-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GelUzRycWqE2PU9CBf/kmIjcFxrKugE5mv2R21HLrPQ8riDtkv55FFzTMomFp9dm MvN7x4m0wgtatc6WSam/nw== 0000950134-02-006442.txt : 20020530 0000950134-02-006442.hdr.sgml : 20020530 20020530081833 ACCESSION NUMBER: 0000950134-02-006442 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020529 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: FILED AS OF DATE: 20020530 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERVOICE BRITE INC CENTRAL INDEX KEY: 0000764244 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 751927578 STATE OF INCORPORATION: TX FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15045 FILM NUMBER: 02665503 BUSINESS ADDRESS: STREET 1: 17811 WATERVIEW PKWY CITY: DALLAS STATE: TX ZIP: 75252 BUSINESS PHONE: 9724548000 FORMER COMPANY: FORMER CONFORMED NAME: INTERVOICE INC DATE OF NAME CHANGE: 19920703 8-K 1 d97382e8vk.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 29, 2002 INTERVOICE-BRITE, INC. (Exact name of registrant as specified in its charter) Texas 000-13616 75-1927578 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 17811 Waterview Parkway Dallas, Texas 75252 (Address, including zip code, of principal executive offices) Registrant's telephone number, including area code: (972) 454-8000 Not applicable (Former name or former address, if changed since last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. Proposed Sale of Registrant's Wichita, Kansas Facility The Registrant entered into a letter agreement dated April 2002 between the Registrant and a prospective purchaser for the purchase of the Registrant's office facilities in Wichita, Kansas for $2 million. The purchase, which is scheduled to occur as early as May 31, 2002, is subject to customary closing conditions, including delivery of a satisfactory title policy, and execution and delivery of a satisfactory deed of trust. While the Registrant is optimistic that the sale of the Wichita facilities will be successfully completed, there is no guaranty the transaction will close. ITEM 5. OTHER EVENTS. CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT FACILITY The Registrant and its wholly owned subsidiary, Brite Voice Systems, Inc., are parties to a Credit Agreement dated June 1, 1999 with the lenders party thereto (as amended, the "Credit Facility"). The total of term loans and revolving loans under the Credit Facility was approximately $135 million at the inception of the Credit Facility and were paid down to approximately $30 million at May 28, 2002. The term loan under the Credit Facility is subject to quarterly principal amortization. In addition, the Credit Facility is subject to certain mandatory prepayments and commitment reductions tied to the sale of assets, the issuance of debt, the issuance of equity and the generation of excess cash flow for a fiscal year. Certain of these prepayment and commitment reduction requirements are limited by the satisfaction of certain financial ratios. The Credit Facility contains certain representations and warranties, certain negative and affirmative covenants and certain conditions and events of default which are customarily required for similar financings. Such covenants include, among others, restrictions and limitations on liens and negative pledges; limitations on mergers, consolidations and sales of assets; limitations on incurrence of debt; limitations on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitations on investments and acquisitions (other than the acquisition of the Registrant); and limitations on capital expenditures. Key financial covenants based on the Registrant's consolidated financial statements include minimum net worth, maximum leverage ratio and minimum fixed charges coverage ratio. The Credit Facility also requires a first priority perfected security interest in (i) all of the capital stock of each of the domestic subsidiaries of the Registrant, and 65% of the capital stock of each first tier foreign subsidiary of the Registrant, which capital stock shall not be subject to any other lien or encumbrance and (ii) subject to permitted liens, all other present and future material assets and properties of the Registrant and its material domestic subsidiaries (including, without limitation, accounts receivable and proceeds, inventory, real property, machinery and equipment, contracts, trademarks, copyrights, patents, license rights and general intangibles). The lenders had previously entered into forbearance agreements dated March 7, 2002 and March 31, 2002, pursuant to which the lenders granted a temporary waiver through May 31, 2002 of a default under one of four financial covenants, a fixed charge coverage ratio covenant. The Registrant and lenders entered into commitment letters to enter into a Consent, Waiver, and Third Amendment to Credit Agreement (the "Third Amendment") to be effective as of May 29, 2002, pursuant to which the lenders will waive the default under the financial covenant. The effectiveness of the Third Amendment is conditioned on funding under the Convertible Notes , which is scheduled for May 30, 2002. The Third Amendment will amend the fixed charge coverage ratio covenant and a covenant to maintain a minimum leverage ratio (as described in the Credit Facility) to reflect the Registrant's current capital structure and liquidity requirements. The Third Amendment also will add a covenant by the Registrant to maintain a minimum level of EBITDA (as defined in the Credit Facility). Pursuant to the Third Amendment, proceeds from the mortgage of the Registrant's office facilities in Dallas, Texas (see section entitled "Mortgage Loan"), and proceeds from the Company's issuance of Convertible Notes (see section entitled "Convertible Notes, Warrants and Registration Requirements"), will be applied to repay all outstanding indebtedness under the term loan, with the remainder applied to the revolving loans. Under the amended Credit Facility, the lenders will agree to continue making revolving loans to the Registrant up to a revised maximum amount of $12 million through June 1, 2003. The maximum amount of revolving loans that may be outstanding will also be limited by a borrowing base computed on the Registrant's eligible accounts receivable and eligible inventory securing the revolving loans. The Registrant is not permitted to make principal payments on the Convertible Notes in cash if any amount is outstanding under the Credit Facility. The Credit Facility is cross-defaulted with the Convertible Notes such that a default or the occurrence of certain other events under the Convertible Notes will be a default under the Credit Facility. The amended Credit Facility will provide that interest would accrue at a base rate equal to an applicable margin plus the higher of (i) the prime rate or (ii) the federal funds rate. The applicable margin will be determined in accordance with a schedule to the Credit Facility and by reference to a ratio of the Registrant's funded debt to EBITDA. The applicable margin will increase 0.5% in each of the Company's fiscal quarters. The Third Amendment will delete provisions that permit the Registrant to elect an interest rate equal to the London Interbank Offer Rate ("LIBOR") plus the applicable margin. The foregoing is qualified by reference to the Third Amendment, which is filed as an exhibit to this report and incorporated by reference. CONVERTIBLE NOTES, WARRANTS AND REGISTRATION REQUIREMENTS On May 29, 2002, the Registrant entered into a Securities Purchase Agreement, by and among the Registrant and the buyers named therein (the "Buyers"), pursuant to which the Buyers agreed to purchase Convertible Notes (the "Convertible Notes"), in an aggregate principal amount of $10.0 million, convertible into shares of the Registrant's common stock (the "Conversion Shares"), and Warrants (the "Warrants") initially exercisable for an aggregate of 621,303 shares of the Registrant's common stock (the "Warrant Shares") at an exercise price of $4.0238 per share. Buyers' obligations to purchase the Convertible Notes and Warrants under the Securities Purchase Agreement are subject to and conditioned upon execution of the Third Amendment. The following is a summary of the material terms of the Convertible Notes, the Warrants and certain registration requirements, which terms are qualified in their entirety by reference to the full text of the underlying documents which are filed as exhibits to this report and incorporated by reference. Under the Securities Purchase Agreement, the Registrant has the option, for a period of one month, to issue up to an additional $10 million in convertible notes and accompanying warrants on substantially the same terms as the Convertible Notes and the Warrants. The Securities Purchase Agreement obligates the Registrant to seek shareholder approval, at the Registrant's next annual meeting, of the issuance of the Convertible Notes and Warrants, with the Company being subject to financial penalties for failure to seek such approval. However, if such approval is sought and not obtained, no penalties will be assessed. Convertible Notes Amortization The initial Convertible Notes will be repaid in monthly installments ("Installment Amounts") of principal in the amount of $1.0 million, plus accrued interest on the applicable installments at 6% per annum, commencing September 1, 2002, and will be fully amortized by June 30, 2003. At the Registrant's option, the Installment Amounts may be paid in cash or through a partial conversion of the Convertible Notes through the Registrant's issuance of common stock at a conversion rate equal to the lesser of (i) 200% of the weighted average trading price for the Registrant's common stock as reported on the Nasdaq National Market on the issuance date, subject to various adjustments, as set forth in the Form of Note (the "Fixed Conversion Price"), or (ii) 95% of the average of the weighted average trading prices of the Registrant's common stock during the time period to which the installment relates. In order to preserve the ability to pay the Installment Amounts in common stock, the Registrant must comply with several conditions, including maintaining the effectiveness of a registration statement (as more fully described below), complying with the listing requirements of the Nasdaq National Market, timely delivery of common stock upon conversion of the Convertible Notes, and compliance with other requirements under the Convertible Notes, the Securities Purchase Agreement and the Registration Rights Agreement. If any principal amount of the Convertible Notes remains outstanding on June 30, 2003, the holders must surrender the Convertible Notes to the Registrant and the principal amount will be redeemed by payment on such date to the holders of a cash amount equal to the sum of 105% of the principal amount plus accrued interest at 6% per annum with respect to the principal amount. In addition, subject to certain conditions, the Registrant may redeem some or all of the principal amount of the Convertible Notes in excess of current monthly installments for a cash amount equal to the sum of 105% of the principal amount being redeemed plus accrued interest at 6% per annum with respect to the principal amount. Conversion at the Option of the Holder Each of the Convertible Notes will be convertible at the option of the holder into that number of shares of common stock equal to (i) the principal amount being converted, plus accrued interest at 6% per annum, divided by (ii) the Fixed Conversion Price in effect at such time. If the Registrant does not timely effect a conversion of the Convertible Notes, the Registrant will be subject to certain cash penalties, adjustments to the applicable Fixed Conversion Price and certain other penalties as more fully described in the Form of Note. Moreover, in such case, the holders of the Convertible Notes may require the Registrant to redeem all of the outstanding principal amount of the Convertible Notes. Any holder of the Convertible Notes is prohibited from converting its respective Convertible Notes if, after giving effect to such conversion, the holder would hold in excess of 4.99% of the Registrant's outstanding common stock following such conversion. Acceleration and Default Provisions If certain events, referred to as "Triggering Events," occur, the holders of the Convertible Notes may cause the Registrant to redeem the Convertible Notes in cash at a price equal to the greater of (i) 125% of the principal amount, plus accrued interest at 6% per annum and (ii) the number of shares of common stock issuable upon conversion multiplied by the weighted average price of the common stock on the trading day immediately preceding such event. Circumstances under which the holders may redeem the Convertible Notes include, without limitation, the failure to obtain and/or maintain the effectiveness of a registration statement, suspension from trading or the failure to be listed for a period of 5 consecutive trading days or for more than 10 trading days in any 365-day period, the failure to timely deliver shares of common stock and a material breach by the Registrant under the transaction documents. If the Registrant is unable to effect a redemption as a result of a Triggering Event, the holders are entitled to void their redemption notices and receive a reset of their applicable Fixed Conversion Price to the lesser of (i) the Fixed Conversion Price as in effect on the date on which the holder delivers notice to the Registrant of its intent to void the redemption notice and (ii) the lowest weighted average price of the Registrant's common stock during the period beginning on the date on which the notice of redemption is delivered to the Registrant and ending on the date the holder delivers notice to the Registrant of its intent to void the redemption notice. If the Registrant is unable to redeem all of the Convertible Notes submitted for redemption, the Registrant must (i) redeem a pro rata amount from each holder of the Convertible Notes and (ii) pay to the holders interest at the rate of 2.0% per month with respect to the unredeemed principal amount until paid in full. Upon a Change of Control (as defined in the Convertible Notes) of the Registrant, the holders of the Convertible Notes have the right to require the Registrant to redeem all or a portion of the principal amount at a price equal to the greater of (i) the sum of (A) 115% of such principal amount, plus (B) accrued interest at 6% per annum, and (ii) the number of shares of common stock issuable upon conversion multiplied by the arithmetic average of the weighted average prices of the common stock during the 5 trading days immediately preceding such date. If an Event of Default (as defined in the Convertible Notes) occurs, the holders of the Convertible Notes may declare the Convertible Notes, including all amounts due thereunder, to be due and payable immediately. Such amount shall bear interest at the rate of 2.0% per month until paid in full. If the Registrant does not timely pay the amounts due, the holders of the Convertible Notes may void the acceleration and the Fixed Conversion Price shall be adjusted to the lesser of (i) the Fixed Conversion Price as in effect on the date on which the holders of the Convertible Notes notify the Registrant of their intent to void the acceleration and (ii) the lowest weighted average price of the Registrant's common stock during the period beginning on the date on which the Convertible Notes became accelerated and ending on the date on which the holders of the Convertible Notes notify the Registrant of their intent to void the acceleration. The Events of Default include a default in payment of any principal amount of the Convertible Notes, failure to comply with a material provision of the Convertible Notes, payment defaults with respect to certain indebtedness and initiation of bankruptcy proceedings. The foregoing is qualified by reference to the Form of Convertible Note which is filed as an exhibit to this report and incorporated by reference. Warrants In connection with the sale of the Convertible Notes, the Registrant issued Warrants to the Buyers. The Warrants give the holders the right to purchase from the Registrant, for a period of three years, an aggregate of 621,303 shares of the Registrant's common stock for $4.0238 per share as of the date of issuance. Both the number of Warrants and the exercise price of the Warrants are subject to anti-dilution adjustments as set forth in the Warrants. If the Registrant is prohibited from issuing Warrant Shares under the rules of the Nasdaq National Market, the Registrant must redeem for cash those Warrant Shares which cannot be issued at a price per Warrant Share equal to the difference between the weighted average market price of the Registrant's common stock on the date of attempted exercise and the applicable exercise price. The foregoing is qualified by reference to the form of Warrant which is filed as an exhibit to this report and incorporated by reference. Registration Requirements The Registrant and the Buyers also entered into a Registration Rights Agreement, dated as of May 29, 2002 (the "Registration Rights Agreement"), pursuant to which the Registrant has agreed to prepare and file by June 14, 2002 a registration statement covering the resale of the Conversion Shares and the Warrant Shares. The Registrant is required to have the Registration Statement declared effective within 120 days of the issuance date. The Registrant is required to pay cash penalties (as set forth in the Registration Rights Agreement) to the holders of the Notes if the registration statement is not filed or not declared effective as of those dates. The failure to have the Registration Statement declared effective within 150 days of the issuance date is also a "Triggering Event" for purposes of the Convertible Notes. The foregoing is qualified by reference to the Registration Rights Agreement, which is filed as an exhibit to this report and incorporated by reference. MORTGAGE LOAN Effective May 29, 2002, the Registrant executed and delivered a deed of trust and promissory note in favor of Beal Bank, S.S.B., for a mortgage loan of $14 million secured by a first lien on the Registrant's facilities in Dallas, Texas. The mortgage loan is a three year balloon note, bearing interest, payable monthly, at the greater of 10.5% or the prime rate plus 2.0%. Proceeds from the mortgage loan will be applied to reduce loans under the Credit Facility. The lenders under the Credit Facility entered into an agreement with Beal Bank, S.S.B. subordinating their lien on the Dallas, Texas facilities for purposes of the mortgage loan. The foregoing is qualified by reference to the Deed of Trust and Promissory Note, which are filed as exhibits to this report and incorporated by reference. USE OF PROCEEDS All $14 million of proceeds from the mortgage loan by Beal Bank, S.S.B., and all $10 million of proceeds from the sale of the Convertible Notes (less certain expenses), will be applied to repay outstanding indebtedness under the Credit Facility. The mandatory prepayments will repay all term loans and $6 million in revolving loans will remain outstanding under the Credit Facility. If the sale of the Wichita facilities (described in Item 2 of this report) for $2.0 million does close, proceeds will be applied to reduce revolving loans outstanding under the Credit Facility on the date of closing. EFFECT OF SECURITIES LAWS; FORWARD-LOOKING STATEMENTS The securities described herein have not been registered under the Securities Act of 1933, as amended, (the "Securities Act") or under any state securities laws and may not be offered or sold within the United States absent registration under the Securities Act and applicable state securities laws or an applicable exemption from those registration requirements. Included in this Form 8-K are certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on assumptions that are subject to a wide range of business risks. Actual results could differ materially from those included in such forward-looking statements and important factors that could cause such a material difference are described in the periodic filings of the Registrant with the Securities and Exchange Commission, including its annual report on Form 10-K for the fiscal year ended February 28, 2002. The Registrant does not undertake any obligation to update or revise its forward-looking statements, whether as the result of new information, future events or otherwise. In particular, the Registrant's Form 10-K filed on even date herewith discusses the following risk factors pertaining to the Convertible Notes, Warrants and related registration requirements: o THE REGISTRANT'S ISSUANCE OF CONVERTIBLE NOTES AND WARRANTS COULD SUBSTANTIALLY DILUTE THE INTERESTS OF THE EXISTING SHAREHOLDERS. The $10 million in convertible notes issued by the Registrant in May 2002 are convertible by the holders into common stock at any time prior to their maturity in June 2003 at an initial conversion price of 200% of the weighted average price of the Registrant's common stock on the date of issuance. Additionally, the Registrant is required to pay its outstanding loans under the Credit Facility before any installment of principal on the Convertible Notes is paid in cash and therefore the Registrant may have no choice but to pay such installments through a partial conversion of the notes into common stock, which could cause further dilution to occur. See "The Registrant is required to pay its outstanding loans under the Credit Facility before any installment of principal on the Convertible Notes is paid in cash and therefore the required "payments" in stock could be dilutive to the Registrant's shareholders and such dilution could be made worse by the note holders' hedging activities." Moreover, the conversion price of the notes could be lowered, perhaps substantially, in a variety of circumstances, including the Registrant's issuance of common stock below the holders' conversion price (either directly or in connection with the issuance of most securities convertible into, or exercisable for, common stock), the Registrant's failure to comply with specific registration and listing obligations applicable to the common stock into which the notes are convertible, and other breaches by the Registrant of its obligations to the note holders. Correspondingly, the Registrant issued to the note holders in May 2002 three-year warrants entitling the warrant holders to purchase an aggregate of 621,303 shares of the Registrant's common stock at an exercise price of $4.0238 per share. Both the number of warrants and the exercise price are subject to adjustments that could make them further dilutive to existing shareholders. Neither the notes nor the warrants establishes a "floor" limiting reductions in, respectively, the conversion price of the notes or the exercise price of the warrants that may occur under certain circumstances. Correspondingly, there is no "ceiling" on the number of warrants that may be issuable under certain circumstances under the antidilution adjustments in the warrants. o THE REGISTRANT IS REQUIRED TO PAY ITS OUTSTANDING LOANS UNDER THE CREDIT FACILITY BEFORE ANY INSTALLMENT OF PRINCIPAL ON THE CONVERTIBLE NOTES IS PAID IN CASH AND THEREFORE THE REQUIRED PAYMENTS IN STOCK COULD BE DILUTIVE TO THE REGISTRANT'S SHAREHOLDERS AND SUCH DILUTION COULD BE MADE WORSE BY THE NOTE AND WARRANT HOLDERS' HEDGING ACTIVITIES. The Registrant's revolving credit facility prohibits the Registrant from paying any installments on the convertible notes in cash at any time the Registrant has indebtedness outstanding under the credit facility. Under such circumstances the Registrant will effectively be required to "pay" installments on the notes through a partial conversion of the notes into common stock. The conversion price, subject to certain anti-dilution adjustments, would be the lower of (i) 200% of the weighted average trading price for the Registrant's common stock as reported on the Nasdaq National Market on the issuance date or (ii) 95% of the average of the weighted average trading prices of the Registrant's common stock during the time period to which the installment relates. Since the Registrant's inability to pay installments in cash would most likely occur when it is experiencing unsatisfactory operating results and lower trading prices for its common stock, the number of shares required to "pay" an installment in a partial conversion of the notes could increase significantly, with the resultant dilution further depressing the Registrant's stock price. Moreover, the note and warrant holders may hedge their positions in the Registrant's stock through shorting the Registrant's stock, which could further adversely affect the stock price. This hedging activity and its effect on the stock price could increase the number of shares required to be issued on the next installment date. o ANY FAILURE BY THE REGISTRANT TO SATISFY ITS REGISTRATION, LISTING AND OTHER OBLIGATIONS WITH RESPECT TO THE COMMON STOCK UNDERLYING THE CONVERTIBLE NOTES AND THE WARRANTS COULD RESULT IN ADVERSE CONSEQUENCES, INCLUDING ACCELERATION OF THE NOTES. The Registrant is required to file a registration statement covering the common stock underlying the convertible notes and the warrants by June 14, 2002 and cause it to become effective by September 27, 2002 and, subject to certain exceptions, maintain its effectiveness until the underlying common stock is no longer restricted for federal securities law purposes. The Registrant is subject to various penalties for failure to meet its registration obligations and the related stock exchange listing for the underlying common stock, including cash penalties and forced redemption of the notes at the greater of (i) 125% of the principal amount plus interest or (ii) the product of the "conversion rate" (the amount of principal and interest being redeemed divided by the conversion price) multiplied by the weighted average price of the Registrant's common stock on the trading day immediately preceding its registration or listing default. If the Registrant is unable to issue common stock under the Convertible Notes because the amount issuable would exceed the number of shares that the Registrant is permitted to issue without shareholder approval under Nasdaq National Market requirements (aggregate shares in excess of 20% of the issued and outstanding shares), then the Registrant may be required to redeem the Convertible Notes at 100% of the principal plus accrued interest at 6%. o THE REGISTRANT IS OBLIGATED TO MAKE SIGNIFICANT PERIODIC PAYMENTS OF PRINCIPAL AND INTEREST UNDER ITS FINANCING INSTRUMENTS. The Registrant has material indebtedness outstanding under the above-discussed: (i) Credit Facility; (ii) mortgage loan secured by the Registrant's facilities in Dallas, Texas; and (iii) Convertible Notes. The Registrant is required to make periodic payments of interest on each of the financial instruments and, in the case of the Convertible Notes, periodic payments of principal. The Registrant is not in default under any of the financing instruments and believes it will have the resources to make all required principal and interest payments. If, however, the Registrant at any time does default on any of its payment obligations or other obligations under any financing instrument, the creditors under the applicable instrument will have all rights available under the instrument, including acceleration, termination and, with respect to the secured financings, enforcement of security interests. The financing instruments also have certain qualified cross-default provisions, particularly for acceleration of indebtedness under one of the other instruments. Under such circumstances, the Registrant's cash position and liquidity would be severally impacted, and it is possible the Registrant would not be able to pay its debts as they come due. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Not applicable. (b) PRO FORMA FINANCIAL INFORMATION. Not applicable. (b) EXHIBITS. 4.1 Securities Purchase Agreement, dated as of May 29, 2002, between the Registrant and the Buyers named therein (the "Securities Purchase Agreement"). 4.2 Form of Convertible Note, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. 4.3 Form of Warrant, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. 4.4 Registration Rights Agreement, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. 4.5 First Amendment to Third Amended and Restated Rights Agreement dated as of May 29, 2002 between the Registrant and Computershare Investor Services, LLC. 10.1 Form of Commitment Letter dated May 29, 2002. 10.2 Consent, Waiver and Third Amendment to Credit Agreement, effective as of May 29, 2002 among the Registrant, Brite Voice Systems, Inc. (successor by merger to InterVoice Acquisition Subsidiary III, Inc.), Bank of America, National Association (successor by merger to Bank of America National Trust and Savings Association), as Agent, and the other Lenders named therein. 10.3 Subordination and Intercreditor Agreement effective as of May 29, 2002 by and among the Registrant, the Buyers under the Securities Purchase Agreement, and Bank of America, National Association, as Agent for the Senior Creditors (defined therein). 10.4 Promissory Note, dated May 29, 2002, executed by the Registrant in favor of Beal Bank, S.S.B. 10.5 Deed of Trust, Security Agreement, and Assignment of Leases and Rents, dated May 29, 2002, executed by the Registrant for the benefit of Beal Bank, S.S.B. ITEM 9. REGULATION FD DISCLOSURE. In connection with the sale by the Registrant of the Convertible Notes and Warrants to the Buyers pursuant to the Securities Purchase Agreement described in Item 5 of this report, the Registrant disclosed to the Buyers, pursuant to a confidentiality agreement, certain historical information about its working capital at April 30, 2002 and certain historical information about its operations to date for the first quarter of fiscal 2003. The information disclosed was previously nonpublic. Such information may be found in Schedule 2(d) to the Securities Purchase Agreement, which is filed as an exhibit to this report and incorporated herein by reference. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. INTERVOICE-BRITE, INC. By: /s/ Rob-Roy J. Graham ------------------------ Rob-Roy J. Graham Secretary and Chief Financial Officer Date: May 30, 2002 INDEX TO EXHIBITS
ITEM NUMBER EXHIBIT - ------ ------- 4.1 Securities Purchase Agreement, dated as of May 29, 2002, between the Registrant and the Buyers named therein (the "Securities Purchase Agreement"). 4.2 Form of Convertible Note, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. 4.3 Form of Warrant, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. 4.4 Registration Rights Agreement, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. 4.5 First Amendment to Third Amended and Restated Rights Agreement dated as of May 29, 2002 between the Registrant and Computershare Investor Services, LLC. 10.1 Form of Commitment Letter dated May 29, 2002. 10.2 Consent, Waiver and Third Amendment to Credit Agreement, effective as of May 29, 2002 among the Registrant, Brite Voice Systems, Inc. (successor by merger to InterVoice Acquisition Subsidiary III, Inc.), Bank of America, National Association (successor by merger to Bank of America National Trust and Savings Association), as Agent, and the other Lenders named therein. 10.3 Subordination and Intercreditor Agreement effective as of May 29, 2002 by and among the Registrant, the Buyers under the Securities Purchase Agreement, and Bank of America, National Association, as Agent for the Senior Creditors (defined therein). 10.4 Promissory Note, dated May 29, 2002, executed by the Registrant in favor of Beal Bank, S.S.B. 10.5 Deed of Trust, Security Agreement, and Assignment of Leases and Rents, dated May 29, 2002, executed by the Registrant for the benefit of Beal Bank, S.S.B.
EX-4.1 3 d97382exv4w1.txt SECURITIES PURCHASE AGREEMENT EXHIBIT 4.1 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of May 29, 2002, by and among InterVoice-Brite, Inc., a Texas corporation, with headquarters located at 17811 Waterview Parkway, Dallas, Texas 75252 (the "COMPANY"), and the investors listed on the Schedule of Buyers attached hereto (individually, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 ACT"); B. The Company has authorized convertible notes of the Company in the form attached as Exhibit A (together with any convertible notes issued in exchange therefor or replacement thereof in accordance with the terms thereof, the "CONVERTIBLE NOTES"), which shall be convertible into shares of the Company's common stock, no par value (the "COMMON STOCK") (as converted, the "CONVERSION SHARES") in accordance with the terms of the Convertible Notes. C. The Buyers wish to purchase, upon the terms and conditions stated in this Agreement, (I) Convertible Notes in an aggregate principal amount of $10,000,000 in the respective amounts set forth opposite each Buyer's name on the Schedule of Buyers (the "NOTES") and (II) warrants, substantially in the form attached hereto as Exhibit B (the "WARRANTS"), to acquire that number of shares of Common Stock for each $1,000 principal amount of the Notes purchased equal to the quotient of (i) $250, divided by (ii) the Warrant Exercise Price (as defined in the Warrant)(as exercised, collectively, the "WARRANT SHARES"); and D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW THEREFORE, the Company and the Buyers hereby agree as follows: 1. PURCHASE AND SALE OF NOTES AND WARRANTS. a. Purchase of Notes and Warrants. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer and each Buyer severally agrees to purchase from the Company the Notes in the principal amount set forth opposite such Buyer's name on the Schedule of Buyers, along with the related Warrants to acquire that number of Warrant Shares for each $1,000 principal amount of Notes purchased equal to the quotient of (i) $250, divided by (ii) the Warrant Exercise Price (the "CLOSING"). The purchase price (the "PURCHASE PRICE") of the Notes and the related Warrants at the Closing shall be equal to $1.00 for each $1.00 of principal amount of the Notes purchased (representing an aggregate Purchase Price of $10,000,000 for the aggregate principal amount of $10,000,000 of Notes, along with the related Warrants, to be purchased at the Closing). "BUSINESS DAYS" means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed. b. The Closing Date. The date and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m. Central Time, on May 30, 2002, subject to the satisfaction (or waiver) of all of the conditions to the Closing set forth in Sections 6 and 7 (or such later date as is mutually agreed to by the Company and the Buyers). The Closing shall occur on the Closing Date at the offices of Katten Muchin Zavis Rosenman, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693 or at such other time, date and place as the Company and the Buyers may collectively designate in writing. c. Form of Payment. On the Closing Date, (i) each Buyer shall pay the Purchase Price to the Company for the Notes and the related Warrants to be issued and sold to such Buyer at such Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, less any amount withheld for expenses pursuant to Section 4(h), and (ii) the Company shall deliver to each Buyer, Notes (in the principal amounts as such Buyer shall request) (the "NOTE CERTIFICATES") representing such principal amount of the Notes which such Buyer is then purchasing hereunder along with warrants representing the related Warrants, duly executed on behalf of the Company and registered in the name of such Buyer. 2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and warrants with respect to only itself that: a. Investment Purpose. Such Buyer (i) is acquiring the Notes and the Warrants, (ii) upon conversion of the Notes, will acquire the Conversion Shares then issuable and (iii) upon exercise of the Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the Notes, the Conversion Shares, the Warrants and the Warrant Shares collectively are referred to herein as the "SECURITIES"), for its own account and not with a view towards, or for resale in connection with, the sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. b. Accredited Investor Status. Such Buyer is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D. c. Reliance on Exemptions. Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying in part upon the -2- truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities. d. Information. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer, including (i) a "preliminary Descriptive Memorandum dated May __, 2002" (the "DESCRIPTIVE MEMO") and (ii) certain confidential information, including the information set forth in Schedule 2(d) and certain other information set forth in the Disclosure Schedules to this Agreement, provided to the Buyers between May 24, 2002 and May 29, 2002 (but prior to each such Buyer's execution of this Agreement) pursuant to confidentiality agreements dated either May 24, 2002 or May 25, 2002 (the "DISCLOSED INFORMATION"). Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained in Sections 3 and 9(l) below. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. No Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. Transfer or Resale. Such Buyer understands that except as provided in the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of independent counsel, in a form reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended, (or a successor rule thereto) ("RULE 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. Notwithstanding the foregoing, the Securities may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities. -3- g. Legends. Such Buyer understands that the certificates or other instruments representing the Notes and the Warrants and, until such time as the sale of the Conversion Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the stock certificates representing the Conversion Shares and the Warrant Shares, except as set forth below, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF INDEPENDENT COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. The legend set forth above shall be removed and the Company shall issue a certificate, or the Transfer and Depositary Agent shall issue a stock certificate, without such legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale transaction, such holder provides the Company with an opinion of independent counsel, in a form reasonably acceptable to the Company, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act, (iii) such holder provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144(k), or (iv) such holder provides the Company reasonable assurances that the Securities have been or are being sold pursuant to Rule 144. h. Authorization; Enforcement; Validity. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Buyer and are valid and binding agreements of such Buyer enforceable against such Buyer in accordance with their respective terms, subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency. Such Buyer is a resident of that jurisdiction specified in its address on the Schedule of Buyers. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Buyers that: -4- a. Organization and Qualification. The Company and its "SUBSIDIARIES" (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated (other than with respect to Subsidiaries (other than InterVoice-Brite Limited) which only have immaterial assets, in which case, such Subsidiaries are duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, except to the extent that the failure to be so organized or in good standing would not have a Material Adverse Effect (as defined below)), and have the requisite corporate power and authority to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on the business, properties, assets, operations, results of operations or financial condition of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below). The Company has no Subsidiaries except as set forth on Schedule 3(a). b. Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5), the Notes, the Warrants and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Notes and the Warrants, the reservation for issuance and the issuance of the Conversion Shares and Warrant Shares issuable upon conversion or exercise thereof, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders. This Agreement and the other Transaction Documents dated of even date herewith have been duly executed and delivered by the Company and constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. As of the Closing, the Transaction Documents dated after the date hereof shall have been duly executed and delivered by the Company and shall constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. Capitalization. As of the date hereof, the authorized capital stock of the Company consists of (i) 62,000,000 shares of Common Stock, of which as of the date hereof, -5- 34,047,216 shares are issued and outstanding, 7,009,974 shares are reserved for issuance pursuant to the Company's stock option, restricted stock and stock purchase plans and no shares are issuable and reserved for issuance pursuant to securities (other than the Notes and the Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock and (ii) 2,000,000 shares of Preferred Stock, $100 par value, of which as of the date hereof, no shares are issued and outstanding. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as disclosed in Schedule 3(c), (A) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (B) there are no outstanding debt instruments issued by the Company; (C) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable for, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable for, any shares of capital stock of the Company or any of its Subsidiaries; (D) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement); (E) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (F) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement; and (G) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. The Company has furnished to each Buyer true and correct copies of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"), and the terms of all securities convertible into, or exercisable or exchangeable for Common Stock and the material rights of the holders thereof in respect thereto. d. Issuance of Securities. The Notes are duly authorized and, upon issuance in accordance with the terms hereof, shall be (i) free from all taxes, liens and charges with respect to the issuance thereof and (ii) entitled to the rights set forth in the Notes. At least 5,400,000 shares of Common Stock (subject to adjustment pursuant to the Company's covenant set forth in Section 4(f) below) have been duly authorized and reserved for issuance upon conversion of the Notes and upon exercise of the Warrants. Upon conversion or exercise in accordance with the Notes or the Warrants, as the case may be, the Conversion Shares and the Warrant Shares will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The issuance by the Company of the Securities is exempt from registration under the 1933 Act. e. No Conflicts. Except as disclosed in Schedule 3(e), the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the -6- reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of the Articles of Incorporation of the Company or the Bylaws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party; (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market (as defined below)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any term of its Articles of Incorporation of the Company or Bylaws or their organizational charter or bylaws, respectively (other than with respects to Subsidiaries (other than InterVoice-Brite Limited) which only have immaterial assets, in which case, no such Subsidiary is in violation of any term of its organizational charter or bylaws, except for such violations as would not have a Material Adverse Effect). Subsidiaries is in violation of any term of or in default under any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except where such violations and defaults would not have, either individually or in the aggregate, a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, ordinance or regulation of any governmental entity, except where such violations and defaults would not have, either individually or in the aggregate, a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any listing application with the Nasdaq Stock Market or any exchange on which the Common Stock trades, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents in accordance with the terms hereof or thereof. Except as disclosed in Schedule 3(e), all consents, authorizations, orders, filings and registrations which the Company is required to obtain as described in the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company is not in violation of the listing requirements of the Principal Market (as defined in Section 4(g)) and has no actual knowledge of any facts which would lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future. f. SEC Documents; Financial Statements. Since February 28, 2000, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof (including all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein) being hereinafter referred to as the "SEC DOCUMENTS"). A complete and accurate list of the SEC Documents is set forth on EDGAR. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents. None of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the -7- statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents or the Descriptive Memo, including, without limitation, information referred to in Section 2(d)), contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are or were made, not misleading. Other than the Disclosed Information, neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Buyers with any material, nonpublic information. The Company meets the requirements for use of Form S-3 for registration of the resale of Registrable Securities (as defined in the Registration Rights Agreement). Except as set forth on Schedule 3(f), the Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date hereof or the Closing and to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound which has not been previously filed as an exhibit (including by way of incorporation by reference) to its reports filed or made with the SEC under the 1934 Act at least 10 days prior to the date hereof, other than those included in the list of agreements set forth in Schedule A to the opinion set forth in Exhibit E-1 or in the list of agreements set forth in Schedule A to the opinion set forth in Exhibit E-2., as each such Schedule appears as of the Closing and which opinions are being delivered at such Closing pursuant to Section 7(iv). g. Absence of Certain Changes. Except as disclosed in Schedule 3(g) or as set forth with reasonable specificity in the Descriptive Memo, the Disclosed Information or the SEC Documents filed with the SEC at least 10 days prior to the date of this Agreement, since February 28, 2001 there has been no material adverse change and no material adverse development in the business, properties, assets, operations, results of operations or financial conditions of the Company and its Subsidiaries, taken as a whole. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby, will not be Insolvent (as defined below). For purposes of this Section 3(g), "INSOLVENT" means (i) the present fair saleable value of the Company's assets is less than the amount required to pay the Company's total indebtedness, contingent or otherwise, (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) the Company has unreasonably small capital with which to conduct the business in which it is engaged as such -8- business is now conducted and is proposed to be conducted. Except as disclosed in Schedule 3(g), since February 28, 2001 the Company has not declared or paid any dividends, sold any assets, individually or in the aggregate, in excess of $1,000,000 outside of the ordinary course of business or had capital expenditures, individually or in the aggregate, in excess of $1,000,000. h. Absence of Litigation. Except as expressly set forth in Schedule 3(h), (i) there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Subsidiaries or any of the Company's or the Subsidiaries' officers or directors in their capacities as such, (ii) to the knowledge of the Company there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self- regulatory organization or body threatened against or affecting the Company, the Common Stock or any of the Subsidiaries or any of the Company's or the Subsidiaries' officers or directors in their capacities as such which could have, individually or in the aggregate, a Material Adverse Effect, and (iii) to the knowledge of the Company none of the directors or officers of the Company have been involved in securities related litigation during the past five years. i. Acknowledgment Regarding Buyer's Purchase of Notes and Warrants. The Company acknowledges and agrees that each of the Buyers is acting solely in the capacity of an arm's length purchaser with respect to the Company in connection with the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that each Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice given by any of the Buyers or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer's purchase of the Securities. The Company further represents to each Buyer that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives. j. No Undisclosed Events, Liabilities, Developments or Circumstances. Except for the issuance of the Notes and Warrants contemplated by this Agreement and except as set forth in the Descriptive Memo or the Disclosed Information, no event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly disclosed. k. No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. l. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require -9- registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any of its Subsidiaries take any action or steps that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings. m. Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Notes and the Warrant Shares issuable upon exercise of the Warrants will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Notes in accordance with this Agreement and the Notes and its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants, is in each case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. n. Employee Relations. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. None of the Company's or its Subsidiaries' employees is a member of a union which relates to such employee's relationship with the Company, neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relations with their employees are good. Except for the resignation of Ray S. Naeini during the first quarter of the Company's fiscal year 2003, no executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. No executive officer, to the best knowledge of the Company and its Subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. o. Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights necessary to conduct their respective businesses as now conducted, except where the failure to own or possess such rights would not have, either individually or in the aggregate, a Material Adverse Effect. Except as set forth on Schedule 3(o), none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two years from the date of this Agreement, except where such expiration or termination would not have, either individually or in the aggregate, a Material Adverse Effect. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, trade -10- secrets or other intellectual property rights of others, or of any development of similar or identical trade secrets or technical information by others. Except as set forth on Schedule 3(o), there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding its trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, trade secrets, or infringement of other intellectual property rights, except where such claim, action, proceeding or infringement would not have, either individually or in the aggregate, a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. p. Environmental Laws. The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where, in each of the three foregoing cases, the failure to so comply would not have, either individually or in the aggregate, a Material Adverse Effect. q. Title. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(q) or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and facilities by the Company and its Subsidiaries. r. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect, taken as a whole. s. Regulatory Permits. Except for certificates, authorizations or permits, the absence of which would not have, either individually or in the aggregate, a Material Adverse Effect, the Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective -11- businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. t. Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liability is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any differences. u. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has or is expected to have a Material Adverse Effect. v. Tax Status. The Company and each of its Subsidiaries (i) has made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes), (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and for which the Company has made appropriate reserves for on its books, and (iii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations (referred to in clause (i) above) apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. w. Transactions With Affiliates. Except as set forth on Schedule 3(w), in the Descriptive Memo and in the SEC Documents filed at least ten (10) days prior to the date hereof, and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner. x. Application of Takeover Protections. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, -12- business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Articles of Incorporation or the laws of Texas which is or could become applicable to the Buyers as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and the Buyers' ownership of the Securities. y. Rights Agreement. The Company specifically represents, warrants and agrees that, in accordance with certain provisions of the Third Amended and Restated Rights Agreement, dated May 1, 2001 (the "RIGHTS PLAN"), regardless of the number of Conversion Shares and Warrant Shares of which each Buyer is deemed the Beneficial Owner (as defined in the Rights Plan), none of the Buyers is intended to be or will be deemed to be an Acquiring Person within the meaning of the Rights Plan because of the acquisition of the Securities (including the Conversion Shares and the Warrant Shares) pursuant to this Agreement, and the acquisition of the Securities (including the Conversion Shares and the Warrant Shares) pursuant to this Agreement, shall not, under any circumstances, trigger a Distribution Date within the meaning of the Rights Plan; provided, however, that only Securities (including the Conversion Shares and the Warrant Shares) acquired pursuant to this Agreement shall be deemed excluded from the number of shares of Common Stock deemed beneficially owned by each Buyer in determining whether such Buyer is an Acquiring Person within the meaning of the Rights Plan. z. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. aa.. No Other Agreements. The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. 4. COVENANTS. a. Best Efforts. Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. b. Form D and Blue Sky. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. The Company shall make all -13- filings and reports relating to the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing Date. c. Reporting Status. Until the later of (i) the date which is one year after the date as of which the Investors (as that term is defined in the Registration Rights Agreement) may sell all of the Conversion Shares and the Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date on which no Notes or Warrants remain outstanding (the "REPORTING PERIOD"), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. d. Use of Proceeds. The Company will use the proceeds from the sale of the Notes and the Warrants for substantially the same purposes and in substantially the same amounts as indicated in Schedule 4(d). The Company shall not use the proceeds from the sale of the Notes and Warrants in violation of any applicable law. e. Financial Information. The Company agrees to send the following to each Investor (as that term is defined in the Registration Rights Agreement) during the Reporting Period: (i) unless the following are filed with the SEC through EDGAR and are available to the public through EDGAR, within one (1) day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. f. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 150% of the number of shares of Common Stock needed to provide for the issuance of the Conversion Shares upon conversion of all outstanding Notes (without regard to any limitations on conversions) and 100% of the number of shares of Common Stock needed to provide for the issuance of the Warrant Shares upon exercise of all outstanding Warrants (without regard to any limitations on exercises). g. Listing. The Company shall promptly secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stock's authorization for quotation on the Nasdaq National Market ("NASDAQ") or listed on The New York Stock Exchange, Inc. ("NYSE") or The American Stock Exchange, Inc. ("AMEX") (as applicable, the "PRINCIPAL MARKET"). Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common -14- Stock from the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(g). h. Expenses. Subject to Section 9(k) below, at the Closing, the Company shall pay an expense allowance of $75,000 (which amount is in addition to any amounts paid by the Company prior to the date of this Agreement) to HFTP Investment L.L.C. (a Buyer) or their designee(s) which amount shall be withheld by such Buyer from its Purchase Price to be paid at the Closing. i. Disclosure of Transactions and Other Material Information. Before the earlier of (A) the Company's first public announcement of the transactions contemplated by this Agreement and (B) 8:20 a.m. (New York Time) on May 30, 2002, the Company shall file a Form 8-K with the SEC (i) describing the terms of the transactions contemplated by the Transaction Documents and the occurrence of the Closing, (ii) including as exhibits to such Form 8-K this Agreement (including the schedules hereto), the Form of Note, the Registration Rights Agreement and the Form of Warrant, (iii) disclosing all of the Disclosed Information and (iv) including as exhibits to such Form 8-K the various financing documents included in the Disclosed Information, in the form required by the 1934 Act (the "ANNOUNCING FORM 8-K"). By 11:59 p.m. (New York Time) on the Closing Date, the Company shall issue a press release publicly disclosing the occurrence of the Closing. From and after the filing of the Announcing Form 8-K with the SEC, no Buyer shall be in possession of any material nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents that is not disclosed in the Announcing Form 8-K. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any Buyer with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the Announcing Form 8-K with the SEC without the express written consent of such Buyer and subject to a confidentiality agreement relating thereto. In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents. No Buyer shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby or disclosing the name of any Buyer; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the Announcing Form 8-K and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). j. Transactions With Affiliates. So long as any Note or Warrants are outstanding the Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement any agreement, transaction, commitment or arrangement with any of its or any Subsidiary's officers, directors, persons who were officers or directors at any time during the -15- previous two years, stockholders who beneficially own 5% or more of the Common Stock, or affiliates of the Company or its Subsidiaries or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a "RELATED PARTY"), except for (a) customary employment arrangements and benefit programs on reasonable terms, (b) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a person other than such Related Party, or (c) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company. For purposes hereof, any director who is also an officer of the Company or any Subsidiary shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a 5% or more equity interest in that person or entity, (ii) has 5% or more common ownership with that person or entity, (iii) controls that person or entity, (iv) is controlled by that person or entity or (v) shares common control with that person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity. k. Corporate Existence. So long as any Buyer beneficially owns any Notes or Warrants, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale or transfer of all or substantially all of the Company's assets, where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose common stock is quoted on or listed for trading on Nasdaq, AMEX or NYSE. l. Pledge of Securities. The Company acknowledges and agrees that the Securities may be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a bona fide margin agreement or other loan secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Investor effecting any such pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including without limitation, Section 2(f) of this Agreement; provided that an Investor and its pledgee shall be required to comply with the provisions of Section 2(f) in order to effect a sale, transfer or assignment of Securities to such pledgee. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by an Investor. m. Conversion Notice Information. At or prior to the Closing, each Buyer shall deliver to the Company a form of Conversion Notice (as defined in the Notes) initially to be used to provide the information (other than the date of conversion, principal amount to be converted, conversion price and number of shares of Common Stock to be issued) in connection with a Company Conversion pursuant to Section 6 of the Notes (as such information may be amended, modified or replaced from time to time as provided below, the "CONVERSION NOTICE INFORMATION"). At any time following the Closing, such Buyer may amend, modify or replace its Conversion Notice Information then in effect, by delivering to the Company a new form of Conversion Notice setting forth the new Conversion Notice Information to be used for Company Conversions on or prior to the -16- first Settlement Date (as defined in the Notes) on which such new information is to be used for Company Conversions. Upon a Buyer's assignment or transfer of any of its Notes, such Buyer shall cause the transferee thereof to deliver to the Company such transferee's Conversion Notice Information and agreement to thereafter be bound by this Section 4(m) as if such transferee were a Buyer. n. Wichita Property Sale. The Company shall use its commercially reasonable efforts to close on or before June 8, 2002 the sale of the property at 7309 East 21st Street, in Wichita, Kansas pursuant to the letter agreement dated April 2, 2002 filed as an exhibit to the Company's Form 8-K dated March 31, 2002. The Company will use the proceeds of such sale to pay down amounts outstanding under the Amended Credit Facility (as defined in Section 4(p)). o. Proxy Statement. The Company shall provide each stockholder entitled to vote at the next meeting of stockholders of the Company, which shall be not later than 90 days after the Closing Date (the "STOCKHOLDER MEETING DEADLINE"), a proxy statement, which has been previously reviewed by the Buyers and a counsel of their choice, soliciting each such stockholder's affirmative vote at such annual stockholder meeting for approval of the Company's issuance of all of the Securities as described in this Agreement in accordance with applicable law and the rules and regulations of the Principal Market (such affirmative approval being referred to herein as the "STOCKHOLDER APPROVAL"), and the Company shall use its best efforts to solicit its stockholders' approval of such issuance of the Securities and to cause the Board of Directors of the Company to recommend to the stockholders that they approve such proposal. If the Company fails to hold a meeting of its stockholders by the Stockholder Meeting Deadline, then, as partial relief (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each Buyer an amount in cash equal to the product of (i) the principal amount of the Notes held by such Buyer multiplied by (ii) .02 multiplied by (iii) the quotient of (x) the number of days after the Stockholder Meeting Deadline and prior to the date that a meeting of the Company's stockholders is held, divided by (y) 30. The Company shall make the payments referred to in the immediately preceding sentence within five days of the earlier of (I) the holding of the meeting of the Company's stockholders, the failure of which resulted in the requirement to make such payments, and (II) the last day of each 30-day period beginning on the Stockholder Meeting Deadline. In the event the Company fails to make such payments in a timely manner, such payments shall bear interest at the rate of 2.0% per month (pro rated for partial months) until paid in full. p. Amended Credited Facility. So long as any Notes remain outstanding, (i) the Company shall not draw down any amounts under the Credit Facility (as defined in Section 7(xiv)(A)), as amended by the Amendment (as defined in Section 7(xiv)(A)) (the "AMENDED CREDIT FACILITY") (or any replacements or amendments thereof) until the earlier of (A) such time as the Registration Statement has been declared effective by the SEC and (B) the Amended Credit Facility (or any replacements or amendments thereof) shall have been amended or the Company shall have received a permanent waiver in under the Amended Credit Facility (or any replacements or amendments thereof), in each case permitting the Company to make payments, without limitation, in accordance with the terms of the Notes without violating the terms of the Amended Credit Facility (or any replacements or amendments thereof), and (ii) after the Registration Statement has been declared effective by the SEC, the Company shall not draw down any amounts under the Amended Credit Facility (or any replacements or amendments thereof) unless (x) at the time of such draw down a Registration Statement is effective and available for the resale of at least all the Registrable Securities (as defined in the Registration Rights Agreement) or (y) the Amended Credit Facility (or any replacements or amendments thereof) shall have been amended or the Company shall have received a permanent waiver under the Amended Credit Facility (or any replacements or amendments thereof), in each case permitting the -17- Company to make payments, without limitation, in accordance with the terms of the Notes without violating the terms of the Amended Credit Facility (or any replacements or amendments thereof). 5. TRANSFER AND DEPOSITARY AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its transfer agent in the form attached hereto as Exhibit D (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"), and any subsequent transfer agent, to issue certificates, registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Notes or exercise of the Warrants. Prior to registration of the Conversion Shares and the Warrant Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g). The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 2(f) (in the case of the Conversion Shares and the Warrant Shares, prior to registration of the Conversion Shares and the Warrant Shares under the 1933 Act) will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. If a Buyer provides the Company with an opinion of independent counsel, in a form reasonably acceptable to the Company, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act or the Buyer provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Buyer and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyers by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyers shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company to issue and sell the Notes and the Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company. -18- (ii) Such Buyer shall have delivered to the Company the Purchase Price (less in the case of HFTP Investment L.L.C., the amounts withheld pursuant to Section 4(h)) for the Notes and the Warrants being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (iii) The representations and warranties of such Buyer shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date. (iv) Such Buyer shall have delivered to the Company such Buyer's initial Conversion Notice Information. (v) Such Buyer shall have executed and delivered to the Company a receipt acknowledging such Buyer's receipt of a Note, in the original principal amount set forth opposite such Buyer's name on the Schedule of Buyers, and the related Warrant for the number of Warrant Shares determined in accordance with Section 1(a). 7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each Buyer hereunder to purchase the Notes and the Warrants from the Company at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (i) The Company shall have executed each of the Transaction Documents and delivered the same to such Buyer. (ii) The Common Stock (x) shall be designated for quotation or listed on the Principal Market and (y) shall not have been suspended by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market. (iii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Buyer shall have received a certificate, executed by either the Chief Executive Officer or the Chief Financial Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters -19- as may be reasonably requested by such Buyer, including, without limitation, an update as of the Closing Date of the representation contained in Section 3(c) above. (iv) Such Buyer shall have received the opinion of Fulbright & Jaworski L.L.P. and the opinion of Thompson & Knight LLP, dated as of the Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit E-1 and Exhibit E-2 attached hereto, respectively. (v) The Company shall have executed and delivered to such Buyer the Notes Certificates and the Warrants (in such denominations as such Buyer shall request) for the Notes and the Warrants being purchased by such Buyer at the Closing. (vi) The Board of Directors of the Company shall have adopted resolutions consistent with Section 3(b) above and in a form reasonably acceptable to such Buyer (the "RESOLUTIONS"). (vii) As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes and the exercise of the Warrants, at least 5,400,000 shares of Common Stock. (viii) The Irrevocable Transfer Agent Instructions shall have been delivered to and acknowledged in writing by the Company's transfer agent and the Company shall deliver a copy thereof to such Buyer. (ix) The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company in the State of Texas issued by the Secretary of State of the State of Texas as of a date within ten (10) days of the Closing Date. (x) The Company shall have delivered to such Buyer a secretary's certificate, dated as of the Closing Date, certifying as to (A) the Resolutions, (B) the Articles of Incorporation, certified as of December 5, 2001, by the Secretary of State of the State of Texas and (C) the Bylaws, each as in effect at the Closing. (xi) The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. (xii) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. (xiii) The Company shall have executed and delivered to such Buyer a cross-receipt acknowledging the Company's receipt of the full Purchase Price for the Notes and the Warrants purchased by such Buyer at the Closing as determined in accordance with Section 1(a). -20- (xiv) Prior to the Closing, the Company shall have both: (A) received the Consent, Waiver and Third Amendment to Credit Agreement executed, in substantially the form provided to such Buyer prior to the Closing, (the "AMENDMENT") by sufficient lenders to be effective under the Company's Credit Agreement dated as of June 1, 1999, as amended (the "CREDIT FACILITY"); (B) closed the loan to the Company by Beal Bank, S.S.B. to be secured by a deed of trust on the Company's headquarters at 17811 Waterview Parkway in Dallas, Texas as described in the Commitment Letter dated April 10, 2002 filed as an exhibit to the Company's Form 8-K dated March 31, 2002 (the "MORTGAGE"); (C) paid at least $14,000,000 of the proceeds of the Mortgage to the lenders under the Credit Facility to pay down that amount of the outstanding borrowings under the Credit Facility. (xv) The Company shall have delivered to such Buyer a copy of the Amendment. (xvi) The Company shall have delivered to such Buyer a copy of an acknowledgment or receipt from the lenders under the Credit Facility of at least $14,000,000. (xvii) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five (5) days of the applicable Additional Closing Date. (xviii) The Company shall have delivered wire transfer instructions to such Buyer, which instructions are consistent with Section 4(d). (xix) Before 8:20 a.m. (New York Time) on May 30, 2002, the Company (A) shall have filed with the SEC through EDGAR (I) the Announcing Form 8-K, and (B) the Company's Annual Report on Form 10-K for the year ended February 28, 2002 with a report of independent auditors letter to the audited financial statements therein which does not include any "going concern" statement; and (B) shall have issued a press release, previously reviewed by or on behalf of such Buyer disclosing the transactions contemplated by this Agreement. 8. INDEMNIFICATION. In consideration of each Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, officers, directors, employees and direct or indirect investors and any of the foregoing persons' agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "INDEMNITEES") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents in accordance with the terms thereof or -21- any other certificate, instrument or document contemplated hereby or thereby in accordance with the terms thereof or (d) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 8 shall be the same as those set forth in Sections 6(a) and (d) of the Registration Rights Agreement, including, without limitation, those procedures with respect to the settlement of claims and the Company's rights to assume the defense of claims. 9. GOVERNING LAW; MISCELLANEOUS. a. Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or -22- enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between each Buyer, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Buyers which purchased a majority of the aggregate principal amount of the Notes on the Closing Date, or if prior to the Closing, by the Buyers listed on the Schedule of Buyers as being obligated to purchase a majority of the aggregate principal amount of the Notes. Any such amendment shall bind all holders of Notes. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Notes or Warrants then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents or holders of Notes, as the case may be. f. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: InterVoice-Brite, Inc. 17811 Waterview Parkway Dallas, Texas 75252 Telephone: 972-454-8000 Facsimile: 972-454-8781 Attention: Chief Financial Officer With a copy to: Fulbright & Jaworski L.L.P. 2200 Ross Avenue, Suite 2800 Dallas, Texas 75201-2784 Telephone: 214-855-8000 Facsimile: 214-855-8200 Attention: David E. Morrison, Esq. -23- If to the Transfer Agent: Computershare Trust Co., Inc. 12039 West Alameda Parkway Suite Z-2 Lakewood, Colorado 80228 Telephone: 303-262-0600 Facsimile: 303-262-0604 Attention: Theresa Henshaw If to a Buyer, to it at the address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer's representatives as set forth on the Schedule of Buyers, or, in the case of a Buyer or any other party named above, at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Notes. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of a majority of the aggregate principal of the Notes then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 4(b) of the Notes) with respect to which the Company is in compliance with Section 4(k) of the Agreement, Section 4 of the Notes and Section 9 of the Warrants. A Buyer may assign some or all of its rights hereunder without the consent of the Company, provided, however, that any such assignment shall not release such Buyer from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary contained in the Transaction Documents, the Buyers shall be entitled to pledge the Securities in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities. h. No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. i. Survival. Unless this Agreement is terminated under Section 9(k), the representations and warranties of the Company and the Buyers contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8, shall survive the Closings. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder. -24- j. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. k. Termination. In the event that the Closing shall not have occurred with respect to a Buyer on or before five (5) Business Days from the date hereof due to the Company's or such Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, that if this Agreement is terminated pursuant to this Section 9(k), the Company shall remain obligated to reimburse any nonbreaching Buyers for the expenses described in Section 4(h) above. l. Placement Agent. The Company acknowledges that it has engaged William Blair & Company as placement agent in connection with the sale of the Notes and the related Warrants, which placement agent may have formally or informally engaged other agents on its behalf. The Company shall be responsible for the payment of any placement agent's fees or broker's commissions relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorneys' fees and out of pocket expenses) arising in connection with any such claim. m. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. Remedies. Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. o. Payment Set Aside. To the extent that the Company makes a payment or payments to the Buyers hereunder or pursuant to the Registration Rights Agreement, the Notes or Warrants or the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, by a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. * * * * * * -25- IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: BUYERS: INTERVOICE-BRITE, INC. HFTP INVESTMENT L.L.C. By: Promethean Asset Management L.L.C. Its: Investment Manager By: ----------------------------- Name: ----------------------- Title: By: ---------------------- ------------------------------------- Name: Title: GAIA OFFSHORE MASTER FUND, LTD. By: Promethean Asset Management L.L.C. Its: Investment Manager By: ------------------------------------- Name: Title: CAERUS FUND LTD. By: Promethean Asset Management L.L.C. Its: Investment Manager By: ------------------------------------- Name: Title: SCHEDULE OF BUYERS
INITIAL PRINCIPAL INVESTOR ADDRESS AMOUNT OF BUYER'S LEGAL REPRESENTATIVES' INVESTOR'S NAME AND FACSIMILE NUMBER NOTES ADDRESS AND FACSIMILE NUMBER --------------- -------------------- --------- ------------------------------ HFTP Investment L.L.C. c/o Promethean Asset Management L.L.C. $4,500,000 Promethean Investment Group, L.L.C. 750 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor New York, New York 10022 New York, New York 10022 Attention: David M. Kittay Attention: David M. Kittay Greg Carney Greg Carney Telephone: (212) 702-5200 Telephone: 212-702-5200 Facsimile: (212) 758-9334 Facsimile: 212-758-9334 Residence: New York Katten Muchin Zavis Rosenman 525 W. Monroe Street Chicago, Illinois 60661-3693 Attention: Robert J. Brantman, Esq. Telephone: (312) 902-5200 Facsimile: (312) 902-1061 Gaia Offshore Master Fund, Ltd. c/o Promethean Asset Management L.L.C. $4,500,000 Promethean Investment Group, L.L.C. 750 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor New York, New York 10022 New York, New York 10022 Attention: David M. Kittay Attention: David M. Kittay Greg Carney Greg Carney Telephone: (212) 702-5200 Telephone: 212-702-5200 Facsimile: (212) 758-9334 Facsimile: 212-758-9334 Residence: New York Katten Muchin Zavis Rosenman 525 W. Monroe Street Chicago, Illinois 60661-3693 Attention: Robert J. Brantman, Esq. Telephone: (312) 902-5200 Facsimile: (312) 902-1061 Caerus Fund Ltd. c/o Promethean Asset Management L.L.C. $1,000,000 Promethean Investment Group, L.L.C. 750 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor New York, New York 10022 New York, New York 10022 Attention: David M. Kittay Attention: David M. Kittay Greg Carney Greg Carney Telephone: (212) 702-5200 Telephone: 212-702-5200 Facsimile: (212) 758-9334 Facsimile: 212-758-9334 Residence: New York Katten Muchin Zavis Rosenman 525 W. Monroe Street Chicago, Illinois 60661-3693 Attention: Robert J. Brantman, Esq. Telephone: (312) 902-5200 Facsimile: (312) 902-1061
SCHEDULES Schedule 2(d) Certain Information Schedule 3(a) Subsidiaries Schedule 3(c) Capitalization Schedule 3(e) Conflicts Schedule 3(f) SEC Documents Schedule 3(g) Material Changes Schedule 3(o) Intellectual Property Schedule 3(q) Liens Schedule 3(w) Certain Transactions Schedule 4(d) Use of Proceeds EXHIBITS Exhibit A Form of Note Exhibit B Form of Warrant Exhibit C Form of Registration Rights Agreement Exhibit D Form of Irrevocable Transfer Agent Instructions Exhibit E-1 Form of Company Counsel Opinion (Fulbright & Jaworski L.L.P.) Exhibit E-2 Form of Company Counsel Opinion (Thompson & Knight LLP) Schedule 2(d) See attached Quarter to May 24, 2002 Working Capital and Revenue. QUARTER TO DATE WORKING CAPITAL AND REVENUE - -------------------------------------------------------------------------------- $ IN THOUSANDS CONFIDENTIAL WORKING CAPITAL
BALANCES AS OF: 02/28/2002 04/30/2002 ---------- ---------- Cash $ 17,646 $ 11,637 Accounts Receivable 40,783 37,676 Inventory 27,524 26,911 Accounts Payable 22,661 16,940 Deferred Income 24,426 23,631
PERIOD FROM 3/1/02 TO 5/24/02 ------------------ REVENUE CURRENT QUARTER TO DATE Recognized Revenue NSD $ 9,253 ESD 16,383 --------- 25,636 Booked Revenue NSD $ 7,344 ESD 2,601 --------- 9,945 Recognized and Booked Revenue for period from 3/1/02 to 5/24/02 $ 35,581 Revenue to be Booked between 5/25/02 and 5/31/02 --------- Total Revenue for the Quarter ended May 31, 2002 =========
CONFIDENTIAL Schedule 3(a) Subsidiaries
Subsidiary State of Organization ---------- --------------------- InterVoice GP, Inc. Nevada InterVoice LP, Inc. Nevada InterVoice Limited Partnership Nevada InterVoice do Brasil Ltda Brazil Brite Voice Systems, Inc. Nevada Intervoice-Brite Limited England Intervoice-Brite GmbH Germany Brite Holding AG Switzerland Brite Voice Systems AG Switzerland Intervoice-Brite S.p.A. Italy InterVoice-Brite Pte. Limited Singapore Intervoice-Brite (Proprietary) Limited South Africa BVSI, Inc. Delaware BVS Investco, Inc. Delaware
Schedule 3(c) Capitalization (B) Debt Instruments The Company and its wholly owned subsidiary, Brite Voice Systems, Inc., are parties to a Credit Agreement dated June 1, 1999 with the lenders thereto (as amended, the "Credit Facility"). Term loans and revolving loans under the Credit Facility totaled approximately $135 million at the inception of the Credit Facility and were paid down to approximately $30 million as of May 28, 2002. The term loans under the Credit Facility are subject to quarterly principal amortization. In addition, the Credit Facility is subject to certain mandatory prepayments and commitment reductions tied to the sale of assets, the issuance of debt, the issuance of equity and the generation of excess cash flow for a fiscal year. Certain of these prepayment and commitment reduction requirements are limited by the satisfaction of certain financial ratios. The Credit Facility contains certain representations and warranties, certain negative and affirmative covenants and certain conditions and events of default which are customarily required for similar financing. Such covenants include, among others, restrictions and limitations on liens and negative pledges; limitations on mergers, consolidations and sales of assets; limitations on incurrence of debt; limitations on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitations on investments and acquisitions (other than the acquisition of the Company); and limitations on capital expenditures. Key financial covenants based on the Company's consolidated financial statements include minimum net worth, maximum leverage ratio and minimum fixed charges coverage ratio. The Credit Facility also requires a first priority perfected security interest in (i) all of the capital stock of each of the domestic subsidiaries of the Company, and 65% of the capital stock of each first tier foreign subsidiary of the Company, which capital stock shall not be subject to any other lien or encumbrance and (ii) subject to permitted liens, all other present and future material assets and properties of the Company and its material domestic subsidiaries (including, without limitation, accounts receivable and proceeds, inventory, real property, machinery and equipment, contracts, trademarks, copyrights, patents, license rights and general intangibles). The lenders had previously entered into forbearance agreements dated March 7, 2002 and March 31, 2002, pursuant to which the lenders granted a temporary waiver of a default under one of four financial covenants (fixed charge coverage ratio) through May 31, 2002. The Company and lenders entered into commitment letters to enter into a Consent, Waiver, and Third Amendment to Credit Agreement (the "Third Amendment") to be effective as of May 29, 2002, pursuant to which the lenders will waive the default under a financial covenant requiring the Company to maintain a minimum fixed charge coverage ratio. The effectiveness of the Third Amendment is conditioned on funding under the Convertible Notes. The Third Amendment will amend the fixed charge coverage ratio covenant and a covenant to maintain a minimum leverage ratio (as described in the Credit Facility) to reflect the Company's current capital structure and liquidity requirements. The Third Amendment also will add a covenant by the Company to maintain a minimum level of EBITDA (as defined in the Credit Facility). Pursuant to the Third Amendment, proceeds from the mortgage of the Company's office facilities in Dallas, Texas, and proceeds from the purchase of Convertible Notes, will be applied to repay all outstanding indebtedness under the term loan, with the remainder applied to the revolving loans. Under the amended Credit Facility, the lenders will agree to continue making revolving loans to the Company up to a revised maximum amount of $12 million through June 1, 2003. The maximum amount of revolving loans that may be outstanding will also be limited by a borrowing base based upon levels of eligible accounts receivable and eligible inventory securing the revolving loans. The Company will not be permitted to have outstanding loans under the Credit Facility at any time the Company makes principal payments on the Convertible Notes in cash. Accordingly, the Company will have to repay the outstanding revolving loans under the Credit Facility before any installment of principal on the Convertible Notes is paid in cash. At that point, at the Company's option, installments on the Convertible Notes will be repaid in cash or by a partial conversion of such notes through the Company's issuance of common stock. The Credit Facility is cross-defaulted with the Convertible Notes such that a default or the occurrence of certain other events under the Convertible Notes will be a default under the Credit Facility. The amended Credit Facility will provide that interest would accrue at a base rate equal to an applicable margin plus the higher of (i) the prime rate or (ii) the federal funds rate. The applicable margin will be determined in accordance with a schedule to the Credit Facility and by reference to a ratio of the Company's funded debt to EBITDA. The Third Amendment will delete provisions that permit the Company to elect an interest rate equal to the London Interbank Offer Rate ("LIBOR") plus the applicable margin. Mortgage Loan Effective May 29, 2002, the Company executed and delivered a deed of trust and promissory note in favor of Beal Bank, S.S.B., for a mortgage loan of $14 million secured by a first lien on the Company's facilities in Dallas, Texas. The mortgage loan is a three year balloon note, bearing interest, payable monthly, at the greater of 10.5% or the prime rate plus 2.0%. Proceeds from the mortgage will be applied to reduce loans under the Credit Facility. The lenders under the Credit Facility entered into an agreement with Beal Bank, S.S.B. subordinating their lien on the Dallas, Texas facilities for purposes of the mortgage loan. (C) 1990 Employee Stock Option Plan A stock option plan is in effect under which shares of common stock were authorized for issuance by the Compensation Committee of the Board of Directors as stock options to key employees. Option prices per share are the fair market value per share of stock, based on the closing per share price on the date of grant. The Company has granted options at various dates with terms under which the options generally become exercisable at the rate of 20%, 25% or 33% per year. Options becoming exercisable at 33% per year expire six or ten years after the date of grant. Options becoming exercisable at 20% or 25% per year expire ten years after the date of grant.
WEIGHTED AVERAGE EXERCISE PRICE SHARES PER SHARE ---------- ---------------- Balance at February 28, 1999 2,836,818 $6.03 Granted -- $ -- Exercised (541,202) $5.08 Forfeited (87,851) $4.84 ---------- ----- Balance at February 29, 2000 2,207,765 $6.31 Granted 253,000 $7.41 Exercised (391,492) $4.97 Forfeited (145,971) $5.17 ---------- ----- Balance at February 28, 2001 1,923,302 $6.82 Granted -- $ -- Exercised (229,184) $5.05 Forfeited (22,234) $6.65 ---------- ----- Balance at February 28, 2002 1,671,884 $7.06 ========== =====
A total of 1,541,634 employee options were exercisable at an average price of $7.21 at February 28, 2002. 1998 Employee Non-Qualified Plan During fiscal 1999, the Company adopted a stock option plan under which shares of common stock may be authorized for issuance by the Compensation Committee of the Board of Directors as non-qualified stock options to key employees. Option prices per share are the fair market value per share of stock, based on the closing price per share on the date of grant. The Company has granted options at various dates with terms under which the options become exercisable at a rate of 25% or 33% per year and are exercisable for a period of ten years after the date of grant.
WEIGHTED AVERAGE EXERCISE PRICE SHARES PER SHARE -------- ---------------- Balance at February 28, 1999 979,500 $ 6.28 Granted 40,000 $10.80 Exercised (113,742) $ 6.18 Forfeited (60,834) $ 9.02 -------- ------ Balance at February 29, 2000 844,924 $ 6.24 Granted -- $ -- Exercised (60,418) $ 4.98 Forfeited (67,501) $ 6.53 -------- ------ Balance at February 28, 2001 717,005 $ 6.47 Granted -- $ -- Exercised (328,671) $ 7.03 Forfeited (12,916) $ 9.27 -------- ------ Balance at February 28, 2002 375,418 $ 5.83 ======== ------
A total of 322,168 employee options were exercisable at an average price of $5.61 at February 28, 2002. 1999 Non-Qualified Plan During fiscal 2000, the Company adopted a stock option plan under which shares of common stock may be authorized for issuance by the Compensation Committee of the Board of Directors as non-qualified stock options to key employees and non-employee members of the Company's Board of Directors. Option prices per share are the fair market value per share of stock, based on the average of the high and low price per share on the date of grant. The Company has granted options to employees at various dates with terms under which the options become exercisable at a rate of 25% or 33% per year and are exercisable for a period of ten years after the date of grant. In addition, the Company has granted options to non-employee directors at various dates with terms under which the options become exercisable within the period specified in the optionee's agreement and are exercisable for a period of ten years from the date of grant.
WEIGHTED AVERAGE EXERCISE PRICE SHARES PER SHARE ---------- ---------------- Balance at February 29, 2000 1,503,000 $14.88 Granted 2,458,000 $ 7.92 Exercised (10,000) $ 6.88 Forfeited (541,063) $10.99 ---------- ------ Balance at February 28, 2001 3,409,937 $10.50 Granted 259,000 $11.47 Exercised (168,223) $ 8.27 Forfeited (317,398) $11.37 ---------- ------ Balance at February 28, 2002 3,183,316 $10.62 ========== ------
A total of 1,442,297 employee options and 66,000 non-employee options were exercisable at an average price of $11.57 at February 28, 2002. 1990 Non-Employee Option Plan Under the 1990 non-employee stock option plan, nonqualified stock options were issued to non-employee members of the Company's Board of Directors in accordance with a formula prescribed by the plan. Option prices per share are the fair market value per share, based on the closing per share price on the date of grant. Each option became exercisable within the period specified in the optionee's agreement and is exercisable for 10 years from the date of grant.
WEIGHTED AVERAGE EXERCISE PRICE SHARES PER SHARE ---------- ---------------- Balance at February 28, 1999 127,000 $7.51 Exercised (35,000) $8.63 -------- ----- Balance at February 29, 2000 92,000 $7.08 Exercised (8,000) $4.25 -------- ----- Balance at February 28, 2001 84,000 $7.35 Granted -- $ -- Exercised (8,000) $6.97 -------- ----- Balance at February 28, 2002 76,000 $7.39 =====
A total of 76,000 non-employee options were exercisable at an average price of $7.39 at February 28, 2002. Employee Stock Purchase Plan The Company has adopted an Employee Stock Purchase Plan under which an aggregate of 1,000,000 shares of common stock may be issued. Options are granted to eligible employees in accordance with a formula prescribed by the plan and are exercised automatically at the end of a one-year payroll deduction period. As adopted, the payroll deduction periods began either December 1 or June 1 and ended on the following November 30 and May 31, respectively. During fiscal 2000, the payroll deduction periods were amended to coincide with a calendar year cycle, with deductions beginning either January 1 or July 1 and ending on the following December 31 and June 30, respectively. Option prices are 85% of the lower of the closing price per share of the Company's common stock on the option grant date or the option exercise date.
WEIGHTED AVERAGE EXERCISE PRICE SHARES PER SHARE -------- ---------------- Balance at February 28, 1999 ........ 88,468 $ 8.61 Granted ........................... 90,244 $15.50 Exercised ......................... (76,608) $ 8.49 Forfeited ......................... (11,860) $ 9.37 -------- ------ Balance at February 29, 2000 ........ 90,244 $15.50 Granted ........................... 236,505 $ 5.80 Exercised ......................... (62,213) $ 7.93 Forfeited ......................... (28,031) $ 7.12 -------- ------ Balance at February 28, 2001 ........ 236,505 $ 5.80 Granted ........................... 130,518 $10.29 Exercised ......................... (194,455) $ 5.84 Forfeited ......................... (42,050) $ 5.62 -------- ------ Balance at February 28, 2002 ........ 130,518 $10.29 ======== ======
The grant price per option outstanding is either $9.35 or $10.88. As of February 28, 2002, no options were exercisable under this plan. As of February 28, 2002, 6,257,440 shares of common stock were reserved for future issuance under all option plans as follows:
SHARES AVAILABLE FOR ----------------------------------- OUTSTANDING FUTURE PLAN NAME STOCK OPTIONS STOCK OPTION GRANTS ------------- ------------------- 1990 Employee Stock Option Plan ...... 1,671,884 -- 1998 Employee Non-Qualified Plan ..... 375,418 121,751 1999 Non-Qualified Plan .............. 3,183,316 638,461 1990 Non-Employee Option Plan ........ 76,000 -- Employee Stock Option Purchase Plan .. 130,518 60,092 --------- --------- Total .......................... 5,437,136 820,304 ========= =========
Restricted Stock Plan During fiscal 1996, the Company adopted a Restricted Stock Plan under which an aggregate of 1,000,000 shares may be issued. Shares issued to senior executives are earned based on the achievement of certain targeted share prices and the continued service of each executive for a two-year period after each target is met. Shares are available for annual grants to other key executives as a component of their annual bonuses on the achievement of targeted annual earnings per share objectives and the completion of an additional two years of service after the grant. Activity related to restricted stock during fiscal 2002, 2001 and 2000 is as follows:
SENIOR EXECUTIVE PLAN --------- Balance at February 28, 1999 46,914 Granted 107,164 ------- Balance at February 29, 2000 154,078 Forfeited (20,000) Vested (46,914) ------- Balance at February 28, 2001 87,164 Vested (87,164) ------- Balance at February 28, 2002 --
The weighted average share price for grants in fiscal year 2000 was $31.75 for the Senior Executive Plan. Shares forfeited in fiscal 2001 had been granted at a weighted average share price of $34.22. At February 28, 2002, 770,570 shares were reserved for future restricted stock grants. Other Stock Award Plan Disclosures Options Outstanding at February 28, 2002:
WEIGHTED WEIGHTED AVERAGE AVERAGE REMAINING CONTRACTUAL EXERCISE PRICES SHARES EXERCISE PRICE LIFE IN YEARS - --------------- --------- -------------- --------------------- $ 4.50 - 6.73 2,179,612 $ 5.47 6.81 $ 6.81 - 10.38 1,553,939 $ 9.09 7.10 $ 10.56 - 34.41 1,703,585 $ 13.89 7.08 --------- 5,437,136 =========
Options Exercisable at February 28, 2002:
WEIGHTED WEIGHTED AVERAGE AVERAGE REMAINING CONTRACTUAL EXERCISE PRICES SHARES EXERCISE PRICE LIFE IN YEARS - --------------- --------- -------------- --------------------- $ 4.50 - 6.13 1,488,734 $ 5.22 6.31 $ 6.19 - 14.44 1,126,035 $ 9.51 6.17 $ 14.88 - 34.41 833,330 $ 14.94 7.48 --------- 3,448,099 ========
Preferred Share Purchase Rights One Preferred Share Purchase Right is attached to each outstanding share of the Company's common stock. The rights will become exercisable upon the earlier to occur of ten days after the first public announcement that a person or group has acquired beneficial ownership of 20 percent or more, or ten days after a person or group announces a tender offer that would result in beneficial ownership of 20 percent or more of the Company's outstanding common stock. At such time as the rights become exercisable, each right will entitle its holder to purchase one eight-hundredth of a share of Series A Preferred Stock for $37.50, subject to adjustment. If the Company is acquired in a business combination transaction while the rights are outstanding, each right will entitle its holder to purchase for $37.50 common shares of the acquiring company having a market value of $75. In addition, if a person or group acquires beneficial ownership of 20 percent or more of the Company's outstanding common stock, each right will entitle its holder (other than such person or members of such group) to purchase, for $37.50, a number of shares of the Company's common stock having a market value of $75. Furthermore, at any time after a person or group acquires beneficial ownership of 20 percent or more (but less than 50 percent) of the Company's outstanding common stock, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by the acquiring person or group) for shares of the Company's common stock on a one-for-one basis. At any time prior to the acquisition of such a 20 percent position, the Company can redeem each right for $0.00125. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than 10 percent. The rights expire in May, 2011. On May 29, 2002, the Company executed that certain First Amendment to Third Amended and Restated Agreement, providing, among other things, as follows: The definition of "Acquiring Person" in Section 1 of the Agreement is amended to add the following language at the end of such definition: Notwithstanding anything contained in this Agreement to the contrary, neither HFTP Investment L.L.C. ("HFTP"), Gaia Offshore Master Fund, Ltd. ("Gaia") nor Caerus Fund Ltd. ("Caerus," and collectively with HFTP and Gaia, the "Buyers") shall become or be an Acquiring Person by virtue of the acquisition of Common Shares pursuant to the terms of that certain Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of May 29, 2002, among the Company and the Buyers (including without limitation acquisition of the Notes, the Warrants and any Conversion Shares and Warrant Shares, as those terms are defined in the Securities Purchase Agreement), and the acquisition of Common Shares pursuant to the Securities Purchase Agreement shall not, under any circumstances, trigger a Distribution Date within the meaning of this Agreement; provided, however, that only Common Shares (including the Conversion Shares and Warrant Shares) acquired pursuant to the Securities Purchase Agreement shall be deemed excluded from the number of Common Shares deemed beneficially owned by each Buyer in determining whether such Buyer is an Acquiring Person. Schedule 3(e) Conflicts The Company's Credit Facility contains various covenants and conditions including a requirement that the Company maintain certain key financial ratios. As of May 28, 2002, although the Company had timely made all payments required under the Credit Facility, the Company was not in compliance with one of four required financial ratios (fixed charge coverage ratio), and, accordingly, an event of default had occurred. The Event of Default will be waived in accordance with the Third Amendment as discussed in Schedule 3(c). Schedule 3(f) 1. Securities Purchase Agreement, dated as of May 29, 2002, between the Company and the Buyers named therein (the "Securities Purchase Agreement"). 2. Form of Convertible Notes in an aggregate principal amount of $10 million, dated as of May 29, 2002, between the Company and the Buyers under the Securities Purchase Agreement. 3. Form of Warrants to acquire 621,303 shares of the Company's common stock, dated as of May 29, 2002, between the Company and the Buyers under the Securities Purchase Agreement. 4. Registration Rights Agreement, dated May 29, 2002, between the Company and the Buyers under the Securities Purchase Agreement. 5. Consent, Waiver and Third Amendment to Credit Agreement, dated as of May __, 2002, to be executed among the Company, BriteVoice Systems, Inc. (successor by merger to InterVoice Acquisition Subsidiary III, Inc.), Bank of America, National Association (successor by merger to Bank of America National Trust and Savings Association), as Agent, and the other Lenders named therein, and associated consent letters. 6. Promissory Note in the amount of $14.0 million, executed by the Company in favor of Beal Bank, S.S.B., in connection with a mortgage loan relating to the Company's office facilities in Dallas, Texas. 7. Deed of Trust, dated May 29, 2002, executed by the Company granting Beal Bank, S.S.B. a first lien on the Company's office facilities in Dallas, Texas, to secure a $14.0 million mortgage loan. 8. Second Amended Employment Agreement, dated February 18, 2002, between the Company and David W. Brandenburg. 9. First Amendment to Third Amended Restated Rights Agreement, dated May 29, 2002 between the Company and the Rights Agent. Schedule 3(g) Material Changes The Company has entered into a letter agreement with a prospective purchaser for the sale of the Company's office facilities in Wichita, Kansas for $2.0 million. The sale is expected to close in May 2002. Schedule 3(h) Litigation Pending Litigation David Barrie, et al., on Behalf of Themselves and All Others Similarly Situated v. InterVoice-Brite, Inc., et al.; No. 3-01CV1071-D, pending in the United States District Court, Northern District of Texas, Dallas Division: Several related class action lawsuits were filed in the United States District Court for the Northern District of Texas on behalf of purchasers of common stock of the Company during the period from October 12, 1999 through June 6, 2000, the "Class Period." Plaintiffs have filed claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission Rule 10b-5 against the Company as well as certain named current and former officers and directors of the Company on behalf of the alleged class members. In the complaint, Plaintiffs claim that the Company and the named current and former officers and directors issued false and misleading statements during the Class Period concerning the financial condition of the Company, the results of the Company's merger with Brite and the alleged future business projections of the Company. Plaintiffs have asserted that these alleged statements resulted in artificially inflated stock prices. The Company believes that it and its officers complied with their obligations under the securities laws, and intends to defend the lawsuits vigorously. The Company has responded to these complaints, which have now been consolidated into one proceeding, by filing a motion to dismiss the complaint in the consolidated proceeding. The Company has asserted that the complaint lacks the degree of specificity and factual support to meet the pleading standards applicable to federal securities litigation. On this basis, the Company has requested that the United States District Court for the Northern District of Texas dismiss the complaint in its entirety. Plaintiffs have responded to the Company's request for dismissal, and the Company is preparing to file a supplemental brief while awaiting a ruling by the Court. All discovery and other pleadings not related to the dismissal have been stayed pending resolution of the Company's request to dismiss the complaint. Vendor Dispute On or about April 26, 2002, Telemac Corporation ("Telemac") commenced an arbitration proceeding in the Los Angeles, California, office of JAMS against the Company and InterVoice Brite Ltd. and Brite Voice Systems, Inc., JAMS Case No. 1220026278, claiming fraud, negligent misrepresentation and breach of contract in connection with formation of and performance under certain agreements between the Company, and/or its alleged predecessors, and Telemac, and seeking compensatory damages of approximately $58 million, punitive damages and attorneys fees and other costs and fees. Telemac's allegations arise out of the negotiations and terms of the Amended and Restated Prepaid Phone Processing Agreement between Telemac and Brite Voice Systems Group, Ltd., dated November 1, 1998, and certain amendments thereto under which Telemac licensed prepaid wireless software for use in various markets and exploited in the United Kingdom under agreement with Cellnet, a provider of wireless telephony in the United Kingdom. The Company and Telemac have selected as arbitrator Justice William A. Masterson (Ret.) formerly of the California Court of Appeal and the Los Angeles County Superior Court, although Justice Masterson has not yet agreed to serve. No date has been set for commencement of the arbitration hearing. The Company's response to Telemac's allegations is due June 4, 2002. The Company acknowledges it may owe an immaterial amount for certain software development services rendered by Telemac. With the exception of these immaterial amounts, the Company believes that the claims asserted by Telemac are without merit. The Company further believes it has meritorious defenses and intends to vigorously defend the arbitration. Intellectual Property Matters From time to time Ronald A. Katz Technology Licensing L.P. ("RAKTL") has sent letters to certain customers of the Company suggesting that the customer should negotiate a license agreement to cover the practice of certain patents owned by RAKTL. In the letters, RAKTL has alleged that certain of its patents pertain to certain enhanced services offered by network providers, including prepaid card and wireless services and postpaid card services. RAKTL has further alleged that certain of its patents pertain to certain call processing applications, including applications for call centers that route calls using a called party's DNIS identification number. Certain products offered by the Company can be programmed and configured to provide enhanced services to network providers and call processing applications for call centers. The Company's contracts with customers usually include a qualified obligation to indemnify and defend customers against claims that products as delivered by the Company infringe a third party's patent. None of the Company's customers have notified the Company that RAKTL has claimed that any product provided by the Company infringes any claims of any RAKTL patent. Accordingly, the Company has not been required to defend any customers against a claim of infringement under a RAKTL patent. The Company has, however, received letters from customers notifying the Company of the efforts by RAKTL to license its patent portfolio and reminding the Company of its potential obligations under the indemnification provisions of the applicable agreements in the event that a claim is asserted. In response to correspondence from RAKTL, a few customers have attempted to tender to the Company the defense of its products under contractual indemnity provisions. The Company has informed these customers that while it fully intends to honor any contractual indemnity provisions, it does not believe it currently has any obligation to provide such a defense because RAKTL does not appear to have made a claim that a Company product infringes a patent. In the matter of Katz Technology Licensing, LP v. Verizon Communications Inc., et al, No. 01-CV-5627, pending in U.S. District Court, Eastern District of Pennsylvania, RAKTL has alleged that Verizon Communications, Inc. ("Verizon") and certain of its affiliates infringe patents held by RAKTL. From 1997 until November of 2001 the Company's wholly owned affiliate, Brite, provided prepaid services to an affiliate of Verizon under a managed services contract. The affiliate, which is named as a defendant in the lawsuit, recently notified Brite of the pendency of the lawsuit and referenced provisions of the managed services contract which require Brite to indemnify the affiliate against claims that its services infringe a patent. The claims in the lawsuit make general references to prepaid services and a variety of other services offered by Verizon and the affiliate but do not refer to Brite's products or services. The Company has informed the affiliate that it can find no basis for an indemnity obligation under the expired contract. Even though RAKTL has not alleged that a product provided by the Company infringes a RAKTL patent, it is always possible that RAKTL may do so. In the event that a Company product becomes the subject of litigation, a customer could attempt to invoke the Company's indemnity obligations under the applicable agreement. As with most sales contracts with suppliers of computerized equipment, the Company's contractual indemnity obligations are generally limited to the products and services provided by the Company, and generally require the customer to allow the Company to have sole control over any litigation and settlement negotiations with the patent holder. The customers who have received letters from RAKTL generally have multiple suppliers of the types of products that might potentially be subject to claims by RAKTL. Even though no claims have been made that a specific product offered by the Company infringes any claim under the RAKTL patent portfolio, the Company has received opinions from its outside patent counsel that certain products and applications offered by the Company do not infringe certain claims of the RAKTL patents. The Company has also received opinions from its outside counsel that certain claims under the RAKTL patent portfolio are invalid. Furthermore, based on the reviews by outside counsel, the Company is not aware of any claims under the RAKTL portfolio that are infringed by the Company's products. If the Company does become involved in litigation in connection with the RAKTL patent portfolio, under a contractual indemnity or any other legal theory, the Company intends to vigorously contest the claims and to assert appropriate defenses. A number of companies, including some large, well known companies and some customers of the Company, have already licensed certain rights under the RAKTL patent portfolio. During November 2000, RAKTL announced license agreements with, among others, AT&T Corp., Microsoft Corporation and International Business Machines Corporation. In the matter of Aerotel, Ltd. et al, vs. Sprint Corporation, et al, Cause No. 99-CIV-11091 (SAS), pending in the United States District Court, Southern District of New York, Aerotel, Ltd., has sued Sprint Corporation alleging that certain prepaid services offered by Sprint are infringing Aerotel's U.S. Patent No. 4,706,275 ("275 patent"). According to Sprint, the suit originally focused on land-line prepaid services not provided by the Company. As part of an unsuccessful mediation effort, Aerotel also sought compensation for certain prepaid wireless services provided to Sprint PCS by the Company. As a result of the mediation effort, Sprint has requested that the Company provide a defense and indemnification to Aerotel's infringement claims, to the extent that they pertain to any wireless prepaid services offered by the Company. In response to this request, the Company has offered to assist Sprint's counsel in defending against such claims, to the extent they deal with issues unique to the system and services provided by the Company, and to reimburse Sprint for the reasonable attorneys' fees associated therewith. The trial court has stayed the lawsuit pending certain rulings from the United States Patent and Trademark Office. The Company has received opinions from its outside patent counsel that the wireless prepaid services offered by the Company do not infringe the "275 patent". If the Company does become involved in litigation in connection with the "275 patent", under a contractual indemnity or any other legal theory, the Company intends to vigorously contest any claims that its prepaid wireless services infringe the "275 patent" and to assert appropriate defenses. Claims by Certain Employees Certain non-executive employees located in foreign countries have instituted claims before foreign agencies or tribunals for compensation in connection with the termination of their employment. In the aggregate, these claims will not have a Material Adverse Effect. Schedule 3(o) Intellectual Property From time to time Ronald A. Katz Technology Licensing L.P. ("RAKTL") has sent letters to certain customers of the Company suggesting that the customer should negotiate a license agreement to cover the practice of certain patents owned by RAKTL. In the letters, RAKTL has alleged that certain of its patents pertain to certain enhanced services offered by network providers, including prepaid card and wireless services and postpaid card services. RAKTL has further alleged that certain of its patents pertain to certain call processing applications, including applications for call centers that route calls using a called party's DNIS identification number. Certain products offered by the Company can be programmed and configured to provide enhanced services to network providers and call processing applications for call centers. The Company's contracts with customers usually include a qualified obligation to indemnify and defend customers against claims that products as delivered by the Company infringe a third party's patent. None of the Company's customers have notified the Company that RAKTL has claimed that any product provided by the Company infringes any claims of any RAKTL patent. Accordingly, the Company has not been required to defend any customers against a claim of infringement under a RAKTL patent. The Company has, however, received letters from customers notifying the Company of the efforts by RAKTL to license its patent portfolio and reminding the Company of its potential obligations under the indemnification provisions of the applicable agreements in the event that a claim is asserted. In response to correspondence from RAKTL, a few customers have attempted to tender to the Company the defense of its products under contractual indemnity provisions. The Company has informed these customers that while it fully intends to honor any contractual indemnity provisions, it does not believe it currently has any obligation to provide such a defense because RAKTL does not appear to have made a claim that a Company product infringes a patent. In the matter of Katz Technology Licensing, LP v. Verizon Communications Inc., et al, No. 01-CV-5627, pending in U.S. District Court, Eastern District of Pennsylvania, RAKTL has alleged that Verizon Communications, Inc. ("Verizon") and certain of its affiliates infringe patents held by RAKTL. From 1997 until November of 2001 the Company's wholly owned affiliate, Brite, provided prepaid services to an affiliate of Verizon under a managed services contract. The affiliate, which is named as a defendant in the lawsuit, recently notified Brite of the pendency of the lawsuit and referenced provisions of the managed services contract which require Brite to indemnify the affiliate against claims that its services infringe a patent. The claims in the lawsuit make general references to prepaid services and a variety of other services offered by Verizon and the affiliate but do not refer to Brite's products or services. The Company has informed the affiliate that it can find no basis for an indemnity obligation under the expired contract. Even though RAKTL has not alleged that a product provided by the Company infringes a RAKTL patent, it is always possible that RAKTL may do so. In the event that a Company product becomes the subject of litigation, a customer could attempt to invoke the Company's indemnity obligations under the applicable agreement. As with most sales contracts with suppliers of computerized equipment, the Company's contractual indemnity obligations are generally limited to the products and services provided by the Company, and generally require the customer to allow the Company to have sole control over any litigation and settlement negotiations with the patent holder. The customers who have received letters from RAKTL generally have multiple suppliers of the types of products that might potentially be subject to claims by RAKTL. Even though no claims have been made that a specific product offered by the Company infringes any claim under the RAKTL patent portfolio, the Company has received opinions from its outside patent counsel that certain products and applications offered by the Company do not infringe certain claims of the RAKTL patents. The Company has also received opinions from its outside counsel that certain claims under the RAKTL patent portfolio are invalid. Furthermore, based on the reviews by outside counsel, the Company is not aware of any claims under the RAKTL portfolio that are infringed by the Company's products. If the Company does become involved in litigation in connection with the RAKTL patent portfolio, under a contractual indemnity or any other legal theory, the Company intends to vigorously contest the claims and to assert appropriate defenses. A number of companies, including some large, well known companies and some customers of the Company, have already licensed certain rights under the RAKTL patent portfolio. During November 2000, RAKTL announced license agreements with, among others, AT&T Corp., Microsoft Corporation and International Business Machines Corporation. In the matter of Aerotel, Ltd. et al, vs. Sprint Corporation, et al, Cause No. 99-CIV-11091 (SAS), pending in the United States District Court, Southern District of New York, Aerotel, Ltd., has sued Sprint Corporation alleging that certain prepaid services offered by Sprint are infringing Aerotel's U.S. Patent No. 4,706,275 ("275 patent"). According to Sprint, the suit originally focused on land-line prepaid services not provided by the Company. As part of an unsuccessful mediation effort, Aerotel also sought compensation for certain prepaid wireless services provided to Sprint PCS by the Company. As a result of the mediation effort, Sprint has requested that the Company provide a defense and indemnification to Aerotel's infringement claims, to the extent that they pertain to any wireless prepaid services offered by the Company. In response to this request, the Company has offered to assist Sprint's counsel in defending against such claims, to the extent they deal with issues unique to the system and services provided by the Company, and to reimburse Sprint for the reasonable attorneys' fees associated therewith. The trial court has stayed the lawsuit pending certain rulings from the United States Patent and Trademark Office. The Company has received opinions from its outside patent counsel that the wireless prepaid services offered by the Company do not infringe the "275 patent". If the Company does become involved in litigation in connection with the "275 patent", under a contractual indemnity or any other legal theory, the Company intends to vigorously contest any claims that its prepaid wireless services infringe the "275 patent" and to assert appropriate defenses. From time to time various owners of patents and copyrighted works send the Company letters alleging that its products do or might infringe upon the owners' intellectual property rights, and/or suggesting that the Company should negotiate a license or cross-license agreement with the owner. The Company's policy is to never knowingly infringe upon any third party's intellectual property rights. Accordingly, the Company forwards any such allegation or licensing request to its outside legal counsel for their review and opinion. The Company generally attempts to resolve any such matter by informing the owner of its position concerning non- infringement or invalidity, and/or, if appropriate, negotiating a license or cross-license agreement. Even though the Company attempts to resolve these matters without litigation, it is always possible that the owner of the patent or copyrighted works will institute litigation. Owners of patent(s) and/or copyrighted work(s) have previously instituted litigation against the Company alleging infringement of their intellectual property rights, although no such litigation is currently pending against the Company. As noted above, the Company currently has a portfolio of 57 patents, and it has applied for and will continue to apply for and receive a number of additional patents to reflect its technological innovations. The Company believes that its patent portfolio could allow it to assert counterclaims for infringement against certain owners of intellectual property rights if those owners were to sue the Company for infringement. In certain situations, it might be beneficial for the Company to cross-license certain of its patents for other patents which are relevant to the call automation industry. Schedule 3(q) Liens The Company and its wholly owned subsidiary, Brite Voice Systems, Inc., are parties to a Credit Agreement dated June 1, 1999 with the lenders thereto (as amended, the "Credit Facility"). Term loans and revolving loans under the Credit Facility totaled approximately $135 million at the inception of the Credit Facility and were paid down to approximately $30 million prior to the transactions contemplated by this Agreement. The term loans under the Credit Facility are subject to quarterly principal amortization. In addition, the Credit Facility is subject to certain mandatory prepayments and commitment reductions tied to the sale of assets, the issuance of debt, the issuance of equity and the generation of excess cash flow for a fiscal year. Certain of these prepayment and commitment reduction requirements are limited by the satisfaction of certain financial ratios. The Credit Facility contains certain representations and warranties, certain negative and affirmative covenants and certain conditions and events of default which are customarily required for similar financing. Such covenants include, among others, restrictions and limitations on liens and negative pledges; limitations on mergers, consolidations and sales of assets; limitations on incurrence of debt; limitations on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitations on investments and acquisitions (other than the acquisition of the Company); and limitations on capital expenditures. Key financial covenants based on the Company's consolidated financial statements include minimum net worth, maximum leverage ratio and minimum fixed charges coverage ratio. The Credit Facility also requires a first priority perfected security interest in (i) all of the capital stock of each of the domestic subsidiaries of the Company, and 65% of the capital stock of each first tier foreign subsidiary of the Company, which capital stock shall not be subject to any other lien or encumbrance and (ii) subject to permitted liens, all other present and future material assets and properties of the Company and its material domestic subsidiaries (including, without limitation, accounts receivable and proceeds, inventory, real property, machinery and equipment, contracts, trademarks, copyrights, patents, license rights and general intangibles). The lenders had previously entered into forbearance agreements dated March 7, 2002 and March 31, 2002, pursuant to which the lenders granted a temporary waiver of a default under one of four financial covenants (fixed charge coverage ratio) through May 31, 2002. The Company and lenders entered into commitment letters to enter into a Consent, Waiver, and Third Amendment to Credit Agreement (the "Third Amendment") to be effective as of May 29, 2002, pursuant to which the lenders will waive the default under a financial covenant requiring the Company to maintain a minimum fixed charge coverage ratio. The effectiveness of the Third Amendment is conditioned on funding under the Convertible Notes. The Third Amendment will amend the fixed charge coverage ratio covenant and a covenant to maintain a minimum leverage ratio (as described in the Credit Facility) to reflect the Company's current capital structure and liquidity requirements. The Third Amendment also will add a covenant by the Company to maintain a minimum level of EBITDA (as defined in the Credit Facility). Pursuant to the Third Amendment, proceeds from the mortgage of the Company's office facilities in Dallas, Texas, and proceeds from the sale of the Convertible Notes, will be applied to repay all outstanding indebtedness under the term loan, with the remainder applied to the revolving loans. Under the amended Credit Facility, the lenders will agree to continue making revolving loans to the Company up to a revised maximum amount of $12 million through June 1, 2003. The maximum amount of revolving loans that may be outstanding will also be limited by a borrowing base based upon levels of eligible accounts receivable and eligible inventory securing the revolving loans. The Company will not be permitted to have outstanding loans under the Credit Facility at any time the Company makes principal payments on the Convertible Notes in cash. Accordingly, the Company will have to repay the outstanding revolving loans under the Credit Facility before any installment of principal on the Convertible Notes is paid in cash. At that point, at the Company's option, installments on the Convertible Notes will be repaid in cash or by a partial conversion of such notes through the Company's issuance of common stock. The Credit Facility is cross-defaulted with the Convertible Notes such that a default or the occurrence of certain other events under the Convertible Notes will be a default under the Credit Facility. The amended Credit Facility will provide that interest would accrue at a base rate equal to an applicable margin plus the higher of (i) the prime rate or (ii) the federal funds rate. The applicable margin will be determined in accordance with a schedule to the Credit Facility and by reference to a ratio of the Company's funded debt to EBITDA. The Third Amendment will delete provisions that permit the Company to elect an interest rate equal to the London Interbank Offer Rate ("LIBOR") plus the applicable margin. Mortgage Loan Effective May 29, 2002, the Company executed and delivered a deed of trust and promissory note in favor of Beal Bank, S.S.B., for a mortgage loan of $14 million secured by a first lien on the Company's facilities in Dallas, Texas. The mortgage loan is a three year balloon note, bearing interest, payable monthly, at the greater of 10.5% or the prime rate plus 2.0%. Proceeds from the mortgage will be applied to reduce loans under the Credit Facility. The lenders under the Credit Facility entered into an agreement with Beal Bank, S.S.B., subordinating their lien on the Dallas, Texas facilities for purposes of the mortgage loan. Schedule 3(w) Certain Transactions None Schedule 4(d) Use of Proceeds All $14 million of proceeds from the mortgage loan by Beal Bank, S.S.B., and all $10 million of proceeds from the sale of the Convertible Notes, will be applied to repay outstanding indebtedness under the Credit Facility. The mandatory prepayments will repay all term loans and approximately $6 million in revolving loans will remain outstanding under the Credit Facility. If the sale of the Wichita facilities for $2.0 million does close, proceeds will be applied to reduce revolving loans outstanding under the Credit Facility on the date of closing. EX-4.2 4 d97382exv4w2.txt FORM OF CONVERTIBLE NOTE EXHIBIT 4.2 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF INDEPENDENT COUNSEL, IN FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 2(d)(viii) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(d)(viii) HEREOF. THIS SUBORDINATED CONVERTIBLE NOTE IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THAT CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT DATED MAY 29, 2002, AMONG EACH OF HFTP INVESTMENT L.L.C., GAIA OFFSHORE MASTERFUND, LTD., CAERUS FUND LTD., BANK OF AMERICA, NATIONAL ASSOCIATION, AS THE AGENT, AND CERTAIN OTHER PERSONS SIGNATORY THERETO (INCLUDING EACH SUCH PARTY'S SUCCESSORS AND ASSIGNS). A COPY OF THAT AGREEMENT IS ON FILE AT THE OFFICE OF THE ISSUER HEREOF AND IS AVAILABLE FOR INSPECTION AT SUCH OFFICE. CONVERTIBLE NOTE _______, 2002 $____________ FOR VALUE RECEIVED, INTERVOICE-BRITE, INC., a Texas corporation (the "COMPANY"), hereby promises to pay to the order of __________________ or registered assigns (the "HOLDER") the principal amount of ___________________ United States Dollars ($________________) when due, whether upon maturity, acceleration, redemption or otherwise. (1) Payments of Principal. All payments of principal of this Note (to the extent such principal is not converted into Shares (as defined below) in accordance with the terms hereof) shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in the Securities Purchase Agreement, dated May 29, 2002, pursuant to which this Note and the Other Notes (as defined below) were originally issued (as such agreement may be amended from time to time as provided in such agreement, the "SECURITIES PURCHASE AGREEMENT"). This Note and the Other Notes issued by the Company pursuant to the Securities Purchase Agreement on the Closing Date (as defined in the Securities Purchase Agreement) and all convertible notes issued in exchange therefor or replacement thereof are collectively referred to in this Note as the "NOTES." (2) Conversion of this Note. This Note shall be converted into Shares on the terms and conditions set forth in this Section 2. (a) Certain Defined Terms. For purposes of this Note, the following terms shall have the following meanings: (i) "ADDITIONAL AMOUNT" means the result of the following formula: (.06)(N/365) (P). (ii) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in the city of New York are authorized or required by law to remain closed. (iii) "COMMON STOCK" means (A) the Company's common stock, no par value, and (ii) any capital stock resulting from a reclassification of such common stock. (iv) "COMPANY CONVERSION PRICE" means, as of any date of determination, 95% of the arithmetic average of the Weighted Average Price of the Common Stock on each trading day during the period beginning on and including the day immediately following the Settlement Date immediately preceding such date (or if no Settlement Date has occurred during such Installment Period as of such date of determination, then beginning on and including the first day of such Installment Period) and ending on and including such date of determination; provided that if such date of determination is the first trading day of such Installment Period or the first trading day following a Settlement Date, then the Company Conversion Price on such day shall be 95% of the Weighted Average Price of the Common Stock on such day. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period. (v) "COMPANY REDEMPTION DATE" means, with respect to an Installment Period, the first Business Day of such Installment Period. (vi) "CONVERSION AMOUNT" means the sum of (1) the Additional Amount and (2) the principal amount of this Note to be converted, redeemed or otherwise with respect to which this determination is being made. (vii) "CONVERSION PRICE" means (A) as of any Conversion Date or other date of determination (other than with respect to a Settlement Amount on a Settlement Date pursuant to a Company Conversion (as defined in Section 6(a)) during the period beginning on the Issuance Date and ending on and including the 2 Maturity Date, the Fixed Conversion Price, and (B) with respect to any Settlement Amount on a Settlement Date pursuant to a Company Conversion, the lower of the Fixed Conversion Price or the Company Conversion Price, each in effect as of such date and subject to adjustment as provided herein. (ix) "DOLLARS" or "$" means United States Dollars. (x) "FIXED CONVERSION PRICE" means 200% of the Weighted Average Price of the Common Stock on the Issuance Date, subject to adjustment as provided herein. (xi) "INSTALLMENT AMOUNT" means, with respect to any Installment Period, the lesser of (A) the quotient of (x) the original principal amount of this Note on the Issuance Date divided by (y) 10, and (B) the principal amount then outstanding under this Note. In the event the Holder shall sell or otherwise transfer any portion of this Note, the transferee shall be allocated a pro rata portion of the Installment Amount. (xii) "INSTALLMENT PERIOD" means each of the periods beginning on and including the first day and ending on and including the last day of each calendar month during the period beginning on and including September 1, 2002 and ending on and including June 30, 2003; provided that if a Floor Trigger Date (as defined in Section 6(e)) occurs during any Installment Period, then such Installment Period shall end on and include such Floor Trigger Date. (xiii) "ISSUANCE DATE" means the original date of issuance of this Note pursuant to the Securities Purchase Agreement, regardless of any exchange or replacement hereof. (xiv) "MATURITY DATE" means July 1, 2003. (xv) "N" means the number of days from, but excluding, the Issuance Date through and including the Conversion Date or other date of determination. (xvi) "OTHER NOTES" means the convertible notes, other than this Note, issued by the Company pursuant to the Securities Purchase Agreement and all convertible notes issued in exchange therefor or replacement thereof. (xvii) "P" means the principal amount of this Note to be converted, redeemed or with respect to which the determination of the Additional Amount is otherwise being made. 3 (xviii) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (xix) "PRINCIPAL" means the outstanding principal amount of this Note as of any date of determination. (xx) "PRINCIPAL MARKET" means the Nasdaq National Market or, if the Common Stock is not traded on the Nasdaq National Market, then the principal securities exchange or trading market for the Common Stock. (xxi) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights agreement among the Company and the initial holders of the Notes relating to the filing of a registration statement covering the resale of the Shares issuable upon conversion of the Notes, as such agreement may be amended from time to time as provided in such agreement. (xxii) "SEC" means the United States Securities and Exchange Commission. (xxiii) "SETTLEMENT AMOUNT" means, with respect to any Settlement Date during an Installment Period, the product of (I) the applicable Company Conversion Amount with respect to such Installment Period, multiplied by (II) the quotient of (A) the number of trading days during the period beginning on and including the day immediately following the Settlement Date immediately preceding such date (or if no Settlement Date has occurred during such Installment Period as of such date of determination, then beginning on and including the first day of such Installment Period) and ending on and including such Settlement Date; provided that if such Settlement Date is the first trading day of such Installment Period or the first trading day following a Settlement Date, then the number of trading days shall be deemed to be one (1) for purposes of this clause (A), divided by (B) the aggregate expected number of trading days during such Installment Period as of such date of determination (including such date of determination if it is a trading day and the actual number of trading days preceding such Settlement Date and the expected number of trading days remaining in such Installment Period as of such Settlement Date, but without giving effect to the early termination of such Installment Period as a result of any Floor Trigger Date); provided that if as of the last Settlement Date during an Installment Period in which no Floor Trigger Date has occurred, the sum of all Settlement Amounts determined in accordance with the foregoing with respect to each Settlement Date during an Installment Period would be less than the Company Conversion Amount, then the Settlement Amount for such last Settlement Date shall be deemed to be the amount which, when added to the prior Settlement Amounts with respect to each prior Settlement Date during such Installment Period, would equal the Company Conversion Amount; provided further that in no event 4 shall the sum of all Settlement Amounts with respect to each Settlement Date during an Installment Period exceed the applicable Company Conversion Amount with respect to such Installment Period. (xxiv) "SETTLEMENT DATE" means (i) each Friday during an Installment Period (or if such a Friday is not a trading day, then the immediately preceding trading day during such Installment Period, if any), (ii) each Floor Trigger Date and (iii) the last trading day of each Installment Period, provided that such last trading day is not also a Friday or a Floor Trigger Date. (xxv) "SHARES" means shares of Common Stock. (xxvi)"WARRANTS" means the warrants issued to the holders of the Notes pursuant to the Securities Purchase Agreement, and all warrants issued in exchange therefor or replacement thereof pursuant to the terms of such warrants. (xxvii)"WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m. New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m. New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets ("BLOOMBERG") through its "Volume at Price" functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m. New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. If the Company and the holders of the Notes representing a majority of the aggregate principal amount of the Notes then outstanding are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(d)(iii) below with the term "Weighted Average Price" being substituted for the term "Company Conversion Price." All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period. 5 (b) Holder's Conversion Right; Mandatory Redemption at Maturity. Subject to the provisions of Section 5, at any time or times on or after the Issuance Date, the Holder shall be entitled to convert all or any part of the Principal (and the Additional Amount relating thereto) into fully paid and nonassessable Shares in accordance with Section 2(d), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a Share upon any conversion. If the issuance would result in the issuance of a fraction of a Share, then the Company shall round such fraction of a Share up or down to the nearest whole share. If any Principal remains outstanding on the Maturity Date, then all such Principal shall be redeemed as of such date in accordance with Section 2(d)(vii). (c) Conversion Rate. The number of Shares issuable upon conversion of any principal amount of this Note pursuant to Section 2(b) shall be determined according to the following formula (the "CONVERSION RATE"): Conversion Amount _________________ Conversion Price (d) Mechanics of Conversion. The conversion of this Note shall be conducted in the following manner: (i) Holder's Delivery Requirements. To convert a Conversion Amount into Shares on any date (the "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m. New York Time on such date, a copy of an executed conversion notice in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 2(d)(viii), surrender to a common carrier for delivery to the Company as soon as practicable following such date the original Note being converted (or an indemnification undertaking reasonably acceptable to the Company with respect to this Note in the case of its loss, theft or destruction). (ii) Company's Response. Upon receipt or deemed receipt (which for purposes hereof shall mean pursuant to Section 6(c)) by the Company of a copy of a Conversion Notice, the Company (I) shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to the Holder, the Company's designated transfer agent (the "TRANSFER AGENT"), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein and (II) on or before the second (2nd) Business Day following the date of receipt or deemed receipt by the Company of such Conversion Notice (the "SHARE DELIVERY DATE") (A) provided that the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive Shares through DTC, credit such aggregate number of Shares to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) issue and deliver to the address as 6 specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of Shares to which the Holder shall be entitled. If this Note is submitted for conversion, as may be required by Section 2(d)(viii), and the principal amount represented by this Note is greater than the principal amount being converted, then the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense, issue and deliver to the Holder a new Note representing the Principal not converted. (iii) Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to the Holder the Shares representing the number of Shares that is not disputed and shall transmit an explanation of the disputed determinations or arithmetic calculations to the Holder via facsimile within one (1) Business Day of receipt or deemed receipt of the Holder's Conversion Notice or other date of determination. If the Holder and the Company are unable to agree upon the determination of the Company Conversion Price or arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being transmitted to the Holder, then the Company shall within two (2) Business Days submit via facsimile (A) the disputed determination of the Company Conversion Price to an independent, reputable investment bank selected by the Company and approved by the holders of Notes representing a majority of the aggregate principal amounts of the Notes then outstanding or (B) the disputed arithmetic calculation of the Conversion Rate to the Company's independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than three (3) Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent error. (iv) Record Holder. The person or persons entitled to receive the Shares issuable upon a conversion of this Note shall be treated for all purposes as the legal and record holder or holders of such Shares on the Conversion Date. (v) Company's Failure to Timely Convert. (A) Cash Damages. If within three (3) Business Days after the Company's receipt of the facsimile copy of a Conversion Notice or deemed receipt of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder for, or credit the Holder's balance account with DTC with, the number of Shares to which the Holder is entitled upon the Holder's conversion of any Principal or to issue a new Note representing the Principal to which such Holder is entitled pursuant to Section 2(d)(ii), then in addition to all other available remedies which the Holder may pursue hereunder and under the Securities Purchase Agreement 7 (including indemnification pursuant to Section 8 thereof), the Company shall pay additional damages to the Holder for each day after the Share Delivery Date such conversion is not timely effected and/or each day after the Note Delivery Date such Note is not delivered in an amount equal to 0.5% of the sum of (a) the product of (I) the number of Shares not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled and (II) the Weighted Average Price of the Common Stock on the Share Delivery Date (such product is referred to herein as the "SHARE PRODUCT AMOUNT"), and (b) in the event the Company has failed to deliver a Note to the Holder on or prior to the Note Delivery Date, the product of (y) the number of Shares issuable upon conversion of the Principal represented by the Note as of the Note Delivery Date and (z) the Weighted Average Price of the Common Stock on the Note Delivery Date; provided that in no event shall cash damages accrue pursuant to this Section 2(d)(v)(A) with respect the Share Product Amount during the period, if any, in which the Conversion Price or the arithmetic calculation of the Conversion Rate is subject to a bona fide dispute which is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(d)(iii). Alternatively, subject to Section 2(d)(iii), at the election of the Holder made in the Holder's sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies which the Holder may pursue hereunder and under the Securities Purchase Agreement (including indemnification pursuant to Section 8 thereof)), 110% of the amount by which (A) the Holder's total purchase price (including brokerage commissions, if any) for the Shares purchased to make delivery in satisfaction of a sale by such holder of the Shares to which such holder is entitled but has not received upon a conversion exceeds (B) the net proceeds received by such holder from the sale of the Shares to which the Holder is entitled but has not received upon such conversion. If the Company fails to pay the additional damages set forth in this Section 2(d)(v) within five (5) Business Days of the date incurred, then the Holder entitled to such payments shall have the right at any time, so long as the Company continues to fail to make such payments, to require the Company, upon written notice, to immediately issue, in lieu of such cash damages, the number of Shares equal to the quotient of (X) the aggregate amount of the damages payments described herein divided by (Y) the Conversion Price in effect on such Conversion Date as specified by the holder in the Conversion Notice. (B) Void Conversion Notice; Adjustment to Conversion Price. If for any reason the Holder has not received all of the Shares prior to the tenth (10th) Business Day after the Share Delivery Date with respect to a conversion of this Note, then the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to the Holder's Conversion Notice; provided that the voiding of the Holder's Conversion Notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or otherwise. Thereafter, the Fixed Conversion Price with respect to all of the Principal shall be adjusted to the lesser of (I) the Fixed Conversion Price as in effect on the date on which the Holder voided the Conversion Notice and (II) the lowest Weighted Average Price during the period beginning on the Conversion Date and ending on the date such holder voided the Conversion Notice, subject to further adjustment as provided in this Note; provided that in no event shall an adjustment to the Fixed Conversion Price with respect to any Principal be made pursuant to this Section 2(d)(v)(B) with respect any conversion of this Note 8 that is the subject of a bona fide dispute which is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(d)(iii), provided the Shares are delivered to the Holder within one (1) Business Day of the resolution of such bona fide dispute. (C) Redemption. If for any reason the Holder has not received all of the Shares prior to the tenth (10th) Business Day after the Share Delivery Date with respect to a conversion of this Note (a "CONVERSION FAILURE"), then the Holder, upon written notice to the Company, may require that the Company redeem, in accordance with Section 3, all of the Principal, including the Principal previously submitted for conversion and with respect to which the Company has not delivered shares of Common Stock; provided that the Holder shall not be entitled to require redemption of any Principal pursuant to this clause (C) solely as a result of a Conversion Failure caused by any Principal being the subject of a bona fide dispute which is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(d)(iii), provided the Shares are delivered to the Holder within one (1) Business Day of the resolution of such bona fide dispute. (vi) Pro Rata Conversion. In the event the Company receives a Conversion Notice from more than one holder of the Notes for the same Conversion Date and the Company can convert some, but not all, of such Notes, then, subject to Section 14, the Company shall convert from each holder of the Notes electing to have Notes converted at such time a pro rata amount of such holder's Note submitted for conversion based on the principal amount of the Note submitted for conversion on such date by such holder relative to the principal amount of the Notes submitted for conversion on such date. (vii) Mechanics of Mandatory Redemption. If any Principal remains outstanding on the Maturity Date, then the Holder shall surrender this Note, duly endorsed for cancellation, to the Company and such Principal shall be redeemed as of the Maturity Date by payment on the Maturity Date to the Holder of an amount equal to the sum of (A) 105% of such Principal plus (B) the Additional Amount with respect to such Principal. (viii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless all of the Principal is being converted. The Holder and the Company shall maintain records showing the principal amount converted or redeemed and the dates of such conversions or redemptions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon each such conversion or redemption. In the event of any dispute or discrepancy, such records of the Company establishing the Principal to which the Holder is entitled shall be controlling and determinative in the absence of error. Notwithstanding the foregoing, if this Note is converted or redeemed as aforesaid, 9 the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder may request, representing in the aggregate the remaining Principal represented by this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion or redemption of any portion of this Note, the Principal of this Note may be less than the principal amount stated on the face hereof. Each Note shall bear the following legend: ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 2(d)(viii) HEREOF. THE PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT STATED ON THE FACE HEREOF PURSUANT TO SECTION 2(d)(viii) HEREOF. (ix) Application of Conversion Amounts. Subject to Section 6(b), any principal amount which the Holder elects to convert in accordance with this Section 2 (other than pursuant to Company Conversions (as defined in Section 6) shall be deducted first from the Installment Amount relating to the latest Installment Period (i.e., nearest to the Maturity Date) with respect to which Installment Amounts remain outstanding and then sequentially from the immediately preceding Installment Periods (and within each such Installment Amount first from the amounts, if any, which would be subject to a conversion on the latest Settlement Date within such Installment Period and then sequentially from the amounts subject to the immediately preceding Settlement Dates). (e) Taxes. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Shares upon the conversion of this Note. (f) Adjustments to Conversion Price. The Conversion Price will be subject to adjustment from time to time as provided in this Section 2(f). (i) Adjustment of Fixed Conversion Price upon Issuance of Common Stock. If and whenever on or after the Issuance Date, the Company issues or sells, or in accordance with this Section 2(f) is deemed to have issued or sold, any Shares (including the issuance or sale of Shares owned or held by or for the account of the Company, but excluding (A) Shares issued or deemed to have been issued by the Company in connection with an Approved Stock Plan (as defined below) or a Future Approved Stock Plan (as defined below), and (B) Shares issued or deemed to have been issued by the Company upon conversion of the Notes or exercise of the Warrants) for a consideration per share less than a price (the "APPLICABLE PRICE") 10 equal to the Fixed Conversion Price in effect immediately prior to such time, then immediately after such issue or sale, the Fixed Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Fixed Conversion Price in effect immediately prior to such issue or sale and (y) the quotient of (1) the sum of (I) the product of the Applicable Price and the number of Shares Deemed Outstanding (as defined below) immediately prior to such issue or sale and (II) the consideration, if any, received by the Company upon such issue or sale, divided by (2) the product of (I) the Applicable Price multiplied by (II) the number of Shares Deemed Outstanding immediately after such issue or sale. For purposes of determining the adjusted Fixed Conversion Price under this Section 2(f)(i), the following shall be applicable (provided that any references to "Shares", "Options" or "Convertible Securities" in subparagraphs (A) through (D) below shall be deemed to exclude Shares, Options and Convertible Securities issued or deemed to have been issued by the Company in connection with an Approved Stock Plan or a Future Approved Stock Plan or upon conversion of the Notes or exercise of the Warrants): (A) Issuance of Options. If the Company in any manner grants or sells any Options (as defined below) and the lowest price per share for which one Share is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities (as defined below) issuable upon exercise of such Option is less than the Applicable Price, then such Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(f)(i)(A), the "lowest price per share for which one Share is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one Share upon granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such Share or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Share upon conversion, exchange or exercise of such Convertible Securities. (B) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one Share is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 2(f)(i)(B), the "lowest price per share for which one Share is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one Share upon the issuance or sale of the Convertible Security and upon the conversion, exchange or exercise of such Convertible Security. No further adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such Share upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for 11 which adjustment of the Fixed Conversion Price had been or are to be made pursuant to other provisions of this Section 2(f)(i), then no further adjustment of the Fixed Conversion Price shall be made by reason of such issue or sale. (C) Change in Option Price or Rate of Conversion. If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Shares changes at any time, then the Fixed Conversion Price in effect at the time of such change shall be adjusted to the Fixed Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(f)(i)(C), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Shares deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Fixed Conversion Price then in effect. (D) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01. If any Shares, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Shares, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration received by the Company consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Shares, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Shares, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders representing a majority of the aggregate principal amount of the Notes then outstanding. The determination of such appraiser shall be final and binding upon all parties absent error and the fees and expenses of such appraiser shall be borne by the Company. 12 (E) Record Date. If the Company takes a record of the holders of Shares for the purpose of entitling them (1) to receive a dividend or other distribution payable in Shares, Options or in Convertible Securities or (2) to subscribe for or purchase Shares, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Shares deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (F) Certain Definitions. For purposes of this Section 2(f)(i), the following terms have the respective meanings set forth below: (I) "APPROVED STOCK PLAN" means any employee benefit plan which has been approved by the Board of Directors of the Company prior to the date of the Securities Purchase Agreement, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company. (II) "CONVERTIBLE SECURITIES" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Shares. (III) "FUTURE APPROVED STOCK PLAN" means any employee benefit plan which has been approved by the shareholders of the Company after the date of the Securities Purchase Agreement, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company. (III) "OPTIONS" means any rights, warrants or options to subscribe for or purchase Shares or Convertible Securities. (IV) "SHARES DEEMED OUTSTANDING" means, at any given time, the number of Shares actually outstanding at such time, plus the number of Shares deemed to be outstanding pursuant to Sections 2(f)(i)(A) and 2(f)(i)(B) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any Shares owned or held by or for the account of the Company or issuable upon conversion of the Notes or exercise of the Warrants. (ii) Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding Shares into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding Shares into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased. 13 (iii) Holder's Right of Alternative Conversion Price Following Issuance of Convertible Securities. If the Company in any manner issues or sells any Options or Convertible Securities after the Issuance Date that are convertible into or exchangeable or exercisable for Shares at a price which varies or may vary with the market price of the Shares, including by way of one or more resets to a fixed price, or at a price which upon the passage of time or the occurrence of certain events is automatically reduced or is adjusted to a price which is based on some formulation of the then current market price of the Shares (each of the formulations for such variable price being herein referred to as a "VARIABLE PRICE;" provided, however, that a price which upon the passage of time or the occurrence of certain events is automatically reduced or is adjusted to a price which is based on some formulation of the then current market price of the Shares shall not constitute a Variable Price until the passage of such time or the occurrence of such event, as the case may be), then the Company shall provide written notice thereof via facsimile and overnight courier to the Holder ("VARIABLE NOTICE") on the date of issuance of such Convertible Securities or Options. From and after the date the Company issues any such Convertible Securities or Options with a Variable Price, the Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Conversion Price upon conversion of any Principal by designating in the Conversion Notice delivered upon conversion of such Principal (or, in the case of a Company Conversion, by written notice to the Company delivered prior to or on the applicable Settlement Date) that solely for purposes of such conversion the Holder is relying on the Variable Price rather than the Conversion Price then in effect. The Holder's election to rely on a Variable Price for a particular conversion of Principal shall not obligate the holder to rely on a Variable Price for any future conversions of Principal. (iv) Other Events. If any event occurs of the type contemplated by the provisions of this Section 2(f) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 2(f). (v) Notices. (A) Promptly upon any adjustment of the Conversion Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment. (B) The Company will give written notice to the Holder at least ten (10) Business Days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to 14 any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change (as defined in Section 4(a)), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. (C) The Company will also give written notice to the Holder at least ten (10) Business Days prior to the date on which any Organic Change (as defined in Section 4(a)), dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. (3) Redemption at Option of the Holder. (a) Redemption Option Upon Triggering Event. In addition to all other rights of the Holder contained herein, after a Triggering Event (as defined below), the Holder shall have the right, at the Holder's option, to require the Company to redeem all or a portion of the Principal at a price ("REDEMPTION PRICE") equal to (x) in the case of a Triggering Event other than a Triggering Event described in clause (vi) of Section 3(b), the greater of (i) the sum of (x) 125% of such Principal plus (y) the Additional Amount with respect to such Principal and (ii) the product of (A) the Conversion Rate in effect at such time as the Holder delivers a Notice of Redemption at Option of Holder (as defined below), multiplied by (B) the Weighted Average Price of the Common Stock on the trading day immediately preceding such Triggering Event on which the Principal Market is open for trading and (y) in the case of a Triggering Event described in clause (vi) of Section 3(b), the sum of (I) 100% of such Principal plus (II) the Additional Amount with respect to such Principal. (b) Triggering Event. A "TRIGGERING EVENT" shall be deemed to have occurred at such time as any of the following events: (i) the failure of the Registration Statement (as defined in the Registration Rights Agreement) to be declared effective by the SEC on or prior to the date that is 30 days after the Effectiveness Deadline (as defined in the Registration Rights Agreement); (ii) while the Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder for sale of all of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) consecutive trading days or for more than an aggregate of ten (10) trading days in any 365-day period (other than days during an Allowable Grace Period (as defined in the Registration Rights Agreement); (iii) the suspension from trading or failure of the Common Stock to be listed on the Nasdaq National Market or The New York Stock Exchange, Inc. for a period of five (5) consecutive trading days or for more than an aggregate of ten (10) trading days in any 365-day period; 15 (iv) the Company's or the Transfer Agent's notice to any holder of the Notes, including by way of public announcement, at any time, of its intention not to comply with a request for conversion of any Notes into Shares that is tendered in accordance with the provisions of the Notes (excluding, however, notices that relate solely to a bona fide dispute which is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(d)(iii) provided neither such dispute nor such notice is publicly disclosed); (v) a Conversion Failure (as defined in Section 2(d)(v)(C)); (vi) upon the Company's receipt or deemed receipt of a Conversion Notice, the Company shall not be obligated to issue Shares upon such conversion due to the provisions of Section 14; (vii) the Company breaches any representation, warranty, covenant or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, the Warrants, this Note or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby (excluding, for the avoidance of doubt, the documents referred to in Section 7(xiv) of the Securities Purchase Agreement), except to the extent that such breach would not have a Material Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement) and except, in the case of a breach of a covenant or other term which is curable, only if such breach continues for a period of at least ten (10) days; or (viii) the Company does not comply with the provisions of Section 6 (including, without limitation, the Company's failure to pay the required Company Redemption Price on the applicable Company Redemption Date, but other than the Company's failure to deliver a Company Installment Notice pursuant to Section 6(a)). (c) Mechanics of Redemption at Option of Holder. Within one (1) day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof via facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to the Holder and each holder of the Other Notes. At any time after the earlier of the Holder's receipt of a Notice of Triggering Event and the Holder becoming aware of a Triggering Event, the Holder may require the Company to redeem up to all of the Principal by delivering written notice thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF HOLDER") to the Company, which Notice of Redemption at Option of Holder shall indicate (i) the Principal that the Holder is electing to have the Company redeem from it and (ii) the applicable Redemption Price, as calculated pursuant to Section 3(a) above; provided that (A) a Notice of Redemption at Option of Holder relating to a Triggering Event described in clauses (iv), (v) or (vi) of Section 3(b) may only be sent during the period beginning on and including the date of the Triggering Event and ending on and including the 16 later of the date which is (I) 20 Business Days after the date on which the Holder receives a Notice of Triggering Event from the Company with respect to such Triggering Event and (II) 15 Business Days after the date on which such Triggering Event is cured and the Holder receives written notice from the Company confirming such Triggering Event has been cured and (B) a Notice of Redemption at Option of Holder relating to a Triggering Event described in clauses (i), (ii), (iii), (vii) or (viii) of Section 3(b) may only be sent during the period beginning on and including the date of the Triggering Event and ending on and including the later of the date which is (x) 10 Business Days after the date on which the Holder receives a Notice of Triggering Event from the Company with respect to such Triggering Event and (y) 5 Business Days after the date on which such Triggering Event is cured and the Holder receives written notice from the Company confirming such Triggering Event has been cured. (d) Payment of Redemption Price. Upon the Company's receipt of a Notice(s) of Redemption at Option of Holder from any holder of the Other Notes, the Company shall promptly notify the Holder by facsimile of the Company's receipt of such notices. Each holder which has sent such a notice shall, if required pursuant to Section 2(d)(viii), promptly submit to the Company such holder's Note which such holder has elected to have redeemed. The Company shall deliver the applicable Redemption Price to the Holder within five (5) Business Days after the Company's receipt of a Notice of Redemption at Option of Holder; provided that a holder's Note shall have been so delivered to the Company. If the Company is unable to redeem all of the Notes submitted for redemption, the Company shall (i) redeem a pro rata amount from each holder of the Notes based on the principal amount of the Notes submitted for redemption by such holder relative to the aggregate principal amount of the Notes submitted for redemption by all holders of the Notes and (ii) in addition to any remedy the Holder may have under this Note and the Securities Purchase Agreement, pay to the Holder interest at the rate of 2.0% per month (prorated for partial months) in respect of the unredeemed Principal until paid in full. (e) Void Redemption. In the event that the Company does not pay the Redemption Price within the time period set forth in Section 3(d), at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require the Company to promptly return to such the Holder any or all of the Notes representing the Principal that was submitted for redemption by the Holder under this Section 3 and for which the Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional Redemption Notice, (i) the Notice of Redemption at Option of Holder shall be null and void with respect to the Principal subject to the Void Optional Redemption Notice, (ii) the Company shall immediately return any Note subject to the Void Optional Redemption Notice, (iii) the Fixed Conversion Price with respect to all the Principal shall be adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the date on which the Void Optional Redemption Notice is delivered to the Company and (B) the lowest Weighted Average Price during the period beginning on and including the date on which the Notice of Redemption at Option of Holder is delivered to the Company and ending on and including the date on which the Void Optional Redemption Notice is delivered to the Company. 17 (f) Disputes; Miscellaneous. In the event of a bona fide dispute as to the determination of the arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section 2(d)(iii) above with the term "Redemption Price" being substituted for the term "Conversion Rate". A holder's delivery of a Void Optional Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice. In the event of a redemption pursuant to this Section 3 of less than all of the Principal, the Company shall promptly cause to be issued and delivered to the Holder a Note representing the remaining Principal which has not been redeemed, if necessary. (4) Other Rights of Holders. (a) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders representing a majority of the Notes then outstanding) to deliver to the Holder in exchange for this Note, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Note and satisfactory to the holders representing a majority of the principal amount then outstanding under the Notes. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders representing a majority of the Notes then outstanding) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the Shares immediately theretofore acquirable and receivable upon the conversion of this Note (without regard to any limitations on conversion) such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of Shares which would have been acquirable and receivable upon the conversion of this Note as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of this Note). (b) Optional Redemption Upon Change of Control. In addition to the rights of the Holder under Section 4(a), upon a Change of Control (as defined below) of the Company the Holder shall have the right, at the Holder's option, to require the Company to redeem all or a portion of the Principal at a price equal to the greater of (A) the sum of (x) 115% of the Principal plus (y) the Additional Amount with respect to such Principal, and (B) the product of (I) the Conversion Rate on the date the Holder gives a Notice of Redemption Upon Change of Control (as defined below), multiplied by (II) the arithmetic average of the Weighted Average Prices of the Common Stock during the five (5) trading days immediately preceding such date ("CHANGE OF CONTROL REDEMPTION PRICE"). No sooner than 30 nor later than 20 Business Days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of 18 Control, the Company shall deliver written notice thereof via facsimile and overnight courier (a "NOTICE OF CHANGE OF CONTROL") to the Holder. At any time during the period beginning after receipt of a Notice of Change of Control (or, in the event a Notice of Change of Control is not delivered at least ten (10) Business Days prior to a Change of Control, at any time on or after the date which is ten (10) Business Days prior to a Change of Control) and ending on the date of such Change of Control, the Holder may require the Company to redeem all or a portion of the Principal by delivering written notice thereof via facsimile and overnight courier (a "NOTICE OF REDEMPTION UPON CHANGE OF CONTROL") to the Company, which Notice of Redemption Upon Change of Control shall indicate (i) the Principal that the Holder is submitting for redemption, and (ii) the applicable Change of Control Redemption Price, as calculated pursuant to this Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon Change of Control from any holder of the Other Notes, the Company shall promptly, but in no event later than one (1) Business Day following such receipt, notify the Holder by facsimile of the Company's receipt of such Notice(s) of Redemption Upon Change of Control. The Company shall deliver the Change of Control Redemption Price simultaneously with the consummation of the Change of Control; provided that, if required by Section 2(d)(viii), this Note shall have been so delivered to the Company. Payments provided for in this Section 4(b) shall have priority to payments to stockholders in connection with a Change of Control. For purposes of this Section 4(b), "CHANGE OF CONTROL" means (i) the consolidation, merger or other business combination of the Company with or into another Person (other than (A) a consolidation, merger or other business combination in which holders of the Company's voting power immediately prior to the transaction continue after the transaction to hold, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company), (ii) the sale or transfer of all or substantially all of the Company's assets, or (iii) the consummation of a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding Shares. (c) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if the Holder had held the number of Shares acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (5) Limitations on Conversion. The Company shall not effect any conversion of this Note and the Holder shall not have the right to convert Principal in excess of that portion of the Principal which, upon giving effect to such conversion, would cause the aggregate number of Shares beneficially owned by the holder and its affiliates to exceed 4.99% of the total outstanding Shares following such conversion. For purposes of the foregoing proviso, the aggregate number of Shares 19 beneficially owned by the Holder and its affiliates shall include the Shares issuable upon conversion of this Note with respect to which the determination of such proviso is being made, but shall exclude the Shares which would be issuable upon (i) conversion of the remaining, nonconverted Principal beneficially owned by the Holder and its affiliates and (ii) exercise, conversion or exchange of the unexercised, unconverted or unexchanged portion of any other securities of the Company (including, without limitation, any warrants or convertible preferred stock) subject to a limitation on conversion, exercise or exchange analogous to the limitation contained herein beneficially owned by the Holder and its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 5, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 5, in determining the number of outstanding Shares the Holder may rely on the number of outstanding Shares as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent setting forth the number of Shares outstanding. Upon the written request of the Holder, the Company shall promptly, but in no event later than one (1) Business Day following the receipt of such request, confirm in writing to the Holder the number of Shares then outstanding. In any case, the number of outstanding Shares shall be determined after giving effect to the conversion, exercise or exchange of securities of the Company, including the Notes and the Warrants, since the date as of which such number of outstanding Shares was reported. (6) Company Installment Conversion or Redemption. (a) General. With respect to each Installment Period the Company shall either (i) require conversion of the applicable Installment Amount, in whole or in part, in accordance with this Section 6, but subject to the satisfaction of the Conditions to Company Conversion (as defined below) (a "COMPANY CONVERSION") or (ii) redeem the applicable Installment Amount, in whole or in part, in accordance with this Section 6 (a "COMPANY REDEMPTION"); provided that all of the outstanding applicable Installment Amount must be converted or redeemed by the Company, subject to the provisions of this Section 6; provided further that the Company may elect more than one of the Company Conversion and the Company Redemption, if each such election is with respect to at least 20% of the Installment Amount. On or prior to the date which is at least 10 days but not more than 20 days prior to the first day of each Installment Period, the Company shall deliver written notice (each a "COMPANY INSTALLMENT NOTICE"), which Company Installment Notice shall state (i) the portion, if any, of the applicable Installment Amount which the Company elects to convert pursuant to a Company Conversion (the "COMPANY CONVERSION AMOUNT"), (ii) the portion, if any, of the applicable Installment Amount which the Company elects to redeem pursuant to a Company Redemption (the "COMPANY REDEMPTION AMOUNT"), which amount when added to the Company Conversion Amount must equal the applicable Installment Amount, (iii) if the Company has elected, in whole or in part, a Company Conversion, then the Company Installment Notice shall certify that the Conditions to Company Conversion are satisfied as of the date of the Company Installment Notice and (iv) if the Company has elected to exercise its right to an Installment Floor Election with respect to such Installment Period in accordance with Section 6(e), then the Company Installment Notice shall include a statement of such election and the price of the Installment Trigger Price (as defined below). If the Company does not deliver a Company Installment Notice in accordance with 20 this Section 6(a), then the "Company Redemption Amount" shall mean the applicable Installment Amount. The Company Installment Notice shall be irrevocable. The Company shall redeem and convert the applicable Installment Amount pursuant to this Section 6 and the corresponding Installment Amounts of the Other Notes pursuant to the corresponding provisions of the Other Notes in the same ratio of principal amount being redeemed and principal amount being converted. The Company Redemption Amount (whether set forth in the Company Installment Notice or by operation of this Section 6(a)) shall be redeemed in accordance with Section 6(b) and the Company Conversion Amount shall be converted in accordance with Section 6(c). (b) Mechanics of Company Redemption. If the Company elects, or is deemed to have elected, a Company Redemption in accordance with Section 6(a), then the Company Redemption Amount, if any, which remains outstanding on the respective Company Redemption Date shall be redeemed by the Company on such Company Redemption Date, and the Company shall pay to the Holder on such Company Redemption Date, by wire transfer of immediately available funds, an amount in cash (the "COMPANY REDEMPTION PRICE") equal to the sum of (A) 100% of the Company Redemption Amount, plus (B) the Additional Amount with respect to the Company Redemption Amount calculated as of such Company Redemption Date. If the Company fails to redeem any Company Redemption Amount which is outstanding on the respective Company Redemption Date by payment to the Holder of the applicable Company Redemption Price, then in addition to any remedy the Holder may have under this Note (including, without limitation, Section 3) and the Securities Purchase Agreement (including indemnification pursuant to Section 8 thereof), the Company Redemption Price payable in respect of such unredeemed Company Redemption Amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. Notwithstanding anything to the contrary in this Section 6, but subject to Section 14, until the Company Redemption Price (together with any interest thereon) is paid in full, the Company Redemption Amount (together with any interest thereon) may be converted, in whole or in part, by the Holder into Shares pursuant to Section 2. In the event the Holder delivers a Conversion Notice to the Company after the earlier of the date which is 10 days prior to the first day of the applicable Installment Period and the Holder's receipt of the Company Installment Notice in which the Company elects or is deemed to have elected a Company Redemption, the principal amount specified in such Conversion Notice shall be deducted (1) first, from the principal represented by the Company Redemption Amount and then (2) second, in accordance with Section 2(d)(ix). (c) Mechanics of Company Conversion. Subject to Section 6(e) below, if the Company delivers a Company Installment Notice and elects, in whole or in part, a Company Conversion in accordance with Section 6(a), then the applicable Company Conversion Amount, if any, which remain outstanding shall be converted during the applicable Installment Period by converting on each Settlement Date during such Installment Period the applicable Settlement Amount with respect to such Settlement Date, as if the Holder had delivered a Conversion Notice (in accordance with such Holder's Conversion Notice Information (as defined in Section 4(m) of the Securities Purchase Agreement)) pursuant to Section 2 with respect to such Settlement Amount on such Settlement Date but without the Holder being required to actually deliver such Conversion Notice; provided that the Conditions to Company Conversion are satisfied (or waived in writing by the Holder) on such Settlement Date. If the Conditions to Company Conversion are not satisfied (or 21 waived in writing by the Holder) on such Settlement Date, then at the option of the Holder either (i) the Company shall redeem all or any part designated by the Holder of the unconverted Company Conversion Amount (such designated amount is referred to as the "FIRST REDEMPTION AMOUNT") on such Settlement Date (the "FIRST PAYMENT DATE") and the Company shall pay to the Holder on the First Payment Date, by wire transfer of immediately available funds, an amount in cash (the "FIRST REDEMPTION PRICE") equal to (A) 100% of the First Redemption Amount plus (B) the Additional Amount with respect to the First Redemption Amount calculated as of the First Payment Date, or (ii) the Company Conversion shall be null and void with respect to all or any part designated by the Holder of the unconverted Company Conversion Amount and the Holder shall be entitled to all the rights of a holder of this Note with respect to such amount of the Company Conversion Amount. If the Company fails to redeem any First Redemption Amount on the First Payment Date by payment of the First Redemption Price, then the Holder shall have the rights set forth in Section 6(b) as if the Company failed to pay the applicable Company Redemption Price (including, without limitation, such failure constituting a Triggering Event described in Section 3(b)(viii)). Notwithstanding anything to the contrary in this Section 6, but subject to Section 14, until the applicable portion of the Company Conversion Amount (together with the Additional Amount with respect thereto) is converted in accordance with this Section 6, the Company Conversion Amount (together with the Additional Amount with respect thereto) may be converted by the Holder into Shares pursuant to Section 2. (d) Conditions to Company Conversion. For purposes of this Section 6, "CONDITIONS TO COMPANY CONVERSION" means the following conditions: (i) during the period beginning on and including the date of the Holder's receipt of the Company Installment Notice (the "COMPANY INSTALLMENT NOTICE DATE") and ending on and including the applicable Settlement Date, the Company shall have delivered Shares upon conversion of Conversion Amounts of this Note on a timely basis as set forth in Section 2(d)(ii) and delivered Shares upon exercise of the Warrants on a timely basis as set forth in Section 2(a) of the Warrants; (ii) on each day during the period beginning on and including the Company Installment Notice Date and ending on and including the applicable Settlement Date, the Common Stock shall be listed, and trading in the Common Stock shall not have been suspended, on the Nasdaq National Market or The New York Stock Exchange, Inc.; (iii) during the period beginning 30 days prior to the Company Installment Notice Date and ending on and including the applicable Settlement Date, there shall not have occurred the consummation of a Change of Control; (iv) during the period beginning on the Issuance Date and ending on and including the applicable Settlement Date, there shall not have occurred either (x) the public announcement of a pending, proposed or intended Change of Control which has not been abandoned, terminated or consummated or (y) a Triggering Event or an Event of Default (as defined in Section 11) (except for a Triggering Event (I) which has been cured and the Company has delivered notice of such cure to the Holder at least 15 Business Days prior to the Company Installment Notice Date, (II) with respect to which the Company delivered a Notice of Triggering Event to the Holder at least 15 Business Days prior to the Company Installment Notice Date and (III) with respect to which the Holder has not delivered a Notice of Redemption at Option of Holder to the Company prior to the Company Installment Notice Date); (v) on each day during the period beginning on and including the Company Installment Notice Date and ending on and including the applicable Settlement Date, the Registration Statement (as defined in the Registration Rights 22 Agreement) shall be effective and available for the sale of at least all of the Registrable Securities (as defined in the Registration Rights Agreement) and there shall not have been any Grace Period (as defined in the Registration Rights Agreement) during such period; (vi) on or prior to the applicable Settlement Date there shall not have occurred an Exchange Cap Trigger Date (as defined below), unless prior to the Company Installment Notice Trigger Date the Company shall have received the Stockholder Approval (as defined below); and (vii) on each day during the period beginning on and including the Company Installment Notice Date and ending on and including the applicable Settlement Date, the Company otherwise shall have been in compliance with in all respects and shall not have breached or been in breach of any provision, covenant, representation or warranty of the Securities Purchase Agreement, the Registration Rights Agreement, any of the Warrants or any of the Notes. For purposes of this Section 6(d), "EXCHANGE CAP TRIGGER DATE" means the first date after the Issuance Date on which the Share Issuance Estimate (as defined below) is greater than the Exchange Cap (as defined in Section 14). For purposes of this Section 6(d), "SHARE ISSUANCE ESTIMATE" means, as of any date of determination, the sum of (i) the number Shares issued by the Company as of such date of determination pursuant to the conversion of Notes and the exercise of Warrants, (ii) the number of Shares issuable as of such date of determination pursuant to the exercise of all outstanding Warrants (without regard to any limitations on the exercise of such Warrants), plus (iii) the number of Shares equal to the quotient of (A) the aggregate principal amounts (plus accrued and unpaid interest thereon) of all the Notes outstanding on such date of determination, divided by (B) the lower of the Fixed Conversion Price then in effect and 95% of the arithmetic average of the Weighted Average Price of the Common Stock on each of the 10 consecutive trading days immediately preceding such date of determination. For purposes of this Section 6(d), "STOCKHOLDER APPROVAL" means the affirmative vote of the Company's stockholders at a duly called meeting pursuant to a proxy statement for the approval of the Company's issuance of all the Shares pursuant to conversions of the Notes and exercise of the Warrants in accordance with applicable law and the rules and regulations of the Nasdaq Stock Market, such that the limitations on the Company's obligation to issue Shares set forth in Section 14 of the Notes and in Section 12 of the Warrants are no longer applicable. (e) Installment Floor Election. At the Company's option it may elect to terminate a Company Conversion pursuant to Section 6(c) if the Conversion Price during the applicable Installment Period falls below a price (an "INSTALLMENT TRIGGER PRICE") set by the Company (an "INSTALLMENT FLOOR ELECTION"). The Company may exercise its right to an Installment Floor Election by including a statement of such election in the Company Installment Notice and setting forth in such Company Installment Notice the Installment Trigger Price, which price may not be higher than the Fixed Conversion Price then in effect. The Installment Floor Election and selection of an Installment Trigger Price shall be irrevocable with respect to the applicable Installment Period, but the Installment Trigger Price shall be subject to adjustment for any stock dividend, stock split, stock combination or other similar transaction. If the Company has made an Installment Floor Election in accordance with this Section 6(e) and Section 6(a), then the first trading day, if any, during the applicable Installment Period on which the Company Conversion Price on such date is less than the applicable Installment Trigger Price shall constitute the "FLOOR TRIGGER DATE" with respect to such Installment Period. If a Floor Trigger Date occurs during an Installment Period, then in accordance with the definitions of "Settlement Date" and "Installment Period" in 23 Section 2(a), such Floor Trigger Date shall constitute the last Settlement Date of such Installment Period. On or prior to the date which is two (2) Business Days after such Floor Trigger Date (the "SECOND PAYMENT DATE"), the Company shall redeem all of the Company Conversion Amount which remains unconverted after such Floor Trigger Date (the "SECOND REDEMPTION AMOUNT"), by payment to the Holder on or before the Second Payment Date, by wire transfer of immediately available funds, an amount in cash (the "SECOND REDEMPTION PRICE") equal to the sum of (A) 100% of the Second Redemption Amount, plus (B) the Additional Amount with respect to such Second Redemption Amount calculated as of the Second Payment Date. If the Company fails to redeem any Second Redemption Amount on or before the Second Payment Date by payment of the Second Redemption Price, then the Holder shall have the rights set forth in Section 6(b) as if the Company failed to pay the applicable Company Redemption Price (including, without limitation, such failure constituting a Triggering Event described in Section 3(b)(viii)). (7) Company Alternative Redemption. (a) General. After the Issuance Date, the Company shall have the right to redeem some or all of the Principal (a "COMPANY ALTERNATIVE REDEMPTION") for an amount in cash equal to the sum of (a) 105% of the principal amount of this Note being redeemed pursuant to this Section 7, plus (b) the Additional Amount with respect to such principal amount as of the Company Alternative Redemption Date (as defined below) (the "COMPANY ALTERNATIVE REDEMPTION PRICE"); provided that the Conditions to Company Alternative Redemption (as set forth in Section 7(c)) and the conditions of this Section 7(a) and Section 7(b) are satisfied (or waived in writing by the Holder); provided, further, that the Company may not elect to redeem pursuant to this Section 7 any principal amount of this Note which is part of any Installment Amount for any Installment Period beginning prior to the Company Alternative Redemption Date (as defined below) or with respect to which the Company has delivered a Company Installment Notice prior to the Company Alternative Redemption Notice Date (as defined below). The Company may exercise its right to Company Alternative Redemption by delivering to the Holder written notice ("COMPANY ALTERNATIVE REDEMPTION NOTICE") at least ten (10) Business Days but not more than 20 Business Days prior to the date of consummation of such redemption ("COMPANY ALTERNATIVE REDEMPTION DATE"). The date on which the Holder receives the Company Alternative Redemption Notice is referred to as the "COMPANY ALTERNATIVE REDEMPTION NOTICE DATE". The Company Alternative Redemption Notice shall be irrevocable. If the Company elects a Company Alternative Redemption pursuant to this Section 7(a), then it must simultaneously take the similar action with respect to the Other Notes. If the Company elects a Company Alternative Redemption (or similar action under the Other Notes) with respect to less than all of the aggregate principal amount of the Notes then outstanding (ignoring for such purposes all principal amounts which are part of Installment Amounts for any Installment Periods beginning prior to the Company Alternative Redemption Date or with respect to which the Company has delivered a Company Installment Notice prior to the Company Alternative Redemption Notice Date or the corresponding provisions under the Other Notes), then the Company shall require redemption of a principal amount (together with the related Additional Amount) from each of the holders of the Notes equal to the product of (I) the aggregate principal amount of Notes which the Company has elected to redeem pursuant to this Section 7, multiplied by (II) the fraction, the numerator of which is the aggregate principal amount of the Notes initially 24 purchased by such holder on the Issuance Date and the denominator of which is the aggregate principal amount of the Notes purchased by all holders on the Issuance Date (such fraction with respect to each holder is referred to as its "ALLOCATION PERCENTAGE," and such amount with respect to each holder is referred to as its "PRO RATA REDEMPTION AMOUNT"). In the event that the initial holder of any Notes shall sell or otherwise transfer any of such holder's Notes, the transferee shall be allocated a pro rata portion of such holder's Allocation Percentage. The Company Alternative Redemption Notice shall state (i) the date selected by the Company for the Company Alternative Redemption Date in accordance with this Section 7(a), (ii) the aggregate principal amount of the Notes which the Company has elected to redeem from all of the holders of the Notes pursuant to this Section 7 and (iii) each holder's Pro Rata Redemption Amount of the principal amount of the Notes the Company has elected to redeem pursuant to this Section 7(a). (b) Mechanics of Company Alternative Redemption. If the Company has exercised its right to Company Alternative Redemption in accordance with Section 7(a) and the conditions of this Section 7 are satisfied (including the Conditions to Company Alternative Redemption as set forth in Section 7(c)) (or waived in writing by the Holder), then the Holder's Pro Rata Redemption Amount, if any, which remains outstanding on the Company Alternative Redemption Date shall be redeemed by the Company on such Company Alternative Redemption Date by the payment by the Company to the Holder on the Company Alternative Redemption Date, by wire transfer of immediately available funds, of an amount equal to the Company Alternative Redemption Price for the Holder's Pro Rata Redemption Amount. Notwithstanding anything to the contrary in this Section 7, but subject to Section 14, until the Company Alternative Redemption Price is paid in full to the Holder, the Holder may convert its Pro Rata Redemption Amount (together with the related Additional Amount) into Shares in accordance with Section 2. All principal amounts of this Note redeemed pursuant to this Section 7 shall be deducted first from the Installment Amount relating to the latest Installment Period (i.e., nearest to the Maturity Date) with respect to which Installment Amounts remain outstanding and then sequentially from the immediately preceding Installment Periods (and within each such Installment Amount first from the amounts, if any, which would be subject to a conversion on the latest Settlement Date within such Installment Period and then sequentially from the amounts subject to the immediately preceding Settlement Dates). (c) Conditions to Company Alternative Redemption. For purposes of this Section 7, "CONDITIONS TO COMPANY ALTERNATIVE REDEMPTION" means the following conditions: (i) during the period beginning on and including the Company Alternative Redemption Notice Date and ending on and including the Company Alternative Redemption Date, the Company shall have delivered Shares upon conversion of Conversion Amounts on a timely basis as set forth in Section 2(d)(ii) and delivered Shares upon exercise of the Warrants on a timely basis as set forth in Section 2(a) of the Warrants; (ii) on each day during the period beginning on and including the Company Alternative Redemption Notice Date and ending on and including the applicable Settlement Date, the Common Stock shall be listed, and trading in the Common Stock shall not have been suspended, on the Nasdaq National Market or The New York Stock Exchange, Inc.; (iii) during the period beginning on the Issuance Date and ending on and including the applicable Settlement Date, there shall not have occurred either (x) the public announcement of a pending, proposed or intended Change of Control which has not been abandoned, terminated or consummated or (y) a Triggering 25 Event or an Event of Default (as defined in Section 11) (except for a Triggering Event (I) which has been cured and the Company has delivered notice of such cure to the Holder at least 15 Business Days prior to the Company Alternative Redemption Notice Date, (II) with respect to which the Company delivered a Notice of Triggering Event to the Holder at least 15 Business Days prior to the Company Alternative Redemption Notice Date and (III) with respect to which the Holder has not delivered a Notice of Redemption at Option of Holder to the Company prior to the Company Alternative Redemption Notice Date); (iv) on each day during the period beginning on and including the Company Alternative Redemption Notice Date and ending on and including the applicable Settlement Date, the Registration Statement (as defined in the Registration Rights Agreement) shall be effective and available for the sale of at least all of the Registrable Securities (as defined in the Registration Rights Agreement) and there shall not have been any Grace Period (as defined in the Registration Rights Agreement) during such period; (v) if a Change of Control is consummated after the Issuance Date, the Company Alternative Redemption Date is at least 20 Business Days after the consummation and public announcement of such Change of Control; (vi) on each day during the period beginning on and including the Company Alternative Redemption Notice Date and ending on and including the applicable Settlement Date, the Company otherwise shall have been in compliance with in all respects and shall not have breached or been in breach of any provision, covenant, representation or warranty of the Securities Purchase Agreement, the Registration Rights Agreement, any of the Warrants or any of the Notes and (vii) the payment by the Company to the Holder of the Company Alternative Redemption Price is not prohibited by the Amended Credit Facility (as defined in Section 4(p) of the Securities Purchase Agreement) or any other agreement to which the Company is a party and the Holder's right to retain such Company Alternative Redemption Price is not prohibited by the subordination and intercreditor agreement referred to in the second legend on the face of this Note. (d) Remedies. In the event that the Company does not pay the Company Alternative Redemption Price in full for the Holder's Pro Rata Redemption Amount on the Company Alternative Redemption Date and the Conditions to the Company Alternative Redemption were satisfied, or to the extent not satisfied, were waived by the Holder, then in addition to any remedy the Holder may have under this Note and the Securities Purchase Agreement (including indemnification pursuant to Section 8 thereof) (i) the Company Alternative Redemption Price payable in respect of such unredeemed Pro Rata Redemption Amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full and (ii) the Company shall not be permitted to submit another Company Alternative Redemption Notice without the prior written consent of the Holder. (8) Certain Trading Restrictions. So long as any of the Principal of this Note is outstanding, neither the Holder nor any of its affiliates shall, directly or indirectly, engage in any transaction constituting a "short sale" (as defined in Rule 3b-3 under the Securities Exchange Act of 1934, as amended (the "1934 ACT")) of the Shares or establish an open "put equivalent position" (within the meaning of Rule 16a-1(h) under the 1934 Act) with respect to the Shares (each a "SHORT SALE"), except on those days (each a "PERMITTED DAY") on which the aggregate short position (including aggregate open "put equivalent positions") with respect to the Shares of the Holder and its affiliates prior to giving effect to any Short Sales by the Holder or its affiliates on such Permitted Day does not exceed the Holder's Permitted Share Position (as defined below) on such Permitted Day; provided, however, that the Holder and its affiliates shall only be entitled to engage in transactions which constitute Short Sales on a Permitted Day to the extent that following such transaction, the aggregate short position (including aggregate open "put equivalent positions") with respect to the Shares of the Holder and its affiliates does not exceed the Holder's Permitted Share 26 Position. Notwithstanding the foregoing, the restriction on Short Sales set forth in the first sentence of this Section 8 shall not apply (a) on and after the first day after the Issuance Date on which there shall have occurred a Triggering Event or an Event of Default; (b) on or after the first date after the Issuance Date on which a Change of Control shall have been consummated or there shall have been a public announcement of a pending, proposed or intended Change of Control; or (c) with respect to a Short Sale (and such Short Sale shall be excluded for purposes of determining compliance with the first sentence of this Section 8) so long as the Holder delivers or is deemed to have delivered a Conversion Notice or an Exercise Notice (as defined in the Warrants) on or before the day of such Short Sale entitling the Holder to receive a number of Shares at least equal to the number of Shares sold in such Short Sale. Subject to the foregoing restrictions, the Company acknowledges and agrees that nothing in this Section 8 or elsewhere in this Note or in the Securities Purchase Agreement, the Warrants or the Registration Rights Agreement prohibits the Holder (or any of its affiliates) from, and the Holder (and its affiliates) is permitted to, engage, directly or indirectly, in hedging transactions involving the Notes, the Warrants and the Shares (including, without limitation, by way of short sales, purchases and sales of options, swap transactions and synthetic transactions) at any time. For purposes of this Section 8, "PERMITTED SHARE POSITION" means, with respect to any date of determination, the sum of (A) the number of Shares issuable upon conversion (which shall be determined as if a Conversion Notice was delivered) of all the outstanding principal amounts (other than 200% of the Installment Amount with respect to an Installment Period if the date with respect to which this determination is being made is during such Installment Period) (together with accrued and unpaid interest on such principal amounts) represented by the Notes held by the Holder and its affiliates (without regard to any limitations on conversions) on such date, plus (B) if the date with respect to which this determination is being made is during an Installment Period, that number of Shares equal to the quotient of (i) 200% of the Conversion Amount represented by the applicable Installment Amount for the Holder and similar amounts with respect to its affiliates under similar provisions in the Notes held by such affiliates, divided by (ii) the lower of the Fixed Conversion Price then in effect and 95% of the lowest Weighted Average Price of the Common Stock during the applicable Installment Period, plus (C) the number of Shares issuable upon exercise of the Warrants held by the Holder and its affiliates (without regard to any limitations on exercise) on such date. (9) Reservation of Shares. (a) Reservation. The Company shall, so long as any of the Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes, such number of Shares as shall from time to time be sufficient to effect the conversion of all of the principal amount then outstanding under the Notes (together with accrued interest thereon); provided that the number of Shares so reserved shall at no time be less than 150% of the number of Shares for which the Notes are at any time convertible (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of Shares reserved for conversions of the Notes and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes based on the principal amount of the Notes held by each holder at the time of issuance of the Notes or increase in the number of reserved Shares, as the case may be. In the event the Holder shall sell or otherwise transfer any portion of the Holder's Notes, each transferee shall be allocated a pro 27 rata portion of the number of Shares reserved for such transferor. Any Shares reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of the Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved Shares to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of Shares equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized Shares to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the authorization of an increase in the number of authorized Shares. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders' approval of such increase in authorized Shares and to cause its board of directors to recommend to the stockholders that they approve such proposal. (10) Voting Rights. Holders of the Notes shall have no voting rights, except as required by law and as expressly provided in this Note. (11) Defaults and Remedies. (a) Events of Default. An "EVENT OF DEFAULT" is (i) default in payment of any principal amount of this Note, the Company Redemption Price or the Company Alternative Redemption Price when and as due; (ii) failure by the Company for ten (10) days after notice to it to comply with any other material provision of this Note; (iii) any default in payment of at least $1,000,000 under or acceleration prior to maturity of any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed of at least $1,000,000 by the Company or for money borrowed the repayment of at least $1,000,000 of which is guaranteed by the Company, whether such indebtedness or guarantee now exists or shall be created hereafter; (iv) if the Company pursuant to or within the meaning of any Bankruptcy Law (as defined below); (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or any of its subsidiaries for all or substantially all of its property; (D) makes a general assignment for the benefit of its creditors; or (E) admits in writing that it is generally unable to pay its debts as the same become due; (v) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against the Company in an involuntary case; (2) appoints a Custodian (as defined below) of the Company or any subsidiary for all or substantially all of its property; or (3) orders the liquidation of the Company or any subsidiary; or (vi) the Company fails to file, or is determined to have failed to file, in a timely manner any report required to be filed with the SEC pursuant to the 1934 Act. The term "BANKRUPTCY 28 LAW" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. Within five (5) Business Days after the occurrence of any Event of Default set forth in clause (iii) or clause (vi) above, the Company shall deliver written notice thereof to the Holder. (b) Remedies. If an Event of Default occurs and is continuing, the Holder of this Note may declare all of this Note, including all amounts due hereunder (the "ACCELERATION AMOUNT"), to be due and payable immediately, except that in the case of an Event of Default arising from events described in clauses (iv) and (v) of Section 11(a), this Note shall become due and payable without further action or notice. In addition to any remedy the Holder may have under this Note and the Securities Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. Nothing in this Section 11 shall limit any other rights the Holder may have under this Note and the Securities Purchase Agreement, including Section 3 of this Note. (c) Void Acceleration. In the event that the Company does not pay the Acceleration Amount within five (5) Business Days of this Note becoming due under Section 11(b), at any time thereafter and until the Company pays such unpaid Acceleration Amount in full, the Holder shall have the option (the "VOID ACCELERATION OPTION") to, in lieu of redemption, require the Company to promptly return this Note to the Holder, by sending written notice thereof to the Company via facsimile (the "VOID ACCELERATION NOTICE"). Upon the Company's receipt of such Void Acceleration Notice, (i) the acceleration pursuant to Section 11(b) shall be null and void, (ii) the Company shall promptly return this Note, (iii) the Fixed Conversion Price with respect to all the Principal shall be adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the date on which the Void Acceleration Notice is delivered to the Company and (B) the lowest Weighted Average Price of the Common Stock during the period beginning on and including the date on which this Note became due under Section 11(b) and ending on and including the date on which the Void Acceleration Notice is delivered to the Company. (12) Other Indebtedness. Payments of principal and other payments due under this Note shall not be subordinated to any unsecured obligations of the Company. For so long as this Note is outstanding, the Company shall not issue or incur any indebtedness or other obligation, except for (a) up to an aggregate of $12,000,000 of secured indebtedness which replaces the Amended Credit Facility (as defined in Section 4(p) of the Securities Purchase Agreement), (b) indebtedness or obligations the holders of which agree in writing to be subordinate to this Note on terms and conditions reasonably acceptable to the Holder and (c) up to $10,000,000 original principal amount of convertible indebtedness which (i) is on substantially the same terms as this Note (including, without limitation, the amortization schedule of the Installment Periods and being subject to subordination provisions set forth in the agreement referred to in the second legend on the face of this Note), (ii) is not senior to this Note, (iii) is issued by the Company on or before July 1, 2002 and (iv) is issued to a Person or Persons reasonably acceptable to the Holder. 29 (13) Participation; Restrictions. The Holder shall be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note in full into Shares (without taking into account any limitations or restrictions on the convertibility of this Note) immediately prior to the record date for such dividend or distribution, or, if no such record date is taken, immediately prior to the date as of which the record holders of Common Stock are to be determined for such dividend or distribution. Payments made pursuant to the previous sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. While this Note is outstanding, the Company shall not, directly or indirectly, redeem, repay or purchase any of the Company's capital stock without the prior express written consent of the Holder (except for the repayment or redemption of the Notes in accordance with the terms thereof or, with respect to the Warrants, pursuant to Section 13 of the Warrants). While this Note is outstanding, the Company shall not enter into any agreement which would limit or restrict the Company's ability to perform under, or take any other voluntary action to avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it under, this Note, the Securities Purchase Agreement, the Registration Rights Agreement and the Warrants. (14) Limitation on Number of Conversion Shares. The Company shall not be obligated to issue any Shares upon conversion of the Notes if the issuance of such Shares would exceed that number of Shares which the Company may issue upon conversion of the Notes (the "EXCHANGE CAP") without breaching the Company's obligations under the rules or regulations of the Principal Market, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by the applicable rules of the Principal Market (or any successor rule or regulation) for issuances of Shares in excess of such amount or (b) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders representing a majority of the aggregate principal amounts of the Notes then outstanding. Until such approval or written opinion is obtained, no purchaser of the Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of the Notes, Shares in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the principal amount of the Note issued to such Purchaser pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate principal amount of all the Notes issued to the Purchasers pursuant to the Securities Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Notes, the transferee shall be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In the event that any holder of the Notes shall convert all of such holder's Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder's Cap Allocation Amount, then the difference between such holder's Cap Allocation Amount and the number of Shares actually issued to such holder shall be allocated to the respective Cap Allocation Amounts of the remaining holders of Notes on a pro rata basis in proportion to the principal amount then outstanding under the Notes then held by each such holder. (15) Vote to Change the Terms of the Notes. The written consent of the Company and the holders representing a majority of the principal amount then outstanding under the Notes, 30 shall be required for any change to the Notes (including this Note) and upon receipt of such consent, each Note shall be deemed amended thereby. (16) Lost or Stolen Notes. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company in customary form and reasonably satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver a new Note of like tenor and date; provided, however, the Company shall not be obligated to re-issue a Note if the Holder contemporaneously requests the Company to convert this Note into Shares. (17) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (18) Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed to be jointly drafted by the Company and all Purchasers and shall not be construed against any person as the drafter hereof. (19) Failure or Indulgence Not Waiver. No failure or delay on the part of a the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (20) Notice. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. (21) Transfer of this Note. The Holder may assign or transfer some or all of its rights hereunder, subject to compliance with the 1933 Act and the provisions of Section 2(f) of the 31 Securities Purchase Agreement, (i) to a Permitted Transferee (as defined below) without the consent of the Company and (ii) to a Person which is not a Permitted Transferee with the prior consent of the Company, which consent shall not be unreasonably withheld. For purposes of this Section 21, a "PERMITTED TRANSFEREE" means: (i) a Buyer (as defined in the Securities Purchase Agreement); (ii) an Affiliate (as defined below) of the Holder; (iii) a holder of Notes or Warrants; (iv) an Affiliate of a holder of Notes or Warrants; (v) any entity which has the same investment advisor or manager or trading advisor or manager as any of the Persons described in the immediately preceding clauses (i) through (iv); (vi) a pledgee (or a transferee of such pledgee) in connection with a bona fide margin account or other loan or financing arrangement secured by this Note if such pledgee seeks to enforce or realize such pledge; and (vii) any fund, financial institution or entity with assets, or assets under management, of at least $100,000,000. "AFFILIATE" for purposes of this Section 21 means, with respect to any Person, another Person, directly or indirectly, which (A) has a 25% or more equity interest in that Person, (B) has a 25% or more common ownership with that Person, (C) controls that Person, (D) is controlled by that Person, or (E) is under common control with that person or entity. "CONTROL" or "CONTROLS" for purposes of this Section 21 means that a Person has the power, directly or indirectly, to conduct or govern the policies of another Person. (22) Payment of Collection, Enforcement and Other Costs. If: (i) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (ii) an attorney is retained to represent the Holder in any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action, including but not limited to reasonable attorneys' fees and disbursements. (23) Cancellation. After all principal and other amounts at any time owed under this Note have been paid in full or converted into Shares in accordance with the terms hereof, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (24) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes containing the same terms and conditions and representing in the aggregate the Principal, and each such new Note will represent such portion of such Principal as is designated by the Holder at the time of such surrender. The date the Company initially issues this Note will be deemed to be the "Issuance Date" hereof regardless of the number of times a new Note shall be issued. (25) Waiver of Notice. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (26) Governing Law. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this 32 Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other country or jurisdiction) that would cause the application of the laws of any jurisdiction or country other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY. (27) Reissuance of Notes. Subject to Section 2(d)(viii), in the event of a conversion or redemption pursuant to this Note of less than all of the Principal, the Company shall promptly cause to be issued and delivered to the Holder, upon tender by the Holder of this Note, a new Note of like tenor representing the remaining Principal which has not been so converted or redeemed. The date the Company issued this Note shall be the "Issuance Date" hereof regardless of the number of times a new Note shall be issued. (28) Effect of Redemption or Conversion; No Prepayment. Upon payment of the Redemption Price, the Change of Control Redemption Price, the Company Redemption Price, the Company Alternative Redemption Price, the First Redemption Price, the Second Redemption Price, or the amount provided for in Section 2(d)(vii), each in accordance with the terms hereof with respect to any portion of the principal of this Note, or delivery of Shares upon conversion of any portion of the principal of this Note in accordance with the terms hereof, such portion of the principal of this Note shall be deemed paid in full and shall no longer be deemed outstanding for any purpose. Except as specifically set forth in this Note, the Company does not have any right, option, or obligation, to pay any portion of the Principal at any time prior to the Maturity Date. (29) Payment Set Aside. To the extent that the Company makes a payment or payments to the Holder hereunder or the Holder enforces or exercises its rights hereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, by a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, U.S. state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and 33 continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. * * * * * * 34 IN WITNESS WHEREOF, the Company has caused this Note to be signed by ___________________, its _____________________________, as of the ____ day of _________ 2002. INTERVOICE-BRITE, INC. By: --------------------------- Name: ------------------------- Title: ------------------------ EXHIBIT I INTERVOICE-BRITE, INC. CONVERSION NOTICE Reference is made to the Convertible Note (the "NOTE") of InterVoice-Brite, Inc., a Texas corporation (the "COMPANY"), payable to the undersigned. In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, no par value (the "COMMON STOCK"), of the Company, as of the date specified below. Date of Conversion: ---------------------------------------------------- Aggregate Conversion Amount to be converted: --------------------------- Please confirm the following information: Conversion Price: ------------------------------------------------------ Number of shares of Common Stock to be issued: ------------------------- Is the Variable Price being relied on pursuant to Section 2(f)(iii) of the Note? (check one) YES No ---- ---- Please issue the Common Stock into which the Note is being converted in the following name and to the following address: Issue to: -------------------------------------------------------------- Facsimile Number: ------------------------------------------------------ Authorization: --------------------------------------------------------- By: ----------------------------------------- Title: -------------------------------------- Dated: ----------------------------------------------------------------- Account Number (if electronic book entry transfer): -------------------- Transaction Code Number (if electronic book entry transfer): ----------- ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ___________ ___, 200_ from the Company and acknowledged and agreed to by [TRANSFER AGENT]. INTERVOICE-BRITE, INC. By: --------------------------- Name: ------------------------- Title: ------------------------ EX-4.3 5 d97382exv4w3.txt FORM OF WARRANT EXHIBIT 4.3 FORM OF WARRANT THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. INTERVOICE-BRITE, INC. WARRANT TO PURCHASE COMMON STOCK Warrant No.: Number of Shares: ----------------------- --------- Date of Issuance: _____________ __, 2002 InterVoice-Brite, Inc., a Texas corporation (the "COMPANY"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ____________________, the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. New York Time on the Expiration Date (as defined herein) ________________ ( ) [INSERT THE QUOTIENT OF (A) 25% OF THE PRINCIPAL AMOUNT OF NOTES PURCHASED BY THE HOLDER, DIVIDED BY (B) THE WARRANT EXERCISE PRICE] fully paid nonassessable shares of Common Stock (as defined herein) of the Company (the "WARRANT SHARES") at the purchase price per share provided in Section 1(b) below; provided, however, that in no event shall the holder be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such exercise. For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such proviso is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Warrants beneficially owned by the holder and its affiliates and (ii) exercise, conversion or exchange of the unexercised, unconverted or unexchanged portion of any other securities of the Company beneficially owned by the holder and its affiliates (including, without limitation, any convertible notes or preferred stock) subject to a limitation on conversion, exercise or exchange analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock a holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written request of any holder, the Company shall promptly, but in no event later than one (1) Business Day following the receipt of such notice, confirm in writing to any such holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion, exercise or exchange of securities of the Company, including the Notes (as defined below) and the SPA Warrants (as defined below), since the date as of which such number of outstanding shares of Common Stock was reported. Section 1. (a) Securities Purchase Agreement. This Warrant is one of the warrants (the "SPA WARRANTS") issued pursuant to Section 1 of that certain Securities Purchase Agreement dated as of May 29, 2002, among the Company and the Persons (as defined below) referred to therein (as such agreement may be amended from time to time as provided in such agreement, the "SECURITIES PURCHASE AGREEMENT"). (b) Definitions. The following words and terms as used in this Warrant shall have the following meanings: (i) "APPROVED STOCK PLAN" means any employee benefit plan which has been approved by the Board of Directors of the Company prior to the date of the Securities Purchase Agreement, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company. (ii) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed. (iii) "COMMON STOCK" means (i) the Company's common stock, no par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock. -2- (iv) "CONVERTIBLE SECURITIES" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock. (v) "EXPIRATION DATE" means the date which is three (3) years after the Warrant Date (as defined in Section 13) or, if such date does not fall on a Business Day or on a day on which trading takes place on the Principal Market, then the next Business Day. (vi) "FUTURE APPROVED STOCK PLAN" means any employee benefit plan which has been approved by the shareholders of the Company after the date of the Securities Purchase Agreement, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company. (vii) "NOTES" means the convertible notes of the Company issued pursuant to the Securities Purchase Agreement, and all convertible notes issued in exchange therefor or replacement thereof pursuant to the terms of such convertible notes. (viii) "OPTIONS" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. (ix) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (x) "PRINCIPAL MARKET" means the Nasdaq National Market, or, if the Common Stock is not traded on the Nasdaq National Market, then the principal securities exchange or trading market for the Common Stock. (xi) "REGISTRATION RIGHTS AGREEMENT" means that agreement dated May 29, 2002 by and among the Company and the Persons referred to therein, as such agreement may be amended from time to time as provided in such agreement. (xii) "SECURITIES ACT" means the Securities Act of 1933, as amended. (xiii) "WARRANT" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of such Warrants. (xiv) "WARRANT EXERCISE PRICE" shall be equal to, with respect to any Warrant Share, 110% of the arithmetic average of the Weighted Average Price of the Common Stock on each of the ten (10) consecutive trading days immediately preceding the Warrant Date (as defined in Section 13), subject to adjustment as hereinafter provided. (xv) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the -3- period beginning at 9:30 a.m., New York City Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York City Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of the SPA Warrants representing a majority of the shares of Common Stock issuable upon exercise of the SPA Warrants then outstanding. If the Company and the holders of the SPA Warrants representing a majority of the shares of Common Stock issuable upon exercise of the SPA Warrants then outstanding are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a) below. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period. Section 2. Exercise of Warrant. (a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York Time on the Expiration Date by (i) delivery of a written notice, in the form of the subscription form attached as Exhibit A hereto (the "EXERCISE NOTICE"), of such holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") by wire transfer of immediately available funds (or by check if the Company has not provided the holder of this Warrant with wire transfer instructions for such payment) or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in and if permitted by Section 2(e)), and (iii) the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, this Warrant (or an indemnification undertaking reasonably acceptable to the Company with respect to this Warrant in the case of its loss, theft or destruction); provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), the Company shall on the second (2nd) Business Day (the -4- "WARRANT SHARE DELIVERY DATE") following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) (the "EXERCISE DELIVERY DOCUMENTS") (A) provided that the transfer agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the holder is eligible to receive shares through DTC, credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled. Upon (x) delivery of the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e), the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one (1) Business Day of receipt of the holder's Exercise Notice. If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall within two (2) Business Days submit via facsimile (i) the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the number of Warrant Shares to its independent, outside accountant. The Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than three (3) Business Days from the time it receives the disputed determinations or calculations. Such investment banking firm's or accountant's determination or calculation, as the case may be, shall be deemed conclusive absent error. (b) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) Business Days after receipt of the Exercise Delivery Documents (the "WARRANT DELIVERY DATE") and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised. (c) No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number. -5- (d) If the Company shall fail for any reason or for no reason (x) to issue and deliver to the holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the holder is entitled or to credit the holder's balance account with DTC for such number of shares of Common Stock to which the holder is entitled upon the holder's exercise of this Warrant or (y) to issue and deliver to the holder within five (5) Business Days of receipt of the Exercise Delivery Documents a new Warrant for the number of shares of Common Stock to which such holder is entitled pursuant to Section 2(b) hereof, then the Company shall, in addition to any other remedies under this Warrant or the Securities Purchase Agreement or otherwise available to such holder, including any indemnification under Section 8 of the Securities Purchase Agreement, pay as additional damages in cash to such holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the holder, in the case of clause (x) above, or such fifth (5th) Business Day that such Warrant is not delivered, in the case of clause (y) above, in an amount equal to 0.5% of the sum of (i) the product of (A) the number of shares of Common Stock not issued to the holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the holder on or prior to the Warrant Delivery Date, the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date, in the case of the failure to deliver a Warrant; provided that in no event shall cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute which is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a). Alternatively, subject to the dispute resolution provisions of Section 2(a), at the election of the holder made in the holder's sole discretion, the Company shall pay to the holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies which the holder may pursue hereunder and under the Securities Purchase Agreement (including indemnification pursuant to Section 8 thereof)), 110% of the amount by which (A) the holder's total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by such holder of the shares of Common Stock to which the holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the holder from the sale of the shares of Common Stock to which the holder is entitled but has not received upon such exercise. (e) If, despite the Company's obligations under the Securities Purchase Agreement and the Registration Rights Agreement, the Warrant Shares to be issued are not registered and available for resale pursuant to a registration statement in accordance with the Registration Rights Agreement, including during a Grace Period (as defined in the Registration Rights Agreement), then notwithstanding anything contained herein to the contrary, the holder of this Warrant may, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "CASHLESS EXERCISE"): -6- Net Number = (A x B) - (A x C) ----------------- B For purposes of the foregoing formula: A = the total number of shares with respect to which this Warrant is then being exercised. B = the Weighted Average Price of the Common Stock on the trading day immediately preceding the date of the delivery of the Exercise Notice. C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise. Section 3. Covenants as to Common Stock. The Company hereby covenants and agrees as follows: (a) This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued. (b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. (c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 100% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. (d) The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (e) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of -7- securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Warrant Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. Section 4. Taxes. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose (other than to the extent that the holder is deemed to be a beneficial holder of shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders. Section 6. Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The holder of this Warrant further -8- represents, by acceptance hereof, that, as of this date, such holder is an "accredited investor" as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an "ACCREDITED INVESTOR"). Each delivery of an Exercise Notice, other than in connection with a Cashless Exercise shall constitute confirmation at such time by the holder of the representations concerning the Warrant Shares set forth in the first two sentences of this Section 6, unless contemporaneous with the delivery of such Exercise Notice the holder notifies the Company in writing that it is not making such representations (a "REPRESENTATION NOTICE"). If the holder delivers a Representation Notice in connection with an exercise, it shall be a condition to such holder's exercise of this Warrant and the Company's obligations set forth in Section 2 in connection with such exercise, that the Company receive such other representations as the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any United States or state securities laws. Section 7. Ownership and Transfer. (a) The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant. (b) The holder of this Warrant may assign or transfer some or all of its rights hereunder, subject to compliance with the 1933 Act and the provisions of Section 2(f) of the Securities Purchase Agreement, (i) to a Permitted Transferee (as defined below) without the consent of the Company and (ii) to a Person which is not a Permitted Transferee with the prior consent of the Company, which consent shall not be unreasonably withheld. For purposes of this Section 7(b), a "PERMITTED TRANSFEREE" means: (i) a Buyer (as defined in the Securities Purchase Agreement); (ii) an Affiliate (as defined below) of the holder of this Warrant; (iii) a holder of Notes or Warrants; (iv) an Affiliate of a holder of Notes or Warrants; (v) any entity which has the same investment advisor or manager or trading advisor or manager as any of the Persons described in the immediately preceding clauses (i) through (iv); (vi) a pledgee (or a transferee of such pledgee) in connection with a bona fide margin account or other loan or financing arrangement secured by this Warrant if such pledgee seeks to enforce or realize such pledge; and (vii) any fund, financial institution or entity with assets, or assets under management, of at least $100,000,000. "AFFILIATE" for purposes of this Section 7(b) means, with respect to any Person, another Person, directly or indirectly, which (A) has a 25% or more equity interest in that Person, (B) has a 25% or more common ownership with that Person, (C) controls that Person, (D) is controlled by that Person, or (E) is under common control with that person or entity. "CONTROL" or "CONTROLS" for purposes of this Section 7(b) means that a Person has the power, directly or indirectly, to conduct or govern the policies of another Person. (c) The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement and the initial holder of this Warrant -9- (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement. Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows: (a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the date of issuance of this Warrant, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding (I) shares of Common Stock issued or deemed to have been issued by the Company in connection with an Approved Stock Plan or a Future Approved Stock Plan, and (II) shares of Common Stock issued or deemed to have been issued by the Company upon conversion of the Notes or exercise of the SPA Warrants) for a consideration per share less than a price (the "APPLICABLE PRICE") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share. Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment. (b) Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable (provided that any references to "Common Stock", "Options" or "Convertible Securities" in subparagraphs (i) through (iii) below shall be deemed to exclude Common Stock, Options and Convertible Securities issued or deemed to have been issued by the Company in connection with an Approved Stock Plan or a Future Approved Stock Plan or upon conversion of the Notes or exercise of the SPA Warrants): (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion, exchange or exercise of such Convertible Securities" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the -10- Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exchange or exercise of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Rate of Conversion. If the purchase price or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect. -11- (c) Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the following shall be applicable: (i) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of SPA Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the SPA Warrants then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of SPA Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the SPA Warrants then outstanding. The determination of such appraiser shall be final and binding upon all parties absent error and the fees and expenses of such appraiser shall be borne by the Company. (ii) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (d) Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its -12- outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective. (e) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each such case: (i) the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date; and (ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i). -13- (f) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the SPA Warrants; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8. (g) Notices. (i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment. (ii) The Company will give written notice to the holder of this Warrant at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. (iii) The Company will also give written notice to the holder of this Warrant at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Section 9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale. (a) In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or -14- upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of SPA Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the SPA Warrants then outstanding) to deliver to each holder of SPA Warrants in exchange for such SPA Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the SPA Warrants (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the SPA Warrants (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of SPA Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the SPA Warrants then outstanding) to insure that each of the holders of the SPA Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder's SPA Warrants (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the exercise of such holder's Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exerciseability of this Warrant). Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification reasonably satisfactory to the Company (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. Section 11. Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file -15- by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: InterVoice-Brite, Inc. 17811 Waterview Parkway Dallas, Texas 75252 Telephone: 972-454-8000 Facsimile: 972-454-8781 Attention: President With copy to: Fulbright & Jaworski L.L.P. 2200 Ross Avenue, Suite 2800 Dallas, Texas 75201-2784 Telephone: 214-855-8000 Facsimile: 214-855-8200 Attention: David E. Morrison, Esq. If to a holder of this Warrant, to it at the address and facsimile number set forth on the Schedule of Buyers to the Securities Purchase Agreement, with copies to such holder's representatives as set forth on such Schedule of Buyers, or, in the case of the holder or any other Person named above, at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice to the other party at least five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. Section 12. Limitation on Number of Warrant Shares. The Company shall not be obligated to issue any Warrant Shares upon exercise of this Warrant if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon exercise of this Warrant (the "EXCHANGE CAP") without breaching the Company's obligations under the rules or regulations of the Principal Market, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by the applicable rules of the Principal Market (or any successor rule or regulation) for issuances of Common Stock in excess of such amount or (b) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to -16- the holders of SPA Warrants representing a majority of the Warrant Shares then issuable upon exercise of outstanding SPA Warrants. Until such approval or written opinion is obtained, the holder of this Warrant shall not be issued, upon exercise of this Warrant, Warrant Shares in an amount greater than such holder's Cap Allocation Amount (as defined in the Notes). In the event the Company is prohibited from issuing Warrant Shares as a result of the operation of this Section 12, the Company shall redeem for cash the portion of this Warrant with respect to which Warrant Shares which cannot be issued as a result of this Section 12, at a price per Warrant Share equal to the difference between the Weighted Average Price and the Warrant Exercise Price of such Warrant Shares as of the date of the attempted exercise. Section 13. Date. The date of this Warrant is May __, 2002 (the "WARRANT DATE"). This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M. New York Time on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant. Section 14. Amendment and Waiver. Except as otherwise provided herein, the provisions of the SPA Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of SPA Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the SPA Warrants then outstanding; provided that no such action may increase the Warrant Exercise Price of the SPA Warrants or decrease the number of shares or class of stock obtainable upon exercise of any SPA Warrants without the written consent of the holder of such SPA Warrant. Section 15. Descriptive Headings; Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. -17- IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by _________________, its ___________________, as of the ____ day of ____________. INTERVOICE-BRITE, INC. By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- EXHIBIT A TO WARRANT EXERCISE NOTICE TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT INTERVOICE-BRITE, INC. The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("WARRANT SHARES") of InterVoice-Brite, Inc., a Texas corporation (the "COMPANY"), evidenced by the attached Warrant (the "WARRANT"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. 1. Form of Warrant Exercise Price. The Holder intends that payment of the Warrant Exercise Price shall be made as: "Cash Exercise" with respect to ____________ ---------- Warrant Shares; and/or "Cashless Exercise" with respect to ---------- _________________ Warrant Shares (to the extent permitted by the terms of the Warrant). 2. Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. Date: _______________ __, ______ - -------------------------------------------- Name of Registered Holder By: ----------------------------------- Name: ------------------------------ Title: ----------------------------- ACKNOWLEDGMENT The Company hereby acknowledges this Exercise Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________________, 200_ from the Company and acknowledged and agreed to by [TRANSFER AGENT]. INTERVOICE-BRITE, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- EXHIBIT B TO WARRANT FORM OF WARRANT POWER FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of InterVoice-Brite, Inc., a Texas corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises. Dated: _________, 200_ ------------------------------------ Name: ------------------------------- Title: ------------------------------ EX-4.4 6 d97382exv4w4.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.4 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 29, 2002, by and among InterVoice-Brite, Inc., a Texas corporation, with headquarters located at 17811 Waterview Parkway, Dallas, Texas 75252 (the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Buyers (i) convertible notes of the Company (including accrued and unpaid interest thereon, the "NOTES"), which will be convertible into shares of the Company's common stock, no par value per share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with the terms of the Notes, and (ii) warrants to purchase shares of Common Stock (the "WARRANTS," and as exercised, the "WARRANT SHARES"); B. To induce the Buyers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 ACT"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Buyers hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: a. "INVESTOR" means a Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9. b. "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a governmental or any department or agency thereof. c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). d. "REGISTRABLE SECURITIES" means (i) the Conversion Shares issued or issuable upon conversion of the Notes, (ii) the Warrant Shares issued or issuable upon exercise of the Warrants and (iii) any shares of capital stock issued or issuable with respect to the Conversion Shares, the Notes, the Warrant Shares and the Warrants as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on conversions of Notes or exercises of Warrants. e. "REGISTRATION STATEMENT" means a registration statement or registration statements of the Company filed under the 1933 Act covering the Registrable Securities. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. a. Mandatory Registration. (i) Mandatory Registration. The Company shall prepare, and, as soon as practicable but in no event later than 15 days after the Closing Date (as defined in the Securities Purchase Agreement) (the "FILING DEADLINE"), file with the SEC a Registration Statement on Form S-3 covering the resale of all of the Registrable Securities. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration, subject to the provisions of Section 2(d). The Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the sum of (x) the number of Warrant Shares issuable upon exercise of all the outstanding Warrants (without regard to any limitations on the exercise thereof) as of the second trading day immediately preceding the date the Registration Statement is declared effective by the SEC and (y) 150% of the number of Conversion Shares issuable upon conversion of all the outstanding Notes (without regard to any limitations on the conversion thereof) as of the second trading day immediately preceding the date the Registration Statement is declared effective by the SEC (assuming solely for purposes of this determination conversion of the Notes at the lower of the then prevailing Fixed Conversion Price (as defined in the Notes) and 95% of the arithmetic average of the Weighted Average Price (as defined in the notes) of the Common Stock on each of the ten (10) consecutive trading days immediately preceding such date), subject to adjustment as provided in Section 2(e). The Company shall use its best efforts to have the Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the date which is 120 days after the Closing Date (the "EFFECTIVENESS DEADLINE"). 2 b. Allocation of Registrable Securities. The initial number of Registrable Securities included in any Registration Statement and each increase in the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time the Registration Statement covering such initial number of Registrable Securities or increase thereof is declared effective by the SEC. In the event that an Investor sells or otherwise transfers any of such Investor's Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor. Any shares of Common Stock included in a Registration Statement and which remain allocated to any Person which ceases to hold any Registrable Securities covered by such Registration Statement shall be allocated to the remaining Investors, pro rata based on the number of Registrable Securities then held by such Investors which are covered by such Registration Statement. c. Legal Counsel. Subject to Section 5 hereof, the Buyers holding a majority of the Registrable Securities shall have the right to select one legal counsel to review and oversee any offering pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be Katten Muchin Zavis Rosenman or such other counsel as thereafter designated by the holders of a majority of the Registrable Securities. The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations under this Agreement. d. Ineligibility for Form S-3. In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form reasonably acceptable to the holder of a majority of the Registrable Securities and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the SEC. e. Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities required to be covered by such Registration Statement or an Investor's allocated portion of the Registrable Securities pursuant to Section 2(b), the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least 100% of the number of such Registrable Securities as of the trading day immediately preceding the date of the filing of such amendment or new Registration Statement, in each case, as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefor arises. The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities issued or issuable upon conversion of the Notes and exercise of the Warrants covered by such Registration Statement is greater than the number of shares of Common Stock available for resale under such Registration Statement. The calculation set forth 3 in the foregoing sentence shall be made without regard to any limitations on the conversion of the Notes or exercise of the Warrants and such calculation shall assume that the Notes and the Warrants are then convertible and exercisable, respectively, into shares of Common Stock at the then prevailing Conversion Rate (as defined in the Notes) and Warrant Exercise Price (as defined in the Warrants), respectively, if applicable. f. Effect of Failure to File and Obtain and Maintain Effectiveness of Registration Statement. If (i) a Registration Statement covering all the Registrable Securities and required to be filed by the Company pursuant to this Agreement is not (A) filed with the SEC on or before the Fling Deadline or (B) declared effective by the SEC on or before the Effectiveness Deadline or (ii) on any day after the Registration Statement has been declared effective by the SEC sales of all the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(t))) pursuant to the Registration Statement (including, without limitation, because of a failure to keep the Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to the Registration Statement or to register sufficient shares of Common Stock), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each holder of Notes an amount in cash equal to the product of (i) the principal amount of the Notes held by each holder multiplied by (ii) the sum of (A) 0.02, if the Registration Statement is not filed by the Filing Deadline, plus (B) 0.02, if the Registration Statement is not declared effective by the Effectiveness Deadline, plus, (C) the product of (I) 0.000667 multiplied by (II) the sum (without duplication) of (x) the number of days after the Filing Deadline that such Registration Statement is not filed with the SEC, plus (y) the number of days after the applicable Effectiveness Deadline that the Registration Statement is not declared effective by the SEC, plus (z) the number of days after the Registration Statement has been declared effective by the SEC that such Registration Statement is not available (other than during an Allowable Grace Period) for the sale of at least all the Registrable Securities required to be included on such Registration Statement pursuant to Section 2(e). The payments to which a holder shall be entitled pursuant to this Section 2(f) are referred to herein as "REGISTRATION DELAY PAYMENTS." Registration Delay Payments shall be paid on the earlier of (I) the last day of the calendar month during which such Registration Delay Payments are incurred and (II) the third Business Day after the event or failure giving rise to the Registration Delay Payments is cured. In the event the Company fails to make Registration Delay Payments in a timely manner, such Registration Delay Payments shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. 3. RELATED OBLIGATIONS. At such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(e), the Company will use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: 4 a. The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the applicable Registrable Securities (but in no event later than the applicable Filing Deadline) and use its best efforts to cause such Registration Statement relating to the Registrable Securities to become effective as soon as practicable after such filing (but in no event later than the applicable Effectiveness Deadline). The Company shall keep each Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by such Registration Statement without restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the 1933 Act or (ii) the date on which the Investors shall have sold all the Registrable Securities covered by such Registration Statement (the "REGISTRATION PERIOD"). Such Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading (other than, with respect to an Investor, such an untrue statement or omission which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Investor expressly for use in connection with the preparation of such Registration Statement). The term "best efforts" shall mean, among other things, that the Company shall submit to the SEC, within two (2) Business Days after the Company learns that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has no further comments on the Registration Statement, as the case may be, a request for acceleration of effectiveness of such Registration Statement to a time and date not later than 48 hours after the submission of such request. b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "1934 ACT"), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement. c. The Company shall (A) permit Legal Counsel to review and comment upon (i) the initial Registration Statement at least seven (7) days prior to its filing with the SEC and (ii) all other Registration Statements and all amendments and supplements to all Registration Statements 5 (except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any similar or successor reports) within a reasonable number of days prior to their filing with the SEC, and (B) not file any document, registration statement, amendment or supplement described in the foregoing clause (A) in a form to which Legal Counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (i) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, and all exhibits and (ii) upon the effectiveness of any Registration Statement, one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto. The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations pursuant to this Section 3. d. The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all exhibits and each preliminary prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. e. The Company shall use its best efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by the Investors of the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of all the states of the United States, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify Legal Counsel and each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. 6 f. The Company shall notify Legal Counsel and each Investor in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to Legal Counsel and each Investor (or such other number of copies as Legal Counsel or such Investor may reasonably request). The Company shall also promptly notify Legal Counsel and each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and each Investor by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. g. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify Legal Counsel and each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. h. At the reasonable request (in the context of the securities laws) of any Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Investors, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investors. i. At the reasonable request (in the context of the securities laws) of any Investor, the Company shall make available for inspection during regular business hours by (i) any Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents retained by the Investors (collectively, the "INSPECTORS"), all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each 7 Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Each Inspector which exercises its rights under this Section 3(i) shall be obligated to execute a non- disclosure agreement containing such reasonable terms as the Company may request. The fees and expenses of the Inspectors shall be borne by the applicable Investor. j. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non- appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. k. The Company shall use its best efforts either to (i) cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities covered by the Registration Statement on the Nasdaq National Market System, or (iii) if, despite the Company's best efforts to satisfy the preceding clause (i) or (ii), the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(k). 8 l. The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request. m. The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of the applicable Registration Statement. n. If requested by an Investor, the Company shall (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information as an Investor requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by an Investor of such Registrable Securities. o. The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary to consummate the disposition of such Registrable Securities. p. The Company shall make generally available to its security holders as soon as practical, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. q. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. r. Within two (2) Business Days after a Registration Statement which covers applicable Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A. 9 s. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by Investors of Registrable Securities pursuant to a Registration Statement. t. Notwithstanding anything to the contrary in Section 3(f), at any time after the applicable Registration Statement has been declared effective by the SEC, the Company may delay the disclosure of material non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company shall promptly (i) notify the Investors in writing of the existence of material non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material non-public information to the Investors) and the date on which the Grace Period will begin, and (ii) notify the Investors in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed 15 consecutive days and during any 365 day period such Grace Periods shall not exceed an aggregate of 30 days and the first day of any Grace Period must be at least two (2) trading days after the last day of any prior Grace Period (an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the holders receive the notice referred to in clause (i) and shall end on and include the later of the date the holders receive the notice referred to in clause (ii) and the date referred to in such notice. The provisions of 3(g) hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with respect to the information giving rise thereto unless such material non-public information is no longer applicable. 4. OBLIGATIONS OF THE INVESTORS. a. At least seven (7) Business Days prior to the first anticipated filing date of a Registration Statement and at least five (5) Business Days prior to the filing of any amendment or supplement to a Registration Statement, the Company shall notify each Investor in writing of the information, if any, the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in such Registration Statement or, with respect to an amendment or a supplement, if such Investor's Registrable Securities are included in such Registration Statement (each an "INFORMATION REQUEST"). Provided that the Company shall have complied with its obligations set forth in the preceding sentence, it shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company, in response to an Information Request, such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. If an Investor fails to provide the Company with the information requested in the Information Request which the Company reasonably requires within seven (7) Business Days (or five (5) Business Days in connection with an amendment or supplement) after its receipt of the 10 Information Request, then the applicable Filing Deadline, Effectiveness Deadline and the 15-day period referred to in Section 2(e) shall be extended solely with respect to such Investor by one day for each day after such seventh (7th) Business Day (or such fifth (5th) Business Day in the case of an amendment or supplement) that the Investor fails to provide such information; provided, however, that the failure of an Investor to timely provide such Information pursuant to an Information Request shall not otherwise affect the Company's obligations under this Agreement to the other Investors; provided, further, however, that any Investor which fails to provide the Company with such information within the applicable time period set forth above in response to an Information Request prior to the filing of a Registration Statement or amendment or supplement thereto shall bear the reasonable costs actually incurred by the Company of any additional Registration Statement or amendment(s) or supplement(s) thereto which the Company is required to file due solely to such failure. b. Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such Registration Statement. c. Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of 3(f) or written notice from the company of a Grace Period, such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f) or receipt of notice that no supplement or amendment is required or that the Grace Period has ended. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of 3(f) and for which the Investor has not yet settled. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions and the fees and expenses of Legal Counsel or other legal and professional advisors to any Investor, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company shall be paid by the Company. 11 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any material violation of this Agreement by the Company (the matters in the foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS"). Subject to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3(d), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus 12 prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, employees, agents and representatives, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(c), such Investor will reimburse any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense 13 thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. In the case of an Indemnified Person, legal counsel referred to in the immediately preceding sentence shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. e. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 14 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale, shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such transfer or assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and 15 address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who then hold at least two-thirds (2/3) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 11. MISCELLANEOUS. a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: 16 If to the Company: InterVoice-Brite, Inc. 17811 Waterview Parkway Dallas, Texas 75252 Telephone: 972-454-8000 Facsimile: 972-454-8781 Attention: President With a copy to: Fulbright & Jaworski L.L.P. 2200 Ross Avenue, Suite 2800 Dallas, Texas 75201-2784 Telephone: 214-855-8000 Facsimile: 214-855-8200 Attention: David E. Morrison, Esq. If to Legal Counsel: Katten Muchin Zavis Rosenman 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661-3693 Telephone: 312-902-5200 Facsimile: 312-902-1061 Attention: Robert J. Brantman, Esq. If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers attached hereto, with copies to such Buyer's representatives as set forth on the Schedule of Buyers, or, in the case of a Buyer or other party named above, to such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. 17 d. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. e. This Agreement, the Securities Purchase Agreement, the Warrants and the Notes constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Securities Purchase Agreement, the Warrants and the Notes supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. 18 i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. All consents and other determinations to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by Investors holding at least two-thirds (2/3) of the Registrable Securities, determined as if all of the Notes and the Warrants then outstanding have been converted into or exercised for Registrable Securities without regard to any limitations on conversion of the Notes or the exercise of the Warrants. k. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. l. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. * * * * * * 19 IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: BUYERS: INTERVOICE-BRITE, INC. HFTP INVESTMENT L.L.C. By: Promethean Asset Management L.L.C. Its: Investment Manager By: -------------------------------- Name: ---------------------- Title: By: -------------------- -------------------------------- Name: Title: GAIA OFFSHORE MASTER FUND, LTD. By: Promethean Asset Management L.L.C. Its: Investment Manager By: -------------------------------- Name: Title: CAERUS FUND LTD. By: Promethean Asset Management L.L.C. Its: Investment Manager By: -------------------------------- Name: Title:
SCHEDULE OF BUYERS
INVESTOR ADDRESS INVESTOR'S LEGAL REPRESENTATIVES' INVESTOR'S NAME AND FACSIMILE NUMBER ADDRESS AND FACSIMILE NUMBER - ------------------------------------ ------------------------------------------ ---------------------------------------- HFTP Investment L.L.C. c/o Promethean Asset Management L.L.C. Promethean Investment Group, L.L.C. 750 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor New York, New York 10022 New York, New York 10022 Attention: David M. Kittay Attention: David M. Kittay Greg Carney Greg Carney Telephone: (212) 702-5200 Telephone: 212-702-5200 Facsimile: (212) 758-9334 Facsimile: 212-758-9334 Katten Muchin Zavis Rosenman 525 W. Monroe Street Chicago, Illinois 60661-3693 Attention: Robert J. Brantman, Esq. Telephone: (312) 902-5200 Facsimile: (312) 902-1061 Gaia Offshore Master Fund, Ltd. c/o Promethean Asset Management L.L.C. Promethean Investment Group, L.L.C. 750 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor New York, New York 10022 New York, New York 10022 Attention: David M. Kittay Attention: David M. Kittay Greg Carney Greg Carney Telephone: (212) 702-5200 Telephone: 212-702-5200 Facsimile: (212) 758-9334 Facsimile: 212-758-9334 Katten Muchin Zavis Rosenman 525 W. Monroe Street Chicago, Illinois 60661-3693 Attention: Robert J. Brantman, Esq. Telephone: (312) 902-5200 Facsimile: (312) 902-1061 Caerus Fund Ltd. c/o Promethean Asset Management L.L.C. Promethean Investment Group, L.L.C. 750 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor New York, New York 10022 New York, New York 10022 Attention: David M. Kittay Attention: David M. Kittay Greg Carney Greg Carney Telephone: (212) 702-5200 Telephone: 212-702-5200 Facsimile: (212) 758-9334 Facsimile: 212-758-9334 Katten Muchin Zavis Rosenman 525 W. Monroe Street Chicago, Illinois 60661-3693 Attention: Robert J. Brantman, Esq. Telephone: (312) 902-5200 Facsimile: (312) 902-1061
EXHIBIT A FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [TRANSFER AGENT] ATTN: ------------------------------- RE: INTERVOICE-BRITE, INC. Ladies and Gentlemen: We are counsel to InterVoice-Brite, Inc., a Texas corporation (the "COMPANY"), and have represented the Company in connection with that certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and among the Company and the buyers named therein (collectively, the "HOLDERS") pursuant to which the Company issued to the Holders convertible notes (the "NOTES"), convertible into shares of the Company's common stock, no par value per share (the "COMMON STOCK"), and warrants to purchase an aggregate of _________ shares of Common Stock, subject to adjustment (the "WARRANTS"). Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issuable upon conversion of the Notes and exercise of the Warrants, under the Securities Act of 1933, as amended (the "1933 ACT"). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ___, 200_, the Company filed a Registration Statement on Form S-3 (File No. 333-_____________) (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement. [WITH SUCH ADDITIONAL ASSUMPTIONS AND OTHER INFORMATION AS COUNSEL MAY REASONABLY DEEM ADVISABLE, PROVIDED IT IS CONSISTENT WITH SECTIONS 2(f) AND 2(g) OF THE PURCHASE AGREEMENT.] Very truly yours, [ISSUER'S COUNSEL] By: ---------------------------------- cc: [LIST NAMES OF HOLDERS] EX-4.5 7 d97382exv4w5.txt 1ST AMENDMENT TO 3RD AMENDED RIGHTS AGREEMENT EXHIBIT 4.5 FIRST AMENDMENT TO THIRD AMENDED AND RESTATED RIGHTS AGREEMENT This First Amendment to Third Amended and Restated Rights Agreement dated as of May 29, 2002 (the "Amendment"), is between INTERVOICE-BRITE, INC., a Texas corporation (the "Company"), and COMPUTERSHARE INVESTOR SERVICES, LLC, a Delaware limited liability company, as rights agent (the "Rights Agent"). WITNESSETH: WHEREAS, the Company and the Rights Agent are parties to that certain Third Amended and Restated Rights Agreement dated as of May 1, 2001 (as amended, the "Agreement"). WHEREAS, pursuant to Section 27 of the Agreement, the Company and the Rights Agent desire to amend the Agreement in the manner set forth below. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Defined Terms. Except as amended hereby, terms defined in the Agreement shall have the same meanings when used in this Amendment. Section 2. Amendments to Definitions. The definition of "Acquiring Person" in Section 1 of the Agreement is amended to add the following language at the end of such definition: Notwithstanding anything contained in this Agreement to the contrary, neither HFTP Investment L.L.C. ("HFTP"), Gaia Offshore Master Fund, Ltd. ("Gaia") nor Caerus Fund Ltd. ("Caerus," and collectively with HFTP and Gaia, the "Buyers") shall become or be an Acquiring Person by virtue of the acquisition of Common Shares pursuant to the terms of that certain Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of May 29, 2002, among the Company and the Buyers (including without limitation acquisition of the Notes, the Warrants and any Conversion Shares and Warrant Shares, as those terms are defined in the Securities Purchase Agreement), and the acquisition of Common Shares pursuant to the Securities Purchase Agreement shall not, under any circumstances, trigger a Distribution Date within the meaning of this Agreement; provided, however, that only Common Shares (including the Conversion Shares and Warrant Shares) acquired pursuant to the Securities Purchase Agreement shall be deemed excluded from the number of Common Shares deemed beneficially owned by each Buyer in determining whether such Buyer is an Acquiring Person. 1 Section 3. Amendments to Summary of Rights. The second full paragraph of the Summary of Rights to Purchase Preferred Shares set forth in Exhibit B to the Agreement shall be amended to add the following sentence to such paragraph: Notwithstanding anything contained in this Agreement to the contrary, neither HFTP Investment L.L.C., Gaia Offshore Master Fund, Ltd. nor Caerus Fund Ltd. (collectively, the "Buyers") shall become or be an Acquiring Person by virtue of the acquisition of Common Shares pursuant to the terms of that certain Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of May 29, 2002, among the Company and the Buyers (including without limitation acquisition of the Notes, the Warrants and any Conversion Shares and Warrant Shares, as those terms are defined in the Securities Purchase Agreement), and the acquisition of Common Shares pursuant to the Securities Purchase Agreement shall not, under any circumstances, trigger a Distribution Date within the meaning of this Agreement; provided, however, that only Common Shares (including the Conversion Shares and Warrant Shares) acquired pursuant to the Securities Purchase Agreement shall be deemed excluded from the number of Common Shares deemed beneficially owned by each Buyer in determining whether such Buyer is an Acquiring Person. Section 4. Severability. If any term, provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 5. Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Texas and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. Section 6. Counterparts. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 7. Effect of Amendment. Except as expressly modified herein, the Agreement shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. INTERVOICE-BRITE, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- COMPUTERSHARE INVESTOR SERVICES, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 3 EX-10.1 8 d97382exv10w1.txt FORM OF COMMITMENT LETTER EXHIBIT 10.1 May 29, 2002 InterVoice-Brite, Inc. 17811 Waterview Parkway Dallas, Texas 75252 Dear Sirs. Reference is hereby made to that certain Credit Agreement dated June 1, 1999, among InterVoice-Brite, Inc., Brite Voice Systems, Inc. (successor by merger to InterVoice Acquisition Subsidiary III, Inc.), Bank of America, National Association and the Lenders party thereto, as amended and modified by the First Amendment to Credit Agreement, the Second Amendment to Credit Agreement, the Forbearance Agreement dated March 7, 2002, and the Consent and Amendment to Forbearance Agreement dated March 31, 2002 (collectively the "Credit Agreement"). The undersigned is pleased to confirm its commitment to provide a consent, waiver and amendment to the Credit Agreement on the terms set forth in the draft attached hereto entitled "Consent, Waiver and Third Amendment to Credit Agreement" (the "Third Amendment") The commitment of the undersigned is subject to the satisfaction of the conditions set forth in the Third Amendment. This letter shall be governed by the laws of the State of Texas. Very truly yours, By: ------------------------ EX-10.2 9 d97382exv10w2.txt CONSENT, WAIVER AND 3RD AMENMDENT TO CREDIT AGRMT. EXHIBIT 10.2 CONSENT, WAIVER, AND THIRD AMENDMENT TO CREDIT AGREEMENT THIS CONSENT, WAIVER, AND THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated effective as of May 29, 2002 (the "Amendment Date"), is among INTERVOICE-BRITE, INC. (formerly InterVoice, Inc.; "Parent"), BRITE VOICE SYSTEMS, INC. (successor by merger to InterVoice Acquisition Subsidiary III, Inc.; "Borrower"), BANK OF AMERICA, NATIONAL ASSOCIATION (successor by merger to Bank of America National Trust and Savings Association) in its capacity as administrative agent ("Agent"), and the Lenders party hereto. RECITALS: A. Parent, Borrower, Agent, and the Lenders have entered into that certain Credit Agreement dated as of June 1, 1999 (as amended, the "Credit Agreement"). Parent and Borrower have requested that certain provisions of the Credit Agreement be amended in certain respects. B. Parent and Borrower have informed Agent and the Lenders of Parent's proposal to obtain unsecured subordinated financing from a lender or lenders to be determined by Parent (collectively, the "Junior Lender"). Parent and Borrower have requested that the Lenders consent to Parent incurring such Funded Debt in one or more transactions (collectively, the "Junior Financing Transaction"). C. Parent, Borrower, Agent, and certain of the Lenders have entered into that certain Forbearance Agreement dated as of March 7, 2002 (as amended, the "Forbearance Agreement") with respect to an Event of Default under Section 12.2 of the Credit Agreement. Parent and Borrower have requested that the Lenders waive the Event of Default described herein and therein. D. Subject to satisfaction of the conditions set forth herein, the undersigned Lenders are willing to (i) amend the Credit Agreement, (ii) consent to the Junior Financing Transaction, and (iii) waive the Existing Default, each as specifically provided herein. NOW, THEREFORE, BE IT RESOLVED, THAT, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 Definitions Section 1.1 Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Credit Agreement, as amended hereby. CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 1 ARTICLE 2 Consents Section 2.1 Consent to Junior Financing Transaction. Notwithstanding anything in the Credit Agreement to the contrary, including Section 11.1 and Section 11.2 of the Credit Agreement, the Lenders hereby confirm their consent to the Junior Financing Transaction upon the terms and conditions following: (a) The aggregate amount of Funded Debt incurred by Parent in connection with the Junior Financing Transaction shall be in an amount not less than $10,000,000, but not greater than $20,000,000. (b) The Junior Financing Transaction shall be entered into on terms substantially similar to those set forth on Annex A to this Amendment and as otherwise may be acceptable to the Required Lenders and pursuant to formal documentation in form and substance reasonably satisfactory to Agent. (c) The cash proceeds received by Parent in connection with the Junior Financing Transaction shall be delivered to Agent on the closing date of the Junior Financing Transaction and, first, shall be applied to repay all outstanding principal and interest owing on the Term Loans, second, shall be applied to repay the outstanding principal and interest owing on the Revolving Loans (without reducing the Revolving Commitments), and third, shall be deposited to a deposit account of Parent and used to support the working capital needs of Parent and its Subsidiaries. Section 2.2 Conditional Release of Pledge of Foreign Stock. Notwithstanding anything in the Credit Agreement to the contrary, if any Foreign Subsidiary enters into a credit facility with a lending institution to support such Foreign Subsidiary's operations outside of the U.S. (any such credit facility to be on terms and pursuant to documentation in form and substance reasonably satisfactory to Agent), each Lender hereby agrees that Agent is authorized to release its Liens on the Capital Stock of each Foreign Subsidiary owned by Parent or any other Subsidiary of Parent. ARTICLE 3 Waiver Section 3.1 Waiver of Event of Default. Pursuant to Section 12.2 of the Credit Agreement, Borrower was required to cause Parent and its Subsidiaries to maintain a Fixed Charge Coverage Ratio calculated as of February 28, 2002 (the "Measurement Date"), for the preceding four (4) Fiscal Quarters then ending, of not less than 1.25 to 1.00. As of the Measurement Date, the Fixed Charge Coverage Ratio for the preceding four (4) Fiscal Quarters was less than the required ratio. Borrower's failure to cause Parent and its Subsidiaries to maintain the Fixed Charge Coverage Ratio as required by the Credit Agreement, constitutes an Event of Default under Section 13.1(c) of the CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 2 Credit Agreement (the "Existing Default"). Effective as of the Amendment Date, and subject to the conditions precedent contained herein, the Lenders hereby waive the Event of Default resulting from the Existing Default. Section 3.2 Limitation of Waiver. Parent and Borrower hereby agree that the waiver specifically described in Section 3.1 shall not constitute and shall not be deemed a waiver of any other Default or Event of Default, whether arising as a result of further violations of Section 12.2 or otherwise, or a waiver of any rights or remedies arising as a result of such other Defaults or Events of Default. The failure of Parent and Borrower to comply with Section 12.2 for any date, or any period ending on any date, other than as described above shall constitute an Event of Default. ARTICLE 4 Amendments Section 4.1 Amendments to Section 1.1. Effective as of the Amendment Date, Section 1.1 of the Credit Agreement is hereby amended as follows: (a) Additional Defined Terms. The following terms are hereby added (in appropriate alphabetical order) to Section 1.1 of the Credit Agreement, the definition of which terms shall read in their respective entireties as follows: "Account Debtor " means each Person obligated in any way on or in connection with any Receivable. "Annualized Last Three Months EBITDA" means the EBITDA for the three (3) calendar months most recently ended, multiplied by four. "Annualized Last Three Months Capital Expenditures" means the Capital Expenditures for the three (3) calendar months most recently ended, multiplied by four. "Annualized Last Three Months Cash Interest and Scheduled Principal Payments" means the cash interest paid by the Parent and its Subsidiaries along with any cash principal payments made for three (3) calendar months most recently ended, multiplied by four. "Annualized Last Three Months Cash Taxes" means the cash taxes paid by the Parent and its Subsidiaries for the three (3) calendar months most recently ended, multiplied by four. "Availability " means, at any time, (a) the lesser of (i) the aggregate Revolving Commitments or (ii) the Borrowing Base, minus (b) the Outstanding Revolving Credit. CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 3 "Blocked Account Agreement" means an agreement among Parent, Borrower, Agent, and a Lender (if applicable) in form and substance satisfactory to Agent, concerning the collection of payments which represent the proceeds of Receivables or of any other Collateral. "Borrowing Base" means, at any time, an amount equal to the lesser of (a) the aggregate Revolving Commitments or (b) the sum of, without duplication, (i) seventy-five percent (75.0%) of the Net Amount of Eligible Receivables, plus (ii) forty percent (40.0%) of Eligible Inventory, minus (iii) Reserves. "Borrowing Base Certificate" means a certificate executed and delivered by the chief executive officer or chief financial officer of each of Parent and Borrower, in form acceptable to Agent, setting forth the calculation of the Borrowing Base, including a calculation of each component thereof (including to the extent Parent or Borrower has received notice of any Reserve from Agent, any of the Reserves included in such calculation pursuant to clause (b) of the definition of Borrowing Base), all in such detail as shall be satisfactory to Agent. All calculations of the Borrowing Base in connection with the preparation of any Borrowing Base Certificate shall originally be made by Parent and Borrower and certified to Agent; provided that Agent shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation (a) to reflect its reasonable estimate of declines in value of any of the Collateral described therein, and (b) to the extent that such calculation is not in accordance with this Agreement. "Eligible Inventory" means Inventory, valued at the lower of cost or market value, which Agent, in its reasonable credit judgment, determines to be Eligible Inventory. Without limiting the discretion of Agent to establish other criteria of ineligibility, Eligible Inventory shall not, unless the Agent in its reasonable credit judgment elects, include any Inventory: (a) that is not owned by Parent or Borrower, including Inventory held by Parent or Borrower on consignment; (b) that is not subject to Liens in favor of Agent (for the benefit of Agent and the Lenders) which are perfected as to such Inventory, or that is subject to any other Lien whatsoever; (c) that is finished goods, work-in-process, chemicals, samples, prototypes, supplies, or packing and shipping materials; (d) that is not in good condition, is unmerchantable, or does not meet all standards imposed by any Governmental Authority having regulatory authority over such goods or their use or sale; (e) that is not currently usable in the normal course of Parent's or Borrower's business, or that is slow moving or stale; (f) that is obsolete, defective, returned, repossessed, or used goods taken in trade; (g) that is located outside the U.S. or that is in transit from vendors or suppliers; (h) that is located in a public CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 4 warehouse or in possession of a bailee or in a facility leased by Parent or Borrower, if the applicable warehouseman, bailee, or lessor has not delivered to Agent, if requested by Agent, a subordination agreement in form and substance satisfactory to Agent or if a Reserve for rents or storage charges has not been established for Inventory at that location; (i) that contains or bears any Intellectual Property licensed to Parent or Borrower by any Person, if Agent is not satisfied that it may sell or otherwise dispose of such Inventory without infringing the rights of the licensor of such Intellectual Property or violating any contract with such licensor (and without payment of any royalties other than any royalties due with respect to the sale or disposition of such Inventory pursuant to the existing license agreement), and, if Agent deems it necessary, as to which Parent and Borrower have not delivered to Agent a consent or sublicense agreement from such licensor in form and substance acceptable to Agent; (j) that is acquired in connection with any acquisition, including a Permitted Acquisition, to the extent Agent has not completed an audit of such Inventory with results satisfactory to Agent; or (k) that is not reflected in the details of a current perpetual inventory report. If any Inventory at any time ceases to be Eligible Inventory, such Inventory shall promptly be excluded from the calculation of the Borrowing Base. "Eligible Receivables" means Receivables of Parent and Borrower which Agent in the exercise of its reasonable credit judgment determines to be Eligible Receivables. Without limiting the discretion of Agent to establish other criteria of ineligibility, Eligible Receivables shall not, unless Agent in its reasonable credit judgment elects, include any Receivable: (a) with respect to which more than ninety (90) days have elapsed since the date of the original invoice therefor or which is more than sixty (60) days past due from the due date of the original invoice therefor; (b) with respect to which any of the representations, warranties, covenants, and agreements contained in the Parent Security Agreement or the Borrower Security Agreement, as applicable, are incorrect or have been breached; (c) with respect to which Receivable (or any other Receivable due from the applicable Account Debtor), in whole or in part, a check, promissory note, draft, trade acceptance, or other instrument for the payment of money has been received, presented for payment, and returned uncollected for any reason; (d) which represents a progress billing (for the purposes hereof, "progress billing" means any invoice for goods sold or leased or services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice is conditioned upon Parent's or Borrower's completion of any further performance under such contract or agreement); (e) with respect to which any one or more of the following events has occurred to the Account Debtor on such Receivable: (i) death or judicial declaration of incompetency of such Account Debtor who is a natural person; (ii) the filing by or against such Account Debtor of a request or petition for liquidation, reorganization, CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 5 arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the Bankruptcy Code or any other bankruptcy, insolvency, or similar laws of the U.S., any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; (iii) the making of any general assignment by such Account Debtor for the benefit of creditors; (iv) the appointment of a receiver or trustee for such Account Debtor or for any of the assets of the Account Debtor, including, without limitation, the appointment of or taking possession by a "custodian," as defined in the Bankruptcy Code; (v) the institution by or against such Account Debtor of any other type of insolvency proceeding (under the Bankruptcy Code or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, such Account Debtor; (vi) the sale, assignment, or transfer of all or any material part of the assets of such Account Debtor; (vii) the nonpayment generally by such Account Debtor of its debts as they become due; or (viii) the cessation of the business of such Account Debtor as a going concern; (f) if twenty-five percent (25.0%) or more of the aggregate Dollar amount of outstanding Receivables owed at such time by the Account Debtor thereon is classified as ineligible pursuant to the other provisions of this definition other than clause (d) preceding; (g) owed by an Account Debtor which (i) does not maintain its chief executive office in the U.S., (ii) is not organized under the laws of the U.S. or any political subdivision or state thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, except to the extent that such Receivable is secured or payable by a letter of credit satisfactory to Agent in its discretion; (h) owed by an Account Debtor which is an Affiliate or employee of Parent or Borrower; (i) except as provided in clause (k) following, with respect to which either the perfection, enforceability, or validity of the Liens in favor of Agent in such Receivable, or Agent's right or ability to obtain direct payment to Agent of the proceeds of such Receivable, is governed by any federal, state, or local statutory requirements other than those of the UCC; (j) owed by an Account Debtor to which Parent or Borrower or any of their respective Affiliates, is indebted in any way, or which is subject to any right of setoff or recoupment by the Account Debtor, unless the Account Debtor has entered into an agreement acceptable to Agent to waive setoff rights, or if the Account Debtor thereon has disputed liability or made any claim with respect to any other Receivable due from such Account Debtor, but in each such case only to the extent of such indebtedness, setoff, recoupment, dispute, or claim; (k) owed by the government of the U.S., or any department, agency, public corporation, or other instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727 et seq.), and any other steps necessary to perfect Agent's Liens therein, have been complied with to Agent's satisfaction with respect to such Receivable; (l) owed by any state, CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 6 municipality, or other political subdivision of the U.S., or any department, agency, public corporation, or other instrumentality thereof and as to which Agent determines that its Lien therein is not or cannot be perfected; (m) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other repurchase or return basis; (n) which is evidenced by a promissory note or other instrument or by chattel paper; (o) with respect to which Agent believes, in the exercise of its reasonable judgment, that the prospect of collection of such Receivable is impaired or that such Receivable may not be paid by reason of the Account Debtor's financial inability to pay; (p) with respect to which the Account Debtor is located in any state requiring the filing of a Notice of Business Activities Report or similar report in order to permit Parent or Borrower to seek judicial enforcement in such state of payment of such Receivable, unless Parent or Borrower, as applicable, has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year; (q) which arises out of a sale not made in the ordinary course of Parent's or Borrower's business or which represents a rebate due from a vendor; (r) with respect to which the goods giving rise to such Receivable have not been shipped and delivered to and accepted by, or have been rejected or objected to by, the Account Debtor or the services giving rise to such Receivable have not been performed by Parent or Borrower, and, if applicable, accepted by the Account Debtor, or the Account Debtor revokes its acceptance of such goods or services; (s) owed by an Account Debtor, or group of affiliated Account Debtors, which is obligated to Parent and Borrower respecting Receivables the aggregate unpaid balance of which exceeds twenty-five percent (25.0%) of the aggregate unpaid balance of all Receivables owed to Parent and Borrower at such time by all of Parent and Borrower's Account Debtors, but only to the extent of such excess; (t) which is not subject to a first priority and perfected security interest in favor of Agent, for the benefit of Agent and the Lenders; (u) with respect to which Parent, Borrower, or Agent (in the exercise of its reasonable credit judgment) has deemed such Receivable as uncollectible or has any reason to believe that such Receivable is uncollectible; (v) which is acquired in connection with any acquisition, including a Permitted Acquisition, to the extent Agent has not completed an audit of the Receivables acquired in connection with such acquisition with results satisfactory to Agent; and (x) which Agent determines in its reasonable credit judgment is ineligible for any other reason. If any Receivable at any time ceases to be an Eligible Receivable, then such Receivable shall promptly be excluded from the calculation of the Borrowing Base. "Junior Financing Debt" means the outstanding Debt of Parent funded in connection with the Junior Financing Transaction. CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 7 "Junior Financing Transaction" means the issuance of unsecured subordinated notes to one or more lenders or other form of borrowing by Parent from one or more lenders (such lenders to be determined by Parent) pursuant to one or more note purchase agreement, promissory note, or other similar agreement between Parent and each such lender on terms acceptable to the Required Lenders (including, without limitation, provisions that principal thereunder may be paid in Capital Stock of Parent and limitations on each such lender's rights of acceleration and exercise of remedies) and subject to documentation reasonably acceptable to Agent. "Net Amount of Eligible Receivables" means, at any time, the gross amount of Eligible Receivables, less sales, excise, or similar taxes, and less returns, discounts, claims, credits, allowances, accrued rebates, offsets, deductions, counterclaims, disputes, and other defenses of any nature at any time issued, owing, granted, outstanding, available, or claimed. "Payment Account" means a bank account subject to a Blocked Account Agreement to which funds of Parent and Borrower (including proceeds of Receivables and other Collateral), as applicable, are deposited or credited, and which is maintained in the name of Agent, Parent, or Borrower, or any of them, as Agent may determine, on terms acceptable to Agent. "Reserves" means reserves that limit availability of credit hereunder, consisting of reserves against Eligible Inventory or Eligible Receivables, established by Agent from time to time in Agent's reasonable credit judgment. (b) Amendments to Existing Defined Terms. The following defined terms are hereby amended and restated to read in their respective entireties as follows: "Fixed Charge Coverage Ratio" means, as of any period end and determined on a consolidated basis for Parent and its Subsidiaries, the ratio of (a) Annualized Last Three Months EBITDA, less (b) the Annualized Last Three Months Capital Expenditures, less (c) Annualized Last Three Months Cash Taxes, to (d) the Annualized Last Three Months Cash Interest and Scheduled Principal Payments. "Leverage Ratio" means, as of any period end and determined on a consolidated basis for Parent and its Subsidiaries, the ratio of (a) Funded Debt, excluding Funded Debt incurred in connection with the Junior Financing Transaction, determined as of the end of such period, to (b) Annualized Last Three Months EBITDA. "Revolving Commitment" means, as to each Lender, the obligation of such Lender to make advances of funds and purchase participation interests CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 8 in (or with respect to the Issuing Bank as a Lender, hold other interests in) Letters of Credit in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set forth opposite the name of such Lender on Schedule 1.1 (or if applicable, the most recent Assignment and Acceptance executed by such Lender) under the heading "Revolving Commitment", as the same may be reduced or terminated pursuant to Section 2.5, Section 5.4, or Section 13.2. The aggregate amount of the Revolving Commitments as of May 29, 2002 equals twelve million Dollars ($12,000,000). "Revolving Maturity Date" means June 1, 2003. "Term Maturity Date" means the earlier to occur of (a) June 1, 2003, or (b) the closing date of the Junior Financing Transaction. Section 4.2 Amendment to Section 2.1. Effective as of the Amendment Date, Section 2.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: Section 2.1 Revolving Commitments. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make advances to Borrower from time to time from and including the Closing Date to but excluding the Revolving Maturity Date in an aggregate principal amount at any time outstanding up to but not exceeding the amount of such Lender's Revolving Commitment as then in effect; provided, however, (a) the aggregate Outstanding Revolving Credit shall not at any time exceed the Borrowing Base, (b) no Revolving Loan shall be made in excess of the Availability in effect at the time of the requested Revolving Loan, (c) the Outstanding Revolving Credit applicable to a Lender shall not at any time exceed such Lender's Revolving Commitment, and (d) the Outstanding Revolving Credit of all of the Lenders shall not at any time exceed the aggregate Revolving Commitments. Subject to the foregoing limitations, and the other terms and provisions of this Agreement, Borrower may borrow, prepay, and reborrow hereunder the amount of the Revolving Commitments. All Revolving Loans made or Continued on or after May 29, 2002 shall be Base Rate Accounts and shall be established and maintained at such Lender's Applicable Lending Office for Base Rate Accounts. Section 4.3 Amendment to Section 4.1. Effective as of the Amendment Date, Section 4.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: Section 4.1 Interest Rate. Borrower shall pay to Agent, for the account of each Lender, interest on the unpaid principal amount of each Loan made by such Lender for the period commencing on the date of such Loan to but excluding the date such Loan is due, at a fluctuating rate per annum equal to the Applicable Rate. The term "Applicable Rate" means: CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 9 (a) during the period that such Loan or portion thereof is outstanding as a Base Rate Account, the Base Rate, plus the Base Rate Margin; and (b) during the period that such Loan or portion thereof is outstanding as a Libor Account or as Libor Accounts, the Adjusted Libor Rate, plus the Libor Rate Margin; provided, however, that, notwithstanding anything to the contrary contained elsewhere in this Agreement, effective as of May 29, 2002, Libor Accounts shall not be available hereunder and all outstanding Libor Accounts (if any) shall be automatically Converted to Base Rate Accounts (and Borrower shall be responsible for any amounts arising under Section 6.5 as a result of such Conversion). Section 4.4 Amendment to Section 4.2. Effective as of the Amendment Date, Section 4.2 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: Section 4.2 Determinations of Margins and Commitment Fee Rate. Effective as of May 29, 2002, (a) the Commitment Fee Rate shall be one-half percent (0.50%) and (b) on any date of determination, the Base Rate Margin shall be as set forth in the following table:
BASE RATE DATE OF DETERMINATION MARGIN --------------------- --------- May 29, 2002 through and including 1.75% August 31, 2002 September 1, 2002 through and including 2.25% November 30, 2002 December 1, 2002 through and including 2.75% February 28, 2003 March 1, 2003 and thereafter 3.25%
Section 4.5 Amendment to Section 5.4. Effective as of the Amendment Date, Section 5.4(a)(i) of the Credit Agreement is hereby amended and restated to read in its entirety as follows: (i) Revolving Loans. If at any time the Outstanding Revolving Credit exceeds (A) the aggregate Revolving Commitments, Borrower shall, within one (1) Business Day after notice thereof from the Agent, prepay the outstanding Revolving Loans by the amount of such excess, or (B) the Borrowing Base, Borrower shall, within one (1) Business Day after the date CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 10 required for delivery of a Borrowing Base Certificate which would calculate such excess or within one (1) Business Day after notice thereof from Agent to Borrower, prepay the outstanding Revolving Loans by the amount of such excess. Section 4.6 Amendments to Section 10.1. Effective as of the Amendment Date, Section 10.1 of the Credit Agreement is hereby amended as follows: (a) The word "and" is deleted at the end of Section 10.1(k) and Section 10.1(l) is amended and restated to read in its entirety as follows: (l) Borrowing Base Certificate. As soon as available, and in any event by the second Business Day of each week, a Borrowing Base Certificate setting forth a computation of the Borrowing Base as of the last Business Day of the immediately preceding week, together with other information as may be reasonably requested by Agent, and setting forth the calculations supporting the computations therein; (b) A new Section 10.1(m) is added, which Section 10.1(m) shall read in its entirety as follows: (m) Receivables Agings, Etc. (i) At any time any amount is outstanding under the Revolving Loans, as soon as available, and in any event by the second Business Day of each week as of the last Business Day of the immediately preceding week, a schedule of Parent's and Borrower's Receivables, which schedule shall set forth a detailed aged final balance of all then existing Receivables of Parent and Borrower specifying the names, addresses, and balances due for each Account Debtor obligated on the Receivables so listed; (ii) If no amount is outstanding under the Revolving Loans, as soon as available, and in any event by the fifth Business Day of each calendar month as of the last Business Day of the immediately preceding calendar month, a schedule of Parent's and Borrower's Receivables, which schedule shall meet the requirements of clause (i) preceding; (iii) As soon as available, and in any event by the second Business Day of each week as of the last Business Day of the immediately preceding week, a report of cash receipts of and disbursements made by Parent and Borrower during such week; CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 11 (iv) As soon as available, and in any event by the fifth Business Day of each calendar month, a schedule of Inventory itemizing and describing the kind, type, and quantity of all Inventory owned by Parent and Borrower, the cost thereof, and the location thereof; and (c) A new Section 10.1(n) is added, which Section 10.1(n) shall read in its entirety as follows: (n) General Information. Promptly, such other information concerning Parent and Borrower or any Subsidiary of Parent or Borrower as Agent or any Lender may from time to time reasonably request. Section 4.7 Amendment to Section 10.6. Effective as of the Amendment Date, Section 10.6 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: Section 10.6 Inspection Rights. Parent will, and will cause each Subsidiary of Parent to, permit representatives and agents of Agent, accompanied by representatives and agents of any Lender, during normal business hours and upon reasonable notice to Parent, to examine, copy, and make extracts from Parent's or such Subsidiary's books and records, to visit and inspect Parent's or such Subsidiary's Properties and to discuss Parent's or such Subsidiary's business, operations, and financial condition with its officers and independent certified public accountants. Parent will, and will cause each Subsidiary of Parent to, authorize its accountants in writing (with a copy to Agent) to comply with this Section. Agent or its representatives may, at any time and from time to time at Parent's and Borrower's expense, conduct field exams for such purposes as Agent or the Required Lenders may reasonably request. Without limiting the generality of the foregoing sentence, Agent or its representatives may conduct field exams on or around September 1, 2002, and every ninety (90) days thereafter, all at Parent's and Borrower's expense (including, without limitation, Agent's customary charge of $800 per day for each Person performing such exams). Section 4.8 Addition of Section 10.15. Effective as of the Amendment Date, a new Section 10.15 is hereby added to the Credit Agreement, which shall read in its entirety as follows: Section 10.15 Collection of Accounts; Payments. Upon the earlier to occur of August 31, 2002 or the occurrence of any Event of Default: (a) Parent and Borrower shall establish a lock-box service for collections of Receivables with Agent or another Lender (subject to a Blocked Account Agreement and other documentation acceptable to Agent). Parent and Borrower shall promptly and thereafter instruct all of their respective CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 12 account debtors to make all payments directly to the address established for such service. If notwithstanding such instructions, Parent or Borrower receives any proceeds of Receivables, it shall receive such proceeds as Agent's trustee, and shall immediately deliver such payments to Agent in their original form duly endorsed in blank or deposit them into a Payment Account, as Agent may direct. (b) All collections of Parent and Borrower received in any lock-box or Payment Account or directly by Parent or Borrower, and all funds in any such Payment Account or other deposit account to which such collections are deposited shall be subject to Agent's sole control and withdrawals by Parent or Borrower shall not be permitted. (c) All collections of any Person other than Parent or Borrower received in any lock-box or Payment Account and all funds in any such Payment Account or other deposit account to which such collections are deposited shall be subject to Agent's sole control and withdrawals by Parent or Borrower shall not be permitted. (d) Agent or Agent's designee may, at any time after a Default or an Event of Default has occurred, notify Parent's and Borrower's account debtors that Parent's and Borrower's (as applicable) Receivables have been assigned to Agent and of Agent's security interest therein, and may collect such Receivables directly and may charge the collection costs and expenses against the proceeds received or to Borrower as a Revolving Loan. So long as an Event of Default exists, Parent and Borrower, at Agent's request, shall execute and deliver to Agent such documents as Agent shall require to grant Agent access to any post office box in which collections of Parent's and Borrower's Receivables are received. (e) If sales of Inventory are made or services are rendered by Parent or Borrower for cash, Parent or Borrower (as applicable) shall immediately deliver, or cause to be delivered, to Agent or deposit into a Payment Account, the cash received by Parent or Borrower. Section 4.9 Addition of Section 10.16. Effective as of the Amendment Date, a new Section 10.16 is hereby added to the Credit Agreement, which shall read in its entirety as follows: Section 10.16 Retention of Business Consultant. On and after May 29, 2002, Parent and Borrower shall retain William Blair & Company or another similar business consultant or investment banking firm to help arrange financing to replace the Commitments by refinancing with another lender on or before the Maturity Date. CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 13 Section 4.10 Amendment to Section 12.1. Effective as of the Amendment Date, Section 12.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: Section 12.1 Leverage Ratio. As of the end of each calendar month ending specified below, Parent shall not permit the Leverage Ratio to exceed the ratio set forth below opposite the applicable month specified below:
Period End Leverage Ratio ---------- -------------- September 30, 2002 3.50 to 1.00 October 31, 2002 3.10 to 1.00 November 30, 2002 2.50 to 1.00 December 31, 2002 and each other month 2.00 to 1.00 ending thereafter
Section 4.11 Amendment to Section 12.2. Effective as of the Amendment Date, Section 12.2 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: Section 12.2 Fixed Charge Coverage Ratio. As of the end of each calendar month specified below, Parent shall not permit the Fixed Charge Coverage Ratio calculated as of the last day of each such calendar month to be less than the ratio set forth below opposite the applicable month specified below:
Period End Fixed Charge Coverage Ratio ---------- --------------------------- September 30, 2002 0.60 to 1.00 October 31, 2002 0.80 to 1.00 November 30, 2002 1.10 to 1.00 December 31, 2002 1.25 to 1.00 January 31, 2003 1.50 to 1.00 February 28, 2003 1.80 to 1.00 March 31, 2003 1.90 to 1.00 April 30, 2003 2.00 to 1.00 May 31, 2003 and each other month 2.25 to 1.00 ending thereafter
CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 14 Section 4.12 Addition of Section 12.5. Effective as of the Amendment Date, a new Section 12.5 is hereby added to the Credit Agreement, which shall read in its entirety as follows: Section 12.5 Minimum EBITDA. As of the end of each calendar month specified below, Parent shall not permit EBITDA for such month to be less than the amount set forth opposite the applicable month specified below:
Period End Minimum EBITDA ---------- -------------- June 30, 2002 $(4,500,000) July 31, 2002 $ (500,000) August 31, 2002 $ 3,000,000 September 30, 2002 $(4,500,000)
Section 4.13 Amendments to Section 13.1. Effective as of the Amendment Date, Section 13.1 of the Credit Agreement is hereby amended as follows: (a) The word "or" is deleted at the end of Section 13.1(m) and the period at the end of Section 13.1(n) is replaced with a semicolon and the word "or". (b) A new Section 13.1(o) is added, which shall read in its entirety as follows: (o) Any payment with respect to the principal amount of the Junior Financing Debt shall be paid in cash at any time any Revolving Loan is outstanding (after giving effect to the making of such payment), any prepayment shall be made in cash with respect to the principal amount of the Junior Financing Debt, or any event of default, redemption event, triggering event, change of control, or other event which permits the holder of the Junior Financing Debt (i) to accelerate the Junior Financing Debt or otherwise permits any holder of the Junior Financing Debt to cause the Junior Financing Debt to be redeemed for cash prior to its scheduled maturity or required payment of a premium or other charge in cash or (ii) to exercise any remedies with respect thereto (other than any such event of default or other default or acceleration that is remedied within two (2) Business Days of such occurrence by the issuance of Capital Stock of Parent in satisfaction of the Junior Financing Debt); provided that the date set forth in this Section 13.1(o) may be extended with the written approval of the Required Lenders. Section 4.14 Amendments to Schedule 1.1. Effective as of the Amendment Date, Schedule 1.1 of the Credit Agreement is hereby amended to change the "REVOLVING COMMITMENTS" to read as follows: CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 15 REVOLVING COMMITMENTS:
Lender Commitment Amount Pro Rata Share ------ ----------------- -------------- Bank of America, National $ 2,080,000.00 17.3333333% Association Fleet National Bank $ 2,080,000.00 17.3333333% Bank One, Texas, NA $ 1,920,000.00 16.0000000% The Bank of Nova Scotia $ 1,200,000.00 10.0000000% IBM Credit Corporation $ 1,200,000.00 10.0000000% Comerica Bank $ 880,000.00 7.3333333% U.S. Bank National Association $ 880,000.00 7.3333333% Union Bank of California, N.A. $ 880,000.00 7.3333333% Bank Austria Creditanstalt $ 880,000.00 7.3333333% Corporate Finance, Inc. -------------- ---------- Total Revolving Commitments $12,000,000.00 100% ============== ==========
ARTICLE 5 Conditions Section 5.1 Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (a) the representations and warranties contained herein and in all other Loan Documents, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date; (b) after giving effect to this Amendment, no Default or Event of Default shall be in existence; (c) Parent, Borrower, and the Required Lenders shall have delivered to Agent an executed original copy of this Amendment; (d) Borrower shall have paid to Agent all fees, costs, and expenses owed to and/or incurred by Agent and each such Lender arising in connection with the Credit Agreement or CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 16 this Amendment, including, without limitation, the reasonable fees, costs, and expenses of Agent's legal counsel, Jenkens & Gilchrist, a Professional Corporation; (e) Borrower shall have paid to Agent, for the ratable benefit of each Lender providing to Agent its signature page to the commitment letter provided to the Borrower relating to this Amendment on or before 3:00 p.m. (Dallas, Texas time) May 29, 2002, an amendment fee of $120,000 (such fee to be allocated to such Lenders pro rata based on the amount of each such Lender's Commitment); (f) The Mortgage Transaction (as defined in that certain Consent and Amendment to Forbearance Agreement, dated as of March 31, 2002, among Parent, Borrower, Agent, and the Lenders party thereto) shall have closed and funded and Borrower shall have made the prepayment required under Section 5.4(b) of the Credit Agreement in connection therewith; (g) The Junior Financing Transaction shall have closed (which Junior Financing Transaction shall be subordinated to the Obligations pursuant to a subordination and intercreditor agreement in form and substance satisfactory to Agent) and $10,000,000 of Junior Financing Debt shall have funded thereunder; and (h) all proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be satisfactory to Agent and the Required Lenders (execution and delivery of a counterpart of this Amendment evidencing completion of each condition to effectiveness hereof to Agent's and such Lender's satisfaction). ARTICLE 6 Ratifications, Representations, and Warranties Section 6.1 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Parent, Borrower, Agent, and the Lenders agree that the Credit Agreement as amended hereby and the other Loan Documents shall continue to be legal, valid, binding, and enforceable in accordance with their respective terms. Section 6.2 Representations and Warranties. Each of Parent and Borrower hereby represents and warrants to Agent and the Lenders that (a) the execution, delivery, and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite action on the part of Parent and Borrower and will not violate the articles of incorporation or bylaws of Parent or Borrower, (b) the representations and warranties contained in the Credit Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the date hereof as though made on and as of the date hereof (except to CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 17 the extent that such representations and warranties were expressly, in the Credit Agreement, made only in reference to a specific date), (c) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing, and (d) each of Parent and Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby, and the other Loan Documents. ARTICLE 7 Loan Party Agreements Section 7.1 Release and Waiver. To induce Agent and the Lenders to agree to the terms of this Amendment, Borrower, Parent and each other Loan Party (by its execution of this Amendment or the Reaffirmation of Guaranty and Pledge and Security Agreement attached to this Amendment) represents and warrants that as of the date of its execution of this Amendment there are no claims or offsets against or defenses or counterclaims to its obligations under the Loan Documents and in accordance therewith it: (a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE OF THIS AMENDMENT AND (b) RELEASE. RELEASES AND DISCHARGES AGENT AND THE LENDERS, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES, AND ATTORNEYS (COLLECTIVELY THE "RELEASED PARTIES") FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS, CAUSES OF ACTION, OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH BORROWER, PARENT, OR ANY OTHER LOAN PARTY EVER HAD, NOW HAS, CLAIMS TO HAVE, OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND FROM OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. Section 7.2 Amendment and Other Fees. In consideration of the consents, waivers, and amendments contained herein and in addition to any fees payable under the Credit Agreement, Borrower hereby agrees (a) on or before November 30, 2002 (unless the Credit Agreement shall have been terminated and all Obligations thereunder shall have been paid in full on or before such date), to pay to Agent, for the ratable benefit of each Lender providing to Agent its signature page to this Amendment on or before 12:00 noon (Dallas, Texas time) May 29, 2002, an availability fee of $50,000 (such fee to be allocated to such Lenders pro rata based on the amount of each such Lender's Commitment), and (b) on the Amendment Date and on or before the last Business Day of each month after the Amendment Date beginning June 30, 2002, to Agent for its own account, a collateral monitoring fee equal to (i) for the months of May, June, and July, 2002, $5,000 and (ii) for CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 18 each month thereafter (until such time that the Credit Agreement shall have been terminated and all Obligations thereunder shall have been paid in full), $10,000. ARTICLE 8 Miscellaneous Section 8.1 Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document including any Loan Document furnished in connection with this Amendment shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Agent or any Lender shall affect the representations and warranties or the right of Agent or any Lender to rely upon them. Section 8.2 Reference to Credit Agreement. Each of the Loan Documents, including the Credit Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. Section 8.3 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 8.4 Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE U.S. Section 8.5 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Parent, Borrower, Agent, and the Lenders and their respective successors and assigns, except neither Parent nor Borrower may assign or transfer any of its respective rights or obligations hereunder without the prior written consent of the Lenders. Section 8.6 Counterparts. This Amendment may be executed in one or more counterparts, and on telecopy counterparts each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. Section 8.7 Effect of Amendment. No consent or waiver, express or implied, by Agent or any Lender to or for any breach of or deviation from any covenant, condition, or duty by Parent, Borrower, or any other Loan Party shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition, or duty. Section 8.8 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 19 Section 8.9 Entire Agreement. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. [remainder of page intentionally left blank] CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 20 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment effective as of the date first written above. BORROWER: BRITE VOICE SYSTEMS, INC. (successor by merger to InterVoice Acquisition Subsidiary III, Inc.) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 21 PARENT: INTERVOICE-BRITE, INC. (formerly InterVoice, Inc.) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 22 AGENT and ISSUING BANK: BANK OF AMERICA, NATIONAL ASSOCIATION (successor by merger to Bank of America National Trust and Savings Association), as Agent By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 23 LENDERS: BANK OF AMERICA, NATIONAL ASSOCIATION (successor by merger to Bank of America National Trust and Savings Association) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 24 BANK ONE, TEXAS, N.A. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 25 U.S. BANK NATIONAL ASSOCIATION By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 26 FLEET NATIONAL BANK By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 27 IBM CREDIT CORPORATION By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 28 UNION BANK OF CALIFORNIA, N.A. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 29 THE BANK OF NOVA SCOTIA By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 30 BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 31 COMERICA BANK By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 32 REAFFIRMATION OF GUARANTY AND PLEDGE AND SECURITY AGREEMENT Each of the undersigned hereby (a) consents to the execution and delivery of the Consent, Waiver, and Third Amendment to Credit Agreement to which this Reaffirmation of Guaranty and Pledge and Security Agreement is attached (the "Amendment") by the parties thereto, (b) AGREES TO THE WAIVER AND RELEASE CONTAINED IN SECTION 7.1 OF THE AMENDMENT, (c) agrees that the Amendment shall not limit or diminish the obligations of each of the undersigned under their certain Loan Documents delivered in connection with the Credit Agreement, executed or joined in by each of the undersigned and delivered to Agent, (d) reaffirms its obligations under each of such Loan Documents, and (e) agrees that each of such Loan Documents remains in full force and effect and is hereby ratified and confirmed. Dated effective as of May 29, 2002. INTERVOICE GP, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- INTERVOICE LP, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- INTERVOICE ACQUISITION SUBSIDIARY, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 33 INTERVOICE ACQUISITION SUBSIDIARY II, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- INTERVOICE LIMITED PARTNERSHIP By: InterVoice GP, Inc. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- BVSI, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- BVS INVESTCO, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONSENT, WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT - Page 34 ANNEX A TO CONSENT, WAIVER, AND THIRD AMENDMENT TO CREDIT AGREEMENT Junior Financing Transaction Terms EX-10.3 10 d97382exv10w3.txt SUBORDINATION AND INTERCREDITOR AGREEMENT EXHIBIT 10.3 SUBORDINATION AND INTERCREDITOR AGREEMENT THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (as hereafter amended, restated or otherwise modified from time to time, this "Agreement") is entered into effective as of May 29, 2002 (the "Effective Date"), by and among the "Buyers" ("Mezzanine Creditors" and each, individually a "Mezzanine Creditor") party to the Securities Purchase Agreement dated the date hereof (the "Purchase Agreement") among such Buyers and InterVoice-Brite, Inc., a Texas corporation (the "Company"), Bank of America, National Association, acting in its capacity as administrative agent for the Senior Creditors (defined below) (in such capacity, together with its successors in such capacity, hereinafter called the "Agent") and the Company. Terms defined in Section 1, where used in the Recital below and elsewhere in this Agreement, shall have the same meanings, where so used, as are prescribed therein. RECITAL The Credit Parties are obligated for payment and performance of the Senior Debt and have granted the Senior Creditor Liens to secure the Senior Debt. The Company is obligated for payment and performance of Mezzanine Debt. As one of the conditions precedent to the agreement of Senior Creditors to continue to extend credit under the Senior Credit Agreement, the Agent and the Senior Creditors have required the execution and delivery of this Agreement by the parties hereto. In order to induce the Senior Creditors to extend credit under the Senior Credit Agreement, the Company and the Mezzanine Creditors wish to enter into this Agreement on the terms provided herein. AGREEMENT NOW, THEREFORE, in order to induce the Agent and the Senior Creditors to continue to extend credit under the Senior Credit Agreement, and for value received, the receipt and sufficiency of which are hereby acknowledged by each of the undersigned, the parties hereto hereby agree as follows: 1. Definitions. The following terms shall have the following meanings in this Agreement: "Agent" has the meaning prescribed for such term in the introductory paragraph of this Agreement. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended and from time to time in effect (11 U.S.C. Sections 101, et seq). "Business Day" means any day that is not Saturday, Sunday, or a day on which banks in Dallas, Texas or Charlotte, North Carolina are required or permitted under applicable law to be closed. "Commitments" means, collectively, all commitments of the Senior Creditors to extend credit under the Senior Credit Agreement. "Company" has the meaning prescribed for such term in the introductory paragraph of this Agreement, and includes the Company as debtor-in-possession in any Proceeding. "Credit Parties" means the Company and its Subsidiaries that have guaranteed or granted a lien upon their assets to secure the Senior Debt, and "Credit Party" means any of such Persons. "Equally Senior Securities" means securities of the Company or any other Person provided for by a plan of reorganization or readjustment the payment of which is senior with respect to Senior Debt to the payment of all Mezzanine Debt, at least to the extent provided in the subordination provisions of this Agreement, including, without limitation, the provisions hereof requiring the payment or delivery to the holders of Senior Debt of certain payments or distributions otherwise payable or deliverable in respect of any Mezzanine Debt, in form and substance reasonably satisfactory to the holders at the time thereof of all of the Senior Debt. "Equally Subordinate Securities" means securities of the Company or any other Person provided for by a plan of reorganization or readjustment the payment of which is subordinate with respect to Mezzanine Debt to the payment of all Senior Debt, at least to the extent provided in the subordination provisions of this Agreement, including, without limitation, the provisions hereof requiring the payment or delivery to the holders of Senior Debt of certain payments or distributions otherwise payable or deliverable in respect of any Mezzanine Debt. "Mezzanine Creditors" has the meaning prescribed for such term in the introductory paragraph of this Agreement. "Mezzanine Debt" means (i) all principal of, and premium, if any, and all interest on, the Mezzanine Notes (including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of such Proceeding), (ii) all other indebtedness, obligations and liabilities now or hereafter owing to the Mezzanine Creditors by the Company under the Mezzanine Notes, the Warrants, the Registration Rights Agreement, the Purchase Agreement or the Transfer Agent Instructions, whether now existing or hereafter incurred or created, (iii) all obligations arising under any guaranty executed by the Company for the benefit of the Mezzanine Creditors in respect of any Mezzanine Debt and (iv) any and all renewals, extensions or rearrangements thereof. "Mezzanine Debt Documents" means the Mezzanine Notes, the Warrants, the Registration Rights Agreement, the Purchase Agreement or the Transfer Agent Instructions and any and all other agreements, instruments or documents now existing or hereafter executed and/or delivered by the Company pursuant to which the Company agrees to pay, guarantees or assures payment and/or performance of any Mezzanine Debt or grants or purports to grant any liens, security interests or other interests in any property for the benefit of the Mezzanine Creditors to secure the Mezzanine Debt, or any part thereof (provided, that the foregoing reference to liens, security interests or other interests in property shall not be construed to allow the granting of any liens, security interests or other interests in property which otherwise are prohibited by the terms of this Agreement), in each case as the same may be modified, amended, renewed, extended, restated, supplemented or otherwise modified from time to time. Subordination and Intercreditor Agreement - Page 2 "Mezzanine Default" means any "Event of Default" as defined by the Mezzanine Notes or any other occurrence, event or condition which, in and of itself or with notice or the passage of time, or both, would permit the Mezzanine Creditors to take action to accelerate the payment of all or any portion of the Mezzanine Debt. "Mezzanine Notes" means those certain Convertible Notes dated May 30, 2002, executed by the Company payable to the Mezzanine Creditors in aggregate face principal amount of $10,000,000, as may be renewed, extended, modified, amended, supplemented, restated or replaced from time to time. "Mezzanine Notice" means a written notice from the Mezzanine Creditors or the Company to the Agent pursuant to which the Agent is notified of the occurrence of a Mezzanine Default, an event giving the Mezzanine Creditors a right to cause early redemption of the Mezzanine Notes, a change of control or notice thereof or a Triggering Event and which provides a reasonably detailed description thereof. "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, governmental authority, or any other entity. "Plan" means any plan of partial or complete liquidation, reorganization, readjustment, arrangement, composition or extension, whether in a Proceeding or otherwise. "Proceeding" means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to any Credit Party, their respective property or their creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of any Credit Party, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) assignment for the benefit of creditors of any Credit Party or (d) other marshaling of the assets of any Credit Party; provided that the term "Proceeding" shall not include a state corporate law (as compared to a Bankruptcy Code or other debtor relief law) liquidation of any Person. "Purchase Agreement" has the meaning prescribed for such term in the introductory paragraph of this Agreement, as may be renewed, extended, amended, modified, supplemented or restated from time to time. "Registration Rights Agreement" has the meaning prescribed for such term as defined in the Purchase Agreement (which definition is incorporated herein by reference). "Senior Credit Agreement" means that certain Credit Agreement dated as of June 1, 1999 among the Credit Parties, the Agent and the Senior Creditors, and any successor or replacement credit agreement, including, without limitation, any replacement credit agreement effected by the Credit Parties, or any of them, with any other Person in any refinancing of the Senior Debt, as any Subordination and Intercreditor Agreement - Page 3 of the foregoing may be modified, amended, renewed, extended, restated, supplemented or otherwise modified from time to time consistent with the definition of Senior Debt. "Senior Creditor" means each of the "Lenders" (as defined by the Senior Credit Agreement) from time to time party to the Senior Credit Agreement, and also includes any Person that refinances the Senior Debt in any replacement or refinancing facility that constitutes Senior Debt hereunder. "Senior Creditor Collateral" means all property of any Credit Party, now owned or hereafter acquired, in which any Senior Creditor Lien is granted pursuant to the Senior Debt Documents, and all proceeds thereof. "Senior Creditor Liens" means any and all liens, security interests, mortgages or other interests held by the Agent, for the benefit of itself or the Senior Creditors, now or hereafter existing, in the Senior Creditor Collateral securing the Senior Debt, and any and all other liens, security interests, mortgages or other interests, if any, at any time held or claimed by the Agent in any property of any Credit Party securing or relating to the Senior Debt. "Senior Debt" means, without duplication, any and all of the following, now or hereafter existing or arising: (a) all indebtedness and obligations from time to time included within the "Obligations" as defined by the Senior Credit Agreement (which definition is incorporated herein by reference), as may be renewed, refinanced, or increased from time to time (in each case subject to the proviso below), (b) all principal of, and premium, if any, and interest on, the Senior Loans (including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of such Proceeding), (c) all reimbursement and other obligations under or in connection with any letter of credit issued by any Senior Creditor or any affiliate of the Senior Creditor, for the benefit of the Credit Parties, or any of them and reserved against under the Senior Credit Agreement, (d) all obligations of any Credit Party under or in respect of any interest rate exchange agreement, interest rate swap agreement or other similar agreement entered into in respect of all or any portion of the Senior Debt referred to in clause (a) or (b) above, (e) all other indebtedness, obligations and liabilities of any Credit Party to the Agent or any Senior Creditor, the issuer of any letter of credit under the Senior Credit Agreement or any other holder of any such indebtedness or obligations, whether now existing or hereafter incurred or created, under or with respect to any Senior Debt Document, (including, without limitation, claims for indemnity or damages arising under or with respect to the Senior Debt Documents), (f) all indebtedness and obligations arising in connection with any refinancings, replacements or increases of any of the foregoing, whether with the Senior Creditors, or any of them, or any other Person, and whether in the same, lesser or greater amount, and (g) any and all renewals, extensions, increases or rearrangements of any of the foregoing; provided that "Senior Debt" is limited to a senior secured credit facility limited to a maximum principal amount plus letter of credit, interest rate exchange, agreement, interest rate swap agreement or other similar agreement or other bank product liabilities of $12,000,000 plus obligations accruing with respect to such principal and liabilities such as interest, fees, expenses and indemnities, including the Senior Credit Agreement and replacements and refinancings thereof to the extent of such limitation on amount; provided, further, that any renewal, extension, increase or rearrangement shall not have a final maturity earlier than May 31, 2003. Subordination and Intercreditor Agreement - Page 4 "Senior Debt Documents" means, collectively, the Senior Credit Agreement, and any and all agreements, instruments or documents now existing or hereafter executed in connection with the Senior Debt, pursuant to which the person executing same agrees to pay, guarantees or assures payment and/or performance of any Senior Debt or grants or purports to grant any liens, security interests or other interests in any property to the Agent, or otherwise for the benefit of the Senior Creditors, to secure the Senior Debt, or any part thereof, and all other documents and instruments evidencing or pertaining to all or any portion of the Senior Debt, in each case as the same may be modified, amended, renewed, extended, restated, supplemented, refinanced or otherwise modified from time to time. Without limiting the extent and generality of the forgoing, "Senior Debt Documents" includes all "Loan Documents" as defined by the Senior Credit Agreement (which definition is incorporated herein by reference). "Senior Debt Documents" includes any agreements, instruments or documents executed or entered into by the Credit Parties, or any of them, after the commencement of a Proceeding. "Senior Event of Default" means any "Event of Default" as defined by the Senior Credit Agreement (which definition is incorporated herein by reference) or any event of default (howsoever defined) under any replacement or refinancing facility. "Senior Loans" means all "Loans" as defined by the Senior Credit Agreement (which definition is incorporated herein by reference), outstanding from time to time, and any loans constituting Senior Debt made in any replacement or refinancing facility, whether with the Senior Creditors, or any of them, or with any other Person, and whether in the same, lesser or greater amount as such Loans. "Senior Payment Event of Default" means any Senior Event of Default arising from default in the payment of any Senior Debt when the same becomes due and payable at final maturity or by acceleration. "Subsidiary" has the meaning prescribed for such term as defined by the Senior Credit Agreement (which definition is incorporated herein by reference). "Triggering Event" has the meaning prescribed for such term in the Mezzanine Notes (which term is incorporated herein by reference). "Warrants" has the meaning prescribed for such term as defined in the Purchase Agreement (which definition is incorporated herein by reference). 2. Mezzanine Debt Subordination. Until all Senior Debt shall first be paid in full and the Commitments terminated, each Mezzanine Creditor agrees, for itself and each holder of the Mezzanine Debt, and their respective successors and assigns, that the Mezzanine Debt hereby is expressly subordinated and junior in right of payment and claim to the prior payment of all Senior Debt in the manner and to the extent set forth in this Agreement; provided, that the Company may pay, and the holders of the Mezzanine Debt may take, receive and retain in cash all payments of Mezzanine Debt except to the extent otherwise provided in Sections 2(a), 2(b) and 2(c) below as Subordination and Intercreditor Agreement - Page 5 scheduled or otherwise provided by the Mezzanine Debt Documents on the Effective Date; and provided, further, that the Company may pay, and the holders of the Mezzanine Debt may take, receive and retain, (i) payments of obligation under the Mezzanine Notes made in shares of the common stock of the Company as provided in the Mezzanine Notes as in effect on the Effective Date, and (ii) payment of cash damages provided for under Section 2(d)(v) of the Mezzanine Notes, 2(d) of the Warrants, 2(f) of the Registration Rights Agreement or 4(o) of the Purchase Agreement, closing expenses under Section 4(h) of the Purchase Agreement and expenses under Section 5 of the Registration Rights Agreement, in each case as in effect on the Effective Date (items referred to in (i) and (ii) are collectively referred to herein as the "Excluded Payments"). (a) Upon the occurrence of a Senior Payment Event of Default then, unless and until such Senior Payment Event of Default shall have been remedied or waived or shall have ceased to exist, no direct or indirect payment (in cash, property or debt securities or by set-off or otherwise), including any payment to the holder of any Mezzanine Debt by reason of the subordination of any indebtedness or other obligation to, or any guarantee of, such Mezzanine Debt, shall be paid by any Credit Party or taken, received or retained by any Mezzanine Creditors, on account of any Mezzanine Debt, or as a sinking fund for any Mezzanine Debt, or in respect of any redemption, retirement, purchase or other acquisition of any of the Mezzanine Debt (other than Excluded Payments); provided, that upon cancellation of acceleration of the Senior Debt and payment of all sums then owing thereon (prior to such acceleration) and provided that neither Sections 2(b) or 2(c) are then applicable, the holders of Mezzanine Debt shall be entitled to receive only such payments in respect of the Mezzanine Notes that as of and from and after such time would otherwise be allowed to be paid under this Agreement (including payments that became payable during such period or otherwise were missed due to the operation of this Section 2(a)). (b) Upon the happening of a Senior Event of Default (other than under circumstances when the terms of Sections 2(a) or 2(c) are applicable), then, unless and until such Senior Event of Default shall have been remedied or waived in writing by the Agent or shall have ceased to exist, no direct or indirect payment (in cash, property or debt securities or by set-off or otherwise), including any payment to the holder of any Mezzanine Debt by reason of the subordination of any indebtedness or other obligation to, or any guarantee of, such Mezzanine Debt, shall be paid by any Credit Party or taken, received or retained by any Mezzanine Creditors, on account of any Mezzanine Debt, or as a sinking fund for any Mezzanine Debt, or in respect of any redemption, retirement, purchase or other acquisition of any Mezzanine Debt (other than Excluded Payments), during the period, if any, of 10 days after written notice (a "Block Notice") of such Senior Event of Default shall have been given by the Agent to the Company and to the Mezzanine Creditors, provided, that upon expiration of such 10 day period and provided that neither Sections 2(a) or 2(c) are then applicable, the holders of Mezzanine Debt shall be entitled to receive only such payments in respect of the Mezzanine Notes that as of and from and after such time would otherwise be allowed to be paid under this Agreement (including payments that became payable during such period or otherwise were missed due to the operation of this Section 2(b)); provided, that no more than one Block Notice may be given during any period of 45 consecutive days and one specific Subordination and Intercreditor Agreement - Page 6 event or specific occurrence may not be used for more than one Block Notice (although a comparable event or occurrence, e.g., a later violation of the same covenant, may be). (c) In the event of any Proceeding: (i) All Senior Debt shall first be paid in full and the Commitments terminated before any payment (including any payment which may be payable to the holder of any Mezzanine Debt by reason of the subordination of any indebtedness or other obligation to, or any guarantee of, such Mezzanine Debt but excluding Equally Subordinate Securities) or distribution, whether in cash, securities or other property, shall be made to any holder of any Mezzanine Debt on account of such Mezzanine Debt (other than Excluded Payments). (ii) Until all Senior Debt shall first be paid in full and the Commitments terminated, any payment (including any payment which may be payable to the holder of any Mezzanine Debt by reason of the subordination of any indebtedness or other obligation to, or guarantee of, such Mezzanine Debt) or distribution of any kind or character, whether in cash, securities or other property (excluding Equally Subordinate Securities and Excluded Payments), which would otherwise (but for these subordination provisions) be payable or deliverable in respect of any Mezzanine Debt shall be paid or delivered directly to the holders of Senior Debt for application in payment of the Senior Debt in accordance with the priorities then existing among such holders until all Senior Debt shall have been paid in full and the Commitments terminated. (iii) Each holder of Mezzanine Debt shall retain the right to vote and otherwise act in any Proceeding (including, without limitation, the right to vote to accept or reject any Plan proposed in any Proceeding), provided, that no such holder shall vote with respect to any such Plan or take any other action in any way so as to contest (i) the validity of any liens or security interests granted to, or for the benefit of, the holders of any Senior Debt, (ii) the relative rights and duties of the holders of Senior Debt established in the Senior Debt Documents with respect to such liens and security interests, or (iii) the enforceability of any Senior Debt Document or these subordination provisions. (iv) If the holder of any Mezzanine Debt does not file a proper claim, proof of debt, amendment of proof of debt, petition or other document as shall be necessary in order to have such Mezzanine Debt allowed in any such Proceeding and in the form required in any such Proceeding prior to fifteen (15) Business Days before the expiration of the time to file such claim, proof of debt, amendment of proof of debt, petition or other document, then the Agent is hereby irrevocably authorized to have the nonexclusive right (but not the obligation) to file, and is hereby authorized to file, an appropriate claim, proof of debt, amendment for and on behalf of such holder of Mezzanine Debt. Subordination and Intercreditor Agreement - Page 7 3. Lien Priorities. (a) The Senior Creditor Liens and all rights of any holder of the Senior Creditor Liens in and to the Senior Creditor Collateral are and shall be first, senior and prior to any liens, security interests or other rights at any time claimed by the Mezzanine Creditors in any property of any Credit Party. (b) Until the Senior Debt is paid in full and the Commitments terminated, the Mezzanine Creditors hereby expressly disclaim any interest in any property of any Credit Party and hereby expressly subordinates to the Agent and the Senior Creditors all of its right, title and interest which it may hereafter have or acquire from any Credit Party in and to any Senior Creditor Collateral (provided that the foregoing shall not be construed to authorize any Credit Party to grant to the Mezzanine Creditors, or for the Mezzanine Creditors to acquire or obtain, any security interest, lien or other interest in any Senior Creditor Collateral). (c) The priorities agreed to and established by this Section 3 are applicable irrespective of the manner or order of creation, attachment or perfection, the time or order of filing of any financing statement or the time of giving or failure to give any notice, or of any other priority that might otherwise exist under applicable law exclusive of this Agreement. 4. Limitation on Actions, Remedies. The Mezzanine Creditors agree, and each other holder of any Mezzanine Debt, by their acceptance of any instrument evidencing any Mezzanine Debt, agrees that: (a) Until the Senior Debt is paid in full and the Commitments terminated it will not, without the prior written consent of the holders of all of the Senior Debt at any time when any Block Notice (as defined in Section 2(b)) shall be effective under Section 2(b), commence, prosecute or participate in (other than continued prosecution of an action commenced when no such Block Notice or circumstance was effective or in existence) any administrative, legal or equitable action against any Credit Party to collect or enforce any Mezzanine Debt (an "Enforcement Action"), provided, that notwithstanding the foregoing but otherwise at all times subject to the terms of this Agreement, this Section 4(a) shall not prohibit the Mezzanine Creditors from commencing, prosecuting or participating in any action or taking any other Enforcement Action (i) to seek delivery of shares of common stock as contemplated by the Mezzanine Notes or Warrants or to seek cash damages provided for under Section 2(d)(v) of the Mezzanine Notes, 2(d) of the Warrants, 2(f) of the Registration Rights Agreement or 4(o) of the Purchase Agreement, closing expenses under Section 4(h) of the Purchase Agreement and expenses under Section 5 of the Registration Rights Agreement, in each case as in effect on the Effective Date, or (ii) at any time after any Senior Creditor has accelerated the maturity of the Senior Debt or (iii) at any time after a Proceeding has been commenced. (b) Until the Senior Debt is paid in full and the Commitments terminated, each of the Credit Parties agrees that it will not grant or convey to the Mezzanine Creditors, and the Subordination and Intercreditor Agreement - Page 8 Mezzanine Creditors agree that they will not acquire or obtain from any Credit Party or any other Person, any lien, security interest or other interest in any property of any Credit Party. (c) If, in violation of the provisions herein set forth, the Mezzanine Creditors shall commence, prosecute or participate in any suit, action, case or Proceeding against or with respect to the Credit Parties, the Credit Parties may interpose as a defense or plea the provisions set forth herein, and any holder of any Senior Debt may intervene and interpose such defense or plea in its own name or in the name of any Credit Party and shall, in any event, be entitled to restrain the enforcement of the payment provisions of the Mezzanine Debt, or of remedies in respect of property of the Credit Parties included in the Senior Creditor Collateral in its own name or in the name of any Credit Party in the same suit, action, case or Proceeding or in any independent suit, action, case or Proceeding, to the extent any such enforcement would be in violation of this Agreement. 5. Prepayments. Until the Senior Debt is paid in full and the Commitments terminated, each Credit Party agrees that it will not make, and the Mezzanine Creditors agree that they will not request, demand or accept and retain, any voluntary cash prepayment of the Mezzanine Debt, or any portion thereof (whether of principal, interest or otherwise) without the prior written consent of the Agent. 6. Turnover of Improper Payments. If any payment or distribution of any character, whether in cash, securities or other property shall be received by any holder of any Mezzanine Debt in contravention of any of the terms hereof and before all the Senior Debt shall have been paid in full and the Commitments terminated, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the Agent for the benefit of the holders of the Senior Debt at the time outstanding, for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all such Senior Debt in full. In the event of the failure of any holder of any Mezzanine Debt to endorse or assign any such payment, distribution or security, the Agent is hereby irrevocably authorized to endorse or assign the same. 7. No Prejudice or Impairment. (a) The rights of the Agent, the Senior Creditors and any other holders of any Senior Debt as against the holders of any Mezzanine Debt, and the rights and obligations of the Mezzanine Creditors, in each case as provided by the terms of this Agreement, shall remain in full force and effect without regard to, and shall not be impaired by any circumstance, including without limitation: (i) any act or failure to act on the part of any Credit Party; or (ii) any extension or indulgence in respect of any payment or prepayment of any Senior Debt or any part thereof or in respect of any other amount payable to any holder of any Senior Debt; or (iii) any amendment, modification, increase (subject to the limitation in the term Senior Debt), refinancing or waiver of, or addition or supplement to, or deletion from, or Subordination and Intercreditor Agreement - Page 9 compromise, release, consent or other action in respect of, any of the terms of any Senior Debt, any Senior Debt Document or any other agreement which may be made relating to any Senior Debt; or (iv) any exercise or non-exercise by the holder of any Senior Debt of any right, power, privilege or remedy under or in respect of such Senior Debt (other than notices required under the terms of this Agreement), the Senior Debt Documents or any waiver of any such right, power, privilege or remedy or of any default in respect of such Senior Debt, the Senior Debt Documents or this Agreement, or any receipt by the holder of any Senior Debt of any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Debt; or (v) any merger or consolidation of any Credit Party or any of their respective Subsidiaries into or with any other Person, or any sale, lease or transfer of any or all of the assets of any Credit Party or any of their respective Subsidiaries to any other Person; or (vi) consent to any use of cash collateral by, or to the extension of credit to, the Credit Parties, or any of them, in any Proceeding; or (vii) absence of any notice to, or knowledge by, any holder of any Mezzanine Debt of the existence or occurrence of any of the matters or events set forth in the foregoing subdivisions (i) through (vi). (b) Each holder of any Mezzanine Debt unconditionally waives (solely for the benefit of any holder of Senior Debt and subject to Section 26) (i) notice of any of the matters referred to in Section 7(a), (ii) all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Debt against the Credit Parties, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Debt or the Senior Debt Documents, and notice of any failure on the part of the Credit Parties to perform and comply with any covenant, agreement, term or condition of the Senior Debt or the Senior Debt Documents, excluding, however, notices expressly required hereunder, (iii) any right to the enforcement, assertion or exercise by any holder of any Senior Debt of any right, power, privilege or remedy conferred in such Senior Debt or the Senior Debt Documents, or otherwise, (iv) any requirement of diligence on the part of the Agent or any holder of any of the Senior Debt, (v) any requirement on the part of the Agent or any holder of any Senior Debt to mitigate damages resulting from any default under such Senior Debt or the Senior Debt Documents, and (vi) any notice of any sale, transfer or other disposition of any Senior Debt or Senior Lien by any holder thereof. (c) The obligations of the holders of Mezzanine Debt under this Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Debt, or any other payment to any holder of any Senior Debt in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Debt upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Credit Party or any substantial part of such Credit Party's property, or otherwise, all as though such payment had not been made. Subordination and Intercreditor Agreement - Page 10 8. Credit Parties' Obligations Absolute. Nothing contained herein shall impair, as between the Credit Parties and the holder of any Mezzanine Debt, the obligations evidenced by the Mezzanine Debt, subject to the rights of the holders of the Senior Debt as set forth in this Agreement. 9. Subrogation. No holder of any Mezzanine Debt shall have any subrogation or other rights as a holder of any Senior Debt or Senior Liens, and each holder of any Mezzanine Debt hereby waives all such rights of subrogation and all rights of reimbursement or indemnity whatsoever (except as provided in the Mezzanine Debt Documents as in effect on the Effective Date) and all rights of recourse to any security for any Senior Debt, until such time as all the Senior Debt shall be paid in full and the Commitments terminated and all of the obligations of the Credit Parties under the Senior Debt and the Senior Debt Documents shall have been duly performed. From and after the time at which all Senior Debt have been paid in full and the Commitments terminated, the holders of the Mezzanine Debt shall be subrogated to all rights of any holders of Senior Debt to receive any further payments or distributions applicable to the Senior Debt until the Mezzanine Debt shall have been paid in full or such payment shall have been provided for in a manner satisfactory to all of the holders of Mezzanine Debt, and for the purposes of such subrogation, no payment or distribution received by the holders of Senior Debt of cash, securities or other property to which the holders of the Mezzanine Debt would have been entitled except for these subordination provisions shall, as between the Credit Parties and their respective creditors other than the holders of Senior Debt, on the one hand, and the holders of the Mezzanine Debt, on the other, be deemed to be a payment or distribution by the Credit Parties to or on account of the Senior Debt. 10. Legend on Mezzanine Debt. The Credit Parties and the Mezzanine Creditors shall cause the Mezzanine Notes, and each other instrument at any time evidencing any Mezzanine Debt, to contain the following legend conspicuously noted on the face thereof: "THIS SUBORDINATED CONVERTIBLE NOTE IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THAT CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT DATED MAY 29, 2002, AMONG EACH OF HFTP INVESTMENT L.L.C., GAIA OFFSHORE MASTERFUND, LTD., CAERUS FUND LTD., BANK OF AMERICA, NATIONAL ASSOCIATION, AS THE AGENT, AND CERTAIN OTHER PERSONS SIGNATORY THERETO (INCLUDING EACH SUCH PARTY'S SUCCESSORS AND ASSIGNS). A COPY OF THAT AGREEMENT IS ON FILE AT THE OFFICE OF THE ISSUER HEREOF AND IS AVAILABLE FOR INSPECTION AT SUCH OFFICE." 11. Other Subordination Agreements. Until all Senior Debt shall have been paid in full and the Commitments terminated, without the consent of the holders of all of the Senior Debt, no holder of any Mezzanine Debt shall, directly or indirectly, voluntarily agree to subordinate such Mezzanine Debt to any indebtedness, obligations or liabilities other than the Senior Debt. 12. Modifications to Senior Debt or Mezzanine Debt. The Senior Debt Documents may be modified, amended, supplemented, restated or replaced, and any indebtedness or obligations Subordination and Intercreditor Agreement - Page 11 thereunder may be renewed, extended, increased (subject to the limitations in the term Senior Debt), rearranged or refinanced without the prior consent of the Mezzanine Creditors. No modification, amendment, supplement, restatement or replacement of the Mezzanine Debt which (i) increases the principal of the Mezzanine Notes, (ii) increases the interest rate payable under the Mezzanine Notes other than pursuant to the terms thereof existing on the Effective Date (including the imposition of any default rate of interest), or (iii) shortens the time for payment of any amount payable by any Credit Party under any Mezzanine Debt Documents. 13. Disgorgement. If at any time a Mezzanine Creditor or any other Person receives a payment (a "Presumptively Permitted Payment") that it would otherwise not be entitled to receive but for the fact that the Senior Debt was at the time of such payment paid in full and thereafter a payment on the Senior Debt is rescinded or must otherwise be restored or returned by the Agent or any Senior Creditor as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, then each Person receiving any portion of such Presumptively Permitted Payment agrees, upon demand, to return the portion of such Presumptively Permitted Payment it has received to the Person responsible for restoring or returning such payment on the Senior Debt up to the amount so required to be restored or returned. 14. Continued Effectiveness of this Agreement. The provisions of this Agreement are intended to and shall be enforceable at all times, notwithstanding the commencement or continuation of any Proceeding. 15. No Contest. The Mezzanine Creditors agree that they will not at any time contest the validity, perfection, priority or enforceability of the Senior Debt, the Senior Debt Documents or the Senior Creditor Liens. 16. Representations and Warranties. (a) The Mezzanine Creditors hereby represents and warrants to the Agent as follows: (i) such Mezzanine Creditor is an organization duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) such Mezzanine Creditor has the requisite power and authority to enter into, execute, deliver and carry out the terms of this Agreement, all of which have been duly authorized by all proper and necessary action and are not prohibited by its organizational documents, (iii) this Agreement, when executed and delivered, will constitute the valid and legally binding obligation of such Mezzanine Creditor, enforceable in accordance with its terms, except as enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general principles of equity, (iv) such Mezzanine Creditor is the sole owner, beneficially and of record, of its Mezzanine Note and Mezzanine Debt, (v) to the best of such Mezzanine Creditor's knowledge, after giving effect to the Mezzanine Notes, no Mezzanine Default is in existence as of the Effective Date and (vi) there are no Mezzanine Debt Documents other than the Mezzanine Notes, the Purchase Agreement, the Registration Rights Agreement, the Warrants and the Transfer Agent Instructions referred to therein. (b) Each Credit Party hereby represents and warrants to the Agent and the Mezzanine Creditors as follows: (i) it has the requisite power and authority to enter into, execute, deliver and Subordination and Intercreditor Agreement - Page 12 carry out the terms of this Agreement, all of which have been duly authorized by all proper and necessary action and are not prohibited by its organizational documents, (ii) this Agreement, when executed and delivered, will constitute the valid and legally binding obligation of it enforceable in accordance with its terms, except as enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general principles of equity, (iii) no Mezzanine Default is in existence as of the Effective Date and (iv) no Senior Default or Senior Event of Default is in existence as of the Effective Date. 17. Default Notices. The Mezzanine Creditors and each Credit Party shall provide the Agent with a Mezzanine Notice with reasonable promptness upon the occurrence of each Mezzanine Default, event of early redemption, Triggering Event or a notice of change of control, and the Mezzanine Creditors shall notify the Agent in the event any such event or condition thereafter is cured, waived or ceases to exist. The Agent will use its best efforts to send to the Mezzanine Creditors a copy of any notice of default it sends to the Company and the Company hereby agrees to the giving of such notice. 18. Cumulative Rights, No Waivers. Each and every right, remedy and power granted to the Agent hereunder shall be cumulative and in addition to any other right, remedy or power specifically granted herein, and with respect to the Senior Creditors as against the Credit Parties, in the Senior Credit Agreement or the other Senior Debt Documents, or now or hereafter existing in equity, at law, by virtue of statute or otherwise, and may be exercised by the Agent, from time to time, concurrently or independently and as often and in such order as the Agent may deem expedient. Any failure or delay on the part of the Agent in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect the rights of the Agent thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power, and no such failure, delay, abandonment or single or partial exercise of the rights of the Agent hereunder shall be deemed to establish a custom or course of dealing or performance among the parties hereto. 19. Modification. Any waiver of any provision of this Agreement, or any consent to any departure by any Senior Creditor or any Mezzanine Creditor therefrom, shall not be effective in any event unless the same is in writing and signed by the Agent and the Mezzanine Creditors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose given. Neither this Agreement, nor any provision hereof, may be amended or modified except pursuant to an agreement in writing entered into by the Agent and the Mezzanine Creditors and the Credit Parties. Any notice to or demand on the Mezzanine Creditors in any event not specifically required of the Agent hereunder shall not entitle the Mezzanine Creditors to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder. 20. Additional Documents and Actions. The parties hereto at any time, and from time to time, after the execution and delivery of this Agreement, promptly will execute and deliver such further documents and do such further acts and things as any other party hereto reasonably may request that may be necessary in order to effect fully the purposes of this Agreement, including, without limitation, any amendment or restatement of this Agreement. Subordination and Intercreditor Agreement - Page 13 21. Notices. Except as otherwise provided herein, all notices and correspondence hereunder shall be in writing and sent by certified or registered mail, return receipt requested, or by overnight delivery service, with all charges prepaid, or by facsimile transmission, promptly confirmed in writing sent by first-class mail to the following addresses: (a) If to the Mezzanine Creditors: HFTP Investment L.L.C. c/o Promethean Asset Management L.L.C. 750 Lexington Avenue, 22nd Floor New York, New York 10022 Attention: David M. Kittay Greg Carney Telephone: (212) 702-5200 Facsimile: (212) 758-9334 Gaia Offshore Master Fund, Ltd. c/o Promethean Asset Management L.L.C. 750 Lexington Avenue, 22nd Floor New York, New York 10022 Attention: David M. Kitty Greg Carey Telephone: (212) 702-5200 Facsimile: (212) 758-9334 Caerus Fund Ltd. c/o Promethean Asset Management L.L.C. 750 Lexington Avenue, 22nd Floor New York, New York 10022 Attention: David M. Kitty Greg Carey Telephone: (212) 702-5200 Facsimile: (212) 758-9334 (b) If to the Agent: Bank of America, National Association 1445 Market Street, 5th Floor San Francisco, California 94103-1399 Attention: Carl F. Fye Telephone: (415) 436-2616 Facsimile: (415) 503-5059 Subordination and Intercreditor Agreement - Page 14 or in any case, to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this Section 21. All such notices and correspondence shall be deemed given (a) if sent by certified or registered mail, three (3) Business Days after being postmarked, (b) if sent by overnight delivery service, when received at the above stated addresses and (c) if sent by facsimile: transmission, when receipt of such transmission is acknowledged. 22. Severability. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 23. Assignment of Mezzanine Debt. Neither the Mezzanine Debt, nor any portion thereof, may be transferred or assigned to any Person unless such transferee or assignee agrees in writing, in form and substance reasonably satisfactory to the Agent, to be bound by this Agreement. 24. Successors and Assigns. This Agreement shall inure to the benefit of the successors and assigns of the Agent, the Senior Creditors and the Mezzanine Creditors and shall be binding upon the successors and assigns of the Agent, the Senior Creditors, the Mezzanine Creditors and the Credit Parties. 25. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be valid as an original. 26. Defines Rights of Creditors. Except as provided in Section 4(c), the provisions of this Agreement are solely for the purpose of defining the relative rights of the Mezzanine Creditors, on the one hand, and the Agent and the Senior Creditors, on the other hand, and shall not be deemed to create any rights or priorities in favor of any other Person, including, without limitation, any Credit Party or any debtor-in-possession or trustee in bankruptcy in any Proceeding. 27. Conflict. In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Mezzanine Debt Documents, the provisions of this Agreement shall control and govern. For purposes of this Section, to the extent that any provisions of any of the Mezzanine Debt Documents provide rights, remedies and benefits to the Agent or the Senior Creditors that exceed the rights, remedies and benefits provided to the Agent or the Senior Creditors under this Agreement, such provisions of the applicable Mezzanine Debt Documents shall be deemed to supplement (and not to conflict with) the provisions hereof. Nothing herein shall be construed to limit the right of the Mezzanine Creditors to declare a Mezzanine Event of Default or early redemption of the Mezzanine Debt. 28. Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Subordination and Intercreditor Agreement - Page 15 29. Termination. This Agreement shall terminate upon the payment in full of the Senior Debt which is not subject to avoidance under Section 547 of the Bankruptcy Code and termination of the Commitments. 30. JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS RELATED HERETO. 31. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS. 32. Execution; Entire Agreement. A telecopy or other electronic transmission of any executed counterpart of this Agreement shall be deemed valid as an original. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES REGARDING THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES. Subordination and Intercreditor Agreement - Page 16 IN WITNESS WHEREOF, the parties have entered into this Agreement as of the Effective Date. BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: ----------------------------------- John K. Barrett, Principal HFTP INVESTMENT L.L.C. By: Promethean Asset Management L.L.C., Its: Investment Manager By: -------------------------------- Name: ------------------------------ Title: ----------------------------- GAIA OFFSHORE MASTER FUND, LTD. By: Promethean Asset Management L.L.C., Its: Investment Manager By: -------------------------------- Name: ------------------------------ Title: ----------------------------- CAERUS FUND LTD. By: Promethean Asset Management L.L.C., Its: Investment Manager By: -------------------------------- Name: ------------------------------ Title: ----------------------------- Subordination and Intercreditor Agreement - Page 17 INTERVOICE - BRITE, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- Subordination and Intercreditor Agreement - Page 18 EX-10.4 11 d97382exv10w4.txt PROMISSORY NOTE EXHIBIT 10.4 PROMISSORY NOTE $14,000,000.00 MAY 29, 2002 FOR VALUE RECEIVED, INTERVOICE-BRITE, INC., a Texas corporation (the "MAKER"), does hereby promise to pay to the order of BEAL BANK, S.S.B., a savings bank organized under the laws of the State of Texas ("PAYEE"), at its office at 6000 Legacy Drive, 4 East, Plano, Texas 75024, or at such other place as the holder hereof may from time to time designate in writing, in lawful money of the United States, the principal sum of FOURTEEN MILLION DOLLARS ($14,000,000.00), with interest thereon as provided in this Note. 1. CERTAIN DEFINITIONS. For the purposes hereof, the terms set forth below shall have the following meanings: (a) "APPLICABLE LAW" shall mean (i) the laws of the United States of America applicable to contracts made or performed in the State of Texas, now or at any time hereafter prescribing maximum rates of interest or eliminating maximum rates of interest on loans and extensions of credit, (ii) the laws of the State of Texas including, without limitation, Chapter 303 of the Texas Finance Code, as the same may be amended from time to time ("CHAPTER 303"), now or at any time hereafter prescribing or eliminating maximum rates of interest on loans and extensions of credit, and (iii) any other laws at any time applicable to contracts made or performed in the State of Texas which permit a higher interest rate ceiling hereunder. In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving triparty accounts) apply to this Note or any of the indebtedness evidenced hereby. (b) "APPLICABLE RATE" shall mean a per annum rate equal to the lesser of (i) the Highest Lawful Rate, or (ii) the greater of ten and one-half percent (10.5%) or a fluctuating rate equal to the Prime Interest Rate, as its fluctuates from time to time, plus two percent (2%). (c) "DEED OF TRUST" shall mean that certain Deed of Trust, Security Agreement and Assignment of Leases and Rents, of even date herewith, executed by Maker for the benefit of Payee, encumbering the Property (hereinafter defined) as security for this Note and certain other indebtedness of Maker to Payee. (d) "FINAL MATURITY DATE" shall mean May 28, 2005. (e) "HIGHEST LAWFUL RATE" shall mean at the particular time in question the maximum rate of interest which, under Applicable Law, Payee is then permitted to charge Maker in regard to the loan evidenced by this Note. If the maximum rate of interest which, under Applicable Law, Payee is permitted to charge Maker in regard to the loan evidenced by this Note shall change after the date hereof, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective date of each change in the Highest Lawful Rate without notice to Maker. For purposes of determining the Highest Lawful Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be the weekly ceiling described in and computed in accordance with the provisions of Chapter 303; provided, however, that in determining the Highest Lawful Rate, all fees and other charges contracted for, charged or received by Payee in connection with the loan evidenced by this Note which are either deemed interest under Applicable Law or required under Applicable Law to be deducted from the principal balance hereof to determine the rate of interest charged on this Note shall be taken into account. To the extent permitted by Applicable Law, Payee may from time to time substitute for the "weekly ceiling" referred to above any ceiling under Chapter 303 or any other statute and revise the rate, index, formula or provision of law used to compute the rate hereunder as provided therein. (f) "PRIME INTEREST RATE" shall mean the prime rate of interest announced or published by The Wall Street Journal from time to time, it being understood that if The Wall Street Journal should at any time announce or publish more than one such prime rate of interest, the highest such announced or published prime rate of interest shall be used as the Prime Interest Rate during the period for which it is the highest such announced or published prime rate of interest. In the event of a change in the interest rate caused by a change in the Prime Interest Rate, the interest rate applicable to the principal balance of this Note shall be adjusted effective at the opening of business on the day on which such change becomes effective. (g) "PROPERTY" shall mean the real and personal property located in Collin County, Texas, which is more particularly described in the Deed of Trust. 2. CALCULATION AND PAYMENT OF PRINCIPAL AND INTEREST. (a) Subject to the provisions of Section 7 hereof, interest on the unpaid principal balance hereof from time to time outstanding shall be computed at a per annum rate equal to the Applicable Rate. (b) Accrued and unpaid interest, computed at the Applicable Rate, shall be due and payable monthly on the first day of each month hereafter commencing June 1, 2002 and continuing throughout the term of this Note. (c) The unpaid principal balance of and all remaining accrued and unpaid interest upon this Note, including interest computed at the Applicable Rate or the Default Rate, as hereinafter defined, whichever is applicable, are due and payable on the maturity date hereof, whether such maturity date is the Final Maturity Date or any accelerated maturity date. 2 (d) Interest on this Note shall be calculated on the basis of three hundred sixty-five (365) day or three hundred sixty-six (366) day years, as the case may be, subject, however, to the provisions of Section 8 hereof. (e) If the date for any payment or prepayment hereunder falls on a day which is a Saturday, Sunday or legal holiday in the State of Texas, then for all purposes of this Note, the same shall be deemed to have fallen on the next following day, and such extension of time shall in such case be included in the calculation of interest. (f) All payments on this Note pursuant to this Section 2 shall be applied first to the payment of any costs or expenses of Payee which are to be reimbursed by Maker as provided in the Loan Documents, as such term is defined in the Deed of Trust, then to the payment of accrued but unpaid interest hereon and then to the payment of the principal balance hereof; provided, however, if an Event of Default exists, all payments received by Payee in regard to the loan evidenced hereby shall be applied as Payee may direct. 3. PREPAYMENT. Prior to November 29, 2002, this Note may not be prepaid in whole or in part. From and after November 29, 2002 but prior to the first anniversary of the date hereof, Maker may prepay this Note, in whole or in part, provided Maker pays to Payee at the time such prepayment is made a prepayment fee equal to the lesser of (i) an amount equal to two percent (2%) of the principal prepaid, and (ii) the maximum amount of prepayment fee Payee may charge and receive without violating applicable law. From and after the first anniversary of the date hereof, and prior to the second anniversary of the date hereof, Maker may prepay this Note, in whole or in part, provided Maker pays to Payee at the time such prepayment is made a prepayment fee equal to a lesser of (i) an amount equal to one percent (1%) of the principal prepaid, and (ii) the maximum amount of prepayment fee Payee may charge and receive without violating applicable law. On or after the second anniversary of the date hereof, this Note may be prepaid in whole or in part without prepayment premium or fee. Notwithstanding the foregoing, no prepayment premium or fee will be required in connection with prepayments of principal resulting from requirements of the Loan Documents and not resulting from events within the Borrower's control (e.g., condemnation). 4. WAIVER. Except to the extent otherwise expressly set forth below, Maker and all sureties, endorsers, accommodation parties, guarantors and other parties now or hereafter liable for the payment of this Note, in whole or in part, hereby severally (i) waive demand, notice of demand, presentment for payment, notice of nonpayment, notice of default, protest, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor and all other notices, and further waive diligence in collecting this Note, in taking action to collect this Note, in bringing suit to collect this Note, or in enforcing this Note or any of the security for this Note; (ii) agree to any substitution, subordination, exchange or release of any security for this Note or the release of any party primarily or secondarily liable for the payment of this Note; (iii) agree that Payee shall not be required to first institute suit or exhaust its remedies hereon against Maker or others liable or to become liable for the payment of this Note or to enforce its rights against any security for the payment of this Note; and (iv) consent to any extension of time for the payment of this Note, or any installment hereof, made by agreement by Payee with any 3 person now or hereafter liable for the payment of this Note, even if Maker is not a party to such agreement. 5. EVENTS OF DEFAULT (a) Upon the happening of any of the following events (each an "EVENT OF DEFAULT"), Payee may, at its option, declare immediately due and payable the entire outstanding principal balance of this Note together with all interest accrued and owing hereon, plus any other sums payable at the time of such declaration pursuant to this Note, and every instrument securing this Note, including, without limitation, the Deed of Trust. Events of Default means any of the following: (i) If Maker shall fail to pay any installment of principal and/or interest under this Note as and when same becomes due and payable in accordance with the terms hereof or any other obligation of Maker to Payee involving the payment of money, or if Maker shall default in any other obligation under this Note or the Deed of Trust and/or any other Loan Document which can be cured by the payment of money, and such default is not cured within five (5) days following the date written notice of such failure is given by or on behalf of Payee to Maker; provided, however, (x) Payee will not be obligated to give such written notice more than twice during any twelve (12) month period, and following the second such notice during a twelve (12) month period, any subsequent default or failure during the then current twelve (12) month period shall constitute an Event of Default without any notice given by or on behalf of Payee and (y) Payee has no obligation to provide any such notice or opportunity to cure to Maker in regard to the payment of this Note on the maturity date hereof, whether such maturity date is the Final Maturity Date or any accelerated maturity date established pursuant to the terms hereof; or (ii) Any Event of Default, as defined in the Deed of Trust, shall occur. (b) The failure to exercise the foregoing option upon the happening of one or more Events of Default shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time, and no such failure shall nullify any prior exercise of any such option without the express written consent of Payee. 6. COLLATERAL. This Note is secured by, among other things, the Deed of Trust, which contains provisions for the acceleration of the maturity hereof upon the happening of certain events. 7. DEFAULT INTEREST. If any installment of principal and/or interest is not paid on or before the due date thereof or if the entire unpaid principal balance hereof and accrued but unpaid interest hereon are not paid on or before the earlier to occur of the Final Maturity Date or any accelerated maturity date as permitted hereby, all unpaid amounts of this Note, including principal and interest, shall thereafter, until all past due amounts are paid, bear interest at a rate of 4 interest (the "DEFAULT RATE") equal to the lesser of (a) the Highest Lawful Rate or (b) the sum of the Applicable Rate plus five percent (5%); provided, however, that the obligation to pay such interest is subject to the limitation contained in the following paragraph. 8. COMPLIANCE WITH LAW. All agreements between Maker and Payee, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the Final Maturity Date or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to Payee in regard to the loan evidenced by this Note exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to Payee in excess of the maximum amount permissible under Applicable Law, the interest payable to Payee shall be reduced to the maximum amount permissible under Applicable Law; and if from any circumstance Payee shall ever receive anything of value deemed interest by Applicable Law in excess of the maximum amount permissible under Applicable Law, an amount equal to the excessive interest shall be applied to the reduction of the principal hereof and not to the payment of interest, or if such excessive amount of interest exceeds the unpaid balance of principal hereof, such excess shall be refunded to Maker. All interest paid or agreed to be paid to Payee shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated, and spread throughout the full period (including any renewal or extension) until payment in full of the principal so that the interest hereon for such full period shall not exceed the maximum amount permissible under Applicable Law. Payee expressly disavows any intent to contract for, charge or receive interest in an amount which exceeds the maximum amount permissible under Applicable Law. This paragraph shall control all agreements between Maker and Payee. 9. ATTORNEYS' FEES AND COSTS. If an Event of Default shall occur, and in the event that thereafter this Note is placed in the hands of an attorney for collection, or in the event this Note is collected in whole or in part through legal proceedings of any nature, then and in any such case Maker promises to pay on demand by Payee, and, to the extent unpaid upon such demand, there shall be added to the unpaid principal balance hereof, all reasonable costs of collection, including, but not limited to, reasonable attorneys' fees incurred by the holder hereof, on account of such collection, whether or not suit is filed. 10. CUMULATIVE RIGHTS. No delay on the part of the holder of this Note in the exercise of any power or right under this Note or under any other instrument executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. Enforcement by the holder of this Note of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it. 11. HEADINGS. The paragraph headings used in this Note are for convenience of reference only, and shall not affect the meaning or interpretation of this Note. 12. NOTICES AND DEMANDS. Any notice or demand to be given or to be served upon Maker in connection with this Note must be in writing and shall be given as provided in the Deed of Trust, addressed to Maker as follows: 5 Intervoice-Brite, Inc. 17811 Waterview Parkway Dallas, Texas 75252 Attn: Chief Financial Officer or at such other address within the continental United States as Maker may designate from time to time by written notice given to and received by the holder hereof. 13. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN THE STATE OF TEXAS. EXCEPT TO THE EXTENT EXPRESSLY REQUIRED BY TEXAS LAW TO THE CONTRARY, COURTS WITHIN THE STATE OF TEXAS SHALL HAVE NONEXCLUSIVE JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN MAKER AND PAYEE, WHETHER AT LAW OR IN EQUITY, TO THE EXTENT PAYEE ELECTS TO BRING AN ACTION WITH RESPECT TO ANY SUCH DISPUTE IN A COURT WITHIN THE STATE OF TEXAS. 14. SUCCESSORS AND ASSIGNS. The term "Payee" shall include all of Payee's successors and assigns to whom the benefits of this Note shall inure. MAKER: INTERVOICE-BRITE, INC., a Texas corporation By: -------------------------------------- Name: -------------------------------- Title: ------------------------------- 6 EX-10.5 12 d97382exv10w5.txt DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT EXHIBIT 10.5 After Recording Return To: Donald H. Snell, Esq. Snell & Brannian 8150 North Central Expressway, Suite 1800 Dallas, Texas 75206 ATTENTION: COUNTY CLERK--THIS INSTRUMENT COVERS GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN AND IS TO BE FILED FOR RECORD IN THE RECORDS WHERE DEEDS OF TRUST ON REAL ESTATE ARE RECORDED. ADDITIONALLY, THIS INSTRUMENT SHOULD BE APPROPRIATELY INDEXED, NOT ONLY AS A DEED OF TRUST, BUT ALSO AS A FINANCING STATEMENT COVERING GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THE MAILING ADDRESSES OF THE GRANTOR (DEBTOR) AND BENEFICIARY (SECURED PARTY) ARE SET FORTH IN THIS INSTRUMENT. DEED OF TRUST, SECURITY AGREEMENT, AND ASSIGNMENT OF LEASES AND RENTS This DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS (hereinafter referred to as the "DEED OF TRUST") is executed by INTERVOICE-BRITE, INC., a Texas corporation ("GRANTOR"), whose address for notice hereunder is 17811 Waterview Parkway, Dallas, Texas 75252, Attention: Chief Financial Officer, in favor of WILLIAM T. SAURENMANN, TRUSTEE, and his successors in the Trust hereby created (such Trustee and any successors in Trust being hereinafter referred to as "TRUSTEE") for the benefit of the hereinafter defined "BENEFICIARY": WITNESSETH: ARTICLE I DEFINITIONS 1.1 As used herein, the following terms shall have the following meanings: (a) APPLICABLE ENVIRONMENTAL LAWS: All Legal Requirements now or hereafter applicable to the use, treatment, processing, disposal, transportation, storage or handling of hazardous or toxic wastes or substances, including, without limitation, the Resource Conservation and Recovery Act of 1987 (42 U.S.C. Section 6901 et seq.), as amended from time to time, and regulations promulgated thereunder or pursuant thereto, and the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended from time to time, and regulations promulgated thereunder or pursuant thereto. (b) BENEFICIARY: Beal Bank, S.S.B., a state savings bank, whose address for notice hereunder is 6000 Legacy Drive, 4 East, Plano, Texas 75024, Attention: William T. Saurenmann, and the subsequent holder or holders, from time to time, of the Note. (c) DEBTOR RELIEF LAWS: Any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar laws, whether federal or state, affecting the rights or remedies of creditors generally, as in effect from time to time. (d) ESCROWED FUNDS: The amounts paid by Grantor to Beneficiary pursuant to Paragraph 12.4 hereof to be held by Beneficiary in a fund for the payment of the Taxes. (e) EVENT OF DEFAULT: Any happening or occurrence described in Article VI herein. (f) FIXTURES: All right, title and interest of Grantor in and to all materials, supplies, equipment, apparatus and other items now or hereafter attached to, installed on or in the Land or the Improvements, or which in some fashion are deemed to be fixtures to the Land or Improvements under the laws of the State of Texas, including the Texas Business and Commerce Code. The term "FIXTURES" shall include, without limitation, all items of personalty to the extent that the same may be deemed Fixtures under applicable law. The term "FIXTURES" shall not include Grantor's movable trade fixtures not used in the operation of the Improvements or trade fixtures of any tenants under Leases. (g) GOVERNMENTAL AUTHORITY: Any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. (h) GRANTOR: The above defined Grantor and any and all subsequent record or equitable owners of the Mortgaged Property. (i) GUARANTORS (WHETHER ONE OR MORE): None. (j) GUARANTY: None. (k) IMPOSITIONS: The Insurance Premiums, water, gas, sewer, electricity and other utility rates and charges; all rentals charged under any ground lease covering all or any part of the Mortgaged Property; all charges imposed pursuant to any subdivision, planned unit development or condominium declaration, declaration of covenants and restrictions (including, without limitation, all assessments and other charges due to any owners association relating to all or any part of the Land); all charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property, and all other costs, expenses, taxes, charges and assessments (including, without limitation, any thereof due to any flood control district affecting any part of the Land), and any interest or penalties with respect thereto, of any kind and nature whatsoever which at any time prior to or after the 2 execution hereof may be assessed, levied or imposed upon any part of the Mortgaged Property or upon the ownership, operation, use, occupancy or enjoyment thereof, or which are related in any way to the transactions contemplated under the Loan Documents. (l) IMPROVEMENTS: Any and all buildings, structures, open parking areas and other improvements, and any and all accessions, additions, replacements, substitutions or alterations thereof or appurtenances thereto, now or at any time hereafter situated, placed or constructed upon the Land or any part thereof. (m) INDEBTEDNESS: The principal of, accrued interest on and all other amounts and payments due under or secured by the Note, this Deed of Trust or any other Loan Document, and all renewals, extensions and modifications thereof, together with all funds hereafter advanced by Beneficiary to or for the benefit of Grantor or Maker as contemplated by any covenant or provision herein or therein contained. (n) INSURANCE PREMIUMS: The premiums payable by Grantor under each of the policies of insurance which Grantor is required to maintain pursuant to the terms of this Deed of Trust. (o) LAND: The real estate or any interest therein described in Exhibit "A" attached hereto and made a part hereof, together with all Improvements and Fixtures and all rights, titles and interests appurtenant thereto. (p) LEASES: Any and all leases, subleases, licenses, concessions or other agreements (written or verbal, now or hereafter in effect) which now or hereafter grant a possessory interest in and to, or the right to extract, mine, reside in, operate in, sell or use the Mortgaged Property. (q) LEGAL REQUIREMENTS: (i) Any and all present and future judicial decisions, statutes, rulings, rules, regulations, permits, certificates or ordinances of any Governmental Authority in any way applicable to Grantor, Maker or any of the Mortgaged Property, including, but not limited to, those regarding the ownership, use, construction, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of all or any part of the Mortgaged Property, (ii) any and all Leases and other contracts (written or oral) of any nature to which Grantor or Maker may be bound and (iii) any and all restrictions, reservations, conditions, easements or other covenants or agreements affecting the Mortgaged Property. (r) LOAN: The loan by Beneficiary to Grantor, in an amount not to exceed the principal sum of the Note. (s) LOAN DOCUMENTS: The Note, this Deed of Trust, that certain Assignment of Landlord's Interest in Leases, of even date herewith, executed by Grantor for the benefit of Beneficiary, and any and all other documents now or hereafter executed by Grantor to evidence or secure the payment of the Note or any other Indebtedness or the performance and 3 discharge of the Obligations, and any and all other documents executed by Grantor or any other person or entity in connection with the Loan. (t) MAKER: Grantor. (u) MORTGAGED PROPERTY: The Land, Improvements, Fixtures, Personalty, Leases and Rents, together with: (i) all right, title and interest of Grantor in and to all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances in anywise appertaining thereto, and any street, ways, alleys, strips or gores of land adjoining the Land or any part thereof, which Grantor now owns or at any time hereafter acquires; (ii) all betterments, accessions, additions, appurtenances, substitutions, replacements and revisions thereof and thereto and all reversions and remainders therein; (iii) all of Grantor's right, title and interest in and to any award, remuneration, settlement or compensation heretofore made or hereafter to be made by any Governmental Authority to Grantor in regard to the Land, Improvements, Fixtures, Personalty, Leases or Rents, including those for any vacation of, or change of grade in, any streets affecting the Land or the Improvements; (iv) all plans and specifications for the Improvements; all contracts and subcontracts relating to the Land (including, without limitations, development and cost sharing or reimbursement agreements), Improvements, Fixtures, Personalty, Leases and Rents; all deposits (including tenant's security deposits), funds, accounts, contract rights (including, without limitation, rights to reimbursements), instruments, documents, general intangibles (including trademarks, service marks, trade names and symbols used in connection therewith), and notes or chattel paper arising from or by virtue of any transactions directly related to the operation of the property described herein (as opposed to the operation of Grantor's business in the Improvements); all right, title and interest of Grantor in and to all declarations of covenants and other similar documents relating to any part of the Land, and all rights (including, without limitation, membership and ownership rights) in any homeowners or other owners association relating to any part of the Land; all right, title and interest of Grantor under each contract for the sale, exchange or other transfer of all or any part of the Mortgaged Property or any interest therein (herein referred to collectively as the "SALES CONTRACTS"), consent thereto not granted or to be implied hereby, and all deposits thereunder; all right, title and interest of Grantor in and to all permits, licenses, franchises, certificates, and other rights and privileges obtained in connection with the operation of the property described herein (as opposed to the operation of Grantor's business in the Improvements); all proceeds arising from or by virtue of the sale, lease or other disposition of all or any part of the Mortgaged Property (consent to same not granted or to be implied hereby); all proceeds 4 (including premium refunds) payable or to be payable under each policy of insurance relating to the Mortgaged Property; (v) all other interest of every kind and character which Grantor now has or at any time hereafter acquires in and to the above described real and personal property and all property which is used or useful in connection therewith, including rights of ingress and egress, easements, licenses, and all reversionary rights or interests of Grantor with respect to such property. To the extent permitted by law, all of the foregoing personal property and Fixtures are to be deemed and held to be a part of and affixed to the real property. In the event the estate of the Grantor in and to any of the Land and Improvements is a leasehold estate, this conveyance shall include, and the lien, security interest and assignment created hereby shall encumber and extend to, all other, further or additional titles, estates, interest or rights which may exist now or at any time be acquired by Grantor in or to the property demised under the lease creating such leasehold estate and including Grantor's rights, if any, to purchase the property demised under such lease and, if fee simple title to any of such property shall ever become vested in Grantor, such fee simple interest shall be encumbered by this Deed of Trust in the same manner as if Grantor had fee simple title to such property as of the date of execution hereof without the necessity of any further act by Grantor, Beneficiary or any third party; and (vi) any and all other security and collateral of any nature whatsoever, now or hereafter given for the repayment of the Indebtedness or the performance and discharge of the Obligations. As used in this Deed of Trust, the term "MORTGAGED PROPERTY" is expressly defined as meaning all or, where the context permits or requires, any portion of the above and all or, where the context permits or requires, any interest therein. (v) NOTE: That certain Promissory Note, dated of even date herewith, executed by Maker, payable to the order of Beneficiary, in the principal sum of Fourteen Million Dollars ($14,000,000.00), bearing interest and being payable as provided therein, becoming finally due and payable on the third anniversary of the date of the Note, and any and all renewals, extensions and modifications thereof. (w) OBLIGATIONS: Any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Grantor, Maker or any Guarantor to Beneficiary or others as set forth in the Loan Documents. (x) PERMITTED ENCUMBRANCES: The outstanding liens, easements, building lines, restrictions, security interests and other matters (if any) as set forth on Exhibit "B" attached hereto and made a part hereof, together with any other items hereafter expressly approved by Beneficiary in writing. (y) PERSONALTY: All of the right, title and interest of Grantor in and to all tangible and intangible personal property, including all accounts, equipment, consumer goods, chattel 5 paper, goods, inventory, instruments, money, general intangibles, documents, minerals, crops and timber (as those terms are defined in the Texas Business and Commerce Code) which are attached to, installed on or placed or used on, in connection with or which are acquired for such attachment, installation, placement or use, or which arise out of the development, improvement, financing, leasing, operation, use or maintenance of, the Land, the Improvements, Fixtures, together with all additions, accessions, accessories, amendments and modifications thereto, extensions, renewals, enlargements and proceeds thereof, substitutions therefor, and income and profits therefrom. The following are included, without limitation, in the definition of Personalty: building materials, supplies, machines, engines, boilers, stokers, pumps, fans, vents, blowers, dynamos, furnaces, elevators, ducts, shafts, pipes, built-in cabinets, shades, blinds, screens, plumbing, heating, air conditioning, lighting, lifting, ventilating, refrigerating, cooking, medical, laundry and incinerating equipment, partitions, drapes, carpets, rugs and other floor coverings, awnings, call and sprinkler systems, fire prevention and extinguishing apparatus and equipment, water tanks, swimming pools, compressors, vacuum cleaning systems, disposals, dishwashers, ranges, ovens, other built-in kitchen equipment and cafeteria equipment, recreational equipment, lawn and landscaping equipment and supplies, loan commitments, management agreements, maintenance and service agreements, utility contracts, financing arrangements, bonds, construction contracts, leases, licenses, permits, sales contracts, insurance policies and the proceeds therefrom, plans and specifications, surveys, rent rolls, books and records, and all other rights and privileges. Notwithstanding anything herein to the contrary, it is the specific intent of both the Grantor and the Beneficiary that the Personalty which is to be a part of the Mortgaged Property encumbered by this Deed of Trust shall include all Personalty attached to or directly relating to the ownership, use or operation of the Land, Improvements and Fixtures, but shall not include any Personalty of the Grantor related to the business operations of Grantor conducted in the Improvements or the personal property of tenants under Leases. (z) RENTS: All of the rents, revenues, income, proceeds, royalties, profits and other benefits now or hereafter paid or payable for using, leasing, licensing, possessing, operating from or in, residing in, selling, mining, extracting or otherwise enjoying or using the Mortgaged Property, if any, including, without limitation, all damages received following any default under any of the Leases and all proceeds payable under any policy of insurance covering loss of rents. (aa) TAXES: All real estate and personal property taxes and assessments payable with respect to the ownership, use or operation of the Mortgaged Property including, without limitation, all ad valorem taxes levied or assessed against the Mortgaged Property. 6 ARTICLE II GRANT To secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of the Obligations, Grantor has GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents does GRANT, BARGAIN, SELL and CONVEY unto Trustee the Mortgaged Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property unto Trustee, his successors in trust and the Trustee's assigns forever, and Grantor does hereby bind itself, its successors and assigns, to warrant and forever defend the title to the Mortgaged Property unto Trustee against every person whomsoever lawfully claiming or to claim the same or any part thereof, by, through or under Grantor, but not otherwise, subject only to the Permitted Encumbrances; provided, however, that if the Indebtedness shall be paid in full and the Obligations shall be fully performed and discharged, then the liens, security interests, estates and rights granted by the Loan Documents shall terminate; otherwise, the same shall remain in full force and effect. Notwithstanding anything herein to the contrary, this Deed of Trust will not cover (and the capitalized terms Mortgaged Property, Improvements, Fixtures and Personalty will not include) the following: (1) inventory, (2) receivables other than receivables for Rents or for insurance or condemnation proceeds to be paid because of any damage to or taking of the Land, Improvments or other Mortgaged Property, or (3) equipment other than equipment that is incorporated into or used in building systems (such as elevator equipment or HVAC equipment used for the operation of the buildings on the Land, in contrast to manufacturing equipment used in the operation of Grantor's business). ARTICLE III WARRANTIES AND REPRESENTATIONS Grantor and Maker hereby unconditionally warrant and represent to Beneficiary as follows: 3.1. Organization. Grantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. Grantor is duly qualified to transact business in the State of Texas. The execution and delivery of the Loan Documents have been duly authorized by all necessary corporate action. Grantor has all requisite authority, licenses and permits to own, operate and encumber the Mortgaged Property. No proceeding or action is pending, planned or threatened for the dissolution, termination or annulment of Grantor. 3.2. Validity of Documents. The execution, delivery and performance by Grantor of the Loan Documents and the borrowing evidenced by the Note, (i) have received all (if any) requisite prior governmental approval in order to be legally binding and enforceable in accordance with the terms thereof (subject to the effects on enforceability of applicable Debtor Relief Laws), and (ii) will not violate, be in conflict with, result in a breach of or constitute (with due notice or lapse of time, or both) a default under any mortgage, indenture, agreement, commitment or instrument to which Grantor is a party or by which any of the assets of Grantor are bound, or any Legal Requirement or 7 result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Grantor's property or assets, except as contemplated by the provisions of the Loan Documents. The Loan Documents executed by Grantor constitute the legal, valid and binding obligations of Grantor and are enforceable against Grantor in accordance with their respective terms (subject to the effects on enforceability of applicable Debtor Relief Laws), and Grantor has full and lawful authority to bargain, grant, sell, mortgage, assign, transfer and convey all of the Mortgaged Property as set forth herein. 3.3. Information. All information, reports, papers and data given to Beneficiary with respect to Grantor, Maker, Guarantor and the Mortgaged Property are accurate, complete and correct in all material respects and do not omit any fact necessary to prevent the facts contained therein from being materially misleading. All information material to the transactions contemplated herein has been expressly disclosed in writing by Grantor to Beneficiary. 3.4. Title to Mortgaged Property and Lien of this Instrument. Grantor has good and indefeasible title to the Land and the Improvements in fee simple, and good and indefeasible title to the Fixtures, if any, and Personalty, if any, Leases, Rents, if any, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever except the Permitted Encumbrances. This Deed of Trust constitutes a valid, subsisting first priority deed of trust on the Land, the Improvements and the Fixtures, and a valid, subsisting first priority security interest in and to the Personalty, Leases and Rents, all in accordance with the terms hereof, subject to the Permitted Encumbrances. None of the Personalty has been acquired by Grantor in violation of any applicable bulk sale law. No person or entity other than Grantor has any rights or interests of any kind with respect to the Mortgaged Property other than rights, if any, created by the Leases and/or the Permitted Encumbrances. 3.5. Taxes and Other Payments. Grantor has filed all federal, state, county, municipal and city income, franchise and other tax returns which are required to have been filed by Grantor, and Grantor has paid (or will pay before they become delinquent) all taxes which have become due pursuant to such returns or pursuant to any assessments received by Grantor, and Grantor knows of no basis for any additional assessment in respect of any such taxes. Grantor has paid or will pay in full (except for such retainages as may be permitted or required by any Legal Requirements to be withheld by Grantor pending completion of the Improvements) all sums (i) owing or claimed for labor, material, supplies, personal property (whether or not constituting a Fixture hereunder) and services of every kind and character used, furnished or installed in the Mortgaged Property, and (ii) currently due in regard to any Imposition, and no claim for any of the same currently exists or will be permitted to become past due. 3.6. Litigation. Upon the closing of the loan evidenced by the Note, there will be no actions, suits or proceedings pending or, to the knowledge of Grantor, threatened against or affecting Grantor or the Mortgaged Property which involve the validity or enforceability of this Deed of Trust, any other Loan Document or the priority of the lien and security interest hereof; and there will be no other material actions, suits or proceeding pending or, to the knowledge of Grantor, threatened against or affecting Grantor involving its business operations, except for any such actions, suits or proceedings disclosed in (i) the most recent filings made by Grantor with the Securities and Exchange Commission or (ii) written notice previously delivered to Lender by Grantor. Futher, no 8 event will have occurred (including specifically Grantor's execution of the Loan Documents and the consummation of the Loan) that will violate, be in conflict with, result in the breach of or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement applicable to - or that will result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon (other than the lien and security interest created by the Loan Documents) - any of the Mortgaged Property. 3.7. The Financial Statements. Other than has been previously disclosed in writing to Beneficiary by Grantor, (a) Grantor's financial statements heretofore delivered to Beneficiary are true, complete and correct in all material respects, have been prepared in accordance with sound accounting principles consistently applied, and fairly present the respective financial conditions of the subjects thereof as of the respective dates thereof; and (b) no material adverse change in Grantor's financial condition has occurred since the respective dates thereof, and no borrowings have been made by Grantor (except in the ordinary course of business) since the date thereof. (Such disclosures include those set forth in the Form 8K Current Report filed by Grantor with the Securities and Exchange Commission on April 18, 2002 and in two press releases dated January 15, 2002 and April 18, 2002, copies of all of which have been provided by Grantor to Beneficiary.) 3.8. No Defaults. Grantor is not in default under any of the Loan Documents, and no event has occurred which by notice, the passage of time or otherwise would constitute an event of default under any of the Loan Documents. Grantor is not in default in the payment of any material indebtedness for borrowed money or under the terms and provisions of any agreement or instrument evidencing any such indebtedness, other than has been previously disclosed in writing to Beneficiary by Grantor relating to one or more forbearance agreements between Grantor and Bank of America, National Association. Grantor is not in default with respect to any order, writ, injunction, decree or demand of any court or of any other requirement of any Governmental Authority, which default could result in any material adverse effect on Grantor or the Mortgaged Property. 3.9. Access and Utilities; Compliance with Laws. The Mortgaged Property has adequate, unrestricted rights of access to dedicated, completed public roads and all water, sanitary sewer and storm drain facilities and other public utilities necessary to the use of the Mortgaged Property and Improvements for their current purposes (as a first class, full service, office building as permitted by applicable zoning ordinances) are available to and connected to and are servicing the Mortgaged Property. The Improvements fully comply with all applicable laws, rules, ordinances and regulations, including, without limitation, zoning ordinances and regulations, parking ordinances and architectural barrier laws. 3.10. Lien Potential. Grantor has not taken, suffered, or permitted any action, the effect of which would be to establish or cause the inception or priority of any mechanics' or materialman's lien, statutory or otherwise, or any other lien, charge, or encumbrance upon the Mortgaged Property (or any part thereof) to be prior or superior to the lien and security interest of this Deed of Trust. Each contractor, subcontractor, mechanic and materialman which has at any time supplied labor or materials to the Mortgaged Property has been paid in full, and Grantor has received no lien affidavits with respect to the Mortgaged Property. 9 3.11. Dangerous Conditions. There is no dangerous condition affecting any portion of the Mortgaged Property, and the use by Grantor of the Mortgaged Property for its intended purpose will not result in the violation of any law, ordinance or regulation applicable to the Mortgaged Property. 3.12. Environmental Matters. To the Grantor's current actual knowledge and belief, except as may be described in that certain Phase I Environmental Site Assessment, dated February 22, 2002, prepared by Applied Earth Sciences, Inc., relating to the Land and Improvements (the "ESA"), the Mortgaged Property is not in violation of any Applicable Environmental Laws and is not subject to any existing, pending or threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Applicable Environmental Laws. Grantor has no knowledge that, except as may be described in the ESA, or otherwise disclosed to Beneficiary in writing any flammable explosives, radioactive materials, hazardous or toxic wastes, hazardous or toxic substances or related materials have been used, generated, manufactured, stored, spilled, released, or disposed of on, under, from, about or onto the Mortgaged Property. In addition, Grantor has no current, actual knowledge, except as may be described in the ESA, of any presence, disposal, spill, use or release of any hazardous or toxic wastes, hazardous or toxic substances or related materials on, under, from, about or onto the Mortgaged Property prior to Grantor's acquisition of title to the Mortgaged Property. To the Grantor's current actual knowledge and belief, except as may be described in the ESA, no asbestos or asbestos-containing materials have been installed, used, incorporated into or disposed of in the Improvements or on the Land at any time. To the Grantor's current actual knowledge and belief, except as may be described in the ESA, no underground tanks or containers of any nature are located on the Mortgaged Property, or were located on the Mortgaged Property and subsequently moved or filled. To the Grantor's current actual knowledge and belief, except as may be described in the ESA, there are no polychlorinated byphenyls (PCBs) located upon or in the Mortgaged Property, including but not limited to any electrical transformers, flares and light fixtures with ballasts, cooling oils, or any other similar equipment or device of any nature. To the Grantor's current actual knowledge and belief, except as may be described in the ESA, there are no conditions likely to exist during the term of this Deed of Trust, or in the foreseeable future, which would require or are likely to require clean up, removal, remedial action, or other responsive action pursuant to any Applicable Environmental Laws by Grantor, or which would subject Grantor to damages, penalties, injunctive relief or clean up costs under any Applicable Environmental Laws. To the Grantor's current actual knowledge and belief, except as may be described in the ESA, no permits, licenses or approvals are required under any Applicable Environmental Laws relative to the Mortgaged Property which have not been obtained. Neither the Mortgaged Property nor Grantor are subject to any judgment, decree, order or citation which relates to or arises out of a violation of any Applicable Environmental Law, or that requires Grantor to clean up, remove or take remedial action or other responsive action pursuant to any Applicable Environmental Law. To the Grantor's current actual knowledge and belief, except as may be described in the ESA, or otherwise disclosed to Beneficiary in writing there are not now, nor to Grantor's knowledge after reasonable investigation, have there ever been any substances classified as hazardous, or toxic under any Applicable Environmental Law, stored, deposited, treated, recycled or disposed of on, under, or at the Mortgaged Property. Grantor will fully comply with all Applicable Environmental Laws relative to the Mortgaged Property at all times in the future. To the Grantor's current, actual knowledge, Grantor has disclosed to all applicable Governmental Authorities all facts, conditions and circumstances, if any, pertaining to the Mortgaged Property which are required to be disclosed under Applicable Environmental Laws. 10 ARTICLE IV AFFIRMATIVE COVENANTS Grantor and Maker hereby jointly and severally, unconditionally covenant to and agree with Beneficiary as follows: 4.1. Payment and Performance. Grantor will pay the Note and the other Indebtedness in accordance with the terms of the Note and the other Loan Documents, and Grantor will fully perform or cause to be performed all of the Obligations on or before the dates they are to be performed. 4.2. Existence. Grantor will preserve and keep in full force and effect its existence, rights, franchises and trade names, and all licenses and permits necessary for the operation of the Mortgaged Property for its intended use. 4.3. Compliance with Legal Requirements. Grantor will promptly and faithfully comply with, conform to and obey all present and future Legal Requirements, whether or not the same shall necessitate structural changes in, improvements to, or interfere with the use or enjoyment of, the Mortgaged Property. 4.4. Payment of Impositions. Grantor will duly pay and discharge, or cause to be paid and discharged, the Impositions not later than the date upon which the Impositions become due; provided, however, that Grantor may, if permitted by law and if installment payments would not create or permit the filing of a lien against the Mortgaged Property, pay the Impositions in installments, whether or not interest shall accrue on the unpaid balance of such Impositions and provided further, that Grantor may in good faith contest any thereof so long as (i) Grantor provides to Beneficiary, pursuant to documents satisfactory to Beneficiary, a bond or other collateral satisfactory to Beneficiary in its sole discretion and in an amount satisfactory to Beneficiary in its sole discretion and (ii) such Impositions are paid prior to the time any part of the Mortgaged Property may be sold or levied upon for the payment thereof. Notwithstanding any such contest, Beneficiary may, at any time Beneficiary determines in its reasonable judgment that such contest may have a material adverse effect on the Mortgaged Property or any rights of Beneficiary under the Loan Documents, pay the amounts being contested and such amounts so paid will be due and payable by Grantor to Beneficiary on demand by Beneficiary and shall bear interest at the Default Rate as provided in the Note. Within fifteen (15) days following the due date of any of the Insurance Premiums (or any installment thereof), Grantor, if paying such Impositions directly pursuant to the terms of this Deed of Trust, shall furnish Beneficiary with evidence satisfactory to Beneficiary of the payment thereof. 4.5. Condition of Property. Grantor will keep the Mortgaged Property in a first class condition and presenting a first class appearance and will make all repairs, replacements, renewals, additions, betterments, improvements and alterations thereof and thereto, interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen, which are necessary or reasonably appropriate to keep same in such order and condition. Grantor will also use reasonable efforts to prevent any act or occurrence which might impair the value or usefulness of the 11 Mortgaged Property for its intended usage. In instances where repairs, replacements, renewals, additions, betterments, improvements or alterations are required in and to the Mortgaged Property on an emergency basis to prevent loss, damage, waste or destruction thereof, Grantor shall proceed to construct same, or cause same to be constructed, notwithstanding anything to the contrary contained in Paragraph 5.2 hereinbelow; provided, however, that in instances where such emergency measures are to be taken, Grantor will promptly notify Beneficiary in writing of the commencement of same and the measures to be taken, and when same are completed, the completion date and the measures actually taken. 4.6 Repairs. Grantor shall not make or allow to be made any improvements to the Mortgaged Property unless approved by Beneficiary in writing, which approval may be granted or withheld at the sole discretion of Beneficiary; however, the Beneficiary's consent shall not be required for interior finish improvements that are required or permitted under any Lease consented to by Beneficiary or that Grantor undertakes for its own use, provided such interior finish improvements will not have any significant adverse impact on the value of the Mortgaged Property. Notwithstanding the foregoing, Grantor shall notify Beneficiary in writing at least 15 days in advance of commencing any work, whether or not Beneficiary's consent to the work is required. In no event shall Beneficiary have any liability or responsibility whatsoever with respect to any improvements made to the Mortgaged Property by Grantor, and as a condition to the commencement of construction, Grantor shall cause all contractors, subcontractors and other persons engaged by or on behalf of Grantor with respect to the work to procure and maintain insurance coverage against such risks, in such amounts and with such companies as Beneficiary may reasonably require fully insuring and protecting Beneficiary in connection with the completion of Grantor's improvements. Beneficiary, by approving the Plans for the construction of improvements to the Mortgaged Property, is not thereby consenting to the imposition of any mechanic's or materialmen's or other lien upon the Mortgaged Property as a result of the furnishing of any materials, furnishings or equipment or the performance of any labor or services, and in no event shall this Deed of Trust be deemed to have been subordinated to any such lien or claim. 4.7. Insurance. Grantor shall obtain and maintain the following types of insurance upon and relating to the Mortgaged Property: (a) Comprehensive general liability in an amount not less than $2,000,000 insuring against personal injury, death and property damage and naming Beneficiary as additional insured; (b) "All Risk" property and fire insurance (with extended coverage and endorsement) in an amount not less than the full replacement value of the Improvements (with a deductible not to exceed $10,000.00 and with co-insurance limited to a maximum of 10% of the amount of the policy), naming Beneficiary under a standard mortgagee clause (438 BFU) and including agreed amount, inflation guard, replacement cost and waiver of subrogation endorsements; (c) Business interruption insurance for a period of twelve (12) months; and 12 (d) Such other types of insurance as may be required from time to time by Beneficiary in the exercise of its reasonable judgment. Upon the request of Beneficiary, Grantor shall increase the coverages under any of the insurance policies required to be maintained hereunder or otherwise modify such policies in accordance with Beneficiary's reasonable request. All of the insurance policies required hereunder shall be issued by corporate insurers licensed to do business in the State of Texas rated A or better by A.M. Best Company and shall be in form reasonably acceptable to Beneficiary. Certificates of all insurance required to be maintained hereunder shall be delivered to Beneficiary, along with evidence of the payment in full of all premiums required thereunder, concurrently with Grantor's execution of this Deed of Trust. All such certificates shall be in form acceptable to Beneficiary in the exercise of its reasonable judgment. All renewal and substitute policies of insurance shall be delivered to Beneficiary, along with evidence of the payment in full of all premiums required thereunder, at least 15 days before termination of the policies being renewed or substituted. If any loss caused by an insured peril shall occur at any time when Grantor shall be in default hereunder, Beneficiary shall be entitled to the benefit of all insurance policies held or maintained by Grantor, to the same extent as if same had been made payable to Beneficiary, and upon foreclosure hereunder, Beneficiary shall become the owner of any proceeds payable thereunder with respect to such loss occurring prior to such foreclosure. Beneficiary shall have the right, but not the obligation, to make premium payments, at Grantor's expense, to prevent any cancellation, endorsement, alteration or reissuance of any policy of insurance maintained by Grantor, and such payments shall be accepted by the insurer to prevent same. 4.8. Restoration Following Casualty. If any act or occurrence of any kind or nature (including any casualty for which insurance was not obtained or obtainable) shall result in damage to or destruction of the Mortgaged Property (such event being called a "LOSS"), Grantor will give prompt written notice thereof to Beneficiary. All insurance proceeds paid or payable in connection with such Loss shall be paid to Beneficiary. Beneficiary shall have the right to either (a) place all insurance proceeds received in connection with such Loss in a separate account for the benefit of Beneficiary and Grantor to be used to restore, repair or replace and rebuild the Mortgaged Property as nearly as possible to its value, condition and character immediately prior to such Loss or (b) if at the time of such Loss (i) any Event of Default or event or condition which, with the giving of notice and the passage of time, or both would constitute an Event of Default then exists or (ii) Beneficiary reasonably determines that Maker will be unable to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Mortgaged Property or (iii) the available insurance proceeds (plus such other sums as are deposited by Grantor with Beneficiary, as required by Beneficiary, to pay costs of repair of the Mortgaged Property) are insufficient, in Beneficiary's judgment, to fully and completely restore, repair or replace the Mortgaged Property, or (iv) the cost to repair and restore the Mortgaged Property is greater than 50% of the original principal amount of the Note, apply all insurance proceeds in connection with such Loss to the payment of the Indebtedness and Obligations in such order as Beneficiary may elect; provided, so long as none of the conditions in clauses (i) through (iv) are existing, Beneficiary shall make the insurance proceeds available to Grantor for restoration of the Property. Provided that Beneficiary makes the insurance proceeds available to Grantor for the restoration of the Property, Grantor hereby covenants to diligently prosecute any restoration, repairs or replacement of the Mortgaged Property undertaken by or on behalf of Grantor pursuant to this Paragraph 4.8, and agrees that all such work 13 shall be conducted pursuant to written contracts approved by Beneficiary in writing. In the event any insurance proceeds remain following the restoration, repair or replacement of the Mortgaged Property, at Beneficiary's option, such proceeds either shall be applied to the Indebtedness in such order as Beneficiary may elect or shall be released by Grantor. 4.9. Inspection. Grantor will permit Trustee and Beneficiary, and their agents, representatives and employees, to inspect the Mortgaged Property at all reasonable times. 4.10. Defense of Actions. If the title of the Trustee to, or the interest of Beneficiary in, the Mortgaged Property, or any part thereof, or the Loan, or the respective rights and obligations of Grantor and Beneficiary pursuant to this Deed of Trust, shall be endangered or shall be attacked, directly or indirectly, Grantor hereby authorizes Beneficiary, at Grantor's expense, take all necessary and proper steps (as determined by Beneficiary in the exercise of its reasonable judgment) for the defense of such title or interest, including the employment of counsel, the prosecution or defense of litigation and the compromise or discharge of claims made against such title or interest in the Mortgaged Property. Grantor will indemnify and hold Beneficiary harmless from and against any and all loss, cost, damage, liability or expense incurred by Beneficiary in protecting its interests hereunder in such an event (including all court costs and attorneys' fees) excluding any thereof arising from the gross negligence or willful misconduct of Beneficiary or Trustee. 4.11. Future Impositions. If at any time any law shall be enacted imposing or authorizing the imposition of any tax upon this Deed of Trust or upon any rights, titles, liens or security interests created hereby or upon the Note, or any part thereof (other than income taxes due from Beneficiary as a result of payments on the Note), Grantor shall immediately pay or cause to be paid all such taxes; provided, however, that in the alternative, Grantor may, in the event of the enactment of such a law, and must, if it is unlawful for Grantor to pay such taxes, prepay the Note in full (without penalty or premium) within sixty (60) days after demand therefor by Beneficiary. Grantor shall, upon request, promptly furnish at any time and from time to time, a written statement or affidavit, in such form as may be required by Beneficiary, stating the amount of the unpaid balance of the Note and that there are no offsets or defenses against full payment of the Note and performance of the terms hereof or, if there are any such offsets and defenses, specifying them in detail. 4.12. Books and Records. Grantor will maintain full and accurate books of account and other records reflecting the results of its operations and will furnish or cause to be furnished to Beneficiary, (i) on or before 90 days following the end of each fiscal year of Grantor, annual balance sheet and profit and loss statements with respect to Grantor prepared in accordance with sound accounting principles consistently applied and certified as true and correct by the Chief Financial Officer of Grantor and by Ernst & Young or other independent certified public accountant(s) acceptable to Beneficiary, (ii) on or before 45 days following the end of each fiscal quarter of Grantor, a quarterly financial statement of Grantor certified by Grantor as being true, correct and complete, (iii) promptly following the preparation thereof, true, correct and complete copies of all reports and documents required of Grantor by applicable securities laws, and (iv) all other financial information and reports with respect to Grantor or the Mortgaged Property which Beneficiary may reasonably request, including, without limitation, copies of the most recent federal income tax returns of Grantor. All of the above-referenced financial statements shall be presented in accordance with generally accepted accounting principles and shall be certified by Grantor or its independent 14 auditors as being true, correct and complete in all material respects for the period covered thereby. At any time, and from time to time, Grantor shall deliver to Beneficiary such other financial statements and data as Beneficiary shall reasonably request with respect to Grantor and/or the revenues or expenditures related to the ownership, maintenance, use and operation of the Mortgaged Property, and Beneficiary shall have the right, at any time when an Event of Default has occurred and is continuing, to audit Grantor's books of account and records relating to such revenues and expenditures related to the Mortgaged Property, all of which shall be maintained and made available to Beneficiary and Beneficiary's representatives for such purposes at the offices of Grantor in Dallas, Texas or at such other location as Beneficiary may approve. If any such audit by Beneficiary reveals any errors, omissions or discrepancies in the information audited that has a material impact upon the rights or obligations of the parties under this Deed of Trust, Beneficiary may require that such information thereafter be prepared by an independent certified public accountant acceptable to Beneficiary, at Grantor's expense, and Grantor shall also pay the cost of the audit performed by Beneficiary which discovers such errors, omissions or discrepancies. Notwithstanding the foregoing, so long as Grantor is a company subject to the periodic reporting requirements of Section 12 of the Securities Exchange Act of 1934, as amended, Grantor shall be deemed to have satisfied its obligations under this subsection for reporting its financial condition if Grantor delivers to Beneficiary the same reports that it is required by securities laws to provide to its shareholders, including (i) quarterly financial reports certified by its an officer of Grantor (subject to year-end adjustments) and (ii) annual reports with opinions of Grantor's auditors. 4.13. Late Charge. Grantor will pay any Late Charge, as defined in the Note, imposed in accordance with the terms of the Note. 4.14. Expenses. Grantor shall pay all costs and expenses incurred by Beneficiary from time to time in connection with the Mortgaged Property, the Loan, the Loan Documents, any amendments or modifications to any of the Loan Documents, any waiver of any provisions of the Loan Documents and any other matter related to the Loan including, without limitation, the reasonable costs and expenses of the preparation of the Loan Documents and of any other documents or instruments Beneficiary in its reasonable judgment considers necessary or appropriate with respect to the Loan, the cost and expenses of or incident to the enforcement or performance of and compliance with any of the provisions of this Deed of Trust or any of the other Loan Documents and any other costs and expenses of any kind or nature whatsoever which at any time prior to or after the execution hereof are payable with respect to the Mortgaged Property, or the ownership, operation, use, occupancy or enjoyment thereof, or which are related in any way to the transactions contemplated under this Deed of Trust. 4.15. Additional Acts. In addition to the acts recited herein and contemplated to be performed, executed and/or delivered by Grantor, Grantor hereby agrees, at any time, and from time to time upon the request of Trustee or Beneficiary, to perform, execute, acknowledge, deliver, record and/or file such further instruments, do such further acts and give such further assurances as may be reasonably necessary or proper to (a) promptly implement the intent of Grantor and Beneficiary under this Deed of Trust; (b) promptly correct any defect, error or omission which may be discovered in this Deed of Trust or any other Loan Document, and execute any and all additional documents, as may be requested by Beneficiary to correct such defect, error or omission; (c) assure Beneficiary 15 a valid and direct first priority lien and first priority perfected security interest under the Loan Documents or any of them on the Mortgaged Property; (d) create, perfect, preserve, maintain and protect the liens and security interests created or intended to be created by the Loan Documents; and (e) provide the rights and remedies to Beneficiary granted or provided for by the Loan Documents. Grantor, upon request of Trustee or Beneficiary, will execute, acknowledge, deliver and record and/or file such further instruments and do such further acts as Beneficiary, in the exercise of its reasonable judgment, may determine to be necessary, desirable or proper to carry out more effectively the purposes of the Loan Documents, to subject to the liens and security interests thereof any property intended by the terms thereof to be covered thereby, including specifically, without limitation, any renewals, additions, substitutions, replacements or appurtenances to the Mortgaged Property, and to complete, execute, record and file any document or instrument necessary to place third parties on notice of the liens and security interests granted under the Loan Documents. Grantor hereby irrevocably appoints Trustee and Beneficiary as its agents and attorneys-in-fact to execute, acknowledge and deliver all such instruments and additionally to record and file any of the same as may be necessary, however, so long as no Event of Default or event or condition which, with the giving of notice, the passage of time, or both, could mature into an Event of Default exists, Beneficiary will provide to Grantor written notice of the proposed exercise by Trustee or Beneficiary of rights under this appointment at least ten (10) days (or such shorter period as may be possible in case of an emergency) prior to such exercise. 4.16. Notices by Governmental Authority, Fire and Casualty Losses, Etc. Grantor shall timely comply with and promptly furnish to Beneficiary true and complete copies of any official notice or claim by any Governmental Authority pertaining to the Mortgaged Property; provided, however, subject to the satisfaction of the conditions specified in Paragraph 4.4 above, Grantor may contest in good faith any such notice or claim. Grantor shall promptly notify Beneficiary of any fire or other casualty or any notice of taking or eminent domain action or proceeding affecting the Mortgaged Property. 4.17. Notice of Certain Events. Grantor shall promptly notify Beneficiary if Grantor learns of the occurrence of (a) any event which constitutes an Event of Default or a default under any of the Loan Documents, together with a detailed statement of the steps being taken to cure such default, or (b) the receipt of any notice from, or the taking of any other action by, the holder of any promissory note, debenture or other evidence of indebtedness of Grantor, with respect to a claimed default, together with a detailed statement specifying the notice given or other action taken by such holder and the nature of the claimed default and what action Grantor is taking or proposes to take with respect thereto, or (c) any legal, judicial or regulatory proceedings affecting Grantor or any of its properties in which the amount involved is material and is not covered by insurance, or which, if adversely determined, could reasonably be expected to have a material adverse effect upon Grantor or the Mortgaged Property, or (d) any other event or condition having a material adverse effect on Grantor, any Guarantor or the Mortgaged Property. 4.18. Certificates of Compliance. Within fifteen (15) days following receipt of a request from Beneficiary (which, unless required by law, rule or regulation, Beneficiary agrees will not be made more than two (2) times in any twelve (12) month period), Grantor will furnish or cause to be furnished to Beneficiary certificates of compliance signed by Grantor, (i) stating that a review of the activities of Grantor has been made to determine whether Grantor has fulfilled all of its obligations under the Loan Documents; (ii) stating that Grantor has fulfilled all of its obligations 16 under the Loan Documents and that all representations made herein and therein continue to be true and correct in all material respects (or specifying the nature of any change), or if an Event of Default shall have occurred, specifying the Event of Default and the nature and status thereof; (iii) to the extent requested from time to time by Beneficiary, specifically affirming compliance of Grantor with any of its representations or obligations under the Loan Documents; and (iv) containing or accompanied by such financial or other details, information and material as Beneficiary may reasonably request to evidence such compliance. 4.19. Restriction on Distribution. Grantor shall use the proceeds of the Loan only for the purposes described in the Borrower's Affidavit which is being delivered to Beneficiary as one of the Loan Documents. 4.20. No Conditional Sale Contracts, Etc. Without the prior written consent of Beneficiary, no materials, equipment, or fixtures shall be supplied, purchased, or installed for the operation of the Improvements pursuant to security agreements, conditional sale contracts, lease agreements, or other arrangements or understandings whereby a security interest or title is retained by any party or the right is reserved or accrues to any party to remove or repossess any such materials, equipment, or fixtures intended to be utilized in the operation of the Improvements. 4.21. Indemnification. Grantor agrees to indemnify Beneficiary and to hold Beneficiary harmless from and against any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including, without limitation, attorneys' fees and court costs) at any time asserted against or incurred by Beneficiary by reason of, arising out of or in connection with any violation or breach by Grantor of any of the terms and provisions of the Loan Documents including, without limitation, any breach or violation of any Applicable Environmental Laws, except to the extent caused by the gross negligence or willful misconduct of Beneficiary or Trustee. In addition, Grantor agrees to indemnify Beneficiary and to hold Beneficiary harmless from and against any and all costs, expenses, damages, losses or liabilities incurred or suffered by Beneficiary as a result of any removal or remedial obligations imposed with respect to the Mortgaged Property under any Applicable Environmental Laws, except to the extent caused by the gross negligence or willful misconduct of Beneficiary. 4.22. Compliance with Applicable Environmental Laws. Grantor will not cause or permit the Mortgaged Property to be in violation of any Applicable Environmental Laws, or do or permit anything to be done which will subject the Mortgaged Property to any remedial obligations under any Applicable Environmental Laws. Grantor will promptly notify Beneficiary in writing of any existing, pending or threatened investigation by any Governmental Authority under or in connection with any Applicable Environmental Laws. Grantor will not use the Mortgaged Property in a manner which will result in the disposal or release of any hazardous substances or solid waste on, from or to the Mortgaged Property, and shall at all times keep the Mortgaged Property free of all hazardous substances and wastes in violation of Applicable Environmental Laws. If at any time during the existence of this Deed of Trust, Beneficiary receives information leading Beneficiary to believe that the Mortgaged Property is not free of hazardous substances or wastes in violation of Applicable Environmental Laws, then Grantor shall provide to Beneficiary, at Grantor's sole cost and expense and within a reasonable period of time following Beneficiary's request therefor, a current report by 17 an environmental engineer acceptable to Beneficiary and covering such matters with respect to the Mortgaged Property as may be required by Beneficiary, in the exercise of its reasonable discretion. If Grantor fails to provide Beneficiary with such report within a reasonable period of time following Beneficiary's request therefor, Beneficiary shall have the right to obtain such report at Grantor's cost, and the same shall be a demand obligation owing by Grantor to Beneficiary and shall be a part of the Indebtedness. Grantor covenants to operate the Mortgaged Property (whether or not such property constitutes a "FACILITY" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA")), so that no cleanup or other obligation arises in respect of CERCLA or other applicable Environmental Law which would constitute a lien or charge on the Mortgaged Property prior to that of this Deed of Trust. If any such claim be made or any obligation should nevertheless arise hereafter, Grantor agrees that it will, at its own expense, (a) promptly cure same and (b) indemnify Beneficiary from any liability, responsibility or obligation in respect thereof or in respect of any cleanup or other liability as successor, secured party or otherwise (regardless of whether or not Beneficiary may be deemed to be an "owner or operator" under CERCLA) for any reason including, but not limited to, the enforcement of Beneficiary's rights as a secured party under this Deed of Trust or any obligation of law, except to the extent caused solely by the gross negligence or willful misconduct of Beneficiary. 4.23. Maintenance of Rights of Way, Easements and Licenses. Grantor will maintain, preserve and renew all rights of way, easements, grants, privileges, licenses and franchises reasonably necessary for the use of the Mortgaged Property from time to time and will not, without the prior consent of Beneficiary, which may be granted or withheld at the sole discretion of Beneficiary, initiate, join in or consent to any private restrictive covenant or other public or private restriction as to the use of the Mortgaged Property. Grantor shall, however, comply with all restrictive covenants which may at any time affect the Mortgaged Property, zoning and planned unit development ordinances and other public or private restrictions as to the use of the Mortgaged Property. ARTICLE V NEGATIVE COVENANTS Grantor hereby covenants and agrees with Beneficiary that until the entire Indebtedness shall have been paid in full and all of the Obligations shall have been fully performed and discharged: 5.1. Use Violations. Grantor will not use, maintain, operate or occupy, or allow the use, maintenance, operation or occupancy of the Mortgaged Property in a manner which (a) violates any Legal Requirement, (b) may be dangerous unless safeguarded as required by law, (c) constitutes a public or private nuisance or (d) makes void, voidable or cancelable, or materially increases the premium of, any insurance then in force with respect thereto. 5.2. Alterations. Grantor will not commit or permit any waste of the Mortgaged Property and will not (subject to the provisions of Paragraphs 4.5, 4.6 and 4.8 herein), without the prior written consent of Beneficiary, make or permit to be made any alterations or additions to the Mortgaged Property of a material nature; however, the Beneficiary's consent shall not be required 18 for interior finish improvements that are required or permitted under any Lease consented to by Beneficiary or that Grantor undertakes for its own use, provided such interior finish improvements will not have any significant adverse impact on the value of the Mortgaged Property. Notwithstanding the foregoing, Grantor shall notify Beneficiary in writing at least 15 days in advance of commencing any work, whether or not Beneficiary's consent to the work is required. 5.3. Replacement of Fixtures and Personalty. Grantor will not, without the prior written consent of Beneficiary, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements unless the removed item is removed temporarily for maintenance or repair or, if removed permanently, is replaced by an item of equal suitability and value, owned by Grantor free and clear of any lien or security interest except such as may be first approved in writing by Beneficiary. 5.4. No Further Encumbrances. Grantor will not, without the prior written consent of Beneficiary, which may be granted or withheld at the sole discretion of Beneficiary, create, place, suffer or permit to be created or placed or, through any act or failure to act, acquiesce in the placing of or allow to remain, any mortgage, deed of trust or other security document, pledge, lien (statutory, constitutional or contractual), security interest, encumbrance or charge on the Mortgaged Property, or enter into any conditional sale or other title retention agreement with respect to the Mortgaged Property, regardless of whether same are expressly subordinate to the liens and terms of the Loan Documents, other than Permitted Encumbrances. 5.5. Prohibition on Transfer. Grantor shall not sell, transfer, convey, pledge, assign, hypothecate or encumber any of its rights or interests in the Mortgaged Property, or any part thereof or interest therein (other than leases to third parties that do not, at any given time, cover more than 49% of the buildings and that are subject and subordinate to this Deed of Trust and, if required by Beneficiary, Grantor and the tenants under any such leases shall execute and deliver to Beneficiary such subordination and/or subordination, attornment and non-disturbance agreements as Beneficiary may require), or agree to do any of the foregoing either directly, by operation of law or otherwise without the prior written consent of Beneficiary, which may be granted or withheld at the sole discretion of Beneficiary. Upon any pledge, assignment, hypothecation or encumbrance, or sale, transfer or conveyance in violation of this Paragraph, and without impairing any remedies or rights of Beneficiary on account of such pledge, assignment, hypothecation or encumbrance, or sale, transfer or conveyance, Beneficiary shall have the right at its election to declare the entire Indebtedness secured hereby to be immediately due and payable and to pursue all of its rights and remedies as a result of an Event of Default under Article VI hereof. A transfer or transfers of any capital stock of Grantor without Beneficiary's prior written consent, which may be granted or withheld at the sole discretion of Beneficiary, shall constitute a violation of this Paragraph 5.5 only if the transfer results in a change in the management of Grantor and only if Grantor's stock has ceased to be traded publicly. Beneficiary shall have the right to condition its consent to any of the transactions described in this Paragraph 5.5 upon, among other things, the payment by Grantor of a transfer fee or an increase in the rate of interest applicable to the Loan. 19 Notwithstanding the foregoing or other provisions in this Deed of Trust to the contrary, so long as no Event of Default has occurred and is continuing, Grantor may lease or otherwise authorize the use of the Improvements or any part thereof by any affiliate of Grantor or joint venture in which Grantor has a substantial interest, provided that the lease or other rights granted to such affiliate or joint venture are expressly subject and subordinate to this Deed of Trust, and provided further that the tenant executes a subordination and attornment agreement (but not a nondisturbance agreement) in a form designated by Beneficiary in its sole discretion. 5.6. Restrictions and Annexation. Grantor shall not without the prior written consent of Beneficiary, which may be granted or withheld at the sole discretion of Beneficiary, impose or amend any restrictive covenants or encumbrances upon the Mortgaged Property, amend, modify or terminate any existing developer's contract or other agreement relating to any of the Mortgaged Property, assign or transfer any rights, as declarant, owner, member or otherwise, under any declaration of covenants or in regard to any homeowners or other owners association, vote or take any action under or in regard to any such declaration of covenants or homeowners or other owners association which may have a material adverse effect on Grantor's or Beneficiary's rights, or execute, file, modify or terminate any subdivision plat affecting the Mortgaged Property, take any action whatsoever to convert the Mortgaged Property or any part thereof to a condominium or cooperative, or consent to the annexation of the Mortgaged Property to any city or seek or consent to any change to or modification of the zoning of the Mortgaged Property or any planned unit development affecting any of the Mortgaged Property. 5.7. Plans and Specifications/Completion of Construction. Prior to commencement of construction of any improvement on (excluding, however, interior finish improvements that are required or permitted under any Lease consented to by Beneficiary or that Grantor undertakes for its own use and that will not have any significant adverse impact on the value of the Mortgaged Property) or development of any of the Property, Grantor shall submit to Beneficiary for approvals the plans and specifications for such improvements/development (the plans and specifications for such improvements/development, when and if approved by Beneficiary are herein referred to as the "PLANS AND SPECIFICATIONS"), cost breakdowns and takeoffs, bids for construction, the name of the proposed general contractor, the proposed construction contracts and all other required documents related to such construction. Approval of such general contractor, construction contracts, cost breakdowns and takeoffs, bids for construction, other documents and Plans and Specifications, including change orders thereto (which shall also be subject to approval by Beneficiary, in its sole discretion), shall be at the sole discretion of Beneficiary. Notwithstanding the foregoing, Grantor shall notify Beneficiary in writing at least 15 days in advance of commencing any work, whether or not Beneficiary's consent to the work is required or Beneficiary's approval of the Plans and Specifications or any other matters is required. The improvements/development shall be made and completed of first-class materials and in a first-class and workmanlike manner in substantial accordance with the Plans and Specifications and the documents evidencing, securing and/or relating to the loan evidenced by the Note, and shall be completed with no unbonded (to Beneficiary's satisfaction) or unreleased mechanics' or materialmen's liens or lien claims having been filed or existing with regard thereto. The approval of the Plans and Specifications, such as cost breakdowns and takeoffs, bids for construction, construction contracts or other documents by Beneficiary shall not imply or result in any responsibility by Beneficiary for the adequacy or sufficiency of such Plans and Specifications, such cost breakdowns and takeoffs, bids for construction, construction contracts 20 or such other documents, and approval of the general contractor shall not imply any representation or warranty of Beneficiary of the competency or ability thereof or any other matter relating thereto. Beneficiary may make or cause to be made inspections of the improvements/development during the course of and upon completion of construction/development thereof; however, the adequacy and sufficiency of such inspections, or the failure to perform inspections, by Beneficiary or a designated party, shall not relieve Grantor of its obligation to complete the improvements/development in substantial accordance with the Plans and Specifications. Beneficiary, at its option, may designate an independent inspector to perform inspections for the sole benefit of Beneficiary, and Grantor will pay all reasonable costs incurred in connection with such inspections. ARTICLE VI EVENTS OF DEFAULT The term "EVENT OF DEFAULT," as used herein and in the Loan Documents, shall mean the occurrence or happening, at any time and from time to time, of any one or more of the following: 6.1. Payment of Indebtedness. If Grantor shall fail, refuse or neglect to pay, (i) in full, all of the Indebtedness on the maturity date thereof or (ii) any installment or portion of the Indebtedness as and when the same shall become due and payable, whether at the due date thereof stipulated in the Loan Documents or at a date fixed for prepayment or by acceleration or otherwise, and the failure to pay such installment or portion of the Indebtedness shall continue upon the expiration of any applicable cure period, if any, as set forth in the Note. 6.2. Performance of Obligations. If Grantor shall fail, refuse or neglect to perform and discharge fully and timely any of the Obligations as and when required hereunder and such failure continues for thirty (30) days following the receipt of written notice thereof from Beneficiary. 6.3. False Representation. If any representation or warranty made by Grantor or any Guarantor in, under or pursuant to any of the Loan Documents or any other documents executed in connection therewith shall be false, erroneous or misleading in any material respect. 6.4. Judgment. If any final money judgment in excess of $250,000 shall be rendered against Grantor, and the same shall not be paid or execution on the same shall not be stayed by perfection of an appeal or other appropriate action within sixty (60) days after such judgment is rendered. 6.5. Voluntary Bankruptcy. If Grantor or any Guarantor shall (a) seek entry of an order for relief as a debtor in a proceeding under the Federal Bankruptcy Code, (b) seek, consent to or not contest the appointment of a receiver, trustee, conservator or liquidator for itself or for all or any part of the Mortgaged Property or any of its other property, (c) file a petition seeking relief under any Debtor Relief Law or answer admitting the material allegations of a petition against it, (d) make a general assignment for the benefit of its creditors or (e) admit in writing its inability to pay its debts as they mature. 21 6.6. Involuntary Bankruptcy. If (a) a petition is filed against Grantor or any Guarantor seeking relief under any Debtor Relief Law or approving a petition seeking reorganization or an arrangement of its debts, or (b) a court enters an order, judgment or decree appointing, without the consent of Grantor or the affected Guarantor, a receiver, trustee, conservator or liquidator for it, or for all or any part of the Mortgaged Property or any of its other property, and such petition, order, judgment or decree shall not be and remain discharged or stayed within a period of sixty (60) days after its entry. 6.7. Foreclosure of Other Liens. If the holder of any lien or security interest on the Mortgaged Property (without implying Beneficiary's consent to the existence, placing, creating or permitting of any such lien or security interest) institutes foreclosure or other proceedings for the enforcement of its remedies thereunder. 6.8. Sale, Lease or Other Transfer. Any sale, lease, exchange, assignment, conveyance, transfer of possession or other disposition of the Mortgaged Property (or any part thereof) by Grantor or of any ownership interest in Grantor not permitted under Paragraph 5.5 hereof, in each case whether directly, by operation of law or otherwise, without the prior written consent of Beneficiary, which consent may be granted or withheld in Beneficiary's sole discretion. 6.9. Title and Lien Priority. If title of Grantor to any or all of the Mortgaged Property or the status of this Deed of Trust as a first priority lien and security interest on the Mortgaged Property shall be challenged or endangered by any party whatsoever, and Grantor shall fail to (a) immediately commence and thereafter continue diligent efforts to cure the same or (b) provide Beneficiary with a bond or other security which is satisfactory to Beneficiary in its sole discretion. 6.10. Termination. The dissolution or termination of Grantor or any Guarantor or the death of any Guarantor. 6.11. Other Defaults. The occurrence of any default or Event of Default, as defined or described in any of the other Loan Documents, and the expiration of any grace or cure periods expressly provided therein with respect to such default or Event of Default, or if no grace or cure period is provided in any other Loan Document with respect to a nonmonetary default or Event of Default, the continuation thereof for a period of thirty (30) days following the receipt of written notice thereof from Beneficiary. 6.12. Levy on Assets. A levy on the assets of Grantor, if in the reasonable judgment of Beneficiary, such levy would have a material adverse effect on Grantor or the Mortgaged Property. 6.13. Decline in Net Worth. If Grantor's net worth, determined in the same manner as Grantor's Net Worth as set forth in its financial statements heretofore furnished to Beneficiary, falls below $35,000,000. 6.14. BOA Default. A default or Event of Default shall occur under any of the documents evidencing or securing the payment by Grantor of any indebtedness owed by it to Bank of America, National Association, and, as a consequence thereof, Bank of America, National Association, shall accelerate the maturity of any of such indebtedness owed to it and shall commence action to enforce 22 any of the liens or security interests securing the payment of any of such indebtedness owed to it against all or any of the Mortgaged Property. ARTICLE VII DEFAULT AND FORECLOSURE If an Event of Default shall occur, Beneficiary may, at Beneficiary's election and by and through Trustee or otherwise, exercise any or all of the following rights, remedies and recourses, in addition to any other remedy which Beneficiary may have: 7.1. Acceleration and Future Advances. Beneficiary may declare the entire Indebtedness, including the then unpaid principal balance on the Note, the accrued but unpaid interest thereon, court costs and attorney's fees hereunder immediately due and payable, without notice, presentment, protest, demand or action of any nature whatsoever, except as provided in the Note (each of which hereby is expressly waived by Grantor), whereupon the same shall become immediately due and payable. Additionally, Beneficiary shall not be required to make any such further advances on the Note or other Loan Documents upon the occurrence of an Event of Default or an event which, with the giving of notice or passing of time, would constitute an Event of Default. 7.2. Entry on Mortgaged Property. Beneficiary may enter upon the Mortgaged Property and take exclusive possession thereof and of all books, records and accounts relating thereto without notice and without being guilty of trespass. If Grantor remains in possession of all or any part of the Mortgaged Property after an Event of Default and without Beneficiary's prior written consent thereto, Beneficiary may, without notice to Grantor, invoke any and all legal remedies to dispossess Grantor, including specifically one or more actions for forcible entry and detainer, trespass to try title and writ of restitution. Nothing contained in the foregoing sentence shall, however, be construed to impose any greater obligation or any prerequisites to acquiring possession of the Mortgaged Property after an Event of Default than would have existed in the absence of such sentence. 7.3. Operation of Mortgaged Property. Beneficiary may hold, lease, manage, operate or otherwise use or permit the use of the Mortgaged Property, either itself or by other persons, firms or entities, in such manner, for such time and upon such other terms as Beneficiary may deem to be prudent and reasonable under the circumstances (making such repairs, alterations, additions and improvements thereto and taking any and all other action with reference thereto, from time to time, as Beneficiary shall deem necessary or desirable), and apply all Rents and other amounts collected by Trustee in connection therewith in accordance with the provisions of Paragraph 7.16 herein. Grantor hereby irrevocably appoints Beneficiary as the agent and attorney-in-fact of Grantor, with full power of substitution, and in the name of Grantor, if Beneficiary elects to do so, to (a) endorse the name of Grantor on any checks or drafts representing proceeds of the insurance policies, or other checks or instruments payable to Grantor with respect to the Mortgaged Property, (b) prosecute or defend any action or proceeding incident to the Mortgaged Property, and (c) take any action with respect to the Mortgaged Property that Beneficiary may at any time and from time to time deem necessary or appropriate. Beneficiary shall have no obligation to undertake any of the foregoing 23 actions, and if Beneficiary should do so, it shall have no liability to Grantor for the sufficiency or adequacy of any such actions taken by Beneficiary. 7.4. Foreclosure and Sale. (a) Beneficiary may, by and through the Trustee, or otherwise, sell or offer for sale the Mortgaged Property in such portions, order and parcels as Beneficiary may determine, with or without having first taken possession of same, to the highest bidder for cash at public auction in accordance with the requirements of Section 51.002 of the Texas Property Code. In instances where the Mortgaged Property is located in the State of Texas, such sale shall be made at the courthouse of the county in which the Mortgaged Property (or any of that portion thereof to be sold) is located (whether the parts or parcels thereof, if any, in different counties are contiguous or not, and without the necessity of having any Personalty present at such sale) in the area designated by the county commissioners for foreclosure sales (or, if no area has been designated, at the location at the courthouse designated by Beneficiary by or through Trustee in the written notice hereinafter described) on the first Tuesday of a month between the hours of 10:00 a.m. and 4:00 p.m. after advertising the time, place and terms of sale and that portion of the Mortgaged Property to be sold by posting or causing to be posted written or printed notice thereof at least twenty-one (21) days before the date of the sale both at the courthouse door of each county in which the Mortgaged Property is located and with the county clerk of each county in which the Mortgaged Property is located, which notice shall be posted at the courthouse door and filed with the county clerk by the Trustee, or by any person acting for him. The written notice shall include the earliest time at which the sale will begin. Beneficiary shall serve, or shall cause to be served at least twenty-one (21) days before the date of sale, written or printed notice of the proposed sale by certified mail on each debtor obligated to pay the Indebtedness according to the records of Beneficiary by the deposit of such notice in the United States mail, postage prepaid and addressed to the debtor at the debtor's last known address as shown by the records of Beneficiary. The affidavit of a person knowledgeable of the facts to the effect that service was completed is prima facie evidence of service. (b) Beneficiary may, at its option, accomplish all or any of the aforesaid in such manner as permitted or required by Section 51.002 of the Texas Property Code relating to the sale of real property or by Chapter 9 of the Texas Business and Commerce Code relating to the sale of collateral after default by a debtor (as said section and chapter now exist or may be hereinafter amended or succeeded), or by any other present or subsequent articles or enactments relating to same. In instances where the Mortgaged Property is located in states other than Texas, such sales shall be made in accordance with the Legal Requirements therefor for such state, including, to the extent there relevant, the Uniform Commercial Code there in effect. Nothing contained in this Paragraph shall be construed to limit in any way Trustee's right to sell the Mortgaged Property by private sale if, and to the extent that, such private sale is permitted under the laws of the state where the Mortgaged Property (or that portion thereof to be sold) is located or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same. At any such sale: (i) whether made under the power herein contained, the aforesaid Section 51.002, the Texas Business and Commerce Code, any other Legal Requirement or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for Trustee to have physically present, or to have constructive 24 possession of, the Mortgaged Property (Grantor shall deliver to Trustee any portion of the Mortgaged Property not actually or constructively possessed by Trustee immediately upon demand by Trustee), and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale; (ii) each instrument of conveyance executed by Trustee shall contain a general warranty of title (subject to Permitted Encumbrances other than than those which have been subordinated to this Deed of Trust) binding upon Grantor; (iii) each and every recital contained in any instrument of conveyance made by Trustee shall constitute prima facie evidence of the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Indebtedness, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor Trustee hereunder; (iv) any and all prerequisites to the validity thereof shall be presumed to have been performed; (v) the receipt by Trustee or of such other party or officer making the sale of the full amount of the purchase money shall be sufficient to discharge the purchaser or purchasers from any further obligation for the payment thereof, and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof; (vi) to the fullest extent permitted by law, Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar, both at law and in equity, against Grantor and against all other persons claiming or to claim the property sold or to any part thereof by, through or under Grantor; and (vii) to the extent and under such circumstances as are permitted by law, Beneficiary may be a purchaser at any such sale, and may credit any bid against the Indebtedness then outstanding. 7.5. Divestment of Rights; Tenant at Sufferance. After sale of the Mortgaged Property, or any portion thereof, Grantor will be divested of any and all interest and claim thereto, including any interest or claim to all proceeds of insurance arising from or relating to any matter or occurrence arising or accruing prior to such sale, bonds, loan commitments and other intangible property covered hereby. Additionally, with respect to the Land, Improvements, Fixtures and Personalty, after a sale of all or any portion thereof, Grantor will be considered a tenant at sufferance of the purchaser of the same, and said purchaser shall be entitled to immediate possession thereof, and if Grantor shall fail to vacate the Mortgaged Property immediately, the purchaser may and shall have the right, without further notice to Grantor, to go into any justice court in any precinct or county in which the 25 Mortgaged Property is located and file an action in forcible entry and detainer, which action shall lie against Grantor or its assigns or legal representatives, as a tenant at sufferance. This remedy is cumulative of any and all remedies the purchaser may have hereunder or otherwise. 7.6. Trustee or Receiver. Upon, or at any time after, commencement of foreclosure of the lien and security interest provided for herein or any legal proceedings hereunder, Beneficiary may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Paragraph 7.16 herein. The right to the appointment of a receiver shall apply regardless of whether Beneficiary has commenced procedures for the foreclosure of the liens and security interest created herein, or has commenced any other legal proceedings to enforce payment of the Indebtedness or performance or discharge of the Obligations, and shall also apply upon the actual or threatened waste to any part of the Mortgage Property. 7.7. Separate Sales. Trustee may sell all or any portion of the Mortgaged Property together or in lots or parcels and in such manner and order as Trustee, in its sole discretion, may elect. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of such Mortgaged Property shall be less than the aggregate of the Indebtedness and the expense of executing this trust, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Beneficiary shall have the right, at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. As among the various counties in which items of the Mortgaged Property may be situated, sales in such counties may be conducted in any order that Trustee may deem expedient; and any one or more of such sales may be conducted in the same month, or in successive or different months, as the Trustee may deem expedient. If an Event of Default occurs, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, and if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Note and the Indebtedness; and such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness but as to such unmatured part, this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Any number of sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness secured hereby. 7.8 Foreclosure for Installments. Beneficiary shall have the option to proceed with foreclosure and satisfaction of any installments of the Indebtedness which have not been paid when due, either through the courts or by directing the Trustee or his successors in trust to proceed with 26 foreclosure and satisfaction of the matured but unpaid portion of the Indebtedness as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due; such sale may be made subject to the unmatured portion of the Indebtedness, and any such sale shall not in any manner affect the unmatured portion of the Indebtedness, but as to such unmatured portion of the Indebtedness this Deed of Trust shall remain in full force and effect just as though no sale had been made hereunder. It is further agreed that several sales may be made hereunder without exhausting the right of sale for any of unmatured portion of the Indebtedness, it being the purpose hereof to provide for foreclosure and sale of the security for any matured portion of the Indebtedness without exhausting the power to foreclose and sell the Mortgaged Property for any subsequently maturing portion of the Indebtedness. 7.9. Other. Beneficiary may exercise any and all other rights, remedies and recourses granted under the Loan Documents or now or hereafter existing in equity, at law, by virtue of statute or otherwise. 7.10. Remedies Cumulative, Concurrent and Nonexclusive. Trustee and Beneficiary shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Mortgaged Property or any portion thereof) and same (a) shall be cumulative and concurrent; (b) may be pursued separately, successively or concurrently against Grantor, Guarantors or others obligated under the Note, or against the Mortgaged Property, or against any one or more of them at the sole discretion of Beneficiary; (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse; and (d) are intended to be, and shall be, nonexclusive. 7.11. No Conditions Precedent to Exercise of Remedies. Neither Grantor nor any other person named hereafter obligated for payment of all or any part of the Indebtedness or fulfillment of all or any of the Obligations shall be relieved of such obligation by reason of (a) the failure of the Trustee to comply with any request of Grantor or any other person so obligated to foreclosure the lien of this Deed of Trust or to enforce any provisions of the other Loan Documents; (b) the release, regardless of consideration, of the Mortgaged Property or any portion thereof or the addition of any other property to the Mortgaged Property; (c) any agreement or stipulation between any subsequent owner of the Mortgaged Property and Beneficiary extending, renewing, rearranging, or in any other way modifying the terms of the Loan Documents without first having obtained the consent of, given notice to or paid any consideration to Grantor or such other person, and in such event, Grantor and all such other persons shall continue to be liable to make payment according to the terms of any such extension or modification agreement unless expressly released and discharged in writing by Beneficiary (notwithstanding anything contained herein to the contrary, Beneficiary is under no obligation to give notice to or pay any consideration to Grantor or any other such person for any modifications, extensions, renewals or rearrangements of the Loan Documents); or (d) by any other act save and except the complete payment of the Indebtedness and the complete fulfillment of all of the Obligations. 7.12. Release of and Resort to Collateral. Any part of the Mortgaged Property may be released by Beneficiary without affecting, subordinating or releasing the lien, security interest and 27 assignment hereof against the remainder. The lien, security interest and other rights granted hereby shall not affect or be affected by any other security taken for the same indebtedness or any part thereof. The taking of additional security, or the rearrangement, extension or renewal of the Indebtedness, or any part thereof, shall not release or impair the lien, security interest and other rights granted hereby or affect the liability of Grantor or of any endorser, guarantor or surety, or improve the right of any permitted junior lienholder; and this Deed of Trust, as well as any instrument given to secure any rearrangement, renewal or extension of the Indebtedness secured hereby, or any part thereof, shall be and remain a first priority lien, on all of the Mortgaged Property not expressly released until the Indebtedness is completely paid. For payment of the Indebtedness, Beneficiary may resort to any other security therefore held by Beneficiary or Trustee in such order and manner as Beneficiary may elect. 7.13. Waiver of Redemption, Notice and Marshaling of Assets. To the fullest extent permitted by law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to Grantor by any present or future laws exempting the Mortgaged Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of any Event of Default (except as may be specifically provided for under the terms hereof), presentment, demand, notice of intent to accelerate, notice of acceleration and any other notice of Beneficiary's or Trustee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents; (c) any right to appraisal or marshaling of assets or a sale in inverse order of alienation; (d) the exemption of homestead; and (e) the administration of estates of decedents, or other matter to defeat, reduce or affect the right of Beneficiary under the terms of this Deed of Trust to sell the Mortgaged Property for the collection of the Indebtedness secured hereby (without any prior or different resort for collection) or the right of Beneficiary, under the terms of this Deed of Trust, to the payment of the Indebtedness out of the proceeds of sale of the Mortgaged Property in preference to every other person and claimant whatever (only reasonable expenses of such sale being first deducted). Grantor expressly waives and relinquishes any right or remedy which it may have or be able to assert by reason of the provisions of Chapter 34 of the Business and Commerce Code of the State of Texas pertaining to the rights and remedies of sureties. 7.14. Discontinuance of Proceedings. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon the same for any reason, Beneficiary shall have the unqualified right so to do and, in such event, Grantor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and power of Beneficiary shall continue as if the same had never been invoked. 7.15. Form and Substance. All documents, certificates, insurance policies, and other items required under this Deed of Trust to be executed and/or delivered to Beneficiary shall be in form and substance reasonably satisfactory to Beneficiary. 7.16. Application of Proceeds; Deficiency Obligation. The proceeds of any sale of, and the Rents and other income generated by the holding, leasing, operating or other use of the Mortgaged Property shall be applied by Beneficiary (or the receiver, if one is appointed) to the extent that funds 28 are so available therefrom in the following orders of priority: (a) first, to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, maintaining, repairing, improving and selling the same prior to such foreclosure, including, without limitation, (i) reasonable Trustee's fees and receiver's fees; (ii) costs of advertisement; (iii) reasonable attorneys' and accountants' fees; and (iv) court costs, if any; (b) second, to the payment of all amounts, other than the principal amount and accrued but unpaid interest on the Note which may be due to Beneficiary under the Loan Documents, including all Indebtedness and Obligations together with interest thereon as provided therein, in such order and manner as Beneficiary may determine; (c) third, to the payment of all accrued but unpaid interest due on the Note in such order and manner as Beneficiary may determine; (d) fourth, to the payment of the principal amount outstanding on the Note in such order and manner as Beneficiary may determine and all other Indebtedness and Obligations; (e) fifth, to Grantor or as otherwise required by law. Subject to the foregoing, the proceeds of any sale of, and the Rents and other income generated by the holding, leasing, operating or other use of the Mortgaged Property prior to such foreclosure, shall be applied by Beneficiary (or the receiver, if one is appointed) to the extent that funds are so available therefrom: (1) first, to reduce that portion of the Indebtedness then remaining unpaid for which Grantor is not personally liable and (2) second, to reduce that portion of the Indebtedness then remaining unpaid for which Grantor is personally liable, if any. 7.17. Purchase by Beneficiary. Beneficiary, if the highest bidder, shall have the right to become the purchaser at any sale of the Mortgaged Property hereunder and shall have the right to be credited on the amount of its bid therefor all of the Indebtedness and Obligations due and owing as of the date of such sale. 7.18. Disaffirmation of Contracts. The purchaser at any Trustee's or foreclosure sale hereunder may disaffirm any easement granted, or rental, lease or other contract made in violation of any provisions of this Deed of Trust and may take immediate possession of the Mortgaged Property free from, and despite the terms of, any such grant of easement, rental, lease or other contract. 7.19. Acceleration Following Certain Events. Notwithstanding anything to the contrary contained herein or inferable from any provision hereof, upon the occurrence of an Event of Default as defined in Paragraph 6.5 or Paragraph 6.6 hereinabove, the Indebtedness, including without limitation the unpaid accrued interest under the Note and any other accrued but unpaid portion of the Indebtedness, shall be automatically and immediately due and payable in full without the necessity of any action on the part of Trustee or Beneficiary. 7.20. Prepayment. Prepayment of the Note is restricted as provided in the Note. ARTICLE VIII CONDEMNATION 8.1. Application of Proceeds. If the Mortgaged Property, or any part thereof, shall be condemned or otherwise taken for public or quasi-public use under the power of eminent domain, 29 or be transferred in lieu thereof, all damages or other amounts awarded for the taking of, or injury to, the Mortgaged Property shall be paid to Beneficiary who shall have the right, in its sole and absolute discretion, to apply the amounts so received against (a) the costs and expenses of Beneficiary or Trustee, including reasonable attorneys' fees incurred in connection with collection of such amounts and (b) the balance against the Indebtedness and Obligations; provided, however, that if (i) no Event of Default shall have occurred and be continuing hereunder, (ii) Maker provides evidence satisfactory to Beneficiary of its ability to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Mortgaged Property, (iii) Beneficiary determines, in its reasonable discretion, that the proceeds of such award are sufficient to restore, repair, replace and rebuild the Mortgaged Property as nearly as possible to its value, condition and character immediately prior to such taking, or the cost to repair and restore the Mortgaged Property is greater than 50% of the original principal amount of the Note, and if the proceeds of such award are insufficient for such purpose, if Grantor provides additional sums to Beneficiary's satisfaction so that the aggregate of such sums and the proceeds of such award will be sufficient for such purpose, the proceeds of such award, together with additional sums provided by Grantor, shall be placed in a separate account for the benefit of Beneficiary and Grantor to be used to restore, repair, replace and rebuild the Mortgaged Property as nearly as possible to its value, condition and character immediately prior to such taking. All work to be performed in connection therewith shall be pursuant to a written contract therefor, which contract shall be subject to the prior written approval of Beneficiary. To the extent that any funds remain after the Mortgaged Property has been so restored and repaired, the same shall be applied against the Indebtedness in such order as Beneficiary may elect. To enforce its rights hereunder, Beneficiary shall be entitled to participate in and control any condemnation proceedings and to be represented therein by counsel of its own choice, and Grantor will deliver, or cause to be delivered, to Beneficiary such instruments as may be requested by it from time to time to permit such participation. In the event Beneficiary, as a result of any such judgment, decree or award, believes that the payment or performance of any obligation secured by this Deed of Trust is impaired, Beneficiary may declare all of the Indebtedness secured hereby immediately due and payable. ARTICLE IX SECURITY AGREEMENT 9.1. Security Interest. This Deed of Trust shall be construed as a Deed of Trust on real property, and it shall also constitute and serve as a security agreement on personal property within the meaning of, and shall constitute until the grant of this Deed of Trust shall terminate as provided in Article II hereof, a first priority pledge and assignment and a first priority security interest under the Uniform Commercial Code (being Chapter 9 of the Texas Business and Commerce Code as to the property within the scope thereof and situated in the State of Texas) with respect to the Personalty, Fixtures, Leases and Rents. Grantor has granted, bargained, conveyed, assigned, transferred and set over, and by these presents does grant, bargain, convey, assign, transfer and set over unto Beneficiary a first priority security interest in and to all of Grantor's right, title and interest in, to and under the Personalty, Fixtures, Leases and Rents in trust, to secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of the Obligations. Upon the occurrence of an Event of Default, Grantor shall gather all of the Mortgaged 30 Property which is Personalty at a location designated by Beneficiary for sale pursuant to the terms hereof. Within ten (10) days following Grantor's receipt of a written request from Beneficiary, Grantor shall prepare and deliver to Beneficiary a written inventory specifically listing all of the Personalty and Fixtures, which inventory shall be certified by an authorized officer of Grantor as being true, correct and complete. 9.2. Financing Statements. Grantor shall execute and deliver to Beneficiary, in form and substance satisfactory to Beneficiary, such financing statements and such further assurances as Beneficiary may, from time to time, consider reasonably necessary to create, perfect and preserve Beneficiary's security interest herein granted, and Beneficiary may cause such statements and assurances to be recorded and filed at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Beneficiary may file an initial financing statement, an amendment that adds collateral covered by a financing statement, or an amendment that adds a debtor to a financing statement. Pursuant to the Texas Business and Commerce Code, this Deed of Trust shall be effective as a Financing Statement filed as a Fixture filing from the date of its filing for record covering the Fixtures and Personalty. The address of Grantor, as Debtor, and Beneficiary, as Secured Party, are as set forth herein. The above described goods are or are to become fixtures related to the Land and Improvements of which Grantor is the record title owner. 9.3. Uniform Commercial Code Remedies. Trustee and Beneficiary shall have all the rights, remedies and recourses with respect to the Personalty, Fixtures, Leases and Rents afforded a secured party by the aforesaid Texas Business and Commerce Code in addition to, and not in limitation of, the other rights, remedies and recourses afforded by the Loan Documents and at law. 9.4. No Obligation of Trustee or Beneficiary. The assignment and security interest herein granted shall not be deemed to cause Beneficiary or Trustee to be a trustee in possession of the Mortgaged Property, to obligate Trustee or Beneficiary to operate the Mortgaged Property or attempt to do the same, or take any action, incur expenses or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. 9.5. Remedies. If an Event of Default shall occur, Beneficiary may elect, in addition to exercising any and all other rights, remedies and recourses set forth in Article 7 or referred to in Paragraph 9.3 hereinabove, to collect and receive all of the Rents and to proceed in the manner set forth in Section 9.604 (a) (2) of Chapter 9 of the Texas Business and Commerce Code relating to the procedure to be followed when a Security Agreement covers both real and personal property. Except as otherwise set forth in this Paragraph 9.5, at any foreclosure and sale as described in Paragraph 7.4 hereinabove, it shall be deemed that the Trustee proceeded under such Section 9.604 (a) (2) and that such sale passed title to all of the Mortgaged Property and other property described herein to the purchaser thereat, including without limitation, the Personalty, Leases and Rents. Beneficiary, acting by and through the Trustee or any other representative, may elect either prior to or at such sale not to proceed under such Section 9.604 (a) (2) by notifying Grantor of the manner in which Beneficiary intends to proceed with regard to the Personalty, Leases and Rents. 31 ARTICLE X ASSIGNMENT OF RENTS AND LEASES 10.1. Assignment of Rents, Profits, Etc. All of the Rents are hereby absolutely and unconditionally assigned to Beneficiary, to be applied by Beneficiary in payment of the Indebtedness. Notwithstanding any provision of this Deed of Trust or any other Loan Document which might be construed to the contrary, the assignment in this Paragraph 10.1 is an absolute assignment and not merely a security interest. However, Beneficiary's rights as to the assignment shall be exercised only upon the occurrence of an Event of Default. Prior to the occurrence of an Event of Default, Grantor shall have a license to collect and receive all Rents as trustee for the benefit of Beneficiary and Grantor, and Grantor shall apply the funds so collected first to the payment of the Indebtedness in such manner as Beneficiary elects and thereafter to the account of Grantor. Notwithstanding anything contained herein to the contrary, no part of the Property will be leased without the prior written consent of the Beneficiary, which consent may be granted or withheld in the sole discretion of the Beneficiary. This assignment shall not result in a reduction of the Indebtedness except to the extent Rents are actually received by Beneficiary and applied against the Indebtedness. 10.2 Assignment of Leases. Grantor hereby assigns the Leases to Beneficiary. Grantor hereby further assigns to Beneficiary all guaranties of tenants' performance under the Leases. 10.3. Warranties Concerning Leases and Rents. Grantor represents and warrants to Beneficiary that: (a) no Lease is currently in effect in regard to any of the Mortgaged Property; (b) no Leases or Rents have been previously assigned, mortgaged or pledged; (c) no Rents have been or will be anticipated, waived, released, discounted, set off or compromised; and (d) Grantor has not received any funds or deposits from any tenant for advance rentals (other than the rentals payable for the month in which this Deed of Trust is executed or any security deposits under any existing Leases). 10.4. Grantor's Covenants of Performance. Grantor covenants to: (a) duly and punctually perform all of its obligations under the Leases and give prompt notice to Beneficiary of any failure to do so; (b) give immediate notice to Beneficiary of any notice Grantor receives from any tenant or subtenant under any Leases, specifying any claimed default by any party under such Leases; (c) not voluntarily terminate, cancel, waive, modify or amend any of the Leases without the prior written consent of Beneficiary, which may be granted or withheld at the sole discretion of Beneficiary; 32 (d) enforce the tenants' obligations under the Leases; (e) defend, at Grantor's expense, any proceeding pertaining to the Leases, including, if Beneficiary so requests, any such proceeding to which Beneficiary is a party; and (f) neither create nor permit any encumbrance upon its interest as lessor under the Leases nor further assign, pledge or encumber the Rents. 10.5. Prior Approval for Actions Affecting Leases. Grantor shall not, without the prior written consent of Beneficiary: (a) enter into any lease agreement covering all or any portion of the Mortgaged Property without Beneficiary's prior written consent, except as otherwise expressly permitted by other provisions of this Deed of Trust; (b) receive or collect Rents more than one month in advance; (c) waive or release any obligation of any tenant under any Lease; (d) cancel, terminate or modify any of the Leases, cause or permit any cancellation, termination or surrender of any of the Leases, or commence any proceedings for dispossession of any tenant under any of the Leases; (e) renew or extend any of the Leases, except pursuant to terms set forth in existing Leases; or (f) permit any assignment of the Leases by tenants. 10.6. Beneficiary in Possession. Beneficiary's acceptance of this assignment shall not, prior to entry upon and taking possession of the Mortgaged Property by Beneficiary, be deemed to constitute Beneficiary a "mortgagee in possession", nor obligate Beneficiary to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any lessee and not delivered to Beneficiary. Beneficiary shall not be liable for any injury or damage to person or property in or about the Mortgaged Property, except such damage or injury caused solely by Beneficiary's gross negligence or willful misconduct. 10.7. Appointment of Attorney. Grantor hereby appoints Beneficiary its attorney-in-fact, coupled with an interest, empowering Beneficiary to subordinate any Leases to this Deed of Trust. 10.8. Indemnification. Grantor hereby indemnifies and holds Beneficiary harmless from all costs, damages, expenses, liabilities and losses incurred by Beneficiary arising from or in connection with any claims under the Leases, including, without limitation, claims by tenants for security deposits which are not delivered to Beneficiary, except to the extent caused solely by the 33 gross negligence or willful misconduct of Beneficiary. All amounts indemnified against hereunder, including reasonable attorneys' fees, if paid by Beneficiary shall bear interest at the maximum lawful rate and shall be payable by Grantor immediately upon demand and shall be secured hereby. 10.9. Records. Upon written request by Beneficiary, Grantor shall deliver to Beneficiary executed originals of all Leases and copies of all records relating thereto. 10.10. Merger. There shall be no merger of the leasehold estates, created by the Leases, with the fee estate of the Land without the prior written consent of Beneficiary. 10.11. Right to Rely. Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Beneficiary upon written demand by Beneficiary, without further consent of Grantor, and the tenants may rely upon any written statement delivered by Beneficiary to the tenants. Any such payment to Beneficiary shall constitute payment to Grantor under the Leases. ARTICLE XI CONCERNING THE TRUSTEE 11.1. No Liability. Trustee shall not be liable for any error of judgment or act done by Trustee, or be otherwise responsible or accountable under any circumstances whatsoever. Trustee shall not be personally liable in case of entry by him or anyone acting by virtue of the powers herein granted him upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder or believed by him in good faith to be genuine. Trustee shall be entitled to reimbursement for expenses incurred by him in the performance of his duties hereunder and to reasonable compensation for such of services he provided hereunder when any Event of Default has occurred and is continuing. Grantor will, from time to time, pay compensation due the Trustee hereunder and reimburse Trustee for and save and hold him harmless from and against any and all loss, cost, liability, damage and expense whatsoever incurred by him in the performance of his duties. 11.2. Retention of Monies. All monies received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other monies (except to the extent required by law) and Trustee shall be under no liability for interest on any monies received by him hereunder. 11.3. Successor Trustees. Trustee may resign by the giving of notice of such resignation in writing to Beneficiary. If Trustee shall die, resign or become disqualified from acting in the execution of this Trust or shall fail or refuse to exercise the same when requested by Beneficiary so to do or if for any reason or without cause Beneficiary shall prefer to appoint a substitute trustee to act instead of the original Trustee named herein, or any prior successor or substitute trustee, Beneficiary shall have full power to appoint a substitute trustee and, if preferred, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the aforenamed 34 Trustee. Such appointment may be executed by an authorized officer or agent of Beneficiary and such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the Board of Directors or any superior officer of Beneficiary. 11.4. Succession Instruments. Any new Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers and trusts of its or his predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but, nevertheless, upon the written request of Beneficiary or his successor trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trust herein expressed, all the estates, properties, rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and monies held by the Trustee to the successor trustee so appointed in its or his place. 11.5. Performance of Duties by Agents. Trustee may authorize one or more parties to act on his behalf to perform the ministerial functions required of him hereunder, including, without limitation, the transmittal and posting of any notices. 11.6. No Required Action. Trustee shall not be required to take any action toward the execution and enforcement of the trust hereby created or to institute, appear in or defend any action, suit or other proceeding in connection therewith where in his opinion such action will be likely to involve him in expense or liability, unless requested to do so by a written instrument signed by Beneficiary and, if Trustee so requests, unless Trustee is tendered security and indemnity satisfactory to him against any and all costs, expenses and liabilities arising therefrom. Trustee shall not be responsible for the execution, acknowledgment or validity of the Security Instruments, or for the proper authorization thereof, or for the sufficiency of the lien and security interest purported to be created hereby, and makes no representation in respect thereof or in respect of the rights, remedies and recourses of Beneficiary. ARTICLE XII MISCELLANEOUS 12.1. Survival of Obligations. Each and all of the Obligations shall survive the execution and delivery of the Loan Documents and the consummation of the loan called for therein and shall continue in full force and effect until the Indebtedness shall have been paid in full. 12.2. Recording and Filing. Grantor will cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Beneficiary shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges. 12.3. Notices. All notices or other communications required or permitted to be given pursuant to this Deed of Trust shall be in writing and shall be considered as properly given if mailed 35 by certified mail, return receipt requested, postage prepaid, or by delivering the same in person or by overnight delivery service to the intended addressee or by prepaid telegram; provided, however, that notice regarding any proposed foreclosure sale shall be given pursuant to Paragraph 7.4. Notice so mailed shall be effective upon the earlier of receipt by the addressee or two (2) days following the deposit of such notice in a post office or other official depository under the care and custody of the United States Postal Service. Notice given in any other manner shall be effective only if and when received by the addressee. For purposes of notice, the addresses of the parties shall be as set forth in Paragraph 1.1(b) and the opening recital herein; provided, however, that Grantor and Beneficiary shall have the right to change their address for notice hereunder to any other location within the continental United States by the giving of 30 days' notice to the other party in the manner set forth hereinabove. 12.4. Real Estate Taxes; Impositions. Grantor shall pay to Beneficiary, in advance, on the first day of each calendar month during the term of the Note, an amount equal to one-twelfth of the annual Taxes estimated by Beneficiary to be due for each calendar year during the term of the Note. In addition, if Beneficiary determines that any amounts theretofore paid by Grantor are insufficient for the payment in full of such real estate taxes, Beneficiary shall notify Grantor of the increased amounts required to provide a sufficient fund for the payment thereof, whereupon Grantor shall pay to Beneficiary within 10 days thereafter the additional amount so stated in Beneficiary's notice. Upon any assignment of this Deed of Trust, Beneficiary shall have the right to pay over the balance of the Escrowed Funds then in its possession to its assignee, whereupon the Beneficiary and Trustee shall then become completely released from all liability with respect thereto. Upon payment of the Indebtedness and performance of the Obligations, or at such earlier time as Beneficiary may elect, the balance of the Escrowed Funds in its possession may be paid over to Grantor, and no other party shall have any right or claim thereto. Upon the occurrence of an Event of Default, Beneficiary shall have the right to apply the Escrowed Funds to the payment of the Indebtedness without notice to Grantor, and Beneficiary shall thereafter have the right to require Grantor, within 10 days after Grantor's receipt of demand therefor from Beneficiary, to deposit with Beneficiary the amount of the Escrowed Funds so applied. So long as no Event of Default or event or condition which, with the giving of notice, the passage of time, or both, could mature into an Event of Default then exists, the Escrowed Funds shall, at the option of Beneficiary, either be repaid to Grantor in sufficient time to allow Grantor to satisfy Grantor's obligations under the Loan Documents to pay the Impositions or be paid by Beneficiary directly to the person or entities entitled thereto prior to the delinquency of such Taxes. Notwithstanding anything to the contrary contained in this Paragraph 12.4 or elsewhere in this Deed of Trust, Beneficiary hereby reserves the right to waive the payment by Grantor to Beneficiary of the Escrowed Funds and, in the event Beneficiary does so waive such payment, it shall be without prejudice to Beneficiary's right to insist, at any subsequent time or times, that such payments be made in accordance herewith. The Escrowed Funds, if collected by Beneficiary, shall be maintained in an interest bearing account and all interest accruing and paid thereon will be part of the Escrowed Funds. Notwithstanding the foregoing, Beneficiary shall not require performance by Grantor of the foregoing provisions of this Section 12.4 unless and until an Event of Default occurs, whether or not such Event of Default is subsequently cured. 12.5. No Waiver. Any failure by Trustee or Beneficiary to insist, or any election by Trustee or Beneficiary not to insist, upon strict performance by Grantor of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of the same or of any other 36 term, provision or condition thereof, and Trustee or Beneficiary shall have the right at any time, from time to time thereafter, to insist upon strict performance by Grantor of any and all of such terms, provisions and conditions. 12.6. Beneficiary's Right to Pay Indebtedness and Perform Obligations. If an Event of Default occurs because Grantor or any other party shall fail, refuse or neglect to make any required payment of the Indebtedness or perform any of the Obligations required by the Loan Documents, then at any time during which such Event of Default is continuing, and without notice or demand upon Grantor or any other party, and without waiving or releasing any other right, remedy or recourse Beneficiary may have because of the same, Beneficiary may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor and shall have the right to enter upon the Mortgaged Property for such purpose and to take all such action thereon with respect to the Mortgaged Property as it may deem necessary or appropriate. Grantor shall be obligated to repay Beneficiary for all sums advanced by it pursuant to this Paragraph 12.6 and shall indemnify and hold Beneficiary harmless from and against any and all loss, cost, expense, liability, damage, and claims and causes of action, including reasonable attorneys' fees, incurred or accruing by any acts performed by Beneficiary pursuant to the provisions of this Paragraph 12.6 or by reason of any other provision of the Loan Documents, except to the extent caused solely by the gross negligence or willful misconduct of Beneficiary. All sums paid by Beneficiary pursuant to this Paragraph 12.6 and all other sums extended by Beneficiary to which it shall be entitled to be indemnified, together with interest thereon at the Default Rate of interest set forth in the Note from the date of such payment or expenditure shall constitute additions to the Indebtedness and Obligations, shall be secured by the Loan Documents and shall be paid by Grantor to Beneficiary upon demand. 12.7. Covenants Running with the Land. All obligations contained in the Loan Documents are intended by the parties to be and shall be construed as covenants running with the Mortgaged Property. All of the representations, warranties, covenants and agreements of Grantor and/or Maker set forth herein (including, without limitation, all of the agreements by Grantor and/or Maker to indemnify Beneficiary and Trustee) shall survive the execution and delivery of this Deed of Trust, any foreclosure of the lien of this Deed of Trust and any other acquisition of title to the Mortgaged Property by Beneficiary; provided, however, the survival of such provisions and indemnities shall cover only matters occurring or existing prior to the foreclosure of this Deed of Trust or repayment of all of the Indebtedness, as the case may be. 12.8. Successors and Assigns. This Deed of Trust is for the sole benefit of Beneficiary, its successors and assigns, and Grantor, its permitted successors and assigns, and is not for the benefit of any third party. All of the terms of the Loan Documents shall apply to, be binding upon and inure to the benefit of the parties thereto, their respective successors, assigns, heirs and legal representatives and all other persons claiming by, through or under them. 12.9. Severability. The Loan Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of any of the Loan Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances or 37 other instruments referred to hereinabove shall be affected thereby, but rather, the same shall be enforced to the greatest extent permitted by law. 12.10. Controlling Agreement. All agreements between Grantor and Beneficiary, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to Beneficiary exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Beneficiary in excess of the maximum lawful amount, the interest payable to Beneficiary shall be reduced to the maximum amount permitted under applicable law; and if from any circumstance Beneficiary shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal of the Indebtedness and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Indebtedness, such excess shall be refunded to Grantor. All interest paid or agreed to be paid to Beneficiary shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal so that the interest on the Indebtedness for such full period shall not exceed the maximum amount permitted by applicable law. Beneficiary hereby expressly disclaims any intent to contract for, charge or receive interest in an amount which exceeds the maximum amount of interest permitted by applicable law. This section shall control all agreements between Grantor and Beneficiary. 12.11. Entire Agreement and Modification. The Loan Documents contain the entire agreements between the parties relating to the subject matter hereof and thereof, and all prior agreements relative thereto which are not contained herein or therein are terminated. The Loan Documents may be amended, revised, waived, discharged, released or terminated only by a written instrument or instruments executed by the party against which enforcement of the amendment, revision, waiver, discharge, release or termination is asserted. Any alleged amendment, revision, waiver, discharge, release or termination which is not so documented shall not be effective as to any party. 12.12. Counterparts. This Deed of Trust may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute but one instrument. 12.13. Applicable Law and Uniform Commercial Code. The Loan Documents shall be governed by and construed according to the laws of the State of Texas and the laws of the United States applicable to transactions in the State of Texas. All terms used herein which are defined in the Texas Business and Commerce Code shall be used with the definition therefor in said Code. 12.14. Headings and General Application. The article, paragraph and subparagraph entitlements hereof are inserted for convenience of reference only and shall in no way affect, modify or define, or be used in construing, the text of such article, paragraph or subparagraph. If the text requires, words used in the singular shall be read as including the plural, and pronouns of any gender shall include all genders. 38 12.15. Sole Benefit. This instrument and the other Loan Documents have been executed for the sole benefit of Grantor and Beneficiary and the heirs, successors, assigns and legal representatives of Beneficiary. No other party shall have rights thereunder nor be entitled to assume that the parties thereto will insist upon strict performance of their mutual obligations hereunder, any of which may be waived from time to time. Grantor shall not have any right to assign any of its rights under the Loan Documents to any party whatsoever, including the right to receive advances under the Note or otherwise. 12.16. Subrogation. If any or all of the proceeds of the Indebtedness or the Obligations have been used to extinguish, extend or renew any indebtedness heretofore existing against the Mortgaged Property or to satisfy any indebtedness or obligation secured by a lien or encumbrance of any kind (including liens securing the payment of any Impositions), such proceeds have been advanced by Beneficiary at Grantor's request, and, to the extent of such funds so used, the Indebtedness and Obligations in this Deed of Trust shall be subrogated to and extend to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property to secure the indebtedness or obligation so extinguished, paid, extended or renewed, and the former rights, claims, liens, titles and interests, if any, shall not be waived but rather shall be continued in full force and effect and in favor of Beneficiary and shall be merged with the lien and security interest created herein as cumulative security for the repayment of the Indebtedness and satisfaction of the Obligations. 12.17. Business or Commercial Purpose. Grantor warrants that the extension of credit evidenced by the Note secured hereby is solely for business or commercial purposes, other than agricultural purposes. Grantor further warrants that the credit transaction evidenced by the Note is specifically exempted under Regulation Z issued by the Board of Governors of the Federal Reserve System and Title I (Truth in Lending Act) of the Consumer Credit Protection Act and that no disclosures are required to be given under such regulations and federal laws in connection with the above transaction. 12.18. Jurisdiction and Venue. Courts within the State of Texas shall have jurisdiction over any and all disputes between Grantor and Beneficiary, whether at law or in equity, and the proper venue for any such dispute shall be either the state or federal courts located in Dallas County, Texas. 12.19. Performance at Grantor's Expense. The cost and expense of performing or complying with any and all of the Obligations shall be borne solely by Grantor, and no portion of such cost and expense shall be in any way or to any extent credited against any installment on or portion of the Indebtedness. 12.20. No Partnership. Nothing contained in the Loan Documents is intended to, or shall be construed as, creating to any extent or in any manner whatsoever, any partnership, joint venture or association between Grantor, Trustee and/or Beneficiary, or in any way make Beneficiary or Trustee co-principals with Grantor with reference to the Mortgaged Property or the Loan, and any inferences to the contrary are hereby expressly negated. 12.21. Agents. Any right, remedy, privilege, duty or action available to or to be performed by Beneficiary under the Loan Documents may, if and to the extent determined by Beneficiary, be exercised or performed by any agent, attorney, correspondent or other representative of Beneficiary. 39 12.22. Credit Reports. Grantor hereby authorizes Beneficiary to obtain from time to time credit reports through reputable credit reporting agencies relating to Grantor. So long as no Event of Default or event of condition which, with the giving of notice, the passage of time, or both, could mature into an Event of Default, exists, Beneficiary will use reasonable efforts to endeavor to provide notice to Grantor that Beneficiary intends to obtain or has obtained any such credit report and to provide to Grantor a copy of any thereof relating to Grantor, upon written request from Grantor, if not prohibited by law, rule or regulation, however, Beneficiary shall not be liable for any damage, loss, cost or expense for any failure to so notify Grantor or to provide a copy of any such credit report to Grantor. 12.23. Disposition of Mortgaged Property, Leases, or Beneficial Interest in Grantor. Upon the sale, exchange, assignment, conveyance or other disposition (herein collectively called "DISPOSITION") of all or any portion of the Mortgaged Property (or any interest therein, except to the extent permitted herein), an Event of Default shall be deemed to have occurred and Beneficiary may, at Beneficiary's option, enforce any and all of Beneficiary's rights, remedies and recourses available upon the occurrence of an Event of Default; provided, however, Beneficiary shall not enforce such rights, remedies and recourses if Beneficiary consents in writing to the Disposition in question. It is expressly agreed that in connection with determining whether to grant or withhold such consent to each such Disposition, Beneficiary may, inter alia, (a) consider (based upon Beneficiary's then current criteria for approving borrowers for mortgage loans similar to the Loan) the financial strength and experience of the party to whom such Disposition will be made and its management ability with respect to the Mortgaged Property, (b) consider whether or not the security for payment of the Indebtedness and the performance of the Obligations, or Beneficiary's ability to enforce its rights, remedies and recourses with respect to such security, will be impaired in any way by the proposed Disposition, (c) require as a condition to granting such consent, an increase in the rate of interest payable under the Note (subject to the provisions of Paragraph 12.10 hereof), (d) require that Beneficiary be reimbursed for all costs and expenses incurred by Beneficiary in investigating the financial strength, experience and management ability of the party to whom such Disposition will be made and in determining whether Beneficiary's security will be impaired by the proposed Disposition, (e) require the payment to Beneficiary of a transfer fee to cover the cost of documenting the Disposition in its records on the date of closing of such Disposition, (subject to the provisions of Paragraph 12.10 hereof), (f) require the payment of its reasonable attorney's fees in connection with such Disposition, (g) require the express assumption of payment of the Indebtedness and performance of the Obligations by the party to whom such Disposition will be made (with or without the release of Grantor or Maker from liability for such Indebtedness and Obligations), (h) require the execution of assumption agreements, modification agreements, supplemental security documents and financing statements satisfactory in form and substance to Beneficiary, (i) require endorsements (to the extent available under applicable law) to any existing mortgage title insurance policies insuring Beneficiary's liens and security interests covering the Mortgaged Property or new mortgage title policies, (j) require additional security for the payment of the Indebtedness and performance of the Obligations, and (k) shorten the stated term of the Note or otherwise rearrange the payment terms of the Note. 40 12.24. Environmental Matters. (a) Beneficiary shall have the right, at any time so long as any part of the Note shall remain unpaid, to inspect the Mortgaged Property or any part thereof during reasonable hours and upon reasonable notice to Grantor to determine if any environmental hazard is present or is threatening to be created which will impair the value of the Mortgaged Property. Beneficiary may conduct any test or investigation, or collect any samples of materials from on, about, or under the Mortgaged Property necessary to determine whether such hazards might exist so long as it uses reasonable efforts not to interfere with Grantor's use of Mortgaged Property or with any tenants under any Leases. If an environmental hazard (whether existing prior to the date hereof or coming into existence after the date hereof) which is likely, in Beneficiary's sole determination, to significantly damage collateral value of the Mortgaged Property, and Grantor does not remove or cure the risk which threatens to impair value of the Mortgaged Property within a reasonable period of time, such failure shall be an Event of Default under the terms of this Deed of Trust. (b) So long as any part of the Note remains unpaid, without the consent of Beneficiary, Grantor shall not allow any activity to be conducted on the Mortgaged Property or any use to be made of the Mortgaged Property which presents a high risk of environmental contamination, including but not limited to: (1) Chemical manufacturing or storage; (2) Operation of any hazardous waste handling or recycling facility; and (3) Underground storage of petroleum products. (c) The use of the Mortgaged Property for any of the uses prohibited in Paragraph 12.24(b) above shall be deemed an Event of Default under the terms of this Deed of Trust. 12.25. Joint and Several Liability. If Grantor consists of more than one party, the Obligations and the obligation to repay the Indebtedness as contained herein shall be the joint and several obligations of each of such parties. 12.26. Sole Agreement. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 12.27. Partial Releases. Beneficiary has no obligation to release from the lien and terms hereof all or any portion of the Mortgaged Property prior to the full and complete payment and performance of all of the Indebtedness and Obligations. 12.28. Publicity. Grantor hereby grants to Beneficiary the right to publicize its making of the Loan in such manner as Beneficiary deems appropriate. Such publicity may include disclosure of the amount of the Loan, the nature of the Improvements and such other information relating to Beneficiary or the Loan as Beneficiary deems appropriate. 41 EXECUTED by the undersigned on the date acknowledged, to be effective as of the 29th day of May, 2002. GRANTOR: INTERVOICE-BRITE, INC., a Texas corporation By: ----------------------------------- Name: ----------------------------- Title: ---------------------------- ACKNOWLEDGMENT THE STATE OF TEXAS ) ) COUNTY OF ) ------------ This instrument was acknowledged before me on this the _____ day of May, 2002, by ____________________________, as ______________________ of INTERVOICE-BRITE, INC., a Texas corporation, on behalf of said corporation. ------------------------------------------- Notary Public in and for the State of Texas My Commission Expires: Printed Name: ----------------------------- - ---------------------- 42 EXHIBIT "A" PROPERTY DESCRIPTION Being a 14.4627 acre tract of land situated in the John Clay Survey, Abstract No. 223, City of Dallas, Collin County, Texas and being part of U.T.D. Snergy Park - Phase I, an Industrial Addition, and addition to the City of Dallas recorded in Volume F, Page 551, Map Records, Collin County, Texas, said tract also being conveyed to InterVoice-Brite as recorded in Volume 4755, Page 1445, of the Deed Records, Collin County, Texas: Beginning at a aluminum monument found for corner in the West right-of-way line of Waterview Parkway (a 120 foot R.O.W.), said point also being the Northeast corner of a tract of land conveyed to Alliance Data Systems II Addition, an addition to the City of Dallas, Texas as recorded in Volume L, Page 791, Map Records, Collin County, Texas; Thence South 90 degrees 00 minutes 00 seconds West, departing the West right-of-way line of said Waterview Parkway, and along the North line of said Alliance Data Systems II Addition, a distance of 700.00 feet to a 1/2 inch iron rod found for corner; Thence North 00 degrees 12 minutes 12 seconds West, departing the North line of said Alliance Data Systems II Addition, and along the East line of a tract of land conveyed to Texas A & M University, as recorded in Volume 837, Page 591, Deed Records, Collin County, Texas, a distance of 900.00 feet to a 1/2 inch iron rod found for corner, said point also being the Southwest corner of a tract of land conveyed to Texas National Bank, as recorded in Volume 3233, Page 206, Deed Records, Collin County, Texas; Thence North 90 degrees 00 minutes 00 seconds East, along the South line of said Texas National Bank tract, a distance of 700.00 feet to a 5/8 inch iron rod found for corner and being in the West right-of-way line of said Waterview Parkway; Thence South 00 degrees 12 minutes 12 seconds East, along the West right-of-way line of said Waterview Parkway, a distance of 900.00 feet to the Point of Beginning and containing 629,996 square feet or 14.4627 acres of land. EXHIBIT "B" PERMITTED ENCUMBRANCES 1. Standby fees, taxes and assessments by any taxing authority for the year 2002 and subsequent years. 2. Restrictive Covenants recorded in Volume l959,Page 755 and Volume 2007, Page 475, Deed Records, Collin County, Texas. 3. Easement granted by W.A. Brooks to American Telephone and Telegraph Company, dated September 3, 1926, filed for record on March 16, 1927 and recorded in Volume 265, Page 555, Deed Records, Collin County, Texas. Together with partial release of easement recorded under Clerk's File No. 94-0097834, Land Records, Collin County, Texas, as noted on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9, 2002. 4. Easement granted by W.A. Brooke, Jr. et al to American Telephone and Telegraph Company, dated September 16, 1943, filed for record on October 8, 1943 and recorded in Volume 339, Page 515, Deed Records, Collin County, Texas. Together with partial release of easement recorded under Clerk's File No. 94-0097834, Land Records, Collin County, Texas, as noted on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9, 2002. 5. Easement granted by Board of Regents of the University of Texas System to Dallas Power & Light Company and Southwestern Bell Telephone Company, dated October 5, 1981, filed for record on October 28, 1981 and recorded in Volume 1444, Page 555, Deed Records, Collin County, Texas, and as shown on plat recorded in Volume F, Page 551, Map Records, Collin County, Texas, as shown on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9, 2002. 6. Easement granted by Board of Regents of the University of Texas System to City of Richardson, dated March 8, 1977, filed for record on April 9, 1986 and recorded in Volume 1042, Page 840, Deed Records, Collin County, Texas, and as shown on plat recorded in Volume F, Page 551, Map Records, Collin County, Texas, as shown on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9, 2002. 7. Easement granted by EH&A Dallas Joint Venture to Southwestern Bell Telephone Company, dated September 16, 1986, filed for record on September 26, 1986 and recorded in Volume 2466, Page 6, Deed Records, Collin County, Texas, as shown on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9, 2002. 8. Easement granted by EH&A Dallas Joint Venture to Dallas Power & Light Company, dated August 19, 1986, filed for record on October 8, 1986 and recorded in Volume 2475, Page 529, Deed Records, Collin County, Texas, as shown on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9 2002. 9. Easement granted by InterVoice, Inc., a Texas corporation to City of Dallas, dated November 9, 1993, filed for record on December 16, 1993 and recorded under Clerk's File No. 93-0110520, Land Records, Collin County, Texas, as shown on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9, 2002. 10. Easement granted by InterVoice, Inc. to Texas Utilities, dated February 8, 1994, filed for record on March 28, 1994 and recorded under Clerk's File No. 94-0029449, Land Records, Collin County, Texas, as shown on survey prepared by Dennis D. Vote, Registered Professional Land Surveyor #4813, dated February 25, 2002, last revised May 9, 2002. 11. Deed of Trust executed by InterVoice Acquisition Subsidiary III, Inc. to Terry G. Freeman, Trustee, dated June 1, 1999, filed for record on June 15, 1999 and recorded in Volume 4437, Page 2684, Land Records, Collin County, Texas, to secure the payment of one note of even date therewith in the original principal sum of the obligations as therein stated, payable to Bank of America National Trust and Savings Association, and subject to all of the terms, conditions and stipulations contained therein, including but not limited to any future indebtedness also secured by this lien. 12. UCC-l Financing Statement, filed for record on June 15, 1999, recorded in Volume 4437, Page 2675, Land Records, Collin County, Texas, given by InterVoice, Inc., as owner/debtor, granting unto Bank of America National Trust and Savings Association, as creditor and secured party, a security interest in the subject property. 13. UCC-3. Financing Statement, filed for record on October 31, 2000, recorded in Volume 4785, Page 1445, Land Records, Collin County, Texas, given by InterVoice-Brite, Inc., as owner/debtor, granting unto Bank of America National Trust and Savings Association, as creditor and secured party, a security interest in the subject property. Together with Amendment filed November 2, 2000 and recorded in Volume 4787, Page 1570, Land Records, Collin County, Texas. -----END PRIVACY-ENHANCED MESSAGE-----