Exhibit 10.3

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR
(B) IF REASONABLY REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.

 

$7,500,000.00

 

VYYO INC.

 

SENIOR SECURED NOTE DUE MARCH 22, 2011

 

Section 1.                                            General.

 

FOR VALUE RECEIVED, VYYO, INC., a Delaware corporation (the “Company”), hereby
promises to pay to the order of Goldman, Sachs & Co., or its registered assigns
(the “Investor”), the principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND
DOLLARS AND ZERO CENTS ($7,500,000.00), or such lesser amount as shall then
equal the outstanding principal amount hereof, together with interest
(“Interest”) thereon at a rate equal to 9.50% (the “Interest Rate”) per annum,
computed on the basis of the actual number of days elapsed and a year of 360
days comprised of twelve 30 day months. Except as set forth herein, all unpaid
principal, together with any then unpaid and accrued interest and other amounts
payable hereunder, unless earlier redeemed or repurchased, shall be due and
payable on March 22, 2011 (the “Maturity Date”). This Note is not prepayable
from March 22, 2006 through and including March 22, 2007, but shall be
prepayable, in whole or in part, (i) at 104% of the principal amount from
March 22, 2007 through and including March 22, 2008, (ii) at 103% of the
principal amount from March 22, 2008 through and including March 22, 2009,
(iii) at 102% of the principal amount from March 22, 2009 through and including
March 22, 2010, and (iv) at 101% of the principal amount from March 22, 2010
through but excluding the Maturity Date. Any prepayments will be applied first
to any accrued but unpaid interest and then to unpaid principal.

 

This Note is one of a duly authorized issue of notes of the Company (this note
being referred to as the “Note” and, collectively, all similar notes issued by
the Company being referred to as the “Notes”), issued in the aggregate principal
amount limited to $7,500,000.00 pursuant to the Securities Purchase Agreement,
dated as of March 18, 2006 (as the same may be amended, supplemented or
otherwise modified from time to time, the “Securities Purchase Agreement”) by
and among the Company and the Investors party thereto, and is entitled to the
benefits thereof and to the exercise of the remedies provided thereby or
otherwise available in respect thereof. Capitalized terms used herein without
definition have the meanings assigned thereto in the Securities Purchase
Agreement.

 

Interest on this Note shall accrue from and including the date of issuance
through and until repayment of the principal amount of this Note and payment of
all Interest in full, and shall

 

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

 

be payable in cash quarterly in arrears on each January 1, March 1, June 1 and
September 1 that the Notes are outstanding or, if any such date shall not be a
Business Day, on the next succeeding Business Day to occur after such date (each
date upon which interest shall be so payable, an “Interest Payment Date”),
beginning on June 1, 2006, by wire transfer of immediately available funds to an
account at a bank designated in writing by the Investor on reasonable notice.

 

Notwithstanding the foregoing provisions of this Section 1, upon any default in
the payment of Interest or principal under this Note, until such default is
cured, the Interest Rate shall increase by an additional two percent (2.0%) per
annum. Subject to applicable law, any interest that shall accrue on overdue
interest on this Note as provided in the preceding sentence and shall not have
been paid in full in cash on or before the next Interest Payment Date to occur
after the date on which the overdue interest became due and payable shall itself
be deemed to be overdue interest on this Note to which the preceding sentence
shall apply.

 

Section 2.                                            Repurchase Right Upon a
Fundamental Transaction.

 

Notwithstanding anything to the contrary contained herein and in addition to any
other right of the Investor, upon the occurrence of a Fundamental Transaction
the Investor shall have the right, by written notice to the Company, to require
the Company to redeem all of this Note on the repurchase date that is five
Business Days after the date of delivery of such notice to the Company at a
price equal to 101% of the outstanding principal amount under this Note, plus
all accrued and unpaid interest on such principal amount to, but excluding, the
repurchase date, plus any other amounts due hereunder. A “Fundamental
Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company, is the surviving corporation) another Person, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) be subject to an
offer from another Person or group of related Persons (as defined in Sections
13(d) and 14(d) of the Exchange Act) other than the Holder to make a purchase,
tender or exchange offer that is accepted by the holders of more than the 50% of
the outstanding Voting Shares (not including any Voting Shares held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or
(iv) consummate a share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person or group of related Persons (as
defined in Sections 13(d) and 14(d) of the Exchange Act) whereby such other
Person or group acquires more than the 50% of the outstanding Voting Shares (not
including any Voting Shares held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such share purchase agreement or other business combination), provided however,
a Fundamental Transaction shall not include (i) any reorganization,
recapitalization or reclassification of the Common Shares in which holders of
the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
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
(ii) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company. “Voting Shares” of a Person
means capital shares of such Person of the class or classes pursuant to which
the holders

 

2

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

 

thereof have the general voting power to elect, or the general power to appoint,
at least a majority of the board of directors, managers or trustees of such
Person (irrespective of whether or not at the time capital shares of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).

 

Section 3.                                            Events of Default.

 

The occurrence of any of the following shall constitute an “Event of Default”
under this Note:

 

(A)                                  THE COMPANY SHALL FAIL TO PAY ANY PRINCIPAL
OWING UNDER THIS NOTE WHEN DUE; OR

 

(B)                                 THE COMPANY SHALL FAIL TO PAY ANY INTEREST
OWING UNDER THIS NOTE WHEN DUE, AND SUCH FAILURE SHALL CONTINUE FOR THIRTY (30)
DAYS; OR

 

(C)                                  THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY
SHALL FAIL TO OBSERVE OR PERFORM ANY OTHER COVENANT, OBLIGATION, CONDITION OR
AGREEMENT CONTAINED IN THIS NOTE (OTHER THAN THOSE SPECIFIED IN CLAUSES (A) OR
(B) ABOVE) OR THE GUARANTY AND SECURITY AGREEMENT, DATED THE DATE HEREOF, AMONG
THE COMPANY, THE SUBSIDIARIES PARTY THERETO AND GOLDMAN, SACHS & CO., AS
COLLATERAL AGENT FOR THE BENEFIT OF THE INVESTORS (AS THE SAME MAY BE AMENDED,
SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, AND TOGETHER WITH ALL
OTHER DOCUMENTS, AGREEMENTS AND INSTRUMENTS EXECUTED IN CONNECTION THEREWITH,
THE “SECURITY AGREEMENT”), AND, TO THE EXTENT SUCH FAILURE IS CAPABLE OF BEING
CURED, SUCH FAILURE SHALL CONTINUE FOR SIXTY (60) DAYS; OR

 

(D)                                 THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY
SHALL (I) FAIL TO MAKE ANY PAYMENT WHEN DUE UNDER THE TERMS OF ANY BOND,
DEBENTURE, NOTE OR OTHER EVIDENCE OF INDEBTEDNESS TO BE PAID BY THE COMPANY OR
SUCH SIGNIFICANT SUBSIDIARY (EXCLUDING THIS NOTE, WHICH DEFAULT IS ADDRESSED BY
CLAUSES (A) AND (B) ABOVE, BUT INCLUDING ANY OTHER EVIDENCE OF INDEBTEDNESS OF
THE COMPANY OR SUCH SIGNIFICANT SUBSIDIARY) AND SUCH FAILURE SHALL CONTINUE
BEYOND ANY PERIOD OF GRACE PROVIDED WITH RESPECT THERETO, OR (II) DEFAULT IN THE
OBSERVANCE OR PERFORMANCE OF ANY OTHER AGREEMENT, TERM OR CONDITION CONTAINED IN
ANY SUCH BOND, DEBENTURE, NOTE OR OTHER EVIDENCE OF INDEBTEDNESS; AND THE EFFECT
OF SUCH FAILURE OR DEFAULT IN CLAUSE (I) OR (II) IS TO CAUSE, OR PERMIT THE
HOLDER THEREOF TO CAUSE, INDEBTEDNESS OF THE COMPANY AND THE SUBSIDIARIES IN AN
AGGREGATE AMOUNT OF ONE MILLION DOLLARS ($1,000,000) OR MORE TO BECOME DUE PRIOR
TO ITS STATED DATE OF MATURITY AND SUCH FAILURE SHALL CONTINUE FOR THIRTY (30)
DAYS; OR

 

(E)                                  AN INVOLUNTARY PROCEEDING SHALL BE
COMMENCED OR AN INVOLUNTARY PETITION SHALL BE FILED SEEKING (I) LIQUIDATION,
REORGANIZATION OR OTHER RELIEF IN RESPECT OF THE COMPANY OR ANY SIGNIFICANT
SUBSIDIARY OR ITS DEBTS, OR OF A SUBSTANTIAL PART OF ITS ASSETS, UNDER ANY
FEDERAL, STATE OR FOREIGN BANKRUPTCY, INSOLVENCY, RECEIVERSHIP OR SIMILAR LAW
NOW OR HEREAFTER IN EFFECT OR (II) THE APPOINTMENT OF A RECEIVER, TRUSTEE,
CUSTODIAN, SEQUESTRATOR, CONSERVATOR OR SIMILAR OFFICIAL FOR THE COMPANY OR ANY
SIGNIFICANT SUBSIDIARY OR FOR A SUBSTANTIAL PART OF THE COMPANY’S OR SUCH
SIGNIFICANT SUBSIDIARY’S ASSETS, AND, IN ANY SUCH CASE, SUCH PROCEEDING OR
PETITION SHALL CONTINUE UNDISMISSED FOR 60 DAYS OR AN ORDER OR DECREE APPROVING
OR ORDERING ANY OF THE FOREGOING SHALL BE ENTERED; OR

 

(F)                                    THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY
SHALL (I) VOLUNTARILY COMMENCE ANY PROCEEDING OR FILE ANY PETITION SEEKING
LIQUIDATION, REORGANIZATION OR OTHER RELIEF UNDER ANY

 

3

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

 

FEDERAL, STATE OR FOREIGN BANKRUPTCY, INSOLVENCY, RECEIVERSHIP OR SIMILAR LAW
NOW OR HEREAFTER IN EFFECT, (II) CONSENT TO THE INSTITUTION OF, OR FAIL TO
CONTEST IN A TIMELY AND APPROPRIATE MANNER, ANY PROCEEDING OR PETITION DESCRIBED
IN CLAUSE (E) OF THIS SECTION, (III) APPLY FOR OR CONSENT TO THE APPOINTMENT OF
A RECEIVER, TRUSTEE, CUSTODIAN, SEQUESTRATOR, CONSERVATOR OR SIMILAR OFFICIAL
FOR THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY OR FOR A SUBSTANTIAL PART OF THE
COMPANY’S ASSETS, (IV) FILE AN ANSWER ADMITTING THE MATERIAL ALLEGATIONS OF A
PETITION FILED AGAINST IT IN ANY SUCH PROCEEDING, (V) MAKE A GENERAL ASSIGNMENT
FOR THE BENEFIT OF CREDITORS OR (VI) TAKE ANY ACTION FOR THE PURPOSE OF
EFFECTING ANY OF THE FOREGOING; OR

 

(G)                                 ONE OR MORE JUDGMENTS FOR THE PAYMENT OF
MONEY IN AN AMOUNT IN EXCESS OF FIVE MILLION DOLLARS ($5,000,000) IN THE
AGGREGATE, OUTSTANDING AT ANY ONE TIME, SHALL BE RENDERED AGAINST THE COMPANY
AND THE SIGNIFICANT SUBSIDIARIES AND THE SAME SHALL REMAIN UNDISCHARGED FOR A
PERIOD OF SIXTY (60) DAYS DURING WHICH EXECUTION SHALL NOT BE EFFECTIVELY
STAYED, OR ANY JUDGMENT, WRIT, ASSESSMENT, WARRANT OF ATTACHMENT, OR EXECUTION
OR SIMILAR PROCESS SHALL BE ISSUED OR LEVIED AGAINST A SUBSTANTIAL PART OF THE
PROPERTY OF THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY AND SUCH JUDGMENT, WRIT,
OR SIMILAR PROCESS SHALL NOT BE RELEASED, STAYED, VACATED OR OTHERWISE DISMISSED
WITHIN SIXTY (60) DAYS AFTER ISSUE OR LEVY; OR

 

(H)                                 THIS NOTE OR THE SECURITY AGREEMENT SHALL
CEASE, FOR ANY REASON, TO BE IN FULL FORCE AND EFFECT, OR THE COMPANY OR ANY
SIGNIFICANT SUBSIDIARY SHALL SO ASSERT IN WRITING OR SHALL DISAVOW ANY OF ITS
OBLIGATIONS THEREUNDER; OR

 

(I)                                     ANY LIEN PURPORTED TO BE CREATED UNDER
THE SECURITY AGREEMENT SHALL CEASE TO BE, OR SHALL BE ASSERTED BY THE COMPANY OR
ANY SIGNIFICANT SUBSIDIARY NOT TO BE, A VALID AND PERFECTED LIEN ON ANY
COLLATERAL, WITH THE PRIORITY REQUIRED BY THE SECURITY AGREEMENT; OR

 

(J)                                     FAILURE (I) OF THE COMPANY TO MAKE ANY
REQUIRED FILINGS WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
(II) OF THE COMMON STOCK TO BE LISTED ON AN ELIGIBLE SECURITIES EXCHANGE AND, IN
EITHER CASE (I) OR (II), SUCH FAILURE SHALL CONTINUE FOR SIXTY (60) DAYS; OR

 

(K)                                  ANY EVENT OF DEFAULT, UNDER AND AS DEFINED
IN THE GUARANTY AND SECURITY AGREEMENT SHALL HAVE OCCURRED.

 

Section 4.                                            Rights Of Investor Upon
Default.

 

Upon the occurrence or existence of any Event of Default (other than an Event of
Default referred to in Sections 3(f) or 3(g) hereof) and at any time thereafter
during the continuance of such Event of Default, the Investor, upon the approval
of Investors holding more than 33-1/3% of the aggregate principal balance of the
Notes then outstanding, by written notice to the Company, may declare all
outstanding amounts payable by the Company hereunder to be immediately due and
payable without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived, anything contained herein to the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Sections 3(f) or 3(g) hereof, immediately and without
notice, all outstanding amounts payable by the Company hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly

 

4

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

 

waived, anything contained herein to the contrary notwithstanding. In addition
to the foregoing remedies, upon the occurrence or existence of any Event of
Default, the Investor may exercise, upon the approval of Investors holding more
than a majority of the aggregate principal balance of the Notes, any other
right, power or remedy permitted to it by law, either by suit in equity or by
action at law, or both.

 

Section 5.                                            Affirmative Covenants.

 

Until all principal and interest and any other amounts due and payable under
this Note have been paid in full in cash, the Company shall, and shall cause
each Significant Subsidiary to:

 

(A)                                  PROVIDE PROMPT WRITTEN NOTICE TO THE
INVESTOR OF:  (I) THE OCCURRENCE OF ANY EVENT OF DEFAULT, OR ANY EVENT WHICH
WITH THE GIVING OF NOTICE OR LAPSE OF TIME, OR BOTH, WOULD CONSTITUTE AN EVENT
OF DEFAULT, HEREUNDER; AND (II) ANY LOSS OR DAMAGE TO ANY COLLATERAL (AS DEFINED
IN THE SECURITY AGREEMENT) IN EXCESS OF $100,000;

 

(B)                                 DO OR CAUSE TO BE DONE ALL THINGS NECESSARY
TO PRESERVE, RENEW AND KEEP IN FULL FORCE AND EFFECT ITS LEGAL EXISTENCE AND THE
RIGHTS, LICENSES, PERMITS, PRIVILEGES AND FRANCHISES MATERIAL TO THE CONDUCT OF
ITS BUSINESS;

 

(C)                                  MAINTAIN, WITH FINANCIALLY SOUND AND
REPUTABLE INSURANCE COMPANIES, CUSTOMARY INSURANCE FOR ITS INSURABLE PROPERTIES,
ALL TO SUCH EXTENT AND AGAINST SUCH RISKS, INCLUDING FIRE, CASUALTY, FIDELITY,
BUSINESS INTERRUPTION AND OTHER RISKS INSURED AGAINST BY EXTENDED COVERAGE, AS
IS CUSTOMARY WITH COMPANIES IN THE SAME OR SIMILAR BUSINESSES OPERATING IN THE
SAME OR SIMILAR LOCATIONS; AND

 

(D)                                 (I) KEEP PROPER BOOKS OF RECORD AND ACCOUNT
IN WHICH FULL, TRUE AND CORRECT ENTRIES ARE MADE OF ALL DEALINGS AND
TRANSACTIONS IN RELATION TO ITS BUSINESS AND ACTIVITIES, (II) PERMIT ANY
REPRESENTATIVES DESIGNATED BY THE INVESTOR, UPON REASONABLE PRIOR WRITTEN
NOTICE, TO VISIT AND INSPECT ITS PROPERTIES, TO EXAMINE AND MAKE EXTRACTS FROM
ITS BOOKS AND RECORDS, AND TO DISCUSS ITS AFFAIRS, FINANCES AND CONDITION WITH
ITS OFFICERS AND INDEPENDENT ACCOUNTANTS, ALL AT SUCH REASONABLE TIMES AND AS
OFTEN AS REASONABLY REQUESTED, AND (III) PROVIDE TO THE INVESTOR THE SAME
INFORMATION RIGHTS AS IT PROVIDES TO ITS STOCKHOLDERS.

 

Section 6.                                            Negative Covenants.

 

Until all principal and interest and any other amounts due and payable under
this Note have been paid in full in cash, the Company shall not, and shall not
permit any Subsidiary to:

 

(A)                                  CREATE, INCUR, ASSUME OR PERMIT TO EXIST
ANY INDEBTEDNESS OR GUARANTEE, DIRECTLY OR INDIRECTLY, EXCEPT:

 

(I)                                     INDEBTEDNESS WITH RESPECT TO EQUIPMENT
LEASES OR TRADE ACCOUNTS OF THE COMPANY OR ANY SUBSIDIARY ARISING IN THE
ORDINARY COURSE OF BUSINESS;

 

(II)                                  INDEBTEDNESS INCURRED IN THE ORDINARY
COURSE ARISING OUT OF ANY LEASE AGREEMENT FOR THE PREMISES OF THE COMPANY OR ANY
SIGNIFICANT SUBSIDIARY;

 

5

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

 

(III)                               INDEBTEDNESS INCURRED IN THE ORDINARY COURSE
OF THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY FOR EMPLOYEE-RELATED OBLIGATIONS OR
COMMITMENTS, INCLUDING, BUT NOT LIMITED TO, OBLIGATIONS FOR THE PAYMENT OF
SALARIES, ACCRUED VACATION DAYS, SEVERANCE, PRIOR NOTICE PERIODS, MANAGERS’
INSURANCE, PENSION FUNDS AND OTHER APPROVED EMPLOYEE BENEFITS;

 

(IV)                              INDEBTEDNESS FOR TAXES (INCLUDING MUNICIPALITY
RATES), ASSESSMENTS, LEVIES TO STATUTORY BODIES AND GOVERNMENT AGENCIES, OR
SIMILAR CHARGES, IN ALL CASES PROVIDED THAT SUCH OBLIGATIONS WERE INCURRED IN
THE ORDINARY COURSE OF BUSINESS THAT ARE NOT YET DUE AND PAYABLE;

 

(V)                                 INDEBTEDNESS UNDER THE NOTES AND THE
CONVERTIBLE NOTES;

 

(VI)                              INDEBTEDNESS, NOT GREATER THAN $6,500,000 IN
THE AGGREGATE UNDER (A) THAT CERTAIN PROMISSORY NOTE MADE BY THE COMPANY AND
PAYABLE TO SYNTEK CAPITAL AG DATED DECEMBER 16, 2005 AS AMENDED AS OF THE DATE
HEREOF (THE “SYNTEK NOTE”) AND (B) THAT CERTAIN LETTER OF CREDIT MADE BY THE
COMPANY IN FAVOR OF SYNTEK CAPITAL AG IN CONNECTION WITH THE SYNTEK NOTE (THE
“SYNTEK LETTER OF CREDIT”);

 

(VII)                           UP TO $15,000,000 OF INDEBTEDNESS ASSUMED BY THE
COMPANY IN THE ACQUISITION OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OR CAPITAL
STOCK OF ANOTHER PERSON; PROVIDED THAT, (A) SUCH INDEBTEDNESS EXISTED AT THE
TIME OF SUCH ACQUISITION AND WAS NOT CREATED IN ANTICIPATION THEREOF, (B) THE
AGGREGATE AMOUNT OF SUCH INDEBTEDNESS ASSUMED IN CONNECTION WITH SUCH
ACQUISITION SHALL NOT EXCEED 25% OF THE AGGREGATE AMOUNT OF CONSIDERATION PAID
BY THE COMPANY FOR SUCH ACQUISITION AND (C) ANY LIENS SECURING SUCH INDEBTEDNESS
DO NOT AT ANY TIME COVER OR ENCUMBER ANY ASSETS OR PROPERTY OTHER THAN THE
ASSETS OR PROPERTY OF THE PERSON ACQUIRED WHICH IS FINANCED BY SUCH
INDEBTEDNESS; AND

 

(VIII)                        UP TO $2,500,000 OF ADDITIONAL INDEBTEDNESS IN THE
AGGREGATE OUTSTANDING AT ANY TIME.

 

(B)                                 CREATE, INCUR, ASSUME OR SUFFER TO EXIST ANY
MORTGAGE, PLEDGE, SECURITY INTEREST, ASSIGNMENT, LIEN (STATUTORY OR OTHER),
CLAIM, ENCUMBRANCE, LICENSE OR SUBLICENSE OR SECURITY INTEREST (COLLECTIVELY, A
“LIEN”) IN OR UPON ANY OF ITS ASSETS, EXCEPT:

 

(I)                                     LIENS FOR TAXES, ASSESSMENTS OR SIMILAR
CHARGES INCURRED IN THE ORDINARY COURSE OF BUSINESS THAT ARE NOT YET DUE AND
PAYABLE,

 

(II)                                  LIENS CREATED PURSUANT TO THE SECURITY
AGREEMENT, AND

 

(III)                               LIENS CREATED TO SECURE THE SYNTEK NOTE,
WHICH SUCH LIENS SHALL ONLY CONSIST OF THE SYNTEK LETTER OF CREDIT;

 

(IV)                              LIENS CREATED IN CONNECTION WITH
SECTION 6(A)(II), (VII) AND (VIII) ABOVE;

 

(C)                                  ENTER INTO ANY TRANSACTION, INCLUDING,
WITHOUT LIMITATION, THE PURCHASE, SALE, OR EXCHANGE OF PROPERTY OR THE RENDERING
OF ANY SERVICE WITH ANY AFFILIATE, EXCEPT PURSUANT TO THE REASONABLE
REQUIREMENTS OF THE COMPANY’S OR SUCH SUBSIDIARY’S BUSINESS AND UPON FAIR AND

 

6

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

 

REASONABLE TERMS NO LESS FAVORABLE TO THE COMPANY OR SUCH SUBSIDIARY, THAN WOULD
OBTAIN IN A COMPARABLE ARM’S LENGTH TRANSACTION WITH A PERSON NOT AN AFFILIATE
AS REASONABLY DETERMINED BY THE AUDIT COMMITTEE OF THE COMPANY’S BOARD OF
DIRECTORS;

 

(D)                                 DECLARE ANY CASH DIVIDENDS ON ANY SHARES OF
ANY CLASS OF ITS CAPITAL STOCK OR MEMBERSHIP INTERESTS, OR APPLY ANY OF ITS
PROPERTY OR ASSETS TO THE PURCHASE, REDEMPTION OR OTHER RETIREMENT OF, OR SET
APART ANY SUM FOR THE PAYMENT OF ANY CASH DIVIDENDS ON, OR FOR THE PURCHASE,
REDEMPTION OR OTHER RETIREMENT OF, OR MAKE ANY OTHER DISTRIBUTION BY REDUCTION
OF CAPITAL OR OTHERWISE IN RESPECT OF, ANY SHARES OF ANY CLASS OF ITS CAPITAL
STOCK OR MEMBERSHIP INTERESTS, PROVIDED, HOWEVER, THAT (I) ANY SUBSIDIARY WHOLLY
OWNED BY THE COMPANY MAY PAY DIVIDENDS DIRECTLY TO THE COMPANY AND (II) THIS
RESTRICTION SHALL NOT APPLY TO THE REPURCHASE OF SHARES OF COMMON STOCK FROM
EMPLOYEES, OFFICERS, DIRECTORS, CONSULTANTS OR OTHER PERSONS PERFORMING SERVICES
FOR THE COMPANY OR ANY SUBSIDIARY PURSUANT TO AGREEMENTS UNDER WHICH THE COMPANY
HAS THE OPTION TO REPURCHASE SUCH SHARES UPON THE OCCURRENCE OF CERTAIN EVENTS,
SUCH AS THE TERMINATION OF EMPLOYMENT;

 

(E)                                  SELL, TRANSFER, LEASE OR OTHERWISE DISPOSE
(INCLUDING PURSUANT TO A MERGER) OF ANY ASSET WITH A VALUE GREATER THAN
$1,000,000, EXCEPT (A) SALES, TRANSFERS, LEASES AND OTHER DISPOSITIONS OF
INVENTORY, USED, OBSOLETE OR SURPLUS EQUIPMENT OR OTHER PROPERTY AND INVESTMENTS
IN EACH CASE IN THE ORDINARY COURSE OF BUSINESS OR (B) SUCH SALES, TRANSFERS OR
DISPOSITIONS FOR CASH WHICH ARE REASONABLY APPROVED BY THE AUDIT COMMITTEE OF
THE COMPANY’S BOARD OF DIRECTORS;

 

(F)                                    CREATE OR ACQUIRE ANY NEW SIGNIFICANT
SUBSIDIARY, UNLESS (I) SUCH SIGNIFICANT SUBSIDIARY PROMPTLY, AND IN NO EVENT
LATER THAN FIFTEEN BUSINESS DAYS, BECOMES A PARTY TO THE SECURITY AGREEMENT IN
THE MANNER PROVIDED THEREIN AND COMPLIES WITH ALL OF THE TERMS, PROVISIONS AND
REQUIREMENTS THEREOF, INCLUDING, WITHOUT LIMITATION, TAKING SUCH ACTIONS TO
CREATE AND PERFECT LIENS ON SUCH SIGNIFICANT SUBSIDIARY’S ASSETS, AND (II) THE
INVESTOR SHALL HAVE RECEIVED AN OPINION OF COUNSEL OF SUCH SIGNIFICANT
SUBSIDIARY CONTAINING SUCH OPINIONS THAT ARE REASONABLY ACCEPTABLE TO THE
INVESTOR AND THAT ARE MATERIALLY IDENTICAL IN SUBSTANCE TO THE OPINIONS RECEIVED
ON THE DATE HEREOF WITH RESPECT TO THE SIGNIFICANT SUBSIDIARIES ENTERING INTO
THE SECURITY AGREEMENT ON THE DATE HEREOF;

 

(G)                                 MAKE ANY CAPITAL EXPENDITURES (OTHER THAN
WITH RESPECT TO NORMAL MAINTENANCE AND REPLACEMENT PROGRAMS IN THE ORDINARY
COURSE OF BUSINESS) EXCEEDING $1,000,000 IN ANY FISCAL YEAR FOR THE COMPANY AND
ITS SIGNIFICANT SUBSIDIARIES IN THE AGGREGATE; OR

 

(H)                                 PERMIT THE SUBSIDIARIES THAT ARE NOT PARTY
TO THE SECURITY AGREEMENT TO HAVE ASSETS IN AN AGGREGATE AMOUNT GREATER THAN
$500,000.

 

Section 7.                                            Defenses.

 

The obligations of the Company under this Note shall not be subject to
reduction, limitation, impairment, termination, defense, set-off, counterclaim
or recoupment for any reason.

 

Section 8.                                            Guaranty and Security
Agreement.

 

This Note is a senior secured obligation of the Company. The Company’s
obligations under this Note are (i) guarantied by certain of its Subsidiaries,
and (ii) secured by a security

 

7

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

 

interest in substantially all of the assets of the Company and such
Subsidiaries, in each case pursuant to the terms and provisions of the Security
Agreement. This Note is subject to the terms and provisions of the Security
Agreement, and the Investor, by its acceptance of this Note, hereby acknowledges
and agrees to such terms and provisions.

 

Section 9.                                            Transfer of Note; Lost or
Stolen Note.

 

(A)                                  THE INVESTOR MAY SELL, TRANSFER OR
OTHERWISE DISPOSE OF ALL OR ANY PART OF THIS NOTE (INCLUDING WITHOUT LIMITATION
PURSUANT TO A PLEDGE) TO ANY PERSON OR ENTITY, SO LONG AS SUCH SALE, TRANSFER OR
DISPOSITION IS IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES PURCHASE
AGREEMENT AND IS OF AT LEAST $500,000 IN PRINCIPAL AMOUNT. FROM AND AFTER THE
DATE OF ANY SUCH SALE, TRANSFER OR DISPOSITION, THE TRANSFEREE HEREOF SHALL BE
DEEMED TO BE THE HOLDER OF A NOTE IN THE PRINCIPAL AMOUNT ACQUIRED BY SUCH
TRANSFEREE, AND THE COMPANY SHALL, AS PROMPTLY AS PRACTICABLE, ISSUE AND DELIVER
TO SUCH TRANSFEREE A NEW NOTE IDENTICAL IN ALL RESPECTS TO THIS NOTE, IN THE
NAME OF SUCH TRANSFEREE AND, IF SUCH TRANSFEREE ACQUIRES LESS THAN THE ENTIRE
PRINCIPAL AMOUNT OF THIS NOTE, THE COMPANY SHALL CONTEMPORANEOUSLY ISSUE TO THE
INVESTOR A NEW NOTE IDENTICAL IN ALL RESPECTS TO THIS NOTE, REPRESENTING THE
OUTSTANDING BALANCE OF THIS NOTE. THE COMPANY SHALL BE ENTITLED TO TREAT THE
ORIGINAL INVESTOR AS THE HOLDER OF THIS ENTIRE NOTE UNLESS AND UNTIL IT RECEIVES
WRITTEN NOTICE OF THE SALE, TRANSFER OR DISPOSITION HEREOF.

 

(B)                                 UPON RECEIPT BY THE COMPANY OF EVIDENCE OF
THE LOSS, THEFT, DESTRUCTION OR MUTILATION OF THIS NOTE, AND (IN THE CASE OF
LOSS, THEFT OR DESTRUCTION) OF INDEMNITY OR SECURITY REASONABLY SATISFACTORY TO
THE COMPANY, AND UPON SURRENDER AND CANCELLATION OF THE NOTE, IF MUTILATED, THE
COMPANY SHALL EXECUTE AND DELIVER TO THE INVESTOR A NEW NOTE IDENTICAL IN ALL
RESPECTS TO THIS NOTE.

 

Section 10.                                      Attorneys’ and Collection Fees.

 

Should the indebtedness evidenced by this Note or any part hereof be collected
at law or in equity or in bankruptcy, receivership or other court proceedings,
the Company agrees to pay, in addition to the principal and interest due and
payable hereon, all costs of collection, including reasonable attorneys’ fees
and expenses, incurred by the Investor or its agent in collecting or enforcing
this Note.

 

Section 11.                                      Indemnification

 

(A)                                  THE COMPANY SHALL INDEMNIFY THE INVESTOR,
AND EACH AFFILIATE OF THE INVESTOR (EACH SUCH PERSON BEING CALLED AN
“INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL
LOSSES, CLAIMS, DAMAGES, LIABILITIES AND EXPENSES INCURRED BY OR ASSERTED
AGAINST ANY INDEMNITEE BY A THIRD PARTY ARISING OUT OF, IN CONNECTION WITH, OR
AS A RESULT OF (I) THE EXECUTION OR DELIVERY OF THIS NOTE, THE PERFORMANCE BY
THE COMPANY AND ITS SUBSIDIARIES HERETO OF THEIR RESPECTIVE OBLIGATIONS
HEREUNDER OR THE CONSUMMATION OF OR THE USE OF THE PROCEEDS THEREFROM, OR
(II) THE MATERIAL BREACH BY THE COMPANY OR ANY SUBSIDIARY OF (A) ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT CONTAINED HEREIN OR (B) ANY
REPRESENTATION OR WARRANTY IN SECTION 3.1 OF THE SECURITIES PURCHASE AGREEMENT
AS THEY RELATE TO THE NOTE; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY

 

8

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

 

FINAL AND NON-APPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

 

(B)                                 THE COMPANY SHALL PAY ALL REASONABLE OUT OF
POCKET COSTS AND EXPENSES INCURRED BY THE INVESTOR, INCLUDING THE REASONABLE
FEES, CHARGES AND DISBURSEMENTS OF COUNSEL FOR THE INVESTOR AND ANY CONSULTANT
OR EXPERT WITNESS FEES AND EXPENSES, IN CONNECTION WITH (I) ANY AMENDMENT,
MODIFICATION OR WAIVER OF ANY PROVISION OF ANY TRANSACTION DOCUMENT (WHETHER OR
NOT THE TRANSACTIONS CONTEMPLATED THEREBY SHALL BE CONSUMMATED) REQUIRED BY THE
COMPANY, AND (II) THE ENFORCEMENT OR PROTECTION OF ITS RIGHTS IN CONNECTION WITH
ANY TRANSACTION DOCUMENT, INCLUDING ITS RIGHTS UNDER THIS SECTION, AND INCLUDING
ALL SUCH REASONABLE OUT OF POCKET COSTS AND EXPENSES INCURRED DURING ANY
WORKOUT, RESTRUCTURING OR NEGOTIATIONS IN RESPECT OF ANY SUCH TRANSACTION
DOCUMENT (PROVIDED THAT REFERENCES TO THE TRANSACTION DOCUMENTS CONTAINED
THEREIN SHALL BE DEEMED TO RELATE ONLY TO THE NOTES AND THE GUARANTY AND
SECURITY AGREEMENT).

 

(C)                                  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE COMPANY SHALL NOT ASSERT, AND HEREBY WAIVES, ANY CLAIM AGAINST ANY
INDEMNITEE, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS
NOTE, THE SECURITIES PURCHASE AGREEMENT, THE SECURITY AGREEMENT OR ANY AGREEMENT
OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE USE OF THE PROCEEDS
THEREOF.

 

Section 12.                                      Waivers.

 

The Company hereby waives presentment, demand for payment, notice of dishonor,
notice of protest and all other notices or demands in connection with the
delivery, acceptance, performance or default of this Note. No delay by the
Investor in exercising any power or right hereunder shall operate as a waiver of
any power or right, nor shall any single or partial exercise of any power or
right preclude other or further exercise thereof, or the exercise thereof, or
the exercise of any other power or right hereunder or otherwise; and no waiver
whatsoever or modification of the terms hereof shall be valid unless set forth
in writing by the Investor and then only to the extent set forth therein.

 

Section 13.                                      Amendments.

 

This Note may be amended and any provision may be waived with the consent of the
Company and the Holder. In addition, the Notes may be amended and any provision
may be waived by the Company with the affirmative vote or consent of the holders
of more than a majority of the principal amount outstanding under the Notes. Any
change or amendment so approved shall be binding upon all existing and future
holders of this Note; provided that, no such amendment or waiver may materially
and adversely affect the economic interest in the Company of the Holder of this
Note in a manner disproportionate to the holders of other Notes without the
consent of the Holder hereof.

 

Section 14.                                      Governing Law; Jurisdiction;
Consent to Service of Process; Waiver of Jury Trial.

 

(A)                                  THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW.

 

9

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

 

(B)                                 THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK
COUNTY AND OF THE UNITED STATES’ DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER COLLATERAL DOCUMENT,
OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT
OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK
STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL
AFFECT ANY RIGHT THAT LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AGAINST THE COMPANY OR ITS PROPERTIES IN
THE COURTS OF ANY JURISDICTION.

 

(C)                                  THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO
SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, THE
SECURITIES PURCHASE AGREEMENT OR THE SECURITY AGREEMENT IN ANY COURT REFERRED TO
IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

(D)                                 EACH PARTY TO THIS AGREEMENT IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 16.
NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

(D)                                 EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS NOTE, THE SECURITIES PURCHASE AGREEMENT, THE SECURITY AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN

 

10

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

 

INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.

 

Section 15.                                      Successors and Assigns.

 

The terms and conditions of this Note shall inure to the benefit of and be
binding upon the respective successors (whether by merger or otherwise) and
permitted assigns of the Company and the Investor. The Company may not assign
its rights or obligations under this Note.

 

Section 16.                                      Notices.

 

Whenever notice is required to be given under this Note, unless otherwise
provided herein, such notice shall be delivered in accordance with Section 6.4
of the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore.

 

Section 17.                                      Entire Agreement.

 

The Securities Purchase Agreement, the Notes and the Security Agreement
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereto and thereof.

 

Section 18.                                      Headings.

 

The headings used in this Note are used for convenience only and are not to be
considered in construing or interpreting this Note.

 

[Signature Page Follows]

 

11

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

 

IN WITNESS WHEREOF, the Company has caused this Senior Secured Note to be duly
executed by its duly authorized officer as of the date indicated below.

 

Date:  March 22, 2006

 

 

VYYO INC.

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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