AGREEMENT AND ACCORD AND SATISFACTION Re: 12% Subordinated Notes
Exhibit
10.2
Re: 12%
Subordinated Notes
This AGREEMENT AND ACCORD AND
SATISFACTION (this “Agreement”) is made as of
______, 2008 by and between PORTA SYSTEMS CORP, a Delaware corporation (“the
Corporation”) and the
undersigned (the “Registered
Holder”).
WHEREAS,
the Registered Holder owns those certain 12% Subordinated Notes due January 3,
2000 in the original principal amount set forth on the signature page hereto
(the “Notes “);
and
WHEREAS, the Notes are one or more of a
series of 12% Subordinated Notes due January 3, 2000 (the “Original Notes”), and the
outstanding unpaid principal and accrued interest on all such notes as of March
31, 2006 was approximately $12,351,600; and
WHEREAS, the obligation of the
Corporation to pay the Notes is subordinated to the Corporation’s obligation to
make certain payments under certain senior indebtedness in the outstanding
amount of approximately $23,400,000 (the “Senior Debt”); and
WHEREAS, the Senior Debt holder has
served notice on the Corporation that the Corporation is precluded from making
any payments on the Original Notes until the Senior Debt is paid in
full; and
WHEREAS,
the Corporation has obtained an extension on its obligation to pay the Senior
Debt holder until May 1, 2008; and
WHEREAS,
unless the Corporation can renegotiate and restructure the Senior Debt by May 1,
2008, it is very likely that the Corporation will default on payment of the
Senior Debt and will have to file bankruptcy; and
WHEREAS,
in order to avoid bankruptcy and with the consent of the Senior Debt holder, the
Corporation has developed a comprehensive plan (the “Restructuring Plan”) to
reduce and restructure its senior and subordinated debt as well as amounts due
certain creditors; and
WHEREAS,
as part of the Restructuring Plan, the Senior Debt holder will reduce its debt
to $10,000,000 plus any interest accrued on such $10,000,000 after January 1,
2007 and any additional advances made by Senior Debt holder to the Corporation
after January 1, 2007 and any accrued interest on such advances made after
January 1, 2007 and will receive approximately 70% of the shares of the
Corporation’s common stock after giving effect to the Restructuring Plan;
and
WHEREAS,
in order for the Restructuring Plan to become effective the holders of
subordinated debt will significantly reduce their debt and receive shares of the
Corporation’s common stock and the stock ownership of the Corporation's existing
shareholders will be very significantly diluted by more than ninety-one (91%)
percent; and
WHEREAS,
as part of the Restructuring Plan, the holders of the Original Notes will
accept, in full payment and satisfaction of the Corporation’s obligations under
the Original Notes, new notes in the aggregate principal amount of $1,750,000
(the "New Notes") and approximately 14% of the Corporation’s common stock after
giving effect to the Restructuring Plan; and
WHEREAS,
the New Notes will bear interest at ten (10%) percent per annum payable
quarterly in arrears and will be amortized based upon a twenty five year
amortization schedule with a final payment at $1,620,174.67 due seven and
one-half years after issuance of the New Notes.
NOW, THEREFORE, in consideration of the
foregoing and the covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Representations. The
Registered Holder represents and warrants that:
(a) the
Registered Holder has good and marketable title to, and is the sole record and
beneficial owner of, all right, title and interest in and to the
Notes;
(b) the
Registered Holder has not previously transferred the Notes or granted to any
other person or entity (“Person”) any right or option
to purchase or any security or other interest in, the Notes or entered into any
agreement or understanding with any Person to sell, option or transfer the Notes
or grant any security or other interest therein;
(c) the
Notes are not subject to any judgment, tax or other lien or encumbrance or
subject to any restriction on transfer, other than the restrictions on transfer
provided in the Notes and applicable federal and state securities
laws.
2. Payment in Full and Final
Satisfaction of All Obligations With Respect to the Note.
(a) Surrender of Note;
Performance Subject to Approval. At the time the Registered
Holder executes and delivers this Agreement, it shall also deliver to the
Corporation either (i) the original of the Notes, if it has the Notes in its
possession, or (ii) a Lost Note Affidavit in form and substance attached as
Exhibit A
hereto. The Notes shall be held by the Corporation in escrow pending
delivery of the Replacement Securities (as hereafter defined) or return of the
Notes as provided herein. The right of the Registered Holder to
receive and the obligation of the Corporation to deliver, the Replacement
Securities under this Agreement are subject to (i) the approval of this
Agreement by the Senior Debt holder, (ii) the approval by the stockholders of
the Corporation of (x) a one-for-11.11 reverse split of the common stock and the
(y) the Restructuring Plan, and (iii) the acceptance by all the other holders of
Original Notes. The date on which the last of such approvals and
acceptances has been obtained by the Corporation is referred to herein as the
“Approval
Date.” If the approvals of the Senior Debt and the
Corporation’s stockholders and the Acceptances have not been obtained by the
Corporation by July 1, 2008, or such later date as may be extended by the
Corporation, but no later than by August 31, 2008, this Agreement will be
terminated and be null and void and the Corporation will promptly return to the
Registered Holder the original of the Notes or, if the Registered Holder
delivered a Lost Note Affidavit, a replacement Note (bearing the same number as
the original but with the letter “R” in front of it to indicate that
it is a replacement) in the name of the Registered Holder.
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(b) Effect of
Approval. Effective immediately upon the Approval Date, all
obligations of the Corporation to the Registered Holder under the Note will be
canceled and terminated and the Corporation will be obligated to deliver the
Replacement Securities to the Registered Holder, which shall be delivered to the
Registered Holder within twenty (20) business days after the Approval
Date. Delivery of the Replacement Securities to the Registered Holder
shall constitute full and final payment of all obligations of the Corporation to
the Registered Holder under the Note. The Registered Holder
acknowledges that upon the Approval Date, the Registered Holder will have no
right or claim to any other payments, losses, expenses or any other amounts from
the Corporation under the Notes, and that such Notes and all obligations
relating thereto are satisfied in full, released and canceled immediately upon
the Approval Date, the Corporation’s only obligation being to deliver the
Replacement Securities to the Registered Holder.
(c) Replacement
Securities. The Replacement Securities consist of (i) a
subordinated, unsecured promissory note (the “Subordinated Note”) made by the
Corporation, dated as of the Approval Date, in the original principal amount set
forth on the signature page of this Agreement and (ii) the number of shares of
Common Stock set forth on the signature page of this Agreement. The
Subordinated Note shall be in substantially the form of Exhibit B to this
Agreement.
(d) Outstanding
Capitalization. Upon the completion of the Restructuring Plan,
the outstanding shares of Common Stock will be held as set forth in Appendix I
to this Agreement.
3. Notices. All
notices or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given if sent by registered or
certified mail, postage prepaid, and return receipt requested to the parties or
by an overnight courier service that provides evidence of delivery or attempted
delivery, addressed as set forth on the signature page (or at such other
addresses as designated by the parties from time to time, in writing, and
delivered to the parties as provided below). Notices or other
communications so delivered shall be deemed received on the day of delivery or
attempted delivery if sent by overnight courier and three days after the date
deposited in the U.S. mail if sent registered or certified mail, return receipt
requested.
4. No Third Party
Beneficiaries. This Agreement is solely for the benefit of the
parties hereto and their successor and assigns and is not intended for the
benefit of any other Person.
5. Delay No Waiver; No Oral
Changes. No delay on the part of any party in exercising any
right or remedy under this Agreement or failure to exercise the same shall
operate as a waiver in whole or in part of any such right or
remedy. No amendment or waiver of any provision of this Agreement
shall be effective unless the same shall be in writing and signed
by party against whom such waiver or amendment is to be enforced, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
6. Assignment. No
party may assign or transfer its rights or delegate its duties under this
Agreement without the prior written consent of the other party, which may be
granted or withheld in its sole discretion.
7. Release. Effective
on the Approval Date, the Registered Holder releases and forever discharges the
Corporation and each of its past and present directors, officers, employees,
attorneys, agents, affiliates, successors and assigns (such group, collectively,
the “Released Persons”),
from any and all claims, actions, causes of action, suits, debts, dues, sums of
money, accounts, costs, expenses, liabilities, covenants, contracts, agreements,
promises, damages, judgments, executions and demands whatsoever (each a “Claim”), in law or equity,
that the Registered Holder ever had, now has or hereafter may have against the
Released Persons arising from or relating to any matter, cause or thing
whatsoever from the beginning of time through the Approval Date, other than any
Claims of the Registered Holder arising under this Agreement or the Subordinated
Note. The Registered Holder represents and warrants that the Registered Holder
has not assigned or otherwise transferred the released Claims, or any portion
thereof.
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8. Gender and
Number. References to Registered Holder as an “it” herein is
for convenience and shall be construed as a reference to the male, female or
neuter gender or to the singular or plural number as appropriate to the identity
of the Registered Holder(s) as set forth on the signature page
hereto.
9. Governing Law; Consent to
Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its principles of conflict of laws. Each of the parties hereby (i)
irrevocably consents and agrees that any legal or equitable action or proceeding
arising under or in connection with this Agreement shall be brought exclusively
in the United States District Court for the Southern District of New York or
Supreme Court of the State of New York in the County of New York, (ii) by
execution and delivery of this Agreement, irrevocably submits to and accepts,
with respect to its properties and assets, generally and unconditionally, the
jurisdiction of the aforesaid courts, and irrevocably waives any and all rights
it may have to object to such jurisdiction under the Constitution or laws of the
State of New York or the Constitution of the United States or otherwise, and
(iii) irrevocably consents that service of process upon it in any such action or
proceeding shall be valid and effective against it or him if made either (x) in
the manner provided herein for delivery of notices hereunder or (y) any other
manner permitted by law.
10. Waiver of Trial by
Jury. ALL PARTIES TO THIS AGREEMENT HEREBY WAIVE THEIR RIGHT
TO TRIAL BY JURY WITH RESPECT TO ANY DISPUTE RELATING TO THIS
AGREEMENT.
11. Counterparts. This
Agreement may be executed and delivered in counterparts and by facsimile and as
so executed and delivered shall be fully effective and binding once executed by
all parties listed as signatories hereto.
[This
space intentionally left blank. Signatures on next
page.]
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IN WITNESS WHEREOF, the undersigned
have executed and delivered this Agreement effective as of the date first
written above.
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The Corporation:
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By:
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title: Chief Executive Officer and Chief Financial Officer
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Address:
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▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Registered Holder:
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Print
name:
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Address:
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Telecopier:
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E-mail:
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Co-Owner
(e.g., if owned with spouse as tenants by the entirety or as community
property):
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Print
name:
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Address
(if different):
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Principal
Agreement of original 12% Subordinated
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Notes
$__________ to be exchanged for the
following:
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Principal
Amount of New Subordinated Notes:
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$__________
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Shares
of Common Stock of Porta Systems Corp.:
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__________
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5
Appendix
I
As a
result of the Restructuring Plan, after giving effect to the reverse split, the
Corporation’s common stock would be held as follows:
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Group
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Number of shares
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Percentage
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Cheyne
Special Situations Fund L.P.
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7,037,532 | 67.71 | % | |||||
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Common
stockholders*
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904,826 | 8.71 | % | |||||
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Holders
of the subordinated notes
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1,407,506 | 13.54 | % | |||||
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Reserved
for holders of convertible debentures
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100,536 | 0.97 | % | |||||
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Management
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603,217 | 5.80 | % | |||||
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Outstanding
options**
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139,000 | 1.34 | % | |||||
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Advicorp
PLC***
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201,072 | 1.93 | % | |||||
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Total
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10,393,689 | 100.00 | % | |||||
* The
number of shares held by the common stockholders includes an estimate of the
number of shares issuable in rounding up fractional shares. The
actual number of shares will be different from the number in the
table.
** In
addition to the shares held by the common stockholders, there would be
outstanding options to purchase an aggregate of 139,000 shares of common stock
at exercise prices ranging from $3.85 per share to 3.1 cents per
share.
*** As part of the
Restructuring Plan, we agreed to issue Advicorp, PLC warrants to purchase
201,072 shares of common stock at $ per
share.
6
Exhibit
10.2
EXHIBIT
A
LOST
NOTE AFFIDAVIT
The
undersigned note holder (the “Holder”), being duly sworn,
deposes and says:
1. That
the Holder is entitled to the possession, and is the legal and beneficial owner,
of 12% Subordinated Note N-___,
dated ,
issued by Porta Systems Corp. a Delaware corporation, in the original principal
amount of $___________________ ( the “Subordinated
Note”).
2. That
the original of the Subordinated Note cannot be found or produced.
3. That
the Holder has not sold, assigned, endorsed, pledged, transferred, deposited
under any agreement, or hypothecated the Subordinated Note, or any interest
therein or signed any power of attorney including a stock, bond or note power or
other authorization respecting same which is now outstanding and in force, or
otherwise disposed of the same; and no person, firm, corporation, agency or
government has, or has asserted, any right, title, claim, equity or interest in,
to or respecting the Subordinated Note or the proceeds thereof.
4. That
if the Holder should find or recover the said original of the Subordinated Note,
it will surrender the same immediately to Porta Systems Corp. (the “Corporation”) for cancellation
without requiring any consideration for such surrender.
5. That
the Holder agrees and covenants to indemnify the Corporation and its officers,
directors, employees, attorneys, agents and affiliates and their respective
successors and assigns from, and to the full extent of, all demands, claims,
actions, causes of actions, rights of recovery, liabilities, losses and/or
damages, whether direct or consequential (including, without limitation,
reasonable attorneys’ fees and expenses) of every kind and nature arising
from or growing out of any matter connected with or related to the loss of the
Subordinated Note and any claim which may be made thereon or as a result
thereof.
6. This
Lost Note Affidavit is intended to and shall bind the undersigned as of the date
hereof.
Signed and delivered this _____ day
of_______________ , 2008.
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Print
name of Holder
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Signature
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Print
name and Capacity of the
Signatory
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If
your spouse’s name appears on the face of the Subordinated Note, your spouse
should sign below:
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Print
name of spouse
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Signature
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Lost Note
Affidavit - 1
Acknowledgment
[Please
make sure the acknowledgement works for individuals and entities, including
trusts]
STATE OF
______________________ )
) ss.:
COUNTY OF
____________________ )
On the
day of
in the year 2008, before me, the undersigned, a Notary Public in
and for said State, personally appeared ___________________________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity, and that
by his/her signature on the instrument, the individual, or the person upon
behalf of which the individual acted, executed the instrument.
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Notary
Public
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Acknowledgment (Joint
Owner)
STATE OF
______________________ )
) ss.:
COUNTY OF
____________________ )
On the day of in
the year 2008, before me, the undersigned, a Notary Public in and for said
State, personally appeared ___________________________________, personally known
to me or proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within instrument and acknowledged to me that
he/she executed the same in his/her capacity, and that by his/her signature on
the instrument, the individual, or the person upon behalf of which the
individual acted, executed the instrument.
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Notary
Public
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Lost Note
Affidavit - 2
Exhibit
10.2
EXHIBIT
B
Subordinated Promissory
Note
Subordinated
Note due ________, 2015
FOR VALUE
RECEIVED, Porta Systems Corp., a Delaware corporation (the “Company”), hereby
promises to pay to the order of ________________ (“Registered Holder”)
the principal amount of ___________________ dollars
($________). Principal shall be paid quarterly on the last day of the
month ending three months after the issuance of these Subordinated Notes and
thereafter on the last day of the month ending every three months thereafter in
installments on the basis of a level payment twenty-five year amortization
schedule, with all remaining and unpaid principal and accrued interest due and
payable on ___________________, 2015 [7.5 YEARS FROM DATE OF THIS
NOTE]. Interest shall be payable at the rate of ten percent (10%) per
annum. Payments of principal and interest shall be made quarterly in
accordance with the payment schedule set forth as Schedule A to this
Note. All payments shall be applied first to accrued interest and the
balance, if any, to principal. If any payment is due is on a day on
not a business day, such payment shall be made on the next day which is a
business day. A business day shall mean a day other than Saturday,
Sunday or other day on which banks in the City of New York are permitted or
required to be closed for all or part of a normal business day. Payments shall
be made in lawful money of the United States of America against presentment of
this Note. In the event of a failure to make any payment due
hereunder which remains unpaid for sixty (60) days, interest on the unpaid
principal shall be payable, to the extent permitted by law, at the rate of
sixteen percent (16%) per annum on the entire unpaid principal amount of this
Note from and after the time that such unpaid principal amount shall have become
due and payable (whether at maturity or by acceleration). This Note
is one of a series of the Company’s 10% Subordinated Notes due ___________, 2015
(collectively, the “New Notes”), in the
aggregate principal amount of one million seven hundred fifty thousand dollars
($1,750,000) which were issued pursuant to agreements between the Company and
each of the initial holders of the New Notes which became effective
on ,
2008.
ARTICLE
1.
Events of
Default and Acceleration
(a) Events of Default
Defined. The entire unpaid principal amount of this Note,
together with interest thereon shall, on written notice from the Registered
Holders of New Notes in the principal amount of not less than two-thirds of the
aggregate principal amount of New Notes then outstanding, forthwith become and
be due and payable if any one or more Events of Default shall have occurred (for
any reason whatsoever and whether such happening shall be voluntary or
involuntary or be affected or come about by operation of law pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if
failure shall be made in the due and punctual payment of the principal of or
interest on the New Notes when and as the same shall become due and payable
whether at maturity or otherwise, and such failure shall have continued for
sixty (60) days and payment thereof is not deferred pursuant to Article 2
hereof;
Subordinated
Note - 1
(ii) if
the maturity of any Senior Debt shall be accelerated as a result of a
breach of or default under any instrument governing the terms of such
Senior Debt .
(iii)
if the Company shall consent to the appointment of a receiver, trustee or
liquidator of itself or of a substantial part of its property, or shall admit in
writing its inability to pay its debts generally as they become due, or shall
make a general assignment for the benefit of creditors, or shall file a
voluntary petition in bankruptcy, or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an answer
admitting the material allegations of a petition filed against the Company, in
any such proceeding, or shall by voluntary petition, answer or consent, seek
relief under the provisions of any other now existing or future bankruptcy or
other similar law providing for the reorganization or winding up of
corporations, or an arrangement, composition, extension or adjustment with its
or their creditors, or shall, in a petition in bankruptcy filed against it or
them be adjudicated a bankrupt, or the Company or its directors or the holders
of a majority of its equity interest shall vote to dissolve or liquidate the
Company;
(iv) if
a court of competent jurisdiction shall enter an order, judgment or decree
appointing, without consent of the Company, a receiver, trustee or liquidator of
the Company or of all or any substantial part of the property of the Company, or
approving a petition filed against the Company seeking a reorganization or
arrangement of the Company under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any State thereof,
or any substantial part of the property of the Company shall be
sequestered; and such order, judgment or decree shall not be vacated
or set aside or stayed within ninety (90) days from the date of the entry
thereof; or
(v) if,
under the provisions of any law for the relief or aid of debtors, any court of
competent jurisdiction shall assume custody or control of the Company or of all
or any substantial part of the property of the Company and such custody or
control shall not be terminated or stayed within ninety (90) days from the date
of assumption of such custody or control.
(b) Rights of Note
Holder. Nothing in this Note shall be construed to modify,
amend or limit in any way the right of the Registered Holder to bring an action
against the Company in the event the Company fail to pay principal of or
interest on this Note when due.
ARTICLE
2.
Subordination
(a) Agreement of
Subordination. The Company, for itself, its successors and
assigns, covenants and agrees, and the Registered Holder by his or her
acceptance of this Note likewise covenants and agrees, that the payment of the
principal of and interest on this Note is hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, to the prior payment in full of
all amounts due and owing on the Senior Debt, as hereinafter
defined. No payment shall be made on this Note unless and except to
the extent that, at the time of payment under and pursuant to this Note, all
amounts then due and owing on the Senior Debt have been paid in full, there
shall not have occurred an event of default or an event which, with the passage
of time or the giving of notice by the holder of Senior Debt would result in an
event of default under any instrument evidencing or relating to the Senior Debt,
and the making of such payment would not cause the Company to breach any
covenants to the holder of the Senior Debt set forth in the loan or other
agreements between the Company and the holder of the Senior Debt, as the same
may be amended from time to time, unless the holder of Senior Debt otherwise
specifically consents in writing to such payment by the Company. If
the Company is unable to make a payment of principal and interest on this Note
at the time due by reason of the provisions of this Article 2, the
Company shall notify the Registered Holder of such fact, in writing, within a
reasonable time after such date. The provisions of this Article 2 shall
constitute a continuing offer to all persons who, in reliance upon such
provision, become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they and/or each of them may proceed to enforce such
provisions.
Subordinated
Note - 2
(b) Company Not to Make Payments
with Respect to Note in Certain Circumstances.
(i) Upon
the maturity of any Senior Debt by lapse of time, acceleration or otherwise, all
principal thereof and premium, if any, interest thereon, costs of enforcement or
collection and any other sums due and owing by the Corporation to the holder of
the Senior Debt shall first be paid in full, or such payment duly
provided for in cash or in a manner satisfactory to the holder or holders of
such Senior Debt , before any payment is made by the Company (A) on account of
the principal of or interest on this Note or (B) to acquire this
Note.
(ii)
Upon the happening of an event of default with respect to any Senior Debt , as
such event of default is defined therein or in the instrument under which it is
outstanding, permitting the holders to accelerate the maturity thereof, and, if
the default is other than default in payment of the principal of or premium, if
any, or interest on such Senior Debt , upon written notice thereof given to the
Company by the holder or holders of such Senior Debt or their
representative or representatives, then, unless and until such event of default
shall have been cured or waived or shall have ceased to exist, no payment shall
be made by the Company (A) on account of the principal of or interest on this
Note or (B) to acquire this Note.
(iii)
In the event that, notwithstanding the provision of this Paragraph 2(b), the
Company shall make any payment to the Registered Holder on account of the
principal of or interest on this Note after the happening of a default in
payment of the principal of or premium, if any, or interest or any
other sums on, Senior Debt or after receipt by the Company of written notice of
an event of default with respect to any Senior Debt and after written notice of
such default or event of default is given by the Company to the Registered
Holder, then unless and until such default or event of default shall have been
cured or waived or shall have ceased to exist, such payment shall be held by the
Registered Holder in trust for the benefit of, and shall be paid forthwith over
and delivered to, the holders of Senior Debt (pro rata as to each of
such holders on the basis of the respective amounts of Senior
Debt held by them) or their representative or the trustee under the
indenture or other agreement (if any) pursuant to which any instruments
evidencing any Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full in accordance with the terms of such Senior Debt, after giving effect to
any concurrent payment or distribution to or for the holders of Senior Debt
..
(c) Note Subordinated to Prior
Payment of all Senior Debt on Dissolution, Liquidation or Reorganization of
Company. Upon any distribution of assets of the Company upon
any dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise):
Subordinated
Note - 3
(i)
The holders of all Senior Debt shall first be entitled to receive payment in
full of the principal thereof, premium, if any, interest due thereon, costs of
enforcement or collection and any other sums due and owing by the Corporation to
the holder of the Senior Debt before the Registered Holder is
entitled to receive any payment on account of the principal of or interest on
this Note (other than payment of shares of stock of the Company as reorganized
or readjusted, or securities of the Company or any other corporation provided
for by a plan of reorganization or readjustment which stock and securities are
subordinated to the payment of all Senior Debt and securities
received in lieu thereof which may at the time be outstanding); and
(ii)
Any payment or distribution of assets of the Company of any kind or character
whether in cash, property or securities (other than shares of stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which stock
and securities are subordinated to the payment of all Senior Debt and securities
received in lieu thereof which may at the time be outstanding), to which the
Registered Holder would be entitled except for the provisions of this Article 2, shall be
paid by the liquidating trustee or agent or other person making such payment of
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or other trustee or agent, directly to the holders of Senior Debt or
their representative or representatives, or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior
Debt may have been issued, to the extent necessary to make payment in
full of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution or provision therefor to the holders of such
Senior Debt.
(iii)
In the event that notwithstanding the foregoing provision of this Article 2, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than shares of stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which stock
and securities are subordinated to the payment of all Senior Debt and securities
received in lieu thereof which may at the time be outstanding), shall be
received by the Registered Holder on account of principal of or interest on this
Note before all Senior Debt is paid in full, or effective provision made for its
payment or distribution, such payment or distribution shall be received and held
in trust for and shall be paid over to the holders of the Senior
Debt remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Debt may have been issued, for
application to the payment of such Senior Debt until all such Senior Debt shall
have been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Debt
..
(d) Registered Holder to be
Subrogated to Right of Holders of Senior Debt . Subject to the
payment in full of all Senior Debt, the Registered Holder shall be subrogated to
the rights of the holders of Senior Debt to receive payments or distributions of
assets of the Company applicable to the Senior Debt until all amounts owing on
this Note shall be paid in full, and, for the purpose of such subrogation, no
payments or distributions to the holders of the Senior Debt by or on
behalf of the Company or by or on behalf of the Registered Holder by virtue of
this Article 2
which otherwise would have been made to the Registered Holder of this Note
shall, as between the Company and the Registered Holder, be deemed to be payment
by the Company to or on account of the Senior Debt, it being understood that the
provisions of this Article 2 are, and
are intended solely, for the purpose of defining the relative rights of the
Registered Holder of this Note, on the one hand, and the holders of the Senior
Debt, on the other hand.
Subordinated
Note - 4
(e) Obligation of the Company
Unconditional. Nothing contained in this Article 2 or
elsewhere in this Note is intended to or shall impair as between the Company and
the Registered Holder, the obligation of the Company, which is absolute and
unconditional, to pay to the Registered Holder the principal of and interest on
this Note as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Registered Holder and creditors of the Company other than the holders of the
Senior Debt, nor shall anything herein or therein prevent the Registered Holder
of this Note from exercising all remedies otherwise permitted by applicable law
upon default under this Note, subject to the rights, if any, under this Article 2 of the
holders of Senior Debt in respect of cash, property or securities of
the Company received upon the exercise of any such remedy, it being understood
that the Registered Holder shall not commence an action against the Company for
failure to make payments if such payments may not be made to the Registered
Holder pursuant to ths Article
2. Upon any distribution of assets of the Company referred to
in this Article
2, the holders of this Note shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the Registered Holder for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Debt and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article
2.
(f) Subordination Rights Not
Impaired by Acts or Omissions of the Company or Holders of Senior Debt
. No right of any present or future holders of any Senior Debt
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Note, regardless of any knowledge thereof which any such holder may have or be
otherwise charged with.
(g) Definition of Senior Debt
. The term “Senior Debt “ is
defined to mean the principal of and premium, if any, interest, costs of
enforcement or collection and any other sums due and owing by the Corporation on
the following: (i) all indebtedness and obligations (other than the New Notes or
notes to be issued to the holders of the Company's convertible debentures in
connection with the Company's restructuring plan) that are created, assumed or
guaranteed by the Company, whether before or after the issuance of the New
Notes, that are (A) for money borrowed or (B) secured by purchase money
mortgages or other similar security interests given by the Company or any
subsidiary on real or personal property, (ii) all obligations of the Company, or
of others which are guaranteed by the Company, whether existing on or after the
issuance of the New Notes, as lessee under a lease of real or personal property,
unless, with respect to any indebtedness or obligations described in clause (i)
or (ii) of this Paragraph 2(g),
unless the instrument creating or evidencing such indebtedness expressly
provides that such indebtedness is not superior in right of payment of the New
Notes, (iii) all indebtedness or obligations of a kind not described in said
clause (i) or (ii) which were incurred or guaranteed by the Company in
connection with the acquisition of an existing business or assets, whether by
means of a merger, consolidation, stock acquisition or acquisition of all or
part of the assets of a corporation, partnership, limited liability company,
business trust, sole proprietorship or other entity, or otherwise, and (iv) any
deferrals, renewals, extensions or refundings of any of the foregoing, unless,
in the case of any particular indebtedness or obligation or renewal, extension
or refunding thereof, under the express provisions of the instrument creating or
evidencing the same, or pursuant to which the same is outstanding, such
indebtedness or other obligation or such renewal, extension or refunding thereof
is not superior in right of payment to this Note. Senior Debt shall
include the Company’s obligations to Cheyne Special Situations Fund L.P. and its
affiliates, successors and assigns (collectively, “Cheyne”) issued under its
senior secured note in the initial principal amount of $10,000,000 and any other
obligations to Cheyne under any note, credit, loan or other agreement, and
Senior Debt shall not include
(a) indebtedness incurred for compensation to employees, or (b) other
indebtedness incurred in the ordinary course of business for goods, materials,
or services or any obligations of the Company under, or in respect of, leases
other than as hereinbefore described. There are no restrictions on
the right of the Company to incur Senior Debt.
Subordinated
Note - 5
(h) Right of Registered Holder
to Hold Senior Debt . The Registered Holder shall be entitled
to all of the rights set forth in this Article 2 in respect
of any Senior Debt at any time held by the Registered Holder to the same extent
as any other holder of Senior Debt, and nothing in this Article 2 or
elsewhere in this Note shall be construed to deprive the Registered Holder of
any of its rights as such holder.
ARTICLE
3.
Miscellaneous
(a) Transferability. No
transfer of this Note shall be effective unless such transfer is made (i) in
compliance with all applicable Federal and state securities laws and the
Registered Holder shall provide to the Company an opinion of counsel, which
counsel and opinion shall be reasonably acceptable to the Company, as to the
exemption from the registration requirements of the Securities Act of 1933, as
amended, and applicable state securities laws, and (ii) is made pursuant to a
written assignment or other instrument of transfer, a copy of which is delivered
to the Company promptly following the transfer. The Company may, as a
condition of such transfer, require the transferor to surrender this Note and
issue a replacement Note to and in the name of the transferee. The
Company shall be entitled to treat as the owner of this Note only the person
shown as the Registered Holder on its books and records, regardless of whether
the Company has any contrary knowledge.
(b) WAIVER OF
TRIAL BY JURY. IN ANY LEGAL PROCEEDING
TO ENFORCE PAYMENT OF THIS NOTE, THE COMPANY AND, BY THE ACCEPTANCE OF THIS
NOTE, THE REGISTERED HOLDER, THE REGISTERED HOLDER WAIVES TRIAL BY
JURY.
(c) Right of
Prepayment. The Company may prepay the New Notes at whole at
any time or in part from time to time, on not less than ten (10) days’ written
notice without payment of any penalty or premium. Any prepayment
shall by accompanied by payment of accrued interest to the date of
payment. Prepayment shall be made, to the extent practical,
proportional as to the Registered Holders of the outstanding New Notes based on
the respective principal amounts of their New Notes; provided, that the Company
may redeem in full the New Notes of any Registered Holder the principal amount
of whose Note is not significant relative to the total outstanding principal
amount of New Notes.
(d) Notice to
Company. Notice to the Company shall be given to the Company
at their principal executive offices, presently located at ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Chief Executive Officer, or to
such other address as the Company may, from time to time, advise the Registered
Holder of this Note.
(e) Governing
Law. This Note shall be governed by the laws of the State of
New York applicable to agreements executed and to be performed wholly within
such State. The Company, and by acceptance of this Note, the
Registered Holder, consents to the exclusive jurisdiction of the United States
District Court for the Southern District of New York and Supreme Court of the
State of New York in the County of New York in any action relating to or arising
out of this Note.
IN
WITNESS WHEREOF, the Company has executed this Note on the date and year first
aforesaid.
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By:
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▇. ▇▇▇▇▇▇▇▇
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Chief
Executive Officer and Chief Financial
Officer
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Subordinated
Note - 6
Exhibit
10.2
Schedule
A
Regular Payment
Schedule
Subordinated
Note - 7