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EXHIBIT 10.36
THE SECURITY EVIDENCED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
SALE, TRANSFER OR ASSIGNMENT IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT,
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
SECURED PROMISSORY NOTE
One Million Eight Hundred Thousand Dollars
($1,800,000.00) December 29, 2000
FOR VALUE RECEIVED, the undersigned, Euphonix, Inc., a California
corporation ("Borrower"), hereby promises to pay to Dieter Meier, Walter Bosch,
Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000,
Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P.
(individually an "Investor" and collectively, the "Investors" or "Lender"), or
registered assigns, the principal sum of One Million Eight Hundred Thousand
Dollars ($1,800,000) (the "Maximum Principal Amount") or so much of the Maximum
Principal Amount as may from time to time have been advanced by each Investor
and be outstanding, together with accrued interest, as provided herein, with the
Maximum Principal Amount hereof (or lesser amount, to the extent that less than
the full amount of the Maximum Principal Amount is advanced and outstanding)
allocable among the Investors as follows:
Pro Rata
Name of Investor Maximum Principal Amount Share
- ------------------------------ ---------------------------- ------------
Dieter Meier $ 800,000.00 44.44%
Walter Bosch $ 400,000.00 22.22%
Stephen and Kathryn Jackson, Trustees of $ 200,000.00 11.11%
the Jackson Trust dated 5/31/2000
Onset Enterprise Associates, L.P. $ 200,000.00 11.11%
Onset Enterprise Associates III, L.P. $ 200,000.00 11.11%
-------------- ------
Total $ 1,800,000.00 100.00%
A. Principal.
1. Advances. From the date hereof until 5:00 p.m. Pacific time on
February 28, 2001, Borrower may from time to time request advances from Lender
(individually an "Advance" and collectively the "Advances") by giving written
notice to the Investors in accordance with the terms
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hereof, which notice shall indicate the amount of the Advance requested;
provided, however, that no advance shall be in the aggregate less than $500,000.
Subject to the satisfaction or waiver of the conditions set forth in Section A.3
below, and provided that the requested Advance would not cause an Event of
Default (as defined in Section E below) to occur, Lender shall make the Advance
to Borrower within three (3) business days of receipt of Borrower's notice for
each Advance. Lender shall not be obligated to make an Advance to the extent
that such Advance, when aggregated with all prior Advances, would exceed the
then-existing Maximum Principal Amount.
2. Commitments. Each Investor shall advance to Borrower its Pro
Rata Share of each Advance based on its proportionate share of the Maximum
Principal Amount set forth above besides its name. Each Investor shall be
severally but not jointly liable to make its Pro Rata Share of the Advances
hereunder. Failure by any Investor to fund its Pro Rata Share of any Advance
shall not relieve any other Investor from its obligation to fund its Pro Rata
Share thereof.
3. Conditions to Advances. Borrower's right to request, and
Lender's obligation to make, each Advance shall be subject, in each case, to the
satisfaction of the following conditions, any or all of which may be waived by
Lender, in its sole and exclusive discretion, to the extent permitted by law:
(a) The representations and warranties contained in Section D.2
and D.3 shall be true and correct in all material respects on and as of the date
of such request for an Advance and on the effective date of each Advance as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Advance.
(b) There shall be no law, order, rule or regulation of any
governmental authority in effect which has the effect of prohibiting, making
unlawful or hindering any of the transactions contemplated by this Note.
(c) There shall be no outstanding Event of Default and no
condition which, with notice or passage of time or both would constitute an
Event of Default.
(d) The Board of Directors of Borrower shall have approved this
Note and the transactions evidence by this Note, including without limiting the
conversion feature of this Note.
4. Use of Proceeds. The proceeds of Advances shall be used for
general corporate purposes, including for working capital. The proceeds of
Advances shall not be used for payments or distributions to shareholders,
directors, officers or affiliates of the Borrower. Notwithstanding the
foregoing, such proceeds may be used for payment of salaries and accrued bonuses
of officers and employees of the Borrower.
B. Interest. Interest shall accrue with respect to Advances on the
principal sum hereunder at the per annum rate of eight percent (8.00%), net of
any deductions or withholding taxes. Interest payable hereunder shall be
calculated on the basis of a three hundred sixty (360) day year for actual days
elapsed. Interest shall be due and payable (or converted as set forth in Section
C below) upon payment or conversion of the principal sum of this Note pursuant
to Section C below. Notwithstanding the foregoing to the contrary, during any
period for which an Event of Default shall
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have occurred and be continuing, interest shall accrue with respect to Advances
on the principal sum hereunder at the per annum rate of fourteen percent
(14.00%), net of any deductions or withholding taxes.
C. Payment or Conversion.
1. Scheduled Payment. Subject to other provisions of this Note, the
outstanding principal sum of this Note, together with the accrued interest
thereon, shall be due and payable on July 31, 2001.
2. No Prepayment. Borrower shall not have the right at any time to
time to prepay, in whole or in part, the outstanding principal sum of this Note
and/or any accrued interest thereon.
3. Form of Payment. Unless converted pursuant to the terms set
forth below, the outstanding principal sum and accrued interest thereon are to
be paid in lawful money of the United States of America in federal or other
immediately available funds.
4. Immediate Payment. Notwithstanding anything herein to the
contrary, in the event that all necessary shareholder, regulatory and other
approvals or consents for the convertibility of this Note as set forth below are
not obtained by July 31, 2001, (i) the outstanding principal sum from all
Advances as of the date thereof and all future Advances from the date thereof
and (ii) accrued interest thereon, shall be repaid in full upon demand by the
Investors representing two-thirds (2/3) of the then outstanding principal sum of
this Note; provided, however, that the Investors must provide at least one (1)
month prior written notice to the Borrower prior to such demand. In addition,
such demand may not be made (x) if shareholder approval for the convertibility
of this Note is not obtained as a result of the Investors failing to vote or
consent for such convertibility, or (y) if shareholder approval for the
convertibility of this Note would not be required so long as the Borrower obtain
shareholder approval with respect to such other security issuances by the
Borrower, but shareholder approval with respect to such other issuances not be
obtained as a result of the investors failing to vote or consent with respect to
such other issuances.
5. Conversion.
(a) Subject to obtaining all necessary shareholders, regulatory
and other approvals or consents and further subject to Section C.5(c) hereof,
all or part of the principal sum of this Note, together with the accrued
interest thereon (including any principal amounts which have not been advanced
under this Note), shall be convertible at the option of the Lender into shares
of common stock of the Borrower (the "Common Stock"). The number of shares of
Common Stock to be issued upon such conversion(s) shall be equal to the quotient
obtained by dividing (i) such part (or all) of the principal sum of this Note
(including any principal amounts which have not been advanced under this Note)
plus accrued interest thereon by (ii) the average closing bid price for the
Common Stock for the ten trading days immediately preceding the day of execution
of this Note, which is $1.26 per share (the "Purchase Price"). In the event that
Investors (or any of them) exercise this conversion right and the full amount of
principal under this Note has not been advanced, then as part of such
conversion, such Investor(s) shall pay to Borrower such Investor's unadvanced
portion of the principal amount of this Note.
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(b) No fractional share of Common Stock will be issued upon such
conversion(s) of this Note. In lieu of any fractional share to which the Lender
would otherwise be entitled, the Borrower will pay to the Lender in cash the
amount of the unconverted principal and interest balance of this Note that would
otherwise be converted into such fractional share. At its expense, the Borrower,
will as soon as practicable thereafter, issue and deliver to each Investor, at
its principal office, or other address notified by each Investor to the Borrower
from time to time, a certificate or certificates for the number of shares
(representing its pro rata portion) to which the Investor is entitled upon such
conversion(s). Upon such conversion(s) of this Note, the Borrower will be
forever released from all of its obligations and liabilities under this Note, to
the extent of the conversion. Such conversions may be exercised individually by
each Investor but notwithstanding anything herein to the contrary, each such
conversion must be for the full amount of the outstanding principal and accrued
interest thereon payable to the Investor exercising its rights under Section 5
hereunder at the time of such exercise.
(c) Notwithstanding anything herein to the contrary, Section
C.5(a) of this Note shall not apply and this Note shall not be convertible into
shares of Common Stock as contemplated herein (i) until such time as the
Borrower has obtained shareholder approval of the conversion feature of this
Note as and to the extent required by the rules of the National Association of
Securities Dealers; and (ii) upon the occurrence of the following: the
consummation of any transaction or series of transactions (collectively, the
"Transaction"), including without limitation, the sale, transfer or disposition
of all or substantially all of the Borrower's assets or the merger of the
Borrower with or into, or consolidation with, any other corporate entity,
whereby the holders of the Borrower's voting securities prior to the Transaction
do not hold more than 50% of the voting securities of the surviving entity
following the consummation of the Transaction. Notice of any such Transaction
shall be provided to the Investors fourteen (14) calendar days prior to the
consummation of any such Transaction and, notwithstanding anything to the
contrary contained elsewhere in this Note, Investors may exercise their rights
of conversion during such 14-day period.
D. Security Interest.
1. Grant of Security Interest. Upon the first Advance hereunder,
Borrower grants to Lender a security interest in the Collateral, as defined
herein, to secure the payment of all of the outstanding indebtedness hereunder
(the "Secured Obligations") including, without limitation, principal, accrued
interest, other advances made under this Note and any attorneys' fees to which
Lender is entitled under this Note.
2. Representations and Warranties Regarding Collateral. On the date
of this Note and as of the date of each Advance under this Note, Borrower does
and shall represent and warrant to Lender, that as of each such date:
(a) Borrower is the true and lawful owner of the Collateral,
having good and marketable title thereto, free and clear of any and all Liens
other than the Lien and security interest granted to Lender hereunder and
Permitted Liens.
(b) The lien against the Collateral granted hereunder is and
shall be a first-priority lien against the collateral and each portion thereof,
subject to Permitted Liens.
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(c) Borrower shall not create or assume or permit to exist any
such Lien on or against any of the Collateral except as created or permitted by
this Note and Permitted Liens, and Borrower shall promptly notify Lender of any
such other Lien against the Collateral and shall defend the Collateral against,
and take all such action as may be reasonably necessary to remove or discharge,
any such Lien.
(d) Borrower shall take all commercially reasonable actions
necessary to protect and preserve the Collateral which is used in its business
in good condition and repair, subject to ordinary wear and tear, and to preserve
its value and usefulness.
(e) No part of the Intellectual Property Collateral has been
judged invalid or unenforceable, in whole or in part.
(f) No claim has been made that any part of the Intellectual
Property Collateral violates the rights of any third party.
(g) The Collateral consists of all assets which are required for
the conduct and operation of the business of Borrower as of the date of this
Note.
(h) The Intellectual Property Collateral includes all of the
technology, know-how and proprietary information which are required for the
conduct and operation of the business of borrower as of the date of this Note.
3. General Representations and Warranties. On the date of this
Note and as of the date of each Advance under this Note, Borrower does and shall
represent and warrant to Lender, that as of each such date:
(a) ORGANIZATION AND QUALIFICATION. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. Borrower has the requisite corporate power and authority to
own, operate or lease its properties and to carry on its business as it is now
being conducted and is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction in which the nature of its business or the
properties owned, operated or leased by it makes such qualification, licensing
or good standing necessary, except where the failure to have such power or
authority, or the failure to be so qualified, licensed or good standing
necessary, except where the failure to have such power or authority, or the
failure to be so qualified, licensed or in good standing, would not have a
Material Adverse Effect.
The term "Material Adverse Effect," as used in this Note, means
any change in or effect (or any development that is reasonably likely to result
in any change or effect) on the business, business prospects, properties,
assets, operations, financial condition or results of operations of Borrower
that is materially adverse to Borrower taken as a whole.
(b) AUTHORITY RELATIVE TO THIS NOTE. This Note has been duly and
validly authorized, executed and delivered by Borrower and constitutes a valid
and binding obligation of Borrower enforceable against Borrower in accordance
with its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
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(c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Except for the
approval of Shareholders contemplated under Section C, none of the execution and
delivery of this Note by Borrower, the consummation by Borrower of the
transactions contemplated hereby or compliance by Borrower with any of the
provisions hereof will (i) conflict with or violate the certificate of
incorporation or by-laws of Borrower, (ii) conflict with or violate any material
statute, ordinance, rule, regulation, order, judgment or decree applicable to
Borrower, or by which Borrower or its properties or assets may be bound, or
(iii) result in a violation or breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in any loss of any material benefit, or the creation
of any lien on any of the property or assets of Borrower pursuant to any
material agreement, a copy of which would be required to be filed as an exhibit
to the Company's Form 10-K or Form 10-Q filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
(d) CONSENTS. None of the execution and delivery of this Note by
Borrower, the consummation by Borrower of the transactions contemplated hereby
or compliance by Borrower with any of the provisions hereof will require any
consent, waiver, approval, authorization or permit of, or registration or filing
with or notification to (any of the foregoing being a "Consent"), any government
or subdivision thereof, or any administrative, governmental or regulatory
authority, agency, commission, tribunal or body, domestic, foreign or
supranational (a "Governmental Entity"), except for Consents the failure of
which to obtain or make would not have a Material Adverse Effect or adversely
affect the ability of Borrower to consummate the transactions contemplated
hereby; provided that the convertibility feature of this Note as set forth in
Section C which requires shareholder approval pursuant to the Nasdaq Stock
Market's shareholder approval provisions is obtained.
(e) MATERIAL ADVERSE CHANGE. Since the date of the latest
financial statements filed by Borrower with the Commission prior to the date of
this Note, there has not been any event, occurrence or development that has
resulted or, to the Company's knowledge, is reasonably likely to result in a
Material Adverse Effect.
4. Perfection of Security Interest. Borrower agrees to take all
actions required or requested by Lender and reasonably necessary to perfect, to
continue the perfection of, and to otherwise give notice of, the Lien granted
hereunder, including, but not limited to, execution and filing of financing
statements and the filing of notices of security interests with the United
States Patent and Trademark Office.
E. Events of Default.
1. Definition of Event of Default. The occurrence of any one or
more of the following events shall constitute an "Event of Default" hereunder:
(a) Borrower's failure to perform, keep or observe any
obligation under this Note or any of the covenants contained in this Note which
failure is not cured within 30 days from the notice of the occurrence thereof
delivered by Lender to Borrower.
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(b) The lapse of 60 days following the institution of
proceedings against Borrower, or Borrower's filing of a petition or answer or
consent seeking reorganization or release, under the federal Bankruptcy Code, or
any other applicable federal or state law relating to creditor rights and
remedies, or Borrower's consent to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other similar
official of Borrower or of any substantial part of its property, or Borrower's
making of an assignment for the benefit of creditors, or the taking of corporate
action in furtherance of such action.
(c) Any representation or warranty of the Borrower made in this
Note proves untrue in any material respect as of the date of the issuance or
making thereof.
2. Rights and Remedies on Event of Default.
(a) During the continuance of an Event of Default, Lender shall
have the right, itself or through any of its agents, with notice to Borrower (as
provided below), as to any or all of the Collateral, by any available judicial
procedure, or without judicial process (provided, however, that it is in
compliance with the UCC), declare all obligations evidenced by this Note
immediately due and payable, cease advancing money or extending credit to or for
the benefit of Borrower under this Note, and to exercise any and all rights
afforded to a secured party under the UCC or other applicable law. Without
limiting the generality of the foregoing, Lender shall have the right to sell or
otherwise dispose of all or any part of the Collateral, either at public or
private sale, in lots or in bulk, for cash or for credit, with or without
warranties or representations, and upon such terms and conditions, all as
Lender, in its reasonable discretion, may deem advisable, and it shall have the
right to purchase at any such sale. Borrower agrees that a notice sent at least
fifteen (15) days before the time of any intended public sale or of the time
after which any private sale or other disposition of the Collateral is to be
made shall be reasonable notice of such sale or other disposition. The proceeds
of any such sale, or other Collateral disposition shall be applied, first to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like, and to Lender's reasonable attorneys' fees and legal
expenses, and then to the Secured Obligations and to the payment of any other
amounts required by applicable law, after which Lender shall account to Borrower
for any surplus proceeds. If, upon the sale or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
Lender is legally entitled, Borrower shall be liable for the deficiency,
together with interest thereon, and the reasonable fees of any attorneys Lender
employs to collect such deficiency; provided, however that the foregoing shall
not be deemed to require Lender to resort to or initiate proceedings against the
Collateral prior to the collection of any such deficiency or other amount
directly from Borrower.
(b) Borrower appoints Lender, and any officer, employee or agent
of Lender, with full power of substitution, as Borrower's true and lawful
attorney-in-fact, effective as of the date hereof, with power, in its own name
or in the name of Borrower, during the continuance of an Event of Default, to
endorse any notes, checks, drafts, money orders, or other instruments of payment
in respect of the Collateral that may come into Lender's possession, to sign and
endorse any drafts against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to Collateral; to pay or
discharge taxes or Liens at any time levied or placed on or threatened against
the Collateral; to demand, collect, issue receipt for, compromise, settle and
sue for monies due in respect of the Collateral; to notify persons and entities
obligated with respect to
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the Collateral to make payments directly to Lender; and, generally, to do, at
Lender's option and at Borrower's expense, at any time, or from time to time,
all acts and things which Lender deems necessary to protect, preserve and
realize upon the Collateral and Lender's security interest therein to effect the
intent of this Note, all as fully and effectually as Borrower might or could do;
and Borrower hereby ratifies all that said attorney shall lawfully do or cause
to be done by virtue hereof. This power of attorney shall be irrevocable as long
as any of the Secured Obligations are outstanding.
(c) All of Lender's rights and remedies with respect to the
Collateral, whether established hereby or by any other agreements, instruments
or documents or by law shall be cumulative and may be exercised singly or
concurrently.
(d) The rights of Lender under this Note with respect to any
Collateral and the enforcement of the security interests and associated rights
hereunder may be exercised jointly by Investors or singly by any Investor
representing two-thirds (2/3) of the then outstanding principal sum of this
Note.
(e) Upon the occurrence of an Event of Default, any Investor may
bring suit against Borrower to collect amounts due such Investor under this
Note.
(f) Any Investor may bring suit against Borrower to enforce the
provisions of this Note.
F. Restrictions on Transfer and Compliance with Securities Act.
1. Certificates. Certificates representing any of the shares of
Common Stock acquired pursuant to the provisions of this Note shall have
endorsed thereon the following legends, as appropriate.
(a) Such shares of Common Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), nor qualified (if
necessary) under applicable state securities laws and consequently will have the
following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE
IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by any applicable
state securities laws.
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(c) Each Investor, by acceptance hereof, agrees that this Note
and the shares of Common Stock to be issued upon conversion pursuant to the
terms hereof are being acquired solely for its own account and not as a nominee
for any other party and not with a view toward the resale or distribution
thereof and that it will not offer, sell or otherwise dispose of this Note or
any shares of Common Stock to be issued upon conversion pursuant to the terms
hereof except under circumstances which will not result in a violation of the
Securities Act or of applicable state securities laws.
(d) Each Investor, by acceptance hereof, represents that such
Investor is (i) an accredited investor within the meaning of Rule 501 under the
Securities Act and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Note; (ii) aware of the Company's business affairs and financial condition;
and (iii) aware that the Note has not been registered under the Securities Act
of 1933, as amended, in reliance upon a specific exemption therefrom.
(e) Subject to the preceding, this Note may be transferred only
upon surrender of the original Note for registration of transfer, duly endorsed,
or accompanied by a duly executed written instrument of transfer in form
satisfactory to Borrower. Thereupon, a new Note for like principal amount and
interest will be issued to, and registered in the name of, the transferee.
Interest and principal are payable only to the registered holder of the Note.
G. Covenants.
1. Registration Rights. Upon receipt of the necessary approvals for
the convertibility feature of this Note set forth in Section C.5 above, the
Borrower hereby covenants to enter into a registration rights agreement with
each of the Investors to provide for the registration of the shares of Common
Stock into which the Note is then convertible, in the form set forth on Exhibit
B hereto.
2. Warrants. In the event any Investor shall elect to convert all
or a portion of its Pro Rata Share of this Note into Common Stock in accordance
with Section C.5 above, the Borrower shall issue to each Investor warrants to
purchase shares of common stock, in the form set forth on Exhibit C hereto.
H. Prior Advance Note. Borrower and the Investors are parties to a Note
Purchase Agreement, dated November 3, 2000 (the "Note Purchase Agreement"), and
each of the Investors hereto holds a Promissory Note dated as follows and in the
following amounts (collectively, the "Prior Promissory Notes"):
Name of Investor Date Amount
----------------------------------------- --------------------- ---------------------
Dieter Meier November 6, 2000 $400,000.00
Walter Bosch November 6, 2000 $200,000.00
Stephen and Kathryn Jackson, Trustees of November 6, 2000 $100,000.00
the Jackson Trust dated 5/31/2000
Onset Enterprise Associates, L.P. November 3, 2000 $100,000.00
Onset Enterprise Associates III, L.P. November 3, 2000 $100,000.00
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The parties hereto agree that the foregoing amounts loaned to Borrower by
Investors pursuant to the Note Purchase Agreement and Prior Promissory Notes
shall be deemed Advances under this Note. The parties hereto further agree that
as of the date hereof, the Note Purchase Agreement and the Prior Promissory
Notes are hereby null and void; provided, however, that calculation of interest
on the above Advances shall have begun on the dates set forth above.
I. Other Provisions.
1. Definitions. As used herein, the following terms shall have the
following meanings:
"Collateral" means the property described on Exhibit A attached
hereto.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Intellectual Property Collateral" means:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, security interest, charge, claim
or other encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any agreement to give or refrain from giving a lien,
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mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, charge, claim or other encumbrance of any kind.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations in part of the same.
"Permitted Liens" means: (i) Liens imposed by law, such as
carriers', warehousemen's, materialmen's and mechanics' liens, or Liens arising
out of judgments or awards against Borrower with respect to which Borrower at
the time shall currently be prosecuting an appeal or proceedings for review;
(ii) Liens for taxes not yet subject to penalties for nonpayment and Liens for
taxes the payment of which is being contested in good faith and by appropriate
proceedings and for which, to the extent required by generally accepted
accounting principles then in effect, proper and adequate book reserves relating
thereto are established by Borrower; (iii) purchase money security interests and
liens in connection with capital leases incurred in the ordinary course of
business (to the extent such liens are only on the leased property) or existing
on after acquired property at the time of its acquisition by the Borrower; (iv)
liens existing on property as of the date of this Note; (v) liens securing the
performance of bids, trade contracts, leases, surety bonds and the like; (vi)
leases and sublicenses granted to others in the ordinary course of business;
(vii) liens consisting of rights of set-off or bankers liens of a customary
nature; (viii) liens in connection with the establishment of receivable lines of
credit with commercial banks or other institutional lenders; (ix) liens
consisting of agreements to refrain from giving or creating Liens (other than
the Lien and security interest granted to Lender hereunder) in connection with
joint venture agreements, strategic alliances and the like; (x) liens granted in
all of the Company's assets pursuant to the secured Promissory Note dated July
30, 1999; (xi) liens granted in all of the Company's assets pursuant to the
secured Promissory Note dated February 22, 2000; and (xii) liens granted in all
of the Company's assets pursuant to the secured Promissory Note dated April 14,
2000.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
"UCC" means the Uniform Commercial Code in effect from time to
time in the relevant jurisdiction.
2. Governing Law; Venue. This Note shall be governed by the laws of
the State of California, without giving effect to conflicts of law principles.
Borrower and Lender agree that all actions or proceedings arising in connection
with this Note shall be tried and litigated only in the state and federal courts
located in the City and County of Santa Clara, State of California or, at
Lender's option, any court in which Lender determines it is necessary or
appropriate to initiate legal or equitable proceedings in order to exercise,
preserve, protect or defend any of its rights and remedies under this Note or
otherwise or to exercise, preserve, protect or defend its Lien, and the priority
thereof, against the Collateral, and which has subject matter jurisdiction over
the matter in controversy.
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3. Notices. Any notice or communication required or desired to be
served, given or delivered hereunder shall be in the form and manner specified
below, and shall be addressed to the party to be notified as follows:
If to Investors: Dieter Meier
c/o Data Sound
Wohllebgasse #6
CH-8001 Zurich, Switzerland
or
c/o Soundproof, Inc.
5180 Linwood Drive
Los Angeles, CA 90027
Walter Bosch
Fraumunsterstr. 9
8001 Zurich
Switzerland
Stephen and Kathryn Jackson,
Trustees of the Jackson Trust dated 5/31/2000
c/o Fashion Magic
1307 East Pine Street
Lodi, CA 95240
Onset Enterprise Associates, L.P.
2400 Sand Hill Road, Suite 150
Menlo Park, CA 94025
Attn: Rob Kuhling
Onset Enterprise Associates III, L.P.
2400 Sand Hill Road, Suite 150
Menlo Park, CA 94025
Attn: Rob Kuhling
If to Borrower: Euphonix, Inc.
220 Portage Avenue
Palo Alto, California 94306
Attention: Steve Vining
Fax: (650) 846-1131
With a copy to: Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: John Roos, Esq.
Fax: (650) 493-6811
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or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iv) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; provided, however, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
4. Lender's Rights; Borrower Waivers. Lender's acceptance of
partial or delinquent payment from Borrower hereunder, or Lender's failure to
exercise any right hereunder, shall not constitute a waiver of any obligation of
Borrower hereunder, or any right of Lender hereunder, and shall not affect in
any way the right to require full performance at any time thereafter. Except as
otherwise expressly provided herein, Borrower waives presentment, diligence,
demand of payment, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note. In any action on this Note, Lender need not produce or file the
original of this Note, but need only file a photocopy of this Note certified by
Lender be a true and correct copy of this Note in all material respects.
5. Severability. Whenever possible each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision is prohibited by or invalid under
applicable law, it shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of the provision or the remaining
provisions of this Note.
6. Amendment Provisions. Except for increases in the Maximum
Principal Amount of this Note as provided herein, this Note may not be amended
or modified, nor may any of its terms be waived, except by written instruments
signed by Borrower and the Investors who have advanced a majority of the
outstanding principal amount of this Note.
7. Binding Effect. This Note shall be binding upon, and shall inure
to the benefit of, Borrower and the holder hereof and their respective
successors and assigns; provided, however, that Borrower's rights and
obligations shall not be assigned or delegated without Lender's prior written
consent, given in its sole discretion, and any purported assignment or
delegation without such consent shall be void ab initio.
8. Headings. Section headings used in this Note have been set forth
herein for convenience of reference only. Unless the contrary is compelled by
the context, everything contained in each section hereof applies equally to this
entire Note.
9. No Usury. This Note is subject to the express condition that at
no time shall the Borrower be obligated or required to pay interest hereunder at
a rate which could subject Lender to either civil or criminal liability as a
result of being in excess of the maximum rate which the
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Borrower is permitted by law to contract or agree to pay. If, by the
terms of this Note, the Borrower is at any time required or obligated to pay
interest at a rate in excess of such maximum rate, the rate of interest under
this Note shall be deemed to be immediately reduced to such maximum rate and
interest payable hereunder shall be computed at such maximum rate and the
portion of all prior interest payments in excess of such maximum rate shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of this Note.
10. Attorneys' Fees. Should any litigation, enforcement or
collection action be commenced between any of the parties to this Note under or
in connection with this Note, the prevailing party in such litigation,
enforcement or collection action shall be entitled, in addition to such other
relief as may be granted, to a reasonable sum as and for its attorneys' fees in
such litigation, enforcement or collection action which shall be determined by
the court in such litigation, enforcement or collection action or in a separate
action brought for that purpose. The provisions of this Section shall survive
the entry of any judgement or award and shall continue to apply with respect to
any action to collect or recover any such judgment or award.
[remainder of the page intentionally left blank]
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IN WITNESS WHEREOF, the Borrower and each of the Investors has caused this Note
to be duly executed on the date first written above.
EUPHONIX, INC.
By:
-----------------------------------------
Name: Steve Vining
Title: Chief Executive Officer
INVESTORS
-------------------------------------------
Dieter Meier
-------------------------------------------
Walter Bosch
-------------------------------------------
Stephen and Kathryn Jackson, Trustees of the
Jackson Trust dated 5/31/2000
-------------------------------------------
Onset Enterprise Associates, L.P.
By:
Title:
-------------------------------------------
Onset Enterprise Associates III, L.P.
By:
Title:
[SIGNATURE PAGE TO SECURED PROMISSORY NOTE]
16
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO SECURED PROMISSORY NOTE
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(1) all accounts receivable, accounts, chattel paper, contract rights
(including, without limitation, royalty agreements, license agreements and
distribution agreements), documents, instruments, money, deposit accounts and
general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(2) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Lender (herein referred to
as "Lender" or "Secured Party") to sue in its own name and/or the name of the
Debtor for past, present and future infringements of copyright;
(3) all goods, including, without limitation, equipment and inventory
(including, without limitation, all export inventory);
(4) all guarantees and other security therefor;
(5) all trademarks, service marks, trade names and service names and the
goodwill associated therewith including, without limitation, the following:
Reel Feel(TM)
Clear Displays(TM)
Track Panner(TM)
SnapShot Recall(TM)
DSC(TM) (Digital Studio Controller)
Hyper-Surround(TM)
Total Automation(TM)
Mixview(TM)
(6) (a) all patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (including,
without limitation, United States Patents Nos. 5524060, 5402501, 5399820,
5677959 and 6,057,829 and applications for United States patents for (i)
Multiple Driver Rotary Control for Audio Processors or Other Uses, (ii)
Functional Panel for Audio Mixer, and (iii) Plug-in Modules for
17
Digital Signal Processor Functionalities), (b) licenses pertaining to any patent
whether Debtor is licensor or licensee, (c) all income, royalties, damages,
payments, accounts and accounts receivable now or hereafter due and/or payable
under and with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (d) the right (but
not the obligation) to sue for past, present and future infringements thereof,
(e) all rights corresponding thereto throughout the world in all jurisdictions
in which such patents have been issued or applied for, and (f) the reissues,
divisions, continuations, renewals, extensions and continuations-in-part with
any of the foregoing (all of the foregoing patents and applications and
interests under patent license agreements, together with the items described in
clauses (a) through (f) in this paragraph are sometimes herein individually and
collectively referred to as the "Patents");
(7) all rights in and to (i) the on-air mixing consoles of the Series
CS3000B, (ii) mixer hardware software designs, (iii) Real Time(TM) software
design, and (iv) analog and digital audio hardware design expertise; and
(8) all products and proceeds, including, without limitation, insurance
proceeds, of any of the foregoing.
Notwithstanding the foregoing, the grant of a security interest as provided
herein shall not extend to, and the term "Collateral" shall not include, any
contractual, license or lease rights or interests in which Borrower is the
grantee, licensee or lessee thereunder to the extent that Borrower, whether by
law or by the terms of such contract, license or lease, is not permitted to
assign or grant a security in interest in its rights thereunder without the
consent of the other party thereto.
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
19
EXHIBIT C
COMMON STOCK WARRANT