Ex-10.1.3 Amended Promissory Note



 



 




Exhibit 10.1.3



THIS NOTE HAS NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THIS NOTE.




TRINSIC, INC. (f/k/a Z-TEL TECHNOLOGIES, INC.)




AMENDED AND RESTATED SENIOR UNSECURED PROMISSORY NOTE




			
	Up to $20,000,000
	 	August 24, 2004






          FOR VALUE RECEIVED, the undersigned, TRINSIC, INC. (f/k/a Z-TEL TECHNOLOGIES, INC.), a
Delaware corporation (the “Company”), promises to pay on March 31, 2006 (as such date may
be extended in accordance with Section 3, the “Maturity Date”) to the order of THE 1818
FUND III, L.P. (the “Fund”) or its assigns an amount (the “Full Repayment Amount”)
equal to the sum of (a) the principal amount of the Initial Loan on the date hereof of FIVE MILLION
DOLLARS ($5,000,000) and the principal amount of any Additional Loan as shall be borrowed by the
Company from time to time under the Credit Agreement (defined below) (such sum as reduced pursuant
to Section 7, the “Principal Amount”), plus (b) all accrued and unpaid interest,
plus (c) a premium in an amount equal to four and one-half percent (4.5%) of the Principal
Amount of all loans advanced to the Company (such amount as reduced pursuant to Section 7, the
“Premium Amount”). The Full Repayment Amount shall be paid in whole, but not in part, in
cash by wire transfer of immediately available funds to an account designated in writing prior to
the Maturity Date by the holder of this Note. The Company hereby authorizes the holder of this
Note to endorse on Annex A hereto the amount of each Loan made to the Company under this
Note and all reductions pursuant to Section 7, which endorsements shall, in the absence of manifest
error, be conclusive as to the outstanding Principal Amount; provided, however,
that the failure to make such notation with respect to any such Loan or reduction shall not limit
or otherwise affect the obligations of the Company under the Credit Agreement or this Note.




          1. Standby Credit Facility Agreement. This Senior Unsecured Promissory Note (this
“Note”) is issued pursuant to the Standby Credit Facility Agreement, dated August 24, 2004,
by and between the Company and the Fund (as amended from time to time, the “Credit
Agreement”) and the holder of this Note is entitled to the benefits of this Note and the Credit
Agreement and may enforce the agreements contained herein and therein and exercise the remedies
provided hereby and thereby or that are otherwise available hereto or thereto.










 



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          2. Interest. The Company promises to pay interest on the Principal Amount of this Note at
the rate of 9.95% per annum. If the Maturity Date shall be extended pursuant to Section 3, the
Company promises to pay interest on the Principal Amount of this Note, from and after April 1,
2006, at the rate of 8.95% per annum. Interest shall be payable as set forth below.




          The Company shall pay accrued interest quarterly in arrears on the last day of October,
January, April and July and on the Maturity Date or, if any such date shall not be a Business Day,
on the preceding Business Day to occur before such date (each date upon which interest shall be so
payable, an “Interest Payment Date”). On each Interest Payment Date, the Company shall pay
the total amount of interest due on such Interest Payment Date in cash by wire transfer of
immediately available funds to an account designated in writing by the holder of this Note.
Interest on this Note shall accrue daily from the date of issuance until repayment of the Principal
Amount and payment of Premium Amount and of all accrued interest in full. Accrued interest shall
be calculated from and including the first day of any period to but excluding the date of payment.
Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding
the foregoing provisions of this Section 2, but subject to applicable law, any overdue principal or
Premium Amount of, and overdue interest on, this Note shall bear interest, payable on demand in
immediately available funds, for each day from the date payment of principal, Premium Amount or
interest was due to the date of actual payment, at the then current rate of interest plus 2.0% per
annum, and, upon and during the continuance of an Event of Default, this Note shall bear interest,
from the date of the occurrence of such Event of Default until such Event of Default is cured or
waived, payable on demand in immediately available funds, at the then current rate of interest plus
2.0% per annum. Subject to applicable law, any interest that shall accrue on overdue interest on
this Note as provided in the preceding sentence and shall not have been paid in full on or before
the next Interest Payment Date to occur after the Interest Payment Date on which the overdue
interest became due and payable shall itself be deemed to be overdue interest on this Note to which
the preceding sentence shall apply. In no event whatsoever shall interest charged hereunder,
however such interest may be characterized or computed, exceed the highest rate permissible under
any law which a court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that the holder of this Note has received
interest hereunder in excess of the highest rate applicable hereto, such excess interest shall, at
the Company’s option and to the extent permitted by law, (a) be applied as a credit against the
outstanding principal balance hereof or accrued and unpaid interest hereon, (b) refunded to the
Company or (c) any combination of the foregoing.




          3. Extension of Maturity Date. Subject to Sections 5 and 6, as applicable, the Company
shall pay the holder of this Note the Full Repayment Amount on March 31, 2006; provided,
however, that the Company may, at its option, extend the maturity date from March 31, 2006
to August 30, 2006 if the following conditions have been satisfied: (a) all reported trades in the
Common Stock during the months of June 2005 and July 2005 are in excess of $5.00 per share (subject
to equitable adjustment for any stock dividend, stock split, combination, reorganization,
recapitalization or










 



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similar event involving a change in the Common Stock), (b) not more than
forty-five (45) days and not less than thirty (30) days before the then effective Maturity Date the
Company shall have requested of the holder of this Note in writing that the Maturity Date be
extended pursuant to this Section 3 subject to the satisfaction of the conditions set forth herein
and (c) on the then effective Maturity Date (i.e., March 31, 2006), the Company shall deliver to
the holder of this Note a certificate to the effect that (i) the conditions set forth in clauses
(a) and (b) above have been satisfied and (ii) no default under this Note or the Credit Agreement
nor any Event of Default exists on such date.




          4. Use of Proceeds. The Company shall use the proceeds from the Initial Loan for general
corporate purposes and the proceeds from each Additional Loan to pay for Capital Expenditures (and
capitalized salaries relating thereto) relating substantially to the establishment of the Company’s
planned network.




          5. Mandatory Redemption Upon a Note Change of Control.




               5.1. Mandatory Redemption. In the event of any Note Change of Control of the Company, the
Company shall pay to the holder of this Note an amount (the “Mandatory Redemption Amount”)
equal to the Full Repayment Amount as of the Mandatory Redemption Date. The Mandatory Redemption
Amount shall be in whole, but not in part, in cash by wire transfer of immediately available funds
to an account designated in writing prior to the Mandatory Redemption Date by the holder of this
Note.



               5.2. Notice. Notice of a Note Change of Control (the “Mandatory Redemption Notice”)
shall be delivered at least 10 Business Days prior to the occurrence of a Note Change of Control to
the holder of this Note at such holder’s address as it appears on the transfer books of the
Company. The date of payment of the Mandatory Redemption Amount (the “Mandatory Redemption
Date”) shall be fixed by the Company in the Mandatory Redemption Notice and shall be on or
prior to the consummation of the Note Change of Control.



               5.3. Procedure for Mandatory Redemption. On the Mandatory Redemption Date the holder of this
Note shall surrender this Note to the Company at the place designated by the Company. From and
after the Mandatory Redemption Date (a) this Note shall no longer be deemed outstanding, (b) the
right to receive interest on this Note shall cease to accrue, (c) all rights of the holder of this
Note shall cease and terminate, excepting only the right to receive the Mandatory Redemption Amount
therefor; provided, however, that if the Company shall default in the payment of
the Mandatory Redemption Amount, this Note shall thereafter be deemed to be outstanding and the
holder hereof shall have all of the rights provided in this Note until such time as such default shall no longer be continuing.



          6. Optional Redemption at Election of Company.




               6.1. Optional Redemption. The Company shall have the right, at any time at its sole option
and election, to redeem this Note in whole, but not in part (the “Optional Redemption”), at
a price (the “Optional Redemption Price”) equal to the









 



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Full Repayment Amount as of the Optional Redemption Date. The Optional Redemption Price shall be paid in cash by wire transfer of
immediately available funds to an account designated in writing prior to the Optional Redemption
Date by the holder of this Note.




               6.2. Notice. Notice of an Optional Redemption (the “Optional Redemption Notice”)
shall be delivered at least 10 Business Days prior to the date of payment of the Optional
Redemption Price (the “Optional Redemption Date”) to the holder of this Note at such
holder’s address as it appears on the transfer books of the Company. The Optional Redemption Date
shall be fixed by the Company in the Optional Redemption Notice.



               6.3. Procedure for Optional Redemption. On the Optional Redemption Date the holder of this
Note shall surrender this Note to the Company at the place designated by the Company. From and
after the Optional Redemption Date (a) this Note shall no longer be deemed outstanding, (b) the
right to receive interest on this Note shall cease to accrue, (c) all rights of the holder of this
Note shall cease and terminate, excepting only the right to receive the Optional Redemption Price
therefor; provided, however, that if the Company shall default in the payment of
the Optional Redemption Price, this Note shall thereafter be deemed to be outstanding and the
holder hereof shall have all of the rights provided in this Note until such time as such default
shall no longer be continuing.



          7. Pre-emptive Rights. If at any time the Company shall offer to sell any Securities to
any Person (including, without limitation, the holders of the Company’s preferred stock
(“Preferred Stock”) or Common Stock) (a “Securities Offering”), including, without
limitation, in connection with a negotiated conversion or exchange of its Preferred Stock but
excluding shares of Common Stock issued for the exercise of any Preferred Stock or options of the
Company in accordance with their respective terms on the date of initial issuance, the holder of
this Note shall have the right (in addition to any other rights of the holder of this Note, if any,
as a holder of Preferred Stock, Common Stock or other Securities of the Company), at its option, to
(a) purchase a number of any such offered Securities of the Company (“Offered Securities”)
up to the number of Offered Securities purchasable on the date of payment for such Offered
Securities for an amount equal to the sum of (i) $20,900,000 plus (ii) the amount of any
accrued and unpaid interest under this Note as of such date and (b) use this Note, up to the Full
Repayment Amount as of the date of payment for Offered Securities and in lieu of cash, to purchase
any such Offered Securities. The right of the holder of this Note to purchase the Offered
Securities under this Section 7 shall be conditioned upon (i) the receipt of all consents,
exemptions, authorizations, or other actions by, or notices to, or filings with, Governmental
Authorities and other Persons necessary or required in connection with the purchase of the Offered Securities by the Fund and (ii) the receipt of the
approval of the Company’s stockholders to the extent required under the NASD rules. Any such
purchase of Offered Securities shall be at the most favorable price and on the most favorable terms
offered to any other Person. Upon the consummation of any purchase of Offered Securities by the
holder of this Note in accordance with clause (b) of this Section 7, the Full Repayment Amount
(beginning, first, with the Premium Amount, second, with any accrued and unpaid interest and,
third, with the Principal Amount) of this Note shall be










 



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reduced dollar-for-dollar for any portion
of the Full Repayment Amount used by the holder of this Note to purchase any such Offered
Securities.




          8. Affirmative Covenants. In addition to the covenants and agreements contained in the
Credit Agreement, the Company hereby covenants and agrees with the holder of this Note and its
assigns as follows:




               8.1. Financial Statements. The Company shall deliver to the holder of this Note within one
hundred twenty (120) days following the close of each fiscal year, the Company’s audited financial
statements, certified by a recognized firm of certified public accountants acceptable to the holder
of this Note as having been prepared in accordance with GAAP and as presenting fairly the financial
condition of the Company as of the date thereof and for the period then ended (and including a
management letter to the Company from such accountants, if prepared by such accountants at the
Company’s request, to be delivered not later than thirty (30) days thereafter). The Company shall
deliver to the holder of this Note: (a) within forty-five (45) days following the close of each
fiscal quarter, reasonably detailed quarterly financial statements (other than the last fiscal
quarter of the fiscal year), including income statement, balance sheet, and statement of cash flow,
prepared in accordance with GAAP (subject to the absence of notes and to annual audit adjustment),
certified by the Chief Executive Officer or Chief Financial Officer or other authorized individual
of the Company as presenting fairly the financial condition of the Company as of the date thereof
and for the period then ended, (b) at least thirty (30) days prior to the end of the Company’s
fiscal year an annual operating budget showing a projected income statement, balance sheet and cash
flows as of each fiscal quarter’s end for the forthcoming fiscal year, (c) within thirty (30) days
of the end of each calendar month, reasonably detailed monthly financial statements, including
income statement, balance sheet, and statement of cash flow, prepared in accordance with GAAP
(subject to the absence of notes and to annual audit adjustment and to any other material
deviations from GAAP expressly noted therein), certified by the Chief Executive Officer or Chief
Financial Officer or other authorized individual of the Company as presenting fairly the financial
condition of the Company as of the date thereof and for the period then ended, (d) daily online
access to (i) cash balances, (ii) cash receipts, (iii) cash disbursements, (iv) changes in
borrowing levels under existing borrowings and (v) daily changes in line accounts by category and
(e) such other financial information as the holder of this Note shall reasonably request.



               8.2. Books and Records. Each Company Group Member shall, and the Company shall cause each
Company Group Member to, keep accurate and complete records of its assets, leases, agreements and
other properties and shall, at reasonable times and upon
reasonable notice, permit the holder of this Note to (a) visit the its business locations at
intervals to be determined by the holder of this Note; and (b) inspect, audit and make extracts
from or copies of its books, records, journals, receipts, computer tapes and disks. The parties
expressly acknowledge and agree that notice of twenty-four (24) hours or more shall be reasonable
in the event the Company is not in default of any of its obligations under this Note or the Credit
Agreement (collectively, the “Debt Obligations”) at the time such inspection is requested,
and that prior notice shall not be required in the event the Company is in default under any of the









 



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Note at the time any such inspection is requested. All Governmental Authorities are authorized to
furnish the holder of this Note with copies of reports of examinations of any Company Group Member
made by such Governmental Authorities.




               8.3. Payments. The Company shall punctually pay the interest, the Principal Amount, the
Premium Amount and any other payments or liabilities due under this Note in the manner specified in
this Note.



               8.4. Holder Approvals.



                    (a) If either (i) the EBITDA of the Company Group for the last completed fiscal quarter is
less than $4,000,000 or (ii) the average daily unrestricted cash balances of the Company Group for
the last completed fiscal quarter are less than $15,000,000, the Company shall not, and the Company
shall cause each Company Group Member not to, make any Capital Expenditures in the next fiscal
quarter if the amount of all Capital Expenditures in such fiscal quarter will exceed $1,000,000
unless the type and amount of any such Capital Expenditure (to the extent the Capital Expenditures
exceed $1,000,000) is approved in advance by the holder of this Note. The Company shall deliver to
the holder of this Note at least thirty (30) days prior to the end of each fiscal quarter a list in
the form of Annex B hereto, which list shall be reasonably acceptable to and approved by
the holder of this Note, of all projected Capital Expenditures for the next succeeding fiscal
quarter. The Company will promptly deliver to the holder of this Note any material revisions to
the Capital Expenditures list; provided, however that unless and until the holder
approves any such revisions, the Company shall comply with this Section on the basis of the list
previously delivered to and approved by the holder. Each Capital Expenditure made by the Company
Group in any fiscal quarter shall be in material compliance with any Capital Expenditures list
approved by the holder of this Note under this Section 8.4(a); provided that in no event shall the
Capital Expenditures made by the Company Group in any fiscal quarter exceed the aggregate amount of
Capital Expenditures projected to be made in such fiscal quarter as set forth on the Capital
Expenditures list with respect to such fiscal quarter approved by the holder of this Note. The
Company and the Fund hereby agree that the Capital Expenditures for the fiscal quarter ending on
September 30, 2004 that are set forth on Schedule 3.21 to the Company Disclosure Letter are
approved for purposes of this Section 8.4(a).



                    (b) If either (i) the EBITDA of the Company Group for the preceding four consecutive fiscal
quarters is less than $20,000,000 or (ii) the average daily unrestricted cash balances of the
Company Group for the preceding six months is less than $25,000,000, the Company shall consult with the holder of this Note, and provide the
holder of this Note with such information as such holder shall reasonably request, prior to taking
any action to implement any geographic or product expansions involving, individually or in the
aggregate, a material increase in the Company’s operating costs.









 



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               8.5. Notice of Event of Default. The Company shall promptly, upon the Company’s acquiring
knowledge thereof, give written notice to the holder of this Note of the occurrence of any Event of
Default.



               8.6. Compliance with Laws and Taxes. Each Company Group Member shall, and the Company shall
cause each Company Group Member to, comply in all material respects with all Applicable Laws. Each
Company Group Member shall, and the Company shall cause each Company Group Member to, deliver
promptly to the holder of this Note, upon request, an executed copy of any document filed or
submitted to any Governmental Authority pursuant to Applicable Laws, each copy certified by the
Company to be a true and correct copy thereof. Each Company Group Member shall, and the Company
shall cause each Company Group Member to, pay all real and personal property taxes, assessments and
charges, and all franchise, income, unemployment, social security, withholding, sales and all other
taxes assessed against it or its assets, at such times and in such manner so as to avoid any
penalty from accruing against it or any other Company Group Member or any Lien from attaching to
its assets or the assets of any other Company Group Member; provided, however, that
no Company Group Member shall be required to pay any such tax, assessment, or charge so long as the
validity thereof shall be actively contested in good faith by appropriate proceedings, the amount
of such taxes, assessments or charges in dispute do not exceed the sum of $100,000 in the aggregate
at any time, such Company Group Member shall have set aside on its books adequate reserves, which
reserves shall be derived from sources other than directly from the holder of this Note, and the
Company shall have reported the same pursuant to a certificate delivered to, and reviewed and
approved by, the holder of this Note; but provided further that each Company Group
Member shall, and the Company shall cause each Company Group Member to, pay any such tax,
assessment, or charge forthwith upon the commencement of proceedings to foreclose any Lien securing
the same. Each Company Group Member shall, and the Company shall cause each Company Group Member
to, deliver promptly to the holder of this Note, upon request, receipted bills evidencing payment
of such taxes and assessments.



               8.7. Regulatory Approvals and Notices. The Company, with the cooperation of the holder of
this Note, shall file, and shall cause each applicable Company Group Member to file, any and all:
(a) applications required by any state public utility commission seeking approval for the provision
of guarantee by any such Company Group Member that is a party to the Subsidiary Guaranty, within
fourteen (14) Business Days of the date of this Note, and shall diligently seek, and shall cause
each applicable Subsidiary to seek diligently, to obtain the approval of such applications; and (b)
notifications required by any state public utility commission with respect to the provision of the
guaranties by any Subsidiary that is a party to the Subsidiary Guaranty, within fourteen (14)
Business Days of the date of this Note.



               8.8. Governmental Authorization; Stockholder Approval. The Company, with the
cooperation of the holder of this Note, shall take all necessary actions required to obtain (a) any
approval, consent, exemption, authorization, or other action by, or give any notice to, or make any
filing with, any Governmental Authority or any other Person, and (b) any approval of the Company’s
stockholders that is required, in each case









 



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in connection with the Fund’s purchase of Offered Securities pursuant to Section 7 hereof.




               8.9. Further Assurances. Each Company Group Member shall promptly, and the Company shall
cause each Company Group Member promptly to, execute and deliver upon request by the holder of this
Note and at the Company’s expense, such additional documents, instruments and agreements as the
holder of this Note may reasonably determine to be necessary to (a) carry out the provisions of
this Note and the Credit Agreement and the transactions and actions contemplated hereby and thereby
and (b) to evidence the Company’s obligations hereunder.



          9. Negative Covenants. In addition to any covenants and agreements contained in the Credit
Agreement, for so long as this Note remains outstanding, the Company hereby covenants and agrees
with the holder of this Note and its assigns as follows:




               9.1. Indebtedness. No Company Group Member shall, and the Company shall cause each Company
Group Member not to, directly or indirectly, create, incur, assume or suffer to exist any
Indebtedness, except (a) Indebtedness under this Note, (b) Indebtedness in respect of capital
leases and purchase money obligations for fixed or capital assets in an aggregate amount not to
exceed $20,000,000, (c) accounts and taxes payable incurred in the ordinary course of business, (d)
Indebtedness that (i) is fully subordinated to this Note pursuant to a subordination agreement
satisfactory to the holder of this Note in its sole judgment and discretion and (ii) requires no
principal repayment until at least six (6) months after August 30, 2006 and (e) Preferred Stock of
the Company currently outstanding or amended with the approval of the holder of this Note.



               9.2. Liens. No Company Group Member shall, and the Company shall cause each Company Group
Member not to, directly or indirectly, create, incur, assume or suffer to exist, any Lien on any
asset, lease, agreement or other property now owned or hereafter acquired by it (including, without
limitation, any real property), except (a) Liens for taxes not yet due; provided that
adequate reserves with respect thereto are maintained on the books of the Company and/or its
Subsidiaries in conformity with GAAP, (b) carriers’, warehousemen’s, landlords’, mechanics’,
materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business,
provided such Liens are immediately discharged in the event that steps are instituted to enforce
such Liens unless the underlying obligations are being contested in good faith by appropriate
proceedings with adequate reserves therefor in accordance with GAAP, (c) Liens for capital leases
and purchase money obligations permitted under Section 9.1(b) and (d) encumbrances consisting of
zoning restrictions, easements, licenses or other restrictions on the use of real property;
provided, however, that such items do not materially impair the use of such
property for the purposes intended. Notwithstanding the foregoing, no Company Group
Member shall, and the Company shall cause each Company Group Member not to, directly or indirectly,
create, incur, assume or suffer to exist, any Lien on any capital stock or other equity interest or
on any debt securities of the Company’s Subsidiaries.









 



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               9.3. Restricted Payments. No Company Group Member shall, and the Company shall cause each
Company Group Member not to, directly or indirectly, declare or make, or incur any obligation
(contingent or otherwise) to declare or make (a) any dividend payments or other distributions on
the Company’s capital stock, including, without limitation, the Common Stock and Preferred Stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund or other
retirement of the Company’s or any of its Subsidiaries’ capital stock or any other payment or
distribution made in respect thereof, either directly or indirectly, (c) any payment made to
redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire capital stock of the Company or any of its Subsidiaries now or
hereafter outstanding, (d) any payment of a claim for the rescission of the purchase or sale of, or
for material damages arising from the purchase or sale of, any shares of the Company’s or its
Subsidiaries’ capital stock or of a claim for reimbursement, indemnification or contribution
arising out of or related to any such claim for damages or rescission, (e) any payment, loan,
contribution, or other transfer of funds or other property to any stockholder of the Company or any
of its Subsidiaries other than payment of compensation in the ordinary course of business to
stockholders who are employees of the Company or any of its respective Subsidiaries and (f) any
payment of management fees (or other fees of a similar nature) by the Company or any of its
Subsidiaries to any stockholder of the Company or any of its Subsidiaries or Affiliates;
provided, however, that the foregoing shall not restrict dividends, rents,
royalties and distributions by Subsidiaries of the Company paid to the Company.



               9.4. Disposition of Assets. No Company Group Member shall, and the Company shall cause each
Company Group Member not to, sell, consign, lease or remove from their respective business
locations any of its assets except that, until the holder of this Note gives the Company notice to
the contrary during the existence of any Event of Default, each Company Group Member may (a) sell
Inventory in the ordinary course of its business (any sale or exchange of Inventory in satisfaction
of indebtedness of any Company Group Member shall not be deemed a sale of Inventory in the ordinary
course of business); (b) sell or dispose of obsolete assets which such Company Group Member has
determined, in good faith, not to be useful in the conduct of its business and which, in any fiscal
year, do not have an aggregate fair market value in excess of $100,000; (c) sell or dispose of
obsolete assets which such Company Group Member has determined, in good faith, not to be useful in
the conduct of its business; and (d) sell or dispose of accounts in the course of collection in the
ordinary course of business.



               9.5. Investments. No Company Group Member shall, and the Company shall cause each Company
Group Member not to, make any Investment other than Permitted Investments and securities received
in exchange for Permitted Investments pursuant to bankruptcy or insolvency proceedings of the
issuer of such Permitted Investments.



               9.6. Mergers; Consolidations; Acquisitions. No Company Group Member shall, and the Company
shall cause each Company Group Member not to, (a) merge or consolidate with any other Person,
except that the Company or any other Company Group Member may merge or consolidate with another
Person with the prior









 



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written consent of the holder of this Note, nor (b) acquire all or any
substantial part of the properties and assets or Securities of any Person (other than from the
Company or a Subsidiary), except that the Company or other Company Group Member may acquire such
property of any other Person with the prior written consent of the holder of this Note.




               9.7. Affiliate Transactions. No Company Group Member shall, and the Company shall cause each
Company Group Member not to, enter into or be a party to any agreement or transaction with any
Affiliate (including, without limitation, the transfer of any assets to any such Affiliate) except
(a) in the ordinary course of such Company Group Member’s business and upon fair and reasonable
terms that are no less favorable to such Company Group Member, as the case may be, than such Person
would obtain in a comparable arms’-length transaction with a Person not an Affiliate of the
Company, and on terms consistent with the business relationship of such Company Group Member and
such Affiliate prior to the date of this Note, if any, and fully disclosed to the holder of this
Note, (b) transactions in the ordinary course of such Company Group Member’s business for the
provision or receipt of services of an administrative, support, or other similar nature and (c)
transactions solely between the Company and its Subsidiaries or between two or more Subsidiaries.



               9.8. Liquidation. Upon a liquidation, dissolution or winding-up of any Company Group Member,
no Company Group Member shall, and the Company shall cause each Company Group Member not to,
directly or indirectly, declare or make, or incur any obligation (contingent or otherwise) to
declare or make, any distribution or other payment to any holder of the Company’s capital stock,
including, without limitation, the Common Stock and any Preferred Stock of the Company currently
outstanding, until such time as the Full Repayment Amount is paid in full to the holder of this
Note in accordance with the terms hereof.



               9.9. No Inconsistent Agreements. No Company Group Member shall, and the Company shall cause
each Company Group Member not to, enter into any loan or other agreement, or enter into any
amendment or other modification to any currently existing agreement, which by its terms restricts
or prohibits the ability of the Company to pay (a) the Full Repayment Amount in accordance with
this Note when due, (b) interest in cash on this Note in accordance with Section 2 when due or (c)
the Mandatory Redemption Amount in accordance with Section 5 when due.



          10. Events of Default. Any of the following shall constitute an “Event of Default”:




               10.1. Non-Payment. The Company fails to pay (a) when and as required to be paid herein, any
amount of the Full Repayment Amount, the Mandatory Redemption Amount or the Optional Redemption
Price, or (b) within five (5) Business Days after the same becomes due, any interest accrued on
this Note in accordance with Section 2; or









 



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               10.2. Certain Covenant Defaults. The Company fails to perform or observe any covenant or
agreement contained in Sections 8.4 or 9; or



               10.3. Other Defaults. The Company or any other Company Group Member fails to perform or
observe any other covenant or agreement (not specified in Section 10.1 or 10.2 above) contained in
this Note, the Credit Agreement or the Subsidiary Guaranty on the part of such Person to be
performed or observed and such failure continues for 30 days after notice or knowledge thereof; or



               10.4. Representations and Warranties. Any representation, warranty, certification or
statement of fact made or deemed made by or on behalf of the Company in this Note, the Credit
Agreement, any Borrowing Request or in any certificate or other document delivered pursuant hereto
or thereto, shall be incorrect in any material respect when made or deemed made; or



               10.5. Cross-Default; Cross Acceleration. The Company or any of its Subsidiaries (a) fails to
make any payment when due after giving effect to all grace periods, whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise, in respect of any Indebtedness for
borrowed money or guarantee (other than Indebtedness hereunder) having an aggregate principal
amount (including undrawn committed or available amounts and including amounts owing to all
creditors under any combined or syndicated credit arrangement) of more than $1,000,000 or (b) after
giving effect to all grace periods, fails to observe or perform any other agreement or condition
relating to any such Indebtedness or guarantee or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event occurs, the effect of which default or
other event is to cause, such Indebtedness to be demanded or to become due or to be repurchased,
prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay,
defease or redeem such Indebtedness to be made, prior to its stated maturity, or such guarantee to
become payable or cash collateral in respect thereof to be demanded; or



               10.6. Insolvency Proceedings, Etc. The Company or any of its Subsidiaries institutes or
consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment
for the benefit of creditors; or applies for or consents to the appointment of any receiver,
trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or
any material part of its property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or consent of such Person and
the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under
any Debtor Relief Law relating to any such Person or to all or any material part of its property is
instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar
days, or an order for relief is entered in any such proceeding; or



               10.7. Inability to Pay Debts; Attachment. (a) The Company or any of its Subsidiaries becomes
unable or admits in writing its inability or fails generally to pay its debts as they become due,
or (b) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any









 



12

such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or




               10.8. Judgments. There is entered against the Company or any of its Subsidiaries (a) one or
more final judgments or orders for the payment of money, or (b) one or more non-monetary final
judgments, in each case, that have, or could reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the Condition of the Company, and, in either case to the
extent not paid or otherwise covered by independent third-party insurance as to which the insurer
does not dispute coverage; or



               10.9. Invalidity of Note or Subsidiary Guaranty.



                    (a) This Note, at any time after its execution and delivery and for any reason other than as
expressly permitted hereunder or satisfaction in full of all the Company’s obligations hereunder,
ceases to be in full force and effect; or the Company or any other Person contests in any manner
the validity or enforceability of this Note other than satisfaction in full of all the Company’s
obligations hereunder; or the Company denies that it has any or further liability or obligation
under this Note, or purports to revoke, terminate or rescind this Note other than satisfaction in
full of all its obligations hereunder.



                    (b) The Subsidiary Guaranty, at any time after its execution and delivery and for any reason
other than as expressly permitted thereunder or satisfaction in full of all the obligations
thereunder, ceases to be in full force and effect; or the Company, any Subsidiary or any other
Person contests in any manner the validity or enforceability of the Subsidiary Guaranty other than
satisfaction in full of all the obligations thereunder; or any Subsidiary denies that it has any or
further liability or obligation under the Subsidiary Guaranty, or purports to revoke, terminate or
rescind the Subsidiary Guaranty other than satisfaction in full of all the obligations thereunder.



          11. Remedies Upon Event of Default.




          If any Event of Default has occurred and is continuing, the holder of this Note may, upon
written notice to the Company, except in the case of events described in Sections 10.6 and 10.7, in
which case no notice shall be required:




               (a) declare all or any portion of the Full Repayment Amount and all other amounts owing or
payable hereunder immediately due and payable, in cash, all without presentment, demand, protest or
further act or notice of any kind, all of which are expressly waived by the Company; and



               (b) exercise any and all rights and remedies available to the holder of this Note
under this Note, the Credit Agreement, at law or in equity;


provided, however, that upon the occurrence of an Event of Default specified in
Sections 10.6 or 10.7, the Full Repayment Amount and all other amounts as aforesaid shall

automatically become immediately due and payable, in cash, in each case without










 



13



presentment, demand, protest or further act or notice of any kind, all of which are expressly
waived by the Company. No course of dealing, forbearance, indulgence, failure or delay on the part
of the holder of this Note in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor as an acquiescence in any default. No single or partial exercise of any such
right, power or remedy shall preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. No notice to or demand upon the Company shall entitle the Company to
other or further notice or demand in similar or other circumstances. The remedies provided for
herein are cumulative and are not exclusive of any other remedies that may be available to the
holder of this Note pursuant to agreement, at law, in equity or otherwise.




          12. Definitions. Capitalized terms not otherwise defined in this Note shall have the
meanings ascribed to them in the Credit Agreement. As used in this Note, and unless the context
requires a different meaning, the following terms have the meanings indicated:




          “Affiliate” has the meaning ascribed to such term in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act; provided, that for purposes of this Note no holder
hereof shall be deemed an Affiliate of the Company.




          “Applicable Laws” means all applicable provisions of constitutions, statutes, rules,
regulations and orders of Governmental Authorities and orders and decrees of courts and
arbitrators.




          “Bankruptcy Code” means Title 11, U.S. Code or any other federal, state or foreign law
for the relief of debtors, as any such laws may be amended from time to time.




          “Business Day” means a day on which the commercial banks in New York City are open to
conduct commercial banking business.




          “Capital Expenditures” means the aggregate of all expenditures made and liabilities
incurred that, in accordance with GAAP, are required to be included in or reflected by the
property, plant, equipment or similar fixed assets accounts other than capitalized salaries related
thereto.




          “Capital Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.




          “Common Stock” means the common stock, par value $0.01 per share, of the Company.




          “Company Group” means the Company and all of its Subsidiaries.




          “Company Group Member” means any of member of the Company Group.










 



14




          “Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other
liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the
United States or other applicable jurisdictions from time to time in effect and affecting the
rights of creditors generally.




          “EBITDA” means, for any period, the sum of the amounts for such period of (a) Net
Income, (b) Interest Expense, (c) taxes imposed on or measured by income or excess profits (for
such period and without regard to any prior periods), and (d) the amount of all depreciation and
amortization allowances and other non-cash expenses of the Company and its Subsidiaries.




          “ERISA” means the Employee Retirement Income Security Act of 1974, as in effect from
time to time.




          “GAAP” means generally accepted accounting principles in the United States set forth
in the opinions and pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board or such other principles as may be approved by a significant segment of the
accounting profession in the United States, that are applicable to the circumstances as of the date
of determination, consistently applied.




          “Governmental Authority” means the government of any nation, state or other political
subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the foregoing.




          “Indebtedness” means, as to any Person, all obligations, contingent and otherwise,
which in accordance with GAAP should be classified upon such Person’s balance sheet as liabilities,
but in any event including, without limitation, liabilities secured by Lien, existing on property
owned or acquired by such Person whether or not the liability secured thereby shall have been
assumed, letters of credit open for account, obligations under acceptance facilities, capitalized
lease obligations and all obligations on account of guaranties, endorsements, all capital stock
issued by such Person subject to mandatory redemption or subject to repurchase at the option of the
holder and any other contingent obligations in respect of the Indebtedness of others whether or not
reflected on such balance sheet or in a footnote thereto. The amount of any Indebtedness shall be
deemed to be an amount equal to the stated or determinable amount of such Indebtedness or, if not
stated or determinable, the maximum reasonably anticipated liability in respect thereof.




          “Interest Expense” means for any period as determined in conformity with GAAP, total
interest expense, whether paid or accrued or due (including without limitation, in respect of the
Debt Obligations and subordinated debt, if any) and payable,










 



15



including without limitation, the interest component of Capital Lease obligations for such
period, all bank fees, and net costs under interest rate contracts.




          “Internal Revenue Code” means the Internal Revenue Code of 1986, as in effect from
time to time.




          “Inventory” has the same meaning given to it in the UCC.




          “Investment” means, with respect to any Person: (a) the acquisition or ownership by
such Person of any share of capital stock, evidence of Indebtedness (which shall not include funds
on deposit in demand deposit accounts) or other Security issued by any other Person, other than
stock or other Securities received in settlement or replacement in bankruptcy of a debt that was
created in the ordinary course of business, (b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person, excluding advances to employees in the ordinary
course of business for business expenses, (c) the obligations of any other Person that are
guaranteed by such Person, (d) any other investment in any other Person, and (e) any commitment or
option to make any of the investments listed in clauses (a) through (d) above.




          “Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, claim, lien (statutory or other), charge, or preference, priority or other security
interest or preferential arrangement of any kind or nature whatsoever (including any conditional
sale or other title retention agreement, and any financing lease having substantially the same
economic effect as any of the foregoing), in each case to secure any liability.




          “NASD” means, the National Association of Securities Dealers.




          “Net Income” means, as applied to any Person, the net income (or net loss) of such
Person for the period in question after giving effect to deduction of or provision for all
operating expenses, all taxes and reserves (including reserves for deferred taxes) and all other
proper deductions, all determined in accordance with GAAP, provided that there shall be excluded:
(a) the net income (or net loss) of any Person accrued prior to the date it becomes a Subsidiary
of, or is merged into or consolidated with, the Person whose Net Income is being determined or a
Subsidiary of such Person, (b) the net income (or net loss) of any Person in which the Person whose
Net Income is being determined or any Subsidiary of such Person has an ownership interest, except,
in the case of net income, to the extent that any such income has actually been received by such
Person or such Subsidiary in the form of cash dividends or similar distributions, (c) any
restoration of any contingency reserve, except to the extent that provision for such reserve was
made out of income during such period, (d) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments, business units and other
capital assets, provided that there shall also be excluded any related charges for taxes thereon,
(e) any net gain arising from the collection of the proceeds of any insurance policy, (f) any
write-up of any asset, and (g) any other extraordinary item.










 



16




          “Note Change of Control” of the Company shall mean such times as:




               (i) Any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) other
than the Fund is or becomes the beneficial owner, directly or indirectly, of outstanding shares of
stock of the Company entitling such Person or Persons to exercise 50% or more of the total votes
entitled to be cast at a regular or special meeting, or by action by written consent, of
shareholders of the Company (the term “beneficial owner” shall be determined in accordance with
Rule 13d-3, promulgated by the Commission under the Exchange Act);



               (ii) A majority of the Board of Directors of the Company shall consist of Persons other than
Continuing Directors. The term “Continuing Director” shall mean any member of the Board of
Directors on the date of this Note and any other member of the Board of Directors who shall be
recommended or elected to succeed or become a Continuing Director by a majority of Continuing
Directors who are then members of the Board of Directors.



               (iii) The stockholders of the Company shall have approved a recapitalization, reorganization,
merger, consolidation or similar transaction, in each case with respect to which all or
substantially all the Persons who were the respective beneficial owners, directly or indirectly, of
the outstanding shares of capital stock of the Company immediately prior to such recapitalization,
reorganization, merger, consolidation or similar transaction, will own less than 50% of the
combined voting power of the then outstanding shares of capital stock of the Company resulting from
such recapitalization, reorganization, merger, consolidation or similar transaction.



               (iv) The stockholders of the Company shall have approved of the sale or other disposition of all or
substantially all the assets of the Company in one transaction or in a series of related
transactions;



               (v) Any transaction occurs, the result of which is that the Common Stock does not continue to be
registered under Section 12 of the Exchange Act and that the holders of Common Stock do not receive
common stock of the Person surviving such transaction that is registered under Section 12 of the
Exchange Act; or



               (vi) (1) Immediately after any merger, consolidation, recapitalization or similar transaction, D.
Gregory Smith or a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) shall be
the beneficial owners, directly or indirectly, of outstanding shares of capital stock of the
Company (or any Person surviving such transaction) entitling them collectively to exercise 50% or
more of the total voting power of shares of capital stock of the Company (or the surviving Person
in such transaction) and (2) in connection with or as a result of such transaction, the Company (or
such surviving Person) shall have incurred or issued additional indebtedness such that the total
indebtedness so incurred or issued equals at least 50% of the consideration payable in such
transaction.









 



17


          “Permitted Investments” means Investments of the Company in: (a) negotiable
certificates of deposit or time deposits issued by a state bank or by any United States bank or
trust company having capital, surplus and undivided profits in excess of $1,000,000; (b) any direct
obligation of the United States of America or any agency or instrumentality thereof which has a
remaining maturity at the time of purchase of not more than one year and repurchase agreements
relating to the same; (c) other than in the ordinary course of the Company’s business, advances or
extensions of credit made by the Company not to exceed $100,000 in the aggregate outstanding at any
time; (d) Investments in existing Subsidiaries described on Schedule 1 hereto, and (e)
Investments in new Subsidiaries which become parties to the Subsidiary Guaranty.




          “Person” means any individual, firm, corporation, partnership, limited liability
company, trust, incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any successor (by merger or
otherwise) or such entity.




          “Plan” means any employee benefit plan as defined in Section 3(3) of ERISA in respect
of which the Company or any of its Affiliates is, or within the immediately preceding six (6) years
was, an “employer” as defined in Section 3(5) of ERISA.




          “Security” has the same meaning given to it in Section 2(1) of the Securities Act.




          “Subsidiary” means, (a) when used to determine the relationship of a Person to another
Person, a Person of which an aggregate of fifty percent (50%) or more of the stock of any class or
classes or fifty percent (50%) of more of other ownership interests is owned of record or
beneficially by such other Person, or by one or more Subsidiaries of such other Person, or by such
other Person and one or more Subsidiaries of such Person, (i) if the holders of such stock, or
other ownership interests, (A) are ordinarily, in the absence of contingencies, entitled to vote
for the election of a majority of the directors (or other individuals performing similar functions)
of such Person, even though the right so to vote has been suspended by the happening of such a
contingency, or (B) are entitled, as such holders, to vote for the election of a majority of the
directors (or individuals performing similar functions) of such Person, whether or not the right so
to vote exists by reason of the happening of a contingency, or (ii) in the case of such other
ownership interests, if such ownership interests constitute a majority voting interest, and (b)
when used with respect to a Plan, ERISA or a provision of the Internal Revenue Code pertaining to
employee benefit plans, any other corporation, trade or business (whether or not incorporated)
which is under common control with Company and is treated as a single employer with Company under
Section 414(b) or (c) of the Internal Revenue Code and the regulations thereunder.




          “UCC” means the Uniform Commercial Code as in effect from time to time in the State of
New York.










 



18




               13. Exchange of Note; Assignment. At the option of the holder of this Note, this Note may
be exchanged for other Notes identical to this Note which collectively have an aggregate principal
amount equal to the Full Repayment Amount on the date of such exchange, upon surrender of this Note
at the principal office of the Company. This Note and any other Notes for which this Note is
exchanged may be assigned by the holder thereof without the consent of the Company.



               14. Amendment. Amendments, modifications and waivers of the terms of this Note and all
other Notes for which this Note is exchanged may be made only upon the prior written consent of the
Company and the holders of Notes representing at least 75% of the aggregate principal amount of all
such Notes. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon.



               15. Waivers by the Company. The Company hereby waives presentment, notice of dishonor,
protest and any other notice or formality with respect to this Note and agrees to remain bound for
the payment of principal, interest and all other sums due under this Note notwithstanding any
change or changes by way of release, surrender, exchange, modification or substitution of any
security for this Note or by way of any extension or extensions of time for the payment of
principal, interest or any other sum due hereunder.



               16. Unconditional Obligations. The obligations to make the payments provided for in this
Note are absolute and unconditional and not subject to any defense, set-off, counterclaim,
rescission, recoupment or adjustment whatsoever.



               17. Expenses. On the date hereof, the Company shall reimburse the Fund for its
out-of-pocket expenses and the fees, disbursements and other charges of its counsel and any
consultants incurred in connection with this Note and the transactions contemplated hereby. If the
holder of this Note shall institute any action to enforce this Note or to collect of any portion of
the Full Repayment Amount, there shall be immediately due and payable from the Company, in addition
to the then unpaid portion of the Full Repayment Amount, all reasonable costs and expenses incurred
by the holder of this Note in connection therewith, including reasonable attorneys’ fees and
disbursements.



               18. Headings. The headings contained in this Note are for convenience of reference purposes
only and shall not affect in any way the meaning or interpretation of this Note.



               19. Rules of Construction. Unless the context otherwise requires, “or” is not exclusive,
and references to sections or subsections refer to sections or subsections of this Note.



               20. Severability. Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions









 



19

hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.




     21. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD FOR CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.



     22. Jurisdiction.



                    (a) Any action or proceeding against the Company relating in any way to this Note may be
brought and enforced in the courts of the State of New York or of the United States for the
Southern District of New York, and the Company, on behalf of itself and its Subsidiaries,
irrevocably consents to the jurisdiction of each such court in respect of any such action or
proceeding. The Company, on behalf of itself and its Subsidiaries, and the holder of this Note
each irrevocably consents to the service of process in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, return receipt requested, to
such Person at the address for such Person set forth in Section 10.2 of the Credit Agreement or
such other address such Person shall notify the other in writing. The foregoing shall not limit
the right of the holder of this Note or the Company to serve process in any other manner permitted
by law or to bring any action or proceeding, or to obtain execution of any judgment, in any other
jurisdiction.



                    (b) The Company, on behalf of itself and its Subsidiaries, hereby irrevocably waives any
objection that it or its Subsidiaries may now or hereafter have to the laying of venue of any
action or proceeding arising under or relating to this Note in any court located in the Borough of
Manhattan, City and State of New York, or located in any other jurisdiction chosen by the holder of
this Note in accordance with clause (a) of this Section. Each of the Company, on behalf of itself
and its Subsidiaries, and the holder of this Note hereby irrevocably waives any claim that a court
located in the Borough of Manhattan, City and State of New York is not a convenient forum for any
such action or proceeding.



                    (c) The Company, on behalf of itself and its Subsidiaries, hereby irrevocably waives, to the
fullest extent permitted by applicable United States federal and state law, all immunity from
jurisdiction, service of process, attachment (both before and after judgment) and execution to
which it or its Subsidiaries might otherwise be entitled in any action or proceeding relating in
any way to this Note in the courts of the State of New York, of the United States or of any other
country or jurisdiction, and hereby waives any right it or its Subsidiaries might otherwise have to
raise or claim or cause to be pleaded any such immunity at or in respect of any such action or
proceeding.



     23. WAIVER OF JURY TRIAL. THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES, AND THE
HOLDER OF THIS NOTE HEREBY IRREVOCABLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL









 



20

BY JURY IN RESPECT OF ANY ACTION BASED UPON, OR ARISING OUT OF THIS NOTE.




[Signature page follows on next page.]










 



 




          IN WITNESS WHEREOF, the Company has caused this Note to be duly executed and delivered by its
proper and duly authorized officer as of the date first above written.




	 	 	 	 	 
	 

	 	TRINSIC,
	 INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 
	 

	 	 	Name:
	 

	 	 	Title:




Senior Unsecured Promissory Note of Z-Tel Telchnologies, Inc.








 



 


Annex A to




Senior Unsecured Promissory Note




Schedule of Loans and Principal Payments




	 	 	 	 	 	 	 
	Date Loan Made or 	 	Amount of Loan	 	Amount of Principal	 	Principal Amount
	Reduced under Section 7	 	Made	 	Reduced under Section 7	 	of Note
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 











 



 


Annex B to




Senior Unsecured Promissory Note




Form of List of Capital Expenditures

for Quarterly Holder Approval




[See attached.]










 



 




Schedule 1 to




Senior Unsecured Promissory Note




Investments in Existing Subsidiaries




	 	 	 	 	 	 	 
	Direct and Indirect	 	State of	 	Direct or Indirect
	Subsidiaries	 	Organization	 	Ownership Percentage
	Trinsic Communications, Inc.

	 	Delaware
	 	 	100	%
	 
	 	 	 	 	 	 
	Z-Tel Network Services, Inc.

	 	Delaware
	 	 	100	%
	 
	 	 	 	 	 	 
	Z-Tel Holdings, Inc.

	 	Florida
	 	 	100	%
	 
	 	 	 	 	 	 
	Trinsic Communications of Virginia, Inc.

	 	Virginia
	 	 	100	%
	 
	 	 	 	 	 	 
	Z-Tel Business Networks, Inc.

	 	Delaware
	 	 	100	%
	 
	 	 	 	 	 	 
	Z-Tel, Inc.

	 	Nevada
	 	 	100	%
	 
	 	 	 	 	 	 
	Z-Tel Investments, Inc.

	 	Delaware
	 	 	100	%
	 
	 	 	 	 	 	 
	Touch 1 Communications, Inc.

	 	Alabama
	 	 	100	%
	 
	 	 	 	 	 	 
	DirecTEL, Inc.

	 	Alabama
	 	 	100	%
	 
	 	 	 	 	 	 
	DirectConnect

	 	Alabama
	 	 	100	%
	 
	 	 	 	 	 	 
	Z-Tel Consumer Services LLC

	 	Alabama
	 	 	100	%