Exhibit 10.87

 

April 22, 2005

 

Via Facsimile

 

To the Purchasers in the Path 1 Network

Technologies Inc. 7% Convertible Preferred

Stock PIPES Offering of January/February 2005:

 

Path 1 is proposing to issue, in a private placement, shares of Series B 7%
Convertible Preferred Stock and associated Common Stock warrants (together, the
“Second Round Securities”). The Second Round Securities, assuming no exercise of
any contractual preemptive rights by you, consist of up to 792,306 shares of
Path 1 7% Series B Convertible Preferred Stock to be sold for $3.25 each, with
the investors also to receive, with each 2 shares of Path 1 Series B 7%
Convertible Preferred Stock purchased, a 5-year warrant to purchase a share of
Path 1 common stock at an exercise price of $3.25. Path 1 would undertake to
register the common stock underlying the Series B 7% Convertible Preferred Stock
and the common stock underlying the warrants, for resale.

 

The Series B 7% Convertible Preferred Stock is very similar to, and is pari
passu with, the 7% Convertible Preferred Stock which you acquired, except that
if the Current Market Price of Path 1 common stock is below $4.00 as of the
later of the day the Second Round Securities are first issued or the day the
Second Round Securities’ resale registration statement is declared effective,
the conversion price of the Series B 7% Convertible Preferred Stock will be
reset to 80% of the Current Market Price (i.e., to 80% of the Current Market
Price at the later of those two days). We call this the “Special Reset.” Also,
the Series B 7% Convertible Preferred Stock does not have the right to vote for
directors or to vote on other general corporate matters. The Second Round
Securities warrants are very similar to the warrants you acquired, except for
the difference in exercise price.

 

We cannot issue the Second Round Securities until we obtain, by written consent,
the approval of a majority in interest of our voting securities and also the
approval of a majority in interest of our 7% Convertible Preferred Stock. We
will seek that consent soon, by way of a formal proxy statement that solicits
your and other stockholders’ written consents. The proposal for which
stockholder consent will be sought will include, among other things, both
approval of issuance of the Second Round Securities and an amendment of your 7%
Convertible Preferred Stock to:

 

(a) provide that if a Special Reset occurs for the Series B 7% Convertible
Preferred Stock, the conversion price of the 7% Convertible Preferred Stock will
experience the same Special Reset adjustment, and

 

(b) exclude from the operation of the 7% Convertible Preferred Stock’s general
antidilution adjustment provisions (i) the Second Round Securities, including
any Special Reset, (ii) the Common Stock underlying the Second Round Securities,
(iii) for avoidance of doubt, the 7% Convertible Preferred Stock and the common
stock warrants issued in the February 18, 2005 Closing under the Securities
Purchase Agreement, including any Special Reset, and (iv) for avoidance of
doubt, the common stock warrants (and underlying common stock) issued to our
placement agent or its designees for investment

 

--------------------------------------------------------------------------------

To the Purchasers in the Path 1 Network

Technologies Inc. 7% Convertible

Preferred Stock PIPES Offering

April 22, 2005

Page 2

 

banking services in connection with both the January/February 2005 PIPES
transaction, the Second Round Securities transaction, and any other transaction.

 

This letter does not solicit your approval of the issuance of the Second Round
Securities or your approval of any of the other related items which will be
covered in the proxy statement, nor does it solicit a proxy of any kind; and if
you countersign and return this letter to us it will not constitute a written
consent or proxy for those matters. This letter deals only with its own
specified subject matter. (When we send you the proxy statement, we will also be
seeking your separate written consent in favor of the proposal that will be set
forth in the proxy statement.)

 

The Second Round Securities constitute “New Securities,” as defined in Section
3.7 of your January 26, 2005 Securities Purchase Agreement. Their proposed
issuance triggers the preemptive rights of the “Eligible Purchasers” under
Section 3.7.

 

We are asking you now to, by countersigning and returning this letter:

 

1. Waive your and your co-Purchasers’ preemptive rights to purchase any of these
New Securities. The waiver as to all of the Purchasers requires amendment of the
Securities Purchase Agreement, and if the holders of a majority in interest of
the 7% Convertible Preferred Stock (as contemplated by Section 8.3 of the
Securities Purchase Agreement) countersign and return this letter, that shall
constitute such an amendment of the Securities Purchase Agreement. Please note,
some of the Purchasers are expected to be purchasers of Second Round Securities,
other than by virtue of their contractual preemptive rights. This waiver will
only waive the preemptive rights. They will still be able to participate in the
Second Round Securities placement; but that participation would be by voluntary
mutual agreement, rather than by preemptive rights contractual compulsion.

 

2. Amend your individual 2005 Warrant to reduce its exercise price from $4.20
per share to $3.25 per share, on the following terms and conditions:

 

a. The reduction will occur immediately after, but only when and if, (i) the
holders of a majority of Path 1’s voting stock and the holders of a majority of
Path 1’s 7% Convertible Preferred Stock approve the issuance of the Second Round
Securities, after receipt of the proxy statement, and (ii) the Second Round
Securities are actually sold.

 

b. Your individual 2005 Warrant is hereby, as part of the same amendment,
amended to exclude from the operation of your 2005 Warrant’s antidilution
adjustment provisions (i) the Second Round Securities, including any Special
Reset, (ii) the Common Stock underlying the Second Round Securities, (iii) for
avoidance of doubt, the 7% Convertible Preferred Stock, including any Special
Reset, and common stock warrants issued in the February 18, 2005 Closing under
the Securities Purchase Agreement, and (iv) for avoidance of doubt, the common
stock warrants (and underlying common stock) issued to our placement agent or
its designees for investment banking services in connection with both the
January/February 2005 PIPES transaction, the Second Round Securities
transaction, and any other transaction.

 

3. Agree, in consideration of similar agreements by the participants in the
Second Round Securities placement, that whether or not then prohibited by law or
regulation, you shall not, before the later of the day the Second Round
Securities are first issued or the day the Second Round Securities’ resale
Registration Statement is declared effective, directly, indirectly, publicly or
privately sell (which term shall

 

--------------------------------------------------------------------------------

To the Purchasers in the Path 1 Network

Technologies Inc. 7% Convertible

Preferred Stock PIPES Offering

April 22, 2005

Page 3

 

include any and all sales, whether short, short against the box, regular-way, or
otherwise), agree to sell, offer to sell, solicit offers to buy, dispose of,
loan, pledge or grant any right with respect to your 7% Convertible Preferred
Stock or warrants or any Path 1 Common Stock (whether or not derived from your
7% Convertible Preferred Stock or warrants) or any derivative securities
overlying Path 1 Common Stock, nor solicit or encourage anyone else to do so,
all to the extent that the effective price of such sale, etc. would be below
$4.25 per share of Path 1 Common Stock. The covenant set forth in the foregoing
sentence shall not apply after September 1, 2005.

 

Notice of Preemptive Right (Right of First Offer).

 

The Eligible Purchasers (i.e., each of you who is not an officer or director of
Path 1) have the right, by giving written notice to Path 1 within 10 business
days after today, to purchase all or any portion of their respective “pro rata”
shares of the New Securities. To the extent the Securities Purchase Agreement is
not amended hereby, this letter is the Notice contemplated by Section 3.7.

 

Your pro rata share is 792,306 times the quotient of (a) the number of shares of
common stock underlying the Path 1 7% Convertible Preferred Stock and warrants
which you purchased in the PIPES offering, divided by (b) 8,104,102. Again, this
is relevant only if the Securities Purchase Agreement is not amended hereby.

 

To the extent the Securities Purchase Agreement is not amended hereby, if you
wish to exercise your preemptive right, you should fax your notice of exercise
to me, specifying (by total purchase price) how many of the Second Round
Securities you elect to buy, before the 10-business-day-deadline expires.
Sending the notice constitutes a binding agreement that you will buy that amount
of Second Round Securities (subject to the sale of the Second Round Securities
to the outside buyers), at the same closing as applies for all the outside
buyers of Second Round Securities. The scheduled closing date is three business
days after Path 1’s stockholders approve the sale of the Second Round
Securities; we believe this would occur in May 2005 or early June 2005, although
there is, of course, no assurance that we will obtain such approval. If the
closing of the Second Round Securities occurs, you will also be required to sign
and become a party to all transaction documents for the Second Round Securities
offering; I believe you will find them to be similar to the transaction
documents in the January/February 2005 offering. We expect that we will soon be
filing the Second Round Securities transaction documents with the SEC, and you
will be able to verify this similarity by reviewing them at www.sec.gov.

 

Miscellaneous.

 

We think there is a good likelihood the information that the Second Round
Securities offering is pending constitutes material, non-public information.
Therefore, you should not in any event buy or sell any Path 1 securities in the
market until there has been a public disclosure regarding the Second Round
Securities offering. We expect this public disclosure to be made soon after the
Second Round Securities transaction agreements are signed, which we expect will
occur on April 25, 2005.

 

If you have any questions, please give me a call or call our lawyer Hayden
Trubitt (858-450-5754)

 

--------------------------------------------------------------------------------

To the Purchasers in the Path 1 Network

Technologies Inc. 7% Convertible

Preferred Stock PIPES Offering

April 22, 2005

Page 4

 

or consult with your own independent counsel. As you know, Hayden represents
Path 1 and does not represent any of the Purchasers.

 

Very truly yours, /s/    JOHN R. ZAVOLI         John R. Zavoli

 

CONSENTED AND AGREED TO, AMENDMENTS APPROVED,

AND WAIVER GRANTED:

   Print Name of Investor    Signature    Title (if signing for an entity)

 

Distribution:

 

Name

--------------------------------------------------------------------------------

Gryphon Master Fund, L.P.

(c/o Ryan R. Wolters.)

GSSF Master Fund, LP

(c/o Ryan R. Wolters)

Warren W. Garden, Esq.

Mark Rosenbloom

RAPTORFUND

Packer Family Rev. Trust dtd 5/22/00

Jeff C. Hale

John R. Zavoli

Anthony Giallourakis

Steven R. Simpson

Robert R. Bears, Sr.

Robert R. Bears, Jr.

Christopher R. Cope, Trustee

U/A DTD 11/22/89

Cope Enterprises LP

(c/o Richard W. Cope)