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EXHIBIT 10.24
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THE SALE OR OTHER TRANSFER OF THIS
NOTE IS ALSO SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH
IN SECTION 11.3 OF THE "PURCHASE AGREEMENT" (AS HEREINAFTER
DEFINED).
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AS
SUCH TERM IS DEFINED IN SECTION 1271 ET SEQ. OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED. UPON INQUIRY MADE BY ANY
HOLDER HEREOF, ADDRESSED TO FULCRUM DIRECT, INC., ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ATTENTION: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
FULCRUM DIRECT, INC. WILL PROVIDE A STATEMENT SETTING FORTH
THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE
ISSUE DATE AND THE YIELD TO MATURITY WITH RESPECT TO THE NOTE
HELD BY SUCH HOLDER.
FULCRUM DIRECT, INC.
10.101% SENIOR SUBORDINATED PROMISSORY NOTE
DUE OCTOBER 21, 2003
$8,000,000 New York, New York
June 30, 1997
FOR VALUE RECEIVED, the undersigned, FULCRUM DIRECT, INC., a
Delaware corporation (the "Borrower"), hereby promises to pay to the order of
Whitney Subordinated Debt Fund, L.P. or its registered assigns (the "Holder"),
the principal sum of Eight Million Dollars ($8,000,000) on October 21, 2003 (the
"Maturity Date"), with interest thereon from time to time as provided herein.
1. Purchase Agreement. This Senior Subordinated Promissory
Note (the "Note") is issued by the Borrower pursuant to the Securities Purchase
Agreement, dated as of the date hereof, between the Borrower, Whitney
Subordinated Debt Fund, L.P., Whitney Equity Partners, L.P.,
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (the "Purchase Agreement"), and the
Holder is entitled to the benefits of this Note and the Purchase Agreement, as
it relates to the Note, and may enforce the agreements of the Borrower contained
herein and therein and exercise the remedies provided for hereby and thereby or
otherwise available in respect hereto and thereto. Capitalized terms used herein
without definition are used herein with the meanings ascribed to such terms in
the Purchase Agreement.
2. Interest. The Borrower promises to pay interest on the
principal amount of this Note at the rate of 10.101% per annum. The Borrower
shall pay accrued interest quarterly on each March 31, June 30, September 30 and
December 31 of each year or, if any such date shall not be a Business Day, on
the next succeeding Business Day to occur after such date (each date upon which
interest shall be so payable, an "Interest Payment Date" ), beginning on
September 30, 1997. Interest on this Note shall be paid by wire transfer of
immediately available funds to an account at a bank designated by the Holder.
Interest on this Note shall accrue from the date of issuance until repayment of
the principal and payment of all accrued interest in full. Interest shall accrue
and be computed on the basis of a 360-day year of twelve 30-day months.
Notwithstanding the foregoing provisions of this Section 2, but subject to
applicable law, any overdue principal of and overdue interest on this Note shall
bear interest, payable on demand in immediately available funds, for each day
from the date payment thereof was due to the date of actual payment, at a rate
equal to the rate of interest otherwise in effect pursuant to the first sentence
of this Section 2 plus 2% per annum, and, upon and during the occurrence of an
Event of Default (as hereinafter defined), this Note shall bear interest, from
the date of the occurrence of such Event of Default until such Event of Default
is cured or waived, payable on demand in immediately available funds, at a rate
equal to the rate of interest otherwise in effect pursuant to the first sentence
of this Section 2 plus 2% per annum. Subject to applicable law, any interest
that shall accrue on overdue interest on this Note as provided in the preceding
sentence and shall not have been paid in full on or before the next Interest
Payment Date to occur after the Interest Payment Date on which the overdue
interest became due and payable shall itself be deemed to be overdue interest on
this Note to which the preceding sentence shall apply.
3. Mandatory Prepayment.
(a) Initial Public Offering.
(i) Subject to the subordination
provisions of Section 7(b) hereof, upon the consummation of an Initial Public
Offering (as hereinafter defined), the Borrower shall prepay this Note (together
with interest accrued thereon), to the extent of the lessor of (X) seventy
percent (70%) of the principal amount hereof and (Y) the Net Cash Proceeds (as
hereinafter defined) received from the Initial Public Offering, within 5
Business Days after receipt by either the Borrower or any of its Subsidiaries of
the proceeds of such Initial Public Offering.
(ii) Subject to the subordination
provisions of Section 7(b) hereof and notwithstanding Section 3(a)(i) hereof, in
the event that the Borrower does not acquire all of the
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trademarks and the goodwill pertaining thereto being licensed to the Company
under the Fulcrum Brands Trademark License Agreement, within 60 days after
consummation of an Initial Public Offering, the Borrower shall immediately
prepay this Note, in an amount equal to the total outstanding principal amount
of this Note, together with interest accrued thereon.
For the purposes hereof, "Initial Public Offering"
means the sale by either the Borrower or any of its Subsidiaries of its capital
stock pursuant to a registration statement on Form S-1 or otherwise under the
Securities Act in which the Borrower or any of its Subsidiaries receives at
least $20,000,000 in Net Cash Proceeds.
For the purposes hereof, "Net Cash Proceeds" means
(X) the cash proceeds received by the Borrower or any of its Subsidiaries from
an Initial Public Offering minus (Y) reasonable brokerage commissions or
underwriting fees and other reasonable fees and expenses (including, without
limitation, reasonable fees, charges and disbursements of counsel and
accountants and reasonable fees and expenses of investment bankers) relating to
such Initial Public Offering.
(b) Change of Control. Subject to the subordination
provisions of Section 7(b) hereof, upon a Change of Control (as hereinafter
defined), the Borrower shall prepay the outstanding principal amount of this
Note (together with interest accrued thereon), within 5 Business Days after the
occurrence of a Change of Control.
For the purposes hereof, "Change of Control" means
(i) any transaction or series of transactions in which any Person (as such term
is defined in Section 13(d)(3) of the Exchange Act) or group, other than ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ and/or ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, becomes the direct or indirect beneficial
owner (as such term is defined in Rule 13d-3 promulgated under the Exchange Act)
of more of the then outstanding Common Stock than that beneficially owned in the
aggregate by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, (ii) any transaction or
series of transactions in which ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ together
cease to be the direct or indirect beneficial owners of at least 25% of the then
outstanding Common Stock, (iii) the sale of all or substantially all of the
Borrower's assets, (iv) the liquidation of the Borrower, (v) the election of a
majority of the members of the Board of Directors who were not placed in
nomination for that office by the Board of Directors, or (vi) the combination of
Borrower with another company, as a result of which the shareholders of Borrower
hold less than 50.01% of the total of all voting shares outstanding or
Borrower's directors constitute less than a majority of the Board of Directors
of the combined entity.
(c) Significant Acquisitions. If the Borrower wishes
to acquire (whether in one transaction or in a series of transactions) assets
(other than inventory in the ordinary course of business) from or securities in
any Person and if the revenues derived from such acquired assets or securities
for the trailing twelve month period at the time of such acquisition will
represent more than 30% of the total revenues of the Borrower on a pro forma
basis after giving effect to such acquisition (each such acquisition being a
"Significant Acquisition"), the Borrower shall notify the
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Holder of the proposed Significant Acquisition, describing in detail the
purchase price and the other terms and conditions thereof. Within ten (10) days
of the receipt of such notice, the Holder shall either (i) consent in writing to
such Significant Acquisition, in which event the Borrower will have the right to
consummate such Significant Acquisition within ninety (90) days of its receipt
of such consent for the purchase price and other terms and conditions set forth
in its notice or (ii) object in writing to such Significant Acquisition, in
which event the Borrower will have the right to consummate such Significant
Acquisition within 180 days of its receipt of such objection for the purchase
price and other terms and conditions set forth in its notice and simultaneous
with the closing of such Significant Acquisition the outstanding principal
amount of this Note together with the interest accrued thereon shall become
immediately due and payable.
(d) Notice. The Borrower shall give written notice to
the Holder of any mandatory prepayment pursuant to this Section 3 at least 3
Business Days prior to the date of such prepayment. Such notice shall be given
in the manner specified in Section 12.2 of the Purchase Agreement.
4. Optional Prepayment.
(a) Upon notice given to the Holder as provided in
Section 4(b), the Borrower, at its option, may prepay all or any portion of this
Note at any time, by paying an amount equal to the outstanding principal amount
of this Note, or the portion of this Note called for prepayment, together with
interest accrued and unpaid thereon to the date fixed for prepayment, together
with costs and expenses (including, without limitation, reasonable fees, charges
and disbursements of counsel), if any, associated with such prepayment, without
penalty or premium; provided, however, each prepayment of less than the full
outstanding principal balance of the Note shall be in an aggregate principal
amount of $400,000 or a whole multiple thereof, and provided, further, that
unless this Note shall be paid in full, the aggregate principal balance of this
Note outstanding at any time shall be at least $1,200,000.
(b) The Borrower may give written notice of
prepayment of this Note or any portion thereof not less than 10 nor more than 60
days prior to the date fixed for such prepayment. Such notice of prepayment
shall be given in the manner specified in Section 11.2 of the Purchase
Agreement. Upon notice of prepayment being given by the Borrower, the Borrower
covenants and agrees that it will prepay, on the date therein fixed for
prepayment, this Note or the portion hereof so called for prepayment, at the
outstanding principal amount thereof or the portion thereof so called for
prepayment together with interest accrued and unpaid thereon to the date fixed
for such prepayment, together with the costs and expenses referred to in Section
4(a).
(c) All prepayments under Section 3 and Section 4
shall include payment of accrued interest on the principal amount so prepaid and
shall be applied first to all costs, expenses and indemnities payable under the
Purchase Agreement, then to payment of default interest, if any, then to payment
of accrued interest, and thereafter to principal.
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5. Amendment. Amendments and modifications of this Note may be
made only in the manner provided in Section 11.4 of the Purchase Agreement.
6. Defaults and Remedies.
(a) Events of Default. An "Event of Default" shall
occur if:
(i) the Borrower shall default in the
payment of the principal of this Note, when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise; or
(ii) the Borrower shall default in the
payment of any installment of interest on this Note according to its terms, when
and as the same shall become due and payable and such default shall continue for
a period of 10 days; or
(iii) the Borrower shall default in the due
observance or performance of any covenant to be observed or performed pursuant
to Section 8.3(a), 8.6(a), 8.12, 9.1, 9.2, 9.3, 9.6 or 9.7 of the Purchase
Agreement; or
(iv) the Borrower or any of its
Subsidiaries shall default in the due observance or performance of any other
covenant, condition or agreement on the part of the Borrower or any of its
Subsidiaries to be observed or performed pursuant to the terms hereof or
pursuant to the terms of the Purchase Agreement or any of the Transaction
Documents (other than those referred to in clauses (i), (ii) or (iii) of this
Section 6(a)), and such default shall continue for 45 days after the earliest of
(A) the date the Borrower is required to give notice thereof to the Holder
(whether or not such notice is actually given) or (B) the date of written notice
thereof, specifying such default and, if such default is capable of being
remedied, requesting that the same be remedied, shall have been given to the
Borrower by the Holder; or
(v) any representation, warranty or
certification made by or on behalf of the Borrower or its Subsidiaries in the
Purchase Agreement, this Note, the Transaction Documents or in any certificate
or other document delivered pursuant hereto or thereto shall have been incorrect
on the date as of which made, the result of which could reasonably be expected
to have a Material Adverse Effect; or
(vi) any event or condition shall occur
that results in the acceleration of the maturity of any Indebtedness of Borrower
or any of its Subsidiaries, in a principal amount aggregating $250,000 or more;
or
(vii) any uninsured damage to or loss,
theft or destruction of any assets of the Borrower or any of its Subsidiaries
shall occur that is in excess of $500,000; or
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(viii) an involuntary proceeding shall be
commenced or an involuntary petition shall be filed in a court of competent
jurisdiction seeking (a) relief in respect of the Borrower or any of its
Subsidiaries, or of a substantial part of their property or assets, under Title
11 of the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or similar law, (b)
the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any of its Subsidiaries, or for a
substantial part of their property or assets, or the winding up or liquidation
of either the Borrower or any of its Subsidiaries; and such proceeding or
petition shall continue undismissed for 60 days, or an order or decree approving
or ordering any of the foregoing shall be entered; or
(ix) the Borrower or any of its
Subsidiaries shall (a) voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (b) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in paragraph (viii) of this Section 6(a), apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any of its Subsidiaries, or
for a substantial part of their property or assets, (d) file an answer admitting
the material allegations of a petition filed against it in any such proceeding,
(e) make a general assignment for the benefit of creditors, (f) become unable,
admit in writing its inability or fail generally to pay its debts as they become
due or (g) take any action for the purpose of effecting any of the foregoing; or
(x) one or more judgments for the payment
of money in an aggregate amount in excess of $250,000 (to the extent not covered
by insurance) shall be rendered against the Borrower or any of its Subsidiaries
and the same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the Borrower or any
of its Subsidiaries to enforce any such judgment; or
(xi) Failure to purchase the Warrant held
by the Holder pursuant to Section 2(a) of the Warrant.
For purposes hereof, the term "Material Adverse Effect" shall
have the meaning assigned to that term in the Purchase Agreement.
(b) Acceleration. If an Event of Default occurs under
Section 6(a)(viii) or (ix), then the outstanding principal of and all accrued
interest on this Note shall automatically become immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. If any other Event of Default occurs and is continuing
the Holder, by written notice to the Borrower, may declare the principal of and
accrued interest on this Note to be due and payable immediately. Upon such
declaration, such principal and interest shall become immediately due and
payable. The Holder may rescind an acceleration and its consequences
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if all existing Events of Default have been cured or waived, except nonpayment
of principal or interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree. Any notice
or rescission shall be given in the manner specified in Section 11.2 of the
Purchase Agreement.
7. Subordination. Subject to the limitations set forth in
Section 7(p) below, this Note shall at all times be wholly subordinate and
junior in right of payment to all Senior Indebtedness to the extent and in the
manner provided in this Section 7.
(a) Definitions. As used in this Section 7, the
following terms shall have the following meanings:
"Indebtedness" shall have the meaning assigned to that term in
the Purchase Agreement.
"Senior Covenant Default" shall mean any event of default as
defined under any agreement pertaining to Senior Indebtedness of the Borrower,
other than a Senior Payment Default.
"Senior Indebtedness" shall have the meaning assigned to it in
the Purchase Agreement.
"Senior Default" shall mean a Senior Payment Default or a
Senior Covenant Default.
"Senior Payment Default" shall mean any default in the payment
of any Senior Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of
and interest on this Note; and (ii) any other obligations of the Borrower
arising out of or in connection with the Purchase Agreement or this Note.
(b) General. Upon the maturity of any Senior
Indebtedness by lapse of time, acceleration, required prepayment or otherwise,
all Senior Indebtedness shall first be paid in full, or such payment duly
provided for in cash or in a manner satisfactory to the holders of such Senior
Indebtedness, before any payment is made on account of the Subordinated
Indebtedness or by the Borrower to acquire this Note, except that (i) the
Borrower may prepay this Note in accordance with the provisions of Section 3 or
Section 4 so long as no Senior Default has occurred and is continuing and (ii)
the Holder may receive any distributions provided for in Section 7(e)(ii) or
7(e)(iv) hereof.
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(c) Limitation on Payment.
(i) Upon receipt by the Borrower and the
Holder of a Blockage Notice (as defined below), then unless and until (1) all
Senior Defaults that gave rise to the Blockage Notice shall have been remedied
or effectively waived or shall have ceased to exist, or (2) the Senior
Indebtedness in respect of which such Senior Defaults shall have occurred shall
have been paid in full, no direct or indirect payment (in cash, property,
securities or by set-off or otherwise) of or on account of the principal of or
interest on this Note or as a sinking fund for this Note or in respect of any
redemption, retirement, purchase or other acquisition of this Note shall be made
during any period prior to the expiration of the Blockage Period (as defined
below).
(ii) For purposes of this Section 7, a
"Blockage Notice" is a notice of a Senior Default that in fact has occurred and
is continuing, given to the Borrower and the Holder by the holders of a majority
in principal amount of the Senior Indebtedness then outstanding (or their
authorized agent); provided, however, that no such notice of a Senior Covenant
Default shall be effective as a Blockage Notice if an effective Blockage Notice
based on a Senior Covenant Default shall have been given within 360 days prior
thereto; and provided further, however, that no Senior Default on which a
Blockage Notice is based shall be used as the basis of any subsequent Blockage
Notice unless the same shall have ceased to exist for a period of at least 90
consecutive days.
(iii) For purposes of this Section 7, a
"Blockage Period" with respect to a Blockage Notice is the period commencing
upon the Borrower's receipt of such Blockage Notice and having a duration as
follows:
(1) 179 days if the Senior Default to which
the Blockage Notice refers is a Senior Payment Default; or
(2) 89 days if the Senior Default to which
the Blockage Notice refers is a Senior Covenant Default.
(d) Limitation on Remedies. As long as any Senior
Indebtedness remains outstanding, upon the occurrence of an Event of Default
under this Note, the Holder shall not declare or join in any declaration of this
Note to be due and payable by reason of such Event of Default or otherwise take
any action against the Borrower (including, without limitation, commencing any
legal action against the Borrower or filing or joining in the filing of any
insolvency petition against the Borrower) prior to the expiration of 30 days
after the written notice of intention to accelerate on account of the occurrence
of such Event of Default (a "Remedy Notice") shall have been given by the Holder
to the Borrower and the holders of the Senior Indebtedness (a "Remedy Standstill
Period") unless the holders of any Senior Indebtedness shall have caused such
Senior Indebtedness to become due prior to its stated maturity or any Event of
Default pursuant to Section 6(a)(viii) or (ix) of this Note shall have
commenced; provided, however, that such Remedy Standstill Period shall be
extended (i) to 89 days from the date of such Remedy Notice if, at the time the
Remedy Standstill
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Period would otherwise expire, there exists any Senior Covenant Default and (ii)
to 179 days from the date of such Remedy Notice if, at the time the Remedy
Standstill Period would otherwise expire, there exists any Senior Payment
Default and if, in any case, an effective Blockage Notice is given in accordance
with, and subject to the limitations of, Section 7(ii).
Notwithstanding the foregoing, the Blockage Period shall be
inapplicable or cease to be effective if an Event of Default pursuant to Section
6(a)(viii) or (ix) shall have occurred. In addition, any Blockage Period shall
cease to be effective if at any time during such period: (i) substantial assets
of the Borrower or its Subsidiaries are sold or otherwise disposed of outside of
the ordinary course of business for less than fair value or (ii) payment or any
distribution of any character, whether in cash, securities or other property of
the Borrower or its Subsidiaries shall be made to or received by any creditor on
any Indebtedness which is on the same level of priority with or junior and
subordinate in right of payment to this Note.
Upon the expiration or termination of any Blockage Period, the
Holder shall be entitled to exercise any of its rights with respect to this Note
other than any right to accelerate the maturity date of this Note based upon the
occurrence of any Event of Default in respect thereto which has been cured or
otherwise remedied during the Blockage Period.
(e) Subordination Upon Certain Events. Upon the
occurrence of any Event of Default with respect to the Borrower (but not its
Subsidiaries) under Sections 6(a)(viii) or (ix) of this Note:
(i) Upon any payment or distribution of
assets of the Borrower to creditors of such Borrower, holders of Senior
Indebtedness shall be entitled to receive indefeasible payment in full of all
obligations with respect to the Senior Indebtedness before the Holder shall be
entitled to receive any payment in respect of the Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid
in full, any distribution to which the Holder would be entitled but for this
Section 7 shall be made to the holders of Senior Indebtedness, as their
interests may appear, except that the Holder may, pursuant to a plan of
reorganization under Chapter 11 of the Bankruptcy Code of 1978, as amended, or
any similar provision of any successor legislation thereto, receive securities
that are subordinate to the Senior Indebtedness to at least the same extent as
this Note if pursuant to such plan the distributions to the holders of the
Senior Indebtedness in the form of cash, securities or other property, by
set-off or otherwise, provide for payment of the full amount of the allowed
claim of the holders of the Senior Indebtedness.
(iii) For purposes of this Section 7, a
distribution may consist of cash, securities or other property, by set-off or
otherwise.
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(iv) Notwithstanding the foregoing
provisions of Section 7(b), or (e), if payment or delivery by the Borrower of
cash, securities or other property to the Holder is authorized by an order or
decree giving effect, and stating in such order or decree that effect is given,
to the subordination of this Note to the Senior Indebtedness, and made by a
court of competent jurisdiction in a proceeding under any applicable bankruptcy
or reorganization law, payment or delivery by such Borrower of such cash,
securities or other property shall be made to the Holder in accordance with such
order or decree.
(f) Payments and Distributions Received. If the
Holder shall have received any payment from or distribution of assets of the
Borrower in respect of the Subordinated Indebtedness in contravention of the
terms of this Section 7 before all Senior Indebtedness is paid in full, then and
in such event such payment or distribution shall be received and held in trust
for and shall be promptly paid over or delivered to the holders of Senior
Indebtedness to the extent necessary to pay all such Senior Indebtedness in
full.
(g) Proofs of Claim. If, while any Senior
Indebtedness is outstanding, any Event of Default under Section 6(a)(viii) or
(ix) of this Note occurs with respect to the Borrower (but not its
Subsidiaries), the Holder shall duly and promptly take such action as any holder
of Senior Indebtedness may reasonably request to collect any payment with
respect to this Note for the account of the holders of the Senior Indebtedness
and to file appropriate claims or proofs of claim in respect of this Note. Upon
the failure of the Holder to take any such action, each holder of Senior
Indebtedness is hereby irrevocably authorized and empowered (in its own name or
otherwise), but shall have no obligation, to demand, ▇▇▇ for, collect and
receive every payment or distribution referred to in respect of this Note and to
file claims and proofs of claim and take such other action as it may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of the holder with respect to this Note.
(h) Subrogation. After all amounts payable under or
in respect of Senior Indebtedness are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to receive payments
or distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness. A distribution made under this Section 7 to a holder of
Senior Indebtedness which otherwise would have been made to the Holder is not,
as between the Borrower and the Holder, a payment by the Borrower on Senior
Indebtedness.
(i) Relative Rights. This Section defines the
relative rights of the Holder and the holders of Senior Indebtedness. Nothing in
this Section shall: (1) impair, as between the Borrower and the Holder, the
obligation of the Borrower, which is absolute and unconditional, to pay
principal of and interest (including default interest) on this Note in
accordance with its terms; (2) affect the relative rights of the Holder and
creditors of the Borrower other than holders of Senior Indebtedness or (3)
prevent the Holder from exercising its available remedies upon a default or
Event of Default, subject to the rights, if any, under this Section 7 of holders
of Senior Indebtedness.
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(j) Subordination May Not Be Impaired by the
Borrower. No right of any holder of any Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by this Note shall be impaired by
any failure to act by the Borrower or such holder of Senior Indebtedness or by
the failure of the Borrower or such holder to comply with this Note. The
provisions of this Section 7 shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by any holder of Senior Indebtedness as
a result of the insolvency, bankruptcy or reorganization of the Borrower or any
of its Subsidiaries or otherwise, all as though such payment had not been made.
(k) Payments. A payment with respect to principal of
or interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on this Note, any depositing of funds for
the defeasance of the Subordinated Indebtedness, any sinking fund and any
payment on account of mandatory prepayment or optional prepayment provisions.
(l) Section Not to Prevent Events of Default. The
failure to make a payment on account of principal of or interest on or other
amounts constituting Subordinated Indebtedness by reason of any provision of
this Section 7 shall not be construed as preventing the occurrence of an Event
of Default under Section 6.
(m) Subordination Not Impaired: Benefit of
Subordination. The Holder agrees and consents that without notice to or assent
by such Holder, and without affecting the liabilities and obligations of the
Borrower and the rights and benefits of the holders of the Senior Indebtedness
set forth in this Section 7:
(i) The obligations and liabilities of the
Borrower and any other party or parties for or upon the Senior Indebtedness may,
from time to time, be increased, renewed, refinanced, extended, modified,
amended, restated, compromised, supplemented, terminated, waived or released,
except as prohibited by Section 9.3 or 9.4 of the Purchase Agreement;
(ii) The holders of Senior Indebtedness,
and any representative or representatives acting on behalf thereof, may exercise
or refrain from exercising any right, remedy or power granted by or in
connection with any agreements relating to the Senior Indebtedness; and
(iii) Any balance or balances of funds with
any holder of Senior Indebtedness at any time outstanding to the credit of the
Borrower may, from time to time, in whole or in part, be surrendered or
released;
all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.
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(n) Modification of Section 7. The provisions of this
Section 7 are for the benefit of the holders from time to time of Senior
Indebtedness and, so long as any Senior Indebtedness remains unpaid, may not be
modified, rescinded or canceled in whole or in part without the prior written
consent thereto of all holders of Senior Indebtedness.
(o) Covenants of Holder. Until all of the Senior
Indebtedness has been fully paid:
(i) The Holder shall not hereafter give any
subordination in respect of this Note.
(ii) Upon the occurrence and during the
continuance of a Senior Default, the Holder shall not release, exchange, extend
the time of payment of, compromise, set off or otherwise discharge any part of
this Note or modify or amend this Note; provided, however, that at such time or
times as the actions referred to in this Section 7(o)(ii) may be taken by the
Holder, such Holder shall give the Lender five Business Days prior written
notice before taking any of such actions.
(iii) The Holder hereby undertakes and
agrees for the benefit of the holders of Senior Indebtedness that, upon the
occurrence and during the continuance of a Senior Default, it shall take any
actions reasonably requested by any holder of Senior Indebtedness to effectuate
the full benefit of the subordination contained herein.
(p) Covenant of the Borrower; Limitation on Senior
Indebtedness. Until all Subordinated Indebtedness shall have been paid in full,
the Borrower shall not, and shall not cause, suffer or permit any of its
Subsidiaries to, directly or indirectly, collectively and in the aggregate,
issue, assume or otherwise incur Senior Indebtedness in an aggregate principal
amount which is in excess of $25,000,000 or other Indebtedness in an aggregate
principal amount which is in excess of $5,000,000 provided, however, that Senior
Indebtedness may exceed an aggregate principal amount of $25,000,000 if the
ratio of total Indebtedness to total share capital (including retained earnings)
of the Company, as reflected on the Company's most recent balance sheet, is less
than 2.5 to 1.0; and provided, further that under no circumstances shall Senior
Indebtedness exceed $30,000,000.
(q) Miscellaneous.
(i) To the extent permitted by applicable
law, the Holder and the Borrower hereby waives (1) notice of acceptance hereof
by the holders of the Senior Indebtedness, and (2) all diligence in the
collection or protection of or realization upon the Senior Indebtedness.
(ii) The Borrower and the Holder hereby
expressly agree that the holders of Senior Indebtedness may enforce any and all
rights derived herein by suit, either in equity
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or law, for specific performance of any agreement contained in this Section 7 or
for judgment at law and any other relief whatsoever appropriate to such action
or procedure.
(iii) The Holder acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the issuance of
this Agreement, and each holder of Senior Indebtedness shall be deemed
conclusively to have relied upon such subordination provisions in acquiring and
continuing to hold such Senior Indebtedness.
8. Use of Proceeds. The Borrower shall use the principal from
this Note (a) for the payment of fees and expenses in connection with the
transactions contemplated in the Transaction Documents, and (b) for general
corporate purposes.
9. Suits for Enforcement.
(a) Subject to Section 7, upon the occurrence of any
one or more Events of Default, the Holder of this Note may proceed to protect
and enforce its rights hereunder by suit in equity, action at law or by other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in the Purchase Agreement or this Note or in aid of the
exercise of any power granted in the Purchase Agreement or this Note, or may
proceed to enforce the payment of this Note, or to enforce any other legal or
equitable right of the Holders of this Note.
(b) In case of any default under this Note, the
Borrower will pay to the Holder such amounts as shall be sufficient to cover the
costs and expenses of such Holder due to such default, as provided in Article 7
of the Purchase Agreement.
10. Remedies Cumulative. No remedy herein conferred upon the
Holder is intended to be exclusive of any other remedy and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
11. Remedies Not Waived. No course of dealing between the
Borrower and the Holder or any delay on the part of the Holder in exercising any
rights hereunder shall operate as a waiver of any right.
12. Transfer.
(a) The term "Holder" as used herein shall also
include any transferee of this Note whose name has been recorded by the Borrower
in the Note Register. Each transferee of this Note acknowledges that this Note
has not been registered under the Securities Act, and may be transferred only
pursuant to an effective registration under the Securities Act or pursuant to an
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applicable exemption from the registration requirements of the Securities Act,
subject to the restrictions on transfer set forth in Section 11.3 of the
Purchase Agreement.
(b) The Borrower shall maintain a register (the "Note
Register") in its principal offices for the purpose of registering the Note and
any transfer thereof, which register shall reflect and identify, at all times,
the ownership of any interest in the Note. Upon the issuance of this Note, the
Borrower shall record the name of the initial purchaser of this Note in the Note
Register as the first Holder. Upon surrender for registration of transfer or
exchange of this Note at the principal offices of the Borrower, the Borrower
shall, at its expense, execute and deliver one or more new Notes of like tenor
and of denominations of at least $500,000 (except as may be necessary to reflect
any principal amount not evenly divisible by $500,000) of a like aggregate
principal amount, registered in the name of the Holder or a transferee or
transferees. Every Note surrendered for registration of transfer or exchange
shall be duly endorsed, or be accompanied by written instrument of transfer duly
executed by the Holder of such Note or such holder's attorney duly authorized in
writing.
13. Replacement of Note. On receipt by the Borrower of an
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Note (and in
the case of any such mutilation, on surrender and cancellation of such Note),
the Borrower, at its expense, will promptly execute and deliver, in lieu
thereof, a new Note of like tenor. If required by the Borrower, such Holder must
provide an indemnity bond or other indemnity sufficient in the judgment of the
Borrower to protect the Borrower from any loss which it may suffer if a lost,
stolen or destroyed Note is replaced.
14. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Borrower shall bind its successors and assigns, whether so expressed or not.
15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
16. Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
FULCRUM DIRECT, INC.
By: ________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & Chief Operating Officer
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