EXECUTION COPY
Exhibit 10.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE
COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED.
PROMISSORY NOTE
$500,000 New York, New York
(Original Principal Amount) February 28, 02
FOR VALUE RECEIVED, the adequacy of which is hereby acknowledged, the
undersigned, Curious Holdings LLC (the "Maker"), a Delaware limited liability
company, hereby promises to pay to iNTELEFILM Corporation (the "Payee"), whose
address is 6385 Old Shady Oak Road, Suite 290, Eden Prairie, Minnesota 55344,
the principal sum of Five Hundred Thousand Dollars ($500,000), together with
simple interest on the unpaid and outstanding portion thereof at a rate of 5%
per annum (which interest shall accrue quarterly and be payable on the last day
of each calendar quarter commencing March 31, 2002, provided that if such date
is not a business day, payments of such interest shall be made on the next
succeeding business day). Subject to the mandatory prepayments set forth herein,
the principal and any remaining accrued interest on this Note shall be due and
payable in full on February 28, 2004 (the "Maturity Date").
Payments due hereunder shall be paid in lawful money of the United
States of America (or by wire transfer or certified check payable in such money)
at Payee's address (as given above) or at such other place as Payee or any other
holder of this Note may from time to time have designated by prior written
notice to Maker.
1. Prepayment; Mandatory Prepayments. Maker shall have the
right prior to the Maturity Date to repay all or any part of the principal
amount of this Note and accrued but unpaid interest thereon without premium or
penalty. Maker shall be obligated to prepay a portion of the outstanding
principal and accrued but unpaid interest on this Note as follows: on the
earlier of (A) such time as the aggregate net working capital of Maker and its
subsidiaries existing on the date hereof (the "Subsidiaries") is positive and
then at a rate equivalent to 25% of the aggregate after-tax net income
(including without limitation taxes allocable to members, in the case of
entities treated as partnerships for tax purposes) of the Subsidiaries, payable
quarterly in arrears within 45 days of each quarter's end or (B) the first and
second anniversary of the Closing Date in equal installments of $250,000 in
principal plus interest (less, on each such date, any amounts previously paid
pursuant to the previous clause (A)).
2. Seniority to Other Notes and Subordination to Commercial
Debt. This Note shall be senior in right of payment to the notes that shall be
executed in connection with financing the acquisition of Curious Pictures,
Furious Pictures and DCODE, Inc., by and between (i) CM Opportunity Fund, LLC
and Maker in the principal amount of One Million Five Hundred Thousand Dollars
($1,500,000); and (ii) the Curious management executives and Maker in the
principal amount of Five Hundred Thousand Dollars ($500,000). However, each of
Maker and Payee (and each successor or permitted assignee or transferee of
Payee) hereby agrees that the payment of principal and interest on this Note
shall be subordinated and junior in right of payment to any senior bank debt for
working capital obtained by the Company after the date hereof in a maximum
amount of $500,000, provided that such working capital facility shall not
prohibit Maker from making scheduled payments hereunder.
3. Allocation. All payments made hereunder (whether in
prepayment or otherwise) shall first be applied against any interest then due
hereunder and shall then be applied against principal.
4. Events of Default. The following shall constitute Events
of Default:
(a) Maker shall fail to pay when due any payment of
principal or interest due under this Note or, within five business days of
becoming due, any other amount payable to Payee hereunder;
(b) Written admission by Maker of its inability to
pay its debts as they become due, an assignment by Maker for the benefit of
creditors, the institution of proceedings by Maker under the Federal Bankruptcy
Code or any state law relating to relief of debtors, or the institution of such
proceedings by another party against Maker which is not subsequently dismissed
within sixty (60) days of the filing of same, or the seizure of substantially
all of the assets of Maker;
(c) Failure to provide financial information of
Targets and Furious reasonably necessary to calculate the net working capital
and net after-tax income of Maker allocable to Targets and Furious within 45
days of each quarter's end after written notice from Payee and 10 days'
opportunity to cure such failure;
(d) The sale of all or substantially all of Maker's
assets or the liquidation or dissolution of the Maker; or
(e) The merger or consolidation of the Maker with or
into another entity unless (i) the unitholders of Maker prior to such merger or
consolidation own more than fifty percent of the voting control of the surviving
or resulting entity, (ii) the creditworthiness of the surviving or resulting
entity will be equal to or superior to that of Maker or (iii) such merger or
consolidation is consummated merely to change the form of or jurisdiction of
Maker.
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If an Event of Default should occur, Payee, at its option, may
declare the outstanding principal balance of and all accrued but unpaid interest
on this Note to be immediately due and payable without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived.
Further, Maker agrees to pay all fees, costs and expenses,
including reasonable attorneys' fees and legal expenses, incurred by Payee in
endeavoring to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.
5. Waiver. No delay or omission of Payee in exercising any
right or power hereunder shall impair such right or power or be a waiver of any
default or an acquiescence therein; and no single or partial exercise of any
such right or power shall preclude other or further exercise thereof, or the
exercise of any other right; and no waiver shall be valid unless in writing
signed by Payee, and then only to the extent specifically set forth in such
writing. All remedies hereunder or by law afforded shall be cumulative and shall
be available to Payee until the principal amount of and all interest on this
Note have been paid in full.
6. Payee Representations. (a) Payee represents that Payee is
an "accredited investor" as such term is defined in Rule 501 of Regulation D
("Regulation D") promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and that Payee (i) is able to bear the economic risk of an
investment in the Note for an indefinite period and (ii) understands and
acknowledges that this Note has not been registered nor is it intended to be
registered under the Securities Act.
(b) Payee represents that Payee has been furnished by Maker
during the course of this transaction with all information regarding Maker which
Payee has requested or desired to know, has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers of Maker
concerning Maker and has received any additional information which Payee has
requested.
(c) Payee represents that Payee has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Note, this Note
constitutes the legal, valid and binding obligation of Payee, enforceable
against Payee in accordance with its terms and Payee is authorized and qualified
to become an investor in the Company and the person signing this Agreement on
behalf of such entity has been duly authorized by such entity to do so.
7. Security.
(a) Creation of Security Interest. In order to secure the
payment of the principal and interest and all other obligations of Maker
hereunder now or hereafter owed by Maker to Payee (the "Secured Obligations")
and subject to the subordination set forth in Section 2 above, Maker hereby
grants to Payee (or its designee) (the "Secured Party") a security interest in
the property of Maker described below (the "Collateral") on the terms and
conditions set forth in this Note (it being understood that in the event Maker
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requires additional debt financing and, as a condition to such debt financing
the lender thereof requires Payee to subordinate its security interest to such
lender, Payee shall execute and deliver subordination agreements reasonably
acceptable to all parties):
(i) all equipment in all of its forms, wherever located, now
or hereafter existing, all parts thereof and all accessions thereto;
(ii) all inventory in all of its forms, wherever located, now
or hereafter existing, including, but not limited to, (A) all raw
materials and work in process therefor, finished goods thereof, and
materials used or consumed in the manufacture or production thereof;
(B) goods in which Maker has an interest in mass or a joint or other
interest or right of any kind (including, without limitation, goods in
which Maker has an interest or right as consignee); and (C) goods which
are returned to or repossessed by Maker and all accessions thereto and
products thereof and documents therefor;
(iii) all accounts, accounts receivable, contract rights,
chattel paper, documents, instruments, deposit accounts, general
intangibles, tax refunds and other obligations of any kind owing to
Maker, now or hereafter existing, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of
services, and all rights now or hereafter existing in and to all
security agreements, leases, subleases, and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel
paper, documents, instruments, deposit accounts, general intangibles,
or obligations;
(iv) all intellectual property of any kind or nature
whatsoever, including without limitation patents, patent applications,
copyrights, copyright applications, trademarks and service marks and
applications therefore, mask works, net lists and trade secrets;
(v) all other general intangibles, whether now existing or
hereafter arising and wherever arising, including, but not limited to,
all (A) partnership, corporate, and other interests in and to any
person or entity; (B) letters of authorization, permits, licenses,
consents, contract rights, franchises, documents, certificates,
records, customer lists, customer and supplier contracts, easements,
variances, certifications and approvals of tribunals, bills of lading
(negotiable and non-negotiable), warehouse receipts, any claim of Maker
against any lender, liquidated or unliquidated, and other rights,
privileges and goodwill obtained or used in connection with any
property of Maker; (C) rights of Maker under any equipment leases; and
(D) tax refunds and other refunds or rights to receive payment from
U.S. federal, state or local governments or foreign governments or
other tribunals;
(vi) all bank accounts, deposit accounts, and margin accounts,
maintained by Maker with financial institutions, brokers, dealers, and
all other persons or entities relating to commodities and/or
securities, including all funds held therein and all certificates and
instruments, if any, from time to time representing or evidencing such
accounts;
(vii) all investment property (as defined in Section 9-115 of
the New York Uniform Commercial Code);
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(viii) to the extent it is possible to create a security
interest or perfect a security interest in such Collateral by filing a
UCC-1 financing statement centrally, or in the case of dual filing
states, centrally and at the county level, as applicable, all of
Maker's fixtures now existing or hereafter acquired, all substitutes
and replacements therefor, all accessions and attachments thereto, and
all tools, parts, and equipment now or hereafter added to or used in
connection with the fixtures on or above all real property now owned or
hereafter acquired by Maker;
(ix) all records and documents relating to any and all of the
foregoing, including, without limitation, records of account, whether
in the form of writing, microfilm, microfiche, tape, or electronic
media; and
(x) all substitutes and replacements for, accessions,
attachments, and other additions to tools, parts, and equipment used in
connection with, and all proceeds, products, and increases of, any and
all of the foregoing Collateral, in whatever form, whether cash or
noncash; interest, premium, and principal payments, redemption proceeds
and subscription rights, and shares or other proceeds of conversions or
splits of any securities in Collateral, and returned or repossessed
Collateral; and, to the extent not otherwise included, all (A) payments
under insurance, or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral, (B) cash and (C) security for the payment of any
of the Collateral, and all goods which gave or will give rise to any of
the Collateral or are evidenced, identified, or represented therein or
thereby.
(b) Uniform Commercial Code Security Agreement. This Section
is intended to be a security agreement pursuant to the Uniform Commercial Code
for any of the items specified above as part of the Collateral which, under
applicable law, may be subject to a security interest pursuant to the Uniform
Commercial Code, and Maker hereby grants Payee a security interest in said items
subject to the subordination set forth in Section 2 above. Maker agrees that
Payee may file any appropriate document in the appropriate index as a financing
statement for any of the items specified above as part of the Collateral. In
addition, Maker agrees to execute and deliver to Payee, upon Payee's request,
any financing statements, as well as extensions, renewals and amendments
thereof, and reproductions of this Agreement in such form as Payee may
reasonably require to perfect a security interest with respect to said items.
Maker shall pay all costs of filing such financing statements and any
extensions, renewals, amendments, and releases thereof, and shall pay all
reasonable costs and expenses of any record searches for financing statements
Payee may reasonably require. Without the prior written consent of Payee, Maker
shall not create or suffer to be created pursuant to the Uniform Commercial Code
any other security interest in the Collateral, other than the Security Interests
of Secured Party, including replacements and additions thereto. Upon the
occurrence and during the continuation of an Event of Default, each Secured
Party shall have the remedies of a Payee under the Uniform Commercial Code and,
at Secured Party's option, may also invoke the other remedies provided in this
Note as to such items. In exercising any of said remedies, Secured Party may
proceed against the items of real property and any items of personal property
specified above as part of the Collateral separately or together and in any
order whatsoever, without in any way affecting the availability of Secured
Party's remedies under the Uniform Commercial Code or of the other remedies
provided in this Agreement.
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(c) Rights of Secured Party. (i) Upon the occurrence and
during the continuation of an Event of Default, Secured Party may require Maker
to assemble the Collateral and make it available to Secured Party at the place
to be designated by Secured Party which is reasonably convenient to the parties.
Secured Party may sell all or any part of the Collateral as a whole or in
parcels either by public auction, private sale, or other method of disposition.
Secured Party may bid at any public sale on all or any portion of the
Collateral. Unless the Collateral is perishable or threatens to decline speedily
in value or is of the type customarily sold on a recognized market, Secured
Party shall give Maker reasonable notice of the time and place of any public
sale or of the time after which any private sale or other disposition of the
Collateral is to be made, and notice given at least 10 days before the time of
the sale or other disposition shall be conclusively presumed to be reasonable. A
public sale in the following fashion shall be conclusively presumed to be
reasonable:
(A) Notice shall be given at least 10 days
before the date of sale by publication once in a newspaper of general
circulation published in the county in which the sale is to be held;
(B) The sale shall be held in a county in
which the Collateral or any part is located or in a county in which Maker has a
place of business;
(C) Payment shall be in cash or by certified
check immediately following the close of the sale;
(D) The sale shall be by auction; and
(E) The Collateral may be sold as is and
without any preparation for sale.
(ii) Notwithstanding any provision of this Agreement, Secured
Party shall be under no obligation to offer to sell the Collateral. In the event
Secured Party offer to sell the Collateral, Secured Party will be under no
obligation to consummate a sale of the Collateral if, in their reasonable
business judgment, none of the offers received by them reasonably approximates
the fair value of the Collateral.
(iii) In the event Secured Party elects not to sell the
Collateral, Secured Party may elect to follow the procedures set forth in the
Uniform Commercial Code for retaining the Collateral in satisfaction of Maker's
obligation, subject to Maker's rights under such procedures.
8. Notices. All notices, requests, demands or other
communications required or permitted hereunder shall be in writing, addressed to
the appropriate party as follows:
(i) If to Maker, to:
Address: 440 Lafayette Street, 6th Floor
New York, New York 10003
Attention: Susan Holden
Telecopy Number: (212) 674-0081
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(ii) If to Payee, to its address set forth above
Telecopy Number: (952) 925-8863
or to such other address as may have been designated in prior notice. Notices
may be sent by (a) overnight courier, (b) facsimile transmission (with immediate
telephonic confirmation thereafter), or (c) registered or certified mail,
postage prepaid, return receipt requested; and shall be deemed given (i) in the
case of overnight courier, the next business day after the day sent, (ii) in the
case of facsimile transmissions, on the date sent if telephonically confirmed,
and (iii) in the case of mailing, three (3) business days after being mailed by
registered or certified mail, and otherwise notices shall be deemed to have been
given when received.
9. Assignment. Except as otherwise provided herein, prior to
Maturity or an Event of Default, any attempt by Payee to assign its rights or
delegate its duties under this Note without the prior written consent of Maker
will be void. Thereafter, any assignment shall be permitted without the consent
of Maker.
10. Binding Effect. The terms and provisions of this Note
shall be binding upon Maker and its successors and permitted assigns, and shall
inure to the benefit of Payee and its successors and assigns, and any subsequent
holder of this Note.
11. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflicts of laws principles thereof.
12. Headings. The section headings contained in this Note are
intended solely for convenience of reference and do not themselves constitute a
part of this Note.
13. Severability. If any provision of this Note or the
application thereof to any person or circumstance should, for any reason and to
any extent, be invalid or unenforceable, the remainder of this Note and the
application of such provision to other persons or circumstances shall not be
affected thereby, but rather shall be enforced to the greatest extent permitted
by law.
14. Consent to Suit; Waiver of Jury Trial. Maker hereby
irrevocably authorizes and empowers any attorney-at-law to appear for Maker in
any action upon or in connection with this Note at any time after this Note
becomes due, as herein provided, in any court in or of the State of New York,
and waives issuance and service of process with respect thereto. Maker hereby
waives the right to a trial by jury with respect to any action upon or in
connection with this Note.
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IN WITNESS WHEREOF, Maker has executed this Note as of the
date first above written.
CURIOUS HOLDINGS LLC
By: /s/ Susan Holden
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Accepted and agreed:
iNTELEFILM CORPORATION
By /s/ Richard A. Wiethorn, its CFO
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