Exhibit 10.7
THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN THAT CERTAIN NOTE
PURCHASE AREEMENT DATED AS OF JUNE 10, 2004 BETWEEN TIMEPAYMENT CORP., LLC AND
AMPAC CAPITAL SOLUTIONS, LLC, AS SUCH AGREEMENT MAY BE AMENDED, RESTATED,
SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME.
THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
THE REGISTRATION PROVISIONS OF SAID ACT AND LAWS HAVE BEEN COMPLIED WITH OR
UNLESS SUCH REGISTRATION IS NOT REQUIRED.
SUBORDINATED PROMISSORY NOTE
----------------------------
Boston, Massachusetts
$2,000,000 Dated as of June 10, 2004
FOR VALUE RECEIVED, the undersigned, TIMEPAYMENT CORP., LLC, a Delaware
limited liability company (the "Borrower"), hereby unconditionally promises to
pay AMPAC CAPITAL SOLUTIONS, LLC, a Nevada limited liability company (the
"Subordinated Lender"), or to its order, having its principal place of business
at 7380 S. Eastern Avenue, Suite 150, Las Vegas, Nevada 89123, in lawful money
of the United States of America and in immediately available funds, on the Final
Maturity Date, the principal amount of Two Million Dollars ($2,000,000), or so
much thereof as is then outstanding under this Subordinated Promissory Note
(this "Note"), in accordance with and pursuant to Section 2.2 of that certain
Note Purchase Agreement between the Borrower and the Subordinated Lender dated
as of June 10, 2004, as may be amended, restated, supplemented or otherwise
modified from time to time (the "Subordinated Note Agreement"). Capitalized
terms used herein without definition have the meanings assigned to them in the
Subordinated Note Agreement. The Borrower further agrees to pay interest in
arrears in like money on the unpaid principal amount hereof from time to time
outstanding, whether before or after maturity, at the rates and on the dates
specified in the Subordinated Note Agreement.
A. Payment of Principal and Interest.
1. The aggregate principal amount outstanding hereunder shall be
payable as provided in the Subordinated Note Agreement. This Note may be prepaid
in accordance with the terms and provisions of the Subordinated Note Agreement.
This Note is also subject to mandatory prepayment in certain circumstances as
provided in the Subordinated Note Agreement.
2. Except as otherwise provided in Section A.3 below, all principal and
interest hereunder are payable in lawful money of the United States of America
to the Subordinated Lender at its address specified above in immediately
available funds as provided in the Subordinated Note Agreement on the dates on
which such payments shall become due.
3. Notwithstanding any other provision of this Note, at the
Subordinated Lender's election at any time following the Commitment Expiration
Date and at any time prior to payment of the Note in full, pursuant to the terms
and conditions of the respective Warrant Certificates (including without
limitation certain vesting, exercise and transfer restrictions), the
Subordinated Lender may exercise any option, warrant or other right it may own
or possess from time to time to acquire Common Stock of the Parent in compliance
with such option, warrant or other right (any such exercise, an "Exercise"). The
Subordinated Lender shall be entitled, but not required, to pay for any Parent
Common Stock acquired pursuant to any Exercise by notifying the Parent and the
Borrower in writing of its decision to forgive an amount then due and owing
under this Note equal to the price payable by the Subordinated Lender for the
Parent Common Stock upon such Exercise ("Exercise Amount"). Any Exercise Amount
shall be credited for purposes of this Note first to interest accrued and owing
and then to principal. By its acknowledgement and agreement attached to this
Note, the Parent agrees that forgiveness by the Subordinated Lender from amounts
owing pursuant to this Note of the Exercise Amount in connection with any
Exercise shall be good and valid consideration and payment for the Parent Common
Stock issuable to the Subordinated Lender upon such Exercise. To the extent of
any actual or perceived conflict between the terms of this Section A.3 and any
other term of this Note or between this Section A.3 and any term of any other
agreement between or among the Subordinated Lender, the Borrower or the Parent,
the terms of this Section A 3 shall control and be binding. Without limiting the
foregoing, no Exercise pursuant to which the Subordinated Lender elects to
forgive the Exercise Amount from amounts owing hereunder shall constitute a
breach of or default under Section B of this Note.
B. Subordination. This Note shall at all times be wholly subordinate
and junior in right of payment to all Senior Obligations to the extent and in
the manner provided in this Part B.
1. Definitions. The following terms shall have the following meanings.
All other capitalized terms used herein without definition shall have the
meanings assigned to them in the Subordinated Note Agreement.
1.1 Agent. Any administrative or collateral agent acting on behalf
of any one or more Senior Lenders and as indicated in a written notice
provided to the Subordinated Lender by the Borrower and such Senior
Lender(s) stating that such agent has been requested and authorized to
act as agent for such Senior Lender(s) hereunder pursuant to the terms
of the applicable Senior Credit Agreement (s). The Borrower agrees that
any Agent, to the extent it may so act hereunder, shall exercise all of
the rights and remedies hereunder on behalf of, and as agent for the
benefit of, each of such Senior Lenders. Without limiting the generality
of the foregoing, such Agent is authorized to execute and deliver, from
time to time, on behalf of the applicable Senior Lender(s), any and all
amendments and modifications to this Note and any and all waivers to any
conditions herein or any default hereunder.
1.2 Bankruptcy or Liquidation Event. (a) Any dissolution, winding-up
or liquidation of a Debtor, partial or complete, whether or not
involving insolvency or bankruptcy proceedings, (b) any bankruptcy,
insolvency, receivership or other statutory or common law proceedings or
assignment for the benefit of creditors involving a Debtor or any
marshalling of the assets or liabilities of a Debtor, (c) any proceeding
by or against a Debtor for relief of any kind under any bankruptcy or
insolvency law(s) relating to the relief of debtors or readjustments,
reorganizations, compositions or extensions of indebtedness, or (d) any
other marshalling of the assets of any Debtor.
1.3 Debtor. The Borrower, the Parent or any of their respective
Affiliates.
1.4 Liabilities. When used with respect to any Debtor, the term
"Liabilities" shall mean indebtedness, obligations and liabilities of
such Debtor to the designated Person(s), whether the same is now
existing or hereafter arising, direct or indirect, absolute or
contingent, secured or unsecured, liquidated or unliquidated, matured or
unmatured, disputed or undisputed, legal or equitable, and however made
or evidenced.
1.5 Maximum Senior Debt Amount. The sum of (a) $75,000,000 plus (b)
any additional Indebtedness incurred as permitted under Section 6.1 of
the Subordinated Note Agreement.
1.6 Payment in Full. The expressions "prior payment in full",
"payment in full", "paid or satisfied in full", "paid in full" and any
other similar phrases, when used herein with respect to the Senior
Obligations, shall mean the indefeasible, full and final payment in
cash, in immediately available funds, of all the Senior Obligations,
whether or not any of the Senior Obligations shall have been voided,
disallowed or subordinated pursuant to any provisions of the United
States Bankruptcy Code or any applicable state fraudulent conveyance
laws, in any case whether asserted directly or indirectly.
1.7 Required Senior Lenders. For purposes of Sections 2.7 and 2.8 of
this Part B, those Senior Lenders having the right to consent to
amendments of the Subordinated Documents and to approve agreements
effecting any transfer of the Subordinated Obligations, respectively,
pursuant to the terms of their respective Senior Credit Agreements.
1.8 Senior Covenant Default. Any "Event of Default", as defined in
any agreement pertaining to Senior Obligations, other than a Senior
Payment Default.
1.9 Senior Credit Agreements. Any and all loan agreements, credit
agreements, indentures, reimbursement agreements and other agreements
providing for the extension of credit to the Borrower by one or more
Senior Lenders (including but not limited to the Credit Agreement
entered into by the Borrower with Acorn Capital Group, LLC, a Delaware
limited liability company, dated as of June 10, 2004), in each case as
the same may be amended, extended, renewed, restated, supplemented or
otherwise modified from time to time in accordance with their respective
terms, and any additional agreement or agreements entered into from time
to time governing Indebtedness incurred to refinance, replace,
restructure or refund in whole or in part the extensions of credit and
the maximum commitments thereunder and under such additional
agreement(s) (whether, in any case, with the original Senior Lender and
its successors and assigns or otherwise, and whether provided under the
original Senior Credit Agreement or other credit agreements or
otherwise).
1.10 Senior Credit Documents. The Senior Credit Agreements, the
Senior Notes, the Senior Security Documents and any and all other
documents pertaining to Senior Obligations.
1.11 Senior Default. A Senior Payment Default or a Senior Covenant
Default.
1.12 Senior Lender. Any holder of any Senior Obligation (including
any Affiliate of such Senior Lender and their respective successors and
assigns).
1.13 Senior Notes. Any and all promissory notes issued pursuant to
any and all of the Senior Credit Agreements.
1.14 Senior Obligations. All Liabilities of any or all of the
Debtors designated from time to time as Senior Obligations by a written
notice to the Subordinated Lender from the Borrower (including without
limitation interest accruing after the maturity of such Liabilities and
interest accruing after the filing of any petition in bankruptcy or the
commencement of any insolvency, reorganization or similar proceeding
relating to any Debtor, whether or not such post-filing or post-petition
interest is allowed in such proceeding and whether the applicable Senior
Lender(s) is (or are) oversecured or undersecured) and other fees,
charges and other amounts due on or under the applicable Senior Credit
Agreements, Senior Notes and Senior Security Documents. Notwithstanding
the foregoing, in no event shall the aggregate principal amount of all
Senior Obligations exceed the Maximum Senior Debt Amount (as defined in
Section 1.5). The term "Senior Obligations" shall include any renewals,
extensions, refinancings, modifications or refundings of the Liabilities
described above in this Section 1.14.
1.15 Senior Payment Default. Any default in the payment of
principal, interest or fees under any Senior Obligation when due in
accordance with the terms and conditions thereof.
1.16 Senior Security Documents. Any and all guaranties, security
agreements, pledge agreements and other documents pursuant to which any
of the Senior Obligations are secured.
1.17 Subordinated Default. Any "Event of Default", as defined in the
Subordinated Note Agreement.
1.18 Subordinated Documents. The Subordinated Note Agreement, the
Notes, the Subordinated Conditional Guaranty, the Warrant Certificates,
the Registration Rights Agreement and any and all other documents
pertaining to Subordinated Obligations.
1.19 Subordinated Obligations. All Liabilities owed by any or all of
the Debtors to the Subordinated Lender, including without limitation all
such Liabilities (a) in respect of subrogation rights under any guaranty
or any other rights to be subrogated to the rights of the holders of the
Senior Obligations in respect of payments or distributions of assets of,
or ownership interests in, the Debtors made on the Senior Obligations,
(b) under the Subordinated Note Agreement and the Subordinated Notes,
(c) under the Subordinated Conditional Guaranty and (d) as compensation
or in respect of any ownership interests (or warrants, options or other
rights for the purchase thereof) in any Debtor issued or sold to the
Subordinated Lender, including without limitation the Warrant
Certificates and the Warrant Shares, whether by dividend, redemption,
repurchase or otherwise.
2. Terms of Subordination.
2.1 Subordination. The Subordinated Lender hereby (a) covenants and
agrees that the Subordinated Obligations are and shall be subordinate and
subject in right of payment to the prior payment in full of all of the Senior
Obligations, whether or not any portion of the Senior Obligations shall have
been voided, disallowed or subordinated pursuant to Section 548 of the United
States Bankruptcy Code or any applicable state fraudulent conveyance laws,
whether asserted directly or under Section 544 of the United States Bankruptcy
Code, and (b) irrevocably directs the Borrower to make such payment in full, and
all other payments in respect of the Senior Obligations contemplated by this
Note and referred to below, to the Senior Lenders (or their Agent(s), as
applicable) before making any payments or distributions of any kind in respect
of the Subordinated Obligations, except as provided in Section 2.4. In
furtherance of the foregoing, except as provided in Sections 2.3 and 2.4, the
Subordinated Lender will not demand, accept or receive, any payment of interest,
principal or any other amount on account of the Subordinated Obligations or as a
sinking fund for any Subordinated Obligations, or in respect of any redemption,
retirement, prepayment, purchase or other acquisition of any Subordinated
Obligations, including without limitation any dividends or other distributions,
or exercise any right of set-off or recoupment until all of the Senior
Obligations shall have been paid in full.
2.2 Distributions in Bankruptcy or Liquidation Events.
(a) Distributions. Anything in the Subordinated Documents to the
contrary notwithstanding, in the event of any distribution, division or
application, in whole or in part, voluntary or involuntary, by operation of law
or otherwise, of the assets of any Debtor or the proceeds thereof, to or for the
benefit of any of the Debtors' creditors arising by reason of a Bankruptcy or
Liquidation Event, then all Senior Obligations shall first be paid in full
before any payment is made upon any Subordinated Obligations; and any payment or
distribution of any kind or character (whether in cash, property or securities
and whether or not any of such Senior Obligations has been disallowed, or
estimated for purpose of allowance, under the United States Bankruptcy Code or
otherwise) made upon or in respect of the Subordinated Obligations in violation
of this Note shall be paid over to the Senior Lenders (or their Agent(s), as
applicable), for application in payment of the Senior Obligations, unless and
until the Senior Obligations shall have been paid or satisfied in full.
(b) Authority to Act for Creditor. If the Subordinated Lender fails
to file a proper claim or proof of debt therefor prior to thirty (30) days
before the expiration of the time to file such claim or proof, then the Senior
Lenders (and/or their Agent(s), as applicable) are hereby permitted and
authorized (but not obligated) for the specified and limited purpose set forth
in this paragraph, to file such claim or proof for or on behalf of such holder
at any time prior to the expiration of the time to file such claim or proof;
provided, however, that the Senior Lenders (and/or such Agent(s)) shall promptly
deliver a copy of any such claim or proof so filed to the Subordinated Lender.
Upon written request of any Senior Lender (or any Agent, as applicable), the
Subordinated Lender shall confirm to the Senior Lenders (and such Agent) whether
the Subordinated Lender shall have in fact filed a proof of claim in order for
the Senior Lenders (and their Agent(s), as applicable) to exercise their rights
in this paragraph. Nothing contained in this Note shall be interpreted or
construed to impair the voting rights of the Subordinated Lender in any meeting
relating to any Reorganization or Liquidation Event, except that the
Subordinated Lender hereby covenants to the Senior Lenders that the Subordinated
Lender shall not vote in favor of any reorganization plan (whether under Chapter
11 of the United States Bankruptcy Code or other statute or law) that any Senior
Lender opposes.
(c) Additional Action. The Subordinated Lender agrees duly and
promptly to file appropriate proofs of claim in respect of the Subordinated
Obligations and to execute and deliver to the Senior Lenders, or their Agent(s),
as applicable, promptly following request, such assignments, proofs of claim or
other instruments as may be reasonably requested by any Senior Lender (and/or
their Agent(s)) to enable the Senior Lender (and/or their Agent(s)) to enforce
any and all claims upon or with respect to the Subordinated Obligations and to
collect and receive any and all payments and distributions which may be payable
or deliverable at any time upon or with respect to the Subordinated Obligations.
(d) Payments Held in Trust. In the event that any payment of
principal or interest or other payment or distribution of assets of any Debtor
shall be collected or received by the Subordinated Lender in violation of the
subordination provisions of this Part B, before payment in full of all of the
Senior Obligations, the Subordinated Lender shall forthwith deliver the same to
the Senior Lenders (and/or their Agent(s), as applicable), in the form received,
together with any endorsement and assignment necessary to make such delivery,
for application to the Senior Obligations, whether then due or not due. If the
Subordinated Lender shall fail to make such endorsement or assignment, the
Senior Lenders (or such Agent(s) or any of their respective officers) are hereby
irrevocably authorized to make the same. Until so delivered, the Subordinated
Lender shall hold such payment or distribution in trust as the property of the
Senior Lenders, segregated from all other funds and property held by the
Subordinated Lender.
2.3 Permitted Payments of Subordinated Obligations.
(a) For so long as no Senior Default has occurred and is continuing,
or would occur as a result of such a payment, the Borrower may pay when due, but
not in advance, and so long as it has not received a Blockage Notice (defined
below) which shall not be required in the case of a Senior Payment Default, the
Subordinated Lender may receive and retain, (i) all payments of interest in
arrears under the Subordinated Notes, (ii) all regularly scheduled payments of
principal under Section 2.2 of the Subordinated Note Agreement and (iii) all
amounts due to the Subordinated Lender pursuant to Sections 2.10 and 8.3(a) of
the Subordinated Note Agreement.
(b) Upon receipt by the Borrower and the Subordinated Lender of a
Blockage Notice (as defined below) or immediately upon the occurrence and during
the continuation of a Senior Payment Default, then unless and until (i) all
Senior Defaults that gave rise to the Blockage Notice shall have been remedied
or effectively waived or shall have ceased to exist, or (ii) the Senior
Obligations in respect of which such Senior Defaults shall have occurred shall
have been paid in full, no direct or indirect payment (in cash, property,
securities or by set-off or otherwise) of or on account of any Subordinated
Obligation or as a sinking fund for any Subordinated Obligations or in respect
of any redemption, retirement, purchase or other acquisition of any Subordinated
Obligations shall be made prior to the expiration of the Blockage Period (as
defined below). Notwithstanding the foregoing and except in the case of a Senior
Payment Default, all amounts paid with respect to the Subordinated Obligations
as permitted under Section 2.3(a), prior to the receipt of the Blockage Notice
in question by the Subordinated Lender, may be retained by the Subordinated
Lender.
(c) For purposes of this Section 2.3, a "Blockage Notice" is a
notice of a Senior Default that has occurred and is continuing, given to the
Borrower and the Subordinated Lender by a Senior Lender (or an Agent, as
applicable).
(d) For purposes of this Section 2.3, a "Blockage Period" with
respect to a Blockage Notice is the period commencing upon receipt of such
Blockage Notice by the Borrower and the Subordinated Lender and having a
duration as follows:
(i) unlimited, if the Senior Default to which the Blockage
Notice refers is a Senior Payment Default; or
(ii) 180 days, if the Senior Default to which the Blockage Notice
refers is a Senior Covenant Default.
(e) Notwithstanding any provision contained in this Section 2.3 to the
contrary:
(i) the Borrower shall not be prohibited from making, and the
Subordinated Lender shall not be prohibited from receiving and retaining,
payments in respect of the Subordinated Obligations pursuant to Section
2.3(d)(ii) hereof for more than an aggregate of 179 days within any 360
day period;
(ii) there shall not be more than two Blockage Notices given in
any 360-day period in respect of a Senior Covenant Default under Section
2.3(d)(ii) hereof;
(iii) no Senior Covenant Default (or event which, with the giving
of notice and/or the passage of time would constitute a Senior Covenant
Default) existing on the date on which any Blockage Notice is given to
the Subordinated Lender shall be used as a basis for any subsequent
Blockage Notice, unless such Senior Covenant Default (or event which,
with the giving of notice and/or the passage of time would constitute a
Senior Covenant Default) shall have ceased to exist for a period of at
least 180 consecutive days (it being acknowledged that any subsequent
action or any breach of any financial covenant, for a period commencing,
or as at a date occurring, after the date of commencement of such
Blockage Period, that in either case, would give rise to a Senior
Covenant Default pursuant to any provisions under which a Senior Covenant
Default previously existed or was continuing shall constitute a new
Senior Covenant Default for this purpose); and
(iv) once all Senior Defaults which gave rise to the Blockage
Notice in question shall have been remedied or effectively waived or
shall have ceased to exist or the Senior Obligations in respect of which
such Senior Defaults shall have occurred shall have been paid in full,
thereafter (unless another Blockage Period shall then be in effect or
unless any Senior Obligation shall have matured, by lapse of time,
acceleration, required prepayment or otherwise) all amounts which would
have been payable hereunder with respect to the Subordinated Obligations
but for the existence of the Blockage Period effected by the Blockage
Notice delivered with respect to the Senior Default in question shall be
immediately payable in their entirety.
2.4 Limitation on Exercise of Remedies by the Subordinated Lender.
(a) In the event that any Subordinated Default shall occur, the
Subordinated Lender shall not be entitled to, and will not, (i) ask, demand or
sue for, or take or receive from any Debtor, by set-off or otherwise, payment of
all or any portion of the Subordinated Obligations (including without limitation
the Subordinated Conditional Guaranty) or any collateral provided therefor; (ii)
accelerate any Subordinated Obligations; (iii) exercise any of its remedies in
respect of any Subordinated Obligations; (iv) initiate or join in any litigation
or other proceedings against, or reorganization of, any Debtor; or (v) foreclose
or otherwise realize on any security given by any Debtor or any other Person
(including any guarantor) to secure the Subordinated Obligations; in any such
case unless and until the earliest to occur of the following:
(A) the Senior Lenders shall have caused the Senior
Obligations to become due prior to their stated maturity and shall have
commenced the exercise of material remedies under the Senior Security
Documents;
(B) a Subordinated Default pursuant to Section 7.1(h) or
7.1(i) of the Subordinated Note Agreement shall have commenced; and
(C) any other Subordinated Default shall have occurred under
the Subordinated Note Agreement and the Subordinated Lender shall have
provided to the Senior Lenders (and their Agent(s), as applicable) and
the Borrower written notice of the Subordinated Lender's ability (under
the terms of the Subordinated Note Agreement) to accelerate on account
of the occurrence of such Subordinated Default (a "Remedy Notice"),
such Remedy Notice shall have been received by the Senior Lenders (and
such Agents) and the Borrower and 180 days shall have elapsed following
such receipt (in any such case, the "Remedy Standstill Period").
(b) Notwithstanding the foregoing, the Remedy Standstill Period shall
be inapplicable or cease to be effective if the Senior Lenders shall have caused
the Senior Obligations to become due prior to their stated maturity and shall
have commenced the exercise of material remedies under the Senior Security
Documents or a Subordinated Default pursuant to Section 7.1(h) or 7.1(i) of the
Subordinated Note Agreement shall have occurred.
(c) Upon the expiration or termination of any Remedy Standstill Period,
the Subordinated Lender shall be entitled to exercise any of its rights with
respect to the Subordinated Obligations (but otherwise subject to the
subordination and other provisions of this Note) other than any right to
accelerate the maturity date of any Subordinated Obligation based upon the
occurrence of any Subordinated Default in respect thereto which has been cured
or otherwise remedied during such Remedy Standstill Period.
2.5 Covenants to Cooperate. In addition to its agreements set forth in
Section 2.4, the Subordinated Lender, in its capacity as a holder of
Subordinated Obligations, agrees to take such actions as may be reasonably
necessary or appropriate, and otherwise to cooperate with the Senior Lenders
(and their Agent(s), as applicable) to effectuate the subordination provided
hereby. In furtherance thereof, the Subordinated Lender agrees (a) not to oppose
any motion filed or supported by any Senior Lender for relief from stay or for
adequate protection in respect of the Senior Obligations; (b) not to oppose any
motion supported by any Senior Lender for any Debtor's use of cash collateral or
post-petition borrowing from any Senior Lender; (c) not to institute against any
Debtor any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or similar law, until such time as the Senior Obligations have been
paid in full; and (d) not otherwise to (i) impede, interfere with or restrict or
restrain the exercise by the Senior Lenders (and their Agent(s), as applicable)
of their rights and remedies under the Senior Credit Documents or (ii) take or
permit any action prejudicial to or inconsistent with the priority position over
the Subordinated Lenders that is created in favor of the Senior Lenders by this
Note.
2.6 Violation of Agreements to Take No Action and Cooperate. If the
Subordinated Lender shall commence, prosecute or participate in any suit, action
or proceeding against any Debtor or take any other action in any legal
proceeding involving any Debtor in violation of this Note, such Debtor may
interpose this Note as a defense or plea and each of the Senior Lenders (and
each of their Agent(s), as applicable) are irrevocably authorized to intervene
and to interpose such defense or plea in its or any Debtor's name. Without
limiting the generality of Section 3 below, if the Subordinated Lender attempts
to enforce or realize upon any security for the Subordinated Obligations in
violation of this Note, any Debtor, any Senior Lender or any Agent (in such
Debtor's, such Senior Lender's or such Agent's name) may by virtue of this Note
restrain such realization or enforcement.
2.7 No Amendment of Subordinated Obligations. The Subordinated Lender
shall not, without the prior written consent of the Required Senior Lenders,
amend or permit the amendment of the terms of any instrument or agreement
evidencing any Subordinated Obligations the effect of which is to (a) increase
the maximum principal amount or rate of interest under the Subordinated Notes
(it being understood that the imposition of a default rate of interest contained
in the Subordinated Documents as in effect on the date hereof shall not be
restricted by this clause (a)), (b) accelerate the dates (including maturity
dates) upon which payments of principal or interest on the Subordinated Notes
are due, (c) add or make more restrictive any event of default, any financial
covenant (including the definitions applicable thereto) or any other covenant
with respect to the Subordinated Notes set forth in the Subordinated Documents
(as in effect on the date hereof), (d) change the redemption or prepayment
provisions of the Subordinated Notes, (e) amend the Warrant to increase the
shares of capital stock of the Parent issuable upon exercise thereof, (f)
provide for the issuance to the Subordinated Lender of any additional warrants
or other equity securities in any Debtor in violation of any Senior Credit
Agreement, or (g) change, amend or supplement any other term of the Subordinated
Documents if such change, amendment or supplementation would materially increase
the obligations of the Borrower or confer additional material rights on the
Subordinated Lender or any other holder of the Subordinated Notes in a manner
adverse to the Borrower or any Senior Lender (or any Agent).
2.8 No Transfer of Subordinated Obligations. The Subordinated Lender
will not sell, assign or transfer any of its interest in the Subordinated
Obligations, unless the buyer, assignee or transferee thereof shall agree in
writing to become bound by the provisions of this Note pursuant to a written
agreement in form and substance satisfactory to the Required Senior Lenders (or
their Agent(s), as applicable) executed by the buyer, assignee or transferee, an
original copy of which shall have been furnished to the Senior Lenders (and such
Agent(s)). In addition, the Subordinated Lender shall not grant or agree to any
subordination in respect of the Subordinated Obligations or grant a security
interest or participation in any of the Subordinated Obligations to any Person
other than the Senior Lenders. In addition, the Subordinated Lender shall not
grant or agree to any subordination in respect of the Subordinated Obligations
or grant a security interest or participation in any of the Subordinated
Obligations to any Person other than the Senior Lenders and to Persons to whom
the Senior Lenders shall have granted or agreed to any subordination in respect
of the Senior Obligations or granted a security interest or participation in any
of the Senior Obligations.
3. No Collateral. The Subordinated Lender will not take or enjoy any
collateral to secure the Subordinated Obligations. Without limiting the
generality of the foregoing, none of the Senior Lenders (or their Agent(s), as
applicable) shall have any duty to the Subordinated Lender with respect to the
preservation or maintenance of any collateral or the manner in which the Senior
Lenders (or such Agent(s)) enforce their respective rights in such collateral or
to preserve or maintain the rights of any Person in any collateral, and the
Subordinated Lender hereby waives (a) any claims which it may now or hereafter
have against the Senior Lenders (or such Agent(s)) which relate to such
preservation, maintenance or enforcement and (b) the right to require the Senior
Lenders (or such Agent(s)) to marshal any collateral, to enforce any security
interest or lien the Senior Lenders (or such Agent(s)) may now or hereafter have
in any collateral securing the Senior Obligations or to pursue any claim any of
the Senior Lenders (or any such Agent) may have against any guarantor of the
Senior Obligations, as a condition to the Senior Lenders' (and such Agent(s)')
entitlement to receive any payment on account of the Subordinated Obligations.
4. Agreements with Respect to Loan Documents.
(a) The Subordinated Lender hereby agrees that at any time, and from
time to time, without the consent of, or notice to, the Subordinated Lender, the
Senior Lenders (and their Agent(s), as applicable) may, in their sole
discretion, (i) modify or amend (with consent of other parties to the agreements
so affected), grant consents under and waivers of or release any of the terms of
the Senior Credit Agreements, the Senior Notes, the Senior Security Documents or
any of the other Senior Credit Documents, (ii) exercise or refrain from
exercising any powers or rights which the Senior Lenders (and such Agent(s)) may
have thereunder and (iii) make loans and other financial accommodations to the
Debtors in addition to the loans made on the date hereof, it being understood
and agreed that no such modification, amendment, consent, waiver, release,
exercise, failure to exercise or financial accommodation shall affect, release,
or impair any of the subordination rights or other rights and benefits afforded
to the Senior Lenders (and such Agent(s)) under this Note or give rise to any
liabilities on the part of the Senior Lenders (or such Agent(s)) to the
Subordinated Lender. Notwithstanding the foregoing, no such amendment,
restatement, waiver, or other modification shall, without the prior written
consent of the Subordinated Lender, (A) increase the principal amount of the
Senior Obligations in excess of the Maximum Senior Debt Amount then in effect,
(B) further limit the right of the Debtors to amend or otherwise modify the
Subordinated Agreements, or (C) prohibit or restrict the payment of principal
of, interest on, or other amounts payable with respect to, the Subordinated
Notes in a manner that is more restrictive than the prohibitions and
restrictions currently contained in the Senior Credit Documents (as in effect as
of the date hereof).
(b) Without limiting the generality of the foregoing, no right of the
Senior Lenders (or their Agent(s), as applicable) to enforce subordination as
herein provided shall at any time or in any way be affected or impaired by any
act or failure to act on the part of any Debtor or the Subordinated Lender, or
by any act or failure to act of the Senior Lenders (or such Agent(s)), or by any
non-compliance by any Debtor with any of the terms, provisions and covenants of
this Note or any other Senior Credit Document, regardless of any knowledge
thereof that the Senior Lenders (or such Agent(s)) may have or be charged with.
5. Relative Rights. Nothing contained in this Section 5 is intended to
or shall impair, as between each Debtor, its creditors other than the Senior
Lenders, and the Subordinated Lender, the obligation of such Debtor, which is
absolute and unconditional, to pay to the Subordinated Lender when due the
principal of and the interest on the Subordinated Obligations, or is intended to
or shall affect the relative rights of the Subordinated Lender and the creditors
of each Debtor other than the Senior Lenders.
6. Subrogation. After all amounts payable under or in respect of Senior
Obligations are indefeasibly paid in full in cash, the Subordinated Lender shall
be subrogated to the rights of holders of Senior Obligations to receive payments
or distributions applicable to Senior Obligations to the extent that
distributions otherwise payable to the Subordinated Lender have been applied to
the payment of Senior Obligations. A distribution made under this Part B to a
holder of Senior Obligations which otherwise would have been made to the
Subordinated Lender is not, as between the applicable Debtor, on the one hand,
and the Subordinated Lender, on the other hand, a payment by any Debtor on
Senior Obligations.
7. Reliance. The Subordinated Lender acknowledges notice that, in
entering into the Senior Credit Agreements and electing to hold the Senior
Obligations, each of the Senior Lenders is relying, and will rely, on the
subordination of the Subordinated Obligations provided herein. The Subordinated
Lender expressly waives all notice of the acceptance of, or reliance on, the
provisions of this Part B by the Senior Lenders.
8. Miscellaneous.
8.1 Conforming Agreement; Reinstatement. The agreements of the Borrower
and the Subordinated Lender set forth in this Part B shall be continuing
agreements and shall be irrevocable and shall remain in full force and effect so
long as there are Senior Obligations outstanding or committed to be advanced.
The liability of the Subordinated Lender hereunder shall be reinstated and
revived, and the rights of the Senior Lenders (and their Agent(s), as
applicable) shall continue, with respect to any amount at any time paid on
account of the Senior Obligations which shall thereafter be required to be
restored or returned by any Senior Lender in any Bankruptcy or Liquidation Event
(including without limitation any repayment made pursuant to any provision of
Chapter 5 of Title 11, United States Code), all as though such amount had not
been paid.
8.2 Application of Payments. The Subordinated Lender hereby agrees that
all payments received by the Senior Lenders (or their Agent(s), as applicable)
may be applied, reversed and reapplied, in whole or in part, to such part of the
Senior Obligations as the Senior Lenders, in their sole discretion, deem
appropriate, in accordance with the provisions of their respective Senior Credit
Agreements.
8.3 Specific Performance. The Subordinated Lender hereby waives any
defense based on the adequacy of a remedy at law that might be asserted as a bar
to the remedy of specific performance of this Note in any action brought
therefor by or on behalf of the Senior Lenders.
8.4 Modification of Part B. The provisions of this Part B are for the
benefit of the holders from time to time of Senior Obligations and, so long as
any Senior Obligations remain unpaid, may not be modified, rescinded or canceled
in whole or in part (except insofar as the effect thereof would be to cause such
provisions to be more favorable to the Senior Lenders, without the prior written
consent thereto of all the Senior Lenders.
C. General Terms.
1. The Borrower, for itself and its legal representatives, successors
and assigns, to the extent it may lawfully do so, hereby expressly waives
presentment, demand, protest, notice of protest, presentment for the purpose of
accelerating maturity, diligence in collection, and the benefit of any exemption
or insolvency laws, and consents that the Subordinated Lender may, subject to
the Subordinated Note Agreement, release or surrender, exchange or substitute
any personal property or other collateral security which may (without limiting
the generality of Part B(3)) hereafter be held as security for the payment of
this Note, and may extend the time for payment or otherwise modify the terms of
payment of any part or the whole of the debt evidenced hereby to the extent
provided in the Subordinated Note Agreement without in any way affecting the
liability of the Borrower; provided that such modifications do not increase the
obligations hereunder.
2. This Note is one of the "Subordinated Notes" referred to in, and is
entitled to the benefits of, the Subordinated Note Agreement (including
Schedules and Exhibits thereto) and all other instruments and agreements
evidencing the indebtedness outstanding hereunder, which Subordinated Note
Agreement and other instruments and agreements are hereby made part of this Note
and are deemed incorporated herein in full. The occurrence or existence of an
Event of Default shall constitute a default under this Note and shall, subject
to the provisions of the Subordinated Note Agreement, entitle the Subordinated
Lender to accelerate the entire indebtedness hereunder and to take such other
action as may be provided for in the Subordinated Note Agreement or any other
instrument or agreement evidencing and/or securing this Note, all in accordance
with the terms of the Subordinated Note Agreement and the provisions of Part B
hereof.
3. All agreements between the Borrower and the Subordinated Lender are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the indebtedness or otherwise, shall
the amount paid or agreed to be paid for the use or forbearance of the
indebtedness evidenced hereby exceed the maximum amount which the Subordinated
Lender is permitted to receive under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof or of the Subordinated Note
Agreement, at the time performance of such provision shall be due, shall involve
exceeding such amount, then the obligation to be fulfilled shall automatically
be reduced to the limit of such validity and if, from any circumstances, the
Subordinated Lender should ever receive as interest an amount which would exceed
such maximum amount, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced hereby and not to
the payment of interest. As used herein, the term "applicable law" shall mean
the law in effect as of the date hereof, provided, however, that in the event
there is a change in the law which results in a higher permissible rate of
interest, then this Note shall be governed by such new law as of its effective
date. This provision shall control every other provision of all agreements
between the Borrower and the Subordinated Lender.
4. If this Note shall not be paid when due and shall be placed by the
holder hereof in the hands of any attorney for collection, through legal
proceedings or otherwise, the Borrower will pay reasonable attorneys' fees to
the holder hereof together with reasonable costs and expenses of collection,
including, without limitation, any such attorneys' fees, costs and expenses
relating to any proceedings with respect to the bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation of the Borrower.
5. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED, IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
[Balance of Page Left Blank Intentionally]
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized representative as of the date first above
written.
WITNESS TIMEPAYMENT CORP., LLC
By_____________________________________
Name:_______________________________
Title: _____________________________
[Signature Page to Subordinated Note issued to Ampac Capital Solutions, LLC]
ACKNOWLEDGEMENT AND AGREEMENT
MicroFinancial Incorporated hereby assents and agrees to the provisions of
Section A.3 of the foregoing Subordinated Promissory Note as of the date first
written therein.
WITNESS MICROFINANCIAL INCORPORATED
______________________________________ By_________________________________
Name: _________________________
Title: ________________________