EXHIBIT 10.1
FORM OF SERIES 5-A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

 

 

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SERIES 5-A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES 5-A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the “Agreement”)
is made as of the _____ day of                     , 2009 by and among
Tri-Isthmus Group, Inc. (f/k/a Vsource, Inc.), a Delaware corporation (the
“Company”), and Dan Chen (the “Purchaser”).
The parties hereby agree as follows:
1. Authorization and Sale of Shares and Warrants.
1.1 Authorization. The Company has duly authorized the sale and issuance,
pursuant to the terms of this Agreement, of up to 25 shares (the “Shares”) of
its Series 5-A Convertible Preferred Stock, par value $0.01 per share (the
“Series 5-A Preferred”), and warrants to purchase up to 15,000 shares of the
Company’s common stock, par value $0.01 per share (the “Common Stock”), at an
exercise price of $0.50 per share substantially in the form attached hereto as
Exhibit A (the “Warrants”). For purposes of this Agreement, a “Unit” shall
consist of one share of Series 5-A Preferred and one Warrant to purchase 600
shares of Common Stock.
1.2 Purchase and Sale. Upon the terms and subject to the conditions herein, and
in reliance on the representations, warranties and covenants set forth herein,
upon Closing Purchaser shall purchase from the Company, and the Company shall
issue and sell to Purchaser,                      Units, for a purchase price of
$1,000.00 per Unit (the “Purchase Price”).
1.3 Defined Terms Used in this Agreement. The following terms used in this
Agreement shall be construed to have the meanings set forth below.
“Affiliate” means with respect to any person or entity (a “Person”), any Person
which, directly or indirectly, controls, is controlled by, or is under common
control with such Person, including, without limitation, any partner, officer,
director, or member of such Person.
“Balance Sheet” means the Company’s balance sheet as of September 30, 2008
included in the Company’s Annual Report on Form 10-K for the transition period
ended September 30, 2008.
“Code” means the Internal Revenue Code of 1986, as amended.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Material Adverse Effect” means a material adverse effect on the assets or
liabilities of the Company.
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.

 

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2. Closing; Deliveries.
2.1 Closing. The purchase and sale of the Units shall occur upon the Company’s
execution of this Agreement and be effective as of the Effective Date (the
“Closing”).
2.2 Deliveries; Certificate of Designation.
(a) Shares and Warrants; Purchase Price. At the Closing, the Company shall
deliver to Purchaser certificates representing the Shares and the Warrants being
purchased by Purchaser against payment of the Purchase Price to the Company.
(b) Certificate of Designation. The Company has previously filed the Certificate
of Designation of the Company, in the form attached hereto as Exhibit B (as
amended, the “Certificate of Designation”), which establishes the rights and
preferences of the Series 5-A Preferred.
3. Representations and Warranties of the Company. The Company hereby represents
and warrants to Purchaser that the following representations are true and
correct as of the date hereof. For purposes of these representations and
warranties, the phrase “to the Company’s knowledge” shall mean the actual
knowledge of David Hirschhorn or Donnie Parkerson.
3.1 Organization, Good Standing, Corporate Power and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as presently conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
3.2 Capitalization. The authorized capital stock of the Company consists of (i)
100,000,000 shares of Common Stock, 8,177,629 shares of which are issued and
outstanding, and (ii) 5,000,000 shares of preferred stock, of which (a) 67,600
shares of Series 1-A Preferred Stock, par value $0.01 per share, (b) 3,900
shares of Series 2-A Preferred Stock, par value $0.01 per share, (c) 7,462
shares of Series 5-A Preferred Stock, par value $0.01 per share, and (d) 3,585
shares of Series 6-A Preferred are issued and outstanding. Except as disclosed
on Schedule 3.2 and as contemplated hereby, there are no outstanding
subscriptions, options, warrants, commitments, agreements or arrangements for or
relating to the issuance, or sale of, or outstanding securities convertible into
or exchangeable for, any shares of capital stock of any class or other equity
interests of the Company. As of the Closing, and after giving effect to the
transactions contemplated hereby, all of the outstanding shares of capital stock
of the Company will have been duly and validly authorized and issued and will be
fully paid and non-assessable and will have been offered, issued, sold and
delivered in compliance with applicable federal and state securities laws and
not subject to any preemptive rights. When issued in accordance with the terms
of the Series 5-A Preferred and the Warrants, the shares of Common Stock
issuable upon exercise of Series 5-A Preferred and the Warrants will be validly
issued, fully paid and non-assessable. The terms relating to the Warrants are as
set forth in Exhibit A attached hereto. The relative rights, preferences and
other terms relating to the Series 5-A Preferred are as set forth in Exhibit B
attached hereto. There are no preemptive rights, rights of first refusal, put or
call rights or obligations or any other purchase or redemption obligations or
anti-dilution rights with respect to the Company’s capital stock or any
interests therein, other than as disclosed on Schedule 3.2 or rights set forth
herein or in the Company’s Certificate of Incorporation or the Certificates of
Designation establishing such capital stock. Other than as set forth herein,
there are no rights to have the Company’s capital stock registered for sale to
the public in connection with the laws of any jurisdiction, and there are no
agreements relating to the voting of the Company’s voting securities or
restrictions on the transfer of the Company’s capital stock.
SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

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3.3 Authorization; No Conflict. The execution, delivery and performance by the
Company of this Agreement, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms. The execution of and performance of
the transactions contemplated by this Agreement and the compliance with its
provisions by the Company will not (a) conflict with or violate any provision of
the Certificate of Incorporation or Bylaws of the Company, (b) conflict with,
result in a breach of, constitute (with or without due notice or lapse of time
or both) a default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify or cancel, or require any notice, consent
or waiver under, any material contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest (as defined below) or other
arrangement to which the Company is a party or by which the Company is bound or
to which its assets are subject, (c) result in the imposition of any Security
Interest upon any assets of the Company or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its properties or assets. For purposes of this Agreement, “Security Interest”
means any mortgage, pledge, security interest, encumbrance, charge, or other
lien (whether arising by contract or by operation of law).
3.4 Valid Issuance of Shares. The Shares, when issued, sold and delivered in
accordance with the terms and for the consideration set forth in this Agreement,
will be validly issued, fully paid and non-assessable and free of restrictions
on transfer other than restrictions on transfer under applicable state and
federal securities laws and liens or encumbrances created by or imposed by
Purchaser. Assuming the accuracy of the representations of Purchaser in Section
4 of this Agreement, and subject to the filings described in Section 3.5 below,
the Shares will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon conversion of the Shares and
exercise of the Warrants has been duly reserved for issuance, and upon issuance,
will be validly issued, fully paid and non-assessable and free of restrictions
on transfer other than restrictions on transfer under applicable federal and
state securities laws and liens or encumbrances created by or imposed by
Purchaser. Based in part upon the representations of Purchaser in Section 4 of
this Agreement, and subject to Section 3.5 below, the Common Stock issuable upon
conversion of the Shares and exercise of the Warrants will be issued in
compliance with all applicable federal and state securities laws.
3.5 Governmental Consents and Filings. Assuming the accuracy of the
representations made by Purchaser in Section 4 of this Agreement, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority is required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing and such filings required to be made after the Closing under applicable
federal and state securities laws.
SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

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3.6 Subsidiaries. The Company’s subsidiaries are as set forth in the Company’s
Annual Report on Form 10-K for the transition period ended September 30, 2008.
3.7 Compliance with Laws. The Company has complied in all material respects with
all laws, regulations and orders applicable to its present and currently
proposed business and has all material permits and licenses required thereby,
except where the failure to have such permits or licenses would not have a
Material Adverse Effect.
3.8 Absence of Litigation. Except as disclosed in the Company’s periodic reports
filed with the Securities and Exchange Commission (the “SEC Filings”), there is
no action, suit or proceeding pending or, to the Company’s knowledge,
threatened, against the Company which questions the validity of this Agreement
or the right of the Company to enter into it, or which might result, either
individually or in the aggregate, in a Material Adverse Effect.
3.9 Absence of Liabilities. The Company does not have any material liabilities
or obligations, whether accrued, absolute, contingent or otherwise, of the type
required to be disclosed on a balance sheet other than (i) such matters as are
specifically and expressly set forth on the Balance Sheet or (ii) those which
have been incurred by the Company in the ordinary course of business during the
period from the date of the Balance Sheet to the date hereof.
3.10 Material Contracts and Obligations. Except as disclosed in the Company’s
SEC Filings or as disclosed on Schedule 3.10, the Company is not a party to, nor
is it bound by, any of the following types of agreements: (a) any agreement
which requires future expenditures by the Company in excess of $25,000 or which
might result in payments to the Company in excess of $25,000, (b) any agreement
with any current officer or director of the Company, or any “affiliate” or
“associate” of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act), including without limitation
any agreement or other arrangement providing for the furnishing of services by,
rental of real or personal property from, or otherwise requiring payments to,
any such Person, (c) any agreement under which the Company is restricted from
carrying on any business or other services anywhere in the world, (d) any
agreement for the disposition of a material portion of the Company’s assets or
(e) any agreement for the acquisition of the business or shares of another
party.
3.11 Changes. Except as disclosed in the Company’s SEC Filings, and in Schedule
3.11, since September 30, 2008, there has not been:
(a) any material change in the assets or liabilities of the Company from that
reflected on the Balance Sheet, except changes in the ordinary course of
business that have not caused, in the aggregate, a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by insurance, that
would have a Material Adverse Effect;
(c) any waiver or compromise by the Company of a valuable right or of a material
debt owed to it;
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(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment
of any obligation by the Company, except in the ordinary course of business and
the satisfaction or discharge of which would not have a Material Adverse Effect;
(e) any material change to a material contract or agreement by which the Company
or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder;
(g) any mortgage, pledge, transfer of a security interest in, or lien created
by, the Company, with respect to any of its material properties or assets,
except liens for taxes not yet due or payable and liens that arise in the
ordinary course of business and do not materially impair the Company’s ownership
or use of such property or assets;
(h) any loans or guarantees made by the Company to or for the benefit of its
employees, officers or directors, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of its
business;
(i) any declaration, setting aside or payment or other distribution in respect
of any of the Company’s capital stock, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock by the Company;
(j) to the Company’s knowledge, any other event or condition of any character,
other than events affecting the economy or the Company’s industry generally,
that could reasonably be expected to result in a Material Adverse Effect; or
(k) any agreement or commitment by the Company to do any of the foregoing.
3.12 Employees. The Company’s only current employees are David Hirschhorn,
Donnie Parkerson and Karla Soto.
3.13 Tax Returns and Payments. There are no federal, state, county, local or
foreign taxes due and payable by the Company which have not been timely paid.
There are no accrued and unpaid federal, state, country, local or foreign taxes
of the Company which are due, whether or not assessed or disputed. There have
been no examinations or audits of any tax returns or reports by any applicable
federal, state, local or foreign governmental agency. The Company has duly filed
all federal, state, county, local and foreign tax returns required to have been
filed by it and there are in effect no waivers of applicable statutes of
limitations with respect to taxes for any year.
3.14 No Stop Order. No stop order suspending or prohibiting the transactions
contemplated by this Agreement has been issued by the SEC or the regulatory
authorities of any state and, to the Company’s knowledge, no proceeding for that
purpose has been initiated or is threatened or contemplated by the SEC or the
regulatory authorities of any state.
SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

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3.15 Quotation of Common Stock. The Company’s Common Stock continues to be
quoted on the OTC Bulletin Board under the ticker symbol, “TISG.PK”.
3.16 Directors and Officer’s Liability Insurance. The Company has made all
payments under its existing policy of directors and officers’ liability
insurance on a timely basis.
4. Representations and Warranties of Purchaser. Purchaser hereby represents and
warrants to the Company that:
4.1 Authorization. The Purchaser has full power and authority to enter into this
Agreement. This Agreement, when executed and delivered by the Purchaser, will
constitute the valid and legally binding obligation of the Purchaser,
enforceable in accordance with its terms.
4.2 Purchase for Own Account; Accredited Investor. This Agreement is made with
the Purchaser in reliance upon the Purchaser’s representation to the Company,
which by the Purchaser’s execution of this Agreement, the Purchaser hereby
confirms, that the Shares to be acquired by the Purchaser will be acquired for
investment for the Purchaser’s own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
participations to such Person or to any third Person, with respect to any of the
Shares. The Purchaser has not been formed for the specific purpose of acquiring
the Shares. The Purchaser is an “accredited investor” as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act.
4.3 Experience. The Purchaser has carefully reviewed the representations
concerning the Company contained in this Agreement and has made detailed inquiry
concerning the Company, its business and its personnel. The officers of the
Company have made available to the Purchaser any and all information which the
Purchaser has requested and have answered to the Purchaser’s satisfaction all
inquiries made by the Purchaser; and the Purchaser has sufficient knowledge and
experience in finance and business that it is capable of evaluating the risks
and merits of its investment in the Company and the Purchaser is able
financially to bear the risks thereof.
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4.4 Restricted Securities. The Purchaser understands that the issuance of the
Shares and the Warrants and the Common Stock issuable upon conversion of the
Shares and exercise of the Warrants have not been registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Purchaser’s
representations as expressed herein. The Purchaser understands that the Shares,
the Warrants and the Common Stock issuable upon conversion of the Shares and
exercise of the Warrants are “restricted securities” under applicable U.S.
federal and state securities laws and that, pursuant to these laws, the
Purchaser must hold the Shares, the Warrants and such Common Stock indefinitely
unless the resales of same are registered with the SEC and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that, except as otherwise
provided herein, the Company has no obligation to register or qualify the resale
of the Shares, the Warrants or the Common Stock issuable upon conversion of the
Shares or exercise of the Warrants for resale. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, the
Warrants and the Common Stock issuable upon conversion of the Shares and
exercise of the Warrants, and on requirements relating to the Company which are
outside of the Purchaser’s control, and which the Company is under no obligation
and may not be able to satisfy.
4.5 Legends. The Purchaser understands that the Shares, the Warrants and any
securities issued in respect of or exchange for the Shares or exercise of the
Warrants, may bear one or all of the following legends:
(a) “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”
(b) Any legend required by the securities laws of any state to the extent such
laws are applicable to the Shares and the Warrants represented by the
certificate so legended.
5. Directors’ and Officers’ Insurance and Indemnification. From and after the
Closing and for a period of six years, the Company will provide standard and
customary directors’ and officers’ liability insurance coverage commercially
consistent with the then-applicable size of the Company and its operations to
current and former officers and directors of the Company (all such directors and
officers are referred to herein as the “Covered Persons”), including run-off for
past acts. From and after the Closing, the Company will fulfill and honor in all
respects the obligations of the Company pursuant to any indemnification
obligations of the Company with respect to each of the Covered Persons, and any
indemnification provisions under the Company’s Certificate of Incorporation and
Bylaws will contain provisions with respect to exculpation and indemnification
that are at least as favorable to the Covered Persons as those contained in the
Certificate of Incorporation and Bylaws of the Company as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six years from the Closing in any manner that would adversely affect
the rights of the Covered Persons, unless such modification is required by law.
This covenant shall be enforceable by the Covered Persons as third party
beneficiaries, and shall be binding on all successors and assigns of the
Company.
SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

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6. Registration Rights.
6.1 Registration Obligations. Upon demand by holders owning at least Fifty
Percent (50%) of the outstanding Shares, the Company shall include the shares of
Common Stock issuable upon conversion of the Series 5-A Preferred and exercise
of the Warrants (the “Registrable Securities”) in a registration statement
prepared by the Company and filed with the SEC within thirty (30) days of such
demand (the “Registration Statement”); provided, that no demand shall be made
sooner than the six month anniversary of the Closing and the Purchaser shall be
entitled to only one demand to register the resale of the Registrable Securities
pursuant to this Section 6.1. The Registration Statement will be on Form SB-2 or
other appropriate form (as the Company shall determine in its sole discretion)
and will permit the Registrable Securities to be offered on a continuous basis.
The Company shall use its commercially reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act by the
SEC as promptly as possible after the filing thereof. The Company shall use its
commercially reasonable efforts to keep the Registration Statement continuously
effective under the Securities Act until the date which is the earliest of
(a) the date on which all Registrable Securities have been sold, (b) the date on
which all Registrable Securities may be sold immediately without registration
under the Securities Act and without volume restrictions pursuant to Rule 144(b)
of the Securities Act or (c) two years from the date the Registration Statement
is declared effective by the SEC.
6.2 Suspension of Registration Obligations. The Company’s obligations under this
Section 8 shall be suspended if (a) the fulfillment of such obligations would
require the Company to make a disclosure that would be detrimental to the
Company, and the Company’s Board of Directors determines that it is in the best
interests of the Company to defer such obligations or (b) the fulfillment of
such obligations would require the Company to prepare financial statements not
required to be prepared by the Company to comply with its obligations under the
Exchange Act at the time the Registration Statement is proposed to be filed (the
period during which either of the preceding conditions is in effect is referred
to as a “Permitted Black-Out Period”). A Permitted Black-Out Period will end, as
applicable, upon the making of the relevant disclosure by the Company (or, if
earlier, when such disclosure would no longer be necessary or detrimental) or as
soon as it would no longer be necessary to prepare such financial statements to
comply with the Securities Act.
6.3 Expenses; Indemnification. The Company shall pay all costs and expenses
incurred by the Company in connection with the preparation and filing of the
Registration Statement, other than selling commissions and fees which shall be
the sole responsibility of the Purchaser. The Company and Purchaser shall
provide each other with customary indemnification rights in connection with the
Registration Statement prepared and filed with the SEC pursuant to this
Section 6.
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7. Indemnification.
7.1 Indemnification by the Company. The Company shall indemnify and hold
harmless Purchaser and its officers, directors, agents, Affiliates, principal
shareholders, successors and assigns from and against any and all claims,
demands, liabilities, obligations, damages, costs, and expenses (including
reasonable attorneys’ fees) (collectively, “Losses”) arising out of any breach
of the Company’s representations, warranties, covenants or agreements set forth
herein; provided, however, that (a) the Company shall not indemnify Purchaser
for any Losses resulting from Purchaser’s negligence or intentional misconduct
or any breach of Purchaser’s representations, warranties, covenants or
agreements hereunder; and (b) the Company’s total liability under this
Section 7.1 shall not exceed the aggregate consideration paid to the Company by
Purchaser for the Units issued and sold pursuant to this Agreement.
7.2 Indemnification by the Purchaser. Purchaser will indemnify and hold harmless
the Company and its officers, directors, agents, Affiliates, principal
shareholders, successors and assigns from and against any and all Losses arising
out of any breach of the Purchaser’s representations, warranties, covenants or
agreements set forth herein; provided, however, that the Purchaser shall not
indemnify the Company for any Losses resulting from the Company’s negligence or
intentional misconduct or any breach of the Company’s representations,
warranties, covenants or agreements hereunder.
8. Miscellaneous.
8.1 Survival of Representations and Warranties. The representations and
warranties of the Company and the Purchaser contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing for a period of one year following the Closing.
8.2 Successors and Assigns; No Third Party Beneficiaries. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of Delaware, without
regard to its principles of conflicts of laws.
8.4 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Agreement may also be executed and
delivered by facsimile signature and in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
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8.5 Notices. All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
electronic mail or facsimile if sent during normal business hours of the
recipient, and if not so confirmed, then on the next business day, (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the respective
parties at their address as set forth on the signature page, or to such e-mail
address, facsimile number or address as subsequently modified by written notice
given in accordance with this Section 8.5. If notice is given to the Company, a
copy shall also be sent to Kirkpatrick & Lockhart Preston Gates Ellis LLP, 1717
Main Street, Suite 2800, Dallas, Texas 75201, Attention: I. Bobby Majumder.
8.6 No Finder’s Fees. Each party represents that it neither is nor will be
obligated for any finder’s fee or commission in connection with the transactions
contemplated by this Agreement. Each Purchaser agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finder’s fee arising out of the transactions contemplated hereby
(and the costs and expenses of defending against such liability or asserted
liability) for which each Purchaser or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless Purchaser from any liability for any commission or compensation in the
nature of a finder’s or broker’s fee arising out of the transactions
contemplated hereby (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
8.7 Fees and Expenses. All fees and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such fees or expenses.
8.8 Amendments and Waivers. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended, terminated or waived only
with the written consent of the Company and the holders of at least a majority
of the then-outstanding Shares. Any amendment or waiver effected in accordance
with this Section 8.8 shall be binding upon the Purchaser and each transferee of
the Shares (or the Common Stock issuable upon conversion thereof), each future
holder of all such securities, and the Company.
8.9 Severability. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
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8.10 Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing to any party under this Agreement, upon any breach or default of
any other party under this Agreement, shall impair any such right, power or
remedy of such non-breaching or non-defaulting party, nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
8.11 Acknowledgement. Each party hereto acknowledges that: (a) it has read this
Agreement; (b) it has been represented in the preparation, negotiation and
execution of this Agreement by legal counsel of its own choice or has
voluntarily declined to seek such counsel; and (c) it understands the terms and
consequences of this Agreement and is fully aware of the legal and binding
effect of this Agreement.
8.12 Entire Agreement. This Agreement (including the Exhibits hereto)
constitutes the full and entire understanding and agreement among the parties
with respect to the subject matter hereof, and any other written or oral
agreement relating to the subject matter hereof existing among the parties is
expressly canceled.
[SIGNATURE PAGE FOLLOWS]
SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

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IN WITNESS WHEREOF, the parties have executed this Series 5-A Preferred Stock
and Warrant Purchase Agreement as of the date first written above.

            COMPANY:           TRI-ISTHMUS GROUP, INC.           By:          
DAVID HIRSCHHORN, CEO              Address:
      9663 Santa Monica Blvd., #959       Beverly Hills, California 90210   

SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

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            PURCHASER:
      By:           DAN CHEN              Company name (if applicable):
              Title (if applicable):
              Address:
                         

SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
[Purchaser Signature Page]

 

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EXHIBIT A

Form of Warrant
EXHIBIT A TO SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

A-1

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EXHIBIT “A”
WARRANT NO.           
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE WARRANT
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
UNLESS IT HAS BEEN REGISTERED UNDER THOSE LAWS OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Right to Purchase                      Shares
of Common Stock of Tri-Isthmus Group, Inc.
TRI-ISTHMUS GROUP, INC.
Common Stock Purchase Warrant
TRI-ISTHMUS GROUP, INC., a Delaware corporation (the “Company”), hereby
certifies that, for value received,                                         
(the “Holder”) is entitled, subject to the terms set forth below, to purchase
from the Company at any time on or before 5:00 p.m., Pacific Daylight Time, on
                    , 2011 (the “Expiration Date”)                      Thousand
(                    ) fully paid and nonassessable shares of common stock of
the Company, par value $0.01 per share (the “Common Stock”), at a purchase price
per share equal to the Purchase Price, as defined herein. The number of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided in this Warrant. The initial purchase price for shares subject to this
Warrant will be 50/100 Dollars ($0.50) per share (the “Initial Purchase Price”),
and will be adjusted from time to time as provided herein. The Initial Purchase
Price or, if such price has been adjusted, the price per share of Common Stock
as last adjusted pursuant to the terms hereof is referred to as the “Purchase
Price” herein.
1. Exercise of Warrant. This Warrant may be exercised by the Holder hereof in
full at any time until the Expiration Date by surrender of this Warrant and the
subscription form annexed hereto (duly executed by the Holder), to the Company,
and by making payment in cash or by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying (i) the number
of shares of Common Stock subject to the Warrant by (ii) the Purchase Price then
in effect.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable
after the exercise of this Warrant, the Company will cause to be issued in the
name of and delivered to the Holder hereof a certificate for the number of fully
paid and nonassessable shares of Common Stock (or Other Securities) to which the
Holder shall be entitled on such exercise, plus, in lieu of any fractional share
to which the Holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current fair market value (as reasonably determined by
the Company) of one full share, together with any other stock or other
securities or property (including cash, where applicable) to which the Holder is
entitled upon such exercise. “Other Securities” shall mean any stock (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the Holder at any time shall be entitled to receive, or
shall have received, on the exercise of this Warrant, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities
pursuant to Sections 3 or 4.

 

 

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3. Adjustment.
(a) Initial Purchase Price; Subsequent Adjustment of Price and Number of
Purchasable Shares. The Initial Purchase Price will be adjusted from time to
time as provided below. Upon each adjustment of the Purchase Price, the Holder
will thereafter be entitled to purchase, at the Purchase Price resulting from
such adjustment, the number of shares of Common Stock obtained by multiplying
the Purchase Price in effect immediately before such adjustment by the number of
shares of Common Stock purchasable pursuant to this Warrant immediately before
such adjustment and dividing the product by the Purchase Price resulting from
such adjustment.
(b) Adjustment for Stock Splits and Combinations. If the Company at any time or
from time to time after the date of this Warrant effects a subdivision of the
outstanding shares of Common Stock, by stock split or otherwise, the Purchase
Price then in effect immediately before that subdivision shall be
proportionately decreased; and, conversely, if the Company at any time or from
time to time after the date of this Warrant combines the outstanding shares of
Common Stock, by reverse stock split or otherwise, the Purchase Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 3(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(c) Adjustment for Certain Dividends and Distributions. In the event the Company
at any time or from time to time after the date of this Warrant either makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Purchase Price then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance on the close of business on such record date, and
(2) the denominator of which shall be (i) the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus (ii) the number of shares of
Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the
Purchase Price shall be recomputed accordingly as of the close of business on
such record date or date fixed therefor and thereafter the Purchase Price shall
be adjusted pursuant to this Section 3(c) as of the time of actual payment of
such dividend or distribution. For purposes of the foregoing formula, “the total
number of shares of Common Stock issued and outstanding” on a particular date
shall include shares of Common Stock issuable upon conversion of stock or
securities convertible into Common Stock and the exercise of warrants, options
or rights for the purchase of Common Stock which are outstanding on such date.

 

2

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(d) Adjustments for Other Dividends and Distributions. In the event the Company
at any time or from time to time after the date of this Warrant makes, or fixes
a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, then and in each such event, provision shall
be made so that the Holder shall receive upon exercise hereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount and kind
of securities of the Company which it would have received had this Warrant been
exercised for Common Stock as of the date of such event and had it thereafter,
during the period from the date of such event to and including the date of
exercise, retained such securities receivable by it as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 3 with respect to the rights of the Holder.
(e) Adjustment for Recapitalization, Reclassification, or Exchange. If the
Common Stock issuable upon the exercise of this Warrant is changed into the same
or a different number of shares of any class or classes of stock of the Company,
whether by recapitalization, reclassification or other exchange (other than a
subdivision or combination of shares, or a stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this
Section 3), then and in any such event the Holder shall have the right
thereafter to exercise this Warrant to purchase the kind and amount of stock and
other securities and property receivable upon such recapitalization,
reclassification or other exchange by holders of the number of shares of Common
Stock which might have been purchased under this Warrant immediately prior to
such recapitalization, reclassification or other exchange, all subject to
further adjustment as provided herein.
(f) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time
or from time to time there is a capital reorganization of the Common Stock
(other than a subdivision or combination of shares or a stock dividend or a
recapitalization, reclassification or other exchange of shares, provided for
elsewhere in this Section 3 or a merger or consolidation of the Company with or
into another corporation, or the sale of all or substantially all of the
Company’s assets to any other person), then, as a part of such capital
reorganization, provision shall be made so that the Holder shall thereafter be
entitled to receive upon exercise of this Warrant the number of shares of stock
or other securities or property of the Company, or of the successor corporation
resulting from such capital reorganization, to which a holder of the number of
shares of Common Stock deliverable upon such exercise would have been entitled
on such capital reorganization. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 3 with respect to
the rights of the Holder after the capital reorganization to the end that the
provisions of this Section 3 (including the number of shares deliverable upon
exercise of this Warrant) shall continue to be applicable after that event and
shall be as nearly equivalent to the provisions hereof as may be practicable.

 

3

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(g) Certificate of Adjustment. Upon the occurrence of each adjustment or
readjustment of the Purchase Price and/or the number of shares of Common Stock
subject to this Warrant, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof, and shall
prepare and furnish to the Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
4. Exercise upon Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company intends to (a) effect a reorganization,
(b) consolidate with or merge into any other person, (c) sell or transfer all or
substantially all of its properties or assets to any other person, (d) dissolve,
(e) consummate a public offering of its securities; or if the Company is sold
through the sale of its capital stock, then, notwithstanding any other provision
of this Warrant, in each such case, as a condition of such reorganization,
consolidation, merger, sale, dissolution, conveyance, or offering the Company
shall give at least ten (10) days’ notice to the Holder of such pending
transaction whereby the Holder shall have the right to exercise this Warrant
prior to any such reorganization, consolidation, merger, sale, dissolution,
conveyance or offering. Any exercise of this Warrant pursuant to notice under
this Section shall be conditioned upon the closing of such reorganization,
consolidation, merger, sale, dissolution, conveyance or offering which is the
subject of the notice and the exercise of this Warrant shall not be deemed to
have occurred until immediately prior to the closing of such transaction.
5. Further Assurances. The Company will take all action that may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock, free from all taxes, liens and charges
with respect to the issue thereof, on the exercise of all or any portion of this
Warrant from time to time outstanding.
6. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend on, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to or the sale, consolidation or
merger of the Company with, to or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding up of the
Company;

 

4

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then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten (10) days prior to such record date, a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made.
7. Reservation of Stock, etc., Issuable on Exercise of Warrants. The Company
will at all times reserve and keep available out of its authorized but unissued
shares of capital stock, solely for issuance and delivery on the exercise of
this Warrant, a sufficient number of shares of Common Stock (or Other
Securities) to effect the full exercise of this Warrant and the exercise,
conversion or exchange of any other warrant or security of the Company
exercisable for, convertible into, exchangeable for or otherwise entitling the
Holder to acquire shares of Common Stock (or Other Securities), and if at any
time the number of authorized but unissued shares of Common Stock (or Other
Securities) shall not be sufficient to effect such exercise, conversion or
exchange, the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock (or Other Securities) to such
number as shall be sufficient for such purposes.
8. Transfer of Warrant. This Warrant cannot be transferred without the prior
written consent of the Company, which consent shall not be unreasonably
withheld; provided, however, the Holder may transfer this Warrant to any of its
affiliates without such consent so long as such transfer complies with all
applicable securities laws.
9. No Rights as a Stockholder. This Warrant shall not entitle the Holder hereof
to any voting rights or other rights as a stockholder of the Company.
10. Notices, etc. All notices which are required to be given pursuant to this
Warrant shall be in writing and shall be delivered by certified mail, return
receipt requested, first class postage prepaid, or sent by overnight express or
similarly recognized overnight delivery with receipt acknowledged or by
facsimile, with a copy thereof sent by one of the other means. Notices shall be
deemed to have been given at the time delivered and shall be addressed as
follows or to such other address as a party may designate by proper notice
hereunder.

     
If to Holder:
  To the address set forth on the first page hereof.
 
   
If to the Company:
  Tri-Isthmus Group, Inc.
 
  9663 Santa Monica Blvd., #959
 
  Beverly Hills, California 90210
 
  Attn.: David Hirschhorn, Chief Executive Officer

 

5

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11. Securities Laws. By acceptance of this Warrant, the Holder hereby represents
to the Company that this Warrant is being acquired for investment for the
Holder’s own account, not as a nominee or agent, and not with a view to the
resale or distribution thereof, and that the Holder has no present intention of
selling, granting any participation in, or otherwise distributing this Warrant
or the Common Stock issuable upon exercise of this Warrant. By acceptance of
this Warrant, the Holder further represents that the Holder does not presently
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to this Warrant or the Common Stock issuable upon exercise of this
Warrant. The Holder is an “accredited investor” as the term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act and has sufficient
knowledge and experience in finance and business that it is capable of
evaluating the risks and merits of its investment in the shares subject to this
Warrant and the Holder is able financially to bear the risks thereof. The Holder
understands that the sale and issuance of this Warrant and the Common Stock
issuable upon exercise of this Warrant have not been registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Holder’s
representations as expressed herein. The Holder further recognizes and
acknowledges that because the sale and issuance of this Warrant and the Common
Stock issuable upon exercise of this Warrant are unregistered, they may not be
eligible for resale, and may only be resold in the future pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or pursuant to a valid exemption from such registration
requirements and that the Holder must, therefore, bear the economic risk of such
investment indefinitely.
12. Legend. Unless theretofore registered for resale under the Securities Act,
each certificate for shares of Common Stock issued upon exercise of this Warrant
shall bear the following or a similar legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR AN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
13. Miscellaneous. This Warrant and any terms hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Delaware, without regard to
conflict of laws principles. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
* * *

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on its
behalf by one of its officers thereunto duly authorized as of
                    , 2009.

            TRI-ISTHMUS GROUP, INC.
      By:           DAVID HIRSCHHORN        Chief Executive Officer   

[Signature page to Warrant]

 

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FORM OF SUBSCRIPTION
TRI-ISTHMUS GROUP, INC.
(To be signed only on exercise of Warrant)
TO: TRI-ISTHMUS GROUP, INC.
1. The undersigned Holder of the attached original, executed Warrant of
Tri-Isthmus Group, Inc., a Delaware corporation (the “Company”), hereby elects
to exercise its purchase right under such Warrant with respect to
                     (                    ) shares (the “Exercise Shares”) of
Common Stock (as defined in the Warrant), constituting all the shares of Common
Stock subject to the Warrant.
2. The undersigned Holder is hereby paying the aggregate purchase price for such
the Exercise Shares (i) by the enclosed certified or official bank check payable
in United States dollars to the order of the Company in the amount of
$                    , or (ii) by wire transfer of United States funds to the
account of the Company in the amount of $                    , which transfer
has been made before or simultaneously with the delivery of this Form of
Subscription pursuant to the instructions of the Company.
3. Please issue a stock certificate or certificates representing the Exercise
Shares in the name of the undersigned Holder.
Dated:                                        

                  Signature of Holder   

 

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EXHIBIT B
Form of Certificate of Designation
EXHIBIT B TO SERIES 5-A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT

 

B-1

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EXHIBIT “B”
CERTIFICATE OF DESIGNATION OF
RIGHTS AND PREFERENCES OF
SERIES 5-A CONVERTIBLE PREFERRED STOCK
OF
VSOURCE, INC.
Vsource, Inc., a corporation organized and existing under the laws of the State
of Delaware (the “Company”), hereby certifies as follows:
FIRST: That the name of the Company is Vsource, Inc., and the original
Certificate of Incorporation of the Company was filed with the Secretary of
State of the State of Delaware on November 8, 2000.
SECOND: That the Certificate of Incorporation of the Company authorizes the
issuance of 5,000,000 shares of Preferred Stock, with the Board of Directors of
the Company authorized to establish the rights and preferences thereof in
accordance with Section 151(g) of the Delaware General Corporation Law.
THIRD: That, on June 24, 2005, the Board of Directors of the Company duly
adopted resolutions setting forth the rights and preferences of the Series 5-A
Convertible Preferred Stock.
FOURTH: That the rights and preferences of the Series 5-A Convertible Preferred
Stock shall be as follows:
I. DESIGNATION AND AMOUNT
This series of Preferred Stock of Vsource, Inc., a Delaware corporation (the
“Company”), is designated Series 5-A Convertible Preferred Stock, par value
$0.01 per share (the “Series 5-A Preferred Stock”). The number of authorized
shares of Series 5-A Preferred Stock shall be 3,752.
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall have
the following meanings:
A. “Board” means the Board of Directors of the Company.
B. “Closing Date” means July 18, 2005.
C. “Closing Price” means (i) if the Common Stock is traded on a securities
exchange such as The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc. or on the NASDAQ National Market System or Small Cap Market, the
closing price of the Common Stock on such exchange or market on a given trading
day or, if no sale takes place on that day on such exchange or market, the
average of the official closing bid and asked prices for the Common Stock on
that trading day, or (ii) if the Common Stock is traded on the OTC Bulletin
Board, the closing bid price for the Common Stock on a given trading day.

 

 

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D. “Common Stock” means the common stock of the Company, par value $0.01 per
share.
E. “Conversion Price” shall initially be $0.3125 per share of Series 5-A
Preferred Stock. The Conversion Price shall be subject to adjustment pursuant to
Section VII.E.
F. “Effectiveness Period” means the period from the date on which a Registration
Statement is declared effective by the SEC until the date which is the earliest
of (a) the date on which all Registrable Securities have been sold, (b) the date
on which all Registrable Securities may be sold immediately without registration
under the Securities Act and without volume restrictions pursuant to Rule 144(k)
of the Securities Act or (c) two years from the date the Registration Statement
is declared effective by the SEC.
G. “Original Issue Price” means $1,000 per share (as adjusted for stock splits,
stock dividends, combinations and the like for the Series 5-A Preferred Stock).
H. “Permitted Black-Out Period” means the period during which (i) the Board
determines that fulfillment of the Company’s obligations to prepare and file a
Registration Statement, to cause such Registration Statement to be declared
effective by the SEC or to keep such Registration Statement continuously
effective would require the Company to make a disclosure that would be
detrimental to the Company and that it is in the best interests of the Company
to defer such obligations or (ii) the fulfillment of such obligations would
require the Company to prepare financial statements not required to be prepared
by the Company to comply with its obligations under the Securities Exchange Act
of 1934, as amended, at the time the Registration Statement is proposed to be
filed. A Permitted Black-Out Period will end, as applicable, upon the making of
the relevant disclosure by the Company (or, if earlier, when such disclosure
would no longer be necessary or detrimental) or as soon as it would no longer be
necessary to prepare such financial statements to comply with the Securities
Act.
I. “Redemption Price” means, with respect to a share of Series 5-A Preferred
Stock for which a Redemption Notice or a Company Redemption Notice has been
delivered, an amount equal to: (i) 120% of the Original Issue Price if the
redemption occurs during the first twelve (12) months following the Closing
Date; (ii) 110% of the Original Issue Price if the redemption occurs during the
second twelve (12) months following the Closing Date; (iii) 105% of the Original
Issue Price if the redemption occurs during the period starting on the
completion of the twenty-fourth (24) month following the Closing Date and ending
on the completion of the forty-eighth (48) month following the Closing Date; and
(iv) the Original Issue Price if the redemption occurs after completion of the
forty-eighth (48) month following the Closing Date.
J. “Registrable Securities” means the shares of Common Stock issuable upon
conversion of the Series 5-A Preferred Stock and exercise of the warrants issued
simultaneously with the issuance of Series 5-A Preferred Stock (the “Warrants”).

 

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K. “Registration Statement” means a registration statement filed by the Company
which covers the Registrable Securities.
L. “SEC” means the United States Securities and Exchange Commission.
M. “Securities Act” means the Securities Act of 1933, as amended.
N. “Triggering Event” means the occurrence of any of the following events: (i) a
Registration Statement is not declared effective by the SEC on or before the
date which is fifteen (15) months following the Closing Date or, during the
Effectiveness Period, an effective Registration Statement is not on file with
the SEC for any reason (including, without limitation, the issuance of a stop
order) for a period of twenty (20) consecutive trading days; provided, that a
Triggering Event shall not be deemed to occur if the failure to have an
effective Registration Statement on file is (x) due to factors within the
control of the holders of the Series 5-A Preferred Stock (including a failure to
make a demand for registration of the resale of the Series 5-A Preferred Stock)
or (y) the result of a Permitted Black-Out Period; (ii) the Common Stock is not
listed or eligible for quotation on one of the NASDAQ, the OTC Bulletin Board,
Nasdaq Small Cap Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc., for a period of five (5) consecutive trading days; (iii) the
Company’s issuance of a written notice to any holder of Series 5-A Preferred
Stock, including by way of public announcement, at any time, of its inability to
comply or its intention not to comply with proper requests for conversion of any
Series 5-A Preferred Stock into shares of Common Stock; (iv) the Company’s
failure to comply with a properly tendered Notice of Conversion within ten
(10) business days after the receipt by the Company of such Notice of
Conversion; or (v) the Company breaches any provision of this Certificate of
Designation and such breach is not cured within a reasonable period of time
following notice of such breach, except to the extent that such breach would not
have a material adverse effect on any holder of Series 5-A Preferred Stock.
III. DIVIDENDS
The holders of shares of Series 5-A Preferred Stock shall be entitled to
receive, out of any assets legally available therefor, when, as and if declared
by the Board, noncumulative dividends in an amount equal to $40 per share
annually. If shares of Series 5-A Preferred Stock are converted or redeemed in
accordance with the provisions of this Certificate of Designation following the
declaration of a dividend in accordance with the provisions herein, no dividends
shall be paid on such shares unless the applicable record date for such dividend
has occurred prior to such conversion or redemption. No dividend may be declared
and paid upon shares of Series 5-A Preferred Stock in any fiscal year of the
Company unless dividends have first been paid upon or declared and set aside for
payment to the holders of shares of the Company’s Series 1-A Preferred Stock and
Series 2-A Preferred Stock at the rates set forth in the Certificate of
Incorporation and the Certificate of Designation for the Series 2-A Preferred
Stock for such fiscal year of the Company. No undeclared or unpaid dividend
shall ever bear interest.

 

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IV. LIQUIDATION PREFERENCE
A. Liquidation of the Company. In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the holders of
Series 5-A Preferred Stock shall be entitled to receive, after distribution of
all amounts due to the holders of the Company’s Series 1-A Preferred Stock under
Article 4, Section C.2(a) and C.2(b) of the Company’s Certificate of
Incorporation, if any, (computed as if no shares of Series 5-A Preferred Stock
were then outstanding) and distribution of all amounts due to the holders of the
Company’s Series 2-A Preferred Stock under Section 4(a) and 4(b) of the
Certificate of Designation for such Series (computed as if no shares of
Series 5-A Preferred Stock were then outstanding), and prior and in preference
to any distribution of any of the assets or surplus funds of the Company to the
holders of the Common Stock by reason of their ownership thereof, a preference
amount for each outstanding share of Series 5-A Preferred Stock held by such
holder equal to (i) the Original Issue Price for that outstanding share of
Series 5-A Preferred Stock plus (ii) an amount equal to declared but unpaid
dividends on such share, if any, but only to the extent of the Company’s
retained earnings. Nothing in this Section IV will be construed to adversely
affect the rights, preferences, privileges or limitations of the holders of the
Series 1-A Preferred Stock or the Series 2-A Preferred Stock upon a liquidation,
dissolution or winding up of the Company or reduce the amount to which such
holders are entitled under the Company’s Certificate of Incorporation or the
Series 2-A Certificate of Designation (assuming for such purpose that no shares
of Series 5-A Preferred Stock were then outstanding).
B. For purposes of this Section IV, a liquidation, dissolution or winding up of
the Company shall be deemed to be occasioned by or to include (i) the
acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, reorganization,
merger or consolidation, excluding a merger solely to change the domicile of the
Company) or (ii) a sale of all or substantially all of the assets of the
Company; unless, in each case, the Company’s shareholders of record as
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Company’s acquisition or sale or otherwise) hold a majority of the
voting power of the surviving or acquiring entity. In any of such events, if the
consideration received by the Company is other than cash, its value will be
deemed its fair market value. The fair market value of common stock which is
publicly traded on an exchange or the NASDAQ National Market System or Small Cap
Market shall be the average of the daily market prices of that stock over the
twenty (20) consecutive trading days immediately preceding (and not including)
the date the Company or its shareholders receive such stock. The daily market
price for each trading day shall be: (A) the closing price on that day on the
principal exchange or NASDAQ on which such common stock is then listed or
admitted to trading, as applicable; or (B) if no sale takes place on that day on
such exchange or NASDAQ, the average of the official closing bid and asked
prices for that stock. Otherwise, the fair market value of such consideration
shall be determined in good faith by the Board and provided in writing by the
Company to the holders of the Series 5-A Preferred Stock within five (5) days of
the date of such determination; provided, however, that the fair market value of
such consideration shall be determined by appraisal in accordance with the
following provisions if the holders of at least two-thirds of the then
outstanding Series 5-A Preferred Stock

 

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object in writing to the Board’s determination within fifteen (15) days of their
receipt of notice of such determination by the Board. A single appraiser shall
be selected jointly by the holders of a majority of the outstanding Series 5-A
Preferred Stock and the Company. If the holders of the Series 5-A Preferred
Stock and the Company are unable to agree on an appraiser within twenty
(20) days of the Board receiving notice of such holders’ objection to the
Board’s determination, each shall immediately appoint an appraiser who shall
determine such fair market value. If the lower of the appraised fair market
values is not less than ninety percent (90%) of the higher appraised fair market
value, the final fair market value of such consideration shall be the average of
the appraised values. If the lower of the appraised values is less than ninety
percent (90%) of the higher appraised value, the original appraisers shall
appoint a final appraiser who shall pick one of the two prior values determined
by the first two appraisers. All appraisal reports shall be completed no later
than sixty (60) days after the appointment of the appraiser engaged to render
such appraisal. All appraisal fees and costs shall be paid by the Company;
provided, however, that if the final appraised value is no more than ten percent
(10%) higher than that determined by the Board, the appraisal fees and costs
shall be subtracted from the liquidation preference to be paid to the holders of
the Series 5-A Preferred Stock.
V. REDEMPTION
A. Redemption at the Option of the Company. The Company, at its option, may
redeem any or all of the outstanding shares of Series 5-A Preferred Stock at any
time upon five (5) business days’ prior written notice to each holder of shares
of Series 5-A Preferred Stock (a “Company Redemption Notice”), at a price per
share equal to the (i) Redemption Price then in effect plus (ii) an amount equal
to any declared but unpaid dividends on such share (collectively, the
“Redemption Amount”); provided, that if a holder of Series 5-A Preferred Stock
has delivered a Notice of Conversion to the Company prior to its receipt of the
Company Redemption Notice or delivers a Notice of Conversion within 24 hours of
receipt of the Company Redemption Notice, the shares of Series 5-A Preferred
Stock designated to be redeemed by the Company may be converted into Common
Stock by such holder in accordance with the terms of this Certificate of
Designation. In the event the Company elects to redeem less than all of the
outstanding shares of Series 5-A Preferred Stock, the Company shall redeem
shares of Series 5-A Preferred Stock on a pro rata basis, based on the number of
shares of Series 5-A Preferred Stock held by each holder relative to the total
number of shares of Series 5-A Preferred Stock outstanding as of the time of
such redemption.
B. Redemption on a Triggering Event. If and as long as a Triggering Event shall
have occurred and remain in effect, the holders of a majority of the outstanding
shares of Series 5-A Preferred Stock shall have the right, at such holders’
option, to require the Company to redeem all of such holders’ shares of
Series 5-A Preferred Stock at a price per share equal to the Original Issue
Price plus an amount equal to any declared but unpaid dividends on such share
(the “Holder Redemption Amount”) by delivery of written notice to the Company (a
“Redemption Notice”).

 

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C. Redemption Payments. The Company shall pay a holder of Series 5-A Preferred
Stock the Holder Redemption Amount or the Redemption Amount, by check or wire
transfer of immediately available funds, with respect to each share of
Series 5-A Preferred Stock within (i) ten (10) business days of the Company’s
receipt of a Redemption Notice or (ii) ten (10) business days of the Company’s
delivery of a Company Redemption Notice, as the case may be. In the event the
Company is not able to redeem all of the shares of Series 5-A Preferred Stock
subject to Redemption Notices, the Company shall redeem shares of Series 5-A
Preferred Stock from such holders pro rata, based on the total number of shares
of Series 5-A Preferred Stock included by such holder in its Redemption Notice
relative to the total number of shares of Series 5-A Preferred Stock in all
Redemption Notices; provided, that the foregoing shall not be deemed to limit
the Company’s obligation to purchase shares of Series 5-A Preferred Stock
hereunder.
D. Capital Impairment. In the event that Section 160 of the DGCL would be
violated by the redemption of any shares of Series 5-A Preferred Stock that are
otherwise subject to redemption pursuant to Section V.B., the Company: (i) will
redeem the greatest number of shares of Series 5-A Preferred Stock possible
without violation of said Section pro rata among the shares of Series 5-A
Preferred Stock which are subject to Redemption Notices; (ii) thereafter shall
use its best efforts to take all necessary steps in order to remedy its capital
structure in order to allow further redemptions without violation of said
Section (and not take any action inconsistent with so remedying such capital
structure); and (iii) from time to time thereafter as promptly as possible,
shall redeem remaining shares of Series 5-A Preferred Stock at the request of
the holders to the greatest extent possible without causing a violation of
Section 160 of the DGCL.
VI. VOTING RIGHTS
A. The holder of each share of Series 5-A Preferred Stock shall have the right
to one vote for each share of Common Stock into which such share of Series 5-A
Preferred Stock could then be converted (with any fractional share determined on
an aggregate conversion basis being rounded down to the nearest whole share),
and with respect to such vote, such holder shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders’ meeting in accordance with the bylaws of the Company, and shall be
entitled to vote, together with holders of Common Stock, with respect to any
question upon which holders of Common Stock have the right to vote.
B. To the extent that under applicable law the vote of the holders of the
Series 5-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 a majority of shares of the
Series 5-A Preferred Stock represented at a duly held meeting at which a quorum
is present or by written consent of a majority of the Series 5-A Preferred Stock
then outstanding (except as otherwise may be required by applicable law) shall
constitute the approval of such action by the class.

 

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VII. CONVERSION
A. Right to Convert. Each holder of Series 5-A Preferred Stock may, at its
option, at any time and from time to time, convert any or all of its shares of
Series 5-A Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock of the Company (any such shares issued pursuant to this
Section VII, the “Conversion Shares”) as is determined by dividing (i) the
Original Issue Price of such shares plus any declared but unpaid dividend on
such shares by (ii) the Conversion Price then in effect.
B. Automatic Conversion. At any time, each share of Series 5-A Preferred Stock
outstanding shall be converted into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing (i) the Original Issue Price
of such share plus any declared but unpaid dividend on such share by (ii) the
Conversion Price then in effect immediately upon the date specified by a written
notice (“Automatic Election Notice”) delivered to the Company by the holders of
not less than the majority of the outstanding shares of the Series 5-A Preferred
Stock electing to effect the conversion. The Automatic Election Notice shall be
delivered to the Company not less than ten (10) business days prior to the
specified date of the automatic conversion. Within three (3) business days of
receipt of the Automatic Election Notice, the Company shall provide written
notice to all record holders of Series 5-A Preferred Stock of the election of
such automatic conversion. Such notice shall state the date on which the
automatic conversion shall occur and shall call upon the holders of Series 5-A
Preferred Stock to deliver to the Company the certificates representing shares
of Series 5-A Preferred Stock so converted (or, in lieu thereof, materials
contemplated by Section VII.J., if applicable). Upon the delivery of such
certificates (or, in lieu thereof, materials contemplated by Section VII.J., if
applicable), the Company shall as soon as practicable, deliver to the
transmitting holders (or at their direction) that number of shares of Common
Stock issuable upon conversion of such shares of Series 5-A Preferred Stock
being converted, dated as of the date of such conversion. Such conversion shall
be deemed to have been made (and the shares of Common Stock issued) on the date
of such automatic conversion, and the holders of the Series 5-A Preferred Stock
so converted shall be treated for all purposes as the record holder or holders
of such Common Stock as of the date of such conversion specified in the
Automatic Election Notice.
C. Conversion by Company. The Company, at its option, may convert (a “Company
Conversion”) all shares of the Series 5-A Preferred Stock into shares of Common
Stock at the then applicable Conversion Price in the event the Closing Price of
the Common Stock exceeds $0.65 per share (as adjusted for stock splits,
recapitalizations, stock dividends and the like, the “Mandatory Redemption
Trigger”) for the thirty (30) consecutive trading days prior to the mailing of
the Company Conversion Notice (as defined below), provided, that no Triggering
Event is in effect at the time of the mailing of such notice. Not less than ten
(10) business days prior to the effective date of the Company Conversion, the
Company shall provide written notice (a “Company Conversion Notice”) to all
record holders of Series 5-A Preferred Stock of such Company Conversion. Such
Company Conversion Notice shall state the date on which the Company Conversion
shall occur and shall call upon the holders of Series 5-A Preferred Stock to
deliver to the Company the certificates representing shares of Series 5-A
Preferred Stock so converted (or, in lieu thereof, materials contemplated by
Section VII.J., if applicable). Upon the delivery of such certificates (or, in
lieu thereof, materials contemplated by Section VII.J., if applicable), the
Company shall as soon as practicable, deliver to the transmitting holders (or at
their direction) that number of shares of Common Stock issuable upon conversion
of such shares of Series 5-A Preferred Stock being converted, dated as of the
date of such conversion. Such Company Conversion shall be deemed to have been
made (and the shares of Common Stock issued) on the date of such Company
Conversion, and the holders of the Series 5-A Preferred Stock so converted shall
be treated for all purposes as the record holder or holders of such Common Stock
as of the date of such conversion specified in the Company Conversion Notice.

 

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D. Mechanics of Conversion. In order to effect a conversion pursuant to Section
VII.A, a holder of Series 5-A Preferred Stock shall fax (or otherwise deliver) a
copy of the fully executed notice of conversion (in substantially the form
attached hereto as Exhibit A, the “Notice of Conversion”) to the Company or its
transfer agent and shall surrender or cause to be surrendered personally or via
a reputable overnight courier to the Company or its transfer agent the
certificates representing the Series 5-A Preferred Stock being converted (the
“Preferred Stock Certificates”) duly endorsed or accompanied by duly executed
stock powers (or, in lieu thereof, materials contemplated by Section VII.J., if
applicable). Upon the delivery of a Notice of Conversion, the Company shall as
soon as practicable, deliver to the holder (or at its direction) (x) that number
of shares of Common Stock issuable upon conversion of such shares of Series 5-A
Preferred Stock being converted and (y) a certificate representing the number of
shares of Series 5-A Preferred Stock not being converted, if any. Such
conversion shall be deemed to have been made (and the shares of Common Stock
issued) immediately prior to the close of business on the date of surrender of
the Preferred Stock Certificates (or such other later date specified in the
Notice of Conversion), and the person entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
E. Conversion Price Adjustments. The Conversion Price shall be subject to the
following adjustments:
(1) Adjustment for Stock Splits and Combinations. If the Company at any time or
from time to time after the Closing Date effects a subdivision of the Common
Stock of the Company, by stock split or otherwise, the Conversion Price then in
effect immediately before that subdivision shall be proportionately decreased;
and, conversely, if the Company at any time or from time to time after the
Closing Date combines the outstanding shares of Common Stock, by reverse stock
split or otherwise, the Conversion Price then in effect immediately before that
combination shall be proportionately increased. Any adjustment under this
Section VII.E(1) shall become effective at the close of business on the date the
subdivision or combination becomes effective.

 

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(2) Adjustment for Certain Dividends and Distributions. In the event the Company
at any time or from time to time after the Closing Date either makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (a) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance on the close of business on such record date, and
(b) the denominator of which shall be (i) the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance as
of the close of business on such record date plus (ii) the number of shares of
Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the
Conversion Price shall be recomputed accordingly as of the close of business on
such record date or date fixed therefor and thereafter the Conversion Price
shall be adjusted pursuant to this Section VII.E(2) as of the time of actual
payment of such dividend or distribution. For purposes of the foregoing formula,
“the total number of shares of Common Stock issued and outstanding” on a
particular date shall include shares of Common Stock issuable upon conversion of
stock or securities convertible into Common Stock and the exercise of warrants,
options or rights for the purchase of Common Stock which are outstanding on such
date.
(3) Adjustments for Other Dividends and Distributions. In the event the Company
at any time or from time to time after the Closing Date makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Company other than
shares of Common Stock, then and in each such event, provision shall be made so
that each holder of Series 5-A Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable thereon,
the amount and kind of securities of the Company which it would have received
had such shares of Series 5-A Preferred Stock been converted into Common Stock
as of the date of such event and had it thereafter, during the period from the
date of such event to and including the date of conversion, retained such
securities receivable by it as aforesaid during such period, subject to all
other adjustments called for during such period hereunder with respect to the
rights of such holder.
(4) Adjustment for Recapitalization, Reclassification, or Exchange. If the
Common Stock issuable upon the conversion of the Series 5-A Preferred Stock is
changed into the same or a different number of shares of any class or classes of
stock of the Company, whether by recapitalization, reclassification or other
exchange (other than a subdivision or combination of shares, or a stock dividend
or a reorganization, merger, consolidation or sale of assets, provided for
elsewhere in this Section VII.E), then and in any such event each holder of
Series 5-A Preferred Stock shall be entitled to convert its shares of Series 5-A
Preferred Stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other
exchange by holders of the number of shares of Common Stock into which the
shares of Series 5-A Preferred Stock then held by such holder could be converted
immediately prior to such recapitalization, reclassification or other exchange,
all subject to further adjustment as provided herein.

 

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(5) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time
or from time to time there is a capital reorganization of the Common Stock
(other than a subdivision or combination of shares or a stock dividend or a
recapitalization, reclassification or other exchange of shares, provided for
elsewhere in this Section VII.E or a merger or consolidation of the Company with
or into another corporation, or the sale of all or substantially all of the
Company’s assets to any other person), then, as a part of such capital
reorganization, provision shall be made so that each holder of Series 5-A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
shares of Series 5-A Preferred Stock then held by such holder the number of
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such capital reorganization, to which a
holder of the number of shares of Common Stock deliverable upon such exercise
would have been entitled on such capital reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section VII.E with respect to the rights of each holder of Series 5-A
Preferred Stock, after the capital reorganization to the end that the provisions
of this Section VII.E (including the number of shares deliverable upon
conversion of the Series 5-A Preferred Stock) shall continue to be applicable
after that event and shall be as nearly equivalent to the provisions hereof as
may be practicable.
(6) Sale of Shares Below Conversion Price.
(a) If at any time or from time to time after the Closing Date, the Company
issues or sells Additional Shares of Common Stock (as hereinafter defined), or
securities convertible into or exchangeable for Additional Shares of Common
Stock, in connection with a transaction resulting in gross proceeds to the
Company of at least $1,000,000 (a “Subsequent Financing”) for an Effective Price
(as hereinafter defined) less than the then existing Conversion Price (i) on or
before the one-year anniversary of the Closing Date, then the Conversion Price
shall be reduced to an amount equal to such Effective Price effective as of the
closing of such Subsequent Financing or (ii) at any time following the one-year
anniversary of the Closing Date, then the Conversion Price shall be reduced,
effective as of the closing of such Subsequent Financing, to a price determined
by multiplying that Conversion Price by a fraction, the numerator of which shall
be (A) the number of shares of Common Stock outstanding as of the close of
business on the day preceding the closing of the Subsequent Financing (treating
for this purpose as outstanding all shares of Common Stock issuable upon
exercise of all rights, options or warrants or upon conversion of all securities
convertible into or exchangeable for Common Stock (including the Series 1-A
Preferred Stock, the Series 2-A Preferred Stock and the Series 5-A Preferred
Stock) outstanding as of the close of business on the day preceding the closing
of the Subsequent Financing) plus (B) the number of shares of Common Stock which
the aggregate consideration received (or by the

 

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express provisions hereof is deemed to have been received) by the Company for
the total number of Additional Shares of Common Stock (or securities convertible
into or exchangeable for Additional Shares of Common Stock) so issued would
purchase at such Conversion Price (prior to such adjustment) and the denominator
of which shall be (X) the number of shares of Common Stock outstanding
immediately prior to the closing of the Subsequent Financing (treating for this
purpose as outstanding all shares of Common Stock issuable upon exercise of all
rights, options or warrants or upon conversion of all securities convertible
into or exchangeable for Common Stock (including the Series 1-A Preferred Stock,
the Series 2-A Preferred Stock and the Series 5-A Preferred Stock) outstanding
as of the close of business on the day preceding the closing of the Subsequent
Financing) plus (Y) the number of such Additional Shares of Common Stock issued
or sold in the Subsequent Financing.
For the purpose of making any adjustment required under this Section VII.E(6),
the consideration received by the Company for any issue or sale of securities
shall (A) to the extent it consists of cash be computed at the amount of cash
received by the Company, (B) to the extent it consists of property other than
cash, be computed at the fair market value of that property as determined in
good faith by the Board, and (C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined) or rights or options to purchase
either Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the Company for
a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(b) For the purpose of the adjustment required under this Section VII.E(6), if
the Company issues or sells any rights or options for the purchase of, or stock
or other securities convertible into, Additional Shares of Common Stock (such
convertible stock or securities being hereinafter referred to as “Convertible
Securities”) and if the Effective Price of such Additional Shares of Common
Stock is less than the Conversion Price then in effect, then in each case the
Company shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Company for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof. No further
adjustment of the Conversion Price, adjusted upon the issuance of such rights,
options or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such rights
or options or the conversion of any such

 

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Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Conversion Price as adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities.
(c) “Additional Shares of Common Stock” shall mean all shares of Common Stock
issued (or deemed issued hereunder) by the Company after the Closing Date,
whether or not subsequently reacquired or retired by the Company, other than:
(A) shares of Common Stock issued upon conversion or exchange of the Series 5-A
Preferred Stock or any other options or warrants or convertible securities
outstanding or issuable on the Closing Date including, without limitation, the
Warrants; (B) shares of Common Stock issued upon conversion or exchange of the
Series 2-A Preferred Stock pursuant to Section 7 of the Certificate of
Designation creating the Series 2-A Preferred Stock; (C) shares of Common Stock
issued upon conversion or exchange of the Series 1-A Preferred Stock pursuant to
Article 4, Section C.5 of the Certificate of Incorporation; (D) shares of Common
Stock issuable or issued to the directors, officers and employees of or
consultants to the Company pursuant to a plan approved by the Board of Directors
of the Company; (E) shares of Common Stock issuable or issued as part of an
acquisition by the Company of all of or certain assets (including technology
rights) or shares of another company or entity whether through a purchase,
merger, exchange, reorganization or the like; and (F) shares of Common Stock
issuable or issued pursuant to equipment financing or leasing arrangements. The
“Effective Price” of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold by the Company under this
Section VII.E(6), into the aggregate consideration received, or deemed to have
been received by the Company for such issue under this Section VII.E(6), for
such Additional Shares of Common Stock.
(7) Upon the occurrence of each adjustment or readjustment of the Conversion
Price, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof, and shall prepare and furnish
to the holders of Series 5-A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

 

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F. Reservation of Stock Issuable Upon Conversion. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series 5-A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series 5-A Preferred Stock and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series 5-A Preferred Stock,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Company’s Certificate of
Incorporation.
G. Fractional Shares. No fractional share shall be issued upon the conversion of
any share or shares of Series 5-A Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series 5-A Preferred Stock by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Company
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (determined as provided in Section IV.B).
H. Notices. Any notice required by the provisions of this Section VII to be
given to the holders of shares of Series 5-A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, return receipt
requested, and addressed to each holder of record at its address appearing on
the books of the Company.
I. Valid Issue. The Company will ensure that all Conversion Shares issued
pursuant to this Section VII, if any, will be duly and validly issued,
fully-paid and non-assessable, and free and clear of all encumbrances, liens,
mortgages and any other rights of third parties whatsoever.
J. Lost or Stolen Certificates. Upon receipt by the Company of (i) evidence of
the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s)
and (ii) (x) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Company, or (y) in the case of mutilation, upon surrender
and cancellation of the Preferred Stock Certificate(s), the Company shall
execute and deliver new Preferred Stock Certificate(s) of like tenor and date.
However, the Company shall not be obligated to reissue such lost or stolen
Preferred Stock Certificate(s) if a holder of Series 5-A Preferred Stock
contemporaneously requests the Company to convert such Preferred Stock.

 

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VIII. AMENDMENT
Any term relating to the Series 5-A Preferred Stock may be amended and the
observance of any term relating to the Series 5-A Preferred Stock may be waived
(either generally or in a particular instance) only with the vote or written
consent of holders of a majority of the outstanding shares of the Series 5-A
Preferred Stock. Any amendment so effected shall be binding upon the Company and
any holder of the Series 5-A Preferred Stock.
IX. PROTECTIVE PROVISIONS
So long as at least 25% of the authorized shares of Series 5-A Preferred Stock
remain outstanding, the Company shall not, without the vote or written consent
by the holders of a majority of the outstanding shares of Series 5-A Preferred
Stock, voting together as a single class:
A. Amend, alter or repeal the provisions of the Series 5-A Preferred Stock in
this Certificate of Designation, whether by merger, consolidation or otherwise,
so as to adversely affect any right, preference, privilege or voting power of
the Series 5-A Preferred Stock;
B. Repurchase, redeem or pay dividends or effect any other distribution on,
shares of the Company’s capital stock ranking junior to the Series 5-A Preferred
Stock, other than dividends payable in capital stock of the Company; or
C. Amend the Certificate of Incorporation (including by way of a Certificate of
Designation) or bylaws of the Company to change materially and adversely the
rights, preferences, privileges or limitations of the Series 5-A Preferred
Stock;
provided, that the foregoing shall in no way limit the Company’s ability to
authorize, create or issue any class of capital stock ranking senior (in terms
of dividends, liquidation preference or redemption) to, or pari passu with, the
Series 5-A Preferred Stock.
X. NO REISSUANCE OF SERIES 5-A PREFERRED STOCK
No share or shares of Series 5-A Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be returned to the status of undesignated shares of
Preferred Stock.
* * *

 

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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation
this 29th day of June, 2005.

            VSOURCE, INC.
      By:           Name:   Dennis M. Smith        Title:   Chief Executive
Officer   

 

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EXHIBIT A
NOTICE OF CONVERSION

ATTN:   CHIEF EXECUTIVE OFFICER

CHIEF FINANCIAL OFFICER

The undersigned hereby irrevocably elects to convert (the “Conversion”) the
number of shares of the Series 5-A Convertible Preferred Stock (the “Series 5-A
Preferred Stock”) set forth below (the “Amount of Preferred Stock”), plus all
declared and unpaid dividends thereof, into shares of common stock (“Common
Stock”) of Vsource, Inc. (the “Company”) according to the conditions of the
Certificate of Designation, as of the date written below.
In the event of partial exercise, please reissue an appropriate certificate for
the principal balance which shall not have been converted.

     
 
  Date of Conversion:
                                                            
 
  Applicable Conversion Price:                                                
 
  Amount of Preferred stock:                                                   
 
  Number of Shares of Common Stock to be Issued upon conversion:
                                                            

         
 
  Signature:    
 
         
 
  Name:    
 
         
 
  Address:    
 
       

         
 
   Fax Number (for confirmation):    

cc:                                          [Transfer Agent]
Acknowledged And Agreed:
VSOURCE, INC.

                     
By:
                                     
 
  Name:                
 
                   
 
  Title:           Date:    
 
                   

 

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EXHIBIT “B”
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF DESIGNATION
OF
SERIES 5-A CONVERTIBLE PREFERRED STOCK
OF
TRI-ISTHMUS GROUP, INC.
Pursuant to the provisions of Section 242(a)(3) of the Delaware General
Corporation Law, Tri-Isthmus Group, Inc., a Delaware corporation (the
“Corporation”), executes the following Certificate of Amendment to its
Certificate of Designation of Rights and Preferences of Series 5-A Convertible
Preferred Stock (the “Certificate of Designation”).
ARTICLE I
The name of the Corporation is Tri-Isthmus Group, Inc.
ARTICLE II
The Certificate of Designation is hereby amended as set forth below:
The definition of “Triggering Event” in Section I(N) of the Certificate of
Designation is deleted in its entirety and replaced with the following:
“N. “Triggering Event” means the occurrence of any of the following events:(i)
the Common Stock is not listed or eligible for quotation on the Nasdaq Global
Market, the OTC Bulletin Board, Nasdaq Capital Market, The New York Stock
Exchange, Inc., The American Stock Exchange, Inc. or any other public securities
market, for a period of five (5) consecutive trading days; (ii) the Company’s
issuance of a written notice to any holder of Series 5-A Preferred Stock,
including by way of public announcement, at any time, of its inability to comply
or its intention not to comply with proper requests for conversion of any
Series 5-A Preferred Stock into shares of Common Stock; (iii) the Company’s
failure to comply with a properly tendered Notice of Conversion within ten
(10) business days after the receipt by the Company of such Notice of
Conversion; or (iv) the Company breaches any provision of this Certificate of
Designation and such breach is not cured within a reasonable period of time
following notice of such breach, except to the extent that such breach would not
have a material adverse effect on any holder of Series 5-A Preferred Stock.”

 

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Section V(A) of the Certificate of Designation is deleted in its entirety and
replacing it with the following:
“A. Redemption at the Option of the Company. The Company, at its option, may
redeem any or all of the outstanding shares of Series 5-A Preferred Stock at any
time upon five (5) business days’ prior written notice to each holder of shares
of Series 5-A Preferred Stock (a “Company Redemption Notice”), at a price per
share equal to the (i) Redemption Price then in effect plus (ii) an amount equal
to any declared but unpaid dividends on such share (collectively, the
“Redemption Amount”); provided, that if a holder of Series 5-A Preferred Stock
has delivered a Notice of Conversion to the Company prior to its receipt of the
Company Redemption Notice or delivers a Notice of Conversion within five
(5) business days of the date of the Company Redemption Notice, the shares of
Series 5-A Preferred Stock designated to be redeemed by the Company may be
converted into Common Stock by such holder in accordance with the terms of this
Certificate of Designation. In the event the Company elects to redeem less than
all of the outstanding shares of Series 5-A Preferred Stock, the Company shall
redeem shares of Series 5-A Preferred Stock on a pro rata basis, based on the
number of shares of Series 5-A Preferred Stock held by each holder relative to
the total number of shares of Series 5-A Preferred Stock outstanding as of the
time of such redemption.”
Except as modified by the terms and provisions of this Certificate of Amendment,
each and every term and provision of the Certificate of Designation is and shall
remain in full force and effect. The modification as provided herein shall in no
manner vitiate, impair or affect the Certificate of Designation (except as
modified herein), and all of the terms and provisions of the Certificate of
Designation (as modified herein) are hereby restated and affirmed.
ARTICLE III
The foregoing amendment has been approved in the manner required by the laws of
the state of Delaware and the constituent documents of the Corporation.
[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, and in accordance with Section 242 of the Delaware General
Corporation Law, the undersigned has executed this Certificate of Amendment to
the Certificate of Designation as of the  _____  day of May, 2008.

            TRI-ISTHMUS GROUP, INC.
      By:           Name:   David Hirschhorn        Title:   Chief Executive
Officer