Exhibit 10.8
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.
$9,000,004.68 CONVERTIBLE PROMISSORY NOTE
$9,000,004.68 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 Nine Million Four Dollars and
Sixty-Eight Cents ($9,000,004.68), 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 $9,000,004.68; (ii) divided by (x)
in the case of a conversion into Common Stock, a number equal to the number of
Common Stock into which 745,034 shares of Series C 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
C Preferred, 745,034.
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 C 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. "First Convertible Note" shall mean the $3,172,872.24
Convertible Promissory Note to be issued by the Company to the Holder pursuant
to the Purchase Agreement.
e. "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.
f. "Holder" shall mean the person specified in the introductory
paragraph together with its successors and permitted assigns.
g. "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).
h. "Letter Agreement" shall mean the Letter Agreement, dated as
of December 21, 1999, by and between the Company and the Holder.
i. "Note" shall mean this $9,000,004.68 Convertible Promissory
Note.
j. "Purchase Agreement" shall mean the Convertible Note Purchase
Agreement, dated as of December 21, 1999, by and between the Company and the
Holder.
k. "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.
l. "Series C Preferred" shall mean shares of the Company's
Series C 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 First Convertible Note, the Registration
Rights Agreement, the Shareholders Agreement or the Purchase Agreement proves to
have been false in any
5
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 C 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 C 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 C
Preferred Stock pursuant to paragraph E.9(c)(i) or E.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); or
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 C Preferred
Stock, create or authorize any obligation or security convertible into shares of
Series C Preferred Stock or issue any additional shares of Series C Preferred
Stock (other than Additional Series C Shares (as defined in the Restated
Certificate));
g. For so long as 90% of the shares of Series C Preferred Stock
beneficially owned by Cisco immediately following the closing under the Note
Purchase Agreement (appropriately adjusted for any issuance of Additional Series
C Shares) are beneficially owned by Cisco, enter into a Regulated Transaction
(as defined in the Restated Certificate) in connection with which there is a
Valuation Shortfall (as defined in the Restated Certificate); or
h. 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 C
Preferred Stock when due to the full extent required by Article Fourth,
paragraph E.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
7
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.
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
8
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.
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.
9
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 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.
10
[signature page follows]
11
IN WITNESS WHEREOF, the Company has duly caused this $9,000,004.68
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 - $9,000,004.68 Convertible Promissory Note]