Exhibit 10.1


 


DEBT
CONVERSION AGREEMENT


 


This DEBT CONVERSION AGREEMENT (this “Agreement”)
is dated as of October 16, 2009, and is among VITESSE SEMICONDUCTOR
CORPORATION, a Delaware corporation (the “Company”)
and the holders of the Company’s Notes (as defined below) signatory hereto
(each, a “Noteholder” and
collectively, the “Noteholders”).


 


W I T N
E S S E T H:


 


WHEREAS, the Noteholders are the beneficial owners of 1.50%
Convertible Subordinated Debentures due 2024 of the Company (the “Notes”), in the original principal amount
set forth opposite such Noteholders’ names in Exhibit A, which in
the aggregate total $93,547,000 in original principal amount (such Noteholders’
Notes, the “Exchanged Notes”).


 


WHEREAS, the Noteholders have exercised their rights to
require the Company to repurchase the Exchanged Notes on October 1, 2009
pursuant to Section 11.1 of the indenture governing the Notes, dated as of
September 22, 2004, between the Company and U.S. Bank National
Association (as amended and supplemented, or otherwise modified,  the “Indenture”).


 


WHEREAS,
pursuant to the Indenture, the Company was required to pay on October 1,
2009 to each of the Noteholders, in exchange for the Exchanged Notes, a
repurchase price (consisting of the original principal amount of the Exchanged
Notes, the put premium on such amount and accrued and unpaid interest as of October 1,
2009), and, as of the date hereof, the Company has not made such payments to
the Noteholders.


 


WHEREAS, certain of the Noteholders and the Company have
entered on October 1, 2009, and subsequently, on October 9, 2009 into
forbearance agreements (the “Initial
Forbearance Agreements”), with respect to certain Specified Defaults
(as defined in the Initial Forbearance Agreements) of the Company, pursuant to
which, the Company has requested that the Noteholders agree to forbear, and the
Noteholders have agreed to forbear, from exercising their rights and remedies
with respect to the Specified Defaults until October 16, 2009, under the
terms and conditions set forth in the Forbearance Agreements.


 


WHEREAS, the Noteholders and the Company have entered
into a Forbearance Agreement, dated
as of October 16, 2009  (the “Exchange Forbearance Agreement”), in
respect of the Specified Defaults (as defined in the Exchange Forbearance
Agreement), and pursuant to which, the Company has requested that the
Noteholders agree to forbear, and the Noteholders have agreed to forbear, from
exercising their rights and remedies with respect to the Specified Defaults,
under the terms and conditions set forth therein, during the period set forth
therein.


 


WHEREAS, the Company and the Noteholders have agreed to
exchange the Exchanged Notes with New Securities and Cash Consideration, subject to the
terms and conditions set forth herein.


 


WHEREAS,
prior to and/or simultaneously with the execution and delivery of this
Agreement, the Company has executed and/or is executing and delivering to the
Noteholders 


 

















 


certain agreements including the Restructuring
Agreements.


 


NOW,
THEREFORE, in consideration of the premises and covenants set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, intending to be legally bound hereby, the parties
agree as follows:


 


Article I.

DEFINITIONS


 


Section 1.01         Definitions.  The following terms, as used herein, have the
following meanings:“Applicable Law”
means, with respect to any Person, any federal, state or local law (statutory,
common or otherwise), constitution, treaty, convention, ordinance, code, rule,
regulation, order, injunction, judgment, decree, ruling or other similar
requirement enacted, adopted, promulgated or applied by a Governmental
Authority that is binding upon or applicable to such Person, as amended unless
expressly specified otherwise.


 


“Cash Consideration” means an amount
equal to $6,413,147.21


 


“Cash Consideration Portion” means, with respect to each
Noteholder, the amount of cash payable to such Noteholder as set forth opposite
such Noteholder’s name in Exhibit A.


 


“Code” shall have the same meaning as set forth in the
Whitebox Loan Agreement.


 


“Common Stock” means the Company’s Common
Stock as defined in the Certificate of Incorporation, in effect as of the date
hereof.


 


“Contract” means any contract, agreement,
arrangement or understanding, whether written or oral and whether express or
implied.


 


“Daily Regular Interest Amount” means, with
respect to each Noteholder, the amount set forth opposite such Noteholder’s
name in Exhibit A.


 


“Denomination Cash Amount” means, with
respect to each Noteholder, the cash amount payable to such Noteholder at the
Closing as set forth opposite such Noteholder’s name on Exhibit A
under the title “Denomination Cash Amount”.


 


“ERISA” shall have the same meaning as set forth in the
Whitebox Loan Agreement.


 


“GAAP” means
United States generally accepted accounting principles and practices as in
effect on the date hereof.


 


“Global Security” shall have the meaning assigned to it in the New Indenture.


 


“Governmental Authority” means any transnational,
domestic or foreign federal, state or local, governmental authority,
department, court, agency or official, including any political subdivision
thereof.


 


2

















 


“Guarantor” shall have the meaning set forth in the New
Indenture.


 


“Law” means any statute, law, ordinance, regulation, rule,
code, executive order, injunction, judgment, decree or order of any
Governmental Authority.


 


“Lien” shall have the meaning assigned to it
in the New Indenture.


 


“Losses” means any losses, damages, liabilities, claims,
interest, awards, judgments, penalties, costs and expenses (including
reasonable attorneys’ fees, costs and other out-of-pocket expenses incurred in
investigating, preparing or defending the foregoing).


 


“Majority Note holders” means Noteholders
holding, in the aggregate, at least $87,800,000 of the principal amount of the
Exchanged Notes.


 


“Material Adverse Effect” means a material
adverse effect upon any of the conditions (financial or otherwise), business, assets
or results of operations of the Company and its Subsidiaries taken as a whole
or the ability of the Company to perform any of its obligations under this
Agreement; provided, however, that Material Adverse Effect shall exclude any
effect resulting or arising from (a) any change in any Applicable Law, (b) any
change in economic conditions, (c) any change that is generally applicable
to the industries in which the Company or any of its Subsidiaries operates, (d) any
national or international political event or occurrence, including acts of war
or terrorism, (e) the announcement of this Agreement and the consummation
of the transactions contemplated hereby, provided that, with respect to clauses
(a), (b), (c) and (d), the impact of such effect is not disproportionately
adverse to the Company and its Subsidiaries taken as a whole.


 


“New Common Stock” means the shares of
Common Stock to be issued to Noteholders under the terms hereunder.


 


“New Common Stock Amount” means 174,493,231shares of New
Common Stock.


 


“New Common Stock Consideration” means, with respect to each
Noteholder, the amount of New Common Stock to be issued to such Noteholder as
specified opposite such Noteholder’s name in Exhibit C-1.


 


“New Convertible Notes” means the 8%
Convertible Second Lien Debentures due 2014, issued by the Company pursuant to
the New Indenture.


 


“New Convertible Notes Consideration” means, with respect to each
Noteholder, the principal amount of New Convertible Notes to be issued to such
Noteholder as specified opposite such Noteholder’s name on Exhibit C-2.


 


“New Indenture” means the Indenture governing the New
Convertible Notes.


 


“Non-Participating Notes Amount”
means $3,586,852.80


 


“New Securities” means the New Common Stock,
New Convertible Notes and the Preferred Stock.


 


3

















 


“Other Transactions” means the transactions
specifically described in the Restructuring Agreements, other than those
contemplated by this Agreement.


 


“Person” means an individual, corporation,
partnership, limited liability company, association, trust or other entity or
organization, including a Governmental Authority.


 


“Plan” shall have the same meaning as set forth in the
Whitebox Loan Agreement.


 


“Preferred Stock”
means the Series B Participating Non-Cumulative Convertible Preferred
Stock of the Company having the rights and preferences set forth in the
Certificate of Designations attached hereto as Exhibit B.


 


“Preferred Stock Consideration” means, with
respect to each Noteholder listed on Exhibit C-3, the amount of
shares of Preferred Stock set forth opposite such Noteholder’s name in Exhibit C-3.


 


“Real Estate Lease” means leases, including ground leases and
space leases, pursuant to which the Company or any of its Subsidiaries leases
or subleases any real property.


 


“Regular Interest Payment” means, with
respect to each Noteholder, an amount equal to the product of (i) such
Noteholder’s Daily Regular Interest Amount times the number of days from
October 16, 2009 (inclusive) through the date hereof (inclusive).


 


“Reportable Event” shall have the same meaning as set forth
in the Whitebox Loan Agreement.


 


“Restructuring Agreements” means the New
Indenture, the Second Lien Security Documents (as defined in the New
Indenture), and the Intercreditor Agreement (as defined in the New Indenture).


 


“Rights Agreement” means the Rights
Agreement between the Company and EquiServe Trust Company, N.A., as Rights
Agent, dated as of March 3, 2003 as amended, supplemented or restated
thereafter).


 


“Second Lien Security Documents” shall have
the meaning assigned to such term in the Indenture.


 


“Securities Act” means the Securities Act of
1933, as amended, or any similar federal statute, and the rules and
regulations thereunder as the same shall be in effect at the time.


 


“Senior Lender” shall mean the Agent and the
lenders under the Whitebox Loan Agreement.


 


“Senior Lender Paydown Amount” shall mean an
amount equal $5,000,050.00, which amount includes the prepayment fee associated
with a $5,000,000 paydown under the amounts due under the Whitebox Loan
Agreement.


 


“Subsidiary” means, with respect to any
Person, any other Person controlled by such 


 


4

















 


first Person, directly or indirectly, through one or
more intermediaries.


 


“Whitebox Loan Agreement” means that certain Loan Agreement
dated as of August 23, 2007 by and among Whitebox VSC, Ltd, a limited
partnership organized under the law of the British Virgin Islands, as agent
thereunder (the “Agent”), the Company and certain
lenders signatory thereto from time to time.


 


“Total Cash Consideration” means, with
respect to each Noteholder, such Noteholder’s


 


(i)                                     Cash
Consideration Portion;


 


(ii)                                  Regular
Interest Payment; and


 


(iii)                               Denomination
Cash Amount.


 


“Transfer Agent” means Computershare
Investor Services.


 


“Trustee” shall have the meanings assigned
to it in the Indenture and the New Indenture.


 


Each
of the following terms is defined in the Section set forth opposite such
term:


 


	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  Balance
  Sheet

  	
   

  	
  4.23

  
	
  Board

  	
   

  	
  5.03(f)

  
	
  Bylaws

  	
   

  	
  4.06

  
	
  Certificate
  of Incorporation

  	
   

  	
  4.06

  
	
  Company

  	
   

  	
  Preamble

  
	
  Core
  Representation

  	
   

  	
  7.04(a)

  
	
  Closing

  	
   

  	
  2.02

  
	
  Closing
  Date

  	
   

  	
  2.02

  
	
  Disclosure
  Schedule

  	
   

  	
  Article IV

  
	
  DTC

  	
   

  	
  2.03

  
	
  Exchange

  	
   

  	
  2.01(b)

  
	
  Exchange
  Act

  	
   

  	
  4.05(a)

  
	
  Exchanged
  Notes

  	
   

  	
  Recitals

  
	
  Forbearance
  Agreement

  	
   

  	
  Recitals

  
	
  Indenture

  	
   

  	
  Recitals

  
	
  Initial Forbearance Agreement

  	
   

  	
  Recitals

  
	
  Intellectual Property

  	
   

  	
  4.16

  
	
  Litigation

  	
   

  	
  4.07

  
	
  Material
  Agreements

  	
   

  	
  4.14

  
	
  New
  Indenture

  	
   

  	
  1.01

  
	
  Notes

  	
   

  	
  Recitals

  
	
  Noteholder(s)

  	
   

  	
  Preamble

  
	
  Noteholder
  Indemnified Party

  	
   

  	
  7.04(b)

  



 


5

















 


	
  Original
  Repurchase Price

  	
   

  	
  Recitals

  
	
  SEC

  	
   

  	
  Article IV

  
	
  SEC
  Reports

  	
   

  	
  Article IV

  
	
  Trust
  Indenture Act

  	
   

  	
  4.05(f)

  
	
  Underlying
  Shares

  	
   

  	
  6.04

  



 


Section 1.02         Other
Definitional and Interpretative Provisions.  The words “hereof,” “herein” and “hereunder”
and words of like import used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement.  The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.  References to
Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits
and Schedules of this Agreement unless otherwise specified.  All Exhibits and Schedules annexed hereto or
referred to herein are hereby incorporated in and made a part of this Agreement
as if set forth in full herein.  Any
capitalized terms used in any Exhibit or Schedule but not otherwise
defined therein, shall have the meaning as defined in this Agreement.  Any singular term in this Agreement shall be
deemed to include the plural, and any plural term the singular.  Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation,” whether or not they are in fact followed by
those words or words of like import. 
“Writing,” “written” and comparable terms refer to printing, typing and
other means of reproducing words (including electronic media) in a visible
form.  References to any agreement or
contract are to that agreement or contract as amended, modified or supplemented
from time to time in accordance with the terms hereof and thereof; provided
that with respect to any agreement or contract listed on any schedules hereto,
all such amendments, modifications or supplements must also be listed in the
appropriate schedule.  References to any
Person include the successors and permitted assigns of that Person.  References from or through any date mean,
unless otherwise specified, from and including or through and including,
respectively.  References to “law,”
“laws” or to a particular statute or law shall be deemed also to include any
and all Applicable Law.


 


Article II.

EXCHANGE


 


Section 2.01                            Exchange.


 


(a)           Upon the terms and
subject to the conditions of this Agreement, and in express reliance upon such
terms and conditions and the representations, warranties and covenants of this
Agreement, at the closing (the “Closing”) of the
Exchange, each Noteholder shall be deemed to have exchanged the Exchanged Notes
and the Company shall issue the New Securities and pay the Cash Consideration
to the Noteholders (the “Exchange”) as follows:


 


(iv)          to each Noteholder,
its New Common Stock Consideration;


 


(v)                                 to each
Noteholder, its New Convertible Notes Consideration;


 


(vi)                              to each
Noteholder listed on Exhibit C-3, its Preferred Stock
Consideration; and


 


(vii)                           to each
Noteholder, its Total Cash Consideration. .


 


6

















 


(b)           The failure of any
Person to perform the actions contemplated by this Agreement (including the
failure to deliver any New Securities to the Noteholders in accordance with the
terms hereof) shall not impair the rights and obligations of any party under
this Agreement, and notwithstanding any such failure, except as specifically
set forth in this Agreement, the parties shall endeavor in good faith to
consummate the Exchange upon terms as close as practicable to those set forth
herein.


 


Section 2.02         Closing.  The Exchange shall take place at a closing
(the “Closing”), and the
Restructuring Agreements shall be released from escrow, to be held at the
offices of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, NY
10166, at 10:00 a.m., on the first Business Day following the satisfaction
or, to the extent permitted by Applicable Law, waiver of all conditions to the
obligations of the parties set forth in Article V (other than such
conditions as may, by their terms, only be satisfied at the Closing or on the
Closing Date), or at such other place or at such other time or on such other
date as the Company and the Noteholders mutually may agree in writing.  The day on which the Closing takes place is
referred to as the “Closing Date.”


 


Section 2.03         Delivery of
the New Convertible Notes.  On
or prior to the Closing Date, the Company shall deliver to the Trustee a signed
Global Security, and the Company and the Noteholders shall deliver to the
Trustee a written notice in the form attached hereto as Exhibit G
instructing the Trustee to execute the New Indenture and to take such action as
may be required to distribute the New Convertible Notes through the facilities
of the Depository Trust Company (“DTC”)
as set forth in Section 2.01 hereof.


 


Section 2.04         Delivery
of the New Common Stock.  At
the Closing, the Company shall deliver to each of the Noteholders evidence from
the DTC that the New Common Stock Consideration to which such Noteholder is
entitled in accordance with Section 2.01 has been transferred from
the Company’s respective accounts at DTC to the accounts of such Noteholder or
its DTC participant in accordance with the terms hereof.


 


Section 2.05         Delivery
of the Preferred Stock.  At
the Closing, the Company shall deliver to all Noteholders entitled to receive
Preferred Stock Consideration, certificates evidencing the amount of shares of
Preferred Stock to which such Noteholders are entitled.


 


Article III.

REPRESENTATIONS AND WARRANTIES OF THE 

NOTEHOLDER


 


Each
Noteholder, separately solely as to itself, and not jointly and severally,
represents and warrants to the Company as of the date hereof and as of the
Closing Date, that:


 


Section 3.01         Existence.  The Noteholder is duly organized and validly
existing under the laws of its jurisdiction of organization.


 


Section 3.02         Authorization.  The execution, delivery and performance by
the Noteholder of this Agreement and the consummation of the transactions
contemplated hereby are within the Noteholder’s powers and have been duly
authorized by all necessary action on the part of the Noteholder.  This Agreement constitutes a valid and
binding agreement of the Noteholder.


 


7

















 


Section 3.03         Governmental
Authorization.  The
execution, delivery and performance by the Noteholder of this Agreement and the
consummation of the transactions contemplated hereby require no action by or in
respect of, or filing with, any Governmental Authority, by the Noteholder.


 


Section 3.04         Noncontravention.  The execution, delivery and performance by
the Noteholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate the organizational
documents of the Noteholder or any Applicable Law binding upon the Noteholder,
or (ii) require any consent or other action by any Person under,
constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of the Noteholder under
any provision of any agreement or other instrument binding upon the Noteholder.


 


Section 3.05         Ownership
of Exchanged Notes.  The
Noteholder is the beneficial owner of the Exchanged Notes described on Exhibit A
opposite such Noteholder’s name.


 


Article IV.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY


 


The
Company represents and warrants to the Noteholder, as of the date hereof, and
as of the Closing Date, that, subject in each case to any information set forth
in the appropriate section of the disclosure schedule of the Company
accompanying this Agreement and made a part hereof (the “Disclosure Schedule”), and the disclosure
of any item in reasonable detail in the Company’s  reports on the following forms filed with the
Securities and Exchange Commission (the “SEC”) since January 1,
2008 (the “SEC Reports”) (other than
cautionary or hypothetical disclosures in any “Risk Factors” or any other
similar sections that are predictive or forward-looking in nature): the
Company’s Annual Report on form 10-K, the Company’s Quarterly Reports on form
10-Q and the Company’s Current Reports on form 8-K, which shall constitute
disclosure or, as applicable, exclusion of that item for the Disclosure
Schedule where the relevance of that item as an exception to (or a disclosure
for the purposes of) the applicable representations and warranties and
covenants is reasonably apparent to a third person who is not familiar with the
Company.


 


Section 4.01         Corporate
Existence; Good Standing.  The
Company, and each of its Subsidiaries, is a corporation duly incorporated,
validly existing and in good standing under the laws of the incorporation and
has the requisite corporate power to own, lease and operate its properties and
assets and to conduct its business as it is now being conducted.  The Company, and each of its Subsidiaries, is
duly qualified or licensed as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a Material Adverse Effect.


 


Section 4.02         Corporate
Authorization.  The
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby: (i) are within the
corporate powers of the Company, (ii) have been duly authorized by all
necessary action on the part of the Company and (iii) as of the Closing
will not violate any other agreement to which the Company is a party or its
assets bound, which violation could reasonably 


 


8

















 


be expected to result in a
Material Adverse Effect.  This Agreement,
the Restructuring Agreements and the New Convertible Notes, each constitute a
valid and binding agreement or obligation of the Company, enforceable against
the Company in accordance with their terms.


 


Section 4.03         Governmental
Authorization.  No order,
consent, approval, license, authorization or validation of, or filing,
recording or registration with, or exemption by, any governmental or public
body or authority is required on the part of the Company to authorize, or is
required in connection with the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, this Agreement, except
for any necessary filing or recordation of or with respect to any of the New
Securities.  No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with, or exemption by, any governmental or public body or authority is required
on the part of any Subsidiary to authorize, or is required in connection with
the execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the New Securities to which it is a party, except
for any necessary filing or recordation of or with respect to any of the
Restructuring Agreements.


 


Section 4.04         Noncontravention.  The execution, delivery and performance by
the Company of this Agreement will not (a) violate any provision of any
Applicable Law, (b) violate or contravene any provision of the Certificate
of Incorporation or bylaws of the Company, or (c) result in a breach of or
constitute a default under any indenture, loan or credit agreement or any other
agreement, lease or instrument to which the Company is a party or by which it
or any of its properties may be bound or result in the creation of any Lien
thereunder.  The execution, delivery and
performance by each Subsidiary of the Restructuring Agreement to which it is a
party will not (a) violate any provision of any Applicable Law, (b) violate
or contravene any provision of the organizational documents of such Subsidiary,
or (c) result in a breach of or constitute a default under any indenture,
loan or credit agreement or any other agreement, lease or instrument to which
such Subsidiary is a party or by which it or any of its properties may be bound
or result in the creation of any Lien thereunder.  Except as set forth in Section 4.04
of the Disclosure Schedule, neither the Company nor any Subsidiary is in
default under or in violation of any such Applicable Law or any such indenture,
loan or credit agreement or other agreement, lease or instrument in any case in
which the consequences of such default or violation could reasonably be expected
to constitute a Material Adverse Effect.


 


Section 4.05                            Capitalization;
Issuance; Registration Exemption.


 


(a)           The authorized
capital stock of the Company is 500,000,000 shares designated as Common Stock,
of which 230,905,580 are issued and outstanding immediately prior to the
Closing.  Section 4.05 of the
Disclosure Schedule sets forth a complete and accurate option capitalization
table identifying the number of warrants and options to acquire capital stock
of the Company and the exercise price thereof. 
There are no accrued but unpaid dividends or other distributions payable
on the capital stock of the Company.  All
of the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, and were not
issued in violation of, and are not subject to, any preemptive or similar
rights.  The Company has not issued any preferred stock.  The Company has not issued Common Stock,
options, restricted stock or securities convertible into or exchangeable for
Common Stock since October 1, 2009 through the date hereof.  As of
the Closing Date, assuming immediate conversion of the Preferred Stock, the New
Common Stock and the shares of 


 


9

















 


Common
Stock issuable upon conversion of the Preferred Stock, will in the aggregate
constitute approximately 51.99% of the then issued and outstanding shares of
Common Stock.


 


(b)           At the time of
Closing, Company will have sufficient shares of unreserved and unrestricted Common
Stock to allow the issuance of the New Common Stock, and the conversion of the
Preferred Stock.


 


(c)           Upon issuance in
accordance with the terms hereof, the New Common Stock and the Preferred Stock
will (i) have been duly authorized by all necessary corporate action, (ii) be
validly issued and outstanding, fully paid and non-assessable, free of
restrictions on transfer; and each Noteholder shall receive good, valid and
marketable title to their respective shares of New Common Stock and Preferred
Stock, if any, delivered to such Noteholder hereunder, free and clear of any
Lien.


 


(d)           Upon issuance in
accordance with the terms hereof and authenticated by the Trustee, the New
Convertible Notes will be (i) valid and binding obligations of the
Company, enforceable in accordance with their respective terms, (ii) entitled
to the benefits of the New Indenture, and (iii) free of restrictions on
transfer; and each Noteholder shall receive good, valid and marketable title to
their respective New Convertible Notes delivered to such Noteholder hereunder,
free and clear of any Lien.


 


(e)           The shares of common
stock issuable upon conversion of the Preferred Stock (the “Underlying Shares”) have been duly
authorized for issuance by all necessary corporate action, and upon the
issuance of the Underlying Shares upon conversion of the Preferred Stock will
be validly issued and outstanding, fully paid and non-assessable, free of
restrictions on transfer; and each converting holder shall receive good, valid
and marketable title to their respective amount of Underlying Shares delivered
to such converting holder, free and clear of any Lien.


 


(f)            Upon obtaining
stockholder approval of an amendment to the Company’s certificate of
incorporation to authorize additional shares of common stock, the shares of
common stock issuable upon conversion of the New Convertible Notes will have
been duly authorized for issuance by all necessary corporate action, and upon
the issuance of such shares upon conversion of the New Convertible Notes will be
validly issued and outstanding, fully paid and non-assessable, free of
restrictions on transfer; and each converting holder shall receive good, valid
and marketable title to their respective amount of such shares delivered to
such converting holder, free and clear of any Lien.


 


(g)           The exchange of the
Exchanged Notes for the New Securities and the issuance of the New Common
Stock, the Preferred Stock and the New Convertible Notes will not trigger any
preemptive rights or any other similar rights of any party to purchase or
receive shares of capital stock or rights with respect thereof.  The Company has amended the Rights Agreement
as of the date hereof so that the entry into this Agreement and the
transactions contemplated hereby do not trigger any rights under the Rights
Agreement and so that the Rights Agreement will terminate as of the Closing
Date (the “Rights Agreement Amendment”).


 


(h)           The exchange of the
Exchanged Notes for the New Securities is being consummated pursuant to
Sections 3(a)(9) and Rule 149 of the Securities Act.  The Company has not engaged in any general
solicitation or engaged or agreed to compensate any broker or agent to solicit
any exchanges of securities contemplated by this Agreement.  None of the Company, its Subsidiaries, 


 


10
















 


any
of their affiliates, and any person acting on 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 registration of any of
the New Securities under the Securities Act or cause the exchange contemplated
hereunder to be integrated with prior offerings by the Company for purposes of
Securities 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.  None of the
Company, its subsidiaries, their affiliates and any person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the New Securities under the Securities
Act or cause the exchange of the New Securities to be integrated with other
offerings.


 


(i)            The Company has
taken all necessary action to comply in all material respects with the
requirements of the Trust Indenture Act of 1939, as amended (the “Trust
Indenture Act”), in connection with the New Indenture and to
ensure that the New Convertible Notes will be DTC eligible.


 


(j)            The Company is
current in its filings of 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 Act of 1934, as amended (the “Exchange Act”).  Upon issuance, the New Securities are
eligible for sale by the Noteholders without registration under the Securities
Act.


 


(k)           Except as set
forth in Section 4.05(h) of the Disclosure Schedule, the
Company confirms that neither it nor any other person acting on its behalf has provided
the Noteholders or their agent or counsel with any information that as of the
date hereof, constitutes material, nonpublic information about the Company.


 


(l)            The Company
agrees that before the trading officially begins on the New York Stock Exchange
on the first trading day following the date hereof, the Company shall file a
Current Report on Form 8-K with the SEC announcing this Agreement and the
transactions contemplated hereby and disclosing all material information
regarding the exchange contemplated hereunder, including the information
provided in Section 4.25 of the Disclosure Schedules.


 


Section 4.06         Certificate
of Incorporation and Bylaws.  True, complete and correct
copies of (i) the Company’s current Amended and Restated Certificate of Incorporation
(the “Certificate of Incorporation”)
and (ii) the Company’s current Bylaws (the “Bylaws”), are attached as Exhibits E-1 and E-2.


 


Section 4.07         Litigation.  Except as set forth in Section 4.7 of
the Disclosure Schedule, there are no actions, suits or proceedings (each a “Litigation”) pending or, to the knowledge
of the Company, threatened against or affecting the Company or any Subsidiary
or any of their properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which, if determined
adversely to the Company or any Subsidiary, would constitute a Material Adverse
Effect, and there are no unsatisfied judgments against the Company or
Subsidiary, the satisfaction or payment of which would constitute a Material
Adverse Effect.


 


Section 4.08         Title
to Properties.  Each of the
Company and the Subsidiaries has (a) good and marketable title to its real
properties and (b) good and sufficient title to, or valid, 


 


11

















 


subsisting and enforceable
leasehold interest in, its other material properties, including all real
properties, other properties and assets, reflected as owned by the Company and
its Subsidiaries in the most recent financial statement included in the
Company’s Report on Form 10-Q for the three months ended June 30,
2009 (other than property
disposed of since the date of such financial statements in the ordinary course
of business).  Except as set forth in Section 4.08
of the Disclosure Schedule, there are no actual, threatened or alleged defaults
with respect to any leases of real property under which any Company or any of
its Subsidiaries is lessee or lessor which could reasonably be expected to
result in a Material Adverse Effect. 
None of such properties is subject to a Lien, except for Liens permitted
pursuant to Section 6.13 of the Whitebox Loan Agreement.  The Company has not subordinated any of its
rights under any obligation owing to it to the rights of any other person.


 


Section 4.09         Taxes.  Except as set forth in Section 4.9
of the Disclosure Schedule, each of the Company and the Subsidiaries has filed
all material federal, state and local tax returns required to be filed and has
paid or made provision for the payment of all taxes due and payable pursuant to
such returns and pursuant to any assessments made against it or any of its
property and all other taxes, fees and other charges imposed on it or any of
its property by any governmental authority (other than taxes, fees or charges
the amount or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in accordance with
GAAP have been provided on the books of the Company).  No tax Liens have been filed and no material
claims are being asserted with respect to any such taxes, fees or charges.  The charges, accruals and reserves on the
books of the Company in respect of taxes and other governmental charges are
adequate and the Company knows of no proposed material tax assessment against
it or any Subsidiary or any basis therefor.


 


Section 4.10         No
Material Adverse Effect. 
Except as specified in Section 4.10 of the Disclosure
Schedule, since January 1, 2009,
there have been no events or changes in facts or circumstances affecting the
business of the Company which individually or in the aggregate have had or would
reasonably be expected to have a Material Adverse Effect and that have not been
disclosed herein or in the Company’s SEC Reports.


 


Section 4.11         ERISA.  Each Plan is in substantial compliance with
all applicable requirements of ERISA and the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and the
Code setting forth those requirements, except where the failure to be in compliance
would not have a Material Adverse Effect. 
No Reportable Event has occurred and is continuing with respect to any
Plan.  All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no
event or condition which would reasonably be expected to result in the
institution of proceedings to terminate any Plan under Section 4042 of
ERISA.  With respect to each Plan subject
to Title IV of ERISA, as of the most recent valuation date for such Plan, the
present value (determined on the basis of reasonable assumptions employed by
the independent actuary for such Plan and previously furnished in writing to
the Noteholders) of such Plan’s projected benefit obligations did not exceed
the fair market value of such Plan’s assets.


 


Section 4.12         Environmental
Matters.  There does not exist any
violation by the Company or any Subsidiary of any applicable federal, state or
local law, rule or regulation or order of any government, governmental
department, board, agency or other instrumentality 


 


12

















 


relating to environmental,
pollution, health or safety matters which has, will or threatens to impose, a
material liability on the Company or a Subsidiary or which has required or
would require a material expenditure by the Company or a Subsidiary to
cure.  Neither the Company nor any
Subsidiary has received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment, which noncompliance or remedial action could reasonably be
expected to constitute a Material Adverse Effect.  Except as set out in Section 4.12
of the Disclosure Schedule, the Company does not have knowledge that it or its
property or any Subsidiary or the property of any Subsidiary will become
subject to environmental laws or regulations during the term of this Agreement,
compliance with which could reasonably be expected to require capital
expenditures which would constitute a Material Adverse Effect.


 


Section 4.13         Subsidiaries.  Except as set forth in Section 4.13
of the Disclosure Schedule, the Company does not have any direct or indirect
Subsidiaries.


 


Section 4.14         Material
Agreements.  The Company
has filed with the SEC all material agreements required to be filed pursuant to
Item 601(b)(4) or (10) of Regulation S-K promulgated by the
Securities and Exchange Commission (the “Material Agreements”).


 


Section 4.15         Insurance.  The properties of the Company and its
Subsidiaries are insured with nationally reputable insurance companies not
affiliates of the Company or its Subsidiaries, in such amounts with such
deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar properties in localities where
the Company or the applicable Subsidiary operates.


 


Section 4.16         Intellectual
Property.  Each of the
Company and the Subsidiaries possesses or has the right to use all of the
patents, trademarks, trade names, service marks and copyrights, and
applications therefor, and all technology, know how, processes, methods and
designs used in or necessary for the conduct of its business (collectively, “Intellectual Property”), without known conflict with the
rights of others, except where such conflict would not result in a Material Adverse
Effect.


 


Section 4.17         Labor
and Employment Matters. 
There are no pending or threatened strikes, lockouts or slowdowns
against the Company or any Subsidiary. 
Neither the Company nor any Subsidiary has been or is in violation in
any material respect of the Fair Labor Standards Act or any other applicable
federal, state, local or foreign law dealing with such matters.  All material payments due from the Company or
any Subsidiary on account of wages and employee health and welfare insurance
and other benefits (in each case, except for de minimus
amounts), have been paid or accrued as a liability on the books of the Company
or such Subsidiary, except where the failure to do so would not have a Material
Adverse Effect.  The consummation of the
transactions contemplated under this Agreement will not give rise to any right
of termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Company or any Subsidiary is bound.


 


13

















 


Section 4.18         Disclosure.  Subject to the following sentence, no
certificate, written statement, exhibit or report furnished by or on behalf of
the Company in connection with or pursuant to this Agreement contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained therein not
misleading.  Certificates or statements
furnished by or on behalf of the Company to the Noteholders consisting of
projections or forecasts of future results or events have been prepared in good
faith and based on good faith estimates and assumptions of the management of
the Company, and the Company has no reason to believe that such projections or
forecasts are not reasonable.


 


Section 4.19         Burdensome
Restrictions.  Except as
set forth in Section 4.19 of the Disclosure Schedule, neither the
Company nor any Subsidiary is a party to or otherwise bound by any indenture,
loan or credit agreement or any lease or other agreement or instrument or subject
to any charter, corporate or partnership restriction that would foreseeably
constitute a Material Adverse Effect.


 


Section 4.20         Retirement
Benefits.  Except as
required under Section 4980B of the Code, Section 601 of ERISA or
applicable state law, the Company is not obligated to provide post-retirement
medical or insurance benefits with respect to employees or former employees.


 


Section 4.21         Subsidiaries.  Section 4.21 of the Disclosure
Schedule sets forth as of the date of this Agreement a list of all Subsidiaries
and the number and percentage of the shares of each class of equity interests
owned beneficially or of record by the Company or any Subsidiary therein, and
the jurisdiction of incorporation of each Subsidiary.  As of the Closing Date, the Company and the
Guarantors collectively own at least 95% of the total assets, whether tangible
or intangible, of the Company and all Subsidiaries taken as a whole.


 


Section 4.22         Solvency.  After the issuance of the New Securities and
after giving effect thereto, (a) the fair value of the assets of the
Company, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable value
of the property of the Company will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) the Company will be able to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) the Company will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is proposed to be conducted following the Closing
Date.


 


Section 4.23         Absence
of Undisclosed Liabilities.  Except as and to the extent adequately
accrued or reserved against in the balance sheet of the Company as at June 30,
2009  (such balance sheet, together with
all related notes and schedules thereto, the “Balance
Sheet”), the Company
has no liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, known or unknown and whether or not required by GAAP
to be reflected on a balance sheet of the Company, except for (a) liabilities
and obligations incurred in the ordinary course of business consistent with
past practice since the date of the Balance Sheet that are not, individually or
in the aggregate, material to the Company, and (b) the obligations under
the Notes.


 


14

















 


Section 4.24         Company SEC Reports. 
Except as set forth in Section 4.24 of the Disclosure
Schedule, each of the Company and the Subsidiaries has filed or furnished, as
applicable, on a timely basis all SEC Reports. 
Each of the SEC Reports, at the time of its filing or being furnished,
complied in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the Sarbanes-Oxley Act of 2002, and any rules and
regulations promulgated thereunder applicable to the SEC Reports.  As of their respective dates (or, if amended
prior to the date hereof, as of the date of such amendment), the SEC Reports
did 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
made therein, in light of the circumstances in which they were made, not
misleading.


 


Section 4.25         Financial Information Disclosure.  On or prior to the date hereof, the Company
has delivered to each of the Noteholders the information set forth on Section 4.25
of the Disclosure Schedules (the “Q4 2009 Financial Information”), which
information superceded any similar information previously provided to any
Noteholder.  As of the date hereof, the
Q4 2009 Financial Information does 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 made therein, in light of the circumstances in
which they were made, not misleading


 


Article V.

CONDITIONS TO CLOSING


 


Section 5.01         General
Conditions.  The
respective obligations of the Company and the Noteholders to consummate the
transactions contemplated by this Agreement shall be subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
any of which may, to the extent permitted by applicable Law, be waived in
writing by either party in its sole discretion (provided, that each
party may only waive an obligation of the other party):


 


(a)           No Governmental
Authority shall have enacted, issued, promulgated, enforced or entered any
Applicable Law (whether temporary, preliminary or permanent), including any
Applicable Law that may be administered by the U.S. Department of Treasury’s
Office of Foreign Assets Controls that is then in effect and that enjoins,
restrains, makes illegal or otherwise prohibits the consummation of the
transactions contemplated by this Agreement.


 


Section 5.02         Conditions
to Obligations of the Company.  The obligations of the Company to consummate
the transactions contemplated by this Agreement shall be subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
any of which may be waived in writing by the Company in its sole discretion:


 


(a)           The Company
shall have received an executed counterpart of this Agreement, signed by the
Majority Noteholders;


 


(b)           The Company
shall have received an executed counterpart of each of the Restructuring
Agreements, signed by the Trustee;


 


(c)           The Noteholders
shall have delivered written instructions to the Trustee to effect the delivery
and exchange of the Exchanged Notes as contemplated hereby; and


 


15

















 


(d)           The
representations and warranties of the Noteholders contained in this Agreement
or any certificate delivered pursuant hereto shall be true and correct both
when made and as of the Closing Date, or in the case of representations and
warranties that are made as of a specified date, such representations and
warranties shall be true and correct as of such specified date; except where
the failure to be so true and correct would not, individually or in the
aggregate, be material.  Each Noteholder
shall have performed all obligations and agreements and complied with all
covenants and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing. 
The Company shall have received from each Noteholder a certificate to
the effect set forth in the preceding sentences, signed by a duly authorized
officer thereof.


 


Section 5.03         Conditions
to Obligations of the Noteholders.  The obligations of each Noteholder to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions, any of which may be waived in writing by such Noteholder in its
sole discretion:


 


(a)           Each Noteholder
shall have received an executed counterpart of this Agreement, signed by (i) the
Company and (ii) Majority Noteholders;


 


(b)           The Noteholders
shall have received an executed counterpart of each of the Restructuring
Agreements, signed by (i) the Company and (ii) the Trustee;


 


(c)           The
representations and warranties of the Company contained in this Agreement or
any certificate delivered pursuant hereto shall be true and correct both when
made and as of the Closing Date, or in the case of representations and
warranties that are made as of a specified date, such representations and
warranties shall be true and correct as of such specified date, except where
the failure to be so true and correct (without giving effect to any limitation
or qualification for all representations and warranties other than those
contained in Section 4.25 as to “materiality” or “Material Adverse Effect”
set forth therein) would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 
The Company shall have performed all obligations and agreements and
complied with all covenants and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.  The Noteholders shall have received from the
Company a certificate to the effect set forth in the preceding sentences,
signed by a duly authorized officer thereof.


 


(d)           Each Noteholder
shall have received such Noteholder’s New Convertible Notes Consideration
through the facilities of DTC;


 


(e)           The Company
shall have delivered, and each Noteholder shall have received, such
Noteholder’s New Common Stock Consideration


 


(f)            The Company
shall have delivered to each Noteholder entitled to receive Preferred Stock
Consideration, a certificate evidencing the number of shares of Preferred Stock
to which such Noteholder is entitled;


 


(g)           The Company
shall have deposited by wire transfer to each Noteholder, at its designated
bank account, such Noteholder’s Total Cash Consideration.


 


(h)           Each Noteholder
shall have received the accrued and unpaid Forbearance Interest (as defined in
the Exchange Forbearance Agreement), if any, on the Exchanged Notes;


 


16

















 


(i)            The Company
shall have paid by wire transfer to the Senior Lender, the Senior Lender
Paydown Amount.


 


(j)            The Company
shall have paid the legal fees and expenses of Gibson, Dunn & Crutcher
incurred by the Noteholders in connection with the transactions contemplated
hereby.


 


(k)           The Company
shall have paid by wire transfer to the Trustee of the Non-Participating Notes
Amount, to allow distribution to each holder of Notes that is not a Noteholder,
the amounts owned to such holder under the Notes.


 


(l)            The Company
shall have paid by wire transfer to the Trustee the Trustee’s fees and expenses
(including reasonable counsel expenses) related to the transactions
contemplated hereby and under the Restructuring Agreements, together with any
other fees and expenses (including reasonable counsel expenses)  owed to the Trustee as of the Closing Date.


 


(m)          The Company
shall deliver the following documents prior to the Closing:


 


(i)            written
instructions signed by the Company to the Transfer Agent that instruct the
Transfer Agent to issue to each Noteholder, such Noteholder’s New Common Stock
Consideration;


 


(ii)           copies, signed
by the Company, of all documents necessary to execute the New Indenture, which
documents are subject to the satisfaction of the Trustee, including the New
Indenture, an Officers’ Certificate and Legal Opinion pursuant to Sections 15.5
and 15.6 of the New Indenture, a Legal Opinion pursuant to Section 314 of the
Trust Indenture Act, the Intercreditor Agreement (as defined in the New
Indenture) and all Second Lien Security Documents (as defined in the New
Indenture);


 


(iii)          a signed Global
Security, accompanied by an executed written notice in the form attached hereto
as Exhibit G; and


 


(iv)          an Instruction
to the Trustee to cancel the Noteholder’s Exchanged Notes;


 


(n)           Each Noteholder
shall have received a copy of the legal opinion of Perkins Coie LLP, counsel to
the Company, substantially in the form attached hereto as Exhibit D;


 


(o)           Each Noteholder
shall have received resolutions or other authorizations of the Company,
certified by the appropriate officers of the Company as being in full force and
effect as of the time of the Closing, authorizing the entry into this Agreement
by the Company, the transactions contemplated hereby and the Other Transactions
and the Rights Agreement Amendment;


 


(p)           The SEC has
declared the form T-3 qualifying the New Indenture under the Trust Indenture
Act;


 


(q)           The New
Convertible Notes shall have been made DTC eligible; and


 


17

















 


(r)            To the extent a
majority of the Noteholders shall have delivered to the Company a list of candidates meeting the
criteria set forth in Exhibit H hereto to be considered for
appointment to the Board(the “Candidates”)
prior to November 2, 2009, which list shall consist of not less than four
Candidates (the “Nominee List”), the Board shall
have appointed two Candidates to the Board, to hold office until the next stockholders’
election of directors and the Board shall taken all necessary action to set the
size of the Board at six directors.


 


Article VI.

COVENANTS


 


Section 6.01         Conduct of Business Prior to the Closing.  Between the date of this Agreement and the
Closing, without the prior consent of the Noteholders (which consent shall not
be unreasonably withheld), the Company shall cause the Company and its
Subsidiaries not to:


 


(a)           amend or otherwise change
its certificate of incorporation or bylaws or equivalent organizational
documents;


 


(b)           issue, sell,
pledge, dispose of or otherwise subject to any Lien (i) any shares of
capital stock of the Company or any of its Subsidiaries, or any options,
warrants, convertible securities or other rights of any kind to acquire any
such shares, or any other ownership interest in the Company or any of its
Subsidiaries or (ii) any properties or assets of the Company or any of its
Subsidiaries, other than sales or transfers of inventory or accounts receivable
in the ordinary course of business consistent with past practice;


 


(c)           declare, set
aside, make or pay any dividend or other distribution, payable in cash, stock,
property or otherwise, or make any other payment on or with respect to any of
its capital stock, except for dividends by any direct or indirect wholly owned
Subsidiary of the Company to the Company;


 


(d)           reclassify,
combine, split, subdivide or redeem, or purchase or otherwise acquire, directly
or indirectly, any of its capital stock or make any other change with respect
to its capital structure;


 


(e)           acquire any
corporation, partnership, limited liability company, other business
organization or division thereof or any material amount of assets;


 


(f)            adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any
of its Subsidiaries, or otherwise alter the Company’s or a Subsidiary’s
corporate structure;


 


(g)           incur any
indebtedness for borrowed money or issue any debt securities in excess of
$50,000 individually or $100,000 in the aggregate;


 


(h)           authorize, or
make any commitment with respect to, any single capital expenditure that is in
excess of $100,000 or capital expenditures that are, in the aggregate, in
excess of $250,000 for the Company and its Subsidiaries taken as a whole;


 


18

















 


(i)            grant or
announce any increase in the salaries, bonuses or other benefits payable by the
Company or any of its Subsidiaries to any of their employees, other than as
required by Law, pursuant to any plans, programs or agreements existing on the
date hereof or other ordinary increases not inconsistent with the past
practices of the Company or such Subsidiary;


 


(j)            take any
action, or intentionally fail to take any action, that would cause any
representation or warranty made by the Company in this Agreement or any
Restructuring Agreement to be untrue such that the conditions set forth in Section 5.03(c) would
not be satisfied or result in a material breach of any covenant made by the
Company in this Agreement or any Restructuring Agreement, or that has or would
reasonably be expected to have a Material Adverse Effect; or


 


(k)           announce an
intention, enter into any formal or informal agreement, or otherwise make a
commitment to do any of the foregoing.


 


Provided, however, that notwithstanding anything to the contrary above,
the Company may take any of the actions listed in clauses (g)-(j) (or in (k) to
the extent it involves any of such actions) in the ordinary course of business
without the Noteholder’s written consent.


 


Section 6.02         SEC
Filings.  The Company agrees
and covenants to stay current from the date hereof and until the Closing Date
in its filings of all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act, as amended.  No report filed by the Company with the SEC
Reports will 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
made therein, in light of the circumstances in which they were made, not
misleading.


 


Section 6.03         Issuance
Fees.  The Company
shall be responsible for the fees and expenses, including the DTC fees
associated with the issuance of the New Securities hereunder.


 


Section 6.04         Beneficial Ownership of
Notes.  Each Noteholder shall deliver for exchange
the Exchanged Notes held by such Noteholder free and clear of any Lien and any
other limitation or restriction.  No
Noteholder shall sell, transfer or dispose Exchanged Notes unless the
transferee of such Exchanged Notes executed a joinder to this Agreement
pursuant to which such transferee is deemed a Noteholder under this Agreement, provided
that no such transfer will require the Company to issue more New Preferred
Stock than is currently authorized.


 


Section 6.05         Further Assurances.  Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings, and to otherwise satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement, including not taking any
action, or permitting any action to be taken or reasonable action to not be
taken, which is inconsistent with this Agreement.


 


19
















 


Section 6.06         Filing of Form T-3 and DTC
Eligibility Documents.  As soon as practical and in no event later than October 25, 2009 the
Company shall file (i) with the SEC Form T-3 to qualify the New Indenture
under the Trust Indenture Act, and (ii) any and all documents necessary to
ensure that the New Convertible Notes will be DTC eligible.


 


Section
6.07         Board of Directors.  A
majority of the Noteholders shall deliver the Nomineee List to the Company
prior to November 2, 2009.  To the extent
that a majority of the Noteholders have delivered the Nominee List by such
date, the Board shall appoint two Candidates to the Board, to hold office until
the next stockholders' election of directors and the Board shall take all
necessary action to set the size of the Board at six directors.


 


Article
VII.

MISCELLANEOUS


 


Section 7.01         Communications.  All communications and notices provided for
hereunder shall be sent by personal delivery, nationally recognized overnight
courier, facsimile or registered or certified mail, to the Company at the
address set forth below and the Noteholders at their addresses set forth below,
or to such other address with respect to any party as such party shall notify
the other parties hereto in writing.  Any
notice required to be given hereunder by one party to another shall be deemed
to have been received (i) when delivered, if personally delivered or sent
via facsimile, or (ii) one day following delivery to a nationally
recognized overnight courier or (iii) on the third business day following
the date on which the piece of mail containing such communication is posted, if
sent by certified or registered mail.


 


If
to the Company, to:


 


Vitesse
Semiconductor Corporation


741
Calle Plano


Camarillo,
CA  93012


Attention:
General Counsel and Chief Financial Officer


Telephone:  (805) 388-3700

Facsimile:  (805) 388-7565


 


with
a copy to:


 


Perkins
Coie LLP


101
Jefferson Drive


Menlo
Park, CA


Fax:  650-838-4350


Attention:  Bruce M. McNamara


 


If
to the Noteholders, to the addresses specified:


 


Aristeia
Capital LLC

136 Madison Avenue, 3rd Floor

New York, NY  10016

Fax:  212-842-8901

Attention:  Andrew Anderson


 


20

















 


Cannell
Capital LLC’s main office is located at:

240 E. Deloney Avenue

P.O. Box 3459

Jackson, WY 83001

Fax:  415-362-8512

Attention:  Rich Van Doren


 


CNH
Partners LLC

2 Greenwich Plaza, 1st Floor

Greenwich, CT  06830

Fax:  203-742-3072

Attention:  Todd Pulvino


 


Linden
Advisors LP

590 Madison Avenue, 15th Floor

New York, NY  10022

Fax:  646-840-3625

Attention:  Andy Chang


 


Whitebox
Advisors

3033 Excelsior Boulevard, Suite 300

Minneapolis, MN  55416

Fax:  612-253-6100

Attention:  Robert Vogel


 


RBS
Global Banking & Markets


600
Washington Boulevard


Stamford,
CT 06901


Attention:  Russell Brenner


Email:
russell.brenner@rbs.com


 


with
a copy to:


 


Gibson,
Dunn & Crutcher LLP

200 Park Avenue

New York, NY  10166

Fax:  212-351-4035

Attention:  Matthew J. Williams


 


If to the Trustee


 


U.S.
Bank National Association

633 West 5th Street, 24th Floor

Los Angeles, CA  90071

Fax:  213-615-6196

Attention:  Stephen Rivero


 


21

















 


with
a copy to:


 


	
  Maslon Edelman Borman &
  Brand, LLP

  	
   

  
	
  90 South 7th Street, Suite 3300

  	
   

  
	
  Minneapolis, MN  55402

  	
   

  
	
  Fax:  612-642-8342

  	
   

  
	
  Attention:

  	
  Kesha Tanabe

  
	
   

  	
  Clark Whitmore

  
			



 


Section 7.02         Amendments and Waivers.


 


(a)           Any provision of
this Agreement may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by each Noteholder and the
Company.


 


(b)           No failure or delay
by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.


 


Section 7.03         Successors
and Assigns.  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided that
no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of each other party
hereto; provided  however, that, any Noteholder may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of each other party hereto to any transferee of
the Exchanged Notes that executes a joinder to this Agreement pursuant to which
such transferee is deemed a Noteholder under this Agreement, provided that no
such transfer will require the Company to issue more New Preferred Stock than
is currently authorized


 


Section 7.04         Survival; Indemnification.


 


(a)           Survival. 
The representations, warranties and covenants of the Noteholders
contained in this Agreement shall survive until the fifth anniversary of the Closing.  The
representations, warranties and covenants of the Company contained in this
Agreement (including any schedule, certificate or other document delivered
pursuant hereto or thereto) shall survive until the fifth anniversary of the
Closing; provided, however, that: (i) the representations
and warranties set forth in Sections 4.01 (Corporate Existence; Good
Standing), 4.02 (Corporate Authorization) and 4.05
(Capitalization; Issuance; Registration Exemption) (each, a “Core Representation”) shall survive
indefinitely; (ii) the representations and warranties set forth in Sections
4.09 (Taxes) and 4.12 (Environmental Matters) shall survive until the
close of business on the 120th day following the expiration of the statute of
limitations applicable to the liabilities described therein (giving effect to
any waiver, mitigation or extension thereof); and (iii) any representation
or warranty, in the case of a knowing or intentional misrepresentation, other
than the Core Representations, which shall survive indefinitely in any case,
shall survive until the statute of limitations expires as to such act.


 


22

















 


(b)           Indemnification.


 


(i)            Each
Noteholder, solely as to its own actions and not jointly and severally, hereby
indemnifies the Company and its successors and assignees (each, a “Company Indemnified Party”) against, and
agrees to hold each of them harmless from, any and all Losses incurred or
suffered, directly or indirectly, by the Company or any of its successors and
assignees arising out of any misrepresentation or breach of warranty or breach
of covenant or agreement made or to be performed by that Noteholder in this
Agreement (including any schedule, certificate or other document delivered
pursuant hereto or thereto).


 


If the transactions contemplated hereby are
consummated, the Company hereby expressly reserves the right to seek indemnity
or other remedy for any Losses arising out of or relating to any breach of any
representation or warranty contained herein, notwithstanding any investigation
by, disclosure to or knowledge of such party in respect of any fact or
circumstances that reveals the occurrence of any such breach, whether before or
after the execution and delivery hereof.


 


(ii)           The
Company hereby indemnifies each Noteholder and its successors and assignees
(each, a “Noteholder Indemnified Party”)
against, and agrees to hold each of them harmless from, any and all Losses
incurred or suffered, directly or indirectly, by that Noteholder or any of its
successors and assignees arising out of any misrepresentation or breach of
warranty or breach of covenant or agreement made or to be performed by the Company
in this Agreement (including any schedule, certificate or other document
delivered pursuant hereto or thereto).


 


If the transactions contemplated hereby are
consummated, each Noteholder hereby expressly reserves the right to seek
indemnity or other remedy for any Losses arising out of or relating to any
breach of any representation or warranty contained herein, notwithstanding any
investigation by, disclosure to or knowledge of such party in respect of any
fact or circumstances that reveals the occurrence of any such breach, whether
before or after the execution and delivery hereof.


 


After the Closing, this Section 7.04(b) will
provide the exclusive remedy of the Company or the Noteholders for any breach
of any representation, warranty, covenant or other claim arising out of or
relating to this Agreement and/or the transactions contemplated hereby.


 


Section 7.05         Termination.  This Agreement may be terminated at any time
prior to the Closing:


 


(a)           by any Noteholder, if the Closing shall not have occurred by November 16, 2009; provided,
that the right to terminate this Agreement under this Section 7.05(a) shall
not be available to such Noteholder if the failure of such Noteholder so
requesting termination to fulfill any obligation under this Agreement shall
have been the cause of, or shall have resulted in, the failure of the Closing
to occur on or prior to such date, and provided, further, that
this Agreement shall not terminate, other than with respect to such terminating
Noteholder(s) (and this Agreement shall be void and of no effect with
respect to such terminating Noteholder), pursuant to this Section 7.05(a),
if the Majority


 


23

















 


Noteholders inform the Company in writing within five
business days of such termination that this Agreement should not terminate
pursuant to this Section 7.05(a).


 


(b)           by any Noteholder or
the Company in the event that any Governmental Authority shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
nonappealable; provided, that the party so requesting termination shall
have used its commercially reasonable efforts, in accordance with Section 6.05,
to have such order, decree, ruling or other action vacated; or


 


(c)           By the Majority
Noteholders, if between the date hereof and the Closing, an event or condition
occurs that has or is reasonably likely to have a Material Adverse Effect.


 


The party seeking to terminate this Agreement
pursuant to this Section 7.05 (other than Section 7.01) shall give
prompt written notice of such termination to the other party.


 


Section 7.06         Governing Law.  This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard
to the conflicts of law rules of such state that would result in the
application of the law of another jurisdiction.


 


Section 7.07         Fees and Expenses.  The Company shall pay on or prior to the
Closing Date the legal fees and expenses of Gibson, Dunn & Crutcher
incurred by the Noteholders in connection with the transactions contemplated
hereby.


 


Section 7.08         Jurisdiction.  Each of the parties irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement
brought by the other party or its successors or assigns shall be brought and
determined in any New York State or federal court sitting in the Borough of
Manhattan in The City of New York (or, if such court lacks subject matter
jurisdiction, in any appropriate New York State or federal court), and each of
the parties hereby irrevocably submits to the exclusive jurisdiction of the
aforesaid courts for itself and with respect to its property, generally and
unconditionally, with regard to any such action or proceeding arising out of or
relating to this Agreement and the transactions contemplated hereby.  Each of the parties agrees not to commence
any action, suit or proceeding relating thereto except in the courts described
above in New York, other than actions in any court of competent jurisdiction to
enforce any judgment, decree or award rendered by any such court in New York as
described herein.  Each of the parties
further agrees that notice as provided herein shall constitute sufficient
service of process and the parties further waive any argument that such service
is insufficient.  Each of the parties
hereby irrevocably and unconditionally waives, and agrees not to assert, by way
of motion or as a defense, counterclaim or otherwise, in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, (a) any claim that it is not personally subject to
the jurisdiction of the courts in New York as described herein for any reason, (b) that
it or its property is exempt or immune from jurisdiction of any such court or
from any legal process commenced in such courts (whether through service of
notice, attachment prior to judgment, attachment in aid of execution of
judgment, execution of judgment or otherwise) and (c) that (i) the
suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or


 


24

















 


proceeding is improper or (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.


 


Section 7.09         Waiver
of Jury Trial.  EACH PARTY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED
BY APPLICABLE LAW) ANY RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER,
RELATING TO, OR CONNECTED WITH THIS AGREEMENT, OR ANY OTHER AGREEMENT,
INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR DELIVERED IN CONNECTION HEREWITH
AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT
A JURY.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS AGREEMENT.


 


Section 7.10         Counterparts;
Effectiveness; Third Party Beneficiaries.  This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when
each party hereto shall have received a counterpart hereof signed by all of the
other parties hereto.  Until and unless
each party has received a counterpart hereof signed by the other party hereto,
this Agreement shall have no effect and no party shall have any right or obligation
hereunder (whether by virtue of any other oral or written agreement or other
communication).  No provision of this
Agreement is intended to confer any rights, benefits, remedies, obligations, or
liabilities hereunder upon any Person other than the parties hereto and their
respective successors and assigns.


 


Section 7.11         Entire
Agreement.  This
Agreement and the Restructuring Agreements constitute the entire agreement
among the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter of this Agreement.


 


Section 7.12         Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other Governmental Authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party.  Upon such a
determination, the parties shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.


 


Section 7.13         Specific
Performance.  The parties
hereto agree that irreparable damage would occur if any provision of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement or to enforce specifically the performance of the terms and
provisions hereof in addition to any other remedy to which they are entitled at
law or in equity.


 


25

















 


IN WITNESS WHEREOF, the parties hereto have caused
this Debt Conversion Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.


 


	
  COMPANY:

  	
  Vitesse Semiconductor Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christopher R. Gardner

  
	
   

  	
  Name:

  	
  Christopher R. Gardner

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  



 

















 


NOTEHOLDERS:


 


	
   

  	
  AQR Absolute Return Master Account, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brendan R. Kalb

  
	
   

  	
  Name:

  	
  Brendan R. Kalb

  
	
   

  	
  Title:

  	
  Associate General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  Aristeia Master, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William R. Techar

  
	
   

  	
  Name:

  	
  William R. Techar

  
	
   

  	
  Title:

  	
  Member of the Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  Aristeia Partners, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William R. Techar

  
	
   

  	
  Name:

  	
  William R. Techar

  
	
   

  	
  Title:

  	
  Member of the Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  CNH CA Master Account, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brendan R. Kalb

  
	
   

  	
  Name:

  	
  Brendan R. Kalb

  
	
   

  	
  Title:

  	
  Authorized Signatory

  



 


	
   

  	
  Linden Capital, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Craig Jarvis

  
	
   

  	
  Name:

  	
  Craig Jarvis

  
	
   

  	
  Title:

  	
  Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
  Whitebox Advisors, LLC, for and on behalf of its
  client accounts

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  
	
   

  	
  Name:

  	
  Jonathan Wood

  
	
   

  	
  Title:

  	
  COO

  
	
   

  	
   

  	
   

  
	
   

  	
  Tonga Partners, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Carlo Cannell

  
	
   

  	
  Name:

  	
  J. Carlo Cannell

  
	
   

  	
  Title:

  	
  Managing Member, Cannell Capital, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  Tonga Partners QP, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Carlo Cannell

  
	
   

  	
  Name:

  	
  J. Carlo Cannell

  
	
   

  	
  Title:

  	
  Managing Member, Cannell Capital, LLC

  



 


	
   

  	
  Anegada Master Fund, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Carlo Cannell

  
	
   

  	
  Name:

  	
  J. Carlo Cannell

  
	
   

  	
  Title:

  	
  Managing Member, Cannell Capital, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  Cuttyhunk Master Portfolio

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Carlo Cannell

  
	
   

  	
  Name:

  	
  J. Carlo Cannell

  
	
   

  	
  Title:

  	
  Managing Member, Cannell Capital, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  ABN AMRO Bank N.V., London Branch

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  RBS Securities Inc. as agent for ABN AMRO Bank N.V., London Branch

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William Donzeiser

  
	
   

  	
  Name:

  	
  William Donzeiser

  
	
   

  	
  Title:

  	
  Authorized Signature