EXHIBIT 10.23
THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES ISSUABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
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$500,000.00 December 22, 1999
Los Angeles, CA
SYNTHONICS TECHNOLOGIES, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
FOR VALUE RECEIVED, Synthonics Technologies, Inc., a Utah corporation (the
"Company"), promises to pay to Future Media Productions, Inc ("Holder"), at its
offices at 25136 Anza Drive, Valencia, CA 91355 or such other location as is
reasonably requested by Holder, the principal sum of Five Hundred Thousand
$500,000.00. Interest shall accrue from the first anniversary of the date of
this Note on the unpaid principal amount at the rate equal to the average rate
of interest incurred by Holder on its outstanding secured borrowings, compounded
annually, until paid. Such principal amount, together with accrued but unpaid
interest, shall be payable on demand by the Holder after December 22, 2001
(the "Term"), unless earlier converted in accordance with Section 2 of this
Convertible Note (the "Note").
1. Payment. Payment shall be made in lawful tender of the United States and
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shall be credited first to the accrued but unpaid interest due and the remainder
applied to principal.
2. Conversion. Subject to and in compliance with the provisions of this
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Section 2, up to but not following the first anniversary of the date of this
Note, the Note may, at the option of the Holder, be converted at any time into
fully-paid and nonassessable shares of Common Stock. The number of shares of
Common Stock to which the Holder shall be entitled to at any time upon
conversion of the Note shall be Eleven Million, Five Hundred and Eighteen
Thousand and Ninety-Six (11,518,096), subject to adjustment as provided herein.
2.1. Adjustment for Stock Splits, Stock Subdivisions or Combinations of
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Shares. The number of shares of Common Stock issuable upon conversion of
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this Note (or any shares of stock or other securities at the time issuable
upon conversion of this Note) shall be proportionally increased to reflect
any stock split or subdivision of the Company's Common Stock and
proportionally decreased to reflect any combination of the Company's Common
Stock.
2.2. Adjustment for Dividends or Distributions of Stock or Other
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Securities or Property. In case the Company shall make or issue, or shall
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fix a record date for the determination of eligible holders entitled to
receive, a dividend or other distribution with respect to the Common Stock
(or any shares of stock or other securities at the time issuable upon
conversion of the Note) payable in (a) securities of the Company or (b)
assets (excluding cash dividends paid or payable solely out of retained
earnings), then, in each such case, the Holder of this Note on conversion
hereof at any time after the consummation, effective date or record date of
such dividend or other distribution, shall receive, in addition to the
shares of Common Stock (or such other stock or securities) issuable on such
conversion prior to such date, and without the payment of additional
consideration therefore, the securities or such other assets of the Company
to which such Holder would have been entitled upon such date if such Holder
had converted this Note on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such conversion,
retained such shares and all such additional securities or other assets
distributed with respect to such shares as aforesaid during such period
giving effect to all adjustments called for by this Section 2.
2.3. Reclassification. If the Company, by reclassification of securities
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or otherwise, shall change any of the securities as to which purchase
rights under this Note exist into the same or a different number of
securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would
have been issuable as the result of such change with respect to the
securities that were subject to the conversion rights under this Note
immediately prior to such reclassification or other change, and the number
of shares of Common Stock issuable upon conversion of this Note shall be
appropriately adjusted, all subject to further adjustment as provided in
this Section 2. No adjustment shall be made pursuant to this Section 2.3
upon any conversion or redemption of the Common Stock which is the subject
of Section 2.5.
2.4. Adjustment for Capital Reorganization, Merger or Consolidation.
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In case of any capital reorganization of the capital stock of the Company
(other than a combination, reclassification, exchange or subdivision of
shares otherwise provided for herein), or any merger or consolidation of
the Company with or into another corporation, or the sale of all or
substantially all the assets of the Company then, and
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in each such case, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the Holder of this
Note shall thereafter be entitled to receive upon conversion of this Note,
during the period specified herein, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon conversion of this Note would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if
this Note had been converted immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 2. The foregoing provisions of this Section 2.4
shall similarly apply to successive reorganizations, consolidations,
mergers, sales and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the conversion of this
Note. If the per-share consideration payable to the Holder hereof for
shares in connection with any such transaction is in a form other than
cash or marketable securities, then the value of such consideration shall be
determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board
of Directors) shall he made in the application of the provisions of this
Note with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Note shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon conversion of this Note.
2.5. Conversion of Common Stock. In case all or any portion of the
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authorized and outstanding shares of Common Stock of the Company are
redeemed or converted or reclassified into other securities or property
pursuant to the Company's Certificate of Incorporation or otherwise, or the
Common Stock otherwise ceases to exist, then, in such case, the Holder of
this Note, upon conversion hereof at any time after the date on which the
Common Stock is so redeemed or converted, reclassified or ceases to exist
(the "Termination Date"), shall receive, in lieu of the number of shares of
Common Stock that would have been issuable upon such conversion immediately
prior to the Termination Date, the securities or property that would have
been received if this Note had been converted in full and the Common Stock
received thereupon had been simultaneously converted immediately prior to
the Termination Date, all subject to further adjustment as provided in this
Note.
3. Subordination. The indebtedness evidenced by this Note is hereby
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expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Company's Senior
Indebtedness, as hereinafter defined.
3.1 Senior Indebtedness. As used in this Note, the term "Senior
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Indebtedness" shall mean the principal of and unpaid accrued interest on (i)
current or future
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indebtedness of the Company or with respect to which the Company is a guarantor,
to banks, insurance companies, lease financing institutions or other financial
institutions regularly engaged in the business of lending money, which is for
money borrowed (or purchase or lease of equipment in the case of lease
financing) by the Company (whether or not secured) in the ordinary course of
business, and (ii) any such indebtedness or any debentures, notes or other
evidence of indebtedness issued in exchange for such Senior Indebtedness, or any
indebtedness arising from the satisfaction of such Senior Indebtedness by a
guarantor.
3.2 Default on Senior Indebtedness. If there should occur any
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receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshaling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an event of default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by the Company in respect of the
principal of or interest on this Note at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding shall
be paid in full, and (ii) no claim or proof of claim shall be filled with the
Company by or on behalf of the Holder of this Note that shall assert any right
to receive any payments in respect of the principal of and interest on this
Note, except subject to the payment in full of the principal of and interest on
all of the Senior Indebtedness then outstanding. If there occurs an event of
default that has been declared in writing with respect to any Senior
Indebtedness, or in the instrument under which any Senior Indebtedness is
outstanding, permitting the holder of such Senior Indebtedness to accelerate the
maturity thereof, then, unless and until such event of default shall have been
cured or waived or shall have ceased to exist, or all Senior indebtedness shall
have been paid in full, no payment shall be made in respect of the principal of
or interest on this Note, unless within 180 days after the happening of such
event of default, the maturity, of such Senior Indebtedness shall not have been
accelerated.
3.3 Effect of Subordination. Subject to the rights, if any, of the
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holders of Senior Indebtedness under this Section 3 to receive cash, securities
or other properties otherwise payable or deliverable to the Holder of this
Note, nothing contained in this Section 3 shall impair, as between the Company
and the Holder, the obligation of the Company, subject to the terms and
conditions hereof, to pay to the Holder the principal hereof and interest
hereon as and when the same become due and payable, or shall prevent the Holder
of this Note, upon default hereunder, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law.
3.4 Subrogation. Subject to the payment in full of all Senior
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Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent
of payments or distributions previously made to
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such holders of Senior Indebtedness pursuant to the provisions of Section 3
above) to receive payments or distributions of assets of the Company applicable
to the Senior Indebtedness. No such payments or distributions applicable to the
Senior Indebtedness shall, as between the Company and its creditors, other than
the holders of Senior Indebtedness and the Holder, be deemed to be a payment by
the Company to or on account of this Note; and for the purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
to which the Holder would be entitled except for the provisions of this Section
3 shall, as between the Company and its creditors, other than the holders of
Senior Indebtedness and the Holder, be deemed to be a payment by the Company to
or on account of the Senior Indebtedness.
3.5 Undertaking. By its acceptance of this Note, the Holder agrees to
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execute and deliver such documents as may be reasonably requested from time to
time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 3. The provisions of this
Section 3 shall bind any successors or assignees of Holder and shall benefit any
successors or assigns of any lender of Senior Indebtedness, and, if the Company
refinances a portion of the Senior Indebtedness with a new lender, such new
lender shall be deemed a successor or assign of a lender of Senior Indebtedness
for the purposes of this Section 3. This Section 3 is solely for the benefit of
Holder and lenders of Senior Indebtedness and not for the benefit of the Company
or any other party. The provisions of this Section 3 may be amended only by
written instrument signed by Holder and the lenders of Senior Indebtedness. In
the event of any legal action to enforce the rights of a party, under this
Section 3, the party prevailing in such action shall be entitled, in addition to
such other relief as may be granted, all reasonable costs and expenses,
including reasonable attorneys' fees, incurred in such action.
4. Transfers.
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4.1 The Holder acknowledges that this Note has not been, and the Common
Stock, when and if issued, will not be, registered under the Securities Act of
1933 (the "Securities Act"), and agrees not to sell, pledge, distribute, offer
for sale, transfer or otherwise dispose of this Note or any Common Stock issued
upon its conversion in the absence of (i) an effective registration statement
under the Securities Act as to this Note and/or such Common Stock and
registration or qualification of this Note and/or such Common Stock under any
applicable Blue Sky or state securities law then in effect, or (ii) an opinion
of counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument evidencing
shares of such Common Stock issued upon the conversion of this Note shall bear
a legend substantially to the foregoing effect.
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4.2 Subject to the terms and conditions of this Note and compliance
with all applicable securities laws, this Note and all rights hereunder may be
transferred, in whole, but not in part, (i) to the Holder's parent, subsidiary
or affiliate (including the parties to that certain June 2, I999 letter
agreement with the Company), (ii) to the surviving corporation in any merger or
consolidation of the Holder with or into another corporation or (iii) to the
purchaser of all or substantially all of the assets of the Holder, on the books
of the Company maintained for such purpose at the principal office of the
Company referred to above, by the Holder hereof in person, or by duly authorized
attorney, upon surrender of this Note properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Other than as permitted by the immediately preceding sentence, no other transfer
of this Note (or any shares of stock or other securities issued upon the
exercise thereof) may be transferred shall be permitted without the prior
written consent of the Company, which may be granted or withheld in its sole
discretion.
4.3 Until any transfer of this Note is made in the Note register, the
Company may treat the registered holder of this Note as the absolute owner
hereof for all purposes; provided, however, that if and when this Note is
properly assigned, the Company may (but shall not be required to) treat the
bearer hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.
4.4 The Company will maintain a register containing the names and
addresses of the registered holders of this Note. Any registered holder may
change such registered holder's address as shown on the Note register by written
notice to the Company requesting such change.
4.5 In the discretion of the Company, the Company may condition any
transfer of all or any portion of this Note upon the transferee's delivery to
the Company of a written agreement, in form and substance satisfactory to the
Company, whereby the transferee (i) makes certain standard investment
representations and warranties to and for the benefit of the Company, in a form
reasonably acceptable to the Company, and (ii) agrees to be bound by the
transfer restrictions set forth in this Section 4.
5. Default.
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5.1 Events of Default. The occurrence of any of the following shall
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constitute an "Event of Default" under this Note:
a. Default on Senior Indebtedness. An event of default with respect to any
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Senior Indebtedness shall occur, including without limitation the failure
to pay when due any principal or interest payment on the due date
thereunder;
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b. Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
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(i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its
debts generally as they mature, (iii) make a general assignment for the
benefit of its or any of its creditors, (iv) be dissolved or liquidated
in full or in part, (v) become insolvent (as such term may be defined or
interpreted under any applicable statute), (vi) commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such
relief or to the appointment of or taking possession of its property by
any official in an involuntary case or other proceeding commenced against
it, or (vii) take any action for the purpose of effecting any of the
foregoing;
c. Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the
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appointment of a receiver, trustee, liquidator or custodian of Company or
of all or a substantial part of the property thereof, or an involuntary
case or other proceedings seeking liquidation, reorganization or other
relief with respect to Company or the debts thereof under any bankruptcy,
insolvency or other similar law or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be dismissed
or discharged within thirty (30) days of commencement.
5.2 Rights of Holder Upon Default. Subject to the Section 3 above, upon
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the occurrence or existence of any Event of Default and at any time thereafter
during the continuance of such Event of Default, Holder may declare all
outstanding amounts payable by Company hereunder to be immediately due and
payable without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived. In addition to the foregoing remedies,
upon the occurrence or existence of any Event of Default, Holder may exercise
any other right, power or remedy granted to it or otherwise permitted to it by
law, either by suit in equity or by action at law, or both.
6. Investment; Transfer of Securities.
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6.1 Representations. Holder has been advised that this Note and the
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Common Stock issuable upon its conversion (collectively referred to herein as
the "Securities") have not and will not be registered under the Securities Act
of 1933, as amended (the "Securities Act"), nor registered or qualified under
any state blue sky law, pursuant to certain exemptions from registration and
qualification, and that in this connection the
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Company is relying in part on the representations of Holder set forth in this
Section 6. Holder represents and Notes that Holder:
a. has a preexisting personal or business relationship with the Company;
b. has such knowledge and experience in business and financial matters as to
be capable of evaluating the merits and risks of an investment in the
Company and has the capacity to protect his or her own interest in
connection with the acquisition of the Securities;
c. has the financial ability to bear the economic risk of his or her
investment, has adequate means for providing for his or her current needs
and foreseeable contingencies, has no need now, and anticipates no need
in the foreseeable future, to sell the Securities, is able to hold the
Securities for an indefinite period of time and can afford a complete
loss of his or her investment (and that his or her overall commitment to
investments, including this one, which are not readily marketable is not
disproportionate to his or her net worth, and that this investment will
not cause his or her commitment to become excessive);
d. is acquiring the Securities for his or her own account, for investment
purposes only, and not with a view to or for sale in connection with any
resale or distribution of such Securities in violation of the Securities
Act and no other person will have any direct or indirect beneficial
interest in or right to the Securities;
e. was not presented with or solicited by any leaflet, public promotional
meeting, circular, newspaper or magazine article, radio or television
advertisement or any other form of general advertising or solicitation
for the purchase of the Securities;
f. has had the opportunity to discuss with the officers of the Company, all
material aspects of an investment in the Company, including the
opportunity to ask such questions concerning the Company's business and
other relevant matters as deemed necessary or desirable, and has been
given all such information as has been requested, in order to evaluate
the merits and risks of an investment in the Company;
g. is not relying on the accuracy of any projections with respect to the
Company or its operations in making any investment in the Company;
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h. has had reasonable opportunity to seek the advice of independent counsel
respecting his or her investment and the risks and the implications
thereof; and
i. is a resident of the state noted in his or her address line on the
signature page hereto.
6.2 The representations and warranties herein contained shall be
binding upon the Holder's heirs, executors, administrators, successors and
assigns.
6.3 Legend. Any certificate or certificates evidencing the Securities
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shall bear a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
6.4 Transfer. No Securities shall be sold, transferred, assigned,
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pledged, encumbered or otherwise disposed of (with or without consideration)
(each a "Transfer") and the Company shall not be required to register any such
Transfer unless and until all of the following events shall have occurred:
a. the Securities are Transferred pursuant to and in conformity with
(i) (x) an effective registration statement filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act, or
(y) an exemption from registration under the Securities Act, and (ii) the
securities laws of any state of the United States; and
b. Holder has, prior to the Transfer of such Securities, and if requested by
the Company, provided all relevant information to Company's counsel so
that upon the Company's request, the Company's counsel is able to, and
actually prepares and delivers to the Company a written opinion that the
proposed Transfer (i) (x) is pursuant to a registration statement which
has been filed with the Commission and is then effective, or (y) is
exempt from registration under the Securities Act as then in effect, and
the rules and regulations thereunder, and (ii) is either qualified or
registered under any applicable state securities laws, or exempt from
such
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qualification or registration. The Company shall bear all reasonable
costs of preparing such opinion.
7. Miscellaneous.
7.1 Costs. If action is instituted to collect this Note by Holder, the
Company hereby agrees to pay all costs and expenses, including reasonable
attorneys' fees incurred by Holder in connection with such action.
7.2 Delay. No extension of time for payment of any amount owing
hereunder shall affect the liability, of the Company for payment of the
indebtedness evidenced hereby. No delay by the Holder or any holder hereof in
exercising any power or right hereunder shall operate as a waiver of any power
or right hereunder.
7.3 Waiver and Amendment. No waiver or modification of the terms of
this Note shall be valid without the written consent of the Holder; provided,
however, that any such waiver or modification of Section 3 shall require the
written consent of all holders of Senior Indebtedness.
7.4 Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS APPLIED TO CONTRACTS
ENTERED INTO BETWEEN CALIFORNIA RESIDENTS WHOLLY TO BE PERFORMED IN CALIFORNIA.
7.5 Severability. In case any provision contained herein (or part
thereof) shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or other unenforceability shall not
affect any other provision (or the remaining part of the affected provision)
hereof, but this Note shall be construed as if such invalid, illegal, or
unenforceable provision (or part thereof) had never been contained herein, but
only to the extent that such provision is invalid, illegal, or unenforceable.
7.6 Notice. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given on the date of service if served personally or by facsimile, or five days
after the date of mailing if mailed, by first class mail, registered or
certified, postage prepaid. Notices shall be addressed as follows:
To Holder at: Future Media Productions, Inc.
25136 Anza Drive
Valencia, CA 91355
Attention: President
To Company at: Synthonics Technologies, Inc.
10
31324 Via Colonias, Suite 106
Westlake Village, CA 91362
Attention: President
or to such other address as a party has designated by notice in writing to the
other party in the manner provided by this Section 7.6.
7.7 Counterparts. This Note may be executed in any number of
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counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.8 Entire Agreement. This Note constitutes the full and entire
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understanding and agreement between the parties with regard to the subject
matter hereof.
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
and delivered by its authorized officer as of the date first above written.
COMPANY:
SYNTHONICS TECHNOLOGIES, INC.
By: [ILLEGIBLE]
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HOLDER:
FUTURE MEDIA PRODUCTIONS, INC.
By:
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Title:
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed and
delivered by its authorized officer as of the date first above written.
COMPANY:
SYNTHONICS TECHNOLOGIES, INC.
By: [ILLEGIBLE]
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HOLDER:
FUTURE MEDIA PRODUCTIONS, INC.
By:
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Title:
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