SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant { X }
Filed by a Party other than the Registrant { }
Check the appropriate box:
{ X } Preliminary Proxy Statement
{ } Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
{ } Definitive Proxy Statement
{ } Definitive Additional Materials
{ } Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
VSOURCE, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
{ X } No fee required.
{ } $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
{ } $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
{ } Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
- --------------------------------------------------------------------------------
{ } Fee paid previously with preliminary materials.
{ } Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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VSOURCE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Vsource, Inc.,
a Nevada corporation ("the Company"), will be held on [ ], June [ ], 2000 at
[ ] a.m., local time, at the Sheraton Four Points Hotel located at 1050
Schooner Drive, Ventura, California 93001 for the following purposes:
1. To elect five directors of the Company to serve until the 2001 Annual
Meeting of Stockholders or until their successors have been duly elected and
qualified (Proposal 1);
2. To approve a change in the Company's state of incorporation
("Reincorporation") from Nevada to Delaware by means of a merger of the Company
with and into a wholly owned subsidiary (Proposal 2);
3. To ratify the appointment of Grant Thornton LLP as independent public
accountants of the Company for the fiscal year ending January 31, 2001 (Proposal
3); and
4. To transact such other business as may properly be brought before the
meeting and any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice. Please note that in connection with the
Reincorporation, stockholders may be entitled to dissenter's rights pursuant to
Nevada Revised Statutes Sections 92A.300-92A.500. A copy of such statutes is
attached to the accompanying proxy statement.
Stockholders of record at the close of business on May 8, 2000, shall be
entitled to notice of and to vote at the meeting.
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All stockholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if he or she has returned a proxy.
Sincerely,
Robert C. McShirley
President and Chief Executive Officer
Ventura, California
May [**], 2000
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
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VSOURCE, INC.
5720 Ralston Street, Suite 110
Ventura, California 93003
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Vsource, Inc. (the "Company") for use at the Annual Meeting of Stockholders to
be held on [ ], June [ ], 2000 at [ ] a.m., local time, at the Sheraton Four
Points Hotel located at 1050 Schooner Drive, Ventura, California 93001, and at
any adjournment(s) thereof (the "Meeting"), for the purposes set forth herein
and in the accompanying Notice of Annual Meeting of Stockholders. The Company's
telephone number is (805) 677-6720. These proxy solicitation materials were
mailed on or about May [**], 2000 to all stockholders entitled to vote at the
Meeting.
RECORD DATE AND STOCK OWNERSHIP
Stockholders of record at the close of business on May 8, 2000 (the "Record
Date") are entitled to notice of and to vote at the Meeting and at any
adjournment(s) thereof. As of April 17, 2000, 15,905,977 shares of the
Company's common stock, par value $0.01 (the "Common Stock"), and 2,802,00
shares of the Company's Series 1-A Convertible Preferred Stock, par value $0.01
(the "Preferred Stock"), were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Robert C. McShirley) a written notice of revocation or a duly executed proxy
bearing a later date or by attending the Meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder voting in the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares of Common Stock
and Preferred Stock held by such stockholder, or distribute the stockholder's
votes on the same principle among as many candidates as the stockholder may
select, provided that votes cannot be cast for more than the total number of
directors authorized by the Company's Bylaws. However, no stockholder shall be
entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and the stockholder, or any other stockholder,
has given notice at the Meeting prior to the voting of the intention to cumulate
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the stockholder's votes. The five nominees for director receiving the highest
number of votes at the Meeting will be elected. On all matters other than the
election of directors, each share of Common Stock and each share of Preferred
Stock has one vote.
The cost of this solicitation will be borne by the Company. The Company
has retained the services of Corporate Investor Communications (the "Agent") to
perform a search of brokers, bank nominees and other institutional owners. The
Company estimates that it will pay the Agent a fee of approximately $5,000 for
its services and will reimburse it for reasonable out-of-pocket expenses, if
necessary. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone or telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company's Bylaws provide that the presence in person or by proxy of the
holders of a majority of the Company's issued and outstanding capital stock
entitled to vote at the Meeting shall constitute a quorum for the transaction of
business. The Company intends to include abstentions and broker non-votes as
present or represented for purposes of establishing a quorum for the transaction
of business, but to exclude broker non-votes from the calculation of shares
entitled to vote. Because directors are elected by a plurality vote,
abstentions in the election of directors have no impact once a quorum exists.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
The Company currently intends to hold its 2001 Annual Meeting of
Stockholders in June 2001 and to mail proxy statements relating to such meeting
in May 2001. Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 2001 Annual Meeting of
Stockholders must be received by the Company no later than January 12, 2001 and
must otherwise be in compliance with applicable laws and regulations in order to
be considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The proxy holders will vote the proxies received by them for the Company's
five nominees named below, all of whom are presently directors of the Company.
In the event that any nominee of the Company is unable or declines to serve as a
director at the time of the Meeting, the proxies will be voted for any nominee
who shall be designated by the present Board of Directors to fill such a
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. The term of office of each person elected as a director
will continue until the next annual meeting of the stockholders or until a
successor has been duly elected and qualified.
The name and certain information regarding each nominee are set forth
below. There are no family relationships among directors or executive officers
of the Company.
Name Age Position with Vsource, Inc.
- ---- --- ------------------------------
Robert C. McShirley 45 President, Chief Executive Officer
and Chairman of the Board
Samuel E. Bradt (1) 61 Director
Scott T. Behan (1) 38 Director
Robert N. Schwartz 60 Director
Ramin Kamfar (1) 36 Director
- ----------------------------
(1) Member of the Audit Committee.
ROBERT C. MCSHIRLEY. Mr. McShirley has served as President and Chief
Executive Officer of the Company since May 1997, as a director since January
1998, and as Chairman since June 1999. From 1995 to May 1997, he was an
independent consultant specializing in the field of manufacturing, with his most
recent assignment being with AML Communications, Inc., a manufacturer of
wireless amplifiers. Prior to that, he was the founder of Virtual Source, Inc.
(formerly Buyer/Seller Interactive Software, Inc., which was acquired by the
Company in 1995). Robert C. McShirley and Richard S. McShirley are brothers.
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SAMUEL E. BRADT. Mr. Bradt has served on the Company's board since 1996.
From December 1996, through March 6, 2000, he served as Chief Financial Officer
and Secretary of the Company. He is currently a director of six private
companies and one other public company, Lunar Corporation of Madison,
Wisconsin. Mr. Bradt has a B.S. from Stanford University, and an M.B.A. from
the University of Chicago Graduate School of Business.
ROBERT N. SCHWARTZ. Mr. Schwartz has served on the Company's board since
January 1998. From 1981 to the present, Mr. Schwartz has been a Senior Research
Scientist at HRL Laboratories LLC, Malibu, California. From 1979 to the
present, Mr. Schwartz has been a visiting professor at U.C.L.A. He has a B.A. in
Mathematics, Chemistry and Physics, and an M.S. in Chemical Physics from the
University of Connecticut, and a PhD. in Chemical Physics from the University of
Colorado.
SCOTT T. BEHAN. Mr. Behan has served on the Company's board since January
1998. For the past five years, Mr. Behan has been employed as the Executive
Vice President of AML Communications, Inc., a manufacturer of wireless
amplifiers. He has been a director of AML since February 1999. Mr. Behan has a
B.S. in Electrical Engineering from Worcester Polytechnic Institute.
RAMIN KAMFAR. Mr. Kamfar has served on the Company's board since April
2000. Mr. Kamfar is a Managing Partner at New World Venture Partners, Inc., an
investment banking boutique focusing on technology and new economy companies.
Since 1993, Mr. Kamfar has also served in various capacities at New World Coffee
- - Manhattan Bagel, Inc., a company he founded. Most recently he has served as
Chairman and Chief Executive Officer. From 1988 to 1993 Mr. Kamfar worked in the
investment banking department of Lehman Brothers, Inc., most recently as a Vice
President in private placements. Mr. Kamfar has a B.S. in Finance from the
University of Maryland and an M.B.A. in Finance from The Wharton School at the
University of Pennsylvania.
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BOARD MEETINGS AND COMMITTEES
The Board of Directors held one formal meeting during fiscal 2000 at
which four directors were present. P. Scott Turner was unable to attend that
meeting. Most board actions taken during fiscal 2000 were taken through
eighteen unanimous written consents. With the exceptions of Mr. Kamfar who did
not join the Board until after the end of the last fiscal year, no incumbent
director during the last fiscal year attended fewer than 75% of the aggregate of
the total number of meetings of the Board of Directors. The Board of Directors
has one standing committee, the Audit Committee, established in February, 2000.
The Audit Committee, which currently consists of Mr. Bradt, Mr. Behan
and Mr. Kamfar, recommends the independent accounting firm to audit the
Company's financial statements and to perform services related to the audit,
reviews the scope and results of the audit with the independent accountants,
reviews with management and the independent accountants the Company's year-end
operating results and considers the adequacy of the internal accounting
procedures. The committee did not meet during the last fiscal year as it was
not formed until February, 2000. The first meeting of the Audit Committee took
place in April, 2000. In accordance with the Nasdaq Independent Director and
Audit Committee Requirements, the Audit Committee is composed of a majority of
independent directors. Both Mr. Behan and Mr. Kamfar meet the criteria of
"independent director." Mr. Bradt resigned as the Chief Financial Officer and
Secretary of the Company in March, 2000. A copy of the Audit Committee's
charter is attached as Appendix E. See "Report of Audit Committee."
DIRECTOR STOCK GRANTS
The Company does not currently have any standard arrangements for
compensating the directors for services provided as directors. Upon his
election to the Board of Directors in April, 2000, Ramin Kamfar was granted
2,500 shares of the Company's Common Stock.
See "Executive Officer Compensation," "Director Compensation" and
"Certain Transactions."
REQUIRED VOTE
The directors will be elected by a plurality vote of the shares of the
Company's Common Stock present or represented and entitled to vote on this
matter at the Meeting. Cumulative voting in the election of directors is
required under Section 2115 of the California Corporations Code and the
Company's Articles of Incorporation. Under cumulative voting, each share
entitled to vote in the election of directors has such number of votes as is
equal to the number of directors to be elected. A stockholder may then cast all
of his or her votes for a single candidate or may allocate them among as many
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candidates as the stockholder may choose. As a result, stockholders holding a
significant minority percentage of the outstanding shares entitled to vote in
the election of directors may be able to effect the election of one or more
directors. Votes withheld from a nominee and broker non-votes will be counted
for purposes of determining the presence or absence of a quorum but because
directors are elected by a plurality vote, have no impact once a quorum is
present. See "Information Concerning Solicitation and Voting - Quorum;
Absten-tions; Broker Non-Votes."
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE FOREGOING NOMINEES
PROPOSAL NO. 2
APPROVAL OF REINCORPORATION IN DELAWARE
INTRODUCTION
For the reasons set forth below, the board of directors of the Company
believes that it is in the best interests of the Company and its stockholders to
change the state of incorporation of the Company from Nevada to Delaware (the
"Reincorporation Proposal"). STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS
SECTION OF THE PROXY STATEMENT, INCLUDING THE RELATED EXHIBITS REFERENCED BELOW
AND ATTACHED HERETO, BEFORE VOTING ON THE REINCORPORATION PROPOSAL.
Throughout this Proxy Statement, the term "Vsource Nevada" or the
"Company" refers to Vsource, Inc., the existing Nevada corporation, and the term
"Vsource Delaware" refers to Vsource, Inc., the new Delaware corporation, a
wholly-owned subsidiary of Vsource Nevada, which is the proposed successor to
Vsource Nevada pursuant to the Reincorporation Proposal.
As discussed below, the principal reasons for the Reincorporation
Proposal are the greater flexibility of Delaware corporation law and the
substantial body of case law interpreting that law. The Company believes that
its stockholders will benefit from the well-established principles of corporate
governance that Delaware law affords. The Certificate of Incorporation for
Vsource Delaware (the "Delaware Certificate") is substantially similar to the
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Articles of Incorporation currently in effect for Vsource Nevada (the "Company
Articles"), with minor exceptions discussed herein. The Reincorporation Proposal
is not being proposed in order to prevent an unsolicited takeover attempt, and
the Company's board of directors is not aware of any present attempt by any
person to acquire control of the Company, obtain representation on the Company's
board of directors or take any action that would materially affect the
governance of the Company.
The Reincorporation Proposal will be effected by merging Vsource
Nevada with and into Vsource Delaware (the "Merger"). Upon completion of the
Merger, Vsource Nevada, as a corporate entity, will cease to exist and Vsource
Delaware will continue to operate the business of the Company under its current
name Vsource, Inc.
Pursuant to the Agreement and Plan of Merger, in substantially the
form attached hereto as Appendix A (the "Merger Agreement"), each outstanding
share of Common Stock, par value $0.01 (the "Company Common Stock"), will be
automatically converted into one share of Vsource Delaware common stock, par
value $0.01 per share (the "Delaware Company Common Stock"), upon the effective
date of the Merger and each outstanding share of Series 1-A Convertible
Preferred Stock, par value $0.01 per share, of the Company (the "Series 1-A
Preferred Stock"), will be automatically converted into one share of Series 1-A
Convertible Preferred Stock, par value $0.01 per share, of Vsource Delaware (the
"Delaware Company Preferred Stock") upon the Effective Date of the Merger. EACH
STOCK CERTIFICATE REPRESENTING ISSUED AND OUTSTANDING SHARES OF THE COMMON STOCK
OR SERIES 1-A PREFERRED STOCK WILL CONTINUE TO REPRESENT THE SAME NUMBER OF
SHARES OF THE DELAWARE COMPANY COMMON STOCK OR DELAWARE COMPANY PREFERRED STOCK,
AS APPLICABLE. IT WILL NOT BE NECESSARY FOR STOCKHOLDERS TO EXCHANGE THEIR
EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF VSOURCE DELAWARE. HOWEVER,
STOCKHOLDERS MAY EXCHANGE THEIR CERTIFICATES IF THEY SO CHOOSE.
The Common Stock is listed for trading on the OTC Bulletin Board under
the symbol "VSRC" and, after the Merger, the Delaware Company Common Stock will
continue to be traded on the OTC Bulletin Board , or, in the event that the
Company's application to be listed is accepted prior to the Reincorporation, on
the NASDAQ National Market system, without interruption, under the same symbol
"VSRC" as the shares of Company Common Stock are currently traded.
Under Nevada law and pursuant to the Company Articles, the affirmative
vote of the holders of at least a majority of the shares of Common Stock and
Series A Preferred Stock outstanding and entitled to vote, voting together as a
single class, are required to approve and adopt the Merger Agreement and the
transactions contemplated thereby. See "Vote Required for the Reincorporation
Proposal." The Reincorporation Proposal has been unanimously approved by the
Company's board of directors. If approved by the stockholders, it is
anticipated that the Merger will become effective as soon as practicable (the
"Effective Date") following the annual meeting of stockholders. However,
pursuant to the Merger Agreement, the Merger may be abandoned or the Merger
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Agreement may be amended by the board of directors of the Company (except that
certain principle terms may not be amended without stockholder approval) either
before or after stockholder approval has been obtained and prior to the
Effective Date.
The discussion set forth below is qualified in its entirety by
reference to the Merger Agreement, the Delaware Certificate and the Delaware
Bylaws, copies of which are attached hereto as Appendices A through C,
respectively, and the Company Articles of Incorporation and the Company Bylaws.
APPROVAL OF THE REINCORPORATION PROPOSAL WILL CONSTITUTE APPROVAL OF
THE MERGER AGREEMENT, THE DELAWARE CERTIFICATE AND THE DELAWARE BYLAWS AND ALL
PROVISIONS THEREOF.
SUMMARY TERM SHEET FOR REINCORPORATION PROPOSAL
- The Company shall merge with and into Vsource Delaware.
- Vsource Delaware shall be the surviving corporation.
- The Certificate of Incorporation of Vsource Delaware shall be the
certificate of incorporation of the surviving corporation.
- The Bylaws of Vsource Delaware shall be the bylaws of the
surviving corporation.
- The board of directors of the Company shall be the board of
directors of Vsource Delaware.
- The shares of common stock of existing stockholders of the Company
will become shares of common stock of Vsource Delaware, the surviving
corporation
- The shares of preferred stock of existing stockholders of the Company
will become shares of preferred stock of Vsource Delaware, the
surviving corporation.
- It will not be necessary for stockholders to exchange their
stock certificates, but stockholders may if they choose.
- Rights, privileges and preferences of stockholders remains
substantially the same.
VOTE REQUIRED FOR REINCORPORATION PROPOSAL
Pursuant to Nevada law, the affirmative vote of the holders of at
least a majority of the shares of Company Common Stock and the Series 1-A
Preferred Stock outstanding and entitled to vote, voting together as a single
class, are required to approve and adopt the Reincorporation Proposal and the
transactions contemplated thereby. At the record date, there were 15,925,929
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shares of Company Common Stock outstanding and 2,802,000 shares of Series 1-A
Preferred Stock outstanding. Approval of the Reincorporation Proposal will
constitute approval of the Merger Agreement, the Delaware Certificate and the
Delaware Bylaws and the provisions thereof.
SPECIFIC RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Nevada corporate law, Nevada Revised Statutes ("NRS")
Sections 92A.300-92A.500, a Company stockholder is entitled to dissent from this
proposed corporate action, and to obtain the statutory prescribed fair value of
his or her shares of Common Stock. "Fair value" for this purpose means the value
of the shares immediately before the effectuation of the corporate action to
which the stockholder objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
Although the stockholder is entitled to dissent and obtain payment therefor, the
stockholder may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to him or the
corporation. If a stockholder wishes to assert dissenter's rights, that
stockholder must:
(i) deliver to the Company, before the vote is taken, written notice
of his intent to demand payment for his shares if the Merger is
effectuated; and
(ii) must not vote his shares in favor of the proposed action.
A stockholder who does not satisfy the requirements referenced in the preceding
sentence is not entitled to payment for his shares under NRS Chapter 92A. The
Company will notify stockholders who satisfy the requirements to assert
dissenter's rights of the time period during which such rights may be exercised.
A copy of NRS Sections 92A.300-92A.500 are attached hereto as Appendix D.
PRINCIPLE REASONS FOR THE PROPOSED REINCORPORATION
By changing the state of incorporation of the Company from Nevada to
Delaware, the Company will receive the following advantages:
PROMINENCE; PREDICTABILITY AND FLEXIBILITY OF DELAWARE LAW. For many
years, Delaware has followed a policy of encouraging incorporation in that
state. In furtherance of that policy, Delaware has been a leader in adopting,
construing and implementing comprehensive, flexible corporate laws responsive
to the legal and business needs of corporations organized in Delaware. Many
corporations have chosen Delaware initially as a state of incorporation or have
subsequently changed corporate domicile to Delaware in a manner similar to that
proposed by the Company. Because of Delaware's prominence as the state of
incorporation for many major corporations, both the legislature and the courts
in Delaware have demonstrated an ability and a willingness to act quickly and
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effectively to meet changing business needs. The Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of case law has developed construing Delaware law and establishing public
policies with respect to corporate legal affairs.
INCREASED ABILITY TO ATTRACT AND RETAIN QUALIFIED DIRECTORS.
Both Nevada and Delaware law permit a corporation to include a provision in
its charter that reduces or limits the monetary liability of directors for
breaches of fiduciaryduty in certain circumstances. The Company believes that,
in general, Delaware case law regarding a corporation's ability to limit
director liability is more developed and provides more guidance than Nevada
law.
WELL-ESTABLISHED PRINCIPLES OF CORPORATE GOVERNANCE.
There is substantial judicial precedent in the Delaware courts as to the legal
principles applicable to measures that may be taken by a corporation and as
to the conduct of the board of directors of the Company such as under the
business judgment rule and other standards. The Company believes that its
stockholders will benefit from the well-established principles of corporate
governance that Delaware law affords.
NO CHANGE IN BOARD MEMBERS, BUSINESS, MANAGEMENT, EMPLOYEE BENEFIT
PLANS OR LOCATION OF PRINCIPAL FACILITIES OF THE COMPANY. The Reincorporation
Proposal will effect only a change in the legal domicile of the Company and
certain other changes of a legal nature, certain of which are described in this
Proxy Statement. The Reincorporation Proposal will NOT result in any change in
the name, business, management, fiscal year, assets or liabilities (except to
the extent of legal and other costs of effecting the Merger) or location of the
principal facilities of the Company. All employee benefits, warrants and stock
options of the Company will be assumed and continued by Vsource Delaware, and
each such option or warrant will automatically be converted into an option or
right to purchase the same number of shares of Delaware Common Stock, at the
same price per share, upon the same terms, and subject to the same conditions.
Stockholders should note that approval of the Reincorporation Proposal will also
constitute approval of the assumption of these benefits, warrants and options by
Vsource Delaware. Other employee benefit arrangements of Vsource Nevada will
also be continued by Vsource Delaware upon the terms and subject to the
conditions currently in effect. As noted above, after the Merger, shares of
Delaware Common Stock will continue to be traded, without interruption, on the
same exchange OTC Bulletin Board and under the same symbol "VSRC" as the shares
of Company Common Stock are currently traded. The Company believes that the
Reincorporation Proposal will not affect any of its material contracts with any
third parties and that Vsource Nevada's rights and obligations under such
material contracts will continue and be assumed by Vsource Delaware.
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ANTI-TAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a
number of measures designed to reduce a corporation's vulnerability to
unsolicited takeover attempts through amendment of the corporation's certificate
of incorporation or bylaws or otherwise. THE REINCORPORATION PROPOSAL IS NOT
BEING PROPOSED IN ORDER TO PREVENT SUCH A CHANGE IN CONTROL AND THE BOARD OF
DIRECTORS OF THE COMPANY IS NOT AWARE OF ANY PRESENT ATTEMPT TO ACQUIRE CONTROL
OF THE COMPANY OR TO OBTAIN REPRESENTATION ON THE COMPANY'S BOARD OF DIRECTORS.
The board of directors of the Company, however, believes that future unsolicited
takeover attempts may be unfair or disadvantageous to us and our stockholders
because, among other reasons:
- a non-negotiated takeover bid may be timed to take advantage of
temporarily depressed stock prices;
- a non-negotiated takeover bid may be designed to foreclose or minimize
the possibility of more favorable competing bids or alternative
transactions;
- a non-negotiated takeover bid may involve the acquisition of only a
controlling interest in the Company's stock, without affording all
stockholders the opportunity to receive the same economic benefits; and
- certain of the Company's contractual arrangements provide that they may
not be assigned pursuant to a transaction which results in a "change of
control" of the Company without the prior written consent of the
licensor or other contracting party.
By contrast, in a transaction in which a potential acquirer must negotiate
with an independent board of directors, the board of directors can and should
take account of the underlying and long-term values of the business, technology
and other assets, the possibility of alternative transactions on more favorable
terms, anticipated favorable developments in the business not yet reflected in
the stock price and equality of treatment among all stockholders.
Certain aspects of the Reincorporation Proposal may have the effect of
deterring hostile takeover attempts. Section 203 of the General Corporation Law
of the State of Delaware, from which Vsource Delaware does not intend to opt
out, restricts certain "business combinations" with "interested stockholders"
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for three years following the date that a person becomes an "interested
stockholder," unless the board of directors approves the business combination.
Despite the belief of the Company's board of directors as to the benefits
to our stockholders of the Reincorporation Proposal, it may be disadvantageous
to the extent that it has the effect of discouraging a future takeover attempt
which is not approved by the Company's board of directors, but which a majority
of the stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the then
current market value or their cost basis in such shares. As a result of such
effects of the Reincorporation Proposal, stockholders who might wish to
participate in an unsolicited tender offer may not have an opportunity to do so.
In addition, to the extent that provisions of Delaware law enable the Company's
board of directors to resist a takeover or change in control of the Company,
such provisions could make it more difficult to change the existing board and
management.
THE ARTICLES OF INCORPORATION AND BYLAWS OF THE COMPANY AND THE CERTIFICATE OF
INCORPORATION AND BYLAWS OF VSOURCE DELAWARE
The provision's of the Company Articles and the Company' Bylaws (the
"Company Bylaws") are substantially similar to the Delaware Certificate and the
bylaws of Vsource Delaware (the "Delaware Bylaws"). However, while the Company
has no present intention to do so, Vsource Delaware could, in the future,
implement certain other changes by amendment to the Delaware Certificate or the
Delaware Bylaws. See "Significant Differences Between the Corporation Laws of
the Nevada and Delaware." This discussion of the Delaware Certificate and the
Delaware Bylaws is qualified by reference to Appendix B and Appendix C hereto,
respectively.
AUTHORIZED CAPITAL STOCK. The Company Articles currently authorizes
the Company to issue up to 50,000,000 shares of Company Common Stock, par value
$0.01 per share, and 5,000,000 shares of Class A Preferred Stock, par value
$0.01 per share, of the Company ("Company Preferred Stock"). The Delaware
Certificate authorizes Vsource Delaware to issue up to 100,000,000 shares of
Delaware Common Stock, par value $0.01 per share, and 5,000,000 shares of
preferred stock, par value $0.01 per share, of Vsource Delaware ("Delaware
Preferred Stock"). Like the Company Articles, the Delaware Certificate permits
the Company's board of directors to determine the rights, powers and
preferences, if any, and the qualifications, limitations or restrictions, if
any, of the authorized and unissued Delaware Preferred Stock.
LIMITATION OF LIABILITY OF DIRECTORS OR OFFICERS. The Company
Articles and the Delaware Certificate both provide for the elimination of
personal monetary liability of directors and officers to the maximum extent
permissible under the law of the respective states. The Company Articles, in
accordance with the Nevada law, limit the personal liability of directors or
officers of the Company for breaches of fiduciary duty other than for acts as to
which they have been adjudged liable for negligence or misconduct. The Delaware
Certificate, to the fullest extent permitted by Delaware law, limits the
personal liability of directors and officers for breaches of fiduciary duty to
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the Company or its stockholders other than (i) for acts or omissions which
involve breaches of the duty of loyalty to Vsource Delaware or its stockholders,
(ii) intentional misconduct, (iii) fraud or knowing violation of law (iv) under
Section 174 of the General Corporation Law of Delaware ("DGCL"), or (v) any
transaction from which the officer or director derived an improper personal
benefit. Thus, the Delaware Certificate may not limit to as great an extent as
the Company Articles, the personal liability of directors of Vsource Delaware.
For additional information, see "--Significant Differences Between the
Corporation Laws of Nevada and Delaware."
ADVANCEMENT OF EXPENSES. While, under Nevada law, the articles
of incorporation, bylaws or an agreement made by the corporation may provide
that the corporation must pay advancements of expenses in advance of the final
disposition of the action, suit or proceedings upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined that he or she is not entitled to be indemnified by the corporation,
the Company Articles and the Company Bylaws make no such provision. In
contrast, the Delaware Certificate provides that the Vsource Delaware shall upon
request make such advances to officers and directors.
CUMULATIVE VOTING. The Company Articles and the Company Bylaws
both require cumulative voting for the election of directors. Cumulative voting
for directors entitles stockholders to cast a number of votes that is equal to
the number of voting shares held multiplied by the number of directors to be
elected. Stockholders may cast all such votes either for one nominee or
distribute such votes among up to as many candidates as there are positions to
be filled. Cumulative voting may enable a minority stockholder or group of
stockholders to elect at least one representative to the board of directors
where such stockholders would not otherwise be able to elect any directors. The
Delaware Certificate and the Delaware Bylaws do not provide for cumulative
voting for the election of directors.
However, under the California General Corporation Law (the
"CGCL") Section 2115, the Company is currently required to comply with certain
sections of the CGCL including a provision requiring cumulative voting until
such time as the Company becomes a "listed corporation." Upon qualification for
trading on the NASDAQ national market system, the Company will become a listed
corporation and will, pursuant to the Delaware Bylaws, eliminate the cumulative
voting requirement. See "Significant Differences Between The Corporation Laws
Of Nevada and Delaware - Cumulative Voting" for additional information.
17
<PAGE>
FILLING VACANCIES ON THE BOARD OF DIRECTORS. The Company Bylaws, in
accordance with Nevada law, provide that vacancies on the Company's board of
directors may be filled by a majority of the remaining directors, though less
than a quorum. The Delaware Bylaws, in accordance with Delaware law, similarly
provide that vacancies on the board of directors of Vsource Delaware may be
filled by a majority of the remaining directors, although less than a quorum.
For a more detailed explanation of the foregoing, see "--Significant Differences
Between the Corporation Law of Nevada and Delaware."
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS. The Company Bylaws
provide that special meetings of stockholders may be called by the president or
by the Board of Directors, and must be called by the president at the written
request of stockholders holding a majority of the issued and outstanding shares
of capital stock of the Company, or a majority of the Board of Directors. The
Delaware Bylaws provide that the Board of Directors, chief executive officer or
president may call a special meeting of the stockholders.
Delaware law provides that if an annual meeting for the election of
directors is not held for a period of thirty (30) days from the date designated,
or action by written consent in lieu of an annual meeting has not been taken for
a period of thirty (30) days after the date designated, or if no date has been
designated for a period of thirteen months after the last annual meeting or last
action by written consent in lieu of an annual meeting, a stockholder or
director may apply to the Court of Chancery of the State of Delaware for an
order to hold an annual meeting for the election of directors. For a more
detailed explanation of the foregoing, see "--Significant Differences Between
the Corporation Law of Nevada and Delaware."
AMENDMENT OF BYLAWS. The Company Bylaws permit amendment or repeal of
the Company Bylaws at any regular meeting of the Board of Directors or
stockholders, or, if notice of such repeal or amendment is included in the
notice of meeting, at any special meeting of the Board of Directors or
stockholders.
The Delaware Bylaws provide that the Delaware Bylaws may be amended or
repealed by the Board of Directors or stockholders at any meeting.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF NEVADA AND DELAWARE
Vsource Nevada is incorporated under the laws of the State of Nevada,
and Vsource Delaware is incorporated under the laws of the State of Delaware.
On consummation of the Merger, the stockholders of the Company, whose rights
currently are governed by Nevada law and the Company Articles and the Company
Bylaws, which were created pursuant to Nevada law, will become stockholders of a
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<PAGE>
Delaware company, Vsource Delaware, and their rights as stockholders will then
be governed by Delaware law and the Delaware Certificate and the Delaware Bylaws
which were created under Delaware law.
Although the corporate statutes of Nevada and Delaware are similar,
certain differences exist. The most significant differences, in the judgment of
the management of the Company, are summarized below. In addition, some of the
similarities between the laws of the two jurisdictions are discussed. This
summary is not intended to be complete, and stockholders should refer to the
DGCL and the Nevada Business Corporation Act ("Nevada law") to understand how
these laws apply to the Company and Vsource Delaware.
CLASSIFIED BOARD OF DIRECTORS. The DGCL permits any Delaware
corporation to classify its board of directors into as many as three classes as
equally as possible with staggered terms of office. After initial
implementation of a classified board, one class will be elected at each annual
meeting of the stockholders to serve for a term of one, two or three years
(depending upon the number of classes into which directors are classified) or
until their successors are elected and take office. Nevada law also permits
corporations to classify boards of directors provided that at least one-fourth
of the total number of directors is elected annually. The Company does not have
a classified board, nor will Vsource Delaware's board of directors be classified
in connection with the Merger.
REMOVAL OF DIRECTORS. With respect to removal of directors, under the
Nevada law, any one or all of the directors of a corporation may be removed by
the holders of not less than two-thirds of the voting power of a corporation's
issued and outstanding stock, except for corporations which provide for
cumulative voting in their articles of incorporation, as the Company's Articles
do, no director may be removed except on the vote of stockholders owning
sufficient shares to have prevented his election to office in the first
instance. Nevada does not distinguish between removal of directors with and
without cause. Under the Delaware Law, directors of a corporation without a
classified board may be removed with or without cause, by the holders of a
majority of shares then entitled to vote in an election of directors, except for
corporations having cumulative voting, as Vsource Delaware will until it becomes
a listed corporation. In the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director. Unlike Nevada, Delaware does distinguish between removal
of directors with and without cause.
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS. Nevada does not
specifically provide for the calling of annual or special meetings of
stockholders of a Nevada corporation. In contrast, the DGCL permits special
meetings of stockholders to be called by the board of directors or by such
persons authorized by the corporation's certificate of incorporation or bylaws.
The DGCL also provides that if a corporation fails to hold an annual meeting for
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the election of directors or there is no written consent to elect directors in
lieu of an annual meeting taken, in both cases for a period of thirty (30) days
after the date designated for the annual meeting, a director or stockholder of
the corporation may apply to the Court of Chancery of the State of Delaware to
order an annual meeting for the election of directors.
CUMULATIVE VOTING. Cumulative voting for directors entitles
stockholders to cast a number of votes that is equal to the number of voting
shares held multiplied by the number of directors to be elected. Stockholders
may cast all such votes either for one nominee or distribute such votes among up
to as many candidates as there are positions to be filled. Cumulative voting
may enable a minority stockholder or group of stockholders to elect at least one
representative to the board of directors where such stockholders would not
otherwise be able to elect any directors.
Nevada law permits cumulative voting in the election of directors as
long as the articles of incorporation provide for cumulative voting and certain
procedures for the exercise of cumulative voting are followed. A Delaware
corporation may provide for cumulative voting in the corporation's certificate
of incorporation. The Company Articles and the Company Bylaws both require
cumulative voting. Vsource Delaware did not adopt cumulative voting in the
Delaware Certificate.
However, under the California General Corporation Law (the "CGCL")
Section 2115, the Company is currently required to comply with certain sections
of the CGCL including a provision requiring cumulative voting until such time as
the Company becomes a "listed corporation." Upon qualification for trading on
the NASDAQ national market system, the Company will become a listed corporation
and will, pursuant to the Delaware Bylaws, eliminate the cumulative voting
requirement. The Company is currently seeking such qualification.
Nevertheless, until the Company becomes a listed corporation, there will be no
difference in stockholders' rights with respect to this issue.
VACANCIES. Under the DGCL, subject to the rights, if any, of any
series of preferred stock to elect directors and to fill vacancies on the board
of directors, vacancies on the board of directors may be filled by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum. Any director so appointed will hold office for the
remainder of the full term.
Similarly, Nevada law provides that vacancies may be filled by a
majority of the remaining directors, though less than a quorum, unless the
articles of incorporation provide otherwise. The Company Bylaws and the
Delaware Bylaws address the issue of director vacancies in approximately the
same manner. Therefore, the change from Nevada law to Delaware law will not
alter stockholders' rights with respect to filling vacancies.
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<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES.
A Delaware corporation is permitted to adopt provisions in its certificate of
incorporation limiting or eliminating the liability of a director to a company
and its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such liability does not arise from certain proscribed
conduct, including breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law or
liability to the corporation based on unlawful dividends or distributions or
improper personal benefit. The Delaware Certificate will limit the liability of
directors to Vsource Delaware to the fullest extent permitted by law.
While Nevada law has a similar provision permitting the adoption of
provisions in the articles of incorporation limiting personal liability, the
Nevada provision differs in two respects. First, the Nevada provisions applies
to both directors and officers. Second, while the Delaware provision excepts
from the limitation on liability for breach of the duty of loyalty, the Nevada
counterpart does not contain this exception.
Delaware law and Nevada law differ little in their provisions for
advancement of expenses incurred by an officer or director in defending a civil
or criminal action, suit or proceeding. The DGCL provides that expenses
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of the action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined that he or she is not
entitled to be indemnified by the corporation. Under Nevada law, the articles
of incorporation, bylaws or an agreement made by the corporation may provide
that the corporation must pay advancements of expenses in advance of the final
disposition of the action, suit or proceedings upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined that he or she is not entitled to be indemnified by the corporation.
DIVIDENDS. Under the Delaware Law, unless further restricted in the
certificate of incorporation, a corporation may declare and pay dividends, out
of surplus, or if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year (provided that
the amount of capital of the corporation is not less than the aggregate amount
of the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets). In addition, the Delaware
Law provides that a corporation may redeem or repurchase its shares only if the
capital of the corporation is not impaired and such redemption or repurchase
would not impair the capital of the corporation.
Nevada law provides that no distribution (including dividends on, or
redemption or repurchases of, shares of capital stock) may be made if, after
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<PAGE>
giving effect to such distribution, the corporation would not be able to pay its
debts as they become due in the usual course of business, or, except as
specifically permitted by the articles of incorporation, the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed at the time of a dissolution to satisfy the preferential rights
of preferred stockholders.
RESTRICTIONS ON BUSINESS COMBINATIONS. Both the DGCL and Nevada law
contain provisions restricting the ability of a corporation to engage in
business combinations with an interested stockholder. Under the DGCL, a
corporation is not permitted to engage in a business combination with any
interested stockholder for a three-year period following the time such
stockholder became an interested stockholder, unless (i) the transaction
resulting in a person becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before the
person becomes an interested stockholder; (ii) the interested stockholder
acquires 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder (excluding shares owned
by persons who are both officers and directors of the corporation, and shares
held by certain employee stock ownership plans); or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock at an annual or special
meeting (and not by written consent), excluding shares owned by the interested
stockholder. The DGCL defines "interested stockholder" generally as a person
who owns 15% or more of the outstanding shares of a corporation's voting stock.
Nevada law regulates business combinations more stringently. First,
the definition of an "interested stockholder" includes a beneficial owner
(directly or indirectly) of ten percent (10%) or more of the voting power of the
outstanding shares of the corporation as well as affiliates of the corporation.
Second, the three-year moratorium can be lifted only by advance approval by a
corporation's board of directors. Finally, after the three-year period,
combinations with "interested stockholders" remain prohibited unless (i) they
are approved by the board of directors, the disinterested stockholders or a
majority of the outstanding voting power not beneficially owned by the
interested party, or (ii) the interested stockholders satisfy certain fair value
requirements. As in Delaware, a Nevada corporation may opt-out of the statute
with appropriate provisions in its articles of incorporation.
Neither Vsource Nevada nor Vsource Delaware have opted out of the
applicable statutes with appropriate provisions of the Company Articles or the
Delaware Certificate.
AMENDMENT TO ARTICLES OF INCORPORATION/CERTIFICATE OF INCORPORATION OR
BYLAWS. In general, both the DGCL and Nevada law require the approval of the
holders of a majority of all outstanding shares entitled to vote to approve
proposed amendments to a corporation's certificate/articles of incorporation.
22
<PAGE>
Both the DGCL and Nevada law also provide that in addition to the vote above,
the vote of a majority of the outstanding shares of a class may be required to
amend the certificate of incorporation or articles of incorporation. Neither
state requires stockholder approval for the board of directors of a corporation
to fix the voting powers, designation, preferences, limitations, restrictions
and rights of a class of stock provided that the corporation's organizational
documents grant such power to its board of directors. Both Nevada law and the
DGCL permit, in general, the number of authorized shares of any such class of
stock to be increased or decreased (but not below the number of shares then
outstanding) by the board of directors unless otherwise provided in the articles
of incorporation or resolution adopted pursuant to the certificate of
incorporation, respectively.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS. Nevada law and the DGCL
each provide that, unless the articles/certificate of incorporation provides
otherwise, any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting if the holders of outstanding stock
having at least the minimum number of votes that would be necessary to authorize
or take such action at a meeting consents to the action in writing. In
addition, the DGCL requires the corporation to give prompt notice of the taking
of corporate action without a meeting by less than unanimous written consent to
those stockholders who did not consent in writing. The Company Articles does
not limit stockholder action by written consent. Similarly, the Delaware
Certificate does not limit stockholder action by written consent.
STOCKHOLDER VOTE FOR MERGERS AND OTHER CORPORATION REORGANIZATIONS.
In general, both jurisdictions require authorization by an absolute majority of
outstanding shares entitled to vote, as well as approval by the board of
directors, with respect to the terms of a merger or a sale of substantially all
of the assets of the corporation. The DGCL does not require a stockholder vote
of the surviving corporation in a merger (unless the corporation provides
otherwise in its certificate of incorporation) if:
(a) the merger agreement does not amend the existing certificate of
incorporation;
(b) each share of stock of the surviving corporation outstanding immediately
before the effective date of the merger is an identical outstanding share after
the merger; and
(c) either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or shares
of common stock of the surviving corporation to be issued or delivered under the
plan of merger plus those initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered under such plan do
not exceed twenty percent (20%) of the shares of common stock of such
constituent corporation outstanding immediately prior to the effective date of
the merger.
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<PAGE>
Nevada law does not require a stockholder vote of the surviving corporation in a
merger under substantially similar circumstances.
DISSENTERS' RIGHTS. In both jurisdictions, dissenting stockholders of
a corporation engaged in certain major corporate transactions are entitled to
appraisal rights. Appraisal rights permit a stockholder to receive cash equal
to the fair value of the stockholder's shares, in lieu of the consideration such
stockholder would otherwise receive in any such transaction.
Under the DGCL, such fair market value is determined exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, and such appraisal rights are not available:
(a)with respect to the sale, lease or exchange of all or substantially
all of the assets of a corporation;
(b)with respect to a merger or consolidation by a corporation the
shares of which are either listed on a national securities exchange or
are held of record by more than 2,000 holders if such stockholders
receive only shares of the surviving corporation or shares of any
other corporation tha t are either listed on a national securities
exchange or held of record by more than 2,000 holder, plus cash in
lieu of fractional shares of such corporations; or
(c) to stockholders of a corporation surviving a merger if no vote of
the stockholders of the surviving corporation is required to approve
the merger under Delaware law.
Under Nevada law, a stockholder is entitled to dissent from, and
obtain payment for the fair value of his or her shares in the event of the
consummation of a plan of merger or plan of exchange in which the corporation is
a party and, to the extent that the articles of incorporation, bylaws or a
resolution of the board of directors provide that voting or nonvoting
stockholders are entitled to dissent and obtain payment for their shares, any
corporate action taken pursuant to a vote of the stockholders. As with the
DGCL, Nevada law provides an exception to dissenters' rights. Holders of
securities (i) listed on a national securities exchange or included in the
national market system by the NASD, (ii) held by more than 2,000 stockholders of
record, or (iii) who are not required to vote on the plan of merger, are
generally not entitled to dissenters' rights, unless (A) the articles of
incorporation of the corporation issuing the shares provide otherwise or (B) the
holders of the class or series are required to accept anything other than (or a
combination of such consideration) cash, owner's interest, or owner's interest
and cash in lieu of fractional shares in the surviving entity or another entity
whose shares were listed on a national exchange, included in the national market
system by the NASD or held by at least 2,000 holders of record.
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STOCKHOLDER INSPECTION RIGHTS. The DGCL grants any stockholder the
right to inspect and to copy for any proper purpose the corporation's stock
ledger, a list of its stockholders, and its other records. A proper purpose is
one reasonably related to such person's interest as a stockholder. Directors
also have the right to examine the corporation's stock ledger, a list of its
stockholders and its other records for a purpose reasonably related to their
positions as directors.
Nevada law provides the right to inspect the corporation's financial
records only for a stockholder who (i) has been a stockholder of record for at
least six months, or (ii) has been authorized in writing by the holder(s) of at
least 5% of the issued and outstanding shares.
STOCKHOLDER DERIVATIVE SUITS. Under both the DGCL and Nevada law, a
stockholder may bring a derivative action on behalf of the corporation only if
the stockholder was a stockholder of the corporation at the time of the
transaction in question or the stockholder acquired the stock thereafter by
operation of law.
SPECIAL MEETINGS OF STOCKHOLDERS. The DGCL permits special meetings
of stockholders to be called by the board of directors or by any other person
authorized in the certificate of incorporation or bylaws to call a special
stockholder meeting. Nevada law does not address the manner in which special
meetings of stockholders may be called. The Company Bylaws provide that special
meetings of the stockholders may be called by the President or by a majority of
the Company's board of directors, and must be called by the President at the
written request of not less than a majority of the issued and outstanding shares
of capital stock of the Company. Similarly, the Delaware Bylaws provide that
the president, chief executive officer or Vsource Delaware's board of directors
may call a special meeting of the stockholders.
VOLUNTARY DISSOLUTION. Under Nevada law, if a corporation has issued
stock, the board of directors must act to recommend dissolution of the
corporation to the stockholders of the corporation to effect a voluntary
dissolution of the corporation. The corporation must notify each stockholder
entitled to vote on dissolution and the stockholders entitled to vote thereon
must approve the dissolution. Under the DGCL, unless the board of directors of
Vsource Delaware approves the proposal to dissolve, the dissolution must be
unanimously approved by the written consent of stockholders entitled to vote
thereon. Only if the dissolution is initially approved by the board of directors
may the dissolution be approved by a majority of the stockholders of Vsource
Delaware entitled to vote thereon.
INTERESTED DIRECTOR TRANSACTIONS. Under both Nevada and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest,
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provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain minor exceptions, the conditions are similar under Nevada and Delaware
law.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the Merger to Vsource Nevada and its stockholders.
The Merger is intended to be a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Code"), and
that for federal income tax purposes:
(1) Neither Vsource Nevada nor its stockholders will recognize any
gain or loss by reason of the exchange of Vsource Nevada Common
Stock for Vsource Delaware Common Stock, or the transfer of assets
(subject to liabilities) by Vsource Nevada to Vsource Delaware
in connection with the Merger.
(2) The shares of Vsource Delaware Common Stock issued as a result of
the Merger in the hands of a stockholder will have an aggregate
basis for computing gain or loss equal to the aggregate basis of
shares of Vsource Nevada Common Stock (less that portion, if any,
allocable to fractional shares) held by that stockholder immediately
prior to the Merger.
(3) The holding period of the shares of Vsource Delaware Common Stock
issued as a result of the Merger in the hands of a stockholder will
include the period during which the stockholder held the shares of
Vsource Nevada Common Stock prior to the Merger provided the shares
of Vsource Nevada Common Stock were held as a capital asset at the
effective time of the Merger.
(4) A stockholder who receives solely cash pursuant to such
stockholder's statutory dissenters or appraisal right will be treated
as having received such payment in redemption of such stockholder's
Vsource Nevada Common Stock, as provided in Section 302(a)(1) of
the Code.
Each affected stockholder is strongly urged to consult such
stockholder's own tax advisor for the effect of such redemption (i.e., exchange
or dividend treatment) in light of such stockholder's particular facts and
circumstances.
The tax analysis and conclusions stated above are limited to certain
U.S. federal income tax consequences of the Merger. Tax consequences to foreign
persons may vary depending on the law of the applicable jurisdiction. Each
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<PAGE>
stockholder is strongly urged to consult such stockholder's tax advisor to
determine the specific tax consequences of the Merger to such stockholder.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR"
PROPOSAL NO. 2
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANT
Effective February 8, 2000, Vsource, Inc., a Nevada corporation
("Registrant" or the "Company"), agreed to retain Grant Thornton LLP as the
principal accountant to audit the Company's financial statements. Concurrently
with the agreement to engage Grant Thornton LLP, the Company's former
accountants, Lucas, Horsfall, Murphy & Pindroh, LLP resigned as the Company's
independent accountants. The Company's Board of Directors approved the decision
to change accountants.
Lucas, Horsfall, Murphy & Pindroh, LLP's report, dated May 15, 1999
(except for Note 10 to the financial statements which is as of September 3,
1999), on the consolidated financial statements as of and for the years ended
January 31, 1999 and 1998 contained an additional paragraph adding emphasis to
the matter of the Company's ability to continue as a going concern.
During the Company's two most recent fiscal years and any subsequent
interim period, there were no disagreements between the Company and Lucas,
Horsfall, Murphy & Pindroh, LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to the satisfaction of Lucas, Horsfall,
Murphy & Pindroh, LLP, would have caused it to make a reference to the subject
matter of the disagreements in connection with its reports.
The Board of Directors has selected Grant Thornton LLP, independent public
accountants, to audit the financial statements of the Company for the fiscal
year ending January 31, 2001, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection. A
representative of Grant Thornton LLP is expected to attend the Meeting to make
any statements he may desire and respond to stockholders' questions.
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<PAGE>
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF
GRANT THORNTON LLP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of April 17, 2000, information
regarding ownership of the Company's common stock, by each person known by the
Company to be the beneficial owner of more than 5% of its outstanding common
stock, by each director, by certain related stockholders, and by all executive
officers and directors of the Company as a group. All persons named below have
sole voting and investment power over their shares except as otherwise noted.
As of April 17, 2000, there were 15,905,977 shares of the Company's common stock
outstanding. There are no existing arrangements which may, or are expected to,
result in a change in control of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL HOLDER NUMBER OF SHARES PERCENT OF CLASS
- --------------------------- ----------------- -----------------
<S> <C> <C>
Robert C. McShirley
4536 Falkirk Bay
Oxnard, CA 93035
1,960,985 (1) 12.29%
Richard S. McShirley 794
Hot Springs Road
Santa Barbara, CA 93108
1,021,134(2) 6.41%
Samuel E. Bradt 6925 N.
Wildwood Point Chenequa,
WI 53029
632,318(3) 3.97%
Dennis W. McQuilliams
16623 N.E. 145th Street
Woodinville, WA 98072 907,500(4) 5.58%
DX3, Inc.
Dennis W. McQuilliams
16623 N.E. 145th Street
Woodinville, WA 98072 870,000(5) 5.36%
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<PAGE>
Daniel Bunn
4660 La Jolla Village Dr.
Suite 480
San Diego, CA 92122 1,099,744(6) 7.14%
Jeri D. Sessler
3410 Penensula Road
Oxnard, CA 93035 250,000(7) 1.55%
P. Scott Turner
30452 Winchester Road
Castaic, CA 91384 29,408 *
Scott T. Behan
P.O. Box 1244
Somis, CA 91384
10,240 *
Robert N. Schwartz Hughes
Research Laboratories
3011 Malibu Canyon Road
Malibu, CA 90265
19,647 *
Daniel J. Jinguji
5740 Ralston Street, #110
Ventura, CA 93003 62,721(8) *
Ronald J. Sanderson
1425 London Lane
Glenview, IL 60025 54,595(9) *
Sandford T. Waddell
1822 Marisol Drive
Ventura, CA 93001 5,208(10) *
Ramin Kamfar
666 Greenwich Street, #710. 92,500(11)
New York, NY 10014 *
All Executive Officers **
and Directors
(12 individuals) 5,046,256(12) 29.69%
<FN>
* Less than 1%.
** For further biographical information regarding the Company's executive
officers, please see "Executive Officers and Directors" in Item 1, "Description
</TABLE>
29
<PAGE>
of Business" in the Vsource, Inc. Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2000.
(1) Includes 785,343 shares as to which Robert McShirley has voting power
pursuant to a continuing proxy given to Robert McShirley by Joseph E. Thomure.
The shares subject to the proxy are held by Jelaine Ltd. partnership, 267,000
shares, four of Mr. Thomure's family members and 100,816 held in street name for
the benefit of Mr. Thomure. Mr. McShirley disclaims beneficial ownership of the
785,343 shares which are the subject of the proxy. Also includes options to
purchase 50,000 shares and convertible demand notes convertible into 245,317
shares. The notes are convertible and the option exercisable within 60 days of
April 17, 2000.
(2) Includes 22,000 shares held jointly with Richard McShirley's wife, Marjorie
McShirley. Also includes options to purchase 25,000 shares exercisable within
60 days of April 17, 2000.
(3) Includes 60,768 shares held by Merganser Corporation. Mr. Bradt is the
President and sole owner of Merganser Corporation. Also includes options to
purchase 12,500 shares which are exercisable within 60 days of April 17, 2000.
(4) Includes 540,000 shares held by DX3, Inc. including 500,000 shares issued
to DX3, Inc. in the acquisition of Wpg.Net, Inc. and options to purchase 330,000
shares held by DX3, Inc. exercisable within 60 days of April 17, 2000. Mr.
McQuilliams, the President of DX3, Inc., disclaims beneficial ownership as to
343,125 of the shares and 206,250 of the options held by DX3, Inc. Also
includes options to purchase 37,500 shares exercisable within 60 days of April
17, 2000.
(5) Includes options to purchase 330,000 shares exercisable within 60 days of
April 17, 2000. The shares and options held by DX3, Inc. were also included in
the calculation of the beneficial ownership of the Companies common stock held
by Mr. McQuilliams. See Note (4) above.
(6) Includes 38,374 shares of the Company's Series 1-A Convertible Preferred
Stock currently convertible on a one-for-one basis into Common Stock.
(7) Includes options to purchase 250,000 shares exercisable within 60 days of
April 17, 2000.
(8) Includes 600 shares owned by family members. Mr. Jinguji disclaims
beneficial ownership of the 600 shares held by family members. Also includes
options to purchase 62,121 shares exercisable within 60 days of April 17, 2000.
(9) Includes options to purchase 50,000 shares exercisable within 60 days of
April 17, 2000.
(10) Includes options to purchase 5,208 shares exercisable within 60 days of
April 17, 2000.
(11) Includes options to purchase 60,000 shares exercisable within 60 days of
April 17, 2000.
(12) Includes the convertible securities listed here for the 12 Officers and
Directors, a total of 1,090,746 shares convertible or exercisable within 60 days
of April 17, 2000.
30
<PAGE>
The following table sets forth, as of April 17, 2000, information regarding
ownership of the Company's Series 1-A Convertible Preferred Stock, by each
person known by the Company to be the beneficial owner of more than 5% of its
outstanding Series 1-A Convertible Preferred Stock. No director, related
stockholders, or executive officers hold any Series 1-A Convertible Preferred
Stock. As of April 17, 2000, there were 2,802,000 shares of the Company's
Series 1-A Convertible Preferred Stock outstanding. There are no existing
arrangements which may, or are expected to, result in a change in control of
the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL HOLDER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------- ---------------- -----------------
<S> <C> <C>
Anglo East Trust
c/o Farrokh Nazerian
1978 Mission Ridge Road
Santa Barbara, CA 93103 326,260 11.64%
787, LLC
c/o James F. Voelker
9919 S.E. Fifth Street
Bellvue, WA 98004 191,918 6.84%
Jefferies & Company, Inc.
11100 Santa Monica Blvd.
Los Angeles, CA 90025 191,918 6.84%
Mercantile VS, LLC
c/o Mercantile Equity Partners
1372 Shermer Road
Northbrook, IL 60062 191,918 6.84%
Thomas Kernaghan & Co., Ltd.
365 Bay Street, 10th Floor
Toronto, Ontario
M5H 2V2 Canada 153,534 5.48%
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC"). Such officers, directors and ten-percent
stockholders are also required by SEC rules to furnish the Company with copies
of all forms that they file pursuant to Section 16(a). Based solely on its
review of the copies of such forms received by it, or representations from
certain reporting persons that no other reports were required for such persons,
the Company believes that all Section 16(a) filing requirements applicable to
31
<PAGE>
its officers, directors and ten-percent stockholders were complied with in a
timely fashion.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
No interlocking relationship exists between any member of the
Company's Board of Directors and any member of the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. No member of a compensation committee is or
was formerly an officer or an employee of the Company.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information regarding the compensation for the
last three completed fiscal years of the CEO and Richard McShirley, the only
person whose total annual salary and bonus exceed $100,000.
SUMMARY COMPENSATION TABLE
Fiscal
Name And Year Annual Long-Term Compensation
Principal Ended Compensation Securities Underlying
Position Jan. 31, Salary ($) Options/SARs (#)
- ---------- -------- -------------- -----------------------
Robert C. 2000 $ 117,000 200,000 (1)
McShirley, 1999 63,750 80,000 (2)
CEO 1998 -0- 100,000 (3)
Richard 2000 $ 117,000 85,000 (4)
McShirley, 1999 90,000 35,000 (5)
Vice 1998 90,000 406,100 (6)
President.
(1) Options to purchase 100,000 shares of Common Stock were granted 5/15/99 with
an exercise price of $0.75 per share. In addition, options to purchase 100,000
shares of Common Stock previously granted 8/4/98 were repriced on 5/15/99. See
"Report of the Board of Directors."
(2) Options granted 8/4/98 and exercised 5/25/99. The options had an exercise
price of $1.25 per share and were repriced to $0.625 per share on May 15, 1999.
See "Report of the Board of Directors."
(3) Options granted 8/29/97 and exercised 5/25/99. The options had an exercise
price of $0.18164 per share.
(4) Options to purchase 50,000 shares of Common Stock were granted 5/15/99 with
an exercise price of $0.75 per share. In addition, options to purchase 35,000
shares of Common Stock previously granted 8/4/98 were repriced on 5/15/99. See
"Report of the Board of Directors."
32
<PAGE>
(5) Options granted 8/4/98 and exercised 5/25/99. The options had an exercise
price of $1.25 per share and were repriced to $0.625 per share on May 15, 1999.
See "Report of the Board of Directors."
(6) Options granted 2/5/97 for 306,100 shares and 8/29/97 for 100,000 shares.
All options were exercised 5/25/99 at an exercise price of $0.20 per share for
306,100 shares and $0.18164 per share for 100,000 shares.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS TABLE
(Individual Grants)
Number Of Percent Of Total
Securities Options/SARs
Underlying Granted To Exercise Or
Options/SARs Employees In Base Price Expiration Maturation
Name Granted (#) Fiscal Year 2000 ($/Sh) Date Date
- ---------- ------------- ----------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Robert C.
McShirley,
CEO. 100,000 7.9% $ 0.75 5-15-2009 5-15-2001
Richard
McShirley 50,000 3.9% $ 0.75 5-15-2009 5-15-2001
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number Of
Unexercised Securities
Underlying Value Of Unexercised In-
Options/SARs At FY- The-Money Options/SARs
Shares Acquired Value Realized End (#) Exercisable/ At FY-End ($) Exercisable/
Name On Exercise (#) ($) Unexercisable Unexercisable
- ---------- ---------------- ---------------- ---------------------- ---------------------------
<S> <C> <C> <C> <C>
Robert C.
McShirley,
CEO. 180,000 $ 258,086 50,000/50,000 ($721,875 / $721,875)
Richard
McShirley. 441,100 $ 698,255 25,000/25,000 ($360,937 / $360,937)
</TABLE>
33
<PAGE>
DIRECTOR COMPENSATION
Upon election to the Board of Directors in April, 2000, Ramin Kamfar was
granted 2,500 shares of the Company's Common Stock. The Company does not
currently offer any other compensation to the directors.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with any of the
executive officers
CERTAIN TRANSACTIONS
The Company has issued convertible demand notes, from time to time, each
in a private transaction. In July of 1999, all such notes were converted into an
aggregate of 2,210,201 shares. Robert McShirley, chairman, president and chief
executive officer of the Company, received an aggregate of 245,317 shares of
Common Stock upon the conversion of notes in the principal amount of $95,600.
Richard McShirley, vice president of the Company, received an aggregate of
188,116 shares of Common Stock upon the conversion of notes in the principal
amount of $33,100.
Malcolm Powell and his family, through various trusts, were the beneficial
owners of $55,000 principal amount of the notes. The principal amount plus
accrued interest was converted into 232,757 shares of common stock. Dr. Powell
also owns 150,000 shares of the Company common stock and, through a trust,
22,071 shares of Preferred Stock. Dr. Powell is a first cousin of Samuel Bradt,
a director of the Company and the Company's former chief financial officer,
secretary, and treasurer. Two other cousins of Mr. Bradt, R. Adolph Miller and
Alison Sapikowski, hold 32,626 and 22,071 shares of Preferred Stock
respectively.
The largest principal amount of the Notes held by any one holder held by
Daniel Bunn who held $266,000 principal amount. The principal amount plus
accrued interest was converted into 673,348 shares of common stock in July of
1999. Mr. Bunn also holds 33,374 shares of Preferred Stock. Mr. Bunn is a
business associate of Robert C. McShirley.
In May 1999, and in accordance with the terms of the option agreements, the
Company accepted six promissory notes totaling $178,798 from three executive
officers, Robert McShirley, Richard McShirley and Samuel Bradt, as consideration
for the exercise price of 636,100 fully vested non-qualified stock options. The
notes carry an interest rate of 6% per annum and are payable on demand.
34
<PAGE>
REPORT OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICER COMPENSATION PROGRAMS
The Board of Directors does not currently have a Compensation Committee.
The Board of Directors believes that the objectives of the overall executive
officer compensation program are to attract, retain, motivate and reward key
personnel who possess the necessary leadership and management skills through
competitive base salary, long-term incentive compensation in the form of stock
options, and various benefits (including medical and life insurance plans)
generally available to employees of the Company.
The executive compensation policies of the Company are intended to combine
competitive levels of compensation with rewards for above average performance
and to align relative compensation with the achievements of the business
objectives, optimal satisfaction of customers, and maximization of stockholder
value. The Board of Directors believes that stock ownership by management is
beneficial in aligning management and stockholder interests and thereby
enhancing stockholder value.
Base Salary. In determining salaries, the Board of Directors takes into
account the Chief Executive Officer's recommendations, individual experience and
contributions to corporate goals, the Company's performance, and existing
contractual commitments. Measures of the Company's performance taken into
account by the Board of Directors in establishing executive officer compensation
include the achieve-ment of significant milestones in the Company's development
plan and the relationship of the individ-ual's contribution to the achievement
of these goals.
Stock Option Grants. Stock options and stock grants are the Company's
primary methods of providing financial incentives. Stock options have been
granted to executive officers and other employees. Stock option grants are
intended to focus the attention of the recipient on long-term Company
performance which should result in improved stockholder value, and to retain the
services of the executive officers in a competitive job market by providing
significant long-term earning potential. One of the principal factors
considered in granting stock options to executive officers of the Company is the
executive's ability to influence the Company's long-term growth and
profitability. Because of the direct relationship between the value of an
option and the stock price, the Board of Directors believes that options may
motivate executive officers to manage the Company in a manner that is consistent
with stockholder interests.
The Company views stock options as one component of long-term
performance-based compensation for executive officers. Senior management
35
<PAGE>
generally receives larger grants of stock options, so that their compensation is
weighted more heavily toward compensation contingent upon the Company achieving
improvements in stockholder value. Option awards to executive officers will
generally be made at the time of their employment and from time to time
thereafter at the discretion of the Committee.
REPRICING OF CERTAIN OPTIONS
In May 1999, the Board of Directors reviewed the exercise price of options
to purchase an aggregate of 130,000 shares of the Company's Common Stock granted
to three of the Company's executive officers, Robert McShirley, Richard
McShirley and Samuel Bradt. The Board believes that it is appropriate to
provide an incentive and reward to its employees, to issue from time to time
options exercisable at the market price at the time of grant. The Board noted
that the exercise price of the original grant was the market value of free
trading shares at the time of grant and that shares issued to the officers upon
exercise would be restricted securities. Accordingly, the Board believed that
an adjustment should be made to the exercise price to more accurately reflect
the market value of the restricted stock issuable upon exercise. The Board
adjusted the exercise price from $1.25 per share to $0.625 per share.
CHIEF EXECUTIVE OFFICER COMPENSATION.
In making compensation decisions regarding the Chief Executive Officer, the
Board of Directors considers factors such as the Company's progress towards
achieving its goals for the year, his leadership and establishment and
implementation of strategic direction for the Company.
The foregoing report has been furnished by the Board of Directors of
Vsource, Inc.
Dated: May [**], 2000
THE BOARD OF DIRECTORS
36
<PAGE>
REPORT OF AUDIT COMMITTEE
The Audit Committee held its first meeting on April 26, 2000. Each of the
three members of the Audit Committee were in attendance. At that meeting the
Audit Committee reviewed and discussed with the independent auditors the matters
required to be discussed by SAS 61 and the independence of the independent
auditors. Subsequently, the Audit Committee received the written disclosures
and letter from the independent auditors required by Independence Standards
Board Standard No. 1.
The Audit Committee has reviewed and discussed the audited financial
statements with management and recommended to the Board of Directors that the
financial statements be included with the Company's Annual Report on Form 10-KSB
for the fiscal year ended January 31, 2000 for filing with the Securities and
Exchange Commission.
Dated: May [**], 2000 Samuel E. Bradt
Scott T. Behan
Ramin Kamfar
37
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The following graph demonstrates a five-year comparison of cumulative total
stockholder return, calculated on a dividend reinvestment basis and based on an
initial investment of $100 in the Company's Common stock as compared with the
Amex Internet Index and the Nasdaq Composite Index. No dividends have been
declared or paid on the Company's Common Stock during such period. The stock
price performance shown on the graph following is not necessarily indicative of
future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH
COMPARING VSOURCE, INC. (VSRC), NASDAQ COMPOSITE INDEX AND
AMEX INTERNET INDEX
[GRAPHIC OMITTED]
VSRC Nasdaq Amex Internet
Mar-98 100 100 100
Jun-98 226 103 123
Sep-98 128 92 120
Dec-98 236 119 206
Mar-99 243 134 97
Jun-99 272 146 101
Sep-99 232 150 104
Dec-99 2174 222 184
Mar-00 4457 249 200
38
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: May [**], 2000
39
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
OF
VSOURCE, INC.
(A NEVADA CORPORATION)
WITH AND INTO
VSOURCE, INC.
(A DELAWARE CORPORATION)
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June __, 2000 between Vsource, Inc., a Nevada corporation ("Vsource
Nevada"), and, Vsource, Inc., a Delaware corporation ("Vsource Delaware").
RECITALS
WHEREAS, Vsource Nevada is a corporation duly organized and existing under
the laws of the State of Nevada;
WHEREAS, Vsource Delaware is a corporation duly organized and existing
under the laws of the State of Delaware; and
WHEREAS, the Board of Directors of each of Vsource Nevada and Vsource
Delaware deem it desirable to merge Vsource Nevada with and into Vsource
Delaware so that Vsource Delaware is the surviving corporation on the terms
provided herein (the "Merger").
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
MERGER
1.2 CONSTITUENT CORPORATIONS. The name, address, jurisdiction of
organization and governing law of each of the constituent corporations is as
follows:
1
<PAGE>
(a) Vsource, Inc., a corporation organized under and governed by the
laws of the State of Nevada with an address at 5740 Ralston Street, Suite 110,
Ventura, California 93003; and
(b) Vsource, Inc., a corporation organized under and governed by the
laws of the State of Delaware with an address at 5740 Ralston Street, Suite 110,
Ventura, California 93003.
1.3 SURVIVING CORPORATION. Vsource, Inc., a corporation organized
under the laws of the State of Delaware, shall be the surviving corporation.
1.4 ADDRESS OF PRINCIPAL OFFICE OF SURVIVING CORPORATION. The address
of the principal office of Vsource Delaware as the Surviving Corporation shall
be 5740 Ralston Street, Suite 110, Ventura, California 93003.
1.5 CLOSING: EFFECTIVE DATE. The Merger shall be effective (the
"Effective Date"), on the date upon which the last of the following shall have
been completed:
(a) This Agreement and the Merger shall have been adopted and
recommended to the stockholders of Vsource Nevada by the board of directors of
Vsource Nevada and approved by a majority voting power of Vsource Nevada, in
accordance with the requirements of the Delaware General Corporation Law
("DGCL") and the Nevada General Corporation Law ("NGCL");
(b) This Agreement and the Merger shall have been adopted and approved
by the board of directors of Vsource Delaware in accordance with the
requirements of the DGCL;
(c) No vote of the stockholders of Vsource Delaware shall be necessary
to approve this Agreement and authorize the Merger because no shares of Vsource
Delaware shall have been issued prior to the adoption by the board of directors
of Vsource Delaware of the resolution approving this Agreement;
(d) The effective date of the Merger as stated in the executed Articles
of Merger filed with the Secretary of State of the State of Nevada; and
(e) An executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the DGCL shall have been filed with
the Secretary of State of the State of Delaware.
2
<PAGE>
1.6 EFFECT OF THE MERGER. The effect of the Merger shall be as provided
in this Agreement, the Certificate of Merger, and the applicable provisions of
the DGCL and the NGCL. Without limiting the foregoing, on the Effective Date,
all the property, assets, rights, privileges, powers and franchises of Vsource
Nevada shall vest in Vsource Delaware, as the Surviving Corporation, and all
debts, liabilities and duties of Vsource Nevada shall become the debts,
liabilities and duties of Vsource Delaware, as the Surviving Corporation.
1.7 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) From and after the Effective Date, the Certificate of Incorporation
of Vsource Delaware as in effect immediately prior to the Effective Date, shall
be the Certificate of Incorporation of the Surviving Corporation.
(b) From and after the Effective Date, the Bylaws of Vsource Delaware
as in effect immediately prior to the Effective Date, shall be the Bylaws of the
Surviving Corporation.
1.8 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From and after
the Effective Date, the directors or officers of Vsource Delaware serving as
directors or officers of Vsource Delaware immediately prior to the Effective
Date, shall be the directors and officers of the Surviving Corporation.
ARTICLE II
CONVERSION OF SHARES
2.1 CONVERSION OF STOCK. Upon the Effective Date, by virtue of the
Merger and without any action on the part of the holders of any outstanding
shares of capital stock or other securities of Vsource Nevada, each share of
common stock of Vsource Nevada, par value $0.01 per share ("Company Common
Stock"), issued and outstanding immediately prior to the Effective Date shall be
converted into one (1) fully paid and nonassessable share of Common Stock, par
value $0.01 per share, of the Surviving Corporation ("Delaware Common Stock"),
and each share of Series 1-A Convertible Preferred Stock of Vsource Nevada, par
value $0.01 per share ("Company Preferred Stock"), issued and outstanding
immediately prior to the Effective Date shall be converted into one (1) fully
paid and nonassessable share of Series 1-A Convertible Preferred Stock, par
value $0.01 per share, of the Surviving Corporation ("Delaware Preferred
Stock"). Upon the Effective Date, by virtue of the Merger and without any
action on the part of the holders of any outstanding shares of capital stock or
other securities of Vsource Nevada, each certificate which, immediately prior to
the Effective Date represented a share or shares of Company Common Stock or of
3
<PAGE>
Company Preferred Stock shall represent an equivalent number of shares of
Delaware Common Stock or Delaware Preferred Stock, as applicable.
2.2 DELAWARE COMMON STOCK. Upon the Effective Date, each share of
Delaware Common Stock or Delaware Preferred Stock issued and outstanding
immediately prior to the Merger, if any, shall, by virtue of the Merger and
without any action by the holder thereof or Vsource Delaware, cease to be
outstanding, and shall be canceled and returned to the status of authorized but
unissued shares and any holder of certificates which immediately prior to the
Effective Date represented such shares of Delaware Common Stock or Delaware
Preferred Stock shall thereafter cease to have any rights with respect to such
shares.
2.3 VSOURCE NEVADA EMPLOYEE PLANS AND OPTIONS.
(a) Upon the Effective Date, each outstanding and unexercised option or
other right to purchase or security convertible into Company Common Stock shall
become an option or right to purchase or a security convertible into Delaware
Common Stock on the basis of one share of Delaware Common Stock for each share
of Company Common Stock issuable pursuant to such option, stock purchase right
or convertible security, on the same terms and conditions and at an exercise
price per share equal to the exercise price applicable to any such Vsource
Nevada option, stock purchase right or convertible security on the Effective
Date. There are no options or stock purchase rights for or securities
convertible into the preferred stock of Vsource Nevada, par value $0.01 per
share.
(b) A number of Delaware Common Stock shall be reserved for issuance
upon the exercise of options, stock purchase rights and convertible securities
equal to the number of shares of Company Common Stock so reserved immediately
prior to the Effective Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF VSOURCE NEVADA. Vsource Nevada hereby
covenants and agrees that it:
(a) Is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada, and has all the requisite power
and authority to own, lease and operate its properties and assets and to carry
on its business as it is now being conducted;
4
<PAGE>
(b) Is duly qualified to do business as a foreign person, and is in
good standing, in each jurisdiction where the character of its properties or the
nature of its activities make such qualification necessary;
(c) Is not in violation of any provisions of its articles of
incorporation or bylaws; and
(d) Has full corporate power and authority to execute and deliver this
Agreement and, assuming the approval of this Agreement by the stockholders of
Vsource Nevada in accordance with the NGCL, consummate the Merger and the other
transactions contemplated by this Agreement.
3.2 REPRESENTATIONS AND WARRANTIES OF VSOURCE DELAWARE. Vsource
Delaware hereby covenants and agrees that it:
(a) Is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all the requisite
power and authority to own, lease and operate its properties and assets and to
carry on its business as it is now being conducted;
(b) Is duly qualified to do business as a foreign person, and is in
good standing, in each jurisdiction where the character of its properties or the
nature of its activities make such qualification necessary;
(c) Is not in violation of any provisions of its certificate of
incorporation or bylaws; and
(d) Has full corporate power and authority to execute and deliver this
Agreement and, assuming, prior to the issuance of shares of stock of Vsource
Delaware, the approval of the board of directors of Vsource Delaware in
accordance with the DGCL, consummate the Merger and the other transactions
contemplated by this Agreement.
ARTICLE IV
TERMINATION
4.1 TERMINATION. At any time prior to the Effective Date, this
Agreement may be terminated and the Merger abandoned for any reason whatsoever
by the Board of Directors of either Vsource Nevada or Vsource Delaware, or both
of them, notwithstanding the approval of this Agreement and the Merger by a
majority of the voting power of Vsource Nevada.
5
<PAGE>
ARTICLE V
FURTHER ASSURANCES
5.1 FURTHER ASSURANCES AS TO VSOURCE NEVADA. From time to time, as and
when required by Vsource Delaware or by its successors or assigns, there shall
be executed and delivered on behalf of Vsource Nevada such deeds and other
instruments, and there shall be taken or caused to be taken by Vsource Delaware
such further and other actions as shall be appropriate or necessary in order to
vest or perfect in or conform of record or otherwise by Vsource Delaware the
title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Vsource Nevada and
otherwise to carry out the purposes of this Agreement, the officers and
directors of Vsource Delaware are fully authorized in the name and on behalf of
Vsource Nevada or otherwise to take any and all such action and to execute and
deliver any and all such deeds and other instruments.
ARTICLE VI
MISCELLANEOUS
6.1 AMENDMENT. Subject to applicable law, at any time prior to the
Effective Date, this Agreement may be amended, modified or supplemented only by
the written agreement of Vsource Nevada and Vsource Delaware.
6.2 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement, nor
any right, interest or obligation hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. This Agreement is not intended to
confer any rights or benefits upon any person other than the parties hereto.
6.3 REGISTERED OFFICE. The registered office of the Surviving
Corporation in the State of Delaware shall be 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801 and The Corporation Trust Company shall
be the registered agent of the Surviving Corporation at such address.
6.4 EXECUTED AGREEMENT. Executed copies of this Agreement will be on
file at the principal place of business of the Surviving Corporation at Vsource
Delaware at 5740 Ralston Street, Suite 110, Ventura, California 93003, and
copies of this Agreement will be furnished to any stockholder of any of the
parties hereto, upon request and without cost.
6.5 GOVERNING LAW. This Agreement shall in all respects be interpreted
by, and construed, interpreted and enforced in accordance with and pursuant to
the laws of the State of Delaware and, so far as applicable, by the provisions
of the NGCL.
6
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6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.7 ENTIRE AGREEMENT; MODIFICATION. This Agreement and the documents
referred to herein are intended by the parties as a final expression of their
agreement with respect to the subject matter hereof, and are intended as a
complete and exclusive statement of the terms and conditions of that agreement,
and there are not other agreements or understandings, written or oral, among the
parties, relating to the subject matter hereof. This Agreement supercedes all
prior agreements and understandings, written or oral, among the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby,
have duly executed this Agreement as of the date first stated above.
VSOURCE, INC.
(A Nevada corporation)
By:_________________________________
Name:
Title:
VSOURCE, INC.
(A Delaware corporation)
By:_________________________________
Name:
Title:
7
<PAGE>
CERTIFICATE OF THE SECRETARY OF
VSOURCE, INC.
The undersigned, ___________________, Secretary of Vsource, Inc., a
Delaware corporation (the "Company") HEREBY CERTIFIED that the foregoing
Agreement and Plan of Merger (the "Merger Agreement") of Vsource, Inc. (a Nevada
corporation) with and into Vsource, Inc. (a Delaware corporation), dated as of
June __, 2000, was adopted pursuant to Section 251(f) of the General Corporation
Law of the State of Delaware and that no shares of capital stock of Vsource,
Inc., a Delaware corporation ("Vsource Delaware") were issued prior to the
adoption by the board of directors of Vsource Delaware of the resolution
approving the Merger Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
___ day of June, 2000.
_____________________________
Name: Sandford T. Waddell
Office: Secretary
8
<PAGE>
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
VSOURCE, INC.,
a Delaware corporation
ARTICLE 1
NAME
The name of this corporation is Vsource, Inc.
ARTICLE 2
REGISTERED OFFICE AND RESIDENT AGENT
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3
CORPORATE PURPOSES
The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be orga-nized under the General Corporation
Law of Delaware.
ARTICLE 4
CAPITAL STOCK
A. This corporation is authorized to issue two classes of stock to be
designated "Common Stock" and "Preferred Stock," respectively. The total number
of shares which this corporation is authorized to issue is 105,000,000. The
number of shares of Common Stock this corporation is authorized to issue is
100,000,000 shares, with a par value of $0.01, and the number of shares of
Preferred Stock this corporation is authorized to issue is 5,000,000 shares,
with a par value of $0.01.
B. The Preferred Stock shall be divided into series. The rights,
preferences, privileges, restrictions and other matters relating to the Series A
Preferred Stock, which series shall consist of 2,802,000 shares, are as set
forth below in the succeeding provisions of this Article 4. The Board of
Directors of this corporation is hereby authorized to fix or alter the rights,
1
<PAGE>
preferences, privileges and restrictions granted to or imposed upon additional
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or of any of them. Subject to compliance with
applicable protective voting rights that have been or may be granted to the
Preferred Stock or any series thereof in any Certificate of Determination or the
Corporation's Certificate of Incorporation ("Protective Provisions"), but
notwithstanding any other rights of the Preferred Stock or any series thereof,
the rights, privileges, preferences and restrictions of any such additional
series may be subordinated to, pari passu with (including, without limitation,
inclusion in provisions with respect to liquidation or acquisition preferences,
redemption and/or approval of matters by vote or written consent), or senior to
any of those of any present or future class or series of Preferred or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board
of Directors is also authorized to increase or decrease the number of shares of
any series (other than Series A Preferred Stock), prior or subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding or reserved for issuance upon conversion of the Series A Preferred
Stock. In case the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status which they had prior
to the adoption of the resolution originally fixing the number of shares of such
series.
C. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred Stock are as set forth below (all references
to paragraph and subparagraph numbers in this Section C are to the paragraphs
and subparagraphs of this Section C unless otherwise indicated):
1. Dividends
---------
The holders of shares of Series A Preferred Stock shall be entitled to
receive, out of any assets legally available therefor, and when, as and if
declared by the Board of Directors, noncumulative dividends in an amount equal
to $0.20 cents per share annually. No dividend may be declared and paid upon
shares of Common Stock in any fiscal year of the Corporation unless dividends of
$0.20 per share has first been paid upon or declared and set aside for payment
to the holders of the shares of Series A Preferred Stock for such fiscal year of
the Corporation. No undeclared or unpaid dividend shall ever bear interest.
2. Liquidation Preference
-----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, a preference
amount per share consisting of the sum of (A) $2.50 for each outstanding share
of Series A Preferred Stock (the "Original Issue Price") and (B) an amount equal
to declared but unpaid dividends on such share, if any. If upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
2
<PAGE>
Series A Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
among such holders in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
(b) After payment to the holders of the Series A Preferred Stock
of the amount set forth in the preceding Subparagraph 2a, the remaining assets
and funds of the Corporation legally available for distribution, if any, shall
be distributed among the holders of the Common Stock and the Series A Preferred
Stock pro rata based on the number of shares of Common Stock held by each
(assuming conversion of all such Series A Preferred Stock pursuant to Paragraph
5 below).
(c) For purposes of this Paragraph 2, a liquidation, dissolution
or winding up of the Corporation shall be deemed to be occasioned by or to
include (i) the acquisition of the Corporation by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the Corporation), or
(ii) a sale of all or substantially all of the assets of the Corporation; unless
the Corporation's stockholders 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 Corporation'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
Corporation received 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 20 consecutive
trading days immediately preceding (and not including) the date the Corporation
or its stockholders receive such stock. The daily market price for each trading
day shall be: (A) the closing price on that day on the principal exchange on
which such common stock is then listed or admitted to trading or on NASDAQ, 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 of Directors and provided in writing by the Corporation
to the holders of the Series 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 then outstanding Series A
Preferred Stock object in writing to the Board of Director's determination
within 15 days of their receipt of notice of such determination by the Board of
Directors. A single appraiser shall selected jointly by the holders of a
majority of the Series A Preferred Stock and the Corporation. If the holders of
the Series A Preferred Stock and the Corporation are unable to agree on an
appraiser within twenty (20) days of the Board of Directors receiving notice of
such holders' objection to the Board of Directors' 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
3
<PAGE>
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 values, 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 Corporation; 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 A Preferred
Stock.
3. Redemption.
----------
(a) Redemption at the Option of the Corporation. The Corporation
--------------------------------------------
shall not have the right to call or redeem any shares of the Series A Preferred
Stock.
(b) Redemption at the Option of the Holders. The holders of the
-----------------------------------------
Series A Preferred Stock shall not have any right to require the Corporation to
redeem all or any part of the Series A Preferred Stock held by them.
4. Voting Rights. The holder of each share of Series A Preferred
--------------
Stock shall have the right to one vote for each share of Common Stock into which
such Series 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.
5. Conversion. The holders of the Series A Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
4
<PAGE>
(a). Right to Convert. Each share of Series A Preferred Stock
------------------
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Issue Price by the then
applicable Conversion Price, determined as hereinafter provided, in effect on
the date the certificate evidencing such share is surrendered for conversion.
The initial Conversion Price per share for Series A Preferred Stock (the
"Conversion Price") shall be the Original Issue Price. Such initial Conversion
Price shall be adjusted as hereinafter provided.
(b). Automatic Conversion. Each share of Series A Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price as provided in Subparagraph 5a above, immediately
upon the closing of a public offering of the Corporation's Common Stock with
aggregate gross proceeds of at least $10,000,000 and a per share price to the
public of at least five dollars ($5.00), or at the election of the holders of a
majority of the outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A
-------------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation or of any transfer agent for such
stock, and shall give written notice to the Corporation at such office that it
elects to convert the same and shall state therein the number of shares to be
converted and the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of surrender of the
shares of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(d) Conversion Price Adjustments. The Conversion Price shall be
-------------------------------
subject to the following adjustments:
(1) Adjustment for Stock Splits and Combinations. If the
------------------------------------------------
Corporation at any time or from time to time after the first issuance of Series
A Preferred Stock (the "Purchase Date") effects a subdivision of the outstanding
Common Stock, by stock split or otherwise, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased; and,
conversely, if the Corporation at any time or from time to time after the
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<PAGE>
Purchase 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 d(1) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(2) Adjustment for Certain Dividends and Distributions. In
----------------------------------------------------
the event the Corporation at any time or from time to time after the Purchase
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
(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 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 d(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 Corporation at any time or from time to time after the Purchase
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 Corporation other than shares of Common Stock, then and in
each such event, provision shall be made so that each Holder of Series A
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation which it would have received had the Holder's shares of Series A
Preferred Stock been converted into Common Stock as of the date of such event
6
<PAGE>
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 5 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 A
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock of the Corporation, 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 d), then and in any such event
each Holder of Series A Preferred Stock shall have the right thereafter to
convert the Series 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 number of shares of Series A Preferred Stock then by such Holder could be
converted immediately prior to such recapitalization, reclassification or other
exchange, all subject to further adjustment as provided herein.
(5) Reorganizations, Mergers, Consoli-dations 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 d) or a merger or consolidation
of the Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's assets to any other person, then, as a
part of such capital reorganization, merger, consolidation or sale, provision
shall be made so that each Holder of the Series A Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock the number of shares of stock or other securities or property of the
Corporation, or of the successor corporation resulting from such capital
reorganization, merger, consolidation or sale, to which a holder of the number
of shares of Common Stock deliverable upon such exercise would have been
entitled on such capital reorganization, merger, consolidation or sale. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section d with respect to the rights of each Holder of Series
A Preferred Stock after the capital reorganization, merger, consolidation or
sale to the end that the provisions of this Section d (including the number of
shares deliverable upon conversion of the Series 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.
7
<PAGE>
(6) Sale of Shares Below Conversion Price.
------------------------------------------
(A) If at any time or from time to time after the
Purchase Date, the Corporation issues or sells, or is deemed by the express
provisions of this Section d(6) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend or other
distribution on any class of stock as provided in Section d(2) and other than
upon a subdivision or combination of shares of Common Stock as provided in
Section d(1), for an Effective Price (as hereinafter defined) less than the then
existing Conversion Price, then and in each such case the then existing
Conversion Price shall be reduced, as of the opening of business on the date of
such issue or sale, 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 at the close of business on the day next preceding the date of
such issue or sale, plus (B) the number of shares of Common Stock which the
aggregate consideration received (or by the express provisions hereof is deemed
to have been received) by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price, plus
(C) the number of shares of Common Stock underlying Other Securities (as
hereinafter defined) and the denominator of which shall be (X) the number of
shares of Common Stock outstanding at the close of business on the date of such
issue after giving effect to such issue of Additional Shares of Common Stock,
plus (Y) the number of shares of Common Stock underlying the Other Securities at
the close of business on the date of such issue or sale.
(B) For the purpose of making any adjustment required under
this Section d(6), the consideration received by the Corporation 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 Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair 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
Corporation 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.
8
<PAGE>
(C) For the purpose of the adjustment required under this
Section d(6), if the Corporation 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 Corporation 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
Corporation 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 Corporation 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 Corporation (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 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
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
Corporation upon such exercise, plus the consideration, if any, actually
received by the Corporation 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 Corporation (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities.
9
<PAGE>
(D) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Corporation after the Purchase Date, whether or
not subsequently reacquired or retired by the Corporation, other than: (A)
shares of Common Stock issued upon conversion of the Series A Preferred Stock or
any other options or warrants or convertible securities outstanding or issuable
on the Purchase Date; (B) shares of Common Stock issuable or issued to the
directors, officers and employees of or consultants to the Corporation; (C)
shares of Common Stock issuable or issued as part of an acquisition by the
Corporation 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; (D) shares of Common Stock issuable or issued
pursuant to equipment financing or leasing arrangements; or (E) shares issued in
a public offering of the Corporation's securities. 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 Corporation under this Section d(6), into the
aggregate consideration received, or deemed to have been received by the
Corporation for such issue under this Section d(6), for such Additional Shares
of Common Stock. "Other Securities" with respect to an issue or sale of
Additional Shares of Common Stock shall mean (i) preferred stock, debentures and
notes convertible into Common Stock, and (ii) options or warrants to purchase
Common Stock at a price that is no greater than 95% of the Effective Price of
such issue or sale of Additional Shares of Common Stock. The "number of shares
of Common Stock underlying Other Securities" on a particular date shall mean the
number of shares of Common Stock issuable upon the exercise or conversion, as
the case may be, of such Other Securities at the close of business on such date
but only to the extent that the holders thereof have the fully vested legal
right to exercise or convert such Other Securities on such date and to retain
the Common Stock issued upon such exercise or conversion.
(7) Upon the occurrence of each adjustment or readjustment of the
Conversion Price, the Corporation 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 the Series 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.
10
<PAGE>
(e) Notices of Record Date. In the event of any taking by the
-------------------------
Corporation 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 (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive 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, the
Corporation shall mail to each holder of Series A Preferred Stock at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution, security or right, and the amount and character of such dividend,
distribution, security or right.
(f) Reservation of Stock Issuable Upon Conversion. The
--------------------------------------------------
Corporation 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 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 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 A Preferred Stock, the Corporation 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 this
Articles of Incorporation.
(g) Fractional Shares. No fractional share shall be issued upon
------------------
the conversion of any share or shares of Series A Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon conversion of more
than one share of Series 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 aforemen-tioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the Corporation 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 Subparagraph 5c).
(h) Notices. Any notice required by the provisions of this
-------
Paragraph 5 to be given to the holders of shares of Series 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 his address
appearing on the books of the Corporation.
11
<PAGE>
6. Amendment.
---------
Any term relating to the Series A Preferred Stock may be amended and
the observance of any term relating to the Series 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
A Preferred Stock. Any amendment so effected shall be binding upon the
Corporation and any holder of the Series A Preferred Stock.
7. Restrictions and Limitations.
------------------------------
So long as any shares of Series A Preferred Stock remain outstanding,
the Corporation shall not, without the vote or written consent by the holders of
a majority of the outstanding shares of Series A Preferred Stock, voting
together as a single class:
(a) Increase or decrease (other than by conversion) the total
number of authorized shares of Series A Preferred Stock; or
(b) Amend the Articles of Incorporation of the Corporation to
change the rights, preferences, privileges or limitations of the Series A
Preferred Stock.
8. No Reissuance of Series A Preferred Stock.
-----------------------------------------------
No share or shares of Series A Preferred Stock acquired by the
Corporation 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.
9. Residual Rights.
----------------
Holders of shares of Series A Preferred Stock shall not have any
pre-emptive rights. All rights accruing to the outstanding shares of the
Company not expressly provided for to the contrary herein shall be vested in the
Common Stock.
ARTICLE 5
AMENDMENT OF BYLAWS AND ELECTION OF DIRECTORS
The board of directors is authorized to make, alter or repeal the
bylaws of this corporation. Election of directors need not be by written
ballot.
12
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ARTICLE 6
INCORPORATOR
The name and mailing address of the incorporator is:
Sandford T. Waddell
5740 Ralston Street, Suite 110
Ventura, California 93003
ARTICLE 7
NO DIRECTOR LIABILITY
A. To the fullest extent permitted by the law of the State of Delaware
as it now Block protect turned off here. exists or may hereafter be amended, no
director or officer of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
by such director or officer, as applicable, to the Corporation or its
stockholders; provided, however, that liability of any director or officer shall
-------- -------
not be eliminated or limited for acts or omissions which involve any breach of a
director's or officers duty of loyalty to the Corporation or its stockholders,
intentional misconduct, fraud or a knowing violation of law, under Section 174
of the General Corporation Law of the State of Delaware or for transaction from
which the officer or director derived an improper personal benefit.
B. The Corporation shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and hold harmless and
upon request shall advance expenses to any person (and heirs, executors or
administrators of such person) who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was or has agreed to be a director or officer of
the Corporation or while such a director or officer is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another corporation or any partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against
expenses (including attorneys' fees and expenses), judgments, fines, penalties
and amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim;
provided, however, that the foregoing shall not require the Corporation to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person.
Such indemnification shall not be exclusive of other indemnification rights
arising under any by-law, agreement, vote of directors or stockholders or
otherwise an shall inure to the benefit of the heirs and legal representatives
of such person. Any person seeking indemnification under this Article 7 shall
13
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be deemed to have met the standard of conduct required for such indemnification
unless the contrary shall be established. Any repeal or modification of the
foregoing provisions of this Article 7 shall not adversely affect any right or
protection of a director or officer of the Corporation with respect to any acts
or omissions of such director or officer occurring prior to such repeal or
modification.
C. The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation to such
extent and to such effect as the Board of Directors shall determine to be
appropriate and authorized by the law of the State of Delaware.
D. The Corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss
incurred by such person in any such capacity or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the law of the State of Delaware.
E. The rights and authority conferred in this Article 7 shall not be
exclusive of any other right which any person may otherwise have or hereafter
acquire.
F. Neither the amendment nor repeal of this Article 7, nor the adoption
of any provision of these Certificate of Incorporation or the Bylaws of the
Corporation, nor, to the fullest extent permitted by the law of the State of
Delaware any modification of law, shall eliminate or reduce the effect of this
Article 7 in respect of any acts or omissions occurring prior to such amendment,
repeal, adoption or modification.
ARTICLE 8
DIRECTOR RELIANCE
A director shall be fully protected in relying in good faith upon the books
of account or other records of the Corporation or statements prepared by any of
its officers or by independent public accountants or by an appraiser selected
with reasonable care by the Board of Directors as to the value and amount of the
assets, liabilities and/or net profits of the Corporation, or any other facts
pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid, or with which the Corporation's
capital stock might properly be purchased or redeemed.
14
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I, THE UNDERSIGNED, for the purpose of forming a corpo-ration pursuant
to the General Corporation Law of Delaware, do make, file and record this
certificate, and do certify that the facts herein stated are true; and I have
accordingly hereunto set my hand.
Dated: _________________
State of ________________
County of ______________
____________________________________
Sandford T. Waddell, Incorporator
15
<PAGE>
APPENDIX C
BYLAWS
OF
VSOURCE, INC.,
a Delaware Corporation
ARTICLE I
STOCKHOLDERS
Section 1: Annual Meeting.
---------- ---------------
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held during the month of June,
or within thirty days before or after said month. The specific place, date, and
time of the meeting shall be set by the Board of Directors and stated in the
notice of meeting.
Section 2: Special Meetings.
---------- -----------------
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of
Directors, the chief executive officer. or president and shall be held at such
place, on such date, and at such time as they or he or she shall fix.
Section 3: Notice of Meetings.
---------- --------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
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time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4: Quorum.
---------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law; provided,
however, that in no case shall such quorum be less than 33 1/3 percent of the
outstanding shares of the common voting stock. Where a separate vote by a class
or classes is required, a majority of the shares of such class or classes
present in person or represented by proxy shall constitute a quorum entitled to
take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
Section 5: Organization.
---------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the chief executive officer of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6: Conduct of Business.
---------- ---------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
Section 7: Proxies and Voting.
---------- --------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
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reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used. provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing or
transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Every vote taken by ballots shall be
counted by an inspector or inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
Upon becoming a "listed corporation" as such term is defined in Section
301.5 of the California General Corporation Law or upon such time as the
Corporation is no longer subject to Section 2115 of the California General
Corporation Law, cumulative voting shall be eliminated unless otherwise required
by applicable law.
Section 8: Stock List.
---------- -----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
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The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9: Consent of Stockholders in Lieu of Meeting.
---------- ------------------------------------------------
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the date
the earliest dated consent is delivered to the Corporation, a written consent or
consents signed by a sufficient number of holders to take action are delivered
to the Corporation in the manner prescribed in the first paragraph of this
Section.
ARTICLE II
BOARD OF DIRECTORS
Section 1: Number and Term of Office.
---------- -----------------------------
The number of directors who shall constitute the whole Board shall be such
number as the Board of Directors shall from time to time have designated, except
that in the absence of any such designation, such number shall be five (5).
Each director shall be elected for a term of one year and until his or her
successor is elected and qualified, except as otherwise provided herein or
required by law.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in office shall
have the power to elect such new directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of directors shall not become effective until the expiration of the term
4
<PAGE>
of the directors then in office unless, at the time of such decrease, there
shall be vacancies on the board which are being eliminated by the decrease.
Section 2: Vacancies.
---------- ---------
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected and
qualified.
Section 3: Regular Meetings.
---------- -----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4: Special Meetings.
---------- -----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the directors then in office (rounded up to the nearest whole number) or by
the chief executive officer and shall be held at such place, on such date, and
at such time as they or he or she shall fix. Notice of the place, date, and
time of each such special meeting shall be given each director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting, Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
Section 5: Quorum.
---------- ------
At any meeting of the Board of Directors, a majority of the total number of
the whole Board shall constitute a quorum for all purposes. If a quorum shall
fail to attend any meeting. a majority of those present may adjourn the meeting
to another place, date, or time, without further notice or waiver thereof.Block
protect turned off here.
Block protect turned off here.
Section 6: Participation in Meetings By Conference Telephone.
---------- ------------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
5
<PAGE>
Section 7: Conduct of Business.
---------- ---------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8: Powers.
---------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and.
(8) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and affairs.
6
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Section 9: Compensation of Directors.
---------- ---------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III
COMMITTEES
Section 1: Committees of the Board of Directors.
---------- -----------------------------------------
The Board of Directors, by a vote of a majority of the whole Board, may
from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law 9 if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2: Conduct of Business.
---------- ---------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting K all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
7
<PAGE>
ARTICLE IV
OFFICERS
Section 1: Generally.
---------- ---------
The officers of the Corporation shall consist of a President, one or more
Vice Presidents, a Secretary, a Treasurer and such other officers as may from
time to time be appointed by the Board of Directors. Officers shall be elected
by the Board of Directors, which shall consider that subject at its first
meeting after every annual meeting of stockholders. Each officer shall hold
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any number of offices may be held by the same
person.
Section 2: President.
---------- ---------
The President shall be the chief executive officer of the Corporation.
Subject to the provisions of these By-laws and to the direction of the Board of
Directors, he or she shall have the responsibility for the general management
and control of the business and affairs of the Corporation and shall perform all
duties and have all powers which are commonly incident to the office of chief
executive or which are delegated to him or her by the Board of Directors. He or
she shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation.
Section 3: Vice President.
---------- ---------------
Each Vice President shall have such powers and duties as may be delegated
to him or her by the Board of Directors. One (1) Vice President shall be
designated by the Board to perform the duties and exercise the powers of the
President in the event of the President's absence or disability.
Section 4: Treasurer. The Treasurer shall have the responsibility for
---------- ---------
maintaining the financial records of the Corporation. He or she shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Treasurer shall also perform such other
duties as the Board of Directors may from time to time prescribe. The Chief
Financial Officer of the Corporation shall be the Treasurer unless the office is
otherwise filled by the Board of Directors.
Section 5: Secretary.
---------- ---------
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He or
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she shall have charge of the corporate books and shall perform such other duties
as t he Board of Directors may from time to time prescribe.
Section 6: Delegation of Authority.
---------- -------------------------
The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof
Section 7: Removal.
---------- -------
Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 8: Action with Respect to Securities of Other Corporations.
---------- ----------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of Stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 1: Certificates of Stock.
---------- -----------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2: Transfers of Stock.
---------- --------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a now certificate is issued therefor.
9
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Section 3: Record Date.
---------- ------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted. If no record date has been
fixed by the Board of Directors and no prior action by the Board of Directors is
required by the Delaware General Corporation Law, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in the manner prescribed by
Article 1, Section 9 hereof. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by the Delaware
General Corporation Law with respect to the proposed action by written consent
of the stockholders, the record date for determining stockholders entitled to
consent to corporate action in writing shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
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Section 4: Lost, Stolen or Destroyed Certificates.
---------- ------------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5: Regulations.
---------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1: Notices.
---------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in Block protect turned off here. writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice by
prepaid telegram or mailgram. Any such notice shall be addressed to such
stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mails or by telegram or mailgram, shall be the time of the giving of the notice.
Section 2: Waivers.
---------- -------
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
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ARTICLE VII
MISCELLANEOUS
Section 1: Notices.
---------- -------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2: Corporate Seal.
---------- ---------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directedBlock protect turned off here. by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Treasurer
or by an Assistant Secretary or Assistant Treasurer.
Section 3: Reliance upon Books, Reports and Records.
---------- ---------------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the corporation.
Section 4: Fiscal Year.
---------- ------------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5: Time Periods.
---------- -------------
In applying any provision of these By-laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
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ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1: Right to Indemnification.
---------- --------------------------
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section 3 of this ARTICLE VIII with respect to proceedings to enforce rights
------------
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
Section 2: Right to Advancement of Expenses.
---------- ------------------------------------
The right to indemnification conferred in section 1 of this ARTICLE VIII
shall include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
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expenses under this Section 2 or otherwise. The rights to indemnification and
to the advancement of expenses conferred in Sections I and 2 of this ARTICLE
VIII shall be contract rights and such rights shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
Section 3: Right of Indemnitee to Bring Suit. If a claim under
---------- -------------------------------------
Section 1 or 2 of this ARTICLE VIII is not paid in full by the Block protect
turned off here. Corporation within sixty (60) days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder, or brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this ARTICLE VIII or otherwise shall be on the Corporation.
Section 4: Exclusivity of Rights.
---------- -----------------------
The rights to indemnification and to the advancement of expenses conferred
in this ARTICLE VIII shall not be exclusive of any other right which any person
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may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, By-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 5: Insurance.
---------- ---------
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6: Indemnification of Employees and Agents of the Corporation
---------- -----------------------------------------------------------
The Corporation may, to the extent authorized from time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
These By-laws may be amended or repealed by the Board of Directors at any
Block protect turned off here. meeting or by the stockholders at any meeting.
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CERTIFICATE OF SECRETARY
The undersigned hereby certifies that:
1. He/she is the duly elected and acting Secretary of Vsource,
Inc., a Delaware corporation; and
2. The foregoing Bylaws constitute the Bylaws of such corporation
as duly adopted by the __________________ on __________, 2000.
IN WITNESS WHEREOF, I have executed this Certificate of Secretary as
of __________, 2000.
_________________________________
Sandford T. Waddell, Secretary
APPENDIX D
NEVADA REVISED STATUTES
SECTIONS 92A.300-92A.500
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means the action
of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
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who exercises that right when and in the manner required by NRS 92A.400 to
92A.480, inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record" means
the person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
(Added to NRS by 1995, 2087)
NRS 92A.350 Rights of dissenting partner of domestic limited partnership. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
(Added to NRS by 1995, 2088)
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NRS 92A.360 Rights of dissenting member of domestic limited-liability
company. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or
bylaws, no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services described in
chapter 704 of NRS to its members only, and no person who is a member of a
domestic nonprofit corporation as a condition of or by reason of the ownership
of an interest in real property, may resign and dissent pursuant to subsection
1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain corporate actions
and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a
stockholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by
NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation
and he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged
with its pare t under NRS 92A.180.
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(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests
will be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of
the board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.390 Limitations on right of dissent: Stockholders of certain
classes or series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
(i) The surviving or acquiring entity; or
(ii) Any other entity which, at the effective date of the
plan of merger or exchange, were either listed on a national
securities exchange, included in the national market system by
the National Association of Securities Dealers, Inc., or held of
record by a least 2,000 holders of owner's interests of record;
or
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(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of
paragraph (b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require action of
the stockholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only
to shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer
than all of the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one person and notifies the subject
corporation in writing of the name and address of each person on whose behalf he
asserts dissenter's rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his other
shares were registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by
written consent of the stockholders or without a vote of the stockholders, the
domestic corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
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NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, a stockholder who wishes to
assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand
for payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
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NRS 92A.440 Demand for payment and deposit of certificates; retention of
rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates,
if any, before the proposed corporate action is taken retains all other rights
of a stockholder until those rights are canceled or modified by the taking of
the proposed corporate action.
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenter's
notice, is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after
demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is
located; or
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(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS by 1995,
2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date of
dissenter's notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
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2. To the extent the subject corporation elects to withhold payment,
after taking the proposed action, it shall estimate the fair value of the
shares, plus accrued interest, and shall offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
subject corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated, and
a statement of the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this
section unless he notifies the subject corporation of his demand in writing
within 30 days after the subject corporation made or offered payment for his
shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to
a judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
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(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470. (Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value: Assessment of costs
and fees.
1. The court in a proceeding to determine fair value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by NRS 92A.300 to 92A.500,
inclusive.
3. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the subject corporation,
the court may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may
assess the costs against the subject corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
(Added to NRS by 1995, 2092)
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APPENDIX E
[Audit Committee Charter]
MEMBERSHIP
- ----------
1. Not less than three members, selected from the board of directors.
2. No current officers of the company or its subsidiaries.
3. At least one member with significant financial background.
4. majority of directors not former company or subsidiary officers.
5. Compliance with audit committee guidelines issued by the Securities and
Exchange Commission, the NASDAQ Stock Market, and any other exchange
where the company's shares are traded.
ACTIONS OF THE COMMITTEE:
- ---------------------------
(a) Advise Board, but not Requiring Prior Board Approval:
-----------------------------------------------------------
1. Review & approve scope of annual audit.
2. Review & approve scope of annual benefit plan audits.
3. Respond to questions, if any, relating to the Committee during annual
shareholder meeting
4. Request to President to have company staff, or outside auditors, study a
particular area of concern.
(b) Recommend Action by the Board, after Committee Review:
------------------------------------------------------------
1. Appoint Independent Outside Audit firm.
2. Review major accounting policy changes before implementation.
3. Review SEC registration statements before signature by Board.
4. Review annual audit reports, and content of proposed published reports.
(c ) Committee Provides Summary Information to Board, as Appropriate
----------------------------------------------------------------------
1. Trends in accounting policy changes by organizations such as FASB, SEC,
AICPA, etc., and relevance to the company.
2. Interview independent CPAs relative to company financial controls and
related subjects.
3. Participate in financial review prior to publication of quarterly
reports.
4. Review administration of company's "conflict of interest" policy.
5. Review performance of management and operating personnel under the
company's code of ethics.
6. Review insurance programs from the standpoint of exposures, coverage
gaps, and potential fraud.
7. Review reports on the company by government agencies.
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8. Review periodic SEC filings, by the company, to assure adequate programs
and procedures exist to achieve compliance with SEC regulations, and
regulations of stock exchanges where the company's shares trade.
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[Front]
PROXY
VSOURCE, INC.
5720 Ralston Street, Suite 110
Ventura, California 93003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE BOARD
RECOMMENDS A VOTE FOR PROPOSALS 1, 2, AND 3.
The undersigned hereby appoints Robert McShirley and Sandford Waddell or either
of them, with unlimited power of substitution, as Proxies to represent the
undersigned at the Annual Meeting of Stockholders of Vsource, Inc. to be held on
Tuesday, May 12, 2000, at [state time], local time, or any adjournment or
adjournments thereof, and to vote, as directed below, all shares of Common Stock
and all shares of Preferred Stock, which the undersigned would be entitled to
vote if then personally present.
PLEASE MARK YOUR VOTES LIKE THIS [ X ]
1. ELECTION OF FIVE DIRECTORS, EACH TO HOLD OFFICE UNTIL HIS OR HER SUCCESSOR
SHALL HAVE BEEN ELECTED AND QUALIFIED. If no direction is made, this proxy
will be voted "FOR" the nominees of the Board of directors for the Election
of Directors. Or the stockholder may write the number of votes cast for
each nominee.(See "Proposal One-Vote Required" for an explanation of
cumulative voting.) ABSTAIN (Place an "X" in the Box below.) [ ]
ROBERT McSHIRLEY _______________
SAMUEL BRADT _______________
SCOTT BEHAN _______________
ROBERT SCHWARTZ _______________
RAMIN KAMFAR _______________
2. APPROVAL FOR REINCORPORATION
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANT
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, AND 3.
[ ] I PLAN [ ] I DO NOT PLAN to attend the meeting
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS BELOW. If stock is registered in
the name of two or more persons, each should sign. Executors, administrators,
trustees, guardians, attorneys, and corporate officers should show their full
titles.
Date: ___________________________________
________________________________________________
Signature of Stockholder
________________________________________________
Signature of Stockholder
PLEASE MARK, SIGN, DATE, AND RETURN YOUR PROXY PROMPTLY IN THE POSTPAID ENVELOPE
PROVIDED
3
