THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii)
RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE
ISSUED IN EXCHANGE FOR THIS NOTE.
HEURISTIC DEVELOPMENT GROUP, INC.
No. $
PROMISSORY NOTE
Heuristic Development Group, Inc., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to ______ or registered assigns (the
"Payee") on the earlier of the closing date of the public offering of securities
by the Company contemplated in the Confidential Term Sheet dated October 18,
1996 or December 2, 1997 (the "Maturity Date") at the offices of the Company,
17575 Pacific Coast Highway, Pacific Palisades, California 90272, the principal
amount of ______ ($____), including interest at the rate of ten percent (10%)
per annum accrued through the Maturity Date, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
This Note is issued pursuant to a Subscription Agreement dated as of
December 2, 1996, between the Company and the Payee (the "Subscription
Agreement"), a copy of which agreement is available for inspection at the
Company's principal office. Notwithstanding any provision to the contrary
contained herein, this Note is subject and entitled to certain terms,
conditions, covenants and agreements contained in the Subscription Agreement.
Any transferee or transferees of the Note, by their acceptance hereof, assume
the obligations of the Payee in the Subscription Agreement with respect to the
conditions and procedures for transfer of the Note. Reference to the
Subscription Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay both principal and interest hereon as provided
herein.
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1. Prepayment
A. The principal amount of this Note may be prepaid by the Company, in
whole or in part, without penalty, at any time.
2. Covenants of Company
A. The Company covenants and agrees that, so long as this Note shall be
outstanding, it will:
(i) Promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon the Company or upon its income
and profits, or upon any of its property, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies
which, if unpaid, might become a lien or charge upon such properties or any
part thereof; provided, however, that the Company shall not be required to
pay and discharge any such tax, assessment, charge, levy or claim so long
as the validity thereof shall be contested in good faith by appropriate
proceedings and the Company shall set aside on its books adequate reserves
with respect to any such tax, assessment, charge, levy or claim so
contested;
(ii) Do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights
and franchises and comply with all laws applicable to the Company, except
where the failure to comply would not have a material adverse effect on the
Company;
(iii) At all times reasonably maintain, preserve, protect and keep its
property used or useful in the conduct of its business in good repair,
working order and condition, and from time to time make all needful and
proper repairs, renewals, replacements, betterments and improvements
thereto as shall be reasonably required in the conduct of its business;
(iv) To the extent necessary for the operation of its business, keep
adequately insured by all financially sound reputable insurers, all
property of a character usually insured by similar corporations and carry
such other insurance as is usually carried by similar corporations; and
(v) At all times keep true and correct books, records and accounts.
(vi) Except for the incurrence of any indebtedness (including without
limitation, the incurrence of any guarantee or contingent payment
obligation with respect thereto) secured by a lien, mortgage or guarantee
on the property (whether real or personal) or equipment of the Company and
any refinancings or replacements thereto or trade debt incurred in the
ordinary course of business, not incur any indebtedness whatsoever which
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indebtedness does not expressly provide that it is wholly subordinated in right
of payment to the indebtedness evidenced by this Note and any identical Notes
issued pursuant to the Term Sheet.
3. Events of Default
A. This Note shall become and be due and payable upon written demand made
by the holder hereof if one or more of the following events, herein called
events of default, shall happen and be continuing:
(i) Default in the payment of the principal and accrued interest on
any of the Notes issued pursuant to the Term Sheet when and as the same
shall become due and payable, whether by acceleration or otherwise;
(ii) Default in the due observance or performance of any material
covenant, condition or agreement on the part of the Company to be observed
or performed pursuant to the terms hereof and such default shall continue
uncured for thirty (30) days after written notice thereof, specifying such
default, shall have been given to the Company by the holder of the Note;
(iii) Default in the payment of any outstanding indebtedness in excess
of $25,000 principal amount or in the due observance or performance of any
material covenant, condition or agreement on the part of the Company with
respect to any outstanding indebtedness with the result that such
outstanding indebtedness shall become due and payable prior to the due date
otherwise specified therefor and such default shall continue uncured or
such acceleration shall not be rescinded or annulled within thirty (30)
days after written notice thereof to the Company from the holder of this
Note;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of creditors;
(vii) Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with
creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order
shall not have been vacated or set aside or otherwise terminated within
sixty (60) days;
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(ix) The sale by the Company of substantially all of its assets; or
(x) The merger by the Company with or into another corporation, other
than for purposes of changing domicile, where the Company is not the
surviving corporation; or
(xi) A material breach of the Company's representations contained in
the Subscription Agreement.
B. The Company agrees that notice of the occurrence of any event of default
will be promptly given to the holder at his or her registered address by
certified mail.
C. Subject to the provisions of 4(B) hereof, in case any one or more of the
events of default specified above shall happen and be continuing, the holder of
this Note may proceed to protect and enforce his rights by suit in the specific
performance of any covenant or agreement contained in this Note or in aid of the
exercise of any power granted in this Note or may proceed to enforce the payment
of this Note or to enforce any other legal or equitable rights as such holder.
4. Amendments and Waivers
A. Subject to the provisions of 4(C) and (D) hereof, the covenants set
forth in 2(A) hereof may be waived by the written consent of the holders of a
majority in outstanding principal amount of the Notes issued pursuant to the
Term Sheet.
B. Subject to the provisions of 4(C) and (D) hereof, the events of default
set forth in clauses (i), (ii), (iii) and (xi) of 3(A) hereof may be waived by
the written consent of the holders of a majority in outstanding principal amount
of the Notes issued pursuant to the Term Sheet.
C. The Company may amend or supplement this Note with the written consent
of the holders of a majority in outstanding principal amount of the Notes issued
pursuant to the Term Sheet; provided, however, that without the consent of each
Noteholder, no amendment, supplement or waiver may:
1. reduce the principal amount of Notes whose holders must
consent to any amendment, supplement or waiver;
2. reduce the rate of interest or principal of the Note;
3. extend the maturity date of the Note or the time for payment
of interest by more than one year from the respective date(s) set
forth herein.
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D. After any waiver, amendment or supplement under this section becomes
effective, the Company shall mail to the holders of the Notes a notice briefly
describing such waiver, amendment or supplement.
5. Miscellaneous
A. The Company may consider and treat the person in whose name this Note
shall be registered as the absolute owner thereof for all purposes whatsoever
(whether or not this Note shall be overdue) and the Company shall not be
affected by any notice to the contrary. The registered owner of this Note shall
have the right to transfer it by assignment (subject to the limitations on
transfer contained in the Subscription Agreement) and the transferee thereof
shall, upon his registration as owner of this Note, become vested with all the
powers and rights of the transferor. Registration of any new owner shall take
place upon presentation of this Note to the Company at its offices, 17575
Pacific Coast Highway, Pacific Palisades, California 90272, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
B. Payments of interest shall be made as specified above to the registered
owner of this Note. Payment of principal and interest shall be made to the
registered owner of this Note upon presentation of this Note upon or after
maturity.
C. This Note shall be construed and enforced in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name by its President.
HEURISTIC DEVELOPMENT GROUP, INC.
By:
--------------------------------
Gregory L. Zink, President
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