Exhibit 10.3

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE
SECURITIES LAWS OF ANY STATE.

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

$27,000,000.00

  September 16, 2004     Clearwater, Florida

 

For value received, Digital Lightwave, Inc., a Delaware corporation (the
“Company”), promises to pay to Optel Capital, LLC, a Delaware limited liability
company (the “Holder”), or its registered assigns, the principal sum of Twenty
Seven Million Dollars ($27,000,000.00) (the “Principal Amount”) plus the
Outstanding Interest amount of One Million Nine Hundred Seventy Two Thousand
Three Hundred Five Dollars and Sixty Nine Cents ($1,972,305.69) (the “Interest
Amount”). Interest shall accrue from the date of this Note on the unpaid
Principal Amount and Interest Amount at a rate equal to 10.0% per annum,
compounded annually. The interest rate shall be computed on the basis of the
actual number of days elapsed and a year of 360 days. This Note is issued
pursuant to the Loan and Restructuring Agreement, dated as of September 16, 2004
(as amended, restated or otherwise modified from time to time, the “Loan and
Restructuring Agreement”), by and between the Company and the Holder. Terms not
otherwise defined herein shall have the meaning given to them in the Loan and
Restructuring Agreement. This Note is subject to the following terms and
conditions.

 

1. Maturity.

 

(a) Unless converted as provided in Section 2, (i) the entire Principal Amount
shall be due and payable upon demand by the Holder at any time after December
31, 2005 (the “Maturity Date”) and (ii) the accrued and unpaid interest on the
Principal Amount shall be due in two installments, with the first installment
due and payable upon demand by the Holder at any time on or after September 16,
2005 (the “Initial Interest Maturity Date”) and the second installment due and
payable upon demand of the Holder at any time after the Maturity Date. The
entire Interest Amount and the accrued and unpaid interest thereon shall be due
and payable upon demand by the Holder at any time on or after the Initial
Interest Maturity Date.

 

(b) Notwithstanding the foregoing, the entire unpaid Principal Amount and
Interest Amount, together with accrued and unpaid interest on each (the
“Aggregate

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Debt”), shall become immediately due and payable upon demand by the Holder at
any time on or following the occurrence of any of the following events:

 

(i) the failure of the Company to obtain Disinterested Stockholder Approval of
the Proposals at the Stockholder Meeting;

 

(ii) a Change of Control of the Company;

 

(iii) the inability of the Company to pay its debts as they become due;

 

(iv) the dissolution, termination of existence, or appointment of a receiver,
trustee or custodian, for all or any material part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by the Company under any reorganization, bankruptcy, arrangement,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect;

 

(v) the execution by the Company of a general assignment for the benefit of
creditors;

 

(vi) the commencement of any proceeding against the Company under any
reorganization, bankruptcy, arrangement, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within ninety (90) days after the date commenced; or

 

(vii) the appointment of a receiver or trustee to take possession of the
property or assets of the Company.

 

2. Conversion.

 

(a) Conversion into Common Stock; Conversion Price. The Aggregate Debt, or any
portion thereof, shall be convertible at the option of the Holder into shares of
Common Stock of the Company (“Conversion Stock”), at any time, and from time to
time, following the Stockholder Meeting, at a conversion price per share (the
“Conversion Price”) equal to 100% of the average of the daily volume-weighted
average price of Common Stock quoted or traded on the Nasdaq National Market or
the Nasdaq Small Cap Market (or, if the Common Stock is not quoted or traded on
the Nasdaq National Market or the Nasdaq Small Cap Market at the time of
conversion, such other primary market on which the Common Stock is quoted or
traded) during the period of five consecutive trading days ending on the date
immediately prior to the date of the conversion of this Note, from time to time.

 

(b) Disinterested Stockholder Approval. Notwithstanding anything contained in
this Note to the contrary, it shall be a condition precedent to this Note
becoming convertible pursuant to Section 2(a) above, that the Proposals be
approved at the Stockholder Meeting by the affirmative vote in person or by
proxy of a majority of the outstanding shares of Common Stock beneficially owned
by the Disinterested Stockholders (“Disinterested Stockholder Approval”). In the
event the Company does

 

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not obtain Disinterested Stockholder Approval of the Proposals, this Note shall
not become convertible and Maturity Date shall be accelerated in accordance with
Section 1(b)(i) above.

 

(c) Mechanics and Effect of Conversion.

 

(1) Fractional Shares. No fractional shares of the Company’s capital stock will
be issued upon conversion of this Note. In lieu of any fractional share to which
the Holder would otherwise be entitled, the Company will pay to the Holder in
cash the amount of the unconverted principal and interest balance of this Note
that would otherwise be converted into such fractional share.

 

(2) Conversion and Delivery to Holder. This Note may be converted in whole or in
part, provided that no conversion is for an amount less than 5% of the Aggregate
Debt amount of this Note. Upon conversion of this Note in whole or in part,
pursuant to Section 2(a) above, the Holder shall surrender this Note, duly
endorsed, at the principal offices of the Company or any transfer agent of the
Company. At its expense, the Company will, as soon as practicable thereafter,
issue and deliver to such Holder, at such principal office:

 

(i) a certificate or certificates for the number of shares of Conversion Stock
to which such Holder is entitled upon such conversion, together with any other
securities and property to which the Holder is entitled upon such conversion
under the terms of this Note, including a check payable to the Holder for any
cash amounts payable as described in Section 2(b)(1) above, and

 

(ii) in case such conversion is in part only, a new note (dated the date hereof)
of like tenor, equal to the Aggregate Debt minus that portion of the principal
amount and accrued interest being converted by the Holder under this Note.

 

Upon conversion of this Note, the Company will be forever released from all of
its obligations and liabilities under this Note with regard to that portion of
the principal amount and accrued interest being converted including without
limitation the obligation to pay such portion of the principal amount and
accrued interest and, to the extent that the obligations evidenced by this Note
have been converted in whole, upon the Company’s request and at the Company’s
expense, the Holder shall execute such documents, instruments and agreements
that the Company may reasonably request to release the security interest in the
Company’s assets granted pursuant to the Security Agreement (as defined below).

 

3. Payment. All payments shall be made in lawful money of the United States of
America at such place as the Holder hereof may from time to time designate in
writing to the Company. Payment shall be credited first to the accrued interest
then due and payable and the remainder applied to principal. Prepayment of this
Note may be made without penalty, in whole or in part, upon ten (10) days prior
written notice at any time after December 31, 2005.

 

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4. Transfer; Successors and Assigns. The terms and conditions of this Note shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. This Note may be transferred only upon surrender of the
original Note for registration of transfer, duly endorsed, or accompanied by a
duly executed written instrument of transfer in form satisfactory to the
Company. Thereupon, a new note for the same principal amount and accrued
interest will be issued to, and registered in the name of, the transferee.
Interest and principal are payable only to the registered holder of this Note.

 

5. Governing Law. This Note and all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State of Florida, without
giving effect to principles of conflicts of law.

 

6. Notices. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or 48 hours
after being deposited in the U.S. mail as certified or registered mail with
postage prepaid, if such notice is addressed to the party to be notified at such
party’s address or facsimile number as set forth below or as subsequently
modified by written notice.

 

7. Amendments and Waivers. Any term of this Note may be amended only with the
written consent of the Company and the Holder. Any amendment or waiver effected
in accordance with this Section 7 shall be binding upon the Company, each Holder
and each transferee of this Note.

 

8. Officers and Directors Not Liable. In no event shall any officer or director
of the Company be liable for any amounts due or payable pursuant to this Note.

 

9. Security Interest. This Note is secured by all of the assets of the Company
in accordance with the Twenty Second Amended and Restated Security Agreement by
and between the Company and the Holder dated as of the date hereof (the
“Security Agreement”). In case of an Event of Default (as defined in the
Security Agreement), the Holder shall have the rights set forth in the Security
Agreement.

 

10. Counterparts. This Note may be executed in any number of counterparts, each
of which will be deemed to be an original and all of which together will
constitute a single agreement.

 

11. Action to Collect on Note. If action is instituted to collect on this Note,
the Company promises to pay all costs and expenses, including reasonable
attorney’s fees, incurred in connection with such action.

 

12. Loss of Note. Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Note or any Note exchanged
for it, and indemnity satisfactory to the Company (in case of loss, theft or
destruction) or surrender and cancellation of such Note (in the case of
mutilation), the Company will make and deliver in lieu of such Note a new Note
of like tenor.

 

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This Note was entered into as of the date set forth above.

 

COMPANY: DIGITAL LIGHTWAVE, INC. By:  

/s/ JAMES GREEN

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    James Green     President and Chief Executive Officer

 

AGREED TO AND ACCEPTED: OPTEL CAPITAL, LLC By:  

/s/ PAUL RAGAINI

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Name:   Paul Ragaini Title:   Chief Financial Officer