Exhibit 10.7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEITHER THIS NOTE NOR ANY SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
THE SECURITIES ISSUABLE UPON EXERCISE OF THIS CONVERTIBLE PROMISSORY NOTE ARE
ALSO SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT, AS
AMENDED, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE SECRETARY OF THE
COMPANY.
PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS CONVERTIBLE PROMISSORY
NOTE ARE SUBORDINATED AS PROVIDED HEREIN.
$3,172,872.24 CONVERTIBLE PROMISSORY NOTE
-----------------------------------------
$3,172,872.24 December 21, 1999
Total Network Solutions, Inc., a New York corporation (the
"COMPANY"), for value received, promises to pay to Cisco Systems, Inc., a
California corporation (the "HOLDER"), the principal sum of Three Million One
Hundred Seventy-Two Thousand Eight Hundred Seventy-Two Dollars and Twenty-Four
Cents ($3,172,872.24), plus interest on the unpaid balance hereof (the "NOTE").
Interest shall be computed on the basis of a 360-day year and actual number of
days elapsed and shall accrue from and including the date funds are advanced
hereunder at the rate of six point forty seven percent (6.47%) per annum to but
excluding the date of repayment.
1. DEFINITIONS. As used in this Note, the following terms
shall have the definitions ascribed to them below:
a. "Common Note" shall mean the $4,416,150
Convertible Promissory Note to be issued by the Company to the Holder pursuant
to the Purchase Agreement (as defined below).
b. "Conversion Share Price" shall be equal to: (i)
the sum of accrued interest and the principal amount of $3,172,872.24; (ii)
divided by (x) in the case of a conversion into Common Stock, a number equal to
the number of Common Stock into which 1,077,026 shares of Series B Preferred (as
defined below) issued on the date hereof would be convertible pursuant to the
Restated Certificate of Incorporation of the Company (the "Restated
Certificate") (as appropriately adjusted therein for dilution, stock splits,
stock dividends, combinations,
reclassifications and the like) and (y) in the case of a conversion into Series
B Preferred, 1,077,026.
c. "Conversion Stock" shall mean: (1) prior to the
Company consummating an Initial Public Offering (as defined below) shares of the
Company's common stock or Series B Preferred, at the option of the Holder,
purchasable upon conversion of this Note, or (2) subsequent to the Company
consummating an Initial Public Offering, the shares of the Company's common
stock issuable upon conversion of this Note. The total number of shares of
Conversion Stock shall be determined by dividing (A) the amount of the
outstanding principal and accrued interest under this Note which the Holder
elects to convert at the time of conversion by (B) the Conversion Share Price.
d. "Highest Lawful Rate" shall mean the maximum
non-usurious rate of interest, as in effect from time to time, which may be
charged, contracted for, reserved, received or collected by the Holder in
connection with this Note under applicable law.
e. "Holder" shall mean the person specified in the
introductory paragraph together with its successors and permitted assigns.
f. "Initial Public Offering" shall mean the Company's
first firm commitment underwritten offering pursuant to a registration statement
under the Securities and Exchange Act of 1933, as amended, covering the sale of
the Company's common stock with net proceeds to the Company of at least Twenty
Million Dollars ($20,000,000).
g. "Letter Agreement" shall mean the Letter
Agreement, dated as of December 21, 1999, by and between the Company and the
Holder.
h. "Note" shall mean this $3,172,872.24 Convertible
Promissory Note.
i. "Purchase Agreement" shall mean the Convertible
Note Purchase Agreement, dated as of December 21, 1999, by and between the
Company and the Holder.
j. "Registration Rights Agreement" shall mean the
Second Amended and Restated Registration Rights Agreement, dated as of December
21, 1999, by and among the Company, Morgan Stanley Venture Investors III, L.P.,
Morgan Stanley Venture Partners III, L.P., The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P., Merritt Lutz and the Holder.
k. "Second Convertible Note" shall mean the
$9,000,004.68 Convertible Promissory Note to be issued by the Company to the
Holder pursuant to the Purchase Agreement.
l. "Series B Preferred" shall mean shares of the
Company's Series B Preferred Stock.
m. "Shareholders Agreement" shall mean the shall mean
the Second Amended and Restated Shareholders Agreement, dated as of December 21,
1999, by and among
2
the Company, Morgan Stanley Venture Investors III, L.P., Morgan Stanley Venture
Partners III, L.P., The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.,
Merritt Lutz, the Holder and each of the stockholders listed on the signature
pages thereof.
2. MATURITY. The principal of this Note shall mature and be
due and payable on December 21, 2009 (the "MATURITY DATE"). All accrued and
unpaid interest shall be due and payable on the earlier of (i) the Maturity Date
or (ii) the maturity of the principal of this Note (whether at scheduled
maturity or upon acceleration of maturity following an Event of Default (as
defined below)), provided that in no event shall any interest be payable prior
to June 30, 2003.
3. CONVERSION.
A. HOLDER'S OPTION. The unpaid principal and interest
outstanding under this Note shall be convertible at any time or from time to
time, in whole or in part, at the option of the Holder, into Conversion Stock at
the Conversion Price. The Holder will give the Company thirty (30) days' prior
written notice of its intention to effectuate such conversion. No fractional
shares shall be issued and the value of any fractional share shall be paid by
the Company to the Holder in cash. Commencing ninety (90) days prior to the
Maturity Date, if the Note has not been converted by the Holder in accordance
with the terms hereof and the Company wishes to pay the Note, the Company shall
give thirty (30) days' prior written notice to the Holder (the "NOTICE PERIOD").
After the commencement of the Notice Period, the Holder shall have thirty (30)
days thereof to advise the Company whether it will exercise its right to convert
the Note, in whole or in part, into shares of Conversion Stock or whether it
will accept payment or prepayment of the Note, in whole, from the Company. The
Company may not voluntarily pay prior to the Maturity Date any portion of the
Note if the conversion of such portion would result in the Holder acquiring
19.9% or more of the equity ownership of the Company or if the Holder advises
the Company during the Notice Period that such conversion would require the
Holder to undertake the equity method of accounting in connection with its
ownership of the Conversion Stock (the "EQUITY LIMITATION") (it being understood
that the Equity Limitation shall be inapplicable to any payment on this Note on
or after the Maturity Date). Any portion of the Note at any time outstanding
because of the Equity Limitation set forth in the preceding sentence may be
voluntarily paid prior to the Maturity Date only at the option of the Holder.
B. CONDITION TO AN ACQUISITION TRANSACTION. If
neither prepayment nor conversion has occurred prior to (i) any reorganization,
merger or consolidation in which the Company is not the surviving entity or (ii)
the sale or transfer by the Company of all or substantially all of its assets
otherwise than to a wholly owned affiliate of the Company, (any such transaction
being an "ACQUISITION TRANSACTION"), unless this Note is paid or converted as
provided in Section 5, as a condition to the consummation of the Acquisition
Transaction, the Note shall be cancelled and the surviving entity or transferee
shall enter into a successor note agreement with the Holder (the "SUCCESSOR
NOTE"). The Successor Note shall provide (i) that the Holder may convert it for
the kind and amount of capital stock or other securities or property which the
Holder would have received immediately after the Acquisition Transaction if the
Holder had converted the Note immediately before the effective date of the
Acquisition Transaction and (ii) that the surviving entity in the Acquisition
Transaction shall succeed to and be substituted to every right and obligation of
the Company in respect of this Note. The
3
Successor Note shall provide for adjustment which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 3.
Notwithstanding the foregoing, if the Company enters into an Acquisition
Transaction and consideration payable to holders of shares of the Company's
common stock issuable or, deliverable upon conversion of the Note in connection
with such Acquisition Transaction consists solely of cash, then the Holder shall
be entitled to receive distributions on the date of such event on an equal basis
with holders of shares of the Company's common stock issuable upon conversion of
the Note as if the Note had been converted immediately prior to such event and
upon such distribution, the Note shall be cancelled and the Company's
obligations under the Note shall be terminated.
C. CONDITIONAL CONVERSION. Subject to Section 3(a),
the Holder may specify that the conversion of the Note, in whole or in part, is
contingent upon and shall occur simultaneously with the consummation of (i) the
acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation), or (ii) a sale of all or substantially
all of the assets of the Company (including, for purposes of this paragraph,
intellectual property rights which, in the aggregate, constitute substantially
all of the Company's assets).
4. MECHANICS AND EFFECT OF CONVERSION. Upon the conversion of
this Note pursuant to Section 3 above, the Holder shall surrender this Note,
duly endorsed, at the principal office of the Company. At its expense, the
Company shall, as soon as practicable thereafter, issue and deliver to such
Holder at such principal office a certificate or certificates for the number of
shares of such Conversion Stock to which the Holder shall be entitled upon such
conversion (bearing such legends as are required by applicable state and federal
securities laws in the opinion of counsel to the Company), together with any
other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the Holder
for any cash amounts payable as described above. Upon conversion of this Note,
the Company shall be forever released from all its obligations and liabilities
under this Note.
5. PREPAYMENTS. In addition to the Company's right to prepay
the Note pursuant to Section 3, if on or prior to the Maturity Date, the Company
notifies the Holder that it intends to consummate a merger, consolidation,
reorganization or sale of all or substantially all of its assets following which
the holders of the Company's voting securities outstanding prior to such
transaction will not hold more than 50% of the voting securities of the
surviving entity or transferee in such transaction (or an entity controlling
such surviving entity or transferee), the Company may prepay the Note in whole;
PROVIDED, HOWEVER, that the Company shall give the Holder at least thirty (30)
days prior written notice (or such other time as may be remaining if there are
less than 30 days remaining prior to the consummation of such transaction) of
its intent to consummate such transaction and; PROVIDED, FURTHER, that such
prepayment is subject to the Holder's right to convert the Note pursuant to
Section 3(a), and that such prepayment shall occur only upon the consummation of
such transaction. Upon the consummation of such transaction, the Holder shall
surrender the Note, duly endorsed, at the principal office of the Company, and
the Company shall pay the Holder in immediately available Funds the unpaid
principal and interest of the Note.
4
6. USURY. Any scheduled principal payments hereunder, or any
other amounts payable hereunder, not paid within five (5) days from the date due
shall bear interest at a rate of 10% per annum, or the maximum rate permitted by
law, whichever is less. Overdue interest shall be payable on demand. All
computations of interest shall be made on the basis of a year of 360 days for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable. Anything herein to
the contrary notwithstanding, if during any period for which interest is
computed hereunder, the amount of interest computed on the basis provided for in
this Note, together with all fees, charges and other payments which are treated
as interest under applicable law, as provided for herein or in any other
document executed in connection herewith, would exceed the amount of such
interest computed on the basis of the Highest Lawful Rate, the Company shall not
be obligated to pay, and the Holder shall not be entitled to charge, collect,
receive, reserve or take, interest in excess of the Highest Lawful Rate, and
during any such period the interest payable hereunder shall be computed on the
basis of the Highest Lawful Rate.
7. EVENTS OF DEFAULT. The entire unpaid principal balance and
accrued interest of this Note shall immediately be due and payable at the option
of the Holder upon the occurrence of any Event of Default. For purposes of this
Note, the Company shall be in default under this Note upon the happening of any
condition or event set forth below (herein called an "EVENT OF DEFAULT"):
a. The Company's failure to pay any principal or
accrued interest evidenced hereby within five (5) days after such payment of
principal or interest becomes due in accordance with the terms of this Note;
b. The Company's failure to perform, keep or observe
any of its covenants, conditions, promises, agreements or obligations under this
Note, if such failure would have a material adverse effect on the Company's
assets, operations or condition, financial or otherwise and such failure is not
cured by the Company within thirty (30) days (or such longer period as shall be
reasonably necessary to effect such cure if efforts to cure are commenced within
such 30-day period and are pursued with reasonable diligence until completion)
of the date that written notice of such failure is delivered to the Company.
c. The institution of proceedings against the
Company, or the Company's filing of a petition or answer or consent seeking
reorganization or release, under the Federal Bankruptcy Code, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against the Company which results in the entry of an order for relief or which
remains undismissed, undischarged or unbonded for a period of sixty (60) days or
more, or the Company's consent to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other similar
official of the Company or of any substantial part of its property, or the
Company's making of an assignment for the benefit of creditors, or the taking of
corporate action in furtherance of such action;
d. Any warranty or representation contained in this
Note, the Letter Agreement, the Common Note, the Second Convertible Note, the
Registration Rights Agreement, the Shareholders Agreement or the Purchase
Agreement proves to have been false in
5
any material respect when made or furnished and such falsity would have a
material adverse effect on the Company's assets, operations or condition,
financial or otherwise.
8. NEGATIVE COVENANTS. For so long as any amounts are
outstanding under this Note and are convertible into shares of Series B
Preferred Stock, the Company shall not, without the consent of the holders of
75% of the principal amount of this Note:
a. Redeem, repurchase or pay any dividends on any
Junior Securities (as defined in the Restated Certificate) other than (i)
dividends or distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Junior Securities, (ii) a redemption,
purchase or other acquisition of shares of Common Stock made pursuant to an
employee incentive or benefit plan of the Corporation or any subsidiary or the
terms of any grant pursuant thereto that has been approved by the Board of
Directors or other administrator thereof or (iii) pursuant to the Shareholders
Agreement;
b. Amend, alter or repeal any provision of, or add
any provision to, the Restated Certificate (including without limitation any
provision of the Restated Certificate fixing and determining the terms of any
series of Preferred Stock, including without limitation the Series B Preferred
Stock, but excluding any Preferred Stock constituting Junior Securities, whether
now or hereafter authorized) or the Company's Bylaws (other than (i) any
increase in the authorized capital of the Company that has been approved by the
Board of Directors and that does not require the vote of the holders of Series B
Preferred Stock pursuant to paragraph D.9(c)(i) or D.9(d)(i) of the Restated
Certificate or (ii) except to the extent the same shall adversely change the
rights, preferences or privileges of the Series B Preferred Stock or the Series
C Preferred Stock (in which event any separate class vote of such series
provided for by law or in the Restated Certificate shall also be required), in
connection with any merger, consolidation, business combination or other
extraordinary corporate transaction following compliance with the Letter
Agreement, to the extent applicable);
c. Create or authorize the creation of any additional
class or series of shares of capital stock other than Junior Securities, or
increase the authorized amount of any additional class or series of shares of
capital stock other than Junior Securities, or create or authorize any
obligation or security convertible into shares of any other class or series of
capital stock other than Junior Securities, or issue any additional shares of
any other class or series of capital stock other than Junior Securities (other
than any Additional Shares (as defined in the Restated Certificate)) whether any
such creation, authorization, increase or issuance shall be by means of
amendment to the Restated Certificate or by merger, consolidation or otherwise;
d. Consent to any liquidation, dissolution or winding
up of the Corporation (other than a Deemed Liquidation (as defined in the
Restated Certificate) or in connection with a merger, consolidation, business
combination or other extraordinary corporate transaction following compliance
with the Letter Agreement, to the extent applicable);
e. Redeem or repurchase any shares of Series A
Preferred Stock prior to June 30, 2003 other than pursuant to paragraph C.3 or
clause (i) of paragraph C.4(b) of Article Fourth of the Restated Certificate;
6
f. Increase the authorized amount of the Series B
Preferred Stock, create or authorize any obligation or security convertible into
shares of Series B Preferred Stock or issue any additional shares of Series B
Preferred Stock (other than Additional Series B Shares (as defined in the
Restated Certificate)); or
g. Enter into, or permit any Subsidiary to enter
into, any agreement, indenture or other instrument which contains any provision
restricting the payment of dividends by the Corporation on the Series B
Preferred Stock when due to the full extent required by Article Fourth,
paragraph D.3 of the Restated Certificate, other than any Approved Third Party
Credit Agreement (as defined in the Restated Certificate).
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
shall reserve and keep available out of its authorized but unissued shares of
preferred or common stock such number of shares as shall from time to time be
sufficient to effect the conversion of this Note; and, if at any time the number
of authorized but unissued shares of the Company's preferred or common stock
shall not be sufficient to effect the conversion of the entire outstanding
principal amount of this Note, without limitation of such other remedies as
shall be available to the Holder of this Note, the Company will use its best
efforts to take such corporate action as, in the opinion of counsel, may be
necessary to increase its authorized but unissued shares of preferred or common
stock to such number of shares as shall be sufficient for such purposes.
10. NOTICES. Any notice required by any provision of this Note
to be given to the Holder shall be in writing or by telegram or facsimile
confirmed answer back, and shall be deemed to have been duly made when delivered
in person or sent by telegram or facsimile confirmed answer back , same day or
overnight courier, or 72 hours after having been deposited in the United States
first class or registered or certified mail return receipt requested, postage
prepaid. All such communications shall be addressed to the Holder of record at
its address appearing on the books of the Company.
11. NO RIGHTS AS STOCKHOLDER. Without limitation of Section 8,
this Note, as such, shall not entitle the Holder to any rights as a stockholder
of the Company, except as otherwise specified herein.
12. LEGAL FEES. The Company agrees to pay on demand all the
losses, costs, and expenses (including, without limitation, attorneys' fees and
disbursements) which the Holder incurs in connection with enforcement or
attempted enforcement of this Note, or the protection or preservation of the
Holder's rights under this Note, whether by judicial proceedings or otherwise.
Such costs and expenses include, without limitation, those incurred in
connection with any workout or refinancing, or any bankruptcy, insolvency,
liquidation or similar proceedings.
13. HEADINGS. The headings in this Note are inserted for
convenience only and do not constitute a part of this Note.
14. GOVERNING LAW. This Note shall be governed by the laws of
the State of New York, without giving effect to conflicts of law principles.
7
15. ASSIGNMENT. This Note shall be binding on the Company and
its successors and permitted assigns, and shall be binding upon and inure to the
benefit of the Holder, any future holder of this Note and their respective
successors and permitted assigns. Neither the Company nor the Holder may assign
or transfer this Note or any of its rights or obligations hereunder (other than
by operation of law) without the other party's prior written consent; PROVIDED,
HOWEVER, that the Holder may transfer this Note and any of its rights and
obligations hereunder to a majority-owned affiliate thereof. Any transferee of
this Note shall become a party to the Shareholders Agreement in accordance with
the terms thereof.
16. WAIVER. The Company hereby waives notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor
and all other notices or demands relative to this Note. No single or partial
exercise of any power under this Note shall preclude any other or further
exercise of such power or exercise of any other power. No delay or omission on
the part of the Holder in exercising any right under this Note shall operate as
a waiver of such right or any other right hereunder.
17. SEVERABILITY. In the event any one or more of the
provisions contained in this Note shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this Note
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
18. SUBORDINATION. By accepting this Note, the Holder agrees
that all payments on account of the indebtedness, liabilities and other
obligations of the Company to the Holder of this Note, including, without
limitation, all amounts of principal, all interest accrued hereon, and all other
amounts payable by the Company to the Holder under this Note or in connection
herewith (the "Subordinated Indebtedness") shall be subordinate and subject in
right of payment, to the extent and in the manner set forth herein, to the prior
payment in full in cash or cash equivalents of the Senior Indebtedness. As used
herein, "Senior Indebtedness" shall mean (i) any indebtedness, liabilities and
other obligations of the Company (whether as primary obligor or as guarantor) to
any person (each a "Senior Lender") with respect to (a) any working capital,
revolving credit or other line of credit facility, any term loan facility, or
any other extension of credit by any individual or entity (whether or not
secured), including reimbursement obligations under letters of credit or
guaranties and (b) obligations in respect of bankers' acceptances purchased by,
and interest rate protection agreements and currency exchange and purchase
agreements entered into with, any individual or entity, (ii) any such types of
indebtedness which are incurred by any affiliate of the Company, (iii) all other
amounts due on or in connection with such Senior Indebtedness, including all
charges, fees, indemnities and expenses (including reasonable fees and expenses
of counsel), (iv) all interest accruing with respect to such Senior Indebtedness
during the pendency of a bankruptcy or insolvency proceeding, whether or not
allowable thereunder, and (v) all extensions, renewals, refinancings and
deferrals of the amounts referred to in clauses (i) through (iv) above. The
terms "indebtedness," "liabilities" and "obligations" are used herein in their
most comprehensive sense and include any and all advances, debts, obligations
and liabilities, now existing or hereafter arising, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
8
As long as any of the Senior Indebtedness shall remain
outstanding and unpaid, the Holder shall not accept or receive, directly or
indirectly, and the Company shall not make, any Subordinated Debt Payment (as
defined below), except that prior to the occurrence of any Senior Lender Default
(as defined below) and receipt of the notice from the Senior Lender described
below, the Holder shall be entitled to accept and receive payments of principal
and interest under this Note, in accordance with the terms of this Note. Upon
the occurrence of any Senior Lender Default (or if any Senior Lender Default
would exist immediately after the making of a Subordinated Debt Payment), and
upon receipt by the Company and the Holder of notice in writing of such Senior
Lender Default, and until such Senior Lender Default is cured or waived, the
Company shall not make, and the Holder shall not accept or receive, any
Subordinated Debt Payment. In the event that, notwithstanding the foregoing
provisions, any Subordinated Debt Payments shall be received in contravention
hereof by the Holder before all Senior Indebtedness shall be paid, such
Subordinated Debt Payments shall be held in trust for the benefit of the Senior
Lenders and shall be paid over or delivered to the Senior Lenders for
application to the payment in full in cash or cash equivalents of all Senior
Indebtedness remaining unpaid to the extent necessary to give effect hereto,
after giving effect to any concurrent payments or distributions to any Senior
Lender in respect of the Senior Indebtedness. As used herein, "Senior Lender
Default" means any default in respect of any Senior Indebtedness, or any other
default specified in the agreement or instrument under which any Senior
Indebtedness is issued, continuing beyond the grace period, if any, specified in
any such agreement or instrument; and "Subordinated Debt Payment" means any
payment or distribution by or on behalf of the Company, directly or indirectly,
of assets of the Company or any person or entity with a right of reimbursement
against the Company of any kind or character, whether in cash, property or
securities, including on account of the purchase, redemption or other
acquisition of Subordinated Indebtedness, or by setoff, exchange or in any other
manner, for or on account of the Subordinated Indebtedness.
If, while any Subordinated Indebtedness is outstanding, any
bankruptcy, insolvency, reorganization, receivership, arrangement, marshalling
of assets and liabilities or similar proceeding is commenced by or against the
Company or its property, the Holder shall promptly take such action as any
Senior Lender may reasonably request (A) to collect the Subordinated
Indebtedness for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the Subordinated Indebtedness, (B) to
execute and deliver to the Senior Lenders, such powers of attorney, assignments
and other instruments as they may request to enable them to enforce any and all
claims with respect to the Subordinated Indebtedness (to the extent and in the
manner provided herein), and (C) to collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Subordinated Indebtedness for the account of the Senior Lenders.
In the event of any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, upon
the dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Company or its
property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Company, or otherwise: (i) all amounts owing on account
of the Senior Indebtedness shall first be paid in full in cash, or payment
provided for in cash or in cash equivalents, before any
9
Subordinated Debt Payment is made; and (ii) to the extent permitted by
applicable law, any Subordinated Debt Payment to which the Holder would be
entitled except for the provisions hereof, shall be paid or delivered by the
trustee in bankruptcy, receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution directly to the Senior
Lenders for application to the payment of the Senior Indebtedness in accordance
with clause (i) above, after giving effect to any concurrent payment or
distribution or provision therefor to the Senior Lenders in respect of such
Senior Indebtedness.
If an Event of Default under Section 7 shall occur and be
continuing, the Holder shall, at least twenty (20) days prior to accelerating,
and as a condition to the effectiveness of any acceleration of, this Note, send
a written notice of such acceleration designated as a "Notice of Intent to
Accelerate" to all holders of Senior Indebtedness that have been identified as
such by the Company (or by any such holder of Senior Indebtedness).
The subordination provisions of this Note are intended solely
for the purpose of defining the relative rights against the Company of the
Holder, on the one hand, and the Senior Lenders, on the other hand. Nothing
contained herein shall (i) impair, as between the Company and the Holder, the
obligation of the Company to pay the principal of or interest on this Note and
its other obligations with respect to the Subordinated Indebtedness as and when
the same shall become due and payable in accordance with the terms thereof, or
(ii) otherwise affect the relative rights against the Company of the Holder, on
the one hand, and the creditors of the Company (other than the Senior Lenders),
on the other hand.
Until the payment and performance in full of all Senior
Indebtedness, the Holder shall not have, and shall not directly or indirectly
exercise, any rights that it may acquire by way of subrogation under this Note,
by any payment or distribution to the Senior Lenders hereunder or otherwise.
Upon the payment and performance in full of all Senior Indebtedness, the Holder
shall be subrogated to the rights of the Senior Lenders to receive payments or
distributions applicable to the Senior Indebtedness until the Subordinated
Indebtedness shall be paid in full. For the purposes of the foregoing
subrogation, no payments or distributions to the Senior Lenders of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Note shall, as among the Company, its creditors (other than
the Senior Lenders and the Holder), be deemed to be a payment by the Company to
or on account of the Senior Indebtedness.
Each Holder of this Note shall, upon request by the Company,
enter into an intercreditor agreement reflecting the foregoing provisions of
this Section 18 and other customary provisions reasonably acceptable to such
Holder implementing the foregoing provisions of this Section 18.
[signature page follows]
10
IN WITNESS WHEREOF, the Company has duly caused this
$3,172,872.24 Convertible Promissory Note to be signed in its names and on its
behalf by its duly authorized officers as of the date first above written.
TOTAL NETWORK SOLUTIONS, INC.
By:________________________________________________________
Name:______________________________________________
Title:_____________________________________________
ACCEPTED AND AGREED:
CISCO SYSTEMS, INC.
By:________________________________________________________
Name:______________________________________________
Title:_____________________________________________
[signature page - $3,172,872.24 Convertible Promissory Note]