
by such Registration Statement shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement. Except as set forth
on Schedule 2(b), in no event shall the Company include any
securities other than Registrable Securities on any Registration Statement
without the prior written consent of the Required Holders.

 

c.                           Legal Counsel. Subject to Section 5 hereof, the
Required Holders shall have the right to select one legal counsel to review and
oversee any registration pursuant to this Section 2 (“Legal Counsel”), which shall be Schulte
Roth & Zabel LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in regards to the performance of the Company’s obligations under
this Agreement.

 

3

 

d.                          Ineligibility for Form S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on Form SB-2 or another appropriate form reasonably
acceptable to the Required Holders and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available,
provided that the Company shall maintain the effectiveness of the Registration
Statement then in effect until such time as a Registration Statement on
Form S-3 covering the Registrable Securities has been declared effective
by the SEC.

e.                           Sufficient Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable
Securities required to be covered by such Registration Statement or an
Investor’s allocated portion of the Registrable Securities pursuant to
Section 2(b), the Company shall amend the applicable Registration
Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover at least
the Required Registration Amount as of the trading day immediately preceding
the date of the filing of such amendment or new Registration Statement, in each
case, as soon as practicable, but in any event not later than fifteen (15) days
after the necessity therefor arises. The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed “insufficient to cover all of the Registrable Securities” if at any
time the number of shares of Common Stock available for resale under the
Registration Statement is less than the product determined by multiplying
(i) the Required Registration Amount as of such time by (ii) 0.90.
The calculation set forth in the foregoing sentence shall be made without
regard to any limitations on the conversion of the Preferred Shares or the
exercise of the Warrants and such calculation shall assume that the Preferred
Shares are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Certificate of Designations) and that the
Warrants are then exercisable for shares of Common Stock at the then prevailing
Exercise Price.

 

f.                             Effect of Failure to File and Obtain and
Maintain Effectiveness of Registration Statement. If (i) a Registration Statement covering all of
the Registrable Securities required to be covered thereby and required to be
filed by the Company pursuant to this Agreement is (A) not filed with the
SEC on or before the Filing Deadline (a “Filing
Failure”) or (B) filed with the SEC but not declared effective
by the SEC on or before the respective Effectiveness Deadline (an “Effectiveness Failure”) or (ii) on any
day after the Effective Date sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, a suspension or delisting of the Common Stock on its principal
trading market or exchange, or to register a sufficient number of shares of
Common Stock) (a “Maintenance Failure”)
then, as partial relief for the damages to any holder by reason of any such
delay in or reduction of its ability to sell the underlying shares of Common
Stock (which remedy shall not be exclusive of any other remedies available at law
or in equity) and subject to the Limitation on Damages (as defined in

 

4

 

the Certificate of Designations), the Company shall
pay to each holder of Registrable Securities relating to such Registration Statement
an amount in cash equal to one percent (1%) of the aggregate Purchase Price (as
such term is defined in the Securities Purchase Agreement) of such Investor’s
Registrable Securities included in such Registration Statement on each of the
following dates:  (i) the day of a
Filing Failure and on every thirtieth day (pro rated for periods totaling less
than thirty days) after a Filing Failure until such Filing Failure is cured;
(ii) the day of an Effectiveness Failure and on every thirtieth day (pro
rated for periods totaling less than thirty days) after an Effectiveness
Failure until such Effectiveness Failure is cured; and (iii) the initial
day of a Maintenance Failure and on every thirtieth day (pro rated for periods
totaling less than thirty days) after a Maintenance Failure until such
Maintenance Failure is cured. The payments to which a holder shall be entitled
pursuant to this Section 2(f) are referred to herein as “Registration Delay Payments.”  Registration Delay Payments shall be paid on
the day of the Filing Failure, Effectiveness Failure and the initial day of a
Maintenance Failure, as applicable, and thereafter on the earlier of (I) the
thirtieth day after the event or failure giving rise to the Registration Delay
Payments has occurred and (II) the third Business Day after the event or
failure giving rise to the Registration Delay Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of one and one-half
percent (1.5%) per month (prorated for partial months) until paid in full.

 

3.               Related Obligations.

 

At such time as the Company is obligated to file a
Registration Statement with the SEC pursuant to Section 2(a), 2(d) or
2(e), the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following
obligations:

 

a.                           The Company shall promptly prepare and
file with the SEC a Registration Statement with respect to the Registrable
Securities and use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Effectiveness
Deadline). Subject to allowable Grace Periods (as defined below), the Company
shall keep each Registration Statement effective pursuant to Rule 415 at
all times until the earlier of (i) the date as of which all of the
Investors may sell all of the Registrable Securities covered by such
Registration Statement without restriction pursuant to Rule 144(k) (or any
successor thereto) promulgated under the 1933 Act or (ii) the date on
which the Investors shall have sold all of the Registrable Securities covered
by such Registration Statement (the “Registration
Period”). The Company shall ensure that each Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading. The Company shall submit
to the SEC, within two (2) Business Days after the later of the date that
(i) the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on a particular Registration Statement, as the case may be, and
(ii) the approval of Legal Counsel pursuant to
Section 3(c) (which approval is immediately sought), a request for

 

5

 

acceleration of effectiveness of such Registration
Statement to a time and date not later than 48 hours after the submission of
such request.

 

b.                          Subject to Section 3(r) of this
Agreement, the Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration
Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on
Form 10-Q, or Form 10-QSB, Form 10-K, or Form 10-KSB or any
analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have
incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement
for the Company to amend or supplement such Registration Statement.

 

c.                           The Company shall (A) permit Legal
Counsel to review and comment upon (i) a Registration Statement at least
five (5) Business Days prior to its filing with the SEC and (ii) all
amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-K or Form 10-KSB, Quarterly Reports on
Form 10-Q or Form 10-QSB, Current Reports on Form 8-K, and any similar
or successor reports) within a reasonable number of days prior to their filing
with the SEC, and (B) not file any Registration Statement or amendment or
supplement thereto in a form to which Legal Counsel reasonably objects.
The Company shall not submit a request for acceleration of the effectiveness of
a Registration Statement or any amendment or supplement thereto without the
prior approval of Legal Counsel, which consent shall not be unreasonably
withheld. The Company shall furnish to Legal Counsel, without charge,
(i) copies of any correspondence from the SEC or the staff of the SEC to
the Company or its representatives relating to any Registration Statement,
(ii) promptly after the same is prepared and filed with the SEC, one copy
of any Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel in
performing the Company’s obligations pursuant to this Section 3.

 

d.                          The Company shall furnish to each
Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and
filed with the SEC, at least one copy of any Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, all
exhibits and each preliminary

 

6

 

prospectus, (ii) upon the effectiveness of any Registration
Statement, one (1) copy of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

 

e.                           The Company shall use its reasonable best
efforts to (i) register and qualify, unless an exemption from registration
and qualification applies, the resale by Investors of the Registrable
Securities covered by a Registration Statement under such other securities or
“blue sky” laws of all applicable jurisdictions in the United States,
(ii) prepare and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof
during the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all
other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to (x)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(e), (y) subject itself to
general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

 

f.                             The Company shall notify Legal Counsel
and each Investor in writing of the happening of any event, as promptly as
practicable after becoming aware of such event, as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement
or amendment to such Registration Statement to correct such untrue statement or
omission and deliver one (1) copy of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly
notify Legal Counsel and each Investor in writing (i) when a prospectus or
any prospectus supplement or post-effective amendment has been filed, and when
a Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and
each Investor by facsimile or e-mail on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related
information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

 

7

 

g.                          The Company shall use its best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of
a Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.

 

h.                          If any Investor may be required
under applicable securities law to be described in the Registration Statement
as an underwriter, at the reasonable request of any Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor
may reasonably request (i) a letter, dated such date, from the
Company’s independent certified public accountants in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the Investors,
and (ii) an opinion, dated as of such date, of counsel representing the
Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the Investors.

 

i.                              If any Investor may be required
under applicable securities law to be described in the Registration Statement
as an Underwriter, the Company shall make available for inspection by
(i) any Investor, (ii) Legal Counsel and (iii) one firm of
accountants or other agents retained by the Investors (collectively, the “Inspectors”), all pertinent financial and
other records, and pertinent corporate documents and properties of the Company
(collectively, the “Records”), as
shall be reasonably deemed necessary by each Inspector, and cause the Company’s
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall agree
in writing to hold in strict confidence and not to make any disclosure (except
to an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of
such Records is ordered pursuant to a final, non-appealable subpoena or order
from a court or government body of competent jurisdiction, or (c) the information
in such Records has been made generally available to the public other than by
disclosure in violation of this or any other Transaction Document. Each
Investor agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential. Nothing herein
(or in any other confidentiality agreement between the Company and any
Investor) shall be deemed to limit the Investors’ ability to sell Registrable
Securities in a manner which is otherwise consistent with applicable laws and regulations.

 

j.                              The Company shall hold in confidence and
not make any disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any

 

8

 

Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other final, non-appealable order from a
court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this Agreement or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to
such Investor and allow such Investor, at the Investor’s expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.

 

k.                           The Company shall use its best efforts
either to (i) cause all of the Registrable Securities covered by a Registration
Statement to be listed on each securities exchange on which securities of the
same class or series issued by the Company are then listed, if any,
if the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) secure designation and quotation of
all of the Registrable Securities covered by a Registration Statement on the
Nasdaq National Market, or (iii) if, despite the Company’s best efforts to
satisfy the preceding clauses (i) or (ii) the Company is unsuccessful
in satisfying the preceding clauses (i) or (ii), to secure the inclusion
for quotation on The Nasdaq Capital Market for such Registrable Securities and,
without limiting the generality of the foregoing, to use its best efforts to
arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. (“NASD”) as such with respect to such Registrable Securities.
The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).

 

l.                              The Company shall cooperate with the
Investors who hold Registrable Securities being offered and, to the extent
applicable, facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legend) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such certificates to be
in such denominations or amounts, as the case may be, as the Investors
may reasonably request and registered in such names as the Investors
may request.

 

m.                        If requested by an Investor, the Company
shall as soon as practicable after receipt of notice from such Investor and
subject to Section 3(r) hereof, (i) incorporate in a prospectus
supplement or post-effective amendment such information as an Investor
reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement if
reasonably requested by an Investor holding any Registrable Securities.

 

n.                          The Company shall use its best efforts to
cause the Registrable Securities covered by a Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.

 

9

 

o.                          The Company shall make generally
available to its security holders as soon as practical, but not later than
ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with, and in the manner provided by, the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company’s fiscal quarter next
following the effective date of the Registration Statement.

 

p.                          The Company shall otherwise use its best
efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.

 

q.                          Within two (2) Business Days after a
Registration Statement which covers Registrable Securities is declared effective
by the SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
Registration Statement) confirmation that such Registration Statement has been
declared effective by the SEC in the form attached hereto as Exhibit A.

 

r.                             Notwithstanding anything to the contrary
herein, at any time after the Effective Date, the Company may delay the
disclosure of material, non-public information concerning the Company the
disclosure of which at the time is not, in the good faith opinion of the Board
of Directors of the Company, in the best interest of the Company and, in the
opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of
material, non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material,
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which
the Grace Period ends; and, provided further, that no Grace Period shall exceed
fifteen (15) consecutive Business Days and during any three hundred sixty five
(365) day period such Grace Periods shall not exceed an aggregate of sixty (60)
Business Days and the first day of any Grace Period must be at least five (5) trading
days after the last day of any prior Grace Period (each, an “Allowable Grace Period”); provided,
that no Allowable Grace Period may exist during the first sixty (60)
Business Days after the Effective Date. For purposes of determining the length
of a Grace Period above, the Grace Period shall begin on and include the date
the Investors receive the notice referred to in clause (i) and shall end
on and include the later of the date the Investors receive the notice referred
to in clause (ii) and the date referred to in such notice. The provisions
of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period. Upon expiration of the Grace Period, the Company
shall again be bound by the first sentence of Section 3(f) with
respect to the information giving rise thereto unless such material, non-public
information is no longer applicable. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the
applicable Registration Statement (unless an exception from such prospectus
delivery requirement exists), prior to the Investor’s receipt of the notice of
a Grace Period and for which the Investor has not yet settled.

 

10

 

4.                           Obligations of the Investors.

 

a.                           At least five (5) Business Days
prior to the first anticipated filing date of a Registration Statement, the
Company shall notify each Investor in writing of the information the Company
requires from each such Investor if such Investor elects to have any of such
Investor’s Registrable Securities included in such Registration Statement. It
shall be a condition precedent to the obligations of the Company to complete
the registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it, as shall be reasonably required to effect and maintain the effectiveness of
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request.

 

b.                          Each Investor, by such Investor’s
acceptance of the Registrable Securities, agrees to cooperate with the Company
as reasonably requested by the Company in connection with the preparation and
filing of any Registration Statement hereunder, unless such Investor has
notified the Company in writing of such Investor’s election to exclude all of
such Investor’s Registrable Securities from such Registration Statement.

 

c.                           Each Investor agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 3(g) or the first sentence of 3(f), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to any Registration Statement(s) covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(g) or the first sentence of
3(f) or receipt of notice that no supplement or amendment is required.
Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an Investor
has entered into a contract for sale prior to the Investor’s receipt of a
notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the
Investor has not yet settled.

 

d.                          Each Investor covenants and agrees that
it will comply with the prospectus delivery requirements of the 1933 Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

 

e.                           Each Investor convents and agrees to
deliver a Registration Statement Questionnaire in the form attached hereto
as Exhibit C no later than five (5) Business Days prior to the
Filing Deadline.

 

5.                           Expenses of Registration.

 

All reasonable expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings
or qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers and

 

11

 

accounting
fees, and fees and disbursements of counsel for the Company shall be paid by
the Company. The Company shall also reimburse the Investors for the fees and
disbursements of Legal Counsel in connection with registration, filing or
qualification pursuant to Sections 2 and 3 of this Agreement which amount shall
be limited to $10,000.

 

6.                           Indemnification.

 

In the event any Registrable Securities are included
in a Registration Statement under this Agreement:

 

a.                           To the fullest extent permitted by law,
the Company will, and hereby does, indemnify, hold harmless and defend each
Investor, the directors, officers, members, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or
several, (collectively, “Claims”)
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as
such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon:  (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other “blue sky” laws of
any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading, (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of
this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, “Violations”).
Subject to Section 6(c), the Company shall reimburse the Indemnified
Persons, promptly as such expenses are incurred and are due and payable, for
any legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(a):  (i) shall not
apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto if
such prospectus was timely made available by the Company pursuant

 

12

 

to section 3(a) and (ii) shall not be available to the
extent such Claim is based on a failure of the Investor to deliver or to cause
to be delivered the prospectus made available by the Company, including a
corrected prospectus, if such prospectus or corrected prospectus was timely
made available by the Company pursuant to Section 3(d); and
(iii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.

 

b.                          In connection with any Registration
Statement in which an Investor is participating, each such Investor agrees to
severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the Registration
Statement and each Person, if any, who controls the Company within the meaning
of the 1933 Act or the 1934 Act (each, an “Indemnified
Party”), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c), such Investor
will reimburse any legal or other expenses reasonably incurred by an
Indemnified Party in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained
in Section 7 shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of such Investor,
which consent shall not be unreasonably withheld or delayed; provided, further,
however, that the Investor shall be liable under this
Section 6(b) for only that amount of a Claim or Indemnified Damages
as does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.

 

c.                           Promptly after receipt by an Indemnified
Person or Indemnified Party under this Section 6 of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written
notice of the commencement thereof, and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume control
of the defense thereof with counsel mutually satisfactory to the indemnifying
party and the Indemnified Person or the Indemnified Party, as the case
may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses of
not more than one counsel for all such Indemnified Person or Indemnified Party
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be 

 

13

 

inappropriate due to actual or potential differing interests between
such Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding; provided further, that the indemnifying party
shall not be responsible for the reasonable fees and expenses of more than one
(1) separate legal counsel for such Indemnified Person or Indemnified
Party. In the case of an Indemnified Person, legal counsel referred to in the
immediately preceding sentence shall be selected by the Investors holding at
least a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall reasonably
cooperate with the indemnifying party in connection with any negotiation or
defense of any such action or Claim by the indemnifying party and shall furnish
to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
reasonably apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for
any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or
Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such Claim or
litigation, and such settlement shall not include any admission as to fault on the
part of the Indemnified Party. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties,
firms or corporations relating to the matter for which indemnification has been
made. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying
party is prejudiced in its ability to defend such action.

 

d.                          No Person involved in the sale of
Registrable Securities who is guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) in connection
with such sale shall be entitled to indemnification from any Person involved in
such sale of Registrable Securities who is not guilty of fraudulent
misrepresentation.

 

e.                           The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.

 

f.                             The indemnity agreements contained herein
shall be in addition to  (i) any
cause of action or similar right of the Indemnified Party or Indemnified Person
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

 

14

 

7.                           Contribution.

 

To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that: 
(i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6 of this Agreement, (ii) no Person involved in
the sale of Registrable Securities which Person is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant
to such Registration Statement.

 

8.                           Reports Under the 1934 Act.

 

With a view to making available to the Investors the
benefits of Rule 144 promulgated under the 1933 Act or any other similar
rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
(“Rule 144”), the Company
agrees to:

 

a.                           make and keep public information
available, as those terms are understood and defined in Rule 144;

 

b.                          file with the SEC in a timely manner all
reports and other documents required of the Company under the 1933 Act and the
1934 Act so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company’s obligations under
Section 4(c) of the Securities Purchase Agreement) and the filing of
such reports and other documents is required for the applicable provisions of
Rule 144; and

 

c.                           furnish to each Investor so long as such
Investor owns Registrable Securities, promptly upon request, (i) a written
statement by the Company, if true, that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company if such reports are not publicly
available via EDGAR, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant
to Rule 144 without registration.

 

9.                           Assignment of Registration Rights.

 

The rights under this Agreement shall be
automatically assignable by the Investors to any transferee of all or any
portion of such Investor’s Registrable Securities if:  (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment;
(ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which
such registration rights are being transferred or assigned;
(iii) immediately

 

15

 

following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the 1933 Act or applicable state
securities laws; (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; and (vi) such transfer shall have been conducted in accordance
with all applicable federal and state securities laws.

 

10.                     Amendment of Registration Rights.

 

Provisions of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Required Holders. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each
Investor and the Company. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the Registrable Securities.
No consideration shall be offered or paid to any Person to amend or consent to
a waiver or modification of any provision of any of this Agreement unless the
same consideration also is offered to all of the parties to this Agreement.

 

11.                     Miscellaneous.

 

a.                           A Person is deemed to be a holder of
Registrable Securities whenever such Person owns or is deemed to own of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from such record owner of such Registrable
Securities.

 

b.                          Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement 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 a nationally recognized overnight delivery 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

 

16

 

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 Legal Counsel:

 

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.

 

If
to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer’s
representatives as set forth on the Schedule of Buyers, 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 provided, that
Schulte Roth & Zabel LLP shall only receive notices sent to clients of
its firm. 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 a courier or overnight courier service
shall be rebuttable evidence of personal service, receipt by facsimile or
receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

c.                           Failure of any party to exercise any
right or remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver thereof.

 

d.                          All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether

 

17

 

of the State of
New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

e.                           This Agreement, the other Transaction
Documents (as defined in the Securities Purchase Agreement) and the instruments
referenced herein and therein constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the other Transaction
Documents and the instruments referenced herein and therein supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

 

f.                             Subject to the requirements of
Section 9, this Agreement shall inure to the benefit of and be binding
upon the permitted successors and assigns of each of the parties hereto.

 

g.                          The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

h.                          This Agreement may be executed in
identical counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by
facsimile transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.

 

i.                              Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents
as any other party may reasonably request in order to

 

18

 

carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.

 

j.                              All consents and other determinations
required to be made by the Investors pursuant to this Agreement shall be made,
unless otherwise specified in this Agreement, by the Required Holders.

 

k.                           The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent and no rules of strict construction will be applied against any
party.

 

l.                              This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.

 

m.                        The obligations of each Investor
hereunder are several and not joint with the obligations of any other Investor,
and no provision of this Agreement is intended to confer any obligations on any
Investor vis-à-vis any other Investor. Nothing contained herein, and no action
taken by any Investor pursuant hereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated herein.

 

* * * * * *

 

19

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to
be duly executed as of the date first written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THINK PARTNERSHIP INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

1

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to
be duly executed as of the date first written above.

 

 

	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  MAGNETAR CAPITAL MASTER FUND,

  LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Magnetar Financial LLC 

  
	
   

  	
  Its:

  	
  Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Paul Smith 

  
	
   

  	
  Its:

  	
  General Counsel

  
				

 

2

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to
be duly executed as of the date first written above.

 

	
   

  	
  [OTHER BUYERS]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
     Name:

  
	
   

  	
   

  	
     Title:

  

 

3

 

SCHEDULE OF BUYERS

 

	
  Buyer

  	
   

  	
  Buyer Address

  and Facsimile Number

  	
   

  	
  Buyer’s Representative’s Address

  and Facsimile Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Magnetar Capital Master Fund, Ltd.

  	
   

  	
  1603
  Orrington Avenue

  Evanston, IL 60201

  Attn: Richard Levy and Matthew
  Ray
Facsimile: (847) 905-5603
Telephone: (847) 905-4707

  	
   

  	
  Schulte Roth & Zabel LLP

  919 Third Avenue

  New York, New York 10022

  Attention: Eleazer Klein, Esq.

  Facsimile: (212) 593-5955

  Telephone: (212) 756-2000

  	
   

  
	
  Heller Capital Investments, LLC

  	
   

  	
  700
  E. Palisade Avenue

  Englewood Cliffs, NJ 07632
Facsimile: (201)569-5014

  	
   

  	
   

  	
   

  
	
  Heller Family Foundation

  	
   

  	
  74
  Fairview Rd.

  Tenafly, NJ 07670
Facsimile: 201-569-5014

  	
   

  	
   

  	
   

  
	
  Mac
  & Co

  	
   

  	
  Mac
  & Co

  CIBC Mellon
PO Box 3196
Pittsburg, PA 15230-3196

  	
   

  	
   

  	
   

  
	
  Calhoun & Co

  FFC City of
  Dearborn Policemen and Firemen Revised Retirement Systems

  	
   

  	
  Calhoun
  & Co

  Comerica Bank
PO Box 75000-M/C 3404
Detroit, MI 48231
Attn: Sarah Grant, Trust Department
Facsimile: 313.222.7041
Telephone: 313.222.4150

  	
   

  	
   

  	
   

  
	
  Calhoun & Co

  FFC City of
  Dearborn General Employees

  Retirement Systems

  	
   

  	
  Calhoun
  & Co.

  Comercia Bank
PO Box 75000-M/C 3404
Detroit, MI 48231
Attn: Sarah Grant
Facsimile: 313-222-7041
Telephone: 313-222-4150

  	
   

  	
   

  	
   

  
	
  William
  Blair Small Cap Growth Fund

  	
   

  	
  William
  Blair & Company, LLC

  222 W Adams St
Chicago, IL 60606
Attn: Terry Sullivan
Facsimile: 312.236.1497
Telephone: 312.364.8319

  	
   

  	
   

  	
   

  
	
  Booth
  & Co

  FFC Hartmarx Retirement Income
  Trust

  	
   

  	
  Booth
  & Co

  Northern Trust
50 S LaSalle Street
Chicago, IL 60675

  	
   

  	
   

  	
   

  
	
  Booth
  & Co

  FFC Rush University Medical
  Center

  Endowment Account

  	
   

  	
  Booth
  & Co

  Northern Trust
50 S LaSalle St, 7th floor
Chicago, IL 60675
Attn: David Applegate
Facsimile: 312.557.2673
Telephone: 312.557.3019

  	
   

  	
   

  	
   

  
	
  Booth
  & Co

  FFC Rush University Medical
  Center

  Pension and Retirement

  	
   

  	
  Booth
  & Co

  Northern Trust
50 S LaSalle St, 7th floor
Chicago, IL 60675
Attn: David Applegate
Facsimile: 312.557.2673
Telephone: 312.557.3019

  	
   

  	
   

  	
   

  

 

4

 

	
  Bear
  Stearns Sec. Corp. Cust. J. Steven Emerson Inv. Act.

  	
   

  	
  Bear
  Stearns Sec. Corp. Cust. J. Steven Emerson Inv. Act.

  1522 Ensley Avenue
Los Angeles, CA 90024
Phone: 310-553-4151
Fax: 310-553-4187
Att:: Steven Emerson
Custodian:
Bear Stearns Sec. Corp.
1990 Avenue of the Stars
#2530
Los Angeles, CA 90067
Phone: 310-201-3976
Fax: 310-407-1721
Att: Rita Swann

  	
   

  	
   

  	
   

  
	
  Bear
  Stearns Sec. Corp. FBO J. Steven Emerson Roth IRA

  	
   

  	
  Bear
  Stearns Sec. Corp. FBO J. Steven Emerson Roth IRA.

  1522 Ensley Avenue
Los Angeles, CA 90024
Phone: 310-553-4151
Fax: 310-553-4187
Att:: Steven Emerson
Custodian:
Bear Stearns Sec. Corp.
1990 Avenue of the Stars
#2530
Los Angeles, CA 90067
Phone: 310-201-3976
Fax: 310-407-1721
Att: Rita Swann

  	
   

  	
   

  	
   

  
	
  Bear
  Stearns Sec. Corp. FBO J. Steven Emerson IRA Rollover II

  	
   

  	
  Bear
  Stearns Sec. Corp. FBO J. Steven Emerson IRA Rollover II

  1522 Ensley Avenue
Los Angeles, CA 90024
Phone: 310-553-4151
Fax: 310-553-4187
Att:: Steven Emerson
Custodian:
Bear Stearns Sec. Corp.
1990 Avenue of the Stars
#2530
Los Angeles, CA 90067
Phone: 310-201-3976
Fax: 310-407-1721
Att: Rita Swann

  	
   

  	
   

  	
   

  
	
  Umbtru
  & Co.

  FBO Oberweis Emerging Growth
  Fund

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Umbtru
  & Co.

  FBO Oberweis Micro-Cap Fund

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort
  Mason Master Fund, LP

  	
   

  	
  Fort
  Mason Master Fund, LP

  456 Montgomery Street, 22nd Fl.
San Francisco, CA 94104
Telephone 415-249-3380
Fax 415-249-3389
Attn: KC Lynch and Marshall Jensen

  	
   

  	
   

  	
   

  
	
  Fort
  Mason Partners, LP

  	
   

  	
  Fort
  Mason Partners, LP

  456 Montgomery Street, 22nd Fl.
San Francisco, CA 94104
Telephone 415-249-3380
Fax 415-249-3389
Attn: KC Lynch and Marshall Jensen

  	
   

  	
   

  	
   

  

 

5

 

EXHIBIT A

 

FORM OF
NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

Colonial Stock Transfer

66 Exchange Place, Suite 100

Salt Lake City, VT 84111

Attention:                                         Donna Webster

 

Re:                               Think Partnership Inc.

 

Ladies
and Gentlemen:

 

[We are][I am] counsel to Think Partnership Inc., a
Nevada corporation (the “Company”),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the “Securities Purchase
Agreement”) entered into by and among the Company and the buyers
named therein (collectively, the “Holders”)
pursuant to which the Company issued to the Holders preferred shares (the “Preferred Shares”) convertible into the
Company’s common stock, $0.001 par value (the ”Common Stock”), warrants exercisable for shares of Common
Stock (the “Warrants”). Pursuant
to the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the “Registration Rights Agreement”) pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement), including the shares of Common Stock
issuable upon conversion of the Preferred Shares and the shares of Common Stock
issuable upon exercise of the Warrants, under the Securities Act of 1933, as
amended (the “1933 Act”). In
connection with the Company’s obligations under the Registration Rights
Agreement, on
            
   , 200 , the Company filed a Registration Statement on
Form S-3 (File
No. 333-             )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names each
of the Holders as a selling stockholder thereunder.

 

In connection with the foregoing, [we][I] advise you
that a member of the SEC’s staff has advised [us][me] by telephone that the SEC
has entered an order declaring the Registration Statement effective under the
1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the Registration
Statement.

 

1

 

This letter shall serve as our standing opinion to
you that the shares of Common Stock are freely transferable by the Holders
pursuant to the Registration Statement. You need not require further letters
from us to effect any future legend-free issuance or reissuance of shares of
Common Stock to the Holders as contemplated by the Company’s Irrevocable
Transfer Agent Instructions dated March   , 2006.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
  CC:                             [LIST
  NAMES OF HOLDERS]

  

 

2

 

EXHIBIT B

 

SELLING
STOCKHOLDERS

 

The shares of Common Stock being offered by the
selling stockholders are issuable upon conversion of the convertible preferred
shares, upon exercise of the warrants and in payment of certain dividend
requirements as set forth in the Certificate of Designations. For additional
information regarding the issuance of those convertible preferred shares and
warrants, see “Private Placement of Convertible Preferred Shares and Warrants”
above. We are registering the shares of Common Stock in order to permit the
selling stockholders to offer the shares for resale from time to time. Except
for the ownership of the preferred shares and warrants issued pursuant to the
Securities Purchase Agreement, the selling stockholders have not had any
material relationship with us within the past three years.

 

The table below lists the selling stockholders and
other information regarding the beneficial ownership of the shares of Common
Stock by each of the selling stockholders. The second column lists the number
of shares of Common Stock beneficially owned by each selling stockholder, based
on its ownership of the convertible preferred shares and warrants, as of
        , 200 , assuming
conversion of all convertible preferred shares and exercise of the warrants
held by the selling stockholders on that date, without regard to any
limitations on conversions or exercise.

 

The third column lists the shares of Common Stock
being offered by this prospectus by the selling stockholders.

 

In accordance with the terms of a registration
rights agreement with the selling stockholders, this prospectus generally
covers the resale of at least the sum of (i) the maximum number of shares
of Common Stock issuable upon conversion of the convertible preferred shares as
of the trading day immediately preceding the date the registration statement is
initially filed with the SEC and (ii) the maximum number of shares of
Common Stock issuable upon exercise of the related warrants as of the trading
day immediately preceding the date the registration statement is initially
filed with the SEC (assuming for purposes hereof that the exercise price is
equal to $2.00, subject to adjustment for stock splits and stock dividends).
Because the conversion price of the convertible preferred shares and the
exercise price of the warrants may be adjusted, the number of shares that
will actually be issued may be more or less than the number of shares being
offered by this prospectus. The fourth column assumes the sale of all of the
shares offered by the selling stockholders pursuant to this prospectus.

 

Under the terms of the certificate of designations
and the warrants, a selling stockholder may not convert the preferred
shares or exercise the warrants to the extent such conversion or exercise would
cause such selling stockholder, together with its affiliates, to beneficially
own a number of shares of Common Stock which would exceed 4.99% of our then outstanding
shares of Common Stock following such conversion or exercise, excluding for
purposes of such determination shares of Common Stock issuable upon conversion
of the convertible preferred shares which have not been converted and upon
exercise of the warrants which have not been exercised. The number of shares in
the second column does not reflect this limitation. The

 

3

 

selling stockholders may sell all, some
or none of their shares in this offering. See “Plan of Distribution.”

 

4

 

	
  Name of Selling Stockholder

  	
   

  	
  Number of Shares of

  Common Stock Owned

  Prior to Offering

  	
   

  	
  Maximum Number of Shares

  of Common Stock to be Sold

  Pursuant to this Prospectus

  	
   

  	
  Number of Shares of

  Common Stock Owned

  After Offering

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Magnetar
  Capital Master Fund, Ltd. (1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Other
  Buyers]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(1) Magnetar Financial LLC is the investment
advisor of Magnetar Capital Master Fund, Ltd. (“Magnetar Master Fund”) and
consequently has voting control and investment discretion over securities held
by Magnetar Master Fund. Magnetar Financial LLC disclaims beneficial ownership
of the securities held by Magnetar Master Fund. Alec Litowitz is the manager of
Magnetar Capital Partners LLC, which is the sole member of Magnetar Financial
LLC. As a result, Mr. Litowitz may be considered the beneficial owner
of any shares deemed to be beneficially owned by Magnetar Financial LLC.
Mr. Litowitz disclaims beneficial ownership of these shares.

 

1

 

PLAN OF
DISTRIBUTION

 

We are registering the shares of Common Stock
issuable upon conversion of the convertible preferred shares, upon exercise of
the warrants and in payment of certain dividend requirements to permit the
resale of these shares of Common Stock by the holders of the convertible
preferred shares and warrants from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by the selling
stockholders of the shares of Common Stock. We will bear all fees and expenses
incident to our obligation to register the shares of Common Stock.

 

The selling stockholders may sell all or a
portion of the shares of Common Stock beneficially owned by them and offered
hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of Common Stock are sold through
underwriters or broker-dealers, the selling stockholders will be responsible
for underwriting discounts or commissions or agent’s commissions. The shares of
Common Stock may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected
in transactions, which may involve crosses or block transactions,

 

•                  on any national securities exchange or
quotation service on which the securities may be listed or quoted at the
time of sale;

 

•                  in the over-the-counter market;

 

•                  in transactions otherwise than on these
exchanges or systems or in the over-the-counter market;

 

•                  through the writing of options, whether such
options are listed on an options exchange or otherwise;

 

•                  ordinary brokerage transactions and
transactions in which the broker-dealer solicits purchasers;

 

•                  block trades in which the broker-dealer will
attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction;

 

•                  purchases by a broker-dealer as principal and
resale by the broker-dealer for its account;

 

•                  an exchange distribution in accordance with
the rules of the applicable exchange;

 

•                  privately negotiated transactions;

 

•                  short sales made after the date the
Registration Statement is declared effective by the SEC;

 

 

•                  sales pursuant to Rule 144;

 

•                  broker-dealers may agree with the
selling securityholders to sell a specified number of such shares at a
stipulated price per share;

 

•                  a combination of any such methods of sale;
and

 

•                  any other method permitted pursuant to
applicable law.

 

If the selling stockholders effect such transactions
by selling shares of Common Stock to or through underwriters, broker-dealers or
agents, such underwriters, broker-dealers or agents may receive commissions
in the form of discounts, concessions or commissions from the selling
stockholders or commissions from purchasers of the shares of Common Stock for
whom they may act as agent or to whom they may sell as principal
(which discounts, concessions or commissions as to particular underwriters,
broker-dealers or agents may be in excess of those customary in the types
of transactions involved). In connection with sales of the shares of Common
Stock or otherwise, the selling stockholders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares
of Common Stock in the course of hedging in positions they assume. The selling
stockholders may also sell shares of Common Stock short and deliver shares
of Common Stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales. The selling
stockholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.

 

The selling stockholders may pledge or grant a
security interest in some or all of the convertible preferred shares or
warrants or shares of Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of Common Stock from time to time pursuant
to this prospectus or any amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act of
1933, as amended, amending, if necessary, the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also
may transfer and donate the shares of Common Stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker-dealer
participating in the distribution of the shares of Common Stock may be
deemed to be “underwriters” within the meaning of the Securities Act, and any
commission paid, or any discounts or concessions allowed to, any such
broker-dealer may be deemed to be underwriting commissions or discounts
under the Securities Act. At the time a particular offering of the shares of
Common Stock is made, a prospectus supplement, if required, will be distributed
which will set forth the aggregate amount of shares of Common Stock being
offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.

 

2

 

Under the securities laws of some states, the shares
of Common Stock may be sold in such states only through registered or
licensed brokers or dealers. In addition, in some states the shares of Common
Stock may not be sold unless such shares have been registered or qualified
for sale in such state or an exemption from registration or qualification is
available and is complied with.

 

There can be no assurance that any selling
stockholder will sell any or all of the shares of Common Stock registered
pursuant to the shelf registration statement, of which this prospectus forms a
part.

 

The selling stockholders and any other person
participating in such distribution will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, including, without limitation, Regulation M of the
Exchange Act, which may limit the timing of purchases and sales of any of
the shares of Common Stock by the selling stockholders and any other
participating person. Regulation M may also restrict the ability of any
person engaged in the distribution of the shares of Common Stock to engage in
market-making activities with respect to the shares of Common Stock. All of the
foregoing may affect the marketability of the shares of Common Stock and
the ability of any person or entity to engage in market-making activities with
respect to the shares of Common Stock.

 

We will pay all expenses of the registration of the
shares of Common Stock pursuant to the registration rights agreement, estimated
to be $[     ] in total, including, without
limitation, Securities and Exchange Commission filing fees and expenses of
compliance with state securities or “blue sky” laws; provided, however, that a
selling stockholder will pay all underwriting discounts and selling
commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling stockholders will be
entitled to contribution. We may be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to
us by the selling stockholder specifically for use in this prospectus, in
accordance with the related registration rights agreements, or we may be
entitled to contribution.

 

Once sold under the shelf registration statement, of
which this prospectus forms a part, the shares of Common Stock will be freely
tradable in the hands of persons other than our affiliates.

 

3

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