Exhibit 4.1 Form of Convertible Promissory Note in favor of the Lenders
CONVERTIBLE PROMISSORY NOTE
Hartford, Connecticut
$___________ December ___, 2000
For value received, MEDIA DROP-IN PRODUCTIONS, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
_____________, or his assigns (hereinafter "Lender"), at _________________, the
principal sum of ____________________ dollars ($__________) together with
interest thereon beginning as of the date hereof, at a fixed rate per annum of
twelve percent (12%) (except in the event of default as provided herein),
computed daily on the basis of a three hundred sixty (360) day year and actual
days elapsed and payable monthly in arrears on the first of each month,
commencing _______________. Unless converted pursuant to the conversion
provisions contained herein, the entire outstanding principal balance shall be
due, if not sooner paid, on May 15, 2001 (the "Maturity Date"). All payments
shall be applied first to the payment of interest on the unpaid principal
balance of this Promissory Note (including all renewals, extensions or
modifications hereof, the "Note") and then to the balance of the principal of
this Note.
This Note is issued pursuant to the certain Loan Agreement by and among
Lender, Borrower and MDI Entertainment, Inc. (the "Guarantor") of even date
herewith (the "Loan Agreement"), and is secured by a security interest in all of
Borrower's assets pursuant to a Security Agreement, of even date herewith,
between Borrower and Lender (the "Borrower Security Agreement"). Pursuant to a
Guaranty Agreement ("Guaranty") of even date herewith, Guarantor has guaranteed
all of the obligations of Borrower to Lender, including Borrower's obligations
under this Note. The Guaranty is secured by a security interest in substantially
all of Guarantor's assets pursuant to a Security Agreement, of even date
herewith, between Guarantor and Lender (the "Guarantor Security Agreement"). The
Loan Agreement, the Borrower Security Agreement, the Guaranty and the Guarantor
Security Agreement are sometimes hereinafter collectively referred to as the
"Loan Documents."
Notwithstanding any provisions of this Note, it is the understanding
and agreement of the Borrower and Lender that the maximum rate of interest to be
paid by Borrower to Lender shall not exceed the maximum permissible rate of
interest to be charged by Lender under applicable laws. Any amount paid by
Borrower in excess of such rate shall be deemed to be a payment in reduction of
principal except to the extent that such amount is in excess of the then
outstanding principal amount, in which event such excess shall be returned to
the Borrower.
Lender may collect a "late charge" equal to five (5%) percent of any
installment of interest or principal, or of any taxes, assessments and insurance
paid by Lender, which is not paid or reimbursed by the Borrower within ten (10)
days of the due date thereof to cover the extra expense involved in handling
such delinquent payment.
Borrower may prepay this Note in whole or in part at any time without
penalty. Any and all prepayments shall be credited first to accrued interest to
the date of the prepayment and then to the unpaid principal until the entire
indebtedness has been paid.
Each of the following shall be deemed to be an "Event of Default": (i)
the failure of Borrower to pay (a) any periodic installment of interest when
such installment shall become due and payable hereunder and such default
continues for ten (10) days, or (b) the outstanding principal balance of this
Note, together with accrued and unpaid interest thereon, on the Maturity Date;
and (ii) the occurrence of an event of default or default under any of the Loan
Documents beyond any applicable grace or cure periods set forth therein. Upon
the occurrence of an Event of Default, the entire indebtedness with accrued
interest thereon due under this Note may, at the option of Lender, by written
notice, be accelerated and become immediately due and payable without demand or
other notice of any kind. Failure to exercise such option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent Event of
Default.
In addition to all other rights contained in this Note, if an Event of
Default occurs and as long as such Event of Default continues, the outstanding
principal balance hereof shall bear interest at the rate of twenty-four percent
(24%) per annum (the "Default Rate"). The Default Rate shall also apply from and
after the Maturity Date or, if earlier, the acceleration of this Note, until the
entire principal balance of this Note, and all accrued interest thereon, is paid
in full. Notwithstanding anything contained herein, if the Borrower fails to pay
the principal balance of this Note, and all accrued and unpaid interest thereon,
on or before the Maturity Date, the Default Rate shall be applied to the
principal balance of this Note retroactive to the date of this Note.
This Note shall be subject to conversion as set forth below:
(a) Optional Conversion by Holder. The Holder of this Note shall have
the right, at its option, at any time prior to the close of business on the
Maturity Date, or until such time as the outstanding principal amount of this
Note is paid, to convert the outstanding principal amount of this Note into that
number of fully-paid and non-assessable shares of Common Stock, $.001 par value
per share, of the Guarantor (the "Common Stock"), determined by dividing (A) the
outstanding principal under this Note (the "Note Balance") on the Conversion
Date (as defined below) by (B) $1.75 (the "Conversion Price"). In order for the
Holder to exercise this optional conversion privilege, the Holder of this Note
shall surrender this Note to the Guarantor during usual business hours at the
Guarantor's principal executive office, accompanied by written notice in form
attached hereto as Exhibit A, that the Holder elects to convert the principal
amount of this Note or a portion hereof specified in such notice. Such notice
shall also state the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
(b) Surrender of Note and Delivery of Certificates. When surrendered
for conversion, this Note shall, unless the shares issuable on conversion are to
be issued in the same name as the name in which this Note is then registered, be
duly endorsed by, or accompanied by instruments of transfer in form satisfactory
to the Guarantor duly executed by, the Holder or such Holder's duly authorized
attorney. As promptly as practicable after the surrender of this Note for
conversion and the receipt of the notice specified above (in the case of
optional conversion by the Holder), the Guarantor shall deliver or cause to be
delivered to the Holder, or on the Holder's written order, a certificate or
certificates for the number of full shares issuable upon the conversion of this
Note, in accordance with the provisions hereof. Such conversion shall be deemed
to have been made at the time this Note shall have been surrendered for
conversion and the notice specified above shall have been received by the
Guarantor at its principal executive office (the "Conversion Date"), and the
Holder in whose name any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become on the
Conversion Date the holder of record of the shares represented thereby. If less
than the entire outstanding principal amount of this Note is being converted, a
new Note shall promptly be delivered to the Holder for the unconverted principal
balance and shall be of like tenor as to all terms as the Note surrendered.
(c) Adjustment of Conversion Price. (1) In case the Guarantor shall (i)
declare a dividend payable in its Common Stock; (ii) subdivide its outstanding
capital stock into a larger number of shares by reclassification, stock split or
otherwise; or (iii) combine its outstanding capital stock into a smaller number
of shares by reclassification or otherwise, the number of shares of Common Stock
issuable upon conversion of this Note immediately prior to any such event shall
be adjusted proportionately so that thereafter the Holder of this Note shall be
entitled to receive upon conversion of this Note the number of shares of Common
Stock which such Holder would have owned after the happening of any of the
events described above had this Note been converted immediately prior to the
happening of such event, provided that the Conversion Price shall in no event be
reduced to less than the par value of the shares issuable upon conversion. An
adjustment made pursuant to this Note shall become effective immediately after
the record date in the case of a stock dividend and shall become effective
immediately after the effective date in the case of a subdivision or
combination.
(2) If, prior to maturity of this Note, the Guarantor shall at
any time consolidate or merge with another corporation (other than a merger or
consolidation in which the Guarantor is the surviving corporation), the
registered Holder hereof will thereafter be entitled to receive, upon the
conversion hereof, the securities or property to which a Holder of the number of
shares of Common Stock then deliverable upon the conversion hereof would have
been entitled upon such consolidation or merger, and the Guarantor shall take
such steps in connection with such consolidation or merger as may be necessary
to ensure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to any securities or property thereafter
deliverable upon the conversion of this Note.
(d) Notice. In case the Guarantor proposes to take any action referred
to in Section (c) above, or to effect the liquidation, dissolution or winding up
of the Guarantor, then the Guarantor shall cause notice thereof to be mailed to
the registered Holder of this Note, at least twenty (20) days prior to the date
on which the transfer books of the Guarantor shall close or a record be taken
for such stock dividend or the date when such reclassification, liquidation,
dissolution or winding up shall be effective, as the case may be, but failure to
give such notice shall not affect the validity of the action so taken.
(e) Statement of Adjustment. Whenever the Conversion Price shall be
adjusted as provided in Section (c) above, the Guarantor shall forthwith file at
its principal executive office, a statement, signed by the President, any Vice
President, the Treasurer or Secretary of the Guarantor, showing in reasonable
detail the facts requiring such adjustment and the Conversion Price that will be
effective after such adjustment. The Guarantor shall also cause a notice setting
forth any such adjustment to be delivered to the Holder of this Note.
(f) Fractional Shares. No fractional shares of Common Stock shall be
issuable upon conversion of this Note, but a payment in cash will be made in
respect of any fraction of a share which would otherwise be issuable upon the
surrender of this Note, or portion hereof, for conversion. Such payment shall be
based on the last reported closing price of the Common Stock.
(g) Accrued Interest. Upon the conversion of this Note, the
Guarantor shall be required to pay any accrued but unpaid interest on the
amount so converted up to the Conversion Date.
(h) Taxes on Conversion. If the Holder converts this Note, the
Guarantor shall pay any documentary, stamp or similar issue or transfer tax due
on the issue of shares of Common Stock upon conversion. However, the Holder
shall pay any such tax which is due because the Holder requests the shares to be
issued in a name other than the Holder's name. The Guarantor, or it transfer
agent, may refuse to deliver the certificate representing the Common Stock being
issued in a name other than the Holder's name until receipt of a sum sufficient
to pay any tax which will be due because the shares are to be issued in a name
other than the Holder's name. Nothing herein shall preclude any tax withholding
required by law or regulation.
(i) Reservation of Stock. The Guarantor covenants that during the term
that this Note is convertible, the Guarantor will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the conversion of this Note, and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
(the "Certificate") to provide sufficient reserves of shares of Common Stock
issuable upon the conversion of this Note. The Guarantor further covenants that
all Shares that may be issued upon the conversion of this Note, will be free
from all taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein), and will be validly issued, fully paid and nonassessable.
(j) Securities Act. Upon conversion of this Note, the registered Holder
may be required to execute and deliver to the Guarantor an instrument, in form
satisfactory to the Guarantor, representing that the shares issuable upon
conversion hereof are being acquired for investment and not with a view to
distribution within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and the certificates representing such shares may bear a
legend restricting transfer unless registered under the Securities Act or exempt
from such registration.
This Note has been executed and delivered in accordance with the Loan
Agreement, which sets forth further terms and conditions upon which the entire
unpaid principal hereof and all interest hereon may become due and payable prior
to the stated maturity hereof, and generally sets forth the rights of Lender and
duties of Borrower with respect hereto.
Borrower agrees to pay all taxes levied or assessed upon this Note and
to pay all costs, expenses and attorneys' fees incurred by Lender in any
proceedings for the collection, defense, preservation, enforcement or protection
of this Note, in realizing on or disposing of collateral given under any
mortgage, chattel mortgage, or other security agreement securing this Note or in
protecting or sustaining the security interest given in said mortgage, chattel
mortgage, or other security agreement. Borrower hereby gives Lender a lien and
right of setoff for all Borrower's liabilities upon and against all the
deposits, credits, collateral and property of Borrower, now or hereafter in the
possession or control of Lender or in transit to it. Lender may, in the event of
a Default, or upon the occurrence of any event or condition which would
constitute such a Default but for the requirement that notice be given or time
elapsed or both, apply or setoff the same, or any part thereof, to any liability
of Borrower, even though unmatured.
BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER MAY
DESIRE TO USE. BORROWER IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST BORROWER IN RESPECT OF THIS NOTE.
Borrower and all guarantors, endorsers and other parties now or hereafter
becoming liable for payment of this Note hereby waive diligence, demand,
presentment for payment, notice of nonpayment, protest and notice of protest,
and notice of any renewals or extensions of this Note, and all rights under any
statute of limitations, and agrees that the time for payment of this Note may be
changed and extended at Lender's sole discretion, without impairing its
liability hereon, and further consents to the release of all or any part of the
security for the payment hereof at the discretion of Lender, or the release of
any party liable for this obligation without affecting the liability of
Borrower. Any delay on the part of Lender in exercising any of its rights or
remedies shall not operate as a waiver of any such right or remedy, and any
waiver granted on one occasion shall not operate as a waiver in the event of any
subsequent Default.
This Note shall bind the successors and assigns of the Borrower and
shall inure to the benefit of Lender, and his heirs, executors, administrators,
successors and assigns.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut. Borrower irrevocably consents to the
jurisdiction of the courts of the State of Connecticut with respect to all
matters concerning this Note and any related agreements.
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MEDIA DROP-IN PRODUCTIONS, INC.
By: _________________________
Name:
Title:
[signature page to Convertible Promissory Note]
EXHIBIT A
Conversion Notice
To convert this Note into Common Stock of the Guarantor, check the box:
To convert only part of this Note, state the amount to be converted:
$----------------
If you want the stock certificates made out in another person's name, fill in
the form below:
- ---------------------------------------
[name]
- ---------------------------------------
[insert other person's soc. Security or tax I.D. no.
- ---------------------------------------
- ---------------------------------------
[print or type the other person's complete address]
Date: ___________________________________
Your signature: ___________________________
[sign exactly as your name appears on the first page
of this note]
* Signature guaranteed by:__________________________
By:_____________________________________________
*signature must be guaranteed by a bank, a trust company or a member firm of the
New York Stock Exchange.