EXHIBIT 10.2
CONVERTIBLE DEBENTURE
$5,000,000 December 23, 1997
FOR VALUE RECEIVED, the undersigned, ZIPLINK, LLC ("BORROWER"), hereby
promises to pay to BAY NETWORKS, INC. ("LENDER"), or order, the principal sum or
so much of the principal sum of Five Million Dollars ($5,000,000) as may from
time to time have been advanced and be outstanding, together with accrued
interest as provided herein.
This Debenture is issued pursuant to the Securities Purchase Agreement,
dated of even date hereof, between the Borrower and the Lender, as may be
amended from time to time (the "PURCHASE AGREEMENT"). Lender is entitled to the
benefits of the Purchase Agreement and may enforce the Borrower's agreements
contained therein and may exercise the remedies provided for thereby or
otherwise available with respect thereof.
A. PRINCIPAL.
1. ADVANCES. Borrower may from time to time and in any event no later
than March 25, 1998, request advances in increments of not less than Five
Hundred Thousand Dollars ($500,000) from Lender (individually an "ADVANCE" and
collectively the "ADVANCES") by giving written notice to Lender in accordance
with the terms hereof, which notice shall indicate the amount of the Advance
requested and the proposed use of the Advance proceeds. Provided that no Event
of Default is in existence and that the requested Advance would not cause an
Event of Default to occur, Lender shall make the Advance to Borrower within five
(5) days of receipt of Borrower's notice. Lender shall not be obligated to make
an Advance to the extent that such Advance, when aggregated with all prior
Advances, would exceed Five Million Dollars ($5,000,000). Borrower shall not
have the right to re-borrow any Advance to the extent that it has been repaid.
2. USE OF PROCEEDS. The proceeds of Advances shall be used exclusively
for the buildout of Borrower's national Internet access network and for general
working capital purposes.
B. INTEREST. Interest shall accrue with respect to the principal sum outstanding
hereunder at a floating per annum rate equal to the London Interbank Offered
Rate for U.S. Dollar deposits for six (6) month periods ("LIBOR") as listed in
THE WALL STREET JOURNAL Money Rates report as of the date hereof plus
eight-tenths percent (0.8%). Any change in interest rate resulting from a change
in LIBOR shall be effective as of each six (6) month interval following the date
hereof and shall remain in effect for the following six (6) interval. However,
if an Event of Default, as defined herein, occurs, then interest shall accrue at
the rate per annum equal to two percent (2%) plus the rate that would otherwise
be in effect (the "DEFAULT RATE"). Interest payable hereunder shall be
calculated on the basis of a three hundred sixty (360) day year for actual days
elapsed. Interest shall be due and payable in arrears on the fifteenth day of
each calendar month, commencing with the first payment on February 15, 1998.
C. PAYMENT.
1. SCHEDULED PAYMENT. The principal indebtedness shall be payable in
sixty (60) equal monthly installments with the first installment payable on
September 15, 1999 and each subsequent installment due on the fifteenth day of
each month thereafter. On September 15, 2004, all outstanding principal and all
accrued and unpaid interest shall become due and payable.
2. PREPAYMENT. Borrower shall not have the right to prepay, in whole or
in part, any outstanding principal and accrued interest hereunder without
Lender's prior consent.
3. FORM OF PAYMENT. Principal and interest and all other amounts due
hereunder are to be paid in lawful money of the United States of America in
federal or other immediately available funds.
D. EVENTS OF DEFAULT; REMEDIES.
1. DEFINITION OF EVENT OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an "EVENT OF DEFAULT" hereunder:
a. PAYMENT DEFAULT. The Borrower's breach of the obligation to
pay the principal outstanding and interest accrued hereunder or under Debenture
#1 on the applicable due date if such breach is not cured within two business
days (2) after notice by Lender to Borrower of such breach;
b. BREACHES OF OTHER COVENANTS. The Borrower's breach of any
covenant, obligation, condition or agreement contained in this Debenture or the
Purchase Agreement, other than those specified in Section D.1.a., if such breach
continues for thirty (30) days after notice by Lender to Borrower of such breach
or, if such breach is not curable within such thirty (30) day period, but is
reasonably capable of cure within forty-five (45) days after notice by Lender to
Borrower of such breach, either (1) such breach continues for forty-five (45)
days, or (2) the Borrower has not commenced a cure in a manner reasonably
satisfactory to the Lender during the initial thirty (30) day period;
c. MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein, the Purchase Agreement or in any certificate delivered to the
Lender pursuant to this Debenture or the Purchase Agreement;
d. BANKRUPTCY. The institution by the Borrower of proceedings
against it or the filing by it of a petition or answer or consent seeking
reorganization or release under the federal Bankruptcy Code, or any other
applicable federal or state law, or the consent by it to the filing of any such
petition or the appointment of a receiver, liquidator, assignee, trustee or
other similar official of the Borrower or of any substantial part of its
property, or the making by it of an
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assignment for the benefit of creditors, or the taking of corporate action in
furtherance of such action;
e. CROSS-DEFAULT. The occurrence and continuance of any
default under any indebtedness of Borrower in excess of Two Hundred Thousand
Dollars ($200,000) that gives the creditor of such indebtedness the right to
accelerate such indebtedness;
f. ATTACHMENT. If any material portion of the Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within fifteen
(15) days, or if the Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim in excess of Two Hundred
Thousand Dollars ($200,000) becomes a lien or encumbrance upon any material
portion of the Borrower's assets, or if a notice of lien, levy, or assessment is
filed of record with respect to any of the Borrower's assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, and the same is not paid
within fifteen (15) days after the Borrower receives notice thereof, provided
that none of the foregoing shall constitute an Event of Default where such
action or event is stayed or an adequate bond has been posted pending a good
faith contest by the Borrower; or
g. JUDGMENTS. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Two Hundred
Thousand Dollars ($200,000) shall be rendered against the Borrower and shall
remain unsatisfied or unstayed for a period of thirty (30) days.
2. REMEDIES. During the continuance of any Event of Default, the Lender
may accelerate payment of the principal outstanding and interest accrued
hereunder and may exercise all rights and remedies granted by law. Upon the
occurrence of any Event of Default described in Section D.1.d., payment of the
principal outstanding and interest accrued hereunder shall be automatically
accelerated without any action by Lender.
E. CONVERSION RIGHTS.
1. AUTOMATIC CONVERSION. The outstanding principal balance of this
Debenture shall be automatically converted, together with all accrued interest
due and payable on the conversion date with respect to the principal balance so
converted (an "AUTOMATIC CONVERSION"), into fully paid and nonassessable Units
upon the occurrence of (i) an IPO of the Borrower, (ii) a Sale of Business Event
or (iii) a Sale of Units Event, unless an Event of Default exists on the date of
such occurrence, in which case the Automatic Conversion shall not occur until no
Events of Default exist. The number of Units issuable upon an Automatic
Conversion shall be determined by dividing the principal balance hereunder being
converted by the IPO Price Per Unit in the case of an IPO or by the Conversion
Price in the event of a Sale of Business Event or a Sale of Units Event.
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2. LENDER VOLUNTARY CONVERSION. Lender may, in its sole discretion, at
any time and from time to time after June 30, 1999, elect to convert (the
"LENDER VOLUNTARY CONVERSION RIGHT") all or any part of the principal balance to
be converted into such number of fully paid and nonassessable Units, as
determined by dividing the principal balance hereunder being converted together
with all accrued interest due and payable on the conversion date with respect to
the principal balance so converted by the Conversion Price.
3. BORROWER CONVERSION. Borrower may, in its sole discretion, at any
time and from time to time after June 30, 1999, elect to convert (the "BORROWER
CONVERSION RIGHT") all of the principal balance to be converted into such number
of fully paid and nonassessable Units of the Lender, as determined by dividing
the principal balance hereunder together with all accrued interest due and
payable on the conversion date with respect to the principal balance so
converted by the Conversion Price. No exercise of the Borrower Conversion Right
shall be effective unless, simultaneously with the exercise of such right,
Borrower causes a portion of the Senior Debt equal to the lesser of (a) $7.5
million, and (b) 150% of the principal balance to be converted to be contributed
to capital of the Borrower with the issuance of additional Units to the holders
of the Senior Debt. Such Units shall be identical in all respects to the
Borrower Conversion Units (as defined herein). The number of Units to be issued
upon any conversion of the Senior Debt shall be determined by dividing the
amount of indebtedness converted by the Conversion Price. In the event Borrower
exercises its Borrower Conversion Right, Lender shall be entitled to the
additional preferential return or distribution of proceeds, as the case may be,
as set forth in the Certificate of Designation.
4. EXERCISE OF CONVERSION RIGHTS
a. PROCEDURE UPON AUTOMATIC CONVERSION. In the event of an
Automatic Conversion, Borrower shall, as soon as practicable thereafter, deliver
to Lender a certificate or certificates, registered in Lender's name, for the
number of Units to which Lender shall be entitled by virtue of such Automatic
Conversion (the "AUTOMATIC CONVERSION UNITS"). The Automatic Conversion shall be
deemed to have occurred on the date of the event triggering the Automatic
Conversion and Lender shall be treated for all purposes as the record holder of
the Automatic Conversion Units as of such date.
b. PROCEDURE FOR LENDER VOLUNTARY CONVERSION. To convert any
of the principal balance hereunder into Units by exercise of the Voluntary
Conversion Right, Lender shall deliver to Borrower a written notice of election
to exercise the Voluntary Conversion Right (the "VOLUNTARY CONVERSION NOTICE").
Borrower shall, as soon as practicable thereafter, issue and deliver to Lender a
certificate or certificates, registered in Lender's name, for the number of
Units to which Lender shall be entitled by virtue of such exercise (the
"VOLUNTARY CONVERSION UNITS"). The conversion of the principal balance shall be
deemed to have been made on the date that Borrower receives the Voluntary
Conversion Notice (the "CONVERSION DATE") and Lender shall be treated for all
purposes as the record holder of the Voluntary Conversion Units as of such date.
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c. PROCEDURE FOR BORROWER CONVERSION. To convert any of the
principal balance hereunder into Units pursuant the exercise of a Borrower
Conversion Right, Borrower shall deliver to Lender a written notice of election
to exercise the Borrower Conversion Right (the "BORROWER CONVERSION NOTICE").
Borrower shall, together with delivery of the Borrower Conversion Notice or
promptly thereafter, issue and deliver to Lender a certificate or certificates,
registered in Lender's name, for the number of Units to which Lender shall be
entitled by virtue of such exercise (the "BORROWER CONVERSION UNITS"). The
conversion of the principal balance shall be deemed to have been made on the
date that Lender receives the Borrower Conversion Notice and Lender shall be
treated for all purposes as the record holder of the Voluntary Conversion Units
as of such date.
d. ADDITIONAL DISCLOSURE. In connection with any conversion
hereunder and prior to the effectiveness of such conversion, at the request of
the Borrower, Lender shall make representations substantially similar to those
representations in Article III of the Purchase Agreement. Prior to the
effectiveness of any conversion, Borrower may offer to the Lender the
opportunity to receive information concerning the Borrower that is in the
Borrower's possession at that time and has not previously been disclosed to
Lender or its representatives. Borrower shall make such offer without disclosing
whether any material nonpublic information exists but may condition the offer on
the agreement (i) to keep any material non-public information confidential until
such time as Borrower releases such information to the public and (ii) if
applicable, to only use information to withdraw its exercise of Lender's
Voluntary Conversion Right. The foregoing shall not in any manner limit Lender's
right to receive information with respect to Borrower pursuant to the Purchase
Agreement, the Operating Agreement, as supplemented by the Certificate of
Designation or as Lender may be otherwise be entitled to receive under
applicable law.
5. FRACTIONAL UNITS. Borrower shall not issue fractional Units upon an
Automatic Conversion or upon exercise of the Voluntary Conversion Right or the
Borrower Conversion Right. As to any fractional Unit which Lender would
otherwise be entitled to receive, Lender shall receive from Borrower an amount
in cash equal to an amount calculated by multiplying such fractional Unit by the
Conversion Price. Payment of such amount shall be made in cash or by check
payable to the order of Lender at the time of delivery of any certificate or
certificates.
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6. CONVERSION PRICE ADJUSTMENTS.
a. ADJUSTMENTS FOR UNIT SPLITS AND SUBDIVISIONS. If Borrower
at any time or from time to time after the date hereof splits or subdivides the
outstanding Units or makes a payment or other distribution payable in additional
Units or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional Units (hereinafter
referred to as "UNIT EQUIVALENTS") without payment of any consideration by such
holder for the additional Units or the Unit Equivalents (including the
additional Units issuable upon conversion or exercise thereof), then, as of the
date of such dividend, distribution, split or subdivision, the Conversion Price
shall be appropriately decreased so that the number of Units issuable upon
conversion of this Debenture shall be increased in proportion to such increase
of outstanding Units.
b. ADJUSTMENTS FOR REVERSE UNIT SPLITS. If the number of Units
outstanding at any time after the date hereof is decreased by a combination of
the outstanding Units then, following the date of such combination, the
Conversion Price shall be appropriately increased so that the number of Units
issuable on conversion hereof shall be decreased in proportion to such decrease
in outstanding Units.
c. ADJUSTMENTS FOR DILUTIVE ISSUANCES WITHOUT CONSIDERATION.
Upon each Issuance of Units after the date hereof without consideration (a
"DILUTIVE ISSUANCE"), the number of Units issuable upon a Conversion of this
Debenture shall be increased by the number of Units determined under the
following formula:
X= (B X A)-(B X C)
---------------
C
Where: X= The increase in the number of Units acquirable hereunder
B= The number of Units acquirable hereunder immediately prior to
the Issuance of Units
A= The Conversion Price in effect immediately prior to the
Issuance of Units
C= The Adjusted Unit Value.
For purposes hereof, the Adjusted Unit Value, upon the closing of any Dilutive
Issuance shall be the amount equal to the amount obtained by multiplying the
Units Outstanding immediately prior to the Dilutive Issuance by the Conversion
Price in effect immediately prior to the Issuance of Units, and dividing the
resulting product by the Units Outstanding immediately after the Dilutive
Issuance.
Concurrent with each adjustment in the number of Units acquirable hereunder as a
result of a Dilutive Issuance, the Conversion Price shall be adjusted to the
amount equal to the price obtained by multiplying the Conversion Price in effect
immediately prior to the Dilutive Issuance
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by a fraction, the numerator of which is the number of Units acquirable
hereunder immediately prior to the Dilutive Issuance and the denominator of
which is the number of Units acquirable hereunder immediately after the Dilutive
Issuance.
7. DOWN ROUND. Borrower agrees that so long this Debenture is
outstanding, it shall not, without Lender's consent, make any Issuance of Units
or Deemed Issuance of Units at a price per Unit (or the applicable conversion or
Option exercise price per Unit in the case of a Deemed Issuance of Units) (the
"DOWN ROUND PRICE") which is less than the Conversion Price (a "DOWN ROUND").
Notwithstanding the foregoing, Lender's consent shall not be required (a) for
the Issuance or Deemed Issuance of Units of up to 2,000,000 Units subject to
equitable adjustment in the event of any dividend, distribution, split,
subdivision or combination of Units without payment of additional consideration,
upon the exercise of currently outstanding or subsequently issued Options to
employees, managers and consultants of the Borrower (other than to Xxxxx Xxxxx,
his immediate family and his affiliates) or (b) if the Borrower unilaterally
elects to adjust the Conversion Price downward to the Down Round Price. In the
event Borrower elects to adjust the Conversion Price downward pursuant to the
preceding sentence, Lender shall have the further right to waive some or all of
the benefit of any Down Round adjustment. The provisions of this Section E.7
shall not apply to the Issuance of Units pursuant to the conversion of Debenture
#1.
8. LOOKBACK EVENTS.
a. IPO LOOKBACK. If, following an exercise of the Borrower
Conversion Right, there shall occur an IPO and the Transaction Value of Borrower
is less than $100 Million Dollars, then Lender shall be entitled to receive that
number of additional Units determined by the following formula:
X= P - Y
--
(A)(.85)
Where: X= The number of Units acquirable pursuant to this subsection
P= The amount of principal converted
A= The IPO Price Per Unit, as applicable
Y= The number of Units Issued to Lender upon the exercise of the
Borrower Conversion Right
b. SALE LOOKBACK. Upon the occurrence of an Automatic
Conversion caused by a Sale of Business Event or a Sale of Units Event, Lender
shall under certain circumstances be entitled to preferential distribution as
set forth in the Certificate of Designation.
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F. SUBORDINATION.
1. SUBORDINATION TO SENIOR DEBT. The Lender, by accepting this
Debenture, agrees for itself and its successors and assigns that payment of
principal, interest and other amounts due to the Lender hereunder (collectively
the "SUBORDINATED DEBT") is subordinated in right of payment to the prior
payment in full of the Senior Debt on the terms set forth herein. Without the
consent of the Senior Debtholder, no payment on account of the Subordinated Debt
shall be made except for regularly scheduled monthly installments of principal
and/or interest hereunder.
2. SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE
BORROWER.
a. PRIORITY OF PAYMENT UPON DISTRIBUTION OF ASSETS. Upon any
Distribution of Assets in the event of any dissolution or winding up or total or
partial liquidation or reorganization, whether voluntary or involuntary, or
adjustment or protection or relief or composition of the Borrower or the
Borrower's debts, or in any bankruptcy, insolvency, receivership, arrangement,
reorganization, relief or other proceeding of the Borrower or upon an
arrangement for the benefit of creditors of the Borrower or any other
marshalling of the assets and liabilities of the Borrower:
(i) all amounts payable under or on account of the
Senior Debt shall first be paid in full before the Lender shall be entitled to
receive any Distribution of Assets with respect to the Subordinated Debt; and
(ii) before any payment may be made on account of the
Subordinated Debt, any such Distribution of Assets to which Lender would be
entitled, except for the provisions of this Section F.2.a., shall be made
directly to Senior Debtholders to the extent necessary to pay all Senior Debt in
full, after giving effect to any concurrent payment or distribution to Senior
Debtholders. In the case of a non-cash Distribution of Assets with respect to
the Subordinated Debt which is delivered to Senior Debtholder under this Section
F.2.a., the Senior Debt shall be deemed satisfied in the amount equal to the
cash realized by Senior Debtholders upon disposition of such Distribution of
Assets; until such disposition, the non-cash Distribution of Assets shall be
held as security for the Senior Debt.
b. NOTICE OF DISTRIBUTION OF ASSETS. The Borrower shall give
prompt written notice to Senior Debtholders and Lender of any Distribution of
Assets of the nature described in this Section F.2.
c. LENDER RELIANCE. Upon any Distribution of Assets, Lender
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation,
bankruptcy or reorganization proceeding is pending, or a certificate of the
liquidating trustee or the Senior Debtholders or other person making such
distribution to Lender, for the purpose of ascertaining the persons entitled to
participate in such Distribution of Assets, the Senior Debtholders, the amount
thereof or payable thereon, the
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amount or amounts paid or distributed thereon and all other facts pertinent
thereto and this Section F.2.
d. AUTHORIZATION OF SENIOR DEBTHOLDERS. Senior Debtholders are
hereby irrevocably authorized and empowered (in their own name or in the name of
Lender or otherwise), but shall have no obligation, to demand, xxx for, collect
and receive every Distribution of Assets and give acquittance therefor and to
file claims and proofs of claim in respect of the Subordinated Debt and take
such other action (but excluding voting the Subordinated Debt) on behalf of
Lender as they may reasonably deem necessary or advisable for the exercise or
enforcement of any of their rights or interests hereunder if Lender does not
take such actions within a reasonable period of time after the Senior
Debtholders' request. Lender shall duly and promptly take such action as Senior
Debtholders may reasonably request (A) to collect the Subordinated Debt for the
account of Senior Debtholders and to file appropriate claims or proofs of claim
in respect of the Subordinated Debt, (B) to execute and deliver to Senior
Debtholders such powers of attorney, assignments, or other instruments as they
may request in order to enable them to enforce any and all claims with respect
to the Subordinated Debt, and (C) to collect and receive any and all
Distribution of Assets which may be payable or deliverable upon or with respect
to the Subordinated Debt.
3. SUBORDINATION ON SENIOR PAYMENT DEFAULT. If there has occurred and
is continuing a Senior Payment Default, Lender may not receive payment under or
on account of the Subordinated Debt, directly or indirectly, in cash or other
property or by set-off or in any other manner or take any action respecting the
Borrower (including, without limitation, any attachment or prejudgment remedy
against Borrower's assets), if Senior Debtholder has suspended such right to
receive payment in the manner and for the period specified below (the "PAYMENT
DEFAULT STANDSTILL PERIOD"). The Payment Default Standstill Period shall
commence upon the date of receipt by Lender from Senior Debtholder of a notice
of the commencement of such period (a "PAYMENT DEFAULT STANDSTILL NOTICE"). The
Payment Default Standstill Period shall end on the earlier of (1) the waiver of
the Senior Payment Default by Senior Lender, (2) the cure of the Senior Payment
Default in a manner reasonably acceptable, in writing, to the Senior Debtholder,
or (3) the ninetieth (90th) calendar day after the commencement of such Payment
Default Standstill Period, unless Senior Debtholder accelerates payment of the
Senior Debt, in which case the Payment Default Standstill Period shall not end
until such acceleration is rescinded by Senior Debtholder or the Senior Debt is
paid in full. Immediately following the expiration of any such Payment Default
Standstill Period, all payments of Subordinated Debt which, but for such
suspension, Lender would have been entitled to receive, shall be immediately due
and payable.
4. SUBORDINATION ON NONPAYMENT DEFAULTS. If there has occurred and is
continuing a Senior Default, Lender may not receive payment under or on account
of the Subordinated Debt, directly or indirectly, in cash or other property or
by set-off or in any other manner or take any action respecting the Borrower
(including, without limitation, any attachment or prejudgment remedy against
Borrower's assets), if Senior Lender has suspended such right to receive
payments in the manner and for the period specified below (the "NONPAYMENT
DEFAULT STANDSTILL PERIOD"). The Nonpayment Default Standstill Period shall
commence upon the date that Senior Lender notifies Lender of the commencement of
such period (a "NONPAYMENT DEFAULT STANDSTILL
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NOTICE"). The Nonpayment Default Standstill Period shall end on the earlier of
(1) the waiver of the Senior Default by Senior Lender, (2) the cure of the
Senior Default in a manner reasonably acceptable, in writing, to the Senior
Debtholder, or (3) the ninetieth (90th) calendar day after the commencement of
the Nonpayment Default Standstill Period; unless the Senior Debtholder
accelerates payment of the Senior Debt, in which case the Nonpayment Default
Standstill Period shall end on the earlier of (1) recission of the acceleration,
or (2) payment in full of the Senior Debt. Notwithstanding the foregoing, Senior
Debtholder may not declare a Nonpayment Default Standstill Period more than
twice in any one hundred and eighty day (180) day period. Immediately following
the expiration of any Standstill Period, all regularly scheduled monthly
payments of Subordinated Debt which, but for such suspension, Lender would have
been entitled to receive, shall become immediately due and payable.
5. SUBROGATION. Subject to the payment in full of all Senior Debt, the
Lender shall be subrogated to the Senior Debtholders' rights (to the extent of
the payments or distributions made to the Senior Debtholders pursuant to the
provisions of this Section F) to receive payments and Distributions of Assets
applicable to the Senior Debt. No such payments or Distributions of Assets
applicable to the Senior Debt shall, as between Borrower and its creditors,
other than the Senior Debtholders and the Lender, be deemed to be a payment by
Borrower to or on account of this Debenture; and for purposes of such
subrogation, no payments or Distributions of Assets to the Senior Debtholders to
which the Lender would be entitled except for the provisions of this Section F
shall, as between Borrower and its creditors, other than the Senior Debtholders
and the Lender, be deemed to be a payment by Borrower to or on account of the
Senior Debt.
6. NO IMPAIRMENT. Nothing contained in this Section F shall impair, as
between Borrower and Lender, Borrower's obligation, subject to the terms and
conditions of this Section F, to pay to the Lender the principal hereof and
interest hereon as and when the same become due and payable, or shall prevent
the Lender, upon an Event of Default, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, subject to the Senior
Debtholders' rights under this Section F.
7. RELIANCE OF SENIOR DEBTHOLDERS. Lender, by its acceptance hereof,
shall be deemed to acknowledge and agree that the foregoing subordination
provisions are, and are intended to be, an inducement to and a consideration of
each Senior Debtholder, whether such Senior Debtholder's Senior Debt was created
or acquired before or after the creation of the indebtedness evidenced by this
Debenture, and each such Senior Debtholder shall be deemed conclusively to have
relied on such subordination provisions in acquiring and holding, or in
continuing to hold, such Senior Debt.
8. NO IMPAIRMENT OF SUBORDINATION. No right of any present or future
Senior Debtholder to enforce the subordination provisions of this Section F
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the Borrower's part or by any act or failure to act, in good faith, by
such Senior Debtholder, or by any noncompliance by the Borrower with the terms,
provisions and covenants of this Debenture or the Purchase Agreement, regardless
of any knowledge thereof which such Senior Debtholder may have or otherwise be
charged with.
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9. AMENDMENT RESTRICTIONS. No amendment of this Debenture shall
directly or indirectly modify the provisions of this Section F in any manner
which might terminate or impair the subordination of the Subordinated Debt to
the Senior Debt; PROVIDED, HOWEVER, that such amendments may be effected with
the written consent of the Majority Senior Debtholders.
10. CONFIRMATION OF SUBORDINATION. Lender shall execute such other
documents or agreements required by the Senior Debtholders, other then the
Senior Debtholders as of the date hereof, respecting the subordination of the
Debenture to the Senior Debt so long as such documents or agreements are
reasonably consistent with the terms of subordination of the Subordinated Debt
set forth herein. Lender shall not unreasonably withhold consent to any other
terms of subordination as may be reasonably requested by such Senior
Debtholders.
11. SUBORDINATION OF SECURITY INTEREST. In the event Lender at any time
obtains a security interest, pledge, lien, attachment, garnishment, mortgage,
encumbrance or other interest (individually and collectively a "Lender Security
Interest") in any assets or properties of the Borrower, such Lender Security
Interest shall be junior and subordinate in right to any and all existing or
hereafter created security interest, pledge, lien, attachment, garnishment,
mortgage, encumbrance or other interest of the Senior Debtholders (a "Senior
Security Interest") in any assets or properties of the Borrower irrespective of
the time, order, existence or perfection of the Lender Security Interest or the
Senior Security Interest. Nothing contained herein is intended to, or shall be
deemed to be, a consent by the Senior Debtholders to a Lender Security Interest
or a grant by the Borrower of a Lender Security Interest.
F. OTHER PROVISIONS.
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"CERTIFICATE OF DESIGNATION" means the certificate of Borrower
dated of even date herewith setting forth, among other things, the rights and
preferences of the Lender in its capacity as a member of Borrower.
"CONVERSION PRICE" shall be as follows:
(a) in the event there has been no conversion of all or any
part of Debenture #1, the Conversion Price shall be $86.837; and
(b) in the event Debenture #1 has been converted in full, the
Conversion Price shall be $77.195.
In the event some but not all of Debenture #1 has been converted, the Conversion
Price set forth in subsection (b) above shall be adjusted accordingly. The
Conversion Price set forth herein is intended to provide for the issuance of
that number of Units equal to 4.9% of the Units Outstanding (including the Units
purchased by the Lender pursuant to the Purchase Agreement)
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as of the date hereof plus the number of Units issued upon conversion of this
Debenture and any issuance of Units upon conversion of Debenture #1.
"CONVERTIBLE SECURITIES" means evidence of indebtedness or
other securities which are convertible into or exchangeable for, with or without
payment of additional consideration, Units, either immediately or upon the
arrival of a specified date or the happening of a specified event or both.
"DEBENTURE # 1" means the $2,500,000 Convertible Debenture of
the Borrower in favor of the Lender dated of even date herewith.
"DEEMED ISSUANCE OF UNITS" means an issuance by Borrower of a
Convertible Security or an Option.
"DISTRIBUTION OF ASSETS" any distribution of assets of the
Borrower of any kind or character, whether in cash, property or securities, and
whether in respect of repayment of indebtedness or otherwise, including, but not
limited to, adequate protection payments under the Bankruptcy Code.
"IPO" means an initial registered firm commitment offering of
the Borrower's securities.
"IPO PRICE PER UNIT" means the price per Unit of Units issued
by the Borrower in an IPO.
"ISSUANCE OF UNITS" means an issuance of one or more Units.
"MAJORITY SENIOR DEBTHOLDERS"; at any time the Senior
Debtholders holding a majority, measured by principal amount, of the Senior Debt
outstanding.
"OPERATING AGREEMENT" means the operating agreement of the
Borrower, dated November 21, 1995, as supplemented by the Certificate of
Designation or otherwise.
"OPTION" means any right, warrant or option to subscribe or
purchase Units or Convertible Securities.
"SALE OF BUSINESS EVENT" means the sale, transfer or
disposition of all or substantially all of the assets of Borrower whether in a
merger, combination, reorganization, outright sale or otherwise unless the
equity holders of the Company prior to such sale, transfer or disposition own
more than fifty (50%) percent of the equity interest in the purchaser or
transferee after such sale, transfer or disposition.
"SALE OF UNITS EVENT" means the sale, transfer or disposition
of all or substantially all of the outstanding Units in any single transaction
or series of related transaction whether in a
12
merger, combination, reorganization, outright sale or otherwise unless the
equity holders of the Company prior to such sale, transfer or disposition own
more than fifty (50%) percent of the equity interest in the purchaser or
transferee after such sale, transfer or disposition.
"SENIOR DEBT" shall mean (i) indebtedness of the Borrower to
Bank of Boston, and Xxxxx X. Xxxxx and his affiliates outstanding as of the date
hereof to the extent that the aggregate principal amount thereof does not exceed
Fifteen Million Dollars ($15,000,000); provided, however, that the principal
amount of the Senior Debt under this clause (i) shall be reduced by the
principal payments made with respect to the indebtedness described in this
clause (i) after the date hereof and (ii) the indebtedness of the Borrower that
refinances the indebtedness described in clause (i) of this definition to the
extent that the principal amount of such refinancing does not to exceed the then
outstanding principal amount of the refinanced indebtedness.
"SENIOR DEBTHOLDER" means any holder of the Senior Debt.
"SENIOR DEFAULT" means any event of default or default with
respect to any of the Senior Debt other than a Senior Payment Default.
"SENIOR PAYMENT DEFAULT"; any event of default or default with
respect to any of the Senior Debt relating to the failure to pay when due any
principal outstanding or interest accrued under the Senior Debt.
"TRANSACTION VALUE" means with respect to an IPO, the IPO
Price Per Unit multiplied by the number of Units Outstanding immediately prior
to the IPO. Units.
"UCC" means the Uniform Commercial Code in effect from time to
time in the relevant jurisdiction.
"UNITS" shall mean membership interests in the Borrower or any
security issued in exchange for Units in connection with an Incorporation
Transaction (as defined in the Operating Agreement).
"UNITS OUTSTANDING" means as of any date (i) all Units that
are outstanding as of such date, PLUS (ii) all Units issuable upon conversion of
Convertible Securities outstanding as of such date, whether or not convertible
as of such date, PLUS (iii) all Units issuable upon exercise of Options
outstanding as of such date, whether or not such Options are exercisable as of
such date (assuming for this purpose that Convertible Securities acquirable upon
exercise of any such Options are converted into Units as of such date).
2. GOVERNING LAW; VENUE. This Debenture shall be governed by the laws
of the State of California, without giving effect to conflicts of law
principles. Borrower and Lender
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agree that all actions or proceedings arising in connection with this Debenture
shall be tried and litigated only in the state and federal courts located in the
County of Santa Xxxxx, State of California or, at Lender's option, any court in
which Lender determines it is necessary or appropriate to initiate legal or
equitable proceedings in order to exercise, preserve, protect or defend any of
its rights and remedies under this Debenture. Borrower waives any right it may
have to assert the doctrine of forum non conveniens or to object to such venue,
and consents to any court ordered relief. Borrower waives personal service of
process and agrees that a summons and complaint commencing an action or
proceeding in any such court shall be promptly served and shall confer personal
jurisdiction if served by registered or certified mail to Borrower. The choice
of forum set forth herein shall not be deemed to preclude the enforcement of any
judgment obtained in such forum, or the taking of any action under this
Debenture to enforce the same, in any appropriate jurisdiction.
3. NOTICES. Any notice or communication required or desired to be
served, given or delivered hereunder shall be in the form and manner specified
below, and shall be addressed to the party to be notified as follows:
If to Lender: Bay Networks, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx
Xxxxx Xxxxx, XX 00000
Attention:
Telecopier: (000) 000-0000
with a copy to: Xxxx Xxxx Xxxx & Freidenrich
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
If to Borrower: ZipLink, LLC
00 Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention:
Telecopier: (000) 000-0000
and
ZipLink, LLC
00 Xxxxxxxxxx Xxxxxx
Xxxxx #0, 00xx Xxxxx
Xxxxxx, XX 00000
with a copy to: Xxxxxxx, Xxxxxxxx & Xxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxxx, XX 00000
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Attention: Xxxxx X. Xxxxxxx, Esq.
Telecopier: (000) 000-0000
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iii) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; PROVIDED, HOWEVER, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
4. LENDER'S RIGHTS; BORROWER WAIVERS. Lender's acceptance of partial or
delinquent payment from Borrower hereunder, or Lender's failure to exercise any
right hereunder, shall not constitute a waiver of any obligation of Borrower
hereunder, or any right of Lender hereunder, and shall not affect in any way the
right to require full performance at any time thereafter. Borrower waives
presentment, diligence, demand of payment, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Debenture. In any action on this Debenture, Lender need not
produce or file the original of this Debenture, but need only file a photocopy
of this Debenture certified by Lender be a true and correct copy of this
Debenture in all material respects.
5. ENFORCEMENT COSTS. Borrower shall pay all out-of-pocket third-party
costs and expenses, including, without limitation, reasonable attorneys' fees
and expenses Lender expends or incurs in connection with the enforcement of this
Debenture, the collection of any sums due hereunder, any actions for declaratory
relief in any way related to this Debenture, or the protection or preservation
of any of Lender's rights hereunder.
6. SEVERABILITY. Whenever possible each provision of this Debenture
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision is prohibited by or invalid under
applicable law, it shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of the provision or the remaining
provisions of this Debenture.
7. AMENDMENT PROVISIONS. This Debenture may not be amended or modified,
nor may any of its terms be waived, except by written instruments signed by
Borrower and Lender.
8. BINDING EFFECT. This Debenture shall be binding upon, and shall
inure to the benefit of, Borrower and the holder hereof and their respective
successors and assigns; PROVIDED, HOWEVER, that Borrower's rights and
obligations shall not be assigned or delegated without
15
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void AB INITIO.
9. HEADINGS. Section headings used in this Debenture have been set
forth herein for convenience of reference only. Unless the contrary is compelled
by the context, everything contained in each section hereof applies equally to
this entire Debenture.
ZIPLINK, LLC
By: s/Xxxxx X. Zachs___
Xxxxx X. Xxxxx
Manager
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