SUBORDINATED PROMISSORY NOTE
August 25, 1998
For value received, the undersigned, COMMUNICATION TELESYSTEMS
INTERNATIONAL, d.b.a. WorldxChange Communications, a California corporation (the
"Maker"), whose address is 9999 Willow Creek Road, San Diego, CA 92131, hereby
promises to pay to the order of TEL-SAVE HOLDINGS, INC., a Delaware corporation
(the "Holder"), at such place as the Holder may from time to time designate in
writing, the principal sum of One Million Two Hundred Thousand Dollars and No
Cents ($1,200,000.00) on November 30, 2000. The Maker also promises to pay
simple interest on the unpaid principal balance hereof from the date hereof
until paid in full at a rate per annum equal to ten percent (10%). Interest on
this Note shall be payable quarterly in arrears commencing on November 25, 1998.
Any payment of interest under this Note not paid by its respective due date
shall accrue interest at a rate per annum of ten percent (10%) for so long as
such interest payment shall remain unpaid. If any payment of interest under
this note is not paid on or before the tenth day after its respective due date,
then the Maker shall promptly pay and there shall be due and owing as of such
tenth day, to the Holder the amount of $10,000.00; which amount is agreed by the
Holder and the Maker to be liquidated damages to the Holder for such payment and
not a penalty.
The Maker covenants to deliver to the Holder on or before the date
such items are required to be delivered to the Senior Lender (as defined
herein) (i) quarterly financial statements of the Maker, and (ii) annual
audited financial statements of the Maker; provided, however, that if and
when the Maker is an issuer of a security registered pursuant to Section 12
of the Securities Exchange Act of 1934, Maker shall deliver such quarterly
and annual financial statements to the Holder on or before the date such
financial statements are required to be filed with the Securities and
Exchange Commission. The quarterly financial statements described herein
shall be delivered to the Holder along with a certificate of the chief
financial officer of the Maker certifying that such quarterly financial
statements are true and correct copies of the financial statements of the
Maker. The annual financial statements of the Maker delivered to the Holder
pursuant to this paragraph shall be audited by independent certified public
accountants reasonably acceptable to the Senior Lender (as defined herein)
and certified, without any qualifications, by such accountants to have been
prepared in accordance with generally accepted accounting principles. The
quarterly and annual financial statements delivered by the Maker to the
Holder shall be in form and substance the same quarterly and annual financial
statements provided to the Senior Lender (as defined herein).
All amounts payable hereunder are payable in lawful money of the
United States of America.
If this Note is placed in the hands of an attorney for collection, or
suit is filed hereon, or proceedings are had in bankruptcy, receivership,
reorganization, or other judicial proceedings for the establishment or
collection of any amount hereunder, or any amount payable or to be payable
hereunder is collected through any such proceedings, the Maker agrees to pay
attorneys' fees and collection fees incurred by the Holder.
The occurrence of any of the following events shall constitute an event
of default ("Event of Default") under this Note: (a) failure of the Maker to
pay any principal under this Note when due; (b) failure of the Maker to pay
any interest or other amount due under this Note when due and such default
continues for a period of five days after written notice by the Holder; or
(c)failure of the Maker to perform or observe any other term, covenant or
agreement to be performed or observed by it pursuant to this Note and such
default or breach continues for a period of 10 days after written notice by
Holder; or (d) any proceedings for liquidation or dissolution of the Maker
shall have been commenced by the Maker or any order, judgment or decree shall
be entered against the Maker decreeing the dissolution or split-up of the
Maker; or (e) (i) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Maker in an involuntary case
under Title 11 of the United States Code entitled "Bankruptcy" (as now and
hereinafter in effect, or any successor thereto, the "Bankruptcy Code") or
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, which decree or order is not stayed; or any other similar relief
shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against the Maker under applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Maker or over all or a
substantial part of its property shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of the Maker
for all or a substantial part of its property shall have occurred; and, in the
case of any event described in this clause (ii), such event shall have
continued for 60 days unless dismissed, bonded or discharged; or (f) an order
for relief shall be entered with respect to the Maker or the Maker shall
commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case, or
to the conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or the Maker shall make an assignment for the benefit of creditors;
or the Maker shall be unable or fail, or shall admit in writing its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in (e) or (f)
of the preceding paragraph, the principal amount of this Note together with
accrued interest thereon shall become immediately due and payable, without
presentment, demand, notice, protest or other requirements of any kind (all of
which are hereby expressly waived by the Maker). Upon the occurrence and during
the continuance of any other Event of Default, Holder may, by written notice to
the Maker, declare the principal amount of this Note together with accrued
interest thereon to be due and payable, and the principal amount of this Note
together with such interest shall thereupon immediately become due and payable
without presentment, further notice, protest or other requirements of any kind
(all of which are hereby expressly waived by the Maker).
Except as otherwise provided herein, the Maker hereby waives demand
and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect amounts called for hereunder; and the Maker shall be liable for the
payment of all amounts owing and to be owing hereon,
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regardless of and without notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
Failure by the Holder to exercise any of the rights or remedies set
forth herein shall not constitute a waiver of the right to exercise the same or
any other right or remedy at any subsequent time with respect to the same or any
other event. The acceptance by the Holder of any payment hereunder that is
less than payment in full of all amounts due and payable at the time of such
payment shall not constitute a wavier of the right to exercise any rights or
remedies at that time or at any subsequent time, or nullify any prior exercise
of any right or remedy without the express consent of the Holder.
It is expressly stipulated and agreed to be the intent of the Maker
and the Holder to at all times comply with the applicable law now or
hereafter governing the interest payable on this Note or the indebtedness
evidenced hereby. If the applicable law as it is now or as it may be
revised, repealed or judicially interpreted renders usurious any amount
called for under this Note, or contracted for, changed, taken, reserved or
received with respect to the indebtedness evidenced by this Note, or if any
prepayment by the Maker results in the Maker having paid any Interest in
excess of that permitted by the applicable law, then it is the Maker's and
the Holders express intent that all excess amounts theretofore collected by
the Holder be credited on the principal balance of this Note (or, if this Note
has been paid in full, refunded to the Maker), and the provisions of the Note
shall immediately be deemed reformed and the amounts thereafter collectible
hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit
the recovery of the fullest amount otherwise called for hereunder.
This Note is and shall be deemed to be a contact entered into and made
pursuant to the laws of the State of New York and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of the
State of New York without regard to choice of law principles. The Maker hereby
agrees that the venue of any legal action or proceeding with respect to this
Note and the rights and obligations of the parties hereto shall lie in any state
or federal court in the State of New York. The Maker further consents to and
hereby submits itself to the jurisdiction of the above-mentioned courts situated
in the State of New York.
All advances made by the Holder and all repayments of the principal
thereof shall be recorded by the Holder; PROVIDED that the failure of the Holder
to make any such recordation or endorsement shall not affect the obligations of
the Maker to hereunder.
The Note shall be subordinated to all present and future secured debt
of the Maker to Foothill Capital Corporation ("Foothill") or such other single
secured lender (or indenture trustee) to the Maker, which may from time to time
replace Foothill, in the event that Foothill ceases to be a secured lender
senior to the Holder (in either case, the "Senior Lender"); provided, however
that the syndication by Foothill or such other single secured lender of the
secured debt of the Maker to one or more financial institutions or investors
shall not affect such single secured lender's (or indenture trustee's) status as
a Senior Lender or the subordination of this Note to such secured debt of the
Maker to the Senior Lender. Upon the Maker's request, Holder shall execute a
subordination agreement: (i) in the exact form of that certain Intercreditor
Agreement between the Holder and Foothill of even date herewith; or (ii) if the
Maker requests
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an alternative form, then in a form and substance reasonably acceptable to the
Holder and the Senior Lender providing that the debt hereunder is subordinated
in right of payment to such secured debt, and requiring Holder to standstill in
the exercise of its remedies prior to the exercise of remedies of the holders of
secured debt, such standstill to be on terms reasonably acceptable to Holder and
the holders or prospective holders of such secured debt. This Note may be
prepaid by the Maker at any time, in whole or part, without penalty.
This Note is secured by that certain Security Agreement, dated as of
the date hereof, by and among Maker and Gerard Klauer Mattison & Co., Inc.,
which was assigned on the date hereof to Holder.
[Remainder of Page Intentionally Left Blank]
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All notices and other communications required or permitted to be made
to the Maker hereunder shall be made in writing and will be deemed delivered
when received by the Maker by messenger, telex, telecopier or mail at the
following address or such other address as the Maker may notify the Holder in
writing from time to time:
Communication TeleSystems International
9999 Willow Creek Road
San Diego, CA 92131
Attn: Legal Department
Facsimile: (619) 452-3780
The terms of this Note shall be binding upon and inure to the benefit
of the successors and assigns of the Maker and the Holder. This Note and the
related documents executed in connection herewith constitute the complete and
exclusive statement of the understandings between the parties and supersedes all
proposals and prior agreements (oral or written) between the parties relating to
the subject matter of this transaction, and may only be amended by an agreement
in writing and subscribed to by an authorized representative of the Maker.
This Note may be assigned by the Holder upon written notice to the
Maker.
COMMUNICATION TELESYSTEMS
INTERNATIONAL D.B.A.
WORLDxCHANGE COMMUNICATIONS
By: /s/ Rosalind Abbot
--------------------
Name: Rosalind Abbott
Title: Secretary
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Note (Cont'd)
LOAN AND PAYMENTS OF PRINCIPAL
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Date Amount of Amount of Amount of Maturity Notation
Loan Interest Principal Date Made By
Paid Repaid
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