Document:

exv10w1

 

Exhibit 10.1

COVAD COMMUNICATIONS GROUP, INC.

INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (“Agreement”) is made as of this ___th day of                     , 2007, by
and between Covad Communications Group, Inc., a Delaware corporation (the “Company”), and
                                         (“Indemnitee”).

     WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining
directors’ and officers’ liability insurance, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;

     WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate
litigation in general, subjecting officers and directors to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely limited; and

     WHEREAS, the Company desires to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify
its officers and directors so as to provide them with the maximum protection permitted by law.

     NOW, THEREFORE, in consideration for Indemnitee’s services as an officer or director of the
Company, the Company and Indemnitee hereby agree as follows:

     1. Indemnification.

          (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a
party or is threatened to be made a party to any threatened, pending or completed action, suit,
proceeding or any alternative dispute resolution mechanism, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Company) by reason of the fact
that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary
of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in
connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s
conduct was unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that Indemnitee’s conduct was
unlawful.

 

 

          (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if
Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company or any subsidiary of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, or by reason of the
fact that Indemnitee is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts
paid in settlement actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company, except that no
indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall
have been adjudged to be liable to the Company unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other court shall deem
proper.

          (c) Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in Subsections (a) and
(b) of this Section 1, or in defense of any claim, issue or matter therein, Indemnitee shall be
indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by
Indemnitee in connection therewith.

     2. Agreement to Serve. In consideration of the protection afforded by this Agreement, if
Indemnitee is a director of the Company he agrees to serve at least for the 90 days after the
effective date of this Agreement as a director and not to resign voluntarily during such period
without the written consent of a majority of the Board of Directors. If Indemnitee is an officer of
the Company not serving under an employment contract, he agrees to serve in such capacity at least
for 90 days and not to resign voluntarily during such period without the written consent of a
majority of the Board of Directors. Following the applicable period set forth above, Indemnitee
agrees to continue to serve in such capacity at the will of the Company (or under separate
agreement, if such agreement exists) so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any subsidiary of the
Company or until such time as he tenders his resignation in writing. Nothing contained in this
Agreement is intended to create in Indemnitee any right to continued employment.

     3. Expenses; Indemnification Procedure.

          (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in
connection with the investigation, defense, settlement or appeal of any civil or criminal action,
suit or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such
amounts advanced only if, and to the extent that, it shall ultimately be determined that

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Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The
advances to be made hereunder shall be paid by the Company to Indemnitee within thirty (30) days
following delivery of a written request therefor by Indemnitee to the Company.

          (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his right
to be indemnified under this Agreement, give the Company notice in writing as soon as practicable
of any claim made against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the President of the Company at the address
shown on the signature page of this Agreement (or such other address as the Company shall designate
in writing to Indemnitee and given as provided in Section 14). In addition, Indemnitee shall give
the Company such information and cooperation as it may reasonably require and as shall be within
Indemnitee’s power.

          (c) Procedure. Any indemnification and advances provided for in Section 1 and this Section 3
shall be made no later than thirty (30) days after receipt of the written request of Indemnitee.
If a claim under this Agreement, under any statute, or under any provision of the Company’s
Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the
Company within thirty (30) days after a written request for payment thereof has first been received
by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the
Company to recover the unpaid amount of the claim and, subject to Section 14 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of
bringing such action. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance
of its final disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed.
However, Indemnitee shall be entitled to receive interim payments of expenses pursuant to
Subsection 3(a) unless and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties’ intention that if the Company
contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to
indemnification shall be for the court to decide, and neither the failure of the Company (including
its Board of Directors, any committee or subgroup of the Board of Directors, independent legal
counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard of conduct required
by applicable law, nor an actual determination by the Company (including it Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders)
that Indemnitee has not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.

          (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to
Section 3(b) hereof, the Company has director and officer liability insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee,
all amounts payable as a result of such proceeding in accordance with the terms of such policies.

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          (e) Selection of Counsel. In the event the Company shall be obligated under Section 3(a)
hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall
be entitled to assume the defense of such proceeding, with counsel subject to the approval of
Indemnitee, which shall not be unreasonably withheld. After delivery of written notice of the
assumption of the defense, approval of such counsel by Indemnitee as described above and the
retention of such counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such
proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the conduct of any such
defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the
Company.

     4. Additional Indemnification Rights; Nonexclusivity.

          (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees
to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this Agreement, the
Company’s Certificate of Incorporation, the Company’s Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or rule which expands the
right of a Delaware corporation to indemnify a member of its board of directors or an officer, such
changes shall be, ipso facto, within the purview of Indemnitee’s rights and Company’s obligations,
under this Agreement. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board of directors or an
officer, such changes, to the extent not otherwise required by such law, statute or rule to be
applied to this Agreement shall have no effect on this Agreement or the parties’ rights and
obligations hereunder.

          (b) Nonexclusivity. The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of
Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested Directors, the
General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee’s
official capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee for any action taken
or not taken while serving in an indemnified capacity even though he may have ceased to serve in
such capacity at the time of any action, suit or other covered proceeding.

     5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement
to indemnification by the Company for some or a portion of the expenses, judgments, fines or
penalties actually or reasonably incurred by him in the investigation, defense, appeal or
settlement of any civil or criminal action, suit or proceeding, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.

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     6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain
instances, Federal law or applicable public policy may prohibit the Company from indemnifying its
directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges
that the Company has undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company’s right under public policy to indemnify
Indemnitee.

     7. Officer and Director Liability Insurance. The Company shall, from time to time, make the
good faith determination whether or not it is practicable for the Company to obtain and maintain a
policy or policies of insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to ensure the Company’s
performance of its indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against the protection
afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee
shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a
director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an
officer. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain
such insurance if the Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary
or parent of the Company.

     8. Severability. Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or fail to do any act in violation of applicable law. The Company’s
inability, pursuant to court order, to perform its obligations under this Agreement shall not
constitute a breach of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify
Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not
have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.

     9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall
not be obligated pursuant to the terms of this Agreement:

          (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of
defense, except with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board of Directors has approved
the initiation or bringing of such suit; or

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          (b) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee
with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if
a court of competent jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or

          (c) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier
under a policy of officers’ and directors’ liability insurance maintained by the Company.

          (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of
profits arising from the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

     10. Construction of Certain Phrases.

          (a) For purposes of this Agreement, references to the “Company” shall include, in addition to
the resulting corporation, any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and employees or agents, so that if
Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.

          (b) For purposes of this Agreement, references to “other enterprises” shall include employee
benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to “serving at the request of the Company”
shall include any service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner
“not opposed to the best interests of the Company” as referred to in this Agreement.

     11. Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall constitute an original.

     12. Successors and Assigns. This Agreement shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate,
heirs, legal representatives and assigns.

     13. Attorneys’ Fees. In the event that any action is instituted by Indemnitee under this
Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid
all

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court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with
respect to such action, unless as a part of such action, the court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis for such action were
not made in good faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees,
incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s
counterclaims and cross-claims made in such action), unless as a part of such action the court
determines that each of Indemnitee’s material defenses to such action were made in bad faith or
were frivolous.

     14. Notice. All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by
the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.

     15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to
the jurisdiction of the courts of the State of Delaware for all purposes in connection with any
action or proceeding which arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be brought only in the state courts of the State of Delaware.

     16. Choice of Law. This Agreement shall be governed by and its provisions construed in
accordance with the laws of the State of Delaware, as applied to contracts between Delaware
residents entered into and to be performed entirely within Delaware without regard to the conflict
of law principles thereof.

     17. Period of Limitations. No legal action shall be brought and no cause of action shall be
asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs,
executors or personal or legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action, such shorter period shall govern.

     18. Subrogation. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall
execute all documents required and shall do all acts that may be necessary to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.

     19. Amendment and Termination. No amendment, modification, termination or cancellation of
this Agreement shall be effective unless it is in writing signed by both the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.

     20. Integration and Entire Agreement. This Agreement sets forth the entire understanding
between the parties hereto and supersedes and merges all previous written and oral negotiations,
commitments, understandings and agreements relating to the subject matter hereof between the
parties hereto.

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	COVAD COMMUNICATIONS GROUP, INC.	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Print Name and Title	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:
	 	110 Rio Robles	 	 
	 

	 	 	 	San Jose, CA 95134	 	 

AGREED TO AND ACCEPTED:

INDEMNITEE:

	 	 	 	 	 
	 	 	 
	Signature	 	 
	 
	 	 	 	 
	 	 	 
	Print Name	 	 
	 
	 	 	 	 
	Address:

	 	110 Rio Robles	 	 
	 

	 	San Jose, CA 95134	 	 

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Exhibit 10.1

THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT COVERING SUCH TRANSFER OR AN OPINION OF LEGAL
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION UNDER THE SECURITIES ACT IS
NOT REQUIRED.

CONVERTIBLE PROMISSORY NOTE

	 	 	 
	$                    

	 	Issuance Date: October 29, 2007

     FOR VALUE RECEIVED, the undersigned, Tri-Isthmus Group, Inc., a Delaware corporation
(“TISG”), Surgical Center Acquisition Holdings, Inc., a Nevada corporation, Del Mar
Acquisition, Inc., a Nevada corporation, Del Mar GenPar, Inc., a Nevada corporation, Point Loma
Acquisition, Inc., a Nevada corporation, and Point Loma GenPar, Inc., a Nevada corporation (each, a
“Maker” and collectively, the “Makers”), jointly promise to pay to the order of
___(“Holder”), in lawful money of the United States of America
without set-off, demand, deduction or counterclaim, the aggregate principal amount of
___(the “Principal”) when due, upon the Maturity Date (as
defined below), acceleration or otherwise (in each case in accordance with the terms hereof)
together with interest (“Interest”) at a rate equal to sixteen percent (16%) per annum
(based on a 365-day year and charged on the basis of actual days elapsed, the “Interest
Rate”) from the date set out above as the Issuance Date (the “Issuance Date”) until the
Principal becomes due and payable, whether upon the Maturity Date, or such other date by
acceleration or otherwise in accordance with the terms hereof. This Convertible Promissory Note
(this “Note”) may not be sold, assigned, transferred or otherwise conveyed by the Holder;
provided, however, that notwithstanding the foregoing, this Note may be sold, assigned, transferred
or conveyed (i) to an affiliate of the Holder for estate planning purposes, or (ii) after the
occurrence of an Event of Default hereunder. Any such sale, assignment, transfer or conveyance
shall be subject to compliance with all applicable securities laws. Certain capitalized terms used
herein are defined in Section 20.

     1. Payments of Principal. On the Maturity Date, the Makers shall pay to the Holder
the unpaid Principal of this Note, together with accrued and unpaid Interest. The “Maturity
Date” shall be April 29, 2008, unless (a) extended at the option of the Makers pursuant to the
terms of Section 3, or (b) accelerated by the Holder or Makers in accordance with the terms
hereof.

     2. Interest; Interest Rate. Interest on this Note shall commence accruing on the
Issuance Date and shall be payable in arrears on a monthly basis on the first day of the succeeding
month during the period beginning on the Issuance Date and ending on, and including, the Maturity
Date, or such other date on which the entire amount of the Principal is repaid (each, an
“Interest Date”). Interest shall be payable on each Interest Date to the Holder. Interest
accrues at the Interest Rate on all outstanding unpaid Principal owed under this Note and

 

 

all accrued Interest is payable on each Interest Date. If Interest is not paid when due, it
shall thereafter bear like interest as the Principal.

     3. Maturity Date Extension. The Maturity Date of this Note is subject to one (1)
three (3)-month extension at the Makers’ option, in which case the Maturity Date will be extended
to July 29, 2008. The Makers may exercise this option by delivering to Holder a written notice of
the election to extend the Maturity Date executed by TISG on behalf of all Makers, delivered at
least ten (10) days before the original Maturity Date of April 29, 2008. In the event the Makers
elect to extend the Maturity Date, upon the exercise of the extension TISG will issue Holder a
warrant, in the form of Exhibit “A” attached hereto, to purchase ___restricted
shares of Common Stock at a price of $0.50 per share.

     4. Repayment by the Makers. The Makers may, from time to time, upon not less than ten
(10) days’ prior written notice to Holder, prepay all or any portion of the Principal or Interest
of this Note to the Holder without premium or penalty.

     5. Conversion.

     (a) Conversion. At any time and from time to time prior to the payment of this
Note in full, the Holder may convert all or any portion of the entire unpaid Principal and
any unpaid accrued Interest at the date upon which the conversion is to be effected (the
“Conversion Date”) into a number of shares of Common
Stock (excluding fractional shares) as Conversion Shares determined by dividing the sum of the unpaid Principal and
unpaid accrued Interest to be converted at the Conversion Date by the Conversion Price in
effect at the Conversion Date.

     (b) Conversion Price. The initial Conversion Price shall be U.S.$0.35. In the
event that TISG issues or sells (or is deemed, pursuant to this Section 5(b), to
have issued or sold) shares of Common Stock, or securities convertible, exercisable or
exchangeable into shares of Common Stock (each such transaction or event referred to herein
as an “Adjustment Event”), during such time as the Note remains unpaid, other than (i) upon
exercise or conversion of any option, warrant or other convertible security outstanding as
of the date hereof; (ii) a sale of TISG 5-A Preferred Stock, or (iii) an offering of options
to employees, the Conversion Price will be adjusted downward to the lowest Effective Price
(as defined below) per share that TISG has sold the Common Stock during the period from the
Issuance Date through the Conversion Date, until all of the Principal and Interest have been
converted at such new Conversion Price, or the Note shall have been repaid. By way of
clarification, (1) none of the transactions or events described in clauses (i), (ii) or
(iii) of the previous sentence shall constitute an Adjustment Event; and (2) the execution
by TISG of this Note, the Warrants, the SMP Note, the SMP Warrants, the Spector Note, the
Spector Warrants, the Waveland Note, or the Waveland Warrants shall not constitute an
Adjustment Event.

     (i) For the purpose of making any adjustment required under this Section
5(b), the consideration received by TISG 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 TISG, (B) to the extent it consists of property other than cash, be

Promissory Note – Page 2

 

 

computed at the fair market value of that property as determined in good faith
by TISG’s Board of Directors, and (C) if shares of Common Stock, Convertible
Securities (as defined below) or rights or options to purchase either shares of
Common Stock or Convertible Securities are issued or sold together with other stock
or securities or other assets of TISG 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 TISG’s Board of Directors to be allocable to such shares
of Common Stock, Convertible Securities or rights or options.

     (ii) For the purpose of the adjustment required under this Section 5(b), if
TISG issues or sells any rights or options for the purchase of, or stock or other
securities convertible, exercisable or exchangeable into, shares of Common Stock
(such convertible stock or securities being hereinafter referred to as “Convertible
Securities”), then in each case TISG shall be deemed to have issued at the time of
the issuance of such rights or options or Convertible Securities the maximum number
of shares of Common Stock issuable upon conversion, exercise or exchange 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 TISG 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 TISG upon the
exercise of such rights or options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to TISG (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 shares of Common Stock on the exercise
of any such rights or options or the conversion of any such 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 shares of Common Stock
so issued were the 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 shares of Common Stock, if any, were issued or sold for the
consideration actually received by TISG upon such exercise, plus the consideration,
if any, actually received by TISG 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 TISG (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion of such Convertible Securities.

(iii) The “Effective Price” of shares of Common Stock issued or sold, or deemed to
have been issued or sold pursuant to this Section 5(b), shall mean the
quotient determined by dividing the total number of shares of Common Stock

Promissory Note – Page 3

 

 

issued or sold, or deemed to have been issued or sold by TISG under this Section
5(b), into the aggregate consideration received, or deemed to have been received
by TISG for such issuance or sale under this Section 5(b) for such shares of
Common Stock.

(iv) Upon the occurrence of each adjustment or readjustment of the Conversion Price,
TISG 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.

(v) TISG shall give at least twenty (20) days’ prior written notice to Holder of any
Adjustment Event (“Adjustment Notice”). Holder shall have the option to elect, by
written notice to TISG within ten (10) days of Holder’s receipt of the Adjustment
Notice, whether Holder (a) desires to have the Conversion Price reduced in
connection with such Adjustment Event pursuant to the provisions of this Section
5(b), or (b) alternatively, desires to purchase its “Pro Rata Share” (as defined
below) of the Common Stock and/or Convertible Securities offered or issued by TISG
in the Adjustment Event. If Holder notifies TISG within such ten (10) day period
that Holder wishes to so purchase its Pro Rata Share of such Common Stock and/or
Convertible Securities, Holder shall have the right to purchase its Pro Rata Share
of such Common Stock and/or Convertible Securities, for the same price per share (if
any) of Common Stock or per unit of Convertible Securities as paid by the other
investors in the Adjustment Event. As used herein, “Pro Rata Share” will be such
number of shares of Common Stock and/or Convertible Securities determined by
multiplying the total number of shares of Common Stock and/or units of Convertible
Securities to be issued or sold in the Adjustment Event by a fraction, the numerator
of which is the number of shares of Common Stock (assuming exercise, conversion or
exchange of all Convertible Securities) then held by Holder, and the denominator of
which is the number of shares of Common Stock (assuming exercise, conversion or
exchange of all Convertible Securities) of TISG then outstanding. If Holder does
not give any notice to TISG within such ten (10) day period, Holder shall be deemed
to have elected to cause the Conversion Price to be reduced as a result of such
Adjustment Event in accordance with the provisions of this Section 5(b).

     (c) Conversion Procedure. Holder may exercise its conversion right hereunder
by delivering a written notice to TISG (the “Conversion Notice”) specifying the
Conversion Date (being no earlier than three (3) business days after the date on which the
Conversion Notice is considered delivered), the amount of Principal and Interest of this
Note to be converted, and the number of shares of Common Stock which shall be issued to
Holder upon such conversion. To effect conversions hereunder, the Holder shall not be
required to physically surrender this Note to TISG unless the all Principal of and accrued
Interest on this Note has been so converted. Conversions hereunder shall have the effect of
lowering the outstanding Principal and Interest amount of this Note in an amount equal to
the applicable amounts thereof being converted. The Holder and

Promissory Note – Page 4

 

 

TISG shall maintain records showing the Principal and Interest amounts converted and
the date of such conversions. In the event of any dispute or discrepancy, the records of
the Holder shall be controlling and determinative in the absence of manifest error. As soon
as practicable after the Conversion Date, TISG will issue a certificate to Holder evidencing
the number of Conversion Shares into which this Note has been converted.

     (d) Fractional Shares. If any fractional Conversion Shares would, except for
the provisions hereof, be issuable upon conversion of this Note, TISG, in lieu of delivering
such fractional share, shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Conversion Price as of the Conversion Date.

     (e) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or
Sale. Upon any recapitalization, reorganization, reclassification, consolidation,
merger, or sale of all or substantially all of TISG’s assets or other similar transaction,
which in any such case is effected in such a manner that TISG’s holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for their Common Stock (each, an “Organic
Change”), the Makers shall make appropriate provision to insure that Holder shall
thereafter have the right to acquire and receive, in lieu of or in addition to (as the case
may be) the Conversion Shares specified in this Section 5 theretofore issuable upon
conversion of the Principal balance of this Note and any unpaid
accrued Interest, such shares of stock, securities or assets as would have been issued or payable in such Organic
Change (if Holder had converted this Note immediately prior to such Organic Change) with
respect to or in exchange for the Conversion Shares.

     (f) Subdivision or Combination of Common Stock. If TISG at any time divides or
subdivides (by any stock split, stock dividend or otherwise) the Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such division,
subdivision or capitalization shall be proportionately reduced, and if TISG at any time
combines or consolidates (by reverse stock split or otherwise) the Common Stock, the
Conversion Price in effect immediately prior to such combination shall be proportionately
increased.

     (g) Certain Dividends and Distributions. If TISG at any time pays a stock
dividend or otherwise make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of Common Stock, the
Conversion Price shall be multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately
prior to such event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately following such event.

     (h) Reservation of Stock Issuable Upon Conversion. TISG 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 this Note, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion of this Note
and if at any time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of this Note, TISG will take such corporate

Promissory Note – Page 5

 

 

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 TISG’s Certificate of Incorporation.

     (i) Valid Issue. TISG shall ensure that all Conversion Shares issued pursuant
to this Section 5, 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.

6. Covenants.

          (a) Registration.

     (i) Incidental Registration. Commencing immediately after the Issuance
Date, if TISG determines that it shall file a registration statement under the
Securities Act (other than a registration statement on a Form S-4 or S-8 or filed in
connection with an exchange offer or an offering of securities solely to TISG’s
existing stockholders) on any form that would also permit the registration of the
offer and resale of the Conversion Shares, upon conversion, and such filing is to be
on its behalf and/or on behalf of selling holders of its securities for the general
registration of the offer and sale of its Common Stock to be sold for cash, at each
such time TISG shall promptly give Holder written notice of such determination
setting forth the date on which TISG proposes to file such registration statement,
which date shall be no earlier than thirty (30) days from the date of such notice,
and advising Holder of its right to have Conversion Shares (and the shares of Common
Stock issuable upon exercise of the Warrants) included in such registration. Upon
the written request of Holder received by TISG no later than twenty (20) days after
the date of TISG’s notice, TISG shall use commercially reasonable efforts to cause
to be registered under the Securities Act all of the Conversion Shares (and all of
the Shares of Common Stock issuable upon exercise of the Warrants) that Holder has
so requested to be registered. If, in the written opinion of the managing
underwriter or underwriters (or, in the case of a non-underwritten offering, in the
written opinion of the placement agent, or if there is none, TISG), the total amount
of such securities to be so registered, including such Conversion Shares, will
exceed the maximum amount of TISG’s securities which can be marketed (i) at a price
reasonably related to the then current market value of such securities, or (ii)
without otherwise materially and adversely affecting the entire offering, then the
amount of Conversion Shares to be offered for the account of Holder shall be reduced
pro rata to the extent necessary to reduce the total amount of securities to be
included in such offering to the recommended amount; provided, that if securities
are being offered for the account of other Persons as well as TISG, such reduction
shall not represent a greater fraction of the number of securities intended to be
offered by Holder than the fraction of similar reductions imposed on such other
Persons other than TISG over the amount of securities they intended to offer.

Promissory Note – Page 6

 

 

     (ii) Demand Registration. Upon demand by the holders of a majority of
the aggregate outstanding principal amount of this Note and the SMP Note
(“Noteholders”), considered together, which demand shall not be given prior to the
date which is thirty-six (36) months after the Issuance Date,
TISG shall include the shares of Common Stock issuable upon conversion of this Note and the SMP Note, and
upon exercise of the Warrants and the SMP Warrants (collectively, the “Registrable
Securities”), on a registration statement prepared by TISG and filed with the
Securities and Exchange Commission (the “SEC”) within thirty (30) days of such
demand (the “Registration Statement”); provided, that the Noteholders shall be
entitled to only one (1) demand to register the Registrable Securities pursuant to
this Section 6(a)(ii). The Registration Statement will be on Form SB-2 or
other appropriate form and will permit the Registrable Securities to be offered on a
continuous basis. TISG 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. TISG 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 by the Noteholders immediately without registration under the
Securities Act and without volume restrictions pursuant to Rule 144(k) of the
Securities Act, or (c) two (2) years from the date the Registration Statement is
declared effective by the SEC.

     (iii) Expenses. TISG shall pay all costs and expenses incurred in
connection with the preparation and filing of any registration statement pursuant to
this Section 6, other than selling commissions and fees which shall be
responsibility of the Holder. TISG and the Holder shall provide each other with
customary indemnification rights in connection with any registration statement filed
pursuant to this Section 6.

     (iv) Survival. The covenants of TISG set forth in this Section 6(a)
shall survive indefinitely following the conversion, payment, cancellation or other
termination of this Note and the SMP Note, and the exercise of the Warrants and the
SMP Warrants.

     (b) Call Right on Equity Financing. In the event that any Maker completes an
equity financing for the account of such Maker, and the aggregate gross proceeds to such
Maker (considered together with the aggregate gross proceeds of any other equity financing
for the account of any Maker after the date hereof) exceeds Five Million Dollars
($5,000,000), the Holder may, at its option, declare by written notice to the Makers the
unpaid Principal of the Note (together with all accrued Interest thereon) to be immediately
due and payable, and, in such event, the Makers shall immediately pay to the Holder all
amounts due and payable with respect to this Note. The Holder agrees that it shall not
exercise its rights right of conversion pursuant to Section 5 of this Note for a
period of ten (10) days after Holder declares this Note due and payable pursuant to this

Promissory Note – Page 7

 

 

Section 6(b). However, if this Note has not been paid in full during such ten (10) day
period, Holder shall have again have the right to exercise its rights of conversion pursuant
to Section 5 of this Note. Such conversion rights shall be in addition to, and not
in lieu of, any other remedies available to Holder at law or at equity.

     (c) Incurrence of Indebtedness. Beginning on the Issuance Date of this Note,
and continuing for so long as this Note is outstanding, the Makers shall not incur or
guarantee, assume or suffer to exist any Indebtedness, other than the Indebtedness evidenced
by this Note and the Permitted Indebtedness, without the consent of the Holder, which will
not be unreasonably withheld, delayed or conditioned.

     (d) Asset Sales. The Makers shall not, directly or indirectly, consummate any
Asset Sale without the prior consent of Holder, which consent shall not be unreasonably
withheld, delayed or conditioned; provided, however, that the Makers may consummate sales of
assets or equity interests to other Makers.

     (e) Use of Proceeds. The Makers will use amounts received from Holder pursuant
to this Note for general corporate purposes.

7. Default

     (a) Events of Default. The occurrence of any of the following shall constitute
an “Event of Default” under this Note:

     (i) Failure to Pay. The Makers shall fail to pay (i) when due any
Principal or Interest payment hereunder or (ii) any other payment required under the
terms of this Note on the date due and such payment shall not have been made within
five (5) days of TISG’s receipt of Holder’s written notice to the Makers of such
failure to pay.

     (ii) Voluntary Bankruptcy or Insolvency Proceedings. TISG shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidator or
custodian of itself or of all or a substantial part of its property; (ii) be unable,
or admit in writing its inability, to pay its debts generally as they mature;
(iii) make a general assignment for the benefit of its or any of its creditors;
(iv) be dissolved or liquidated; (v) become insolvent (as such term may be defined
or interpreted under any applicable statute); (vi) commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or taking
possession of its property by any official in an involuntary case or other
proceeding commenced against it; or (vii) take any action for the purpose of
effecting any of the foregoing.

     (iii) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of TISG or of
all or a substantial part of the property thereof, or an involuntary case or other
proceedings seeking liquidation, reorganization or other relief with respect to

Promissory Note – Page 8

 

 

TISG or the debts thereof under any bankruptcy, insolvency or other similar law
now or hereafter in effect shall be commenced and an order for relief entered or
such proceeding shall not be dismissed or discharged within 30 days of commencement.

     (iv) Covenant Compliance. Any Maker shall fail to observe or perform
any other covenant or agreement contained in this Note which failure is not cured,
if possible to cure, within five (5) days after notice of such default sent by the
Holder.

     (v) Representations and Warranties. Any representation or warranty of
any Maker made herein shall be untrue or incorrect in any material respect as of the
date hereof.

     (b) Rights of Holder upon Default. Upon the occurrence or existence of any
Event of Default described in Section 7(a)(i), (iv) or (v) and at any time
thereafter during the continuance of such Event of Default, Holder may, by written notice to
the Makers, declare all outstanding Principal and Interest obligations payable by Makers
hereunder to be immediately due and payable without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or
existence of any Event of Default described in Sections 7(a)(ii) or (iii),
immediately and without notice, all outstanding Principal and Interest obligations payable
by Makers hereunder shall automatically become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are hereby
expressly waived. In addition to the foregoing remedies, upon the occurrence or existence
of any Event of Default, Holder may exercise any other right, power or remedy granted to it
hereby or otherwise permitted to it by law, either by suit in equity or by action at law, or
both.

8. Reissuance of This Note.

     (a) Lost, Stolen or Mutilated Note. Upon receipt by TISG of evidence
reasonably satisfactory to TISG of the loss, theft, destruction or mutilation of this Note,
an affidavit from Holder to such effect, an indemnity in form and substance reasonably
acceptable to TISG and, in the case of mutilation, upon surrender and cancellation of this
Note, the Makers shall execute and deliver to the Holder a new Note (in accordance with
Section 8(b)) representing the outstanding Principal.

     (b) Issuance of New Notes. Whenever the Makers are required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this
Note, (ii) shall represent, as indicated on the face of such new Note, the Principal
remaining outstanding, (iii) shall have an issuance date, as indicated on the face of such
new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest on
the Principal and Interest of this Note.

Promissory Note – Page 9

 

 

     9. Representations and Warranties. In order to induce the Holder to advance the funds
represented by this Note to Makers, each Maker, jointly, hereby makes each of the following
representations and warranties to Holder:

     a) Each Maker (i) is a limited liability company or corporation, as applicable, duly
organized, validly existing and in good standing under the laws of the State of its organization or
incorporation; (ii) has the necessary power and authority to own its property and assets and to
transact the business in which it is engaged or presently proposes to engage; (iii) has the
necessary power, authority and legal right to execute and deliver this Note (and, in the case of
TISG, the Warrants) and to perform its obligations hereunder and thereunder; (iv) has taken all
necessary action to authorize the execution, delivery and performance by such Maker of this Note
(and, in the case of TISG, the Warrants); and (v) has duly executed and delivered this Note (and,
in the case of TISG, the Warrants).

     b) This Note (and, in the case of TISG, the Warrants) constitutes a legal, valid and binding
obligation of each Maker enforceable against each Maker in accordance with its terms except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors’ rights generally.

     c) None of the execution, delivery or performance by any Maker of this Note (and/or, in the
case of TISG, the Warrants), the compliance by each Maker with the terms and provisions hereof and
thereof, or the consummation of the transactions contemplated hereby and thereby, will (i) conflict
with, violate or contravene any provision of any applicable law; (ii) conflict with the articles of
incorporation, articles of organization, bylaws, limited liability company agreement, operating
agreement or other charter or organizational document of any Maker; (iii) conflict with or result
in the breach of any provision of any agreement or instrument to which any Maker is a party or by
which any Maker or any of their properties or assets are bound; or (iv) constitute a default under
any such agreement or instrument.

     10. Remedies, Characterizations and Other Obligations. The remedies provided in this
Note shall be cumulative and in addition to all other remedies available under this Note at law or
in equity (including a decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by
a Maker to comply with the terms of this Note. Amounts set forth or provided for herein with
respect to payments and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to any other
obligation of the Maker (or the performance thereof).

     11. Payment of Collection, Enforcement and Other Costs. If (a) this Note is placed in
the hands of an attorney for collection or enforcement or is collected or enforced through any
legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of a Maker or other proceedings affecting Makers’ creditors’ rights and involving a
claim under this Note, then the Makers shall pay the reasonable costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

Promissory Note – Page 10

 

 

     12. Construction; Headings. This Note shall be deemed to be jointly drafted by the
Makers and the Holder and shall not be construed against any Person as the drafter hereof. The
headings of this Note are for convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

     13. Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder
in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

     14. Notices; Payments.

     (a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be in writing and will be deemed given (a) when
delivered personally; (b) on the fifth (5th) business day after being mailed by
certified mail, return receipt requested; (c) the next business day after delivery to a
recognized overnight courier; or (d) upon transmission and confirmation of receipt by a
facsimile operator if sent by facsimile, to the party to which such notice is to be given at
the addresses or facsimile numbers set forth below (or to such other address or facsimile
number as such party may have specified by notice given to the other party pursuant to this
provision).

	 	 	 	 
	 	if to the Makers to:

	 	with copies (which will not constitute notice) to:
	 
	 	 
	 	Tri-Isthmus Group, Inc. (Notice to TISG

will constitute notice to all Makers.)

149 South Barrington Avenue, Suite 808

Los Angeles, California 90049

Attention: CEO

	 	Hughes & Luce, LLP

1717 Main Street, Suite 2800

Dallas, Texas 75201

Attention: I. Bobby Majumder

Telecopy: (214) 939-5849
	 
	 	 
	 	if to the Holder:

	 	with copies (which will not constitute notice) to:
	 
	 	 
	 	 

	 	Foley & Lardner LLP

402 W. Broadway, 21st Floor

San Diego, California 92101

Attention: Kenneth D. Polin

Telecopy: (619) 234-3510

     (b) Payments. Whenever any payment of cash is to be made by the Makers to any
Person pursuant to this Note, such payment shall be made in lawful money of the United
States of America by a check drawn on the account of a Maker and sent via overnight courier
service to such Person at such address as previously provided to TISG

Promissory Note – Page 11

 

 

in writing; provided that the Holder may elect to receive a payment of cash via wire
transfer of immediately available funds by providing TISG with prior written notice setting
out such request and the Holder’s wire transfer instructions. Whenever any amount expressed
to be due by the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of determining the amount
of Interest due on such date.

     15. Cancellation. After all Principal, accrued Interest and other amounts at any time
owed on this Note have been paid in full in cash, this Note shall automatically be deemed canceled,
shall be surrendered to TISG for cancellation and shall not be reissued.

     16. Governing Law; Jurisdiction. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Note and all disputes arising hereunder shall be governed by, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdictions) that would cause the application of
the laws of any jurisdictions other than the State of Delaware. Without limiting the generality of
the foregoing, the parties agree that the interest rate provisions of this Note shall be governed
by Section 2301 of the Delaware Commerce and Trade Code (Title 6, Subtitle II, Chapter 23 of
Delaware Codes). Any suit, action or proceeding seeking to enforce any provision of, or based on
any dispute or matter arising out of or in connection with, this Note must be brought in the state
and federal courts located in Los Angeles County, California. Each of the parties (a) consents to
the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in
any such suit, action or proceeding, (b) irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or proceeding which is brought
in any such court has been brought in an inconvenient forum, (c) will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such court, and (d) will
not bring any action relating to this Note in any other court.

     17. Legal Fees. Makers shall upon request of Holder promptly reimburse Holder for all
legal fees, costs and expenses incurred by Holder in connection with (i) the drafting, preparation
and negotiation of this Note and the Warrants, and the evaluation of the transactions contemplated
hereby and thereby; and (ii) the preparation of a Securities and Exchange Commission Form 3 and
Schedule 13D or 13G in connection with the transactions represented by this Note and the Warrants.
Notwitstanding the foregoing, the aggregate amount of legal fees, costs and expenses for which
Makers shall be obligated to reimburse Holder hereunder shall not (considered together with legal
fees, costs and expenses incurred by the Holder of the SMP Note for such matters) exceed Twenty
Five Thousand Dollars ($25,000).

     18. Usury. Notwithstanding anything to the contrary set forth herein, in no event
shall amounts paid hereunder exceed the highest rate permitted under applicable usury laws. If any
amounts collected by Holder hereunder exceed such rate, said excess amounts shall be applied to the
reduction of the unpaid Principal balance under this Note and not to the payment
of Interest, or, if such excess amounts exceed the unpaid balance of Principal under this
Note, such excess amounts shall be refunded to the Makers.

Promissory Note – Page 12

 

 

     19. Certain Waivers. All persons now or hereafter liable for payment of the Principal
due under this Note, or any part hereof, do hereby expressly waive presentment for payment, notice
of dishonor, protest and notice of protest, and agree that the time for the payment of all or any
part of the outstanding balance under this Note may be extended without releasing or otherwise
affecting their liability on this Note or any security securing this Note.

     20. Certain Definitions. For purposes of this Note, the following terms shall have
the following meanings:

     (a) “Asset Sale” means the sale, lease, conveyance or other disposition of any assets
or rights other than in the ordinary course of business.

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

     (c) “Capital Lease Obligation” means, at the time any determination is to be made, the
amount of the liability in respect of a capital lease that would at that time be required to
be capitalized on a balance sheet prepared in accordance with GAAP.

     (d) “Common Stock” shall mean the common stock of TISG, par value $0.01 per share.

     (e) “Conversion Shares” means those shares of Common Stock into which this Note may be
converted by Holder; provided that if there is an Organic Change, then the term “Conversion
Shares” shall mean the stock, securities and assets issuable upon conversion of this Note.

     (f) “GAAP” means United States generally accepted accounting principles, consistently
applied.

     (l) “Indebtedness” means, any indebtedness (excluding accrued expenses and trade
payables), whether or not contingent:

     (i) in respect of borrowed money;

     (ii) evidenced by bonds, notes or similar instruments or letters of credit (or
reimbursement agreements in respect thereof);

     (iii) in respect of banker’s acceptances;

     (iv) representing Capital Lease Obligations; or

Promissory Note – Page 13

 

 

     (v) representing the balance deferred and unpaid of the purchase price of any
property or services due more than six (6) months after such property is acquired or
such services are completed,

     if and to the extent any of the preceding items (other than letters of credit) would
appear as a liability upon a balance sheet of the Maker prepared in accordance with GAAP.

     (m) “Permitted Indebtedness” means (i) any Indebtedness of a Maker created in the
ordinary course of business; (ii) Indebtedness of a Maker outstanding as of the Issuance
Date and the refinancing, renewal or extension thereof; (iii) guarantees of loans from
Valliance Bank to Rural Hospital Acquisition, LLC (“RHA”) in connection with TISG’s
acquisition of a membership interest in RHA; and (iv) the SMP Note, the Spector Note and the
Waveland Note.

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

     (o) “SMP Note” means that certain Convertible Promissory Note of even date herewith
executed by Makers in favor of SMP Investments I, LLC.

     (p) “SMP Warrants” means those certain Warrants to Purchase Shares of Common Stock of
even date herewith executed by TISG in favor of SMP Investments I, LLC.

     (q) “Spector Note” means that certain Convertible Promissory Note of even date herewith
executed by Makers in favor of Steven M. Spector.

     (r) “Spector Warrants” means those certain Warrants to Purchase Shares of Common Stock
of even date herewith executed by TISG in favor of Steven M. Spector.

     (s) “Warrants” means those certain Warrants to Purchase Shares of Common Stock of even
date herewith executed by TISG in favor of Holder.

     (t) “Waveland Note” means that certain Note of even date herewith executed by Makers in
favor of Waveland Associates, LLC.

     (u) “Waveland Warrants” means those certain Warrants to Purchase Shares of Common Stock
of even date herewith executed by TISG in favor of Waveland Associates, LLC.

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Promissory Note – Page 14

 

 

     IN WITNESS WHEREOF, the Makers have caused this Note to be duly executed as of the Issuance
Date set out above.

MAKERS:

	 	 	 	 	 	 	 	 	 
	TRI-ISTHMUS GROUP, INC.	 	DEL MAR GENPAR, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 	 	 
	Name:

	 	 

	 	Name:
	 	 

	 	 
	Title:

	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	SURGICAL CENTER ACQUISITION HOLDINGS, INC.	 	POINT LOMA ACQUISITION, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	Name:

	 	 	 	Name:	 	 	 	 
	Title:

	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	DEL MAR ACQUISITION, INC.	 	POINT LOMA GENPAR, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	Name:

	 	 	 	Name:	 	 	 	 
	Title:

	 	 	 	Title:	 	 	 	 

 

 

Exhibit A — Form of Warrant

[See attached]

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