Document:

Exhibit 4.24

 

Execution copy

 

SUBSIDIARY GUARANTEE

 

THIS SUBSIDIARY GUARANTEE, dated as of January 29,
2010  (the “Subsidiary
Guarantee”) and granted by the companies listed on Annex A hereto,
together with each other Person which from time to time executes and delivers
an instrument of accession substantially in the form attached hereto as Annex B
(each a “Subsidiary Guarantor” and collectively, the “Subsidiary  Guarantors”),
to each of the purchasers set forth on Schedule A to the Note Purchase
Agreement (as defined below), as purchasers (herein, each, including its
respective successors and assigns duly registered in accordance with Section 14.1
of the Note Purchase Agreement referred to below, a “Noteholder”
and, together, the “Noteholders”)
of the U.S.$50,000,000 aggregate principal amount of 5.19% Series D Senior
Guaranteed Notes due 2017 (the “Series D
Notes”), U.S.$50,000,000 aggregate principal amount of 5.75% Series E
Senior Guaranteed Notes due 2020 (the “Series E
Notes”) and U.S.$75,000,000 aggregate principal amount of 5.39% Series F
Senior Guaranteed Notes due 2019 (the “Series F
Notes” and, together with the Series D Notes and the Series E
Notes, the “Notes”) of Luxottica
U.S. Holdings Corp., a corporation incorporated in Delaware (the “Company”), issued pursuant to the Note Purchase Agreement,
dated January 29, 2010 (herein, as the same may be supplemented or amended
from time to time, called the “Note Purchase Agreement”)
between the Company, the Parent and the Noteholders.  Capitalized terms used herein but not
otherwise defined herein shall have the meaning assigned thereto in the Note
Purchase Agreement.

 

W I T N E S S E T H :

 

WHEREAS, it is a condition precedent to the
Noteholders entering into the Note Purchase Agreement and purchasing the Notes
that each Subsidiary Guarantor executes this Subsidiary Guarantee; and

 

WHEREAS, each Subsidiary Guarantor will be receiving a
direct or indirect corporate benefit as a result of the issuance of the Notes
and the application of the proceeds thereof by the Company;

 

NOW, THEREFORE, in consideration of the premises, and
in order to induce the Noteholders to enter into the Note Purchase Agreement
and to purchase the Notes from the Company, each Subsidiary Guarantor agrees as
follows:

 

1.     GUARANTEE

 

1.1.   Obligations Guaranteed.

 

Each
Subsidiary Guarantor hereby irrevocably, absolutely and unconditionally
guarantees to the Noteholders: (a) the full and prompt payment of
the principal of all of the Notes and of the interest thereon at the rate
therein stipulated (including interest
accruing or becoming owing both prior to and subsequent to the commencement of
any bankruptcy, reorganization or similar proceeding involving the Company or
such Subsidiary Guarantor) and the Make-Whole Amount, the Modified
Make-Whole Amount, Additional Amounts and all other amounts owing to the
Noteholders from time to time under the Notes and the Note Purchase Agreement
when and as the same 

 

 

shall become due and payable, whether by lapse of
time, upon redemption or prepayment, by extension or by acceleration or
declaration, or otherwise, (b) the full and prompt performance and
observance by the Company of each and all of the covenants and agreements
required to be performed or observed by it under the terms of the Note Purchase
Agreement, and (c) payment, upon demand by any Noteholder, of all
costs and expenses, legal or otherwise (including reasonable attorneys’ fees)
and such expenses, if any, as shall have been expended or incurred in the
protection or enforcement of any right or privilege under the Note Purchase
Agreement or any of the other Financing Documents or in any consultation or
action in connection therewith, and in each and every case irrespective of the
validity, regularity or enforcement of any of the Notes, the Note Purchase
Agreement or any of the other Financing Documents or any of the terms thereof
or of any other like circumstance or circumstances (all of the obligations
described in the foregoing clause (a), clause (b) and clause (c) being
referred to herein as the “Guaranteed Obligations”).  The guaranty of the Notes herein provided for
is a guaranty of the immediate and timely payment of the principal, interest,
Make-Whole Amount or Modified Make-Whole Amount, if any, Additional Amounts and
all other amounts owing to the Noteholders from time to time under the Notes
and the Note Purchase Agreement when and as the same are due and payable and
shall not be deemed to be a guaranty only of the collectibility of such
payments and that in consequence thereof each Noteholder may sue any Subsidiary
Guarantor directly upon such principal, interest and other amounts becoming so
due and payable.

 

1.2.   Obligations Unconditional; Waivers.

 

(a)           The Guaranteed Obligations shall be absolute and
unconditional and shall remain in full force and effect until the entire
principal, interest and Make-Whole Amount or Modified Make-Whole Amount (if
any) on the Notes and all other sums due pursuant to the Note Purchase
Agreement and the Notes shall have been fully, finally and indefeasibly paid,
and such Guaranteed Obligations shall not be affected, modified or impaired
upon the happening from time to time of any event or condition, including,
without limitation, any of the following, whether or not with notice to or the
consent of any Subsidiary Guarantor:

 

(i)            the power or authority or the lack of power or
authority of the Company to issue the Notes or to execute and deliver the Note
Purchase Agreement, and irrespective of the validity of the Notes, the Note
Purchase Agreement or of any defense whatsoever that the Company may or might
have to the payment of the Notes (including, without limitation, principal,
interest and the Make-Whole Amount or Modified Make-Whole Amount, if any) or to
the performance or observance of any of the provisions or conditions of the
Note Purchase Agreement, or the existence or continuance of the Company as a
legal entity;

 

(ii)           any failure to present the Notes for payment or to
demand payment thereof, or to give any Subsidiary Guarantor or the Company
notice of dishonor for non-payment of the Notes, when and as the same may
become due and payable, or notice of any failure on the part of the Company to
do any act or thing or to perform or to keep

 

 

any covenant or agreement to be done, kept or
performed under the terms of the Notes or the Note Purchase Agreement;

 

(iii)          the acceptance of any security or any guaranty, the
advance of additional money to the Company, any extension of the obligation of
the Notes, either indefinitely or for any period of time, or any other
modification in the obligation of the Notes or of the Note Purchase Agreement
or the Company thereon, or in connection therewith, or any sale, release,
substitution or exchange of any security;

 

(iv)          any act or failure to act with regard to the Notes or
the Note Purchase Agreement or anything which might vary the risk of any
Subsidiary Guarantor (including, without limitation, any release or
substitution of any one or more of the endorsers or guarantors of the
Guaranteed Obligations);

 

(v)           any action taken under the Note Purchase Agreement in
the exercise of any right or power thereby conferred or any failure or omission
on the part of any Noteholder to first enforce any right or security given
under the Note Purchase Agreement or any failure or omission on the part of any
Noteholder to first enforce any right against the Company, provided that
nothing in this Section shall entitle any Noteholder to recover twice any
sums claimed pursuant to this Subsidiary Guarantee;

 

(vi)          the waiver, compromise, settlement, release or
termination of any or all of the obligations, covenants or agreements of the
Company contained in the Note Purchase Agreement, or of the payment,
performance or observance thereof, provided that nothing in this Section shall
entitle any Noteholder to recover twice any sums claimed pursuant to this
Subsidiary Guarantee;

 

(vii)         the failure to give notice to the Company or any
Subsidiary Guarantor of the occurrence of any Default or Event of Default under
the terms and provisions of the Note Purchase Agreement;

 

(viii)        the extension of the time for payment of any principal
of, or interest (or Make-Whole Amount or Modified Make-Whole Amount or any
other amount, if any) on, any Note owing or payable on such Note or of the time
of or for performance of any obligations, covenants or agreements under or
arising out of the Note Purchase Agreement or the extension or the renewal of
any thereof;

 

(ix)           the modification or amendment (whether Material or
otherwise) of any obligation, covenant or agreement set forth in any Financing
Document;

 

(x)            any failure, omission, delay or lack on the part of
any Noteholder to enforce, assert or exercise any right, power or remedy 

 

 

conferred on such Noteholder in the Note Purchase
Agreement, or any other act or acts on the part of the Noteholders;

 

(xi)           the voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all the assets, marshaling of
assets and liabilities, receivership, insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization or arrangement under bankruptcy or
similar laws, composition with creditors or readjustment of, or other similar
procedures affecting, any Subsidiary Guarantor or the Company or any of the
assets of any of them, or any allegation or contest of the validity of the Note
Purchase Agreement or the disaffirmance of the Note Purchase Agreement in any
such proceeding (it being understood that the obligations of each Subsidiary
Guarantor under this Subsidiary Guarantee shall continue to be effective or be
reinstated, as the case may be, if at any time any payment made with respect to
the Notes is rescinded or must otherwise be restored or returned by any
Noteholder upon the insolvency, bankruptcy or reorganization of the Company or
such Subsidiary Guarantor, all as though such payment had not been made);

 

(xii)          any event or action that would, in the absence of this
clause, result in the release or discharge by operation of law of any
Subsidiary Guarantor from the performance or observance of any obligation,
covenant or agreement contained in this Subsidiary Guarantee;

 

(xiii)         the invalidity or unenforceability of any Financing
Document;

 

(xiv)        the invalidity or unenforceability of the obligations
of any Subsidiary Guarantor under this Subsidiary Guarantee, the absence of any
action to enforce such obligations of such Subsidiary Guarantor, any waiver or
consent by any Subsidiary Guarantor with respect to any of the provisions
hereof or any other circumstances which might otherwise constitute a discharge
or defense by such Subsidiary Guarantor, including, without limitation, any
failure or delay in the enforcement of the obligations of such Subsidiary
Guarantor with respect to this Subsidiary Guarantee or of notice thereof, or any
suit or other action brought by any shareholder or creditor of, or by, such
Subsidiary Guarantor or any other Person, for any reason, including, without
limitation, any suit or action in any way attacking or involving any issue,
matter or thing in respect of the Note Purchase Agreement, any other Financing
Document or any other agreement;

 

(xv)         the impossibility or illegality of performance on the
part of the Company or any other Person of its obligations under any Financing
Document or any other instruments;

 

(xvi)        in respect of the Company or any other Person, any
change of circumstances, whether or not foreseen or foreseeable, whether or not
imputable to the Company or any other Person, or other 

 

 

impossibility of performance through fire, explosion, accident,
labor disturbance, floods, droughts, embargoes, wars (whether or not declared),
civil commotions, acts of God or the public enemy, delays or failure of
suppliers or carriers, inability to obtain materials, action of any regulatory
body or agency, change of law or any other causes affecting performance, or
other force majeure, whether or not beyond the control of the Company or any
other Person and whether or not of the kind hereinbefore specified;

 

(xvii)       any attachment, claim, demand, charge, lien, order,
process, encumbrance or any other happening or event or reason, similar or
dissimilar to the foregoing, or any withholding or diminution at the source, by
reason of any taxes, assessments, expenses, indebtedness, obligations or
liabilities of any character, foreseen or unforeseen, and whether or not valid,
incurred by or against any Person, or any claims, demands, charges or liens of
any nature, foreseen or unforeseen, incurred by any Person, or against any sums  payable under the Note Purchase Agreement, so that such
sums would be rendered inadequate or would be unavailable to make the payments
herein provided;

 

(xviii)      the failure of any Subsidiary Guarantor to receive any
benefit or consideration from or as a result of its execution, delivery and
performance of this Agreement;

 

(xix)         any sale, exchange, release or surrender of any
property at any time pledged or granted as security in respect of the
Guaranteed Obligations, whether so pledged or granted by any Subsidiary
Guarantor under any Financing Document; or

 

(xx)          any other circumstance which might otherwise
constitute a defense available to, or a discharge of, a Subsidiary Guarantor in
respect of the obligations of such Subsidiary Guarantor under this Subsidiary
Guarantee;

 

provided  that the specific enumeration of the above-mentioned
acts, failures or omissions shall not be deemed to exclude any other acts,
failures or omissions, though not specifically mentioned above, it being the
purpose and intent of this Subsidiary Guarantee that the obligations of any
Subsidiary Guarantor hereunder shall be absolute and unconditional to the
extent herein specified and shall not be discharged, impaired or varied except
by the full, final and indefeasible payment to the Noteholders of the principal
of, interest on and Make-Whole Amount, Modified Make-Whole Amount and
Additional Amounts owing under the Note Purchase Agreement and any other
amounts due in respect of the Notes, and then only to the extent of such
payments.  Without limiting any of the
other terms or provisions hereof, it is understood and agreed that in order to
hold any Subsidiary Guarantor liable hereunder, there shall be no obligation on
the part of any Noteholder to resort, in any manner or form, for payment, to
the Company, to any other Person or to the properties or estates of any of the
foregoing.  All rights of any Noteholder
pursuant to such Note and to this Subsidiary Guarantee shall be considered to
be transferred or assigned upon the transfer of such Note whether with or
without the consent of or 

 

 

notice to any Subsidiary Guarantor or the
Company.  Without limiting the foregoing,
it is understood that repeated and successive demands may be made and
recoveries may be had hereunder as and when, from time to time, the Company
shall default under the terms of the Notes or the Note Purchase Agreement and
that notwithstanding recovery hereunder for or in respect of any given Default
or Event of Default, this Subsidiary Guarantee shall remain in full force and
effect and shall apply to each and every subsequent Default and Event of
Default.

 

(b)           Except as otherwise provided in this Subsidiary
Guarantee, to the fullest extent permitted by law, each Subsidiary Guarantor
does hereby expressly waive:

 

(i)            all of the matters specified in clause (a) of
this Section 1.2 and any notices in respect thereof;

 

(ii)           notice of acceptance of the Note Purchase Agreement;

 

(iii)          notice of any purchase or acceptance of the Notes
under the Note Purchase Agreement, or the creation, existence or acquisition of
any of the Guaranteed Obligations, subject to such Subsidiary Guarantor’s right
to make inquiry of each Noteholder to ascertain the amount of the Guaranteed
Obligations at any reasonable time;

 

(iv)          notice of the amount of the Guaranteed Obligations,
subject to such Subsidiary Guarantor’s right to make inquiry of each Noteholder
to ascertain the amount of the Guaranteed Obligations at any reasonable time;
and

 

(v)           any stay (except in connection with a pending appeal),
valuation, appraisal, redemption or extension law now or at any time hereafter
in force that, but for this waiver, might be applicable to any sale of property
of such Subsidiary Guarantor made under any judgment, order or decree based on
this Subsidiary Guarantee, and such Subsidiary Guarantor covenants that it will
not at any time insist upon or plead, or in any manner claim or take the
benefit or advantage of, any such law.

 

(c)           Each of the rights and remedies granted under this
Subsidiary Guarantee to each Noteholder in respect of the Notes held by such
Noteholder may be exercised by such Noteholder without notice to, or the
consent of or any other action by, any other Noteholder.  Each Noteholder may proceed to protect and
enforce this Subsidiary Guarantee by suit or suits or proceedings
in equity, at law or in bankruptcy, and whether for the specific performance of
any covenant or agreement contained herein or in execution or aid of any power
herein granted, or for the recovery of judgment for the obligations hereby
guaranteed or for the enforcement of any other proper legal or equitable remedy
available under applicable law.

 

(d)           If any Noteholder shall have instituted any proceeding
to enforce any right or remedy under this Subsidiary Guarantee or under any
Note held by such Noteholder and such proceeding shall have been 

 

 

discontinued or abandoned for any reason, or shall
have been determined adversely to such Noteholder, then and in every such case
each such Noteholder and the Company shall, except as may be limited or
affected by any determination in such proceeding, be restored severally and
respectively to its respective former position hereunder and thereunder, and
thereafter the rights and remedies of each such Noteholder shall continue as
though no such proceeding had been instituted.

 

(e)           The obligations of any Subsidiary Guarantor under this
Subsidiary Guarantee shall not be discharged nor shall such Subsidiary
Guarantor’s liability be affected by any reduction occurring in, or any
arrangement being made relating to any of the Company’s liabilities to one or
more Noteholders as a result of any arrangement or composition made pursuant to
any provisions of any applicable bankruptcy or insolvency laws or any analogous
provision or made pursuant to any proceedings or actions whatsoever and whether
or not following the appointment of any administrator, administrative receiver,
trustee, liquidator, receiver or examiner or any similar officer to the Company
or over all or a substantial part of the Company, and such Subsidiary Guarantor
hereby agrees that the amount recoverable by any of the Noteholders from such
Subsidiary Guarantor hereunder will be and will continue to be the full amount
which would have been recoverable by such Noteholders from the Company in
respect of the Company’s liabilities hereunder and under the other Financing
Documents had no such arrangement or composition as aforesaid been entered
into.

 

2.     COLLECTION EXPENSES.

 

In the
event that a Subsidiary Guarantor shall be required to make any payment to any
Noteholder pursuant to the provisions of this Subsidiary Guarantee, it shall,
in addition to such payment, pay to such Noteholder such further amount as
shall be sufficient to cover the costs and expenses of collection, including,
without limitation, the reasonable costs and expenses of attorneys or financial
advisors incurred in connection with the evaluation and enforcement of any
rights hereunder or under the other provisions of the Note Purchase Agreement,
and any reasonable expenses or liabilities incurred by such Noteholder
hereunder and thereunder shall survive the payment of the Notes, provided that
such Subsidiary Guarantor shall not be required to pay any further amounts,
costs, expenses or liabilities than have otherwise been paid pursuant to the
terms of the Note Purchase Agreement or this Subsidiary Guarantee.

 

3.     SUBROGATION.

 

To the
extent of any payments made under this Subsidiary Guarantee, each Subsidiary
Guarantor shall be subrogated to the rights of any Noteholder receiving such
payments, but each Subsidiary Guarantor covenants and agrees that such right of
subrogation shall be subordinate in right of payment to the rights of any
Noteholders for which full payment has not been made or provided for and, to
that end, each Subsidiary Guarantor agrees not to claim or enforce any such
right of subrogation or any right of setoff or any other right which may arise
on account of any payment made by such Subsidiary Guarantor in accordance with
the provisions of this Subsidiary Guarantee unless and until all of the Notes
owned by Persons other than 

 

 

the Subsidiary Guarantor and all other sums due or
payable under this Subsidiary Guarantee have been fully paid and discharged.

 

4.     REPRESENTATIONS AND WARRANTIES.

 

Each
Subsidiary Guarantor jointly and severally represents and warrants to each
Noteholder as of the date hereof as follows:

 

4.1.   Organization; Power and Authority.

 

It is
a company or corporation duly organized and validly existing under the laws of
its jurisdiction of formation, and is duly qualified as a foreign company or
corporation and is in good standing in each jurisdiction in which such
qualification is required by applicable law, other than those jurisdictions as
to which the failure to be so qualified or validly existing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  It has the corporate
power and authority to own or hold under lease the properties it purports to
own or hold under lease, to transact the business it transacts, to execute and deliver
this Subsidiary Guarantee and to perform the provisions hereof.

 

4.2.   Authorization, etc.

 

This
Subsidiary Guarantee has been duly authorized by all necessary corporate
action, and constitutes a legal, valid and binding obligation of it enforceable
against it in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors’ rights
generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).

 

4.3.   Compliance with Laws, Other Instruments, etc.

 

The
execution, delivery and performance by such Subsidiary Guarantor of this
Subsidiary Guarantee will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of such Subsidiary Guarantor under, any indenture, mortgage, deed
of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument to which it is bound or by which
it or any of its properties may be bound or affected, (ii) conflict with
or result in a breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to such Subsidiary Guarantor or (iii) violate any
provision of any statute or other rule or regulation of any Governmental
Authority applicable to such Subsidiary Guarantor; except, in each case, any
such breach, default, conflict, violation or Lien that would not reasonably be
expected to have a Material Adverse Effect.

 

4.4.   Governmental Authorizations, etc.

 

No
consent, approval or authorization of, or registration, filing or declaration
with, any Governmental Authority is required in connection with the execution,
delivery or performance by such Subsidiary Guarantor of this Subsidiary
Guarantee.

 

 

4.5.   Solvency.

 

Each
Subsidiary Guarantor is, and upon execution and delivery of the Subsidiary
Guarantee or an Instrument of Accession, as the case may be, will be, a “solvent
institution”, as said term is used in section 1405(c) of the New York
State Insurance Law, whose “obligations are not in default as to principal or
interest”, as said terms are used in said section 1405(c).

 

5.     PREFERENCE; MARSHALING.

 

(a)           Each Subsidiary Guarantor agrees that, to the extent
the Company makes any payment on the Notes, which payment or any part thereof
is subsequently invalidated, voided, declared to be fraudulent or preferential,
set aside or is required to be repaid to a trustee, receiver or any other
Person under any bankruptcy code, common law or equitable cause, the obligation
or the part thereof intended to be satisfied shall be revived and continued in
full force and effect with respect to such Subsidiary Guarantor’s obligations
hereunder, as if said payment had not been made.  The liability of such Subsidiary Guarantor
hereunder shall not be reduced or discharged, in whole or in part, by any
payment to any Noteholder from any source that is thereafter paid, returned or
refunded in whole or in part by reason of the assertion of a claim of any kind
relating thereto, including, but not limited to, any claim for breach of
contract, breach of warranty, preference, illegality, invalidity or fraud
asserted by any account debtor or by any other Person.

 

(b)           None of the Noteholders shall be under any obligation (i) to
marshal any assets in favor of such Subsidiary Guarantor or in payment of any
or all of the liabilities of the Company under or in respect of the Notes or
the obligation of such Subsidiary Guarantor hereunder or (ii) to pursue
any other remedy that such Subsidiary Guarantor may or may not be able to
pursue itself and that may lighten such Subsidiary Guarantor’s burden, any
right to which such Subsidiary Guarantor hereby expressly waives.  The obligations of such Subsidiary Guarantor
under this Subsidiary Guarantee rank pari
passu in right of payment with all other Indebtedness for borrowed
money (actual or contingent) of such Subsidiary Guarantor which is not secured
or the subject of any statutory trust or preference or which is not expressly
subordinated in right of payment to any other debt.

 

6.     MAXIMUM GUARANTEED LIABILITY OF ITALIAN SUBSIDIARY GUARANTORS.

 

No
Subsidiary Guarantor that is organized under the laws of the Republic of Italy
shall be liable for any amounts in respect of any of the obligations guaranteed
under this Subsidiary Guarantee in excess of the aggregate of an amount equal
to the sum of 200% of the aggregate principal amount of the Notes, plus
interest (other than default interest, Make-Whole Amount, Modified Make-Whole
Amount or Additional Amount) accruing thereon.

 

 

7.     ENTIRE AGREEMENT; WAIVERS.

 

Each
Subsidiary Guarantor hereby agrees that this instrument contains the entire
agreement between the parties and that there is and can be no other oral or
written agreement or understanding whereby the provisions of this instrument
have been or can be terminated, affected, varied, waived, amended or modified
in any manner, unless the same be set forth and consented to in writing by (i) all
of the registered Noteholders in the case of Sections 1, 7, 14 or 15 or (ii) Required
Holders in all other cases.

 

Any consent given pursuant to this Section 7 by a
Noteholder which has (i) transferred or agreed to transfer all or a
portion of its Notes to the Company, the Parent Guarantor, any Subsidiary
Guarantor or any Subsidiary and (ii) provided such consent as a condition
to such transfer, shall be valid and binding only upon such Noteholder.  Any amendment or waiver which becomes
effective only with such consent (and the consents of all other Noteholders
which were acquired under the same or similar conditions) shall be valid and
binding only upon such Noteholder.

 

8.     SUCCESSORS AND ASSIGNS.

 

In
respect of the obligations of the Company under the Notes, this Subsidiary
Guarantee shall be binding upon and inure to the benefit of the Noteholders
(and for this purpose each Subsidiary Guarantor may treat the Person in whose
name any Note is registered in the register maintained by the Company as the
owner and holder of such Note for all purposes whatsoever and the Subsidiary
Guarantor shall not be affected by notice to the contrary).  In respect of all other obligations of the
Company guaranteed by this Subsidiary Guarantee, this Subsidiary Guarantee
shall be binding upon and inure to the benefit of the respective successors and
assigns of any Subsidiary Guarantor and of any Noteholder.  This Subsidiary Guarantee shall, without
further consent of any Subsidiary Guarantor, pass to, and may be relied upon
and enforced by, any successor or assignee of any Noteholder and any transferee
or subsequent registered holder of any Note.

 

9.     JURISDICTION; SERVICE OF PROCESS.

 

Each
Subsidiary Guarantor represents and warrants that it is not entitled to
immunity from judicial proceedings and agrees that, if judicial proceedings are
brought by any Noteholder to enforce any right or remedy under this Subsidiary
Guarantee or under any Note, no immunity from such proceedings will be claimed
by or on behalf of such Subsidiary Guarantor or with respect to its
property.  With respect to any such suit,
action or proceeding which may be brought by any Noteholder, each Subsidiary
Guarantor hereby consents to submit to the non-exclusive jurisdiction of any
state or federal court of competent jurisdiction sitting within the area
comprising the Southern District of New York on the date of this Subsidiary
Guarantee and waives any objection which it may have to the venue of any such
suit, action or proceeding in any such court and any claim or defense of
inconvenient forum.  Each Subsidiary
Guarantor has delivered to you a true and correct copy of an instrument by
which each Subsidiary Guarantor has irrevocably appointed National Registered
Agents, Inc., with offices at 875 Avenue of the Americas, Suite 501,
New York, New York 10001, as its authorized agent upon which process may be
served in any such suit, action or proceeding and by which National 

 

 

Registered Agents, Inc. has accepted such
appointment.  Each Subsidiary Guarantor
will take any and all action, including the execution and filing of all such
documents and instruments, as may be necessary to effect and continue the
appointment of such agent in full force and effect, or, if necessary, by reason
of any fact or condition relating to such agent, to replace such agent (but
only after having given notice thereof to each Noteholder).  Each Subsidiary Guarantor agrees that service
of process upon such agent and written notice of such service given to the
relevant Subsidiary Guarantor as provided in Section 10 shall be deemed in
every respect effective service of process upon such Subsidiary Guarantor, as
the case may be, in any such suit, action or proceeding in any such court.  In making the foregoing appointment and
submission to jurisdiction, each Subsidiary Guarantor expressly waives the
benefit of any contrary provisions of foreign law.  Nothing in this Section 9 shall affect
the right of any Noteholder to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against a Subsidiary
Guarantor in any court in which such Subsidiary Guarantor, as the case may be,
is subject to suit.

 

10.  NOTICES.

 

All
notices and communications provided for hereunder shall be in writing and sent (a) by
telecopy if the sender on the same day sends a confirming copy of such notice
by a recognized overnight delivery service (charges prepaid), or (b) by a
recognized overnight delivery service (with charges prepaid).

 

Any
such notice must be sent:

 

(a)           if to a Noteholder or its nominee, to such Noteholder
or its nominee at the address specified for such communications in Schedule A
to the Note Purchase Agreement, or at such other address as such Noteholder or
its nominee shall have specified to the Company in writing, or

 

(b)           if to any Subsidiary Guarantor, to such Subsidiary
Guarantor at its address specified in Annex A, or at such other address as such
Subsidiary Guarantor shall have specified to each Noteholder in writing.

 

Notices
under this Section 10 will be deemed given only when actually received.

 

11.  GOVERNING LAW, ETC.

 

This
Subsidiary Guarantee shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New
York excluding choice-of-law principles of the law of such State that would
permit the application of the laws of a jurisdiction other than such State.

 

12.  SUBROGATION.

 

Each
Subsidiary Guarantor, irrevocably, unconditionally, until the obligations
guaranteed hereunder shall have been indefeasibly paid in full or released,
hereby waives all rights any such Subsidiary Guarantor may have to be
subrogated to the rights of the Noteholders and all other remedies that any of
them may have against the Company, in respect of which any payment is made
hereunder.  If any amount shall 

 

 

be paid to any Subsidiary Guarantor on account of any
such subrogation rights or other remedy, notwithstanding the waiver thereof,
such amount shall be received in trust for the benefit of the Noteholders and
shall forthwith be paid to such Noteholders to be credited and applied upon the
obligations guaranteed hereby, whether matured or unmatured, in accordance with
the terms hereof.  Each Subsidiary
Guarantor agrees that its respective obligations under this Section 12
shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of the Company is rescinded or must be otherwise
restored by any Noteholder, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise, all as though such amount had not
been paid.

 

13.  NO WAIVER.

 

No delay
on the part of any Noteholder in exercising any rights hereunder or failure to
exercise the same shall operate as a waiver of such rights; no notice to or
demand on any Subsidiary Guarantor shall be deemed to be a waiver of the
obligation of such Subsidiary Guarantor or of the rights of any Noteholder to
take further action without notice or demand as provided herein.

 

14.  WITHHOLDING TAXES.

 

All
payments by any Subsidiary Guarantor under this Subsidiary Guarantee will be
made by such Subsidiary Guarantor in the lawful currency of the United States
of America free and clear of, and without liability for withholding or
deduction for or on account of, any present or future Taxes of whatever nature
imposed or levied by or on behalf of any jurisdiction other than the United
States (or any political subdivision or taxing authority of or in such
jurisdiction) (hereinafter a “Taxing Jurisdiction”),
unless the withholding or deduction of such Tax is compelled by law.

 

If any
deduction or withholding for any Tax of a Taxing Jurisdiction shall at any time
be required in respect of any amounts to be paid by any Subsidiary Guarantor
under this Subsidiary Guarantee, such Subsidiary Guarantor will pay to the
relevant Taxing Jurisdiction the full amount required to be withheld, deducted
or otherwise paid before penalties attach thereto or interest accrues thereon
and pay to each Noteholder such additional amounts as may be necessary in order
that the net amounts paid to such Noteholder pursuant to the terms of this Subsidiary
Guarantee after such deduction, withholding or payment (including without
limitation any required deduction or withholding of Tax on or with respect to
such additional amount) (the “Additional Amounts”)
shall be not less than the amounts then due and payable to such Noteholder
under the terms of this Subsidiary Guarantee before the assessment of such Tax,
provided that no payment of any Additional Amounts shall be required to
be made for or on account of:

 

(a)           any Tax that would not have been imposed but for the
existence of any present or former connection between such Noteholder (or a
fiduciary, settler, beneficiary, member of, shareholder of, or possessor of a
power over, such Noteholder, if such Noteholder is an estate, trust,
partnership or corporation or any Person other than the Noteholder to whom the
Notes or any amount payable thereon is attributable for the purposes of such
Tax) and the Taxing Jurisdiction, other than the mere holding of the relevant
Note or the receipt of payments thereunder or in respect thereof, including
without 

 

 

limitation such Noteholder (or such other Person
described in the above parenthetical) being or having been a citizen or
resident thereof, or being or having been present or engaged in trade or
business therein or having or having had an establishment, office, fixed base
or branch therein, provided that this exclusion shall not apply with respect to
a Tax that would not have been imposed but for a Subsidary Guarantor, after the
date of the Closing, opening an office in, moving an office to, reincorporating
in, or changing the Taxing Jurisdiction from or through which payments on
account of this Subsidiary Guarantee are made to, the Taxing Jurisdiction
imposing the relevant Tax;

 

(b)           any Tax that would not have been imposed but for the
delay or failure by such Noteholder (following a written request by a
Subsidiary Guarantor) in the filing with the relevant Taxing Jurisdiction of
Forms (as defined below) that are required to be filed by such Noteholder to
avoid or reduce such Taxes (including for such purpose any refilings or
renewals of filings that may from time to time be required by the relevant
Taxing Jurisdiction), provided that the filing of such Forms would not (in such
Noteholder’s reasonable judgment) impose any unreasonable burden (in time,
resources or otherwise) on such Noteholder or result in any confidential or
proprietary income tax return information being revealed, either directly or
indirectly, to any Person and such delay or failure could have been lawfully
avoided by such Noteholder, and provided further that such Noteholder shall be
deemed to have satisfied the requirements of this clause (b) upon the good
faith completion and submission of such Forms (including refilings or renewals
of filings) as may be specified in a written request of such Subsidiary
Guarantor no later than 60 days after receipt by such Noteholder of such
written request (accompanied by copies of such Forms and related instructions,
if any, all in the English language or with an English translation thereof); or

 

(c)           any combination of clauses (a) and (b) above;

 

and provided further that in no event shall a Subsidiary Guarantor be
obligated to pay any Additional Amounts to any Noteholder (i) not resident
in the United States of America or any other jurisdiction in which an original
Purchaser is resident for tax purposes on the date of the Closing in excess of
the amounts that such Subsidiary Guarantor would be obligated to pay if such
Noteholder had been a resident of the United States of America or such other
jurisdiction, as applicable, for purposes of, and eligible for the benefits of,
any double taxation treaty from time to time in effect between the United
States of America or such other jurisdiction and the relevant Taxing Jurisdiction
or (ii) to any Noteholder registered in the name of a nominee if under the
law of the relevant Taxing Jurisdiction (or the current regulatory
interpretation of such law) securities held in the name of a nominee do not
qualify for an exemption from the relevant Tax and such Subsidiary Guarantor
shall have given timely notice of such law or interpretation to such
Noteholder.

 

By
acceptance of any Note, the Noteholder agrees, subject to the limitations of
clause (b) above,  that it will from
time to time with reasonable promptness (x) duly complete and deliver to
or as reasonably directed by a Subsidiary Guarantor all such forms,
certificates, documents and returns provided to such Noteholder by such 

 

 

Subsidiary Guarantor (collectively, together with
instructions for completing the same, “Forms”)
required to be filed by or on behalf of such Noteholder in order to avoid or
reduce any such Tax pursuant to the provisions of an applicable statute,
regulation or administrative practice of the relevant Taxing Jurisdiction or of
a tax treaty between the United States and such Taxing Jurisdiction and (y) provide
any Subsidiary Guarantor with such information with respect to such Noteholder
as such Subsidiary Guarantor may reasonably request in order to complete any
such Forms; provided, that nothing in this Section 14 shall require any
Noteholder to provide information with respect to any such Form or
otherwise if in the opinion of such Noteholder such Form or disclosure of
information would involve the disclosure of tax return or other information
that is confidential or proprietary to such Noteholder, and provided further
that each such Noteholder shall be deemed to have complied with its obligation
under this paragraph with respect to any Form if such Form shall have
been duly completed and delivered by such Noteholder to such Subsidiary
Guarantor or mailed to the appropriate taxing authority (which in the case of a
United Kingdom Inland Revenue Form US-Company 2002 or any similar Form shall
be deemed to occur when such Form is submitted to the United States
Internal Revenue Service in accordance with instructions contained in such
Form), whichever is applicable, within 60 days following a written request of
such Subsidiary Guarantor (which request shall be accompanied by copies of such
Form and English translations of any such Form not in the English
language) and, in the case of a transfer of any Note, at least 90 days prior to
the relevant interest payment date.

 

On or
before the date of the Closing, each Subsidiary Guarantor will furnish each
Purchaser with copies of the appropriate Form (and English translation if
required as aforesaid) currently required to be filed pursuant to clause (b) of
the first paragraph of this Section 14, if any, and in connection with the
transfer of any Note each Subsidiary Guarantor will furnish the transferee of
such Note with copies of any Form and English translation then
required.  Such Form shall be
completed by the Purchaser and filed with the relevant financial intermediary
within 60 days following receipt of such Form and, in the case of a
transfer of any Note, at least 90 days prior to the relevant interest payment
date.

 

If any
payment is made by any Subsidiary Guarantor to or for the account of any
Noteholder after deduction for or on account of any Taxes, and increased
payments are made by any Subsidiary Guarantor pursuant to this Section 14,
then, if such Noteholder at its sole discretion determines that it has received
or been granted a refund of such Taxes, such Noteholder shall, to the extent
that it can do so without prejudice to the retention of the amount of such
refund, reimburse to such Subsidiary Guarantor such amount as such Noteholder
shall, in its sole discretion, determine to be attributable to the relevant
Taxes or deduction or withholding. 
Nothing herein contained shall interfere with the right of the
Noteholder of any Note to arrange its tax affairs in whatever manner it thinks
fit and, in particular, no Noteholder shall be under any obligation to claim
relief from its corporate profits or similar tax liability in respect of such
Tax in priority to any other claims, reliefs, credits or deductions available
to it or (other than as set forth in clause (b) above) oblige any
Noteholder to disclose any information relating to its tax affairs or any
computations in respect thereof.

 

 

Each
Subsidiary Guarantor will furnish the Noteholders, promptly and in any event
within 60 days after the date of any payment by such Subsidiary Guarantor of
any Tax in respect of any amounts paid under this Subsidiary Guarantee, the
original tax receipt issued by the relevant taxation or other authorities
involved for all amounts paid as aforesaid (or if such original tax receipt is
not available or must legally be kept in the possession of such Subsidiary
Guarantor, a duly certified copy of the original tax receipt or any other
reasonably satisfactory evidence of payment), together with such other
documentary evidence with respect to such payments as may be reasonably requested
from time to time by any Noteholder.

 

If any
Subsidiary Guarantor is required by any applicable law, as modified by the
practice of the taxation or other authority of any relevant Taxing
Jurisdiction, to make any deduction or withholding of any Tax in respect of
which such Subsidiary Guarantor would be required to pay any Additional Amount
under this Section 14, but for any reason does not make such deduction or
withholding with the result that a liability in respect of such Tax is assessed
directly against any Noteholder, and such Noteholder pays such liability, then
such Subsidiary Guarantor will promptly reimburse such Noteholder for such
payment (including any related interest or penalties to the extent such
interest or penalties arise by virtue of a default or delay by such Subsidiary
Guarantor) upon demand by such Noteholder accompanied by an official receipt
(or a duly certified copy thereof) issued by the taxation or other authority of
the relevant Taxing Jurisdiction.

 

If any
Subsidiary Guarantor makes payment to or for the account of any Noteholder and
such Noteholder is entitled to a refund of the Tax to which such payment is
attributable upon the making of a filing (other than a Form described
above), then such Noteholder shall, as soon as practicable after receiving
written request from such Subsidiary Guarantor (which shall specify in
reasonable detail and supply the refund forms to be filed) use reasonable
efforts to complete and deliver such refund forms to or as directed by such
Subsidiary Guarantor, subject, however, to the same limitations with respect to
Forms as are set forth above.

 

The
obligations of each Subsidiary Guarantor under this Section 14 shall
survive the payment or transfer of any Note and the provisions of this Section 14
shall also apply to successive transferees of the Notes.

 

15.  JUDGMENT CURRENCY INDEMNITY.

 

Any
payment on account of an amount that is payable hereunder in Dollars which is
made to or for the account of any Noteholder in lawful currency of any other
jurisdiction (the “Other Currency”)
whether as a result of any judgment or order or the enforcement thereof or the
realization of any security or the liquidation of any Subsidiary Guarantor
shall constitute a discharge of such Subsidiary Guarantor’s obligation under
this Subsidiary Guarantee only to the extent of the amount of Dollars which
such Noteholder could purchase in the New York foreign exchange markets with
the amount of the Other Currency in accordance with normal banking procedures
at the rate of exchange prevailing on the first day (other than a Saturday) on
which banks in New York are generally open for business following receipt of
the payment first referred to above.  If
the amount of Dollars that could be so purchased on such date is less than the
amount of Dollars originally due to such Noteholder, such Subsidiary Guarantor
shall indemnify and save harmless such Noteholder from and 

 

 

against all loss or damage arising out of or as a
result of such deficiency.  This
indemnity shall constitute an obligation separate and independent from the
other obligations contained in this Subsidiary Guarantee, shall give rise to a
separate and independent cause of action, shall apply irrespective of any
indulgence granted by any Noteholder from time to time and shall continue in
full force and effect notwithstanding any judgment or order for a liquidated
sum in respect of an amount due hereunder or under any judgment or order.

 

16.  TERMINATION OR RELEASE.

 

This
Subsidiary Guarantee and the guarantee made herein by each Subsidiary Guarantor
with respect to the Guaranteed Obligations shall terminate and each Subsidiary
Guarantor shall be automatically released from all such Guaranteed Obligations
hereunder upon the indefeasible full payment in cash and discharge of all
amounts payable under the Notes and all other amounts payable under the Note
Purchase Agreement and this Subsidiary Guarantee.

 

17.  HEADINGS.

 

The
descriptive headings of the several Sections of this Subsidiary Guarantee are
inserted for convenience only and do not constitute a part of this Subsidiary
Guarantee.

 

18.  COUNTERPARTS.

 

This
Subsidiary Guarantee may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument.  Each counterpart may consist
of a number of copies hereof, each signed by less than all, but together signed
by all, of the parties hereto.

 

19.  SURVIVAL OF REPRESENTATIONS AND
WARRANTIES.

 

All
representations and warranties contained herein or made in writing by or on
behalf of the Subsidiary Guarantors in connection herewith shall survive the
execution and delivery of the Notes and this Subsidiary Guarantee.

 

20.  SEVERABILITY.

 

Any
provision of this Subsidiary Guarantee that 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 hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

 

21.  DEFINITIONS.

 

Capitalized
terms not otherwise defined herein shall have the meaning provided in the Note
Purchase Agreement.

 

[signature page follows]

 

 

IN
WITNESS WHEREOF each Subsidiary Guarantor has caused this Subsidiary Guarantee
to be executed the day and year first above written.

 

 

	
   

  	
  LUXOTTICA S.r.l.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Vito Giannola

  
	
   

  	
   

  
	
   

  	
  Name: Vito Giannola

  
	
   

  	
  Title: Special Authorized Signatory

  

 

 

ANNEX A

to Subsidiary Guarantee

 

NAME AND ADDRESS OF SUBSIDIARY GUARANTOR

 

	
  Subsidiary
  Guarantor

  	
   

  	
  Address

  
	
   

  	
   

  	
   

  
	
  Luxottica S.r.l.

  	
   

  	
  Luxottica S.r.l.

  Via C. Cantù 2

  Milan 20123, ITALY

  Attn: Enrico Cavatorta

  

 

 

ANNEX B

to Subsidiary Guarantee

 

FORM OF INSTRUMENT OF ACCESSION

TO SUBSIDIARY GUARANTEE

 

INSTRUMENT OF ACCESSION dated
                ,
          , made by [name of
new Subsidiary Guarantor], a company organized under the laws of
                    
(the “Acceding Subsidiary Guarantor”) in
respect of the Subsidiary Guarantee dated January 29, 2010 (the “Subsidiary Guarantee”) made from the Subsidiary Guarantors
set forth therein to the Noteholders (as defined therein). Capitalized terms
used herein without definition shall have the meanings assigned to such terms
in the Subsidiary Guarantee.

 

1.             Assumption. 
The Acceding Subsidiary Guarantor hereby expressly assumes and agrees,
with effect from and after the date hereof, to perform and observe each and
every one of the covenants, conditions, obligations, duties and liabilities
applicable to a “Subsidiary Guarantor” under the Subsidiary Guarantee, jointly
and severally with all other Subsidiary Guarantors under the Subsidiary
Guarantee, as if the Acceding Subsidiary Guarantor had been an original party thereto.  All references to any Subsidiary Guarantor in
the Note Purchase Agreement, the Notes, the Subsidiary Guarantee or any
document, instrument or agreement executed and delivered or furnished in
connection therewith shall be deemed to be and include references to the
Acceding Subsidiary Guarantor.

 

2.             Representations and Warranties.  The Acceding Subsidiary Guarantor jointly and
severally represents and warrants to each Noteholder as of the date hereof as
follows:

 

2.1          Organization; Power and Authority. 
It is a company or corporation duly organized and validly existing under
the laws of its jurisdiction of formation, and is duly qualified as a foreign
company or corporation and is in good standing in each jurisdiction in which
such qualification is required by applicable law, other than those
jurisdictions as to which the failure to be so qualified or validly existing
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.  It has the
corporate power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it transacts, to
execute and deliver this Instrument of Accession and the Subsidiary Guarantee
and to perform the provisions hereof.

 

2.2          Authorization, etc. This Instrument of Accession and the
Subsidiary Guarantee has been duly authorized by all necessary corporate
action, and constitutes a legal, valid and binding obligation of it enforceable
against it in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the 

 

 

enforcement of creditors’
rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

 

2.3          Compliance with Laws, Other
Instruments, etc.
The execution, delivery and performance by such Acceding Subsidiary Guarantor
of this Instrument of Accession and the Subsidiary Guarantee will not (i) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of such Acceding Subsidiary
Guarantor under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other Material
agreement or instrument to which it is bound or by which it or any of its
properties may be bound or affected, (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to such Acceding Subsidiary Guarantor or (iii) violate any provision of
any statute or other rule or regulation of any Governmental Authority
applicable to such Acceding Subsidiary Guarantor; except, in each case, any
such breach, default, conflict, violation or Lien that would not reasonably be
expected to have a Material Adverse Effect.

 

2.4          Governmental Authorizations, etc. 
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by such Acceding Subsidiary Guarantor of
this Instrument of Accession or the Subsidiary Guarantee, except for
information filings made with the SEC pursuant to the Exchange Act.

 

2.5          Solvency. 
The Acceding Subsidiary Guarantor is, and upon execution and delivery of
this Instrument of Accession and the Subsidiary Guarantee will be (a) Solvent
and (b) a “solvent institution”, as said term is used in section 1405(c) of
the New York State Insurance Law, whose “obligations are not in default as to
principal or interest”, as said terms are used in said section 1405(c).  As used herein, the term “Solvent” means,
with respect to the any Acceding Subsidiary Guarantor on a particular date,
that on such date (i) the fair market value of the assets of such entity
is greater than the total amount of liabilities (including contingent
liabilities) of the entity, (ii) the present fair saleable value of the
assets of such entity is greater than the sum of stated liabilities and
identified contingent liabilities, (iii) such entity is able to realize
upon its assets and pay its debts and other liabilities, including contingent
obligations, as they mature, (iv) such entity does not have unreasonably
small capital and (v) such entity is not unable to or has not been deemed
to be unable to pay its debts as they fall due.

 

2.6          Corporate Benefit. Having taken into account the financial
interdependence and mutual reliance between such Acceding Subsidiary Guarantor,
the Company and the Parent and its Subsidiaries, the continuing financial and
other assistance from time to time given by such Acceding Subsidiary Guarantor
to the Company 

 

 

and the Parent and its
Subsidiaries, and vice versa, such Acceding Subsidiary Guarantor will derive
material benefits, directly or indirectly from the financing obtained through
the Notes, both as a separate corporate entity and as a member of the Group.

 

3.             Information.

 

Address:

 

Telephone:

 

Facsimile:

 

4.             Governing Law. 
This Instrument of Accession shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York.

 

IN
WITNESS WHEREOF, the Acceding Subsidiary Guarantor has caused this Instrument
of Accession to be duly executed and delivered as of the day and year first
above written.

 

 

	
  [ACCEDING SUBSIDIARY
  GUARANTOR]

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:Exhibit
10.2

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

RESELLER
AGREEMENT

 

This Reseller Agreement
(this “Agreement”) is entered into as of September 10, 2009 (the “Effective
Date”), by and between Ditech Networks, Inc., a Delaware corporation doing
business at 825 East Middlefield Road, Mountain View, CA 94043 (“Ditech”), and
Simulscribe LLC, with offices at 110 East 59th Street, New York, NY 10022 (“Simulscribe”).

 

AGREEMENT

 

IN
CONSIDERATION OF THE PREMISES, MUTUAL COVENANTS, CONDITIONS, PROMISES AND
AGREEMENTS CONTAINED HEREIN, THE PARTIES HERETO AGREE AS FOLLOWS:

 

1.                                       DEFINITIONS

 

a.                                       “Assigned Customers” shall mean those
customers who are the counter parties to the Assigned Customer Agreements.

 

b.                                      “Assigned Customer Agreements” shall mean
those agreements listed in Schedule C.

 

c.                                       “Assignment Date” means September 10,
2009.

 

d.                                      “Change of Control” shall have the
meaning as defined in Section 12.1.

 

e.                                       “Services” shall mean any and all (i) current
services offered, provided, or made available through or by Simulscribe,
including services offered, provided, or made available to the Assigned
Customers, (ii) services described in Schedule A,
as modified by the parties from time to time upon mutual consent, and (iii) future
services offered, provided, or made available through or by Simulscribe not at
the direction, instruction or request of Ditech.

 

f.                                         “Marks” shall mean the “PhoneTag” and “Simulscribe”
brand name, logos, domain names, services marks and trademarks rights owned by
Simulscribe.

 

g.                                      “Territory” shall mean worldwide.

 

h.                                      “Wholesale Customers” shall mean (i) any
and all customers who do not purchase or receive any of the Services for its
own personal consumption or use, including, without limitation the Assigned
Customers and (ii) any and all customers, originated by Ditech, who
purchase or receive any of the Services for its own personal consumption
together with any other bundled services of Ditech (a “Bundled Wholesale
Customer”).

 

i.                                          “Retail Customers” shall mean (i) any
and all customers, originated by Simulscribe, who purchase or receive any of
the Services for its own personal consumption or use and (ii) any and all
customers, originated by Simulscribe, who purchase or receive any of the
Services for its own personal consumption together with any other bundled
services of Ditech (“Bundled Retail Customer”).

 

2.                                       APPOINTMENT

 

2.1                               Exclusivity.

 

Simulscribe
hereby appoints Ditech as its exclusive seller of the Services for Wholesale
Customers in the Territory, and Ditech hereby accepts such appointment.  Simulscribe may not add additional distributors,
independent sales representatives, sellers or resellers in the Territory for
Wholesale Customers without the consent of Ditech. Simulscribe will not provide
or make available any of the Services to any Wholesale Customers other than to
or through Ditech and will not authorize any other party to provide any
Services to any Wholesale 

 

Confidential Information

 

1

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Customer.  Simulscribe shall promptly forward any
Wholesale Customers’, and after the Assignment Date any Assigned Customers’,
orders or inquiries it may receive to Ditech and shall inform its Wholesale
Customers, and after the Assignment Date any Assigned Customers, that the
Services shall be ordered directly from Ditech. All Services will be provided
by Simulscribe to the Wholesale Customers, and Ditech will have no right to
itself provide any Services. Ditech may only sell the Services under the
applicable Marks, and at the option of Ditech, together with the name “Ditech”
and, upon the mutual agreement of the parties, any other tradename.  Ditech agrees during the term of this
Agreement that it shall not directly or indirectly compete with the business of
the sale of the voicemail—to-text Service provided by Simulscribe under this
Agreement.  Without limiting the
generality of the foregoing, Ditech shall not during the term of this Agreement
directly or indirectly market, sell, license or distribute any
voicemail-to-text service or product to any Wholesale Customer or non Wholesale
Customer other than the voicemail-to-text Service provided by Simulscribe under
this Agreement.

 

2.2                               Services.

 

Simulscribe
will provide Services to all Wholesale Customers in a sufficient volume to
fulfill all of the business needs of the Wholesale Customers.  Promptly after the Effective Date,
Simulscribe will advise Ditech of all information Simulscribe needs in order to
provide the Services to the Wholesale Customers) and will keep Ditech informed
of any changes to the information needed. 
Simulscribe will work with Ditech regarding the process to provide the
Services to the Wholesale Customers. 
Simulscribe will provide Ditech with sales and technical information
regarding the Services and a reasonable amount of literature and other marketing
materials pertaining to Simulscribe and to the Services.  Simulscribe will perform the Services in
conformance with the Service Levels specified in Schedule
B. Ditech shall have the right to request the provision of
speech recognition services other than the Services as part of the Services provided
under this Agreement, but the decision whether to provide such future services
and the scope of such future services shall be subject to the agreement of
Simulscribe.

 

3.                                       PRICES, ORDERS, AND PAYMENT

 

3.1          Prices.

 

a.               Assigned Customer
Agreements.  Ditech agrees to pay Simulscribe a
one-time fee of Four Million US Dollars ($4,000,000) for the assignment of the
Assigned Customer Agreements and the sole right to receive any fees due under
such agreements after the Assignment Date as described in Section 4.   This fee shall be payable (i) by the
payment of Two Million US Dollars ($2,000,000) on the day this Agreement is
executed (or the next business day if executed after the wire deadline) and (ii) by
the issuance of a convertible promissory note in the principal amount of Two
Million US Dollars ($2,000,000) with a maturity date two (2) years from
this Agreement’s Effective Date (subject to acceleration and conversion rights
as provided therein), in the form attached hereto as Schedule D.

 

b.              Services Exclusivity.  Ditech agrees
to pay Simulscribe a one time fee of Three Million US Dollars ($3,000,000) for
the exclusive rights to sell the Services to Wholesale Customers as described
in Section 2.1. This fee shall be payable (i) by the payment of One
Million Five Hundred Thousand US Dollars ($1,500,000) on the day this Agreement
is executed (or the next business day if executed after the wire deadline) and (ii) by
the issuance of a convertible promissory note in the principal amount of One
Million Five Hundred Thousand US Dollars ($1,500,000) with a maturity date two (2) years
from this Agreement’s Effective Date (subject to 

 

2

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

acceleration and
conversion rights as provided therein) in the form attached hereto as Schedule D.

 

c.               Services Fee.  For up to [*] after the Effective Date, Ditech agrees
to pay Simulscribe an ongoing services fee in an amount equal to [*] (“Services
Fee”) for Services in conformance with the Service Levels specified in Schedule B.  After the just-ended month, Simulscribe shall
send Ditech a detailed invoice for the Services provided to Wholesale Customers
during the just-ended month.  Ditech may
set off any amount owed by Simulscribe to Ditech against the Service Fee owed
by Ditech to Simulscribe under this Agreement upon mutual agreement by Ditech
and Simulscribe.  Unless otherwise stated
on this Agreement, payment terms of the Service Fee shall be net forty five
(45) calendar days after receipt of valid invoice.  If any aspect of any item on an invoice is
disputed, such dispute shall be resolved upon mutual agreement by Ditech and
Simulscribe.

 

d.              Prices.  Ditech is free to determine its own
prices for sale of the Services to the Wholesale Customers, and nothing
expressed or implied herein shall in any way limit Ditech’s ability to set such
prices in its sole discretion.  Except for Retail Customers,
Ditech shall bill all Wholesale Customers directly and, except as is set forth
below, retain all payments made by the Wholesale Customers.  Simulscribe shall bill all Retail Customers
directly and, except as is set forth below, retain all payments made by the
Retail Customers.  In addition to the
Service Fees, in the event that Simulscribe sells the Service to a Bundled
Retail Customer then Simulscribe shall remit to Ditech on a monthly basis a
portion of the fee paid by the Bundled Retail Customer which the parties agree
should be allocated to the Ditech service based on market prices of the bundled
services if sold on a stand alone basis. 
In the event that Ditech sells the Service to a Bundled Wholesale
Customer then Ditech shall remit to Simulscribe on a monthly basis a portion of
the fee paid by the Bundled Wholesale Customer which the parties agree should
be allocated to the Simulscribe service based on market prices of the bundled
services if sold on a stand alone basis. 
To the extent that the parties cannot agree on of the above allocations
any such dispute shall be resolved by the Independent Auditor (as defined in Section 3.2(b) hereof).  The cost of the Independent Auditor shall be
borne equally by the parties.

 

e.               Taxes. 
Ditech will not be responsible for payment of any taxes (including taxes
based on Simulscribe’s income), fees, duties, and other governmental charges,
and any related penalties and interest, arising from the payment of fees to
Simulscribe under this Agreement or the provision of the Services under this
Agreement.

 

3.2          Incremental Revenue.

 

a.               “Incremental Revenue” shall mean the sum of (i) all amounts paid
by Wholesale Customers to Ditech for the Service (not bundled with a Ditech
product), and (ii) when bundled with a Ditech product to a Bundled
Wholesale Customer or Bundled Retail Customer, only the prorated recognized
revenue of the Services which the parties agree should be allocated to the
Service based on market prices of the bundled services if sold on a stand alone
basis which allocation shall be consistent with the allocation set forth in Section 3.1(e) (to
the extent that the parties cannot agree on such allocation any such dispute
shall be resolved by the Independent Auditor (as defined in Section 3.2(b) hereof)
and the cost of the Independent Auditor shall be borne equally by the parties),
and (iii) all amounts paid by Retail Customers for the Service (not
bundled with a Ditech product).

 

b.              Simulscribe
shall be paid annually for the period ending October 31, 2012, a portion
of the total Accumulated Incremental Revenue on a sliding scale based on the
schedule set forth in Section 3.2(c) below (the “Incremental Payments”).  For the 

 

3

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

purpose of the first year of the Incremental Payments,
the first year shall be from the Effective Date until October 31,
2010.  The second year of the Incremental
Payments shall be based from November 1, 2010 until October 31,
2011.  The final year of the Incremental
Payments shall be based from November 1, 2011 until October 31,
2012.  Thus, the Incremental Payments
shall be calculated on November 1, 2010, November 1, 2011 and November 1,
2012 (each, an “Incremental Payments Calculation Date”). The Incremental
Payment shall be paid within twenty (21) calendar days after the applicable
Incremental Payments Calculation Date. 
No Incremental Payment shall be made after the third year payment.  Incremental Revenue shall be calculated in
accordance with generally accepted accounting principles as all such amounts
are set forth in the audited financial statements of Ditech and the books and
records of Simulscribe.  Together with
the payment of each the Incremental Payment, Ditech shall deliver to
Simulscribe a detailed statement calculating Incremental Revenue for the prior
fiscal year and the calculation of the Incremental Payment, if any.  Within thirty (30) days after the delivery of
the statement of Incremental Revenue and Incremental Payment calculation,
Simulscribe may notify Ditech of any objections or changes thereto, specifying
in reasonable detail any such objections or changes.  If Simulscribe does not notify Ditech of any
objections or changes thereto or if within twenty (20) days of the delivery of
an objection notice Simulscribe and Ditech agree on the resolution of all
objections or changes, then such statements delivered by Ditech, with such
changes as are agreed upon, shall be final and binding.  If the parties shall fail to reach an
agreement with respect to all objections or changes within such twenty (20) day
period, then all disputed objections or changes shall, not later than ten (10) days
after the expiration of such twenty (20) day period, be submitted for
resolution to an impartial certified public accounting firm of national
standing which is reasonably acceptable to the parties (the “Independent
Auditor”).  All of the parties shall use
reasonable efforts to cause such Independent Auditor, within twenty (20) days
of its appointment, to use its best judgment in resolving the disputes
submitted to it.  The statements
delivered by Ditech, as adjusted by the parties or the Independent Auditor,
shall be final and binding.  The fees and
costs of such Independent Auditor shall be paid by Simulscribe if the
adjustment to the amount of the Incremental Payment by the Independent Auditor
is less than a five (5%) percent increase of the Incremental Payment and by
Ditech if the adjustment to the amount of the Incremental Payment by the
Independent Auditor is greater than a five (5%) percent increase.  Ditech agrees to permit Simulscribe and its
legal counsel and accounting firm and the Independent Auditor, if any, to have
reasonable access upon prior notice during normal business hours to Ditech’s
books and records (including, without limitation, the work papers of its
accountants) and its representatives and accountants relating to the Services,
in each case solely in connection with Simulscribe’s review of the statement
calculating the Incremental Payment and Incremental Revenue.

 

c.               Incremental Payment Schedule.

 

i.                  No Incremental Payment will be made until $[*] of
Incremental Revenue is recognized by Ditech or Simulscribe, as applicable.

 

ii.               Payout of $[*] per million of aggregate Incremental
Revenue between $[*] and $[*] recognized by Ditech ([*] calculations, totaling
a maximum of $[*]).

 

iii.            Payout of $[*] per million of aggregate Incremental
Revenue between $[*] and $[*] recognized by Ditech ([*] calculations, totaling
a maximum of $[*]).

 

No Incremental Payment
shall be made with respect to Incremental Revenue upon which a previous
Incremental Payment had been made (and thus, a maximum of $10,000,000 in the
aggregate of Incremental Payments may be made)

 

4

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Incremental
Payments will only be made for each [*] dollar Incremental Revenue threshold
reached.  No prorated Incremental Payment
shall be made for Incremental Revenue amounts lower than the [*] dollar thresholds.

 

d.              Incremental Conversion Option.  Subject to Section 3.3,
each Incremental Payment may be converted in whole but not in part, at
Simulscribe’s option, into shares of Ditech common stock (“Ditech Stock”) at
$5.00 per share of Ditech Stock.  Subject
to Section 3.3, if Incremental Revenue of $[*] is exceeded, up to
$5,000,000 of unpaid Incremental Payments may, at Simulscribe’s option, be
converted into shares of Ditech Stock at $4.00 per share of Ditech Stock.  The election to convert must be made by Simulscribe
within five (5) business days after the later of the Incremental Payments
Calculation Date to which the Incremental Payment relates and the date upon
which the Independent Auditor (as defined in Section 3.2(b) hereof)
resolves any dispute with respect to such Incremental Payment.

 

e.               Acceleration. 
Within three (3) years of the Effective Date, in the event that (i) Ditech
or its successor or assign fails to exercise its commercially reasonable
efforts to sell the Services to Wholesale Customers, or (ii) Simulscribe
terminates this Agreement under Section 8.1(b) or (iii) Jaime
Siminoff and/or Mark Dillon are terminated without “Cause”, as such term is
defined on Schedule E attached hereto, as
employees of Ditech, or (iv) there is a Change of Control of Ditech and
Simulscribe has met the applicable cumulative revenue threshold amount listed
in Table 1 “Quarterly Cumulative Revenue” below, as measured at the last
quarter end prior to the Change of Control of Ditech, then a Trigger Event
shall be deemed to have occurred.  Upon
the occurrence of a Trigger Event the Incremental Revenue shall be deemed to be
$[*] and, subject to the conversion rights set forth in Section 3.2(d) and
3.3, the payment of the entire unpaid balance of the $10,000,000 Incremental
Payment shall be immediately due and payable.

 

Table
1 — Quarterly Cumulative Revenue

 

[*]

 

5

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

3.3          Convertibility
Rules.

 

a.                                       In the event
Ditech should at any time or from time to time after the Effective Date fix a record
date for the effectuation of a split or subdivision of the then outstanding
Ditech Stock, or a stock dividend or distribution on the then outstanding
Ditech Stock, then, as of such record date (or the date of such distribution,
split or subdivision if no record date is fixed), the conversion prices set
forth in Section 3.2(d) shall be appropriately decreased so that the
number of shares of Ditech Stock issuable upon conversion as set forth in Section 3.2(d) shall
be increased in proportion to such increase of outstanding shares of Ditech
Stock.

 

b.                                      If the number
of shares of Ditech Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Ditech Stock, then,
following the record date of such combination, the conversion prices set forth
in Section 3.2(d) shall be appropriately increased so that the number
of shares of Ditech Stock issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares of Ditech Stock.

 

c.                                       In case of any consolidation of Ditech
with, or merger of Ditech into, any other corporation, or in case of any sale
or conveyance of all or substantially all of the assets of Ditech, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision in escrow will be made whereby Simulscribe will have the right to
acquire and receive upon conversion of the amounts, if any, payable pursuant to
Section 3.2(d) in lieu of the shares of Ditech Stock immediately
theretofore acquirable upon the conversion, such shares of stock, securities,
cash or assets as may be issued or payable with respect to or in exchange for
the number of shares of Ditech Stock immediately theretofore acquirable and
receivable upon conversion had such consolidation, merger or sale or conveyance
not taken place.  Ditech will not effect
any consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than Ditech) assumes
by written instrument the obligations under Section 3.2(d) and the
obligations to deliver to Simulscribe such shares of stock, securities, cash or
assets as, in accordance with the foregoing provisions, Simulscribe may be
entitled to acquire.

 

d.                                      Ditech shall at all times reserve and
keep available out of its authorized but unissued shares of Ditech Stock solely
for the purpose of effecting the conversion pursuant to Section 3.2(d) such
number of shares as shall from time to time be sufficient to effect the
conversion pursuant to Section 3.2(d); and if at any time the number of
authorized but unissued shares of  Ditech
Stock shall not be sufficient to effect the conversion of the entire amount
pursuant to Section 3.2(d), in addition to such other remedies as shall be
available to Simulscribe, Ditech will use its commercially reasonable efforts
to take such action as may, in the opinion of Ditech’s counsel, be necessary to
increase its authorized but unissued shares of Ditech Stock to such number of
shares of Ditech Stock as shall be sufficient for such purposes.

 

e.                                       Until conversion pursuant to Section 3.2(d),
Simulscribe shall not
have any rights as a stockholder of Ditech.

 

f.                                         Incremental Payment Acceleration Option.

If an event described in Section 3.3(c) shall
occur, Ditech, at its sole option, may accelerate the payment of the
Incremental Payments by giving thirty (30) days prior written notice of the
determination to accelerate the payment of the Incremental Payments.  Simulscribe shall then give notice, within
twenty (20) days following such notice given by Ditech, whether it elects to
receive the Incremental Payments in cash or Ditech Stock.  The payment of the Incremental Payments,
whether in cash or Ditech Stock, shall be made immediately prior to the event
described in Section 3.3(c).

 

6

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

3.4          Investment
Representations and Warranties of Simulscribe.

 

Simulscribe
hereby represents and warrants with respect to the promissory notes issued or
issuable pursuant to Section 3.1(a) and 3.1(b), and the conversion
right set forth in Section 3.2(d), as well as with respect to the issuance
of any common stock issued upon conversion of such promissory notes or
conversion rights (collectively, the “Securities”):

 

a.                                       Simulscribe is an “accredited investor”
as such term is defined in Regulation D under the Securities Act of 1933, as
amended (the “Securities Act”).

 

b.                                      Simulscribe is acquiring the Securities
solely for investment and not with a view to or for sale or distribution of the
Securities, or any part thereof.

 

c.                                       Simulscribe understands that the
Securities have not been registered under the Securities Act of 1933, as
amended, (the “Securities Act”) and must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such registration
is available.

 

d.                                      Simulscribe is aware that the Securities
may not be sold pursuant to Rule 144 adopted under the Securities Act (“Rule 144”)
unless certain conditions are met, and further agrees not to make any
disposition of all or any part of the Shares in any event unless and until:

 

(i)                                     The Securities are transferred pursuant
to Rule 144 and Ditech shall have received documentation reasonably
acceptable to Ditech that a sale of the Securities has occurred in accordance
with the provisions of Rule 144; or

(ii)                                  Ditech shall have received a letter from
the Securities and Exchange Commission stating that no action will be
recommended to the Commission with respect to the proposed disposition; or

(iii)                               There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with said registration statement; or

(iv)                              Simulscribe has provided Ditech with a
notice detailing the circumstances of the proposed disposition together with an
opinion of counsel in form and substance reasonably satisfactory to the Company
to the effect that such disposition will not require registration of such
Shares under the Securities Act.

 

e.                                       Simulscribe understands and agrees that
all certificates evidencing the Securities may bear the following legend:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

f.                                         The representations in this letter are
made with the knowledge that Ditech and its counsel will rely upon such
representations in connection with instructions to Ditech’s transfer agent to
effect the contemplated issuance of the Securities.

 

7

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

4.                                       ASSIGNED CUSTOMERS

 

Effective on the
Assignment Date, Simulscribe shall transfer and assign to Ditech the Assigned
Customer Agreements and after the Assignment Date the Assigned Customers shall
be Wholesale Customers and Simulscribe will continue to perform Services
directly for the Assigned Customers. 
Such assignment shall not relieve Simulscribe of any liability or
obligations under the Assigned Customer Agreements prior to or after the
Assignment Date, Simulscribe will be responsible for all such liability and
obligations, and Ditech will have no liabilities for and will not assume and
such liability or obligations.  In the
event Ditech is required to pay to any Assigned Customer after the Assignment
Date any valid lien, debt, or expense incurred by Simulscribe prior to or after
the Assignment Date, Ditech shall have the right to offset any such lien, debt,
or expense actually paid by Ditech, which is the valid and legal obligation of
Simulscribe, against any payment owed to Simulscribe by Ditech. Simulscribe
shall provide Ditech with a full copy of the sales history for each Assigned
Customer.

 

5.                                       TRADEMARKS

 

Simulscribe
hereby grants to Ditech a non-exclusive and non-transferable license to use the
Marks solely to promote the Services in a manner consistent with this
Agreement.  Ditech will use the Marks in
the form provided and in conformance with any trademark usage policies
provided, from time to time, by Simulscribe to Ditech.  Ditech acknowledges Simulscribe’s exclusive
ownership of the Marks, and Ditech agrees not to take any action inconsistent
with such ownership and will cooperate, at Simulscribe’s reasonable request and
expense, in any action (including the conduct of legal proceedings) which
Simulscribe deems necessary or desirable to establish or preserve Simulscribe’s
exclusive rights in and to the Marks. Ditech will not adopt, use, or attempt to
register any trademarks or trade names that are confusingly similar to the
Marks or use the Marks in such a way as to create combination marks with the
Simulscribe Marks. Simulscribe may terminate this trademark license if, in Simulscribe’s
reasonable discretion, Ditech’s use of the Marks tarnishes, blurs or dilutes
the quality associated with the Marks or the associated goodwill and such
unauthorized use is not cured within thirty (30) days of notice of breach.

 

6.                                       WARRANTY AND DISCLAIMER

 

6.1          Warranty.

 

a.               Representations by Simulscribe.  Simulscribe
hereby represents and warrants to Ditech that (i) Simulscribe owns or has
all rights necessary to grant the rights and licenses provided under this
Agreement and the performance of the Services do not infringe any copyright,
patent, trademark, trade secret or other intellectual property right of a third
party, and (ii) Simulscribe possesses the full power and authority to
enter into and perform its obligations under this Agreement.

 

b.              Representations by Ditech.  Ditech hereby
represents and warrants to Simulscribe that Ditech possesses the full power and
authority to enter into and perform its obligations under this Agreement.

 

c.               Simulscribe represents and warrants that it has informed Ditech in
writing of all of its current Wholesale Customers and related agreements in the
Territory entered into with respect to the Services and this Agreement does not
violate any such agreements.

 

8

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

7.                                       AUDIT

 

Simulscribe agrees
to promptly furnish, when requested by Ditech, no more frequently than once per
calendar quarter, a full and detailed statement of the Services and related
costs provided under this Agreement. Ditech or its authorized representative
shall have the right once per calendar quarter during normal business hours and
upon five (5) days prior written notice to audit Simulscribe’s records and
verify any statement, reports, or invoices sent to Ditech.  Any such audit will be paid for by Ditech;
provided however, that if the audit reveals that Simulscribe has underpaid or
overcharged Ditech at a rate of five percent (5%) or greater, then Simulscribe
shall pay the cost of the audit.

 

8.                                       DURATION OF AGREEMENT AND
TERMINATION

 

8.1                               Duration of Agreement.

 

a.               Subject to the termination rights of the parties, this
Agreement shall continue in force indefinitely unless terminated or canceled as
provided herein; provided, that Ditech may terminate this Agreement in the
event that [*].

 

b.              For material breach of any provision of this
Agreement, the non-breaching party may immediately terminate this Agreement
provided that a written notice has been given to the breaching party and such
breaching party failed to cure said breach within sixty (60) days after receipt
of such notice.

 

c.               This Agreement shall automatically terminate if [*].

 

d.              After three (3) years from the Effective Date,
Ditech will have the right to terminate this Agreement at any time, for its
convenience, upon ninety (90) days written notice to Simulscribe.

 

8.2          Loss of Exclusivity.

 

a.               If at any time after the Assignment Date
Simulscribe provides the Services to any Wholesale Customer other than the
Assigned Customers or any other Wholesale Customer to which Ditech has sold
Simulscribe’s Services or Simulscribe collects any revenue directly from a
Wholesale Customer, Ditech shall be entitled to receive and Simulscribe shall
immediately pay to Ditech, as liquidated damages, [*].

 

b.              If at any time after the Assignment Date Simulscribe
appoints any third party a reseller of the services to Wholesale Customers,
Ditech shall be entitled to receive and Simulscribe shall immediately pay to
Ditech, as liquidated damages, [*].

 

The parties
understand that Ditech will invest significant resources in building its
business related to the exclusive use of the Services, which the parties
anticipate will result in significant future revenue streams to Ditech, which
if lost would result not only in lost revenue but also in the loss of the value
of Ditech’s investment in the business. 
Accordingly, the parties acknowledge that it is impractical and
extremely difficult to determine the actual damages or lost revenues that may
result from a violation of the exclusivity described in Section 2.1.  Accordingly, the amounts payable to Ditech as
“liquidated damages” under this Section 8.2 are (y) liquidated
damages, and not a penalty, and (z) reasonable and not disproportionate to
the presumed damages to Ditech, including through a loss of profits.

 

9

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

8.3          Loss of Services.

 

a.               Simulscribe agrees to indemnify, defend and hold
harmless Ditech in respect of any losses suffered by Ditech up to the fourth
anniversary of the Effective Date in the event that prior to the fourth
anniversary of the Effective Date [*].

 

b.              In the event that at any time up to the
fourth anniversary of the Effective Date Simulscribe intentionally fails to
provide the Services as described in this Agreement which failure is not cured
within thirty (30) days of written notice thereof stating in detail the
Services that are not being provided, Ditech shall be entitled to receive and
Simulscribe shall immediately pay to Ditech, as liquidated damages, [*].  The parties understand that Ditech will
invest significant resources in building its business related to the exclusive
use of the Services, which the parties anticipate will result in significant
future revenue streams to Ditech, which if lost would result not only in lost
revenue but also in the loss of the value of Ditech’s investment in the
business.  Accordingly, the parties
acknowledge that it is impractical and extremely difficult to determine the
actual damages or lost revenues that may result from Simulscribe’s failure to
provide the Services.  Accordingly, the
amounts payable to Ditech as “liquidated damages” under this Section 8.3
are (y) liquidated damages, and not a penalty, and (z) reasonable and
not disproportionate to f the presumed damages to Ditech.  including through a loss of profits.

 

8.4          Effects of Termination.

 

Upon
termination of this Agreement for any reasons, Sections 3.1, 3.2, 3.3 and 6
through 13 shall survive termination of this Agreement.  The total amount of payments made by
Simulscribe to Ditech for indemnification or damages with respect to any matter
set forth in Section 8.2(b) or 8.3(b) shall not exceed, in the
aggregate, $[*], except for a breach of the obligation by Simulscribe to make a
payment to Ditech under such Sections and a claim for indemnity under Section 10.1
with respect to a Claim brought by a third party against Ditech.

 

9.                                       CONFIDENTIAL INFORMATION.

 

9.1          Definition of Confidential
Information.

 

Each
party (the “Disclosing Party”) may from time to time during the term of this
Agreement disclose to the other party (the “Receiving Party”) certain
information regarding the Disclosing Party’s business, including technical,
marketing, financial, employee, planning, and other confidential or proprietary
information, marked, if in tangible form, as “confidential” or “proprietary” or
with a similar legend or, if disclosed orally or visually, identified as
confidential at the time of disclosure and summarized in a writing sent to the
Receiving Party within thirty (30) days after such oral disclosure (“Confidential
Information”).  Regardless of whether so
marked or identified, however, any information that the Receiving Party knew or
should have known, under the circumstances, was considered confidential or
proprietary by the Disclosing Party, will be considered Confidential
Information of the Disclosing Party.

 

9.2          Protection of Confidential
Information.

 

Subject
to section 9.3, Receiving Party agrees that it will (i) hold in confidence
and not disclose to any third party any Confidential Information of Disclosing
Party, except as approved in writing by Disclosing Party; (ii) protect
such Confidential Information with at least the same degree of care that
Receiving Party uses to protect its own Confidential Information, but in no
case, less than reasonable care; (iii) use the Disclosing Party’s Confidential
Information for no purpose other than that expressly permitted under this
Agreement; (iv) limit access to Disclosing Party’s Confidential
Information to those of Receiving Party’s employees or authorized
representatives having a need to know who have signed confidentiality
agreements containing, or are otherwise bound by, confidentiality obligations
at least as restrictive as those contained herein; and (v)

 

10

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

immediately
notify Disclosing Party upon discovery of any loss or unauthorized disclosure
of Disclosing Party’s Confidential Information. 
The Parties agree that neither Party will communicate any information to
the other Party in violation of the proprietary rights of any third party.

 

9.3          Exceptions to
Confidentiality.

 

Confidential
Information does not include any information that the Receiving Party can
demonstrate with competent evidence (i) was in the public domain at the
time it was communicated to Receiving Party by Disclosing Party; (ii) entered
the public domain subsequent to the time it was communicated to Receiving Party
by Disclosing Party, through no fault of Receiving Party; (iii) was in
Receiving Party’s possession free of any obligation of confidence prior to the
time it was communicated to Receiving Party by Disclosing Party; (iv) was
rightfully communicated to Receiving Party free of any obligation of confidence
subsequent to the time it was communicated by Disclosing Party; (v) was
developed by employees or agents of Receiving Party independently of and
without reference to any information communicated to Receiving Party by
Disclosing Party; or (vi) was communicated by Disclosing Party to an
unaffiliated third party free of any obligation of confidence.  Notwithstanding the above, Receiving Party
may disclose Disclosing Party’s Confidential Information, without violating the
obligations of this Agreement, to the extent such disclosure is required by a
valid order of a court or other governmental body having jurisdiction, provided
that Receiving Party gives Disclosing Party reasonable prior written notice of
such disclosure and makes a reasonable effort to obtain, or to assist
Disclosing Party in obtaining, a protective order preventing or limiting the disclosure
and/or requiring that the Confidential Information so disclosed be used only
for the purposes for which the law or regulation required, or for which the
order was issued.

 

9.4          Return of Confidential
Information.

 

Upon
the written request of the Disclosing Party or the expiration or termination of
this Agreement, the Receiving Party will promptly return to the Disclosing
Party or destroy, at the Disclosing Party’s option, all Confidential
Information of the Disclosing Party in the Receiving Party’s possession or
control and permanently erase all electronic copies of such Confidential
Information.  At the Disclosing Party’s
request, the Receiving Party will certify in a writing signed by an officer of
the Receiving Party that it has fully complied with its obligations under this
section 9.4.

 

9.5          Remedies for Breach of
Confidentiality.

 

Each
party recognizes and agrees that in the event of a breach or threatened breach
of a party’s obligations under this Section 9, irreparable damage may be
caused to the non-breaching party for which monetary damages alone would not
adequately compensate such party. 
Therefore, each party agrees that, in addition to all other remedies
available at law or in equity, the non-breaching party is entitled to seek an
injunction or other equitable relief for the enforcement of any such
obligation.

 

10.                                 INDEMNIFICATION

 

10.1        Indemnification by
Simulscribe.

 

Simulscribe
agrees to indemnify, defend and hold harmless Ditech, its affiliates,
customers, employees, successors and assigns (all referred to in this Section 10.1
as “Ditech”) from and against any Claims that arise out of or result from:  (a) any third party claim that the
Services infringe a third party’s intellectual property rights; (b) any
breach of any representation, covenant or warranty by Simulscribe or failure of
Simulscribe to perform its obligations under this Agreement; (c) any
obligations or liabilities under any of the Assigned Customer Agreements
arising or relating to any acts or obligations of Simulscribe prior to or after
the Assignment Date, (d) violation of any applicable law, in 

 

11

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

any
way arising out of or relating to the Services, and/or (e) any Ditech
Excluded Infringement Claims. 
Notwithstanding any of the foregoing, Simulscribe shall have the right,
in its absolute discretion and at its sole cost, to employ attorneys of its own
choice and to institute or defend any such Claim.  Ditech will promptly notify Simulscribe of
any Claims where Simulscribe is responsible to indemnify Ditech, and will
cooperate in the defense and settlement of the Claim and agree to any
settlement of the Claim by Simulscribe; provided that any such settlement
includes a general release of Ditech by the party bringing the Claim, and will
tender control of the defense to Simulscribe. 
“Claim,” as used in this Section 10, means any losses, liabilities,
costs, damages, claims, fines, penalties and expenses (including, without
limitation, costs of defense or settlement and reasonable attorneys’,
consultants’ and experts’ fees).  The
foregoing indemnity shall not apply to any such Claim that arises out of or
results from (i) any breach by Ditech of this Agreement, (ii) any
combination or use of the Services provided by Simulscribe with any other
products or services (whether combined or used by Ditech, its customers or any
other person), (iii) any third party software or services provided by
Ditech used to provide the Services, (iv) any modification to the  Services made or requested by or on behalf of
Ditech or (v) Ditech’s manufacture, use, sale, or offer
for sale of the Services after Simulscribe’s written notice that Ditech  should cease
manufacture, use, sale, or offer for sale of such Services due to such Claim
((clauses (i) through (v) collectively, the “Simulscribe Excluded
Infringement Claims”).

 

10.2        Indemnification by Ditech.

 

Ditech
agrees to defend, indemnify, and hold Simulscribe harmless (including but not
limited to paying all reasonable attorneys’ fees and costs of litigation) from (a) any
Claims brought by any third party arising from any misstatements or
misrepresentation of the Services by Ditech, its agents, employees, and its
contractors, (b) activities relating to Ditech’s sales, marketing,
distribution, and support of the Services not authorized by Simulscribe, (c) any
breach of any representation, warranty or covenant by Ditech or failure of
Ditech to perform its obligations under this Agreement, (d) any
obligations or liabilities under any of the Assigned Customer Agreements
arising or relating to any acts or obligations of Ditech on or after the
Assignment Date, (d) violation of any applicable law by Ditech, in any way
arising out of or relating to the Services and/or (e) any Simulscribe
Excluded Infringement Claims.  Simulscribe
will promptly notify Ditech of any Claims where Ditech is responsible to
indemnify Simulscribe, will cooperate in the defense and settlement of the
Claim and agree to any settlement of the Claim by Ditech; provided that any
such settlement includes a general release of Simulscribe by the party bringing
the Claim, and will tender control of the defense to Ditech. The foregoing
indemnity shall not apply to any such Claim that arises out of or results from
Simulscribe’s manufacture, use, sale, or offer for
sale of the Services after Ditech’s written notice that Simulscribe  should cease
manufacture, use, sale, or offer for sale of such Services due to such Claim, collectively, the “Ditech Excluded
Infringement Claims.

 

11.                                 LIMITATION OF LIABILITY

 

Notwithstanding
anything to the contrary set forth in this Agreement, the total liability of
Simulscribe to Ditech under Sections [*] hereof in the aggregate shall not
exceed [*], except to the extent that any such liability is due to the fraud or
intentional misrepresentation of Simulscribe or infringement claims under Section 10.
Ditech’s total liability under this Agreement is limited to and shall not
exceed [*].  Except for claims with
respect to [*] or with respect to any matter set forth in [*], in no event will
either party be liable for any consequential, indirect, exemplary, special, or
incidental damages, including any lost data and lost profits, arising from or
relating to this Agreement; provided, however,
that Simulscribe shall not be liable for consequential, indirect, exemplary,
special, or incidental damages, including any lost data and lost profits,
arising from or relating to this Agreement for matters set forth in [*] in
excess of [*], or for matters set forth in [*] in excess of $[*].

 

12

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

12.                                 CHANGE OF CONTROL

 

12.1        Definition.

 

“Change
of Control” as to a party shall mean the occurrence of one or more of the
following with respect to that party: (i) the acquisition by any person
(or related group of persons), whether by tender or exchange offer made
directly to that party’s stockholders, open market purchases or any other
transaction or series of transactions, of common stock possessing sufficient
voting power in the aggregate to elect an absolute majority of the members of
that party’s Board of Directors; (ii) a merger or consolidation in which
that party is not the surviving entity, except for a transaction in which
securities representing more than fifty percent (50%) of the total combined
voting power of the surviving entity are held by persons who held common stock
immediately prior to such merger or consolidation; (iii) any reverse
merger in which that party is the surviving entity but in which securities
representing more than fifty percent (50%) of the total combined voting power
of that party’s outstanding securities are transferred to holders different
from those who held such securities immediately prior to such merger; or (iv) the
sale, transfer or other disposition of all or substantially all of the assets
of that party.

 

12.2        Effect.

 

a.               In the event of a Change of Control of Simulscribe, (a) Ditech
shall be entitled to receive, and Simulscribe shall pay to Ditech as liquidated
damages within thirty (30) days of such Change of Control notice, the total of
[*] and (b) [*].  The parties
understand that Ditech will invest significant resources in building its
business related to the exclusive use of the Services, which the parties
anticipate will result in significant future revenue streams to Ditech, which
the parties believe would be lost if Simulscribe were to undergo a Change of
Control of Simulscribe, which would result not only in lost revenue but also in
the loss of the value of Ditech’s investment in the business.  Accordingly, the parties acknowledge that it
is impractical and extremely difficult to determine the actual damages or lost
revenues that may result from a Change of Control of Simulscribe.  Accordingly, the amounts payable to Ditech as
“liquidated damages” under this Section 12.2(a) are (a) liquidated
damages, and not a penalty, and (b) reasonable and not disproportionate to
the presumed damages to Ditech, including through a loss of profits.

 

b.              Additionally, in the event of a Change of Control of
Simulscribe, Ditech shall be entitled to [*]. 
The parties understand that Ditech will invest significant resources in
building its business related to the exclusive use of the Services, which the
parties anticipate will result in significant future revenue streams to Ditech,
which the parties believe would be lost if Simulscribe were to undergo a Change
of Control of Simulscribe, which would result not only in lost revenue but also
in the loss of the value of Ditech’s investment in the business.  Accordingly, the parties acknowledge that it is
impractical and extremely difficult to determine the actual damages or lost
revenues that may result from a Change of Control of Simulscribe.  Accordingly, the amounts payable to Ditech as
“liquidated damages” under this Section 12(b) are (a) liquidated
damages, and not a penalty, and (b) reasonable and not disproportionate to
the presumed damages to Ditech, including through a loss of profits.

 

13.                                 MISCELLANEOUS

 

13.1        Independent Contractors.

 

The
relationship of Simulscribe and Ditech established by this Agreement is that of
independent contractors, and nothing contained in this Agreement shall be
construed to 

 

13

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

(i) give
either party the power to direct and control the day-to-day activities of the
other, or (ii) allow Ditech to create or assume any obligation on behalf
of Simulscribe.

 

13.2        Force Majeure.

 

Except
for the payment of monies, neither party shall be liable to the other for its
failure to perform any obligations hereunder during any period in which performance
is delayed on account of shortages, riots, insurrection, fires, flood, storm,
explosions, acts of terrorism, acts of God, war, governmental action, labor
conditions, earthquakes, material shortages or any other cause which is beyond
the reasonable control of such party.

 

13.3        Severability.

 

In the event that
any provision of this Agreement, or the application of any such provision to
any person or set of circumstances, will be determined to be invalid, unlawful,
void or unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable, will
not be impaired or otherwise affected and will continue to be valid and
enforceable to the fullest extent permitted by law

 

13.4        Assignment.

 

This
Agreement may not be assigned by Simulscribe without Ditech’s prior written
consent, except that Simulscribe may assign its rights to receive payment due
under the promissory notes and payment of the Incremental Payment and the
conversion and related rights with respect thereto.  Except as is set forth below, this Agreement
may not be assigned by Ditech without Simulscribe’s prior written consent.  Any such assignment by Simulscribe or Ditech
shall be null and void. For purposes of this section, a Change of Control of
Simulscribe shall be considered an assignment of Simulscribe’s rights.  Ditech may (without the prior written consent
of Simulscribe) assign this Agreement, together with all of its rights and
obligations hereunder, in connection with a merger, consolidation, or sale of
all or substantially all of its assets of the business to which this Agreement
relates; provided that the assignee assumes all of Ditech’s obligations under
this Agreement.

 

13.5        Notices.

 

Any  notices required or permitted hereunder shall be given to
the appropriate party at the address specified below or at such other address
as the party shall specify in writing and shall be by personal delivery,
facsimile transmission or certified or registered mail.  Such notice shall be deemed given upon
personal delivery to the appropriate address or upon receipt of electronic
transmission or, if sent by certified or registered mail, three (3) days
after the date of the mailing.

 

Notice to
Ditech:

Ditech Networks, Inc.

Attn: William J.
Tamblyn, CFO/ Executive Vice President

825 E. Middlefield
Rd.

Mountain View, CA
94043

Phone: (650) 623-1309

Fax: (650) 564-9591

Email: btamblyn@ditechnetworks.com

 

Notice to
Simulscribe:

Company Name:
Simulscribe LLC

Name of
Representative: William Wachtel

Address: 110 E. 59th Street

Address: New York,
NY 10022

Phone: (212) 909-9595

Fax: (212) 909-9450

 

14

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Email: wachtel@wmllp.com

 

13.6        Governing Law.

 

This
Agreement shall be governed by the laws of the United States and the State of
California irrespective of its conflict of laws provisions requiring
application of laws of any other jurisdiction and as applied to transactions
taking place wholly within California between California residents.  The United Nations Convention on Contracts
for the International Sale of Goods does not apply to this Agreement.

 

13.7        Choice of Forum and Venue.

 

The
parties hereby expressly submit, and hereby waive any objections they may have,
to the personal jurisdiction and venue of the state and federal courts located
in Santa Clara County, California and in the Northern District of California,
for any claim, dispute, or lawsuit arising from or related to this Agreement.

 

13.8        Language.

 

This Agreement is
in the English language only, which language shall be controlling in all
respects.  All communications and notices
hereunder shall be in the English language. Ditech waives any right it may have
under the law of Ditech’s country to have this Agreement written in the
language of Ditech’s country or in the language of any country in the
Territory. If a copy of this Agreement is provided in another language, both
parties agree that such copy shall have no legal effect, even if signed by the
parties.

 

13.9        Publicity.

 

Except as may be
required by law or the rules of any stock exchange or governmental or
other regulatory authority, whether or not having the force of law, no
announcement or circular in connection with the subject matter or existence of
this Agreement shall be made or issued by or on behalf of a party without the
prior written approval of the other party; provided, that (i) the initial
press release of Ditech (even if required by law or the rules of any stock
exchange or governmental or other regulatory authority) must be approved by
Simulscribe and (ii) any future press release or other announcement or
circular, in connection with the subject matter or existence of this Agreement,
required by law or the rules of any stock exchange or governmental or
other regulatory authority must be furnished to Simulscribe before it is
issued.

 

13.10      Modification.

 

No
alteration, amendment, waiver, cancellation or any other change in any term or
condition of this Agreement shall be valid or binding on either party unless it
shall have been mutually assented to in writing by both parties by its duly
authorized representatives.

 

13.11      Counterparts.

 

This
Agreement may be executed in one or more counterparts, all of which taken
together, shall constitute a single instrument and agreement.

 

13.12      Effect of Cancellation of
Note.

 

In the
event that Simulscribe owes Ditech an amount under Section 8.2(b) or
8.3(b) of this Agreement and a note described in Section 3.1 shall be
cancelled, the cancellation of the note shall be treated as a dollar for dollar
credit in respect of the amount thereof.

 

13.13      Entire Agreement.

 

The terms and
conditions of this Agreement constitute the entire agreement between the
parties and supersede all contemporaneous or previous agreements and
understandings, whether oral or written, between the parties with respect to
the subject matter hereof.

 

15

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

IN WITNESS WHEREOF the
parties hereto have executed this Agreement as of the date last written below.

 

 

	
  Ditech Networks, Inc.

  	
   

  	
  Simulscribe LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Signed:

  	
  /s/ Todd Simpson

  	
   

  	
  Signed:

  	
  /s/ William B. Wachtel

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Print Name:

  	
  Todd Simpson

  	
   

  	
  Print Name:

  	
  William B. Wachtel

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  CEO

  	
   

  	
  Title:

  	
  Chairman

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  9/10/2009

  	
   

  	
  Date:

  	
  9/10/2009

  

 

16

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Schedule A

 

Services, Prices and Payment
Terms

 

Features

·                  Online voicemail management

·                  Unlimited voicemail box storage

·                  Voicemail delivery options include e-mail and/or text
messages

·                  Dial-in voicemail management

·                  24/7 customer service and support

 

Benefits

·                  Read voicemail on your mobile phone, portable device
and/or e-mail

·                  Whether you are in a meeting, traveling, or on the
golf course, you can instantly see who called, what they said, and you won’t
have to listen to all of your messages to find out about an important missed
call

·                  Use the PhoneTag online user interface to search,
sort, archive and delete voicemail like email

·                  You won’t have to write down the information from a
voicemail; important numbers, names and addresses are easy to find, easy to
access and will never get lost

·                  Respond in text by forwarding the message to another
person

·                  Voicemails delivered as text when you are roaming
saves you money

·                  You can still listen to the message as an audio file
that is sent direct to your e-mail or dial in to the voicemail system

·                  Keep the same voicemail functionality that you are
used to; all dial-in voicemail functionality stays the same

 

Corporate Voicemail Integration

 

17

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Schedule B

 

Support; Service Levels

 

Simulscribe agrees to
meet the Service Level Requirements specified in the Assigned Customer
Agreements in Schedule C.  Simulscribe
shall meet the requirements in this Schedule B while providing
services for new Customers under this Agreement.

 

[*]

 

18

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Schedule C

 

Assigned Customer Agreements

 

[*]

 

19

 

[*] = CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Schedule D

 

Promissory Note Sample

 

THIS NOTE AND THE SECURITIES
ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.  THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

 

CONVERTIBLE PROMISSORY NOTE

 

	
  $3,500,000

  	
   

  	
  September 10, 2009

  

 

DITECH
NETWORKS, INC., a Delaware corporation (the “Company”), for value received,
hereby promises to pay to SIMULSCRIBE, LLC (the “Holder”), the principal sum of
THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000).

 

1.             Principal. 
The principal amount due under this Note shall be due and payable in a
single installment on the earlier of (a) September 10, 2011 and (b) the
effective date of a Change in Control (as defined below), unless sooner
accelerated in accordance with the terms hereof (the “Maturity Date”).  The Company shall give the Holder at least
seventeen (17) days prior written notice of the closing of a Change in Control
under Section 1(b).  Notwithstanding
anything to the contrary herein, this Note shall be null and void, and the
Company shall not have any obligation to hereunder, in the event that any event
occurs referenced in Sections 8.2(b), 8.3(b) or 12.2 of the Reseller
Agreement, dated September [  ], 2009, between the Company and
Simulscribe LLC, pursuant to which one or more of such sections provide that
the Company would be entitled to liquidated damages pursuant to the provisions
of one or more of such sections.    A “Change
in Control” shall mean the occurrence of one or more of the following with
respect to the Company: (i) the acquisition by any person (or related
group of persons), whether by tender or exchange offer made directly to the
Company’s stockholders, open market purchases or any other transaction or
series of transactions, of common stock possessing sufficient voting power in
the aggregate to elect an absolute majority of the members of that party’s
Board of Directors; (ii) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction in which securities
representing more than fifty percent (50%) of the total combined voting power
of the surviving entity are held by persons who held the Company’s common stock
immediately prior to such merger or consolidation; (iii) any reverse
merger in which the Company is the surviving entity but in which securities
representing more than fifty percent (50%) of the total combined voting power
of the Company’s outstanding securities are transferred to holders different
from those who held such securities immediately prior to such merger; or (iv) the
sale, transfer or other disposition of all or substantially all of the assets
of the Company.

 

2.             Interest. 
There shall be no interest due under this Note.

 

20

 

[*] = CERTAIN CONFIDENTIAL
INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

3.             Payments.  Final payment in full of the principal of
this Note will be made at the principal office of the Holder, upon presentation
and surrender of this Note.

 

4.             No
Prepayment at the Option of the Company. 
The Company may not prepay this Note
in whole or in part, at any time, without the prior written consent of the
Holder.

 

5.             Conversion.

 

(a)           In accordance with the provisions of this Section 5,
at the option of the Holder, the outstanding principal amount due hereunder
shall be converted on the Maturity Date, in whole but not in part, into shares
(individually, a “Share” and collectively, the “Shares”) of the Company’s
common stock, $0.001 par value per share (the “Common Stock”).  The initial conversion price is $3.50 per
share of the Common Stock (the “Conversion Price”).

 

(b)           No fractional Shares shall be issued upon conversion of
this Note.  In lieu of the Company
issuing any fractional shares to the Holder upon conversion of this Note, the
Company shall pay the cash not converted in lieu of a fractional Share.  To convert this Note pursuant to this Section 5,
the Holder shall provide to the Company written notice of such conversion at
least ten (10) days prior to the Maturity Date, and surrender this Note on
or before the Maturity Date, duly endorsed, at the principal office of the
Holder.  At its expense, the Company
shall, as soon as practicable thereafter, deliver to such Holder at the address
in the Company’s records for the Holder, a Stock Certificate endorsed to the
Holder reflecting the number of Shares to which the Holder shall be entitled
upon such conversion, together with any other securities and property to which
the Holder is entitled upon such conversion under the terms of this Note.  Such certificate shall bear a legend in
proper form, stating substantially as follows:

 

“THESE SECURITIES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

In the event of any conversion of this Note
pursuant to this Section 5, such conversion shall be deemed to have been
made on the Maturity Date and on and after such date the Holder of this Note
entitled to receive the Shares issuable upon such conversion shall be treated
for all purposes as the record holder of such Shares.

 

(c)           In the event the Company should at any time or from time
to time after the date of issuance hereof fix a record date for the
effectuation of a split or subdivision of the then outstanding Common Stock, or
a stock dividend or distribution on the then outstanding Common Stock, then, as
of such record date (or the date of such distribution, split or subdivision if
no record date is fixed), the Conversion Price of this Note shall be
appropriately decreased so that the number of Shares issuable upon conversion
of this Note shall be increased in proportion to such increase of outstanding
shares of Common Stock.

 

21

 

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED
IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

(d)           If the number of shares of the Common Stock outstanding at
any time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Conversion Price for this Note shall be appropriately increased so that the
number of shares of the Common Stock issuable on conversion hereof shall be
decreased in proportion to such decrease in outstanding shares of the Common
Stock.

 

(e)           In case of any consolidation of the Company with, or
merger of the Company into, any other corporation, or in case of any sale or
conveyance of all or substantially all of the assets of the Company, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the Holder will have the right to acquire and
receive upon conversion of this Note in lieu of the Shares immediately
theretofore acquirable upon the conversion of this Note, such shares of stock,
securities, cash or assets as may be issued or payable with respect to or in
exchange for the number of shares of the Common Stock immediately theretofore
acquirable and receivable upon conversion of this Note had such consolidation,
merger or sale or conveyance not taken place. 
The Company will not effect any consolidation, merger or sale or
conveyance unless prior to the consummation thereof, the successor corporation
(if other than the Company) assumes by written instrument the obligations under
this Note and the obligations to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to acquire.

 

(f)            The Company shall at all times reserve and keep available
out of its authorized but unissued shares of its Common Stock solely for the
purpose of effecting the conversion of this Note such number of shares as shall
from time to time be sufficient to effect the conversion of this Note; and if
at any time the number of authorized but unissued shares of  its Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other remedies as shall be available to the Holder, the
Company will use its commercially reasonable efforts to take such Company
action as may, in the opinion of the Company’s counsel, be necessary to
increase its authorized but unissued Common Stock to such number of shares of
Common Stock as shall be sufficient for such purposes.

 

(g)           Until conversion of this Note the
Holder shall not have any rights as a stockholder of the Company.

 

6.             Events
of Default and Right to Cure.

 

“Event of Default,” whenever used herein, means any one of the
following (regardless of the reason or cause of such Event of Default):

 

(a)           The Company fails to make a payment, when due, of any
principal due on this Note;

 

(b)           The entry of any decree or order by a court having
jurisdiction adjudging the Company a debtor or insolvent, ordering the wind-up
or liquidation of the Company, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment, or composition of or in
respect of the Company under the federal bankruptcy code (“Bankruptcy 

 

22

 

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED
IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Code”) or any other applicable federal or
state law, the appointment of a receiver, liquidation, assignee, trustee,
sequestrator, or other similar official of the Company, or of any substantial
part of the property of the Company, and the continuance of any such decree or
order unstayed, undischarged, or undismissed and in effect for more than sixty
(60) consecutive days; or

 

(c)           Institution by the Company of proceedings, under the
Bankruptcy Code or any other applicable federal or state law, seeking an order
for relief, or the consent of the Company to the institution of bankruptcy or
insolvency proceedings against the Company, or the consent by the Company to
the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator, or other similar official of or
for the Company or any substantial part of the property of the Company, or the
making by the Company of any assignment for the benefit of creditors, or the
admission by the Company of the Company’s inability to pay its debts generally
as they become due, or the taking of any action by the Company in furtherance
of any such action;

 

(d)           The issuance of any injunction or restraining order with
respect to any material aspect of the business or assets of the Company, or
levy on or attachment of any funds or other property, real or personal, of the
Company, in an amount in excess of One Million Dollars ($1,000,000), if, in
each case, the same is not dismissed, discharged, released, satisfied or
vacated within a period of sixty (60) days;

 

(e)           The entry of any judgment or order against the Company for
the payment of money in an amount in excess of One Million Dollars ($1,000,000)
in excess of insurance coverage, if the same is not satisfied or enforcement proceedings
are not stayed within sixty (60) days or if, within ninety (90) days after the
expiration of any such stay, the judgment or order is not dismissed, discharged
or satisfied;

 

(f)            The occurrence of a “Trigger Event”
under Section 3.2(e) of the Services Agreement, of even date
herewith, between the Company and the Holder.

 

If
any Event of Default occurs, the Holder by written notice to the Company, may:

 

(i)            declare
the entire unpaid principal of this Note due and payable and such principal
shall thereupon become due and payable without presentment, notice, protest, or
demand of any kind (all of which are expressly waived by the Company); and

 

(ii)           take
all actions available to them, at law or in equity, to collect and otherwise
enforce this Note;

 

provided however, in any
event with respect to the Company described in paragraph (b) or (c) above,
the entire unpaid principal amount of this Note shall automatically become due
and payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Company, anything contained
herein to the contrary notwithstanding.

 

23

 

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED
IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

7.             Amendment.  This Note may not be amended or modified
except by written instrument executed by the Company and the Holder.

 

8.             Additional
Terms and Conditions.  The Company: (i) waives
presentment, demand, notice of demand, protest, notice of protest, and notice
of nonpayment and any other notice required to be given under the law to the
Company, in connection with the delivery, acceptance, performance, default or
enforcement of this Note; and (ii) agrees that any failure to act or
failure to exercise any right or remedy on the part of the registered owner
shall not in any way affect or impair the obligations of the Company or be
construed as a waiver by the owner of, or otherwise affect, any of its rights
under this Note.  In any litigation,
arbitration, or other proceeding by which one party either seeks to enforce its
rights under this Note (whether in contract, tort, or both) or seeks a
declaration of any rights or obligations under this Note, the prevailing party
shall be awarded its reasonable attorney fees, and costs and expenses incurred.

 

9.             Invalidity.  In the event any one or more of the provisions
of this Note shall for any reason be held to be invalid, illegal or
unenforceable, in whole or in part or in any respect, or in the event that any
one or more of the provisions of this Note operate or would prospectively
operate to invalidate this Note, then and in either of those events, such
provision or provisions only shall be deemed null and void and shall not affect
any other provision of this Note and the remaining provisions of this Note
shall remain operative and in full force and effect and shall in no way be
affected, prejudiced and disturbed thereby. 
Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction,
it shall, as to such jurisdiction, be so narrowly drawn, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.

 

10.           Governing
Law.  This Note shall be governed by,
and construed and enforced in accordance with, the laws of the State of New
York.

 

11.           Notices.  All
notices, requests, consents, and other communications under this Note shall be
in writing and shall be delivered by hand or mailed by first class certified or
registered mail, return receipt requested, postage prepaid:

 

	
  If to the Holder:

  	
  SIMULSCRIBE, LLC

  
	
   

  	
  110 E. 59th Street

  
	
   

  	
  New York, New York 10022

  
	
   

  	
  Attention:
  William B. Wachtel

  
	
   

  	
   

  
	
  With a required copy

  	
  Wachtel & Masyr, LLP

  
	
  (which shall not constitute

  	
  110 E. 59th Street

  
	
  notice) to:

  	
  New York, New York 10022

  
	
   

  	
  Attention:
  William B. Wachtel

  
	
   

  	
   

  
	
  If to the Company:

  	
  825 East Middlefield Road

  
	
   

  	
  Mountain View, CA 94043

  
	
   

  	
  Attention: Chief Financial Officer

  

 

24

 

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED
IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Notices provided in accordance with this Section 11
shall be deemed delivered upon personal delivery or, on the same day when
transmitted if transmitted by facsimile transmission, email or telecopier (with
oral confirmation of receipt) or three (3) business days after deposit in
the mail.

 

12.           Brokerage.
The Company agrees to indemnify and hold harmless the Holder against and in
respect of any claim for brokerage or other commission relative to this Note or
the transactions contemplated by this Note, based in any way on agreements,
arrangements or understanding made or claimed to have been made by such party
with any third party.

 

13.           Jurisdiction
and Waiver.  The Company hereby
irrevocably consents to the exclusive jurisdiction of the federal and state
courts located in the County of New York, State of New York, over all suits,
actions or other proceedings arising out of or in relation to this Note.  The Company covenants that it shall not
object to the venue of any such court over such suit, action or other
proceeding on forum non conveniens or other
grounds.

 

14.           WAIVER
OF JURY TRIAL.  AS A SPECIFICALLY
BARGAINED INDUCEMENT FOR THE HOLDER TO ACCEPT THIS NOTE, AND AFTER HAVING THE
OPPORTUNITY TO CONSULT COUNSEL, THE COMPANY HEREBY EXPRESSLY WAIVES THE RIGHT
TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS NOTE OR THE LOAN
DOCUMENTS OR ARISING IN ANY WAY FROM THIS NOTE.

 

15.           Successors and Assigns.  This Note will be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all of the Company’s assets.

 

IN
WITNESS WHEREOF, this Note has been duly executed and delivered by the Company
as of the date first written above.

 

	
   

  	
  DITECH NETWORKS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

25

 

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED
IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Schedule
E

 

Cause Definition

 

For purposes of this Agreement, Cause shall mean (i) your
violation of any material provision of your Employee Proprietary Information
and Invention Agreement with Ditech; (ii) any act of theft or dishonesty
by you; (iii) your participation in any immoral or illegal act that has
had or could reasonably be expected to have or had a detrimental effect on the
business or reputation of Ditech; or (iv) your material failure to use
reasonable efforts to perform reasonably requested tasks after written notice
and a reasonable opportunity to comply with such notice.

 

26

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