Exhibit 10.2


 


NEITHER THESE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR (B) IF REASONABLY
REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.


 


VYYO INC.


 


CONVERTIBLE NOTE


 


	
  Issuance
  Date: March 22, 2006

  	
   

  	
  Principal: U.S. $10,000,000

  



 


FOR VALUE RECEIVED,
VYYO Inc., a Delaware corporation, (the “Company”),
hereby promises to pay to Goldman, Sachs & Co. or registered assigns (“Holder”)
the amount set out above as the Principal (as reduced pursuant to the terms
hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the
Maturity Date (each, as defined herein) unless earlier redeemed or converted
(in each case in accordance with the terms hereof), and to pay interest (“Interest”) on any outstanding Principal at
the rate of 10.0% per annum (the “Interest
Rate”), from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due
and payable unless earlier redeemed or converted.  This Convertible Note (including all
Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is issued on the Closing Date
pursuant to the Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Investors identified therein (the “Securities Purchase Agreement”). Certain
capitalized terms used herein are defined in Section 27.  Capitalized terms that are not otherwise
defined herein have the meanings given to such terms in the Securities Purchase
Agreement.


 


1.  MATURITY.  On the Maturity Date, the Company shall pay
to the Holder an amount in cash representing all outstanding Principal and the
accrued and unpaid Interest thereon.  The
Company shall make such payment on the Maturity Date, together with the amount
of any accrued and unpaid interest on such Principal, by wire transfer of
immediately available funds to an account designated in writing by the Holder.


 


2.  INTEREST; INTEREST RATE.
Interest on this Note shall commence accruing on the Issuance Date and shall be
computed on the basis of a 360-day year comprised of twelve 30-day months and
shall be payable in arrears for each Calendar Quarter on the first day of the
succeeding Calendar Quarter during the period beginning on the Issuance Date
and ending on, and including, the Maturity Date (each, an “Interest Date”) with the first Interest Date being April 1,
2006 by wire transfer of immediately 


 

















 


payable funds.  Interest shall be payable on each Interest
Date in cash.  Prior to the payment of
Interest on an Interest Date, Interest on this Note shall accrue at the
Interest Rate and be payable in cash upon any conversion in accordance with
Section 4.  Upon the occurrence and
during the continuance of any default in the payment of the Interest or
Principal when due, the Interest Rate shall be increased by two percent (2.0%) per
annum (the “Default Rate”).  In the event that such Interest or Principal
payment default is subsequently cured, the adjustment referred to in the
preceding sentence shall cease to be effective as of the date of such
cure.  Interest on overdue interest shall
accrue at the same rate compounded quarterly.


 


3.  SUBORDINATION.  The Principal and Interest on this Note is
expressly subordinated in right of payment to (i) the Senior Secured Notes
issued on the date hereof, and (ii) any borrowed money by the Company
designated as senior debt by the Board of Directors (“Indebtedness”).  Upon
payment or distribution of the assets of the Company to creditors upon any
dissolution, winding up, liquidation, reorganization, recapitalization or
readjustment of the Company or its property, payment of the Principal and
Interest will be subordinate to the prior payment in full of all such
Indebtedness.  No payment of Principal or
Interest may be made by the Company if (i) at any time there exists (or after
giving effect to the payment there would exist) an event of default under the
agreement pursuant to which such Indebtedness has been issued, or (ii) full
payment of amounts then due for principal and interest on the Indebtedness has
not been made or duly provided for.  The
Holder of this Note shall execute any further documentation reasonably
requested by a lender to effect the foregoing.


 


4.  CONVERSION OF NOTES.  Subject to Section 7(a), this Note shall be
convertible into common shares of the Company, $0.0001 par value (the “Common Shares”), on the terms and conditions set forth in
this Section 4.


 


(a)  Conversion Right.  At any time or times on or after the Issuance
Date and prior to repayment, the Holder shall be entitled to convert any
portion of the outstanding and unpaid Conversion Amount (as defined below) into
fully paid and nonassessable Common Shares in accordance with
Section 4(c), at the Conversion Rate (as defined below); provided  that,
following a Fundamental Transaction, this Note shall be entitled to convert
only into such consideration as the Common Shares outstanding prior thereto
became entitled to receive, as appropriately adjusted to give effect to the
Conversion Rate in this Note.  The
Company shall not issue any fraction of a Common Share upon any conversion.  If the issuance would result in the issuance
of a fraction of a Common Share, the Company shall round such fraction of a
Common Share to the nearest whole share.


 


(b)  Conversion Rate.  The number of Common Shares issuable upon
conversion of any Conversion Amount pursuant to Section 4(a) shall be
determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (such number of shares, the “Conversion Rate”).


 


(i)  “Conversion
Amount” means the portion of the Principal to be converted or
redeemed with respect to which this determination is being made.


 


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(ii)  “Conversion
Price” means, as of any Conversion Date (as defined below) or other
date of determination a price equal to $10.00, subject to adjustment as
provided herein.


 


(c)  Mechanics of Conversion.


 


(i)  Optional Conversion.  To convert any Conversion Amount greater than
$500,000 into Common Shares on any date (a “Conversion
Date”), the Holder shall: (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 p.m., New York Time,
on such date, a copy of an executed notice of conversion (the “Conversion Notice”) to the Company and (B) if required
by Section 4(f), surrender this Note to the Company (or an indemnification
undertaking with respect to this Note in the case of its loss, theft or
destruction).  On or before the first (1st) Trading Day following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile
a confirmation of receipt of such Conversion Notice to the Holder and the
Transfer Agent.  On or before the
third (3rd)
Trading Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall: (1) (x) provided
that the Transfer Agent is participating in the DTC Fast Automated Securities
Transfer Program, credit such aggregate number of Common Shares or other
consideration to which the Holder shall be entitled to the Holder’s balance
account with DTC through its Deposit Withdrawal Agent Commission system or
(y) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, registered in the name of the Holder, for
the number of Common Shares or other consideration to which the Holder shall be
entitled, (2) pay to the Holder in cash an amount equal to the accrued and
unpaid Interest on the Conversion Amount up to and including the Conversion
Date and (3) for any conversions prior to
March 22, 2010 in connection with a Fundamental Transaction, pay any applicable
Make-Whole Premium in accordance with Section 4(d). The Person or Persons
entitled to receive the Common Shares issuable upon a conversion of this Note
shall be treated for all purposes as the record holder or holders of such
Common Shares on the Conversion Date.


 


(d)  Make-Whole Premium.


 


(i)  If a Fundamental Transaction
occurs on or prior to March 22, 2010, the Company also shall pay the Make-Whole
Premium, if any, to the Holder who elects to convert its Note pursuant to this
Section or elects to have its Note redeemed pursuant to Section 6(a)
hereof pursuant to the Fundamental Transaction. The Make-Whole Premium, if any,
shall be paid in cash on the Fundamental Transaction Effective Date to Holders who exercise such conversion right.


 


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(1)  The “Make-Whole Premium” shall be determined as follows:


 


(2)  If the Fundamental Transaction Effective Date
is after March 22, 2010, no Make-Whole Premium shall be paid;


 


(3)  If the Stock
Price equals or exceeds $17.50 (subject to adjustment pursuant to
Section 8), no Make-Whole Premium shall be paid; and


 


(4)  In all other cases, the Make-Whole Premium
shall be an amount equal to the interest that otherwise would accrue on the
Principal of the Note had it remained outstanding from the date hereof through
March 22, 2010, less the amount of interest accrued and paid prior to the
date of conversion.  Notwithstanding
anything to the contrary set forth herein, the Make-Whole Premium, if any,
shall be paid in cash and shall not increase or affect the Conversion Amount,
Conversion Price, or the number of shares of Common Stock issuable upon
conversion of this Note.


 


(ii)  For purposes of Section 4(d),
the following terms shall have the meanings indicated:


 


(1)  “Fundamental
Transaction Effective Date” means the date that a Fundamental
Transaction becomes effective.


 


(2)  “Stock Price”
means the price paid per Common Share in the transaction constituting the
Fundamental Transaction, determined as follows:


 


(i)  If holders of the Common Shares
receive only cash in the transaction constituting the Fundamental Transaction,
then the Stock Price shall equal the cash amount paid per Common Share; and


 


(ii)  In all other cases, the Stock
Price shall be the average of the daily Trading Prices per Common Share for the
ten consecutive Trading Day period ending on the Trading Day immediately
preceding the Fundamental Transaction Effective Date.


 


(e)  Book-Entry.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with
the terms hereof, the Holder shall not be required to physically surrender this
Note to the Company unless (A) the full Conversion Amount represented by
this Note is being converted or (B) the Holder has provided the Company
with prior written notice (which notice may be included in a Conversion Notice)
requesting reissuance of this Note upon physical surrender.  The Holder and the Company shall maintain
records showing the Principal converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon conversion.


 


4

















 


5.  RIGHTS UPON
EVENT OF DEFAULT.


 


(a)  Event of Default.  Each of the following events shall constitute
an “Event of Default”:


 


(i)  The Company’s failure to
convert a Note in accordance with Section 4 within five (5) Trading Days
after the applicable Conversion Date;


 


(ii)  The Company shall fail to pay
any Principal owing under this Note when due;


 


(iii)  The Company shall fail to pay
any Interest owing under this Note when due, and such failure shall continue
for thirty (30) days;


 


(iv)  The Company or any Significant
Subsidiary shall (A) fail to make any payment when due under the terms of any
bond, debenture, note or other evidence of indebtedness to be paid by the
Company or such Significant Subsidiary (excluding this Note, which default is addressed
by clauses (ii) and (iii) above, but including any other evidence of
indebtedness of the Company or such Significant Subsidiary) and such failure
shall continue beyond any period of grace provided with respect thereto, or (B)
default in the observance or performance of any other agreement, term or
condition contained in any such bond, debenture, note or other evidence of
indebtedness; and the effect of such failure or default in clause (A) or (B) is
to cause, or permit the holder thereof to cause, indebtedness in an aggregate
amount of One Million Dollars ($1,000,000) or more to become due prior to its
stated date of maturity and such failure shall continue for thirty (30) days;


 


(v)  An involuntary proceeding shall
be commenced or an involuntary petition shall be filed seeking (A) liquidation,
reorganization or other relief in respect of the Company or any Significant
Subsidiary or its debts, or of a substantial part of its assets, under any
federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect or (B) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company or any
Significant Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 30 days or an
order or decree approving or ordering any of the foregoing shall be entered;


 


(vi)  The Company or any Significant
Subsidiary shall (A) voluntarily commence any proceeding or file any petition
seeking liquidation, reorganization or other relief under any federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (B) consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or petition described in clause (v) of this Section, (C)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company or any
Significant Subsidiary or for a substantial part of its assets, (D) file an
answer admitting the material allegations of a petition filed against 


 


5

















 


it in any such proceeding, (E) make a general assignment for the
benefit of creditors or (F) take any action for the purpose of effecting any of
the foregoing;


 


(vii)  One or more judgments for the
payment of money in an amount in excess of Five Million Dollars ($5,000,000) in
the aggregate, outstanding at any one time, shall be rendered against the
Company or any Significant Subsidiary and the same shall remain undischarged
for a period of sixty (60) days during which execution shall not be effectively
stayed, or any judgment, writ, assessment, warrant of attachment, or execution
or similar process shall be issued or levied against a substantial part of the
property of the Company or any Significant Subsidiary and such judgment, writ,
or similar process shall not be released, stayed, vacated or otherwise
dismissed within sixty (60) days after issue or levy;


 


(viii)  Failure (A) of the Company to
make any required filings with the United States Securities and Exchange
Commission or (B) of the Common Stock to be listed on an eligible securities
exchange, and in either case (A) or (B) such failure shall continue for sixty
(60) days;


 


(ix)  The Company shall fail to
observe or perform any other covenant, obligation, condition or agreement
contained in this Note or the Guaranty and Security Agreement and, to the
extent such failure is capable of being cured, such failure shall continue for
sixty (60) days.


 


(b)  Event of Default Redemption Right.  Promptly after the occurrence of an Event of
Default with respect to this Note, the Company shall deliver written notice
thereof via facsimile and overnight courier (an “Event of Default Notice”) to the Holder.  The Holder, upon the approval of Holders
holding more than 33 1/3% of the aggregate principal balance of the Notes then
outstanding, by written notice to the Company, may declare all outstanding
amounts payable by the Company hereunder to be immediately due and payable
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein to the contrary
notwithstanding (“Redemption Price”).  Upon the occurrence or existence of any Event
of Default described in Sections (v) or (vi) hereof,
immediately and without notice, all outstanding amounts payable by the Company
hereunder shall automatically become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein to the contrary
notwithstanding.  In addition to the
foregoing remedies, upon the occurrence or existence of any Event of Default,
the Holder may exercise, upon the approval of Holders holding more than a
majority of the aggregate principal balance of the Notes, any other right,
power or remedy permitted to it by law, either by suit in equity or by action
at law, or both.


 


6.  RIGHTS UPON FUNDAMENTAL
TRANSACTION.


 


(a)  Fundamental Transaction Redemption Right.  No sooner than twenty (20) days nor
later than ten (10) days prior to the consummation of a Fundamental
Transaction, but not prior to the public announcement of such Fundamental
Transaction, 


 


6

















 


the Company shall deliver written notice
thereof via facsimile and overnight courier to the Holder (a “Fundamental Transaction Notice”).  At any time during the period (the “Fundamental Transaction Period”) beginning after the Holder’s
receipt of a Fundamental Transaction Notice and ending on the date that is one
(1) Trading Day before the Fundamental Transaction Effective Date, the
Holder, at its option, may require the Company to redeem all or any portion of
this Note by delivering written notice thereof (“Fundamental
Transaction Redemption Notice”) to the Company, which Fundamental
Transaction Redemption Notice shall indicate the Conversion Amount the Holder
is electing to redeem.  The portion of
this Note subject to redemption pursuant to this Section 6 shall be
redeemed by the Company in cash at a price equal to 101% of the Principal plus
any accrued but unpaid Interest thereon up to, but not including, the
Fundamental Transaction Effective Date (the “Fundamental
Transaction Redemption Price”) on the Fundamental Transaction
Effective Date.  In addition, for any
redemption made prior to March 22, 2010, the Holder shall also be paid the
Make-Whole Premium, if any, as applicable. 
Redemptions required by this Section 6 shall have priority to
payments to stockholders in connection with a Fundamental Transaction.  To the extent redemptions required by this
Section 6 are deemed or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments.  Notwithstanding
anything to the contrary in this Section 6, until the Fundamental
Transaction Redemption Price (together with interest thereon and the Make-Whole
Premium, if any) is paid in full, the Conversion Amount submitted for
redemption under this Section 6 may be converted, in whole or in part pursuant
to Section 4.  The parties hereto agree
that in the event of the Company’s redemption of any portion of the Note under
this Section 6, the Holder’s damages would be uncertain and difficult to
estimate because of the parties’ inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment opportunity
for the Holder.  Accordingly, any
redemption premium due under this Section 6 is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.


 


7.  RIGHTS UPON CERTAIN OTHER
CORPORATE EVENTS.


 


(a)  Corporate Events.  Subject to the Section 4(d) and 6 herein as
applicable, prior to the consummation of any Fundamental Transaction pursuant
to which holders of Common Shares are entitled to receive securities or other
assets with respect to or in exchange for Common Shares (a “Corporate Event”), the Company shall make appropriate
provision to insure that the Holder will thereafter have the right to receive
upon a conversion of this Note, such securities or other assets received by the
holders of Common Shares in connection with the consummation of such Corporate
Event in such amounts as the Holder would have been entitled to receive had
this Note initially been issued with conversion rights for the form of such consideration
(as opposed to Common Shares) at a conversion rate for such consideration
commensurate with the Conversion Rate. 
The provisions of this Section shall apply similarly and equally to
successive Corporate Events unless or until the Note is redeemed or repaid.


 


8.  ADJUSTMENT OF CONVERSION
PRICE UPON SUBDIVISION OR COMBINATION OF COMMON SHARES.  If the Company at any time on or after the 


 


7

















 


Issuance Date subdivides (by any share split,
share dividend, recapitalization or otherwise) one or more classes of its
outstanding Common Shares into a greater number of shares, the Conversion Price
in effect immediately prior to such subdivision will be proportionately
reduced.  If the Company at any time on
or after the Issuance Date combines (by combination, reverse share split or
otherwise) one or more classes of its outstanding Common Shares into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.


 


9.  COVENANTS.  Until all Principal and Interest and any
other amounts due and payable under this Note have been paid in full in cash,
the Company shall, and shall cause each Significant Subsidiary to:


 


(a)  provide prompt written notice to the Holder
of the occurrence of any Event of Default, or any event which with the giving
of notice or lapse of time, or both, would constitute an Event of Default,
hereunder;


 


(b)  do or cause to be done all things reasonably
necessary to preserve, renew and keep in full force and effect its legal
existence; and


 


(c)  keep proper books of record and account in
which full, true and correct entries are made of all dealings and transactions
in relation to its business and activities, (ii) permit any representatives
designated by the Holder, upon reasonable prior notice, to visit and inspect
its properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested,
and (iii) provide to the Holder the same information rights as it provides to
its stockholders.


 


10.  RESERVATION OF AUTHORIZED
SHARES.


 


(a)  Reservation. The Company shall have
sufficient authorized and unissued Common Shares for each of the Notes equal to
the number of Common Shares necessary to effect the conversion at the
Conversion Rate with respect to the Conversion Amount of each such Note as of
the Issuance Date. So long as any of the Notes are outstanding, the Company
shall take all action necessary to reserve and keep available out of its
authorized and unissued Common Shares, solely for the purpose of effecting the
conversion of the Notes, the number of Common Shares as shall from time to time
be necessary to effect the conversion of all of the Notes then outstanding;
provided that at no time shall the number of Common Shares so available be less
than the number of shares required to be reserved by the previous sentence
(without regard to any limitations on conversions) (the “Required Amount”).


 


11.  REDEMPTION
MECHANICS.  In the event that the
Company does not pay the applicable Redemption Price to the Holder within five
(5) Trading Days, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was 


 


8

















 


submitted for redemption and for which the
applicable Redemption Price has not been paid. 
Upon the Company’s receipt of such notice, (x) the Redemption
Notice shall be null and void with respect to such Conversion Amount, (y) the
Company shall immediately return this Note, or issue a new Note (in accordance
with Section 15(d)) to the Holder representing such Conversion Amount.


 


12.  RIGHTS UPON DISTRIBUTION OF
ASSETS.  If the Company shall declare
or make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of Common Shares, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, shares or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”),
at any time after the issuance of this Note, then, in each such case any
Conversion Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of Common Shares entitled to
receive the Distribution shall be reduced, effective as of the close of
business on such record date, to a price determined by multiplying such
Conversion Price by a fraction of which (i) the numerator shall be the
Closing Bid Price of the Common Shares on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one Common Share, and
(ii) the denominator shall be the Closing Bid Price of the Common Shares
on the trading day immediately preceding such record date.


 


13.  VOTE TO ISSUE, OR CHANGE THE
TERMS OF, NOTES.  This Note may be
amended and any provision may be waived with the consent of the Company and the
Holder.  In addition, the Notes may be
amended and a provision may be waived by the Company with the affirmative vote
or consent of the holders of a majority of the aggregate principal amount of
the Notes.  Any change or amendment so
approved shall be binding upon all existing and future holders of this Note; provided
that, no such amendment or waiver may materially and adversely affect
the economic interest in the Company of the Holder of this Note in a manner
disproportionate to the Holders of other Notes without the consent of the
Holder hereof.


 


14.  TRANSFER.  This Note and any Common Shares issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company in aggregate principal amounts of at
least $500,000, subject only to the provisions of Section 4.1 of the Securities
Purchase Agreement and compliance with applicable law.


 


15.  REISSUANCE OF THIS NOTE.


 


(a)  Transfer.  If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 15(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 15(d)) to the Holder representing the outstanding Principal 


 


9

















 


not being transferred.  The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
4(f) following conversion or redemption of any portion of this Note, the
outstanding Principal represented by this Note may be less than the Principal
stated on the face of this Note.


 


(b)  Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 15(d)) representing the outstanding Principal.


 


(c)  Note Exchangeable for Different
Denominations.  This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 15(d) and
in principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the
time of such surrender.


 


(d)  Issuance of New Notes.  Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new
Note being issued pursuant to Section 15(a) or Section 15(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on
the face of such new Note, which is the same as the Issuance Date of this Note,
(iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued and unpaid Interest on the Principal of this Note, from the
Issuance Date.


 


16.  REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note and
any of the other Transaction Documents at law or in equity (including a decree
of specific performance and/or other injunctive relief).  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate.  The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an
injunction.


 


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17.  PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If
following an Event of Default (a) this Note is placed in the hands of an
attorney for collection or enforcement or is collected or enforced through any
legal proceeding or the Holder otherwise takes action to collect amounts due
under this Note or to enforce the provisions of this Note or (b) there
occurs any bankruptcy, reorganization, receivership of the Company or other
proceedings affecting Company creditors’ rights and involving a claim under
this Note, then the Company shall pay the reasonable costs incurred by the
Holder for such collection, enforcement or action or in connection with such
bankruptcy, reorganization, receivership or other proceeding, including, but
not limited to, attorneys’ fees and disbursements.


 


18.  CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly
drafted by the Company and all the Holders and shall not be construed against
any person as the drafter hereof.  The
headings of this Note are for convenience of reference and shall not form part
of, or affect the interpretation of, this Note.


 


19.  FAILURE OR INDULGENCE NOT
WAIVER.  No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege.


 


20.  NOTICES.  Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be
delivered in accordance with Section 6.4 of the Securities Purchase
Agreement.  The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Conversion Price, setting forth
in reasonable detail, and certifying, the calculation of such adjustment and
(ii) at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Shares or (B) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or
in conjunction with such notice being provided to the Holder.


 


21.  CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.


 


22.  WAIVER OF NOTICE.  To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.


 


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23.  GOVERNING LAW.  This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation
and performance of this Note shall be governed by, the internal laws of the
State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. 
Any action brought by either party against the other concerning the
transactions contemplated by this Agreement shall be brought only in the state
courts of New York or in the federal courts located in the State of New York
and waive trial by jury.  Both parties
agree to submit to the jurisdiction of such courts.  The prevailing party shall be entitled to
recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of this Note
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision of this Note.  Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor
of the Holder.


 


24.  INDEMNIFICATION.


 


(a)  Subject to the limitations herein, the
Company shall indemnify the Holder, and each Affiliate of the Holder (each such
Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, (excluding the legal fees of counsel
for any Indemnitee), incurred by or asserted against any Indemnitee by a third
party arising out of, in connection with, or as a result of:  (i) the execution or delivery of this Note,
the performance by the Company and its Subsidiaries hereto of their respective
obligations hereunder or the consummation of or the use of the proceeds
therefrom, or (ii) the material breach by the Company or any Subsidiary of
(a) any representation, warranty, covenant or agreement contained herein or (b)
any representation or warranty in Section 3.1 of the Securities Purchase
Agreement, as they relate to this Note; provided  that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and non-appealable judgment to have resulted
from the gross negligence or willful misconduct of such Indemnitee.


 


(b)           To
the extent permitted by applicable law, the Company and the Holder hereof shall
not assert, and hereby waives, any claim against any Indemnitee, on any theory
of liability, for special, indirect, consequential or punitive damages arising
out of, in connection with, or as a result of, this the this Note, the
Securities Purchase Agreement and the Registration Rights Agreement or any
agreement or instrument contemplated hereby or thereby, or the use of the
proceeds thereof.


 


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25.  MAXIMUM PAYMENTS.  Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.


 


26.  NONCIRCUMVENTION. The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation or Bylaws, or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Note, and will
at all times in good faith carry out all of the provisions of this Note and
take all action as may be required to protect the rights of the Holder of this
Note.


 


27.  CERTAIN DEFINITIONS.  For purposes of this Note, the following
terms shall have the following meanings:


 


(a)  “Bloomberg”
means Bloomberg Financial Markets.


 


(b)  “Calendar
Quarter” means each of: the period beginning on and including
January 1 and ending on and including March 31; the period beginning on
and including April 1 and ending on and including June 30; the period
beginning on and including July 1 and ending on and including
September 30; and the period beginning on and including October 1 and
ending on and including December 31.


 


(c)  “Closing Date”
shall have the meaning set forth in the Securities Purchase Agreement, which
date is the date the Company initially issued Notes pursuant to the terms of
the Securities Purchase Agreement.


 


(d)  “Eligible
Market” means the Principal Market, The New York Stock Exchange, Inc
or The Nasdaq Capital Market.


 


(e)  “Fundamental
Transaction” means that the Company shall, directly or indirectly,
in one or more related transactions, (i) consolidate or merge with or into
(whether or not the Company, is the surviving corporation) another Person, or
(ii) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of the Company to another Person, or (iii) be
subject to an offer from another Person or group of related Persons (as defined
in Sections 13(d) and 14(d) of the Exchange Act) other than the Holder to make
a purchase, tender or exchange offer that is accepted by the holders of more
than the 50% of the outstanding Voting Shares (not including any Voting Shares
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person or group of related Persons (as
defined in Sections 13(d) and 14(d) of the Exchange Act) whereby such other
Person or group 


 


13

















 


acquires more than the 50% of the outstanding
Voting Shares (not including any Voting Shares held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such share purchase agreement or other business
combination), provided  however, a Fundamental Transaction shall not
include (i) any reorganization, recapitalization or reclassification of the
Common Shares in which holders of the Company’s voting power immediately prior
to such reorganization, recapitalization or reclassification continue after
such reorganization, recapitalization or reclassification to hold publicly
traded securities and, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of
the board of directors (or their equivalent if other than a corporation) of
such entity or entities, or (ii) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company.


 


(f)  “GAAP”
means United States generally accepted accounting principles, consistently
applied.


 


(g)  “Maturity
Date” means March 22, 2011.


 


(h)  “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.


 


(i)  “Principal
Market” means The Nasdaq National Market.


 


(j)  “Redemption
Notices” means, collectively, the Event of Default Redemption
Notices, and the Fundamental Transaction Redemption Notices, each of the
foregoing, individually, a Redemption Notice.


 


(k)  “Registration
Rights Agreement” means that certain registration rights agreement
dated as of the Closing Date by and among the Company and the initial holders
of the Notes relating to, among other things, the registration of the resale of
the Common Shares issuable upon conversion of the Notes.


 


(l)  “Required
Holders” means the holders of Notes representing at least a majority
of the aggregate principal amount of the Notes then outstanding.


 


(m)  “SEC”
means the United States Securities and Exchange Commission.


 


(n)  “Successor
Entity” means the Person, which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person with
which such Fundamental Transaction shall have been made.


 


(o)  “Tax”
means any tax, levy, impost, duty or other charge or withholding of a similar
nature (including any related penalty or interest).


 


(p)  “Tax
Deduction” means a deduction or withholding for or on account of Tax
from a payment under the Notes.


 


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(q)  “Trading Day”
means (a) any day on which the Common Stock is listed or quoted and traded on
its primary Trading Market, (b) if the Common Stock is not then listed or
quoted and traded on any Eligible Market, then a day on which trading occurs on
the NASDAQ National Market (or any successor thereto), or (c) if trading ceases
to occur on the NASDAQ National Market (or any successor thereto), any Business
Day.


 


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


 


[Signature Page Follows]


 


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IN WITNESS WHEREOF,
the Company has caused this Note to be duly executed as of the Issuance Date
set out above.


 


	
   

  	
  VYYO INC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title: