ADSOUTH PARTNERS, INC.
CERTIFICATE OF DESIGNATION
PURSUANT TO NRS 78.1955
Section 1. Definitions. Capitalized terms used and not
otherwise defined herein that are defined in the Purchase Agreement (as defined
below) shall have the meanings given such terms in the Purchase Agreement. For
the purposes hereof, the following terms shall have the following meanings:
"Bankruptcy Event" means any of the following events: (a) the
Corporation or any Significant Subsidiary (as such term is defined in
Rule 1.02(s) of Regulation S-X) thereof commences a case or other
proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the
Corporation or any Significant Subsidiary thereof; (b) there is
commenced against the Corporation or any Significant Subsidiary thereof
any such case or proceeding that is not stayed or dismissed within 90
days after commencement; (c) the Corporation or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of
relief or other order approving any such case or proceeding is entered;
(d) the Corporation or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part
of its property that is not discharged or stayed within 90 days; (e)
the Corporation or any Significant Subsidiary thereof makes a general
assignment for the benefit of creditors; (f) the Corporation or any
Significant Subsidiary thereof calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its
debts; or (g) the Corporation or any Significant Subsidiary thereof, by
any act or failure to act, expressly indicates its consent to, approval
of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.
"Closing Date" means the Closing Date as defined in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Corporation's common stock, par
value $0.0001 per share, and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Common Stock Equivalents" means any securities of the
Corporation or the Subsidiaries which would entitle the holder thereof
to acquire at any time Common Stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument
that is at any time convertible into or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
"Conversion Date" shall have the meaning set forth in Section
6(a).
"Conversion Ratio" shall have the meaning set forth in Section
6(a).
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"Conversion Value" shall have the meaning set forth in Section
6(a).
"Conversion Shares" means, collectively, the shares of Common
Stock into which the shares of Series B Preferred Stock are convertible
in accordance with the terms hereof.
"Conversion Shares Registration Statement" means a
registration statement that meets the requirements of the Registration
Rights Agreement and registers the resale of all Conversion Shares by
the Holders, who shall be named as a "selling stockholder" thereunder,
all as provided in the Registration Rights Agreement.
"Dilutive Issuance" shall have the meaning set forth in
Section 7(b) hereof.
"Effective Date" means the date that the Conversion Shares
Registration Statement is declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" shall have the meaning set forth in Section
1.3.9 of the Purchase Agreement.
"Fundamental Transaction" shall have the meaning set forth in
Section 7(i)(iv) hereof.
"Holder" and "Holders" shall have the meaning given such term
in Section 2 hereof.
"Junior Securities" means the Common Stock and all other
equity or equity equivalent securities of the Corporation other than
those securities that are explicitly senior in rights or liquidation
preference to the Series B Preferred Stock (such as the Series A
Convertible Preferred Stock).
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Series B Preferred Stock regardless of
the number of transfers of any particular shares of Series B Preferred
Stock and regardless of the number of certificates which may be issued
to evidence such Series B Preferred Stock .
"Person" means a corporation, an association, a partnership, a
limited liability company, a business association, an individual, a
government or political subdivision thereof or a governmental agency.
"Purchase Agreement" means the Preferred Stock Purchase
Agreement, dated as of the June 16th 2005, to which the Corporation and
the original Holders are parties, as amended, modified or supplemented
from time to time in accordance with its terms, a copy of which is on
file at the principal offices of the Corporation.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, to which the Corporation and
the original Holders are parties, as amended, modified or supplemented
from time to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series B Preferred Stock" shall have the meaning set forth in
Section 2.
"Subscription Amount" shall mean the Two Million Five Hundred
Thousand Dollars ($2,500,000) to be paid for the Preferred Stock
purchased pursuant to the Purchase Agreement, in United States Dollars
and in immediately available funds and the Exchange Securities as
defined in the Purchase Agreement.
"Subsidiary" shall mean a corporation, limited liability
company, partnership, joint venture or other business entity of which
the Corporation owns beneficially or of record more than a majority of
the equity interest.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the primary Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in
the "Pink Sheets" or as reported by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by Purchasers
holding a majority of the principal amount of Series B Preferred Stock
then outstanding.
Section 2. Designation and Amount. The series of preferred stock, consisting
of one million five hundred thousand (1,500,000) shares of preferred stock,
shall be designated as the Corporation's Series B Convertible Preferred Stock
(the "Series B Preferred Stock" or "Preferred Stock") and the number of shares
so designated shall be (which shall not be subject to increase
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without the consent of the holders of seventy-five percent (75%) of the then
outstanding shares of Series B Preferred Stock (each a "Holder" and
collectively, the "Holders"). In the event of the conversion of shares of Series
B Preferred Stock into this Corporation's Common Stock, pursuant to Section 6
hereof, or in the event that the Corporation shall otherwise acquire and cancel
any shares of Series B Preferred Stock, the shares of Series B Preferred Stock
so converted or otherwise acquired and canceled shall have the status of
authorized but unissued shares of preferred stock, without designation as to
series until such stock is once more designated as part of a particular series
by the Corporation's Board of Directors. In addition, if the Corporation shall
not issue the maximum number of shares of Series B Preferred Stock, the
Corporation may, from time to time, by resolution of the Board of Directors and
the approval of the holders of a majority of the outstanding shares of Series B
Preferred Stock, reduce the number of shares of Series B Preferred Stock
authorized, provided, that no such reduction shall reduce the number of
authorized shares to a number which is less than the number of shares of Series
B Preferred Stock then issued or reserved for issuance. The number of shares by
which the Series B Preferred Stock is reduced shall have the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, until such stock is once more designated as part of a particular series
by the Corporation's Board of Directors. The Board of Directors shall cause to
be filed with the Secretary of State of the State of Nevada such certificate as
shall be necessary to reflect any reduction in the number of shares constituting
the Series B Preferred Stock. Capitalized terms not otherwise defined herein
shall have the meaning given such terms in Section 1 hereof.
Section 3. Dividends and Other Distributions. No dividends
shall be payable with respect to the Series B Preferred Stock. No dividends
shall be payable with respect to the Common Stock while the Series B Preferred
Stock is outstanding. The Common Stock shall not be redeemed while the Series B
Preferred Stock is outstanding.
Section 4. Voting Rights. The Series B Preferred Stock shall
have no voting rights. However, so long as any shares of Series B Preferred
Stock are outstanding, the Corporation shall not, without the affirmative
approval of the holders of seventy-five percent (75%) of the shares of the
Series B Preferred Stock then outstanding, (a) alter or change the powers,
preferences or rights given to the Series B Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 5) senior to or otherwise pari passu with the Series B Preferred
Stock, or any of preferred stock possessing greater voting rights or the right
to convert at a more favorable price than the Series B Preferred Stock, (c)
amend its certificate or articles of incorporation or other charter documents in
breach of any of the provisions hereof, (d) increase the authorized number of
shares of Series B Preferred Stock, or (e) enter into any agreement with respect
to the foregoing.
Section 5. Liquidation. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
the Corporation, whether such assets are capital or surplus, for each share of
Series B Preferred Stock an amount equal to Two Dollars and 70/100 ($2.70) (the
"Liquidation Value") before any distribution or payment shall be made to the
holders of any Junior Securities and after any distributions or payments made to
holders of any class or series of securities which are senior to the Series B
Preferred Stock upon voluntary or involuntary
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liquidation, dissolution or winding up, and if the assets of the Corporation
shall be insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. In the event the assets of the
Corporation available for distribution to the holders of shares of Series B
Preferred Stock upon dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Section 5, no such
distribution shall be made on account of any shares of any other class or series
of capital stock of the Corporation ranking on a parity with the shares of
Series B Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
Series B Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up. At the election of a Holder
made by written notice delivered to the Corporation prior to the effective date
of the subject transaction, as to the shares of Series B Preferred Stock held by
such Holder, a Fundamental Transaction shall not be treated as a Liquidation.
Section 6. Conversion.
a) Conversions at Option of Holder. Each share of Series B
Preferred Stock shall be initially convertible (subject to the
limitations set forth in Section 6(c)), into Nine (9) shares of Common
Stock (as adjusted as provided below, the "Conversion Ratio") at the
option of the Holders, at any time and from time to time from and after
the Original Issue Date. Holders shall effect conversions by providing
the Corporation with the form of conversion notice attached hereto as
Annex A (a "Notice of Conversion") as fully and originally executed by
the Holder, together with the delivery by the Holder to the Corporation
of the stock certificate(s) representing the number of shares of Series
B Preferred Stock so converted, with such stock certificates being duly
endorsed in full for transfer to the Corporation or with an applicable
stock power duly executed by the Holder in the manner and form as
deemed reasonable by the transfer agent of the Common Stock. Each
Notice of Conversion shall specify the number of shares of Series B
Preferred Stock to be converted, the number of shares of Series B
Preferred Stock owned prior to the conversion at issue, the number of
shares of Series B Preferred Stock owned subsequent to the conversion
at issue, the stock certificate number and the shares of Series B
Preferred Stock represented thereby which are accompanying the Notice
of Conversion, and the date on which such conversion is to be effected,
which date may not be prior to the date the Holder delivers such Notice
of Conversion and the applicable stock certificates to the Corporation
by overnight delivery service (the "Conversion Date"). If no Conversion
Date is specified in a Notice of Conversion, the Conversion Date shall
be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the
Corporation. The calculations and entries set forth in the Notice of
Conversion shall control in the absence of manifest or mathematical
error. Shares of Series B Preferred Stock converted into Common Stock
in accordance with the terms hereof shall be canceled and may not be
reissued. The initial value of the Series B Preferred Stock on the
Conversion Date shall be equal to $2.70 per share (as adjusted pursuant
to Section 7 or otherwise as provided herein, the "Conversion Value").
If the initial Conversion Value is adjusted pursuant to Section 7 or as
otherwise provided herein, the Conversion Ratio shall likewise be
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adjusted and the new Conversion Ratio shall equal the Liquidation Value
divided by the new Conversion Value. Thereafter, subject to any further
adjustments in the Conversion Value, each share of Series B Preferred
Stock shall be convertible into that number of shares of Common Stock
equal to the new Conversion Ratio.
b) Beneficial Ownership Limitation. The Corporation shall
not effect any conversion of the Series B Preferred Stock, and the
Holders shall not have the right to convert any portion of the Series B
Preferred Stock to the extent that after giving effect to such
conversion, the Holder (together with the Holder's affiliates), would
beneficially own in excess of 4.9% of the number of shares of the
Common Stock outstanding immediately after giving effect to such
conversion, except that, in the event of a sale of substantially all of
the assets of the Corporation or a merger or consolidation of the
Corporation in a transaction in which the Corporation is not the
surviving entity, the 4.9% restriction will immediately be terminated
and the Holders will have the right to convert the Series B Preferred
Stock concurrent with the sale, subject to the conversion by the
Holders of the Series B Preferred Stock as provided herein. For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its affiliates shall be
calculated in accordance with Section 13(d) of the Exchange Act. For
purposes of this Section 6(b), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent of
the following: (A) the Corporation's most recent quarterly reports,
Form 10-Q, Form 10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as
the case may be, as filed with the Commission under the Exchange Act
(B) a more recent public announcement by the Corporation or (C) any
other written notice by the Corporation or the Corporation's transfer
agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of the Holder, the Corporation shall
within two (2) Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding.
c) Mechanics of Conversion; Delivery of Certificate Upon
Conversion. Except as otherwise set forth herein, not later than
three (3) Trading Days after each Conversion Date (the "Share Delivery
Date"), the Corporation shall deliver to the Holder (A) a certificate
or certificates which, after the Effective Date, shall be free of
restrictive legends and trading restrictions (other than those required
by the Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of shares of Series B
Preferred Stock, and (B) a bank check in the amount of accrued and
unpaid dividends (if the Corporation has elected or is required to pay
accrued dividends in cash). After the Effective Date, the Corporation
shall, upon request of the Holder, deliver any certificate or
certificates required to be delivered by the Corporation under this
Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions
if the Corporation's transfer agent has the ability to deliver shares
of Common Stock in such manner. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as
directed by the applicable Holder by the third Trading Day after the
Conversion Date, the Holder shall be entitled to elect by written
notice to the Corporation at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in
which event the Corporation shall immediately return the certificates
representing the shares of Series B Preferred Stock tendered for
conversion.
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d) Other Matters Relating to Conversion
i. Obligation Absolute; Partial Liquidated Damages. The
Corporation's obligations to issue and deliver the Conversion Shares
upon conversion of Series B Preferred Stock in accordance with the
terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by the Holder or any other Person of any obligation to
the Corporation or any violation or alleged violation of law by the
Holder or any other person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Corporation to the
Holder in connection with the issuance of such Conversion Shares. In
the event a Holder shall elect to convert any or all of its Series B
Preferred Stock, the Corporation may not refuse conversion based on any
claim that such Holder or any one associated or affiliated with the
Holder of has been engaged in any violation of law, agreement or for
any other reason (other than as a result of the inability of the
Corporation to issue shares of Common Stock pursuant to Section 6(b)
hereof), unless an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of this Series B Preferred Stock
shall have been sought and obtained and the Corporation posts a surety
bond for the benefit of the Holder in the amount of 150% of the
Conversion Value of Series B Preferred Stock outstanding, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of
which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the
Corporation shall issue Conversion Shares or, if applicable, cash, upon
a properly noticed conversion. If the Corporation fails to deliver to
the Holder such certificate or certificates pursuant to Section 6(d)(i)
within two Trading Days of the Share Delivery Date applicable to such
conversion, the Corporation shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, for each $5,000 of Conversion
Value of Series B Preferred Stock being converted, $50 per Trading Day
(increasing to $100 per Trading Day after three (3) Trading Days and
increasing to $200 per Trading Day six (6) Trading Days after such
damages begin to accrue) for each Trading Day after the Share Delivery
Date until such certificates are delivered. Nothing herein shall limit
a Holder's right to pursue actual damages for the Corporation's failure
to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall
have the right to pursue all remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
ii. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. If the Corporation fails to deliver to
the Holder such certificate or certificates pursuant to Section 6(d)(i)
by a Share Delivery Date, and if after such Share Delivery Date the
Holder purchases (in an open market transaction or
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otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a
"Buy-In"), then the Corporation shall pay in cash to the Holder the
amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common
Stock that such Holder was entitled to receive from the conversion at
issue multiplied by (2) the price at which the sell order giving rise
to such purchase obligation was executed. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of
Series B Preferred Stock with respect to which the aggregate sale price
giving rise to such purchase obligation is $10,000, under the
immediately preceding sentence, the Corporation shall be required to
pay the Holder $1,000. The Holder shall provide the Corporation written
notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Corporation. Nothing herein shall limit a
Holder's right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Corporation's
failure to timely deliver certificates representing shares of Common
Stock upon conversion of the shares of Series B Preferred Stock as
required pursuant to the terms hereof.
iii. Reservation of Shares Issuable Upon Conversion. The
Corporation covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the Series B
Preferred Stock, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than
the Holders, not less than such number of shares of the Common Stock as
shall (subject to any additional requirements of the Corporation as to
reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions then
required by Section 7) upon the conversion of all outstanding shares of
Series B Preferred Stock. The Corporation covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Conversion Shares Registration Statement is then effective under the
Securities Act, registered for public sale in accordance with such
Conversion Shares Registration Statement.
iv. Fractional Shares. Upon a conversion hereunder, the
Corporation shall not be required to issue stock certificates
representing fractions of shares of the Common Stock. The Corporation
may, in its discretion, either pay cash in the amount of the value of
the fractional share or issue such additional fractional share such
that the number of shares so issued is the next higher number of whole
shares
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v. Transfer Taxes. The issuance of certificates for shares of
the Common Stock on conversion of the Series B Preferred Stock shall be
made without charge to the Holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of
Series B Preferred Stock so converted and the Corporation shall not be
required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
Section 7. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Corporation, at
any time while the Series B Preferred Stock is outstanding: (A) shall pay a
stock dividend or otherwise make a distribution or distributions on shares
of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Corporation pursuant to
this Series B Preferred Stock), (B) subdivide outstanding shares of Common
Stock into a larger number of shares, (C) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of shares of the Common
Stock any shares of capital stock of the Corporation, then the Conversion
Value shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
b) Price Adjustment. If, within the 24 months following the
Closing Date, the Company closes on the sale of a note or notes, shares of
Common Stock, or shares of any class of Preferred Stock at a price per share
of Common Stock, or with a conversion right to acquire Common Stock at a
price per share of Common Stock (other than (x) an Exempt Issuance or (y) an
issuance covered by Section 7(a) or 7(c) hereof or (z) an issuance of Common
Stock upon exercise or upon conversion of warrants, options or other
convertible securities for which an adjustment has already been made
pursuant to this Section 7(b)), that is less than the Conversion Price in
effect at the time of such sale (such lower price being referred to as the
"Lower Price"), the conversion rate shall be adjusted as follows. The
"Conversion Price" shall mean the price paid for one share of Series B
Preferred Stock divided by the number of shares of Common Stock issuable
upon conversion of one share of Series B Preferred Stock. The "Conversion
Rate" is the number of shares of Common Stock issuable upon conversion of
one (1) share of Series B Preferred Stock. The initial Conversion Rate is
nine (9) shares of Common Stock per
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share of Series B Preferred Stock and the initial Conversion Price is $.30.
The Conversion Rate shall be adjusted by multiplying the Conversion Rate in
effect immediately prior to such issuance by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares (including the exercise or
conversion of all options, warrants and other convertible securities) and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received or receivable for the issuance of such additional
shares at the Lower Price would purchase at the Conversion Price then in
effect. Such adjustment shall be made successively whenever such an issuance
is made.
c) Pro Rata Distributions. If the Corporation, at any time
while Series B Preferred Stock is outstanding, shall distribute to all
holders of Common Stock (and not to Holders) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security,
then in each such case the Conversion Value shall be determined by
multiplying such Conversion Value in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator
shall be such VWAP on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
d) Calculations. All calculations under this Section 7
shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the
Corporation. For purposes of this Section 7, the number of shares of Common
Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury shares, if
any) actually issued and outstanding.
e) Notice to Holders.
i. Adjustment to Conversion Price. Whenever the
Conversion Value is adjusted pursuant to any of this Section 7, the
Corporation shall promptly mail to each Holder a notice setting forth
the Conversion Value after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Corporation
issues a variable rate security, despite the prohibition thereon in the
Purchase Agreement, the Corporation shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted
or exercised in the case of a
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Variable Rate Transaction (as defined in the Purchase Agreement), or
the lowest possible adjustment price in the case of an MFN Transaction
(as defined in the Purchase Agreement).
ii. Notice of Other Events. If (A) the Corporation shall
declare a dividend (or any other distribution) on the Common Stock; (B)
the Corporation shall declare redemption of the Common Stock; (C) the
Corporation shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Corporation shall be required in connection with
any reclassification of the Common Stock, or any Fundamental
Transaction, (E) the Corporation shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of
the Corporation; then in each case, the Corporation shall cause to be
filed at each office or agency maintained for the purpose of conversion
of the Series B Preferred Stock, and shall cause to be mailed to the
Holders at their last addresses as they shall appear upon the stock
books of the Corporation, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on
which such reclassification is expected to become effective or close,
and the date as of which it is expected that holders of the Common
Stock of record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon
such reclassification or Fundamental Transaction; provided, that the
failure to mail such notice or any defect therein or -------- in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
iii. Exempt Issuance. Notwithstanding the foregoing, no
adjustment will be made under this Section 7 in respect of an Exempt
Issuance.
iv. Fundamental Transaction. If, at any time while this
Series B Preferred Stock is outstanding, (A) the Corporation effects
any merger or consolidation of the Corporation with or into another
Person, (B) the Corporation effects any sale of all or substantially
all of its assets in one or a series of related transactions, (C) any
tender offer or exchange offer (whether by the Corporation or another
Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash
or property, or (D) the Corporation effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "Fundamental
Transaction"), then upon any subsequent conversion of this Series B
Preferred Stock, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion
absent such Fundamental Transaction, the same kind and amount of
securities, cash or
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property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock
(the "Alternate Consideration"). For purposes of any such conversion,
the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount
of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Corporation shall
apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it receives upon any
conversion of this Series B Preferred Stock following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Corporation or surviving entity in
such Fundamental Transaction shall file a new Certificate of
Designations with the same terms and conditions and issue to the Holder
new preferred stock consistent with the foregoing provisions and
evidencing the Holder's right to convert such preferred stock into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of
this paragraph (f) (iv) and insuring that this Series B Preferred Stock
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
Notwithstanding the foregoing or any other provisions of this
Certificate of Designations, in the event that the agreement relating
to a Fundamental Transaction provides for the conversion or exchange of
the Series B Preferred Stock into equity or debt securities, cash or
other consideration and the agreement is approved by the holders of a
majority of the. then-outstanding shares of Series B Preferred Stock,
then the holders of the Series B Preferred Stock shall have only the
rights set forth in such agreement.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Corporation, at its principal address as reflected
in its most recent filing with the Commission. Any and all notices or other
communications or deliveries to be provided by the Corporation hereunder
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the
books of the Corporation, or if no such facsimile telephone number or
address appears, at the principal place of business of the Holder. Any
notice shall be deemed given when received, and any notice by telecopier
shall be effective if confirmation of receipt is given by the party to whom
the notice is transmitted.
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b) Lost or Mutilated Preferred Stock Certificate. If a Holder's
Series B Preferred Stock certificate shall be mutilated, lost, stolen or
destroyed, the Corporation shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in
lieu of or in substitution for a lost, stolen or destroyed certificate, a
new certificate for the shares of Series B Preferred Stock so mutilated,
lost, stolen or destroyed but only upon receipt of evidence of such loss,
theft or destruction of such certificate, and of the ownership thereof, and
indemnity, if requested, all reasonably satisfactory to the Corporation.
c) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
d) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Certificate of Designations and shall
not be deemed to limit or affect any of the provisions hereof.
e) Rank of Series. For purposes of this Certificate of
Designation, any stock of any series or class of the Corporation shall be
deemed to rank
(i) prior to the shares of Series B Preferred Stock, as to
dividends or upon liquidation, dissolution or winding up, as the case may
be, if the holders of such class or classes shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in preference or priority
to the holders of shares of Series B Preferred Stock;
(ii) on a parity with shares of Series B Preferred Stock,
as to dividends or upon liquidation, dissolution or winding up, as the case
may be, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share or sinking fund provisions, if
any, be different from those of Series B Preferred Stock, if the holders of
such stock shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority, one over the
other, as between the holders of such stock and the holders of shares of
Series B Preferred Stock; and
(iii) junior to shares of Series B Preferred Stock as to
dividends or upon liquidation, dissolution or winding up, as the case may
be, if such class shall be Common Stock or if the holders of shares of
Series B Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of such class or classes.
f) No Preemptive Rights. No holder of the Series B Preferred
Stock shall, as such holder, be entitled as of right to purchase or
subscribe for any shares of stock of the
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Corporation of any class or any series now or hereafter authorized or any
securities convertible into or exchangeable for any shares, or any warrants,
options, rights or other instruments evidencing rights to subscribe for or
purchase any such shares, whether such shares, securities, warrants,
options, rights or other instruments be unissued or issued and thereafter
acquired by the Corporation.
g) Amendment. This Certificate of Designation may be amended
with the approval of the Corporation's board of directors and the consent of
the holders of seventy-five percent (75%) of the outstanding shares of
Series B Preferred Stock, except that any amendment to the conversion
limitation set forth in Section 6.2(b) shall also require the consent of the
holders of a majority of the Corporation's Common Stock.
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ANNEX A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert Shares
of SERIES B Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series B
Convertible Preferred Stock indicated below, into shares of common stock, par
value $0.0001 per share (the "Common Stock"), of Adsouth Partners, Inc., a
Nevada corporation (the "Corporation"), according to the conditions hereof, as
of the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Corporation in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion:
_____________________
Number of shares of Common Stock owned prior to Conversion:_____________
Number of shares of Series B Preferred Stock to be Converted:
________________________
Value of shares of Series B Preferred Stock to be Converted: ___________
Number of shares of Common Stock to be Issued: _________________________
Certificate Number of Series B Preferred Stock attached
hereto:__________________________
Number of Shares of Series B Preferred Stock represented by attached
certificate:__________
Number of shares of Series B Preferred Stock subsequent to Conversion:
________________
[HOLDER]
By:___________________________________
Name:______________________________
Title:_____________________________
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