THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("ACT"), 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 DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
CONVERTIBLE PROMISSORY NOTE
Date of Note: December 9, 2003
(US $500,000)
FOR VALUE RECEIVED, Citadel Media, Inc., a Washington corporation
(hereinafter "Maker"), with its principal business address at 2125 Western
Avenue, Suite 200, Seattle, Washington 98121, promises to pay to the order of
Orion Acquisition Corp. II, a Delaware corporation, and its successors and
assigns (hereinafter referred to as the "Holder"), at 401 Wilshire Boulevard,
Suite 1020, Santa Monica, California, 90401 or such other place as may be
designated by the Holder hereof, from time to time, the unpaid principal balance
of this Note, with interest thereon from the date hereof, on the terms and
conditions set forth herein.
1. INTEREST RATE: The rate of interest on the unpaid balance of this Note
shall be ten percent (10.0%) per annum, compounded annually. All interest will
be calculated based on a 360 day year and applied to the actual number of days
elapsed. If this Note is in default, the aforementioned rate of interest on the
unpaid balance of this Note will increase to eighteen percent (18%) per annum,
compounded annually.
2. PAYMENTS: Maker shall pay interest on the principal outstanding amount
on the Maturity Date or when the principal amount of this Note is paid, unless
the Note is converted as provided in Section 10, in which there shall be no
obligation to pay interest on this Note. The principal amount of this Note shall
be due in full on the Maturity Date. Principal and interest shall be paid in
lawful money of the United States of America.
3. ALLOCATION OF PAYMENTS: All sums paid by Maker shall be applied first to
the payment of any costs or expenses due Holder, then to any late charges then
due, then to any interest then due, and finally to payment of principal.
4. PREPAYMENT: Maker may prepay its obligation under this Note in full (but
not in part) on any day prior to the Maturity Date, plus accrued but unpaid
interest thereon, upon fifteen (15) days advance written notice to Holder. This
Note and any outstanding or accrued interest will be extinguished on the
consummation of the Merger.
5. EVENTS OF DEFAULT: The occurrence of one or more of the following events
(herein called "Event of Default") shall constitute a default under this Note:
5.1 Maker fails to pay the principal and interest payment when due
under this Note;
5.2 Maker shall makes a general assignment for the benefit of
creditors, or shall file a voluntary petition for bankruptcy, or shall file any
petition or answer in bankruptcy seeking for itself in any reorganization,
arrangement, composition, readjustment, dissolution or similar relief, or shall
file any answer admitting the material allegations of a petition for bankruptcy
filed against Maker in any such proceeding, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of Maker, or
of all or any substantial part of the properties of Maker;
5.3 Within ninety (90) days after the commencement of any proceeding
against Maker seeking in bankruptcy any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
bankruptcy laws, such proceeding shall not have been dismissed or, within ninety
(90) days after the appointment without the consent or acquiescence of Maker of
any trustee, receiver or liquidator of Maker or of all or any substantial part
of the properties of Maker, such appointment shall not have been vacated;
5.4 Any default or breach by Maker or its Subsidiaries of the terms of
the Security Agreement;
5.5 Upon the default by Maker or any of its Subsidiaries in the
payment of institutional or other debt or obligation (other than trade payables)
aggregating three hundred thousand dollars ($300,000.00) or more or any single
debt or obligation (other than trade payables) of two hundred thousand dollars
($200,000.00) or more;
5.6 Failure to observe any material obligation of Maker under this
Note.
6. REMEDIES: If an Event of Default has occurred, the Holder shall give
written notice of the Event of Default to Maker, which if not cured within ten
(10) business days of the giving of the notice, then the entire indebtedness
hereby represented shall become immediately due and payable. Notwithstanding the
foregoing, if the Event of Default has occurred in the payment of principal and
interest due hereunder, it will be deemed to be an immediate Event of Default,
not requiring any notice thereof before the Holder may pursue any of its
remedies hereunder or under the Security Agreement. All past due amounts of
principal, interest, attorneys fees, advisor's fees and expenses incurred by
Holder in connection with any default shall be added to the principal balance.
7. COSTS OF COLLECTION: If this Note is placed in the hands of any attorney
for collection after any Event of Default, whether suit be brought or not, Maker
promises to pay a reasonable sum as an attorney fee, in addition to all costs
and expenses incurred by Holder including costs of suit and preparation
therefor. Costs and fees covered by this paragraph include, without limitation,
attorneys' fees and expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals and any anticipated
post-judgment collection services, to the extent permitted by applicable law.
8. SECURITY: This Note is secured by a Security Agreement of even date
herewith (the "Security Agreement") which gives a lien upon the property therein
described, the terms of which are incorporated herein.
9. WAIVER: Except for the notices provided herein, Maker waives
presentment, demand, protest and notice of demand, protest and nonpayment and
consents to any and all renewals and extensions of the time of payment hereof,
and further agrees that at any time the terms of payment hereof may be modified
or security released without affecting the liability of Maker to this Note.
Maker particularly waives the right to demand any marshalling of assets as a
condition to or in connection with the bringing of action hereon against Maker
or any other party.
2
10. CONVERSION OF NOTE:
10.1 Conversion Option. If there is no Merger as a result of a Media
Withdrawal, then, at the sole option of Holder, Holder may convert prior to the
Maturity Date all (but not less than all) of the then unpaid principal balance
of this Note into 500,000 shares of Series D Preferred Stock, as provided in
Section 10.2 hereof; provided however, if the Note is not paid in full by the
Maturity Date of June 30, 2004, Holder may elect to convert this Note at any
time from the Maturity Date of June 30, 2004 until paid in full.
10.2 Series D Preferred Stock.
(a). The number of shares of Series D Preferred Stock to be
issued upon conversion of this Note shall be 500,000 shares of Series D
Preferred Stock.
(b). If the Note is converted into Series D Preferred Stock,
Maker shall also issue to Holder, a Warrant, substantially in the form attached
hereto as Exhibit 10.2(b) hereof.
(c). If the Note is converted into Series D Preferred Stock, no
interest shall be due on this Note and all accrued interest shall be deemed paid
in full upon issuance of the Warrant.
10.3 Mechanics and Effect of Conversion. Upon conversion of this Note,
Holder shall surrender this Note, duly endorsed, at the principal offices of
Maker or any transfer agent of Maker. At its expense, Maker will, as soon as
practicable thereafter, time being of the essence, issue and deliver to Holder
the Warrant and a certificate or certificates for 500,000 shares of Series D
Preferred Stock. Upon conversion of this Note, the Security Agreement shall be
terminated and Maker will be forever released from all of its payment
obligations under this Note, including, without limitation, obligation to pay
interest on this Note; provided, however, that for clarity purposes, the other
provisions of this Note shall continue in full force and effect, including
without limitations, the Section 10, Section 11, Section 13, Section 16 and
Section 17 hereof.
10.4 Note Definitions.
(a). "Maturity Date" means June 30, 2004.
(b). "Media Withdrawal" shall occur if (i) Maker withdraws from
the negotiations of the Merger, without good reason or cause, which such terms
shall include a withdrawal to pursue other financings, Sale of Maker or the like
(it being the obligation of Media to negotiate in good faith and in good faith
complete the Merger), or (ii) Maker fails to negotiate the terms of the Merger
in good faith, or (iii) if a merger agreement is approved by Maker and Orion,
Maker, or its shareholders, thereafter fails to approve, vote for, or otherwise
complete the Merger pursuant to said merger agreement.
(c). "Merger" means any merger, consolidation, or combination of
Maker and Orion prior to the Maturity Date in which Orion is the
survivor thereof.
(d). "Orion" means Orion Acquisition Corp. II, a Delaware
corporation.
(e). "Sale of Maker" means a sale of all or substantially all of
Maker's assets, or any merger or consolidation of Maker with or into another
corporation, other than a merger or consolidation where Maker is the survivor
thereof.
3
(f). "Securities" means this Note, the Series D Preferred Stock
and any common stock of Maker acquired pursuant to the Warrant.
(g). "Series D Preferred Stock" means the Series D Preferred
Stock, as provided for in the Articles of Incorporation of Maker.
10.5 Transfer Restrictions.
(a). Before any Securities held by Holder or any transferee of
Holder (either being sometimes referred to as the "Holder") may be sold or
otherwise disposed of Maker or its assignee(s) shall have a right of first
refusal to purchase the Securities on the terms and conditions set forth in this
Section 10.5 ("Right of First Refusal").
(b). The Holder of the Securities shall deliver to Maker a
written notice (the "Notice") stating: (i) the Holder's bona fide intention to
sell or otherwise transfer such Securities; (ii) the name and address of any
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Securities to be transferred; and (iv) the terms and conditions of any
proposed sale or transfer, including the proposed purchase price for the
Securities to be transferred (the "Offered Price").
(c). At any time within thirty (30) days after receipt of the
Notice, Maker and/or its assignee(s) may, by giving written notice to the
Holder, elect to purchase all or any portion of the Securities proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with Section 10.5(c) below. The purchase price
("Purchase Price") for the Securities purchased by Maker or its assignee(s)
under this Section Section 10.5 shall be the Offered Price. If the Offered Price
includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board in good faith.
(d). If any of the Securities proposed in the Notice to be
transferred to a given Proposed Transferee are not purchased by Maker and/or its
assignee(s) as provided in Section 10.5, then the Holder may sell or otherwise
transfer such Securities to that Proposed Transferee at the Offered Price or at
a higher price, provided that such sale or other transfer is consummated within
sixty (60) days after the date of the Notice and provided further that any such
sale or other transfer is effected in accordance with any applicable securities
laws and the Proposed Transferee and any spouse executes an agreement, in such
form required by Maker, agreeing and acknowledging that the provisions of this
Agreement shall continue to apply to the Securities in the hands of such
Proposed Transferee. If the Securities are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new Notice
shall be given to Maker, and Maker and/or its assignees shall again be offered
the Right of First Refusal before any Securities held by the Holder may be sold
or otherwise transferred.
(e). The provisions of this Section 10.5 shall terminate upon the
earlier of (i) Merger; (ii) closing of the first sale of common stock of Maker
to the general public (an "Initial Public Offering") under a registration
statement declared effective under the Securities Act of 1933, as amended, or
any successor statute; (iii) Sale of Maker or (iv) release or terminate of these
restrictions by Maker, which Maker may do at any time in its sole discretion.
10.6 Restrictive Legends and Stop-Transfer Orders.
(a). The Securities and any underlying common stock, and any
securities issued in respect thereof or exchange therefor, may bear one or all
of the following legends:
4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, THE WASHINGTON STATE SECURITIES ACT OR ANY OTHER
APPLICABLE SECURITIES ACT (THE "ACTS"), AND NEITHER THE OFFERING OF
THE SECURITIES NOR ANY OFFERING MATERIALS HAVE BEEN REVIEWED BY AN
ADMINISTRATOR UNDER THE ACTS. THE SECURITIES WERE ACQUIRED BY THE
REGISTERED HOLDER PURSUANT TO A REPRESENTATION THAT THE HOLDER WAS
ACQUIRING THE SECURITIES WITH THE HOLDER'S OWN FUNDS, FOR THE HOLDER'S
OWN ACCOUNT, FOR INVESTMENT. THESE SECURITIES MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED, OR OFFERED FOR SALE IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
ACTS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN CORPORATION AND
THE HOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
CORPORATION.
Any other legend may be added that Maker determines is authorized or required
pursuant to this Note or any legend required by the Blue Sky laws of any state
to the extent such laws are applicable to the Securities represented by the
certificate so legended.
10.7 Refusal to Transfer. Maker shall not be required to transfer on
its books any Securities that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or to treat as owner of
such Securities or to accord the right to vote or pay dividends to any or other
transferee to whom such Securities shall have been so transferred. The
Securities may not be transferred or assigned in whole or in part without
compliance with applicable federal and state securities laws by the transferor
and the transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to Maker).
10.8 Accredited Investor. Holder, other than Orion, must be an
accredited investor as defined in Rule 501(a) of Regulation D promulgated under
the Act.
10.9 "Market Stand-Off". In an underwritten registered offering
effected by Maker, Holder hereby agrees that Holder shall not sell, transfer,
make any short sale of, grant any option for the purchase of, enter into any
hedging or similar transaction with the same economic effect as a sale, or
otherwise dispose of, the Securities and underlying common stock of Holder
(other than those included in the registration) for a period specified by the
representative of the underwriters of securities of Maker not to exceed one
hundred eighty (180) days following the date of the final prospectus contained
in a registration statement of Maker filed under the Securities Act. Holder
agrees to execute and deliver such other agreements as may be reasonably
requested by Maker or the representative of the underwriters which are
consistent with the foregoing or which are necessary to give further effect
thereto. Maker may impose stop-transfer instructions with respect to the
Securities and underlying common stock subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
10.10 Holder Representations. Holder hereby represents and warrants to
Maker that:
(a). Maker has made available to Holder, or to Holder's attorney,
accountant, or representative, all other documents that Holder has requested.
Holder has requested all documents and other information that Holder has deemed
necessary or appropriate for making an investment in Maker and purchasing the
Securities. Maker has provided answers to all questions concerning the
investment in the Securities; and Holder has carefully considered and has, to
the extent Holder believes such discussion necessary, discussed with Holder's
professional legal, tax, and financial advisers the suitability of an investment
in Maker for Holder's particular tax and financial situation. The Securities to
be acquired by Holder will be acquired for investment for Holder's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and Holder has no present intention of selling, granting any
participation in, or otherwise distributing the same. Holder has full power to
5
execute this Agreement and consummate the transactions contemplated herein.
(b). Holder is aware of Maker's business affairs and financial
condition and has acquired sufficient information about Maker to reach an
informed and knowledgeable decision to acquire the Securities. Holder has
obtained, to the extent that Holder deems necessary, professional advice with
respect to the risks inherent in the investment in the Securities and the
suitability of the investment in the Securities in light of Holder's financial
condition and investment needs. Holder is in a financial position to purchase
and hold the Securities and is able to bear the economic risk and withstand a
complete loss of Holder's investment in the Securities.
(c). Holder understands that the Securities have not been, and
will not be, registered under the Securities Act, by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of Holder's representations as expressed herein. Holder further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to Maker which are outside of Holder's control, and
which Maker is under no obligation and may not be able to satisfy. Holder
understands that no public market now exists for any of the securities issued by
Maker, and that Maker has made no assurances that a public market will ever
exist for the Securities.
(d). Holder acknowledges that it has purchased the Securities in
a private offering between Maker and Orion and that Holder has not purchased the
Note as a result of any form of general solicitation or general advertising,
including advertisements, articles, notices or other communications published in
any newspaper, magazine or similar media or broadcast over radio, or television,
or any seminar or meeting whose attendees have been invited by general
solicitation or general advertising. Holder further represents that it is a
California corporation with its principal place of business in Delaware.
11. PIGGY BACK REGISTRATION RIGHTS.
11.1 Maker Registration.
(a). Notice of Registration. If at any time or from time to time
Maker shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (x) a
registration relating solely to employee benefit plans, (y) a registration
relating solely to a Commission Rule 145 transaction pursuant to the Securities
Act, or a registration on any registration form that does not permit secondary
sales, or (z) a registration statement on Form S-4, Maker will:
(i). promptly give Holder notice thereof, and
(ii). include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the shares of common stock issued or issuable to the
Holder following any exercise of the Warrant or acquired pursuant to the Note
(the "Registrable Securities") specified in a written request or requests made
within fifteen (15) days after receipt of such written notice from Maker by the
Holder.
(b). Underwriting. If the registration of which Maker gives
notice is for a registered public offering involving an underwriting of the
Maker's securities on behalf of the Maker, Maker shall so advise the Holder as a
6
part of the written notice given pursuant to Section 11.1(a)). In such event,
the right of Holder to registration pursuant to Section 11.1 shall be
conditioned upon Holder's participation in such underwriting and the inclusion
of Registrable Securities in the underwriting, to the extent requested and to
the extent provided herein. Holder shall (together with Maker and the other
holders distributing their securities through such underwriting (the "Other
Participating Holders")) enter into an underwriting agreement in customary form
with the managing underwriter selected for such underwriting by Maker.
Notwithstanding any other provision of this Section 11.1, if the managing
underwriter reasonably determines that factors require a limitation of the
number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities (along with securities of Other Participating
Holders) to be included in the registration and underwriting, on a pro rata
basis based on the total number of securities requested to be registered
pursuant to registration rights granted to Holder and the Other Participating
Holders by Maker; except for a registration relating to the Maker's initial
public offering ("IPO"), IPO from which all Registrable Securities (along with
securities of Other Participating Holders) may be excluded. If the Holder or any
Other Participating Holder disapproves of the terms of any such underwriting,
it, he or she may elect to withdraw therefrom by written notice to Maker and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c). Right to Terminate Registration. Maker shall have the right
to terminate or withdraw any registration initiated by it under this Section
11.1 prior to the effectiveness of such registration, whether or not the Holder
has elected to include securities in such registration.
11.2 Expenses of Registration. All registration expenses incurred in
connection with any registration pursuant to Section 11 excluding (1) legal
expenses of counsel to the Holder and (2) underwriting discount, selling
commissions or brokers fees relating to the sale of Registrable Securities by
the Holder, shall be borne by Maker.
11.3 Registration Procedures. In the case of each registration,
qualification or compliance effected by Maker pursuant to this Section 11, Maker
will:
(a). Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such securities and
use its best efforts to cause such registration statement to become effective,
and remain effective until the distribution described in the registration
statement has been completed, but in no event longer than one hundred twenty
(120) days.
(b). Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder.
(c). Furnish to the Holder and to the underwriters, if any, of
the securities being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and such other
documents as the Holder and such underwriters may reasonably request in order to
facilitate the public offering of such securities.
(d). Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that Maker shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless Maker is already
subject to service in such jurisdiction and except as may be required by the
Securities Act.
7
(e). Notify the Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(f). Cause all such Registrable Securities registered pursuant to
this Section 11 to be listed on each securities exchange or other trading market
on which similar securities issued by Maker are then listed.
(g). Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
11.4 Information by Holder. The Holder shall furnish to Maker such
information regarding the Holder as Maker may reasonably request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Section 11.
11.5 Transfer of Registration Rights. The rights to cause Maker to
register securities granted to the Holder under Section 11 may not be assigned
to a transferee or assignee in connection with any transfer or assignment of
Registrable Securities by the Holder (together with any affiliate); provided,
however, that such rights may be assigned to an affiliate of Holder if (a) such
transfer may otherwise be effected in accordance with applicable securities
laws, (b) notice of such assignment is given to Maker, and (c) such transferee
or assignee affiliate agrees to be bound by the terms and conditions of the Note
and the Warrant.
11.6 Termination of Rights. The rights of the Holder to cause Maker to
register securities under Section 11 shall terminate on the earlier of (a) the
second anniversary of the effective date of the IPO or (b) such time as Rule 144
under the Securities Act or another similar exemption under the Securities Act
is available for the sale of all of the Registrable Securities during a three
(3)-month period without registration; provided, however, that in no event shall
such registration rights terminate prior to the first anniversary of the
effective date of the IPO.
12. NOTICE. For so long as the principal and interest due hereon is unpaid
in full, Maker hereby agrees (A) to give written notice to the Holder not less
than twenty (20) days prior to (i) Sale of Maker, consummation of any merger,
consolidation, or combination involving Maker or any of its subsidiaries, other
than such with Orion, (ii) the consummation of the sale of all or substantially
all of the assets of Maker or any of its subsidiaries by any methodology, (iii)
the sale, issuance or transfer of any securities of Maker or any of its
subsidiaries by any of those entities which results in or may result the
increase of number of shares of common stock outstanding now or in the future by
more than 25% of Maker or any of its subsidiaries, or (iv) the consummation of
any loan in equal to or in excess of $200,000, (B) to give written notice to the
Holder as soon as practicable, time being of the essence, upon its learning of a
change of control or potential change of control of more than 25% of the common
stock of Maker or its subsidiaries whether by transfer, sale, option, voting
agreement or other methodology where the beneficial ownership changes or could
change, as beneficial ownership is defined under Section 13(d) of the Securities
Exchange Act of 1934, and (C) to give written notice to the Holder not less than
ten days prior to any notice is given of any solicitation of the vote of the
shareholders (common or preferred or other) of Maker or any of its subsidiaries,
which notice will include all the solicitation materials being given to any of
those shareholders.
8
13. APPLICABLE LAW: This Note shall be governed by, construed and enforced
in accordance with the internal laws of the State of Washington, without giving
effect to principles and provisions thereof relating to conflict or choice of
laws irrespective of the fact that any one of the parties is now or may become a
resident of a different state or country.
14. BUSINESS PURPOSE: Maker represents and warrants that all funds advanced
to Maker evidenced by this Promissory Note will be used primarily and
exclusively for business purposes of Maker and its subsidiaries, and that no
portion of said proceeds will be used for any personal, family household,
agricultural or other consumer purposes.
15. FAILURE TO ENFORCE NOT A WAIVER: Failure to exercise any right or
option of Holder shall not constitute a waiver of the right to exercise such
right or option if Maker is in default hereunder. Failure of Holder to require
strict compliance with the terms of this Note shall not waive the Holder's right
to require strict compliance in the future.
16. NOTICES: Maker shall give notice of any Event of Default under the
terms of this Note immediately, time being of the essence, to the Holder. All
payments, notices, demands, requests, consents, approvals and other instruments
required or permitted to be given pursuant to the terms of this Note shall be in
writing and shall be deemed sufficient upon delivery, when delivered personally
or by a nationally-recognized delivery service, or forty-eight (48) hours after
being deposited in the U.S. Mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party's address as set
forth below or as subsequently modified by written notice.
17. ARBITRATION: If any dispute, controversy, or claim arises between the
parties out of or in relation to this Note, or the breach, termination, or
invalidity thereof, both parties by mutual negotiation shall attempt to come to
a reasonable settlement of the same as soon as possible. If no settlement is
reached within thirty (30) days from the first notification of the same in
writing by either party, the same shall be settled by binding arbitration in
accordance with the American Arbitration Rules in effect as of the effective
date of this Agreement. The appointing authority shall be the American
Arbitration Association office located in Seattle, Washington, and the case
shall be administered by the same authority in accordance with its procedures
for cases under the Commercial Arbitration Rules. The place of arbitration shall
be Seattle, Washington, or such other location as the parties may agree. The
number of arbitrators shall be one, unless the parties cannot agree on a single
arbitrator. In such event, the parties shall each choose one arbitrator, and
these two arbitrators shall choose a third arbitrator who shall preside over the
proceedings. The awards rendered by the arbitrators shall be final and binding
upon both parties concerned, and judgment upon the award may be entered in any
court having jurisdiction thereof. The allocation of the expenses of the
arbitration shall be effected by the arbitration decision.
18. ORAL AGREEMENTS, PROMISES, OR COMMITMENTS TO: (1) LOAN MONEY, (2)
EXTEND CREDIT, (3) MODIFY OR AMEND ANY TERMS OF THE LOAN DOCUMENTS, (4) RELEASE
ANY GUARANTOR, (5) FORBEAR FROM ENFORCING REPAYMENT OF THE LOAN OR THE EXERCISE
OF ANY REMEDY UNDER THE LOAN DOCUMENTS OR (6) MAKE ANY OTHER FINANCIAL
ACCOMMODATION PERTAINING TO THE LOAN ARE ALL UNENFORCEABLE UNDER WASHINGTON LAW.
Executed on the date set forth above.
CITADEL MEDIA, INC.,
a Washington corporation
----------------------------------
By: James C. Heckman
Its: Chief Executive Officer
9
NEITHER THE WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. NO OFFER, SALE, TRANSFER OR OTHER DISPOSITION
OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, WHICH COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT
IS NOT REQUIRED.
Date of Issuance: ______________ , 2004 Warrant No.: W-2
("Date of Issuance")
WARRANT TO PURCHASE
500,000 SHARES OF COMMON STOCK OF CITADEL MEDIA, INC.
THIS CERTIFIES THAT ORION ACQUISITION CORP. II, a Delaware corporation, or
its registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company under this Warrant at any time after the
date hereof and on or before the Expiration Date 500,000 shares of the common
stock of the Company at a per share price of $0.10 (the "Exercise Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. The shares of Common Stock are hereinafter referred to as the "Shares."
1. Term. This Warrant shall remain exercisable with respect to the Shares
until 5:00 p.m. Washington on December 31. 2006 ("Expiration Date").
2. Conversion.
2.1. Method of Exercise; Payment; Issuance of New Warrant. This
Warrant may be exercised by the Holder hereof, in whole or in part and from time
to time, by the surrender of this Warrant at the principal office of the Company
and by the payment to the Company by check or wire transfer, of an amount equal
to the then current Exercise Price per share multiplied by the number of Shares
then being purchased (the "Aggregate Exercise Price"). The person or persons in
whose name(s) any certificate(s) representing Shares shall be issuable upon
exercise of this Warrant shall be deemed to have become the Holder(s) of record
of, and shall be treated for all purposes as the record Holder(s) of the Shares
represented thereby (and such Shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised. In the event of any exercise of this Warrant, certificates
for the Shares so purchased shall be delivered to the Holder hereof as soon as
possible and in any event within thirty (30) days of receipt of such notice by
the Company and, unless this Warrant has been fully exercised or expired, a new
Warrant representing the portion of the Shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be issued to the
Holder hereof as soon as possible and in any event within such thirty-day
period.
2.2. Securities Fully Paid; Reservation of Shares; Capitalization
Representations. All Shares that may be issued upon the exercise of the rights
represented by this Warrant, upon issuance, will be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by the
Warrant may be exercised, the Company will at all times have authorized and
reserved for the purpose of issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of Common Stock as from
time to time shall be issuable upon the exercise of this Warrant.
1
2.3. Right to Convert Warrant into Stock; Net Issuance. In addition to
and without limiting the rights of the Purchaser under the terms of this
Warrant, the Purchaser may elect to convert this Warrant or any portion thereof
(the "Conversion Right"), but only to the extent that the Purchaser then has a
right to exercise this Warrant, into Shares, the aggregate value of which Shares
shall be equal to the value of this Warrant or the portion thereof being
converted. The Conversion Right may be exercised by the Purchaser by surrender
of this Warrant at the principal office of the Company together with notice of
the Purchaser's intention to exercise the Conversion Right, in which event the
Company shall issue to the Purchaser a number of Shares computed using the
following formula:
X= Y(A-B)
------
A
Where:
X The number of Shares to be issued to the Holder.
Y The number of Shares representing the portion of this
Warrant that is being converted.
A The fair market value of one Share.
B The Exercise Price (as adjusted to the date of such
calculation).
For purposes of this Section 2.3, the "fair market value" per Share shall mean:
(a). Average daily Market Price (as defined below) during the
period of the most recent 20 days, ending on the last business day before the
effective date of exercise of the Conversion Right, on which the national
securities exchanges were open for trading; or
(b). If no class of Common Stock is then listed or admitted to
trading on any national securities exchange or quoted in the over-counter
market, the fair market value shall be the Market Price on the last business day
before the effective date of exercise of the Conversion Right.
If the Common Stock is traded on a national securities exchange or admitted
to unlisted trading privileges on such an exchange, or is listed on the National
Market System (the "National Market System") of the National Association of
Securities Dealers Automated Quotations System (the "NASDAQ"), the Market Price
as of a specified day shall be the last reported sale price of Common Stock on
such exchange or on the National Market System on such date or if no such sale
is made on such day, the mean of the closing bid and asked prices for such day
on such exchange or on the National Market System. If the Common Stock is not so
listed or admitted to unlisted trading privileges, the Market Price as of a
specified day shall be the mean of the last bid and asked prices reported on
such date (x) by the NASDAQ or (y) if reports are unavailable under clause (x)
above by the National Quotation Bureau Incorporated. If the Common Stock is not
so listed or admitted to unlisted trading privileges and bid and ask prices are
not reported, the Market Price as of a specified day shall be determined in good
faith by written resolution of the Board of Directors of the Company.
3. Adjustment of Exercise Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of the Warrant and the Exercise
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
3.1. Reclassification or Merger. In case of any reclassification,
change or conversion of securities in the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is a continuing
2
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale or transfer of all or substantially all of the assets of the Company,
unless this Warrant shall have been exercised or terminated in accordance with
its terms, the Holder of this Warrant shall have the right to exercise this
Warrant and upon such exercise to receive, in lieu of the Shares theretofore
issuable upon exercise of this Warrant, the kind and amount of consideration,
including but not limited to shares of stock, other securities, money and
property receivable upon such reclassification, change, conversion, merger, sale
or transfer as would have been received if this Warrant had been exercised in
full immediately prior to such event. The provisions of this subparagraph shall
similarly apply to successive reclassifications, changes, conversions, mergers,
sales or transfers.
3.2. Subdivisions or Combination of Shares. If at any time while this
Warrant remains outstanding and unexpired the Company shall subdivide or combine
its Common Stock, the Exercise Price and the number of Shares issuable upon
exercise hereof shall be proportionately adjusted.
3.3. Notice of Adjustments. Whenever the Exercise Price shall be
adjusted pursuant to the provisions hereof, the Company shall within thirty (30)
days of such adjustment deliver a certificate signed by its chief financial
officer to Holder setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the number of Shares subject to this Warrant and the
Exercise Price therefor, as applicable, after giving effect to such adjustment.
4. Compliance with Securities Laws.
4.1. Accredited Investor. This Warrant is conditioned upon, and by its
acceptance hereof Holder (other than Orion) hereby confirms, that Holder is an
"accredited investor" as that term is defined under Regulation D under the
Securities Act of 1933, as amended (the "Securities Act").
4.2. Note Agreement. The Shares shall be subject to all of the terms
of the Note, including, without limitation, the transfer restrictions set forth
therein.
5. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
6. Notice.
6.1. Notice of Certain Events. The Company shall provide Holder with
at least twenty (20) business days notice (or such greater amount of notice as
Washington law requires to be given to shareholders having the right to vote at
a meeting on any Sale Event, as defined herein) prior to (i) a merger of the
Company with or into, the consolidation of the Company with, or the sale or
transfer by the Company of all or substantially all of its assets to, another
person or entity (a "Sale Event"), (ii) any liquidation, dissolution or winding
up of the Company or (iii) the record date for any cash dividend declared on the
Company stock or (iv) a firm commitment underwritten public offering pursuant to
a registration statement on Form S-1 under the Securities Act (each, a "Notice
Event"). If the notice is provided pursuant to subsection (i) or (ii) of the
previous sentence, the notice will indicate the expected date of the Notice
Event
3
6.2. Notice Procedure. Any notice required or permitted pursuant to
this Warrant shall be in writing and shall be deemed sufficient when either (a)
delivered personally, (b) sent by e-mail or fax with confirmation of receipt or
(c) deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed, in the case of the Holder, to Holder of this Note (as set
forth in the books and records of the Company) and in the case of Company, to
its principal place of business.
7. Lost Warrants or Stock Certificates. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or any stock certificate and, in the case of any such loss, theft
or destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company will make and deliver a new
Warrant or stock certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant or stock certificate.
8. No Impairment. The Company will not, through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issuance or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against impairment.
9. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Washington, without regard to conflict of laws provisions thereof.
10. Arbitration: If any dispute, controversy, or claim arises between the
parties out of or in relation to this Note, or the breach, termination, or
invalidity thereof, both parties by mutual negotiation shall attempt to come to
a reasonable settlement of the same as soon as possible. If no settlement is
reached within thirty (30) days from the first notification of the same in
writing by either party, the same shall be settled by binding arbitration in
accordance with the American Arbitration Rules in effect as of the effective
date of this Agreement. The appointing authority shall be the American
Arbitration Association office located in Seattle, Washington, and the case
shall be administered by the same authority in accordance with its procedures
for cases under the Commercial Arbitration Rules. The place of arbitration shall
be Seattle, Washington, or such other location as the parties may agree. The
number of arbitrators shall be one, unless the parties cannot agree on a single
arbitrator. In such event, the parties shall each choose one arbitrator, and
these two arbitrators shall choose a third arbitrator who shall preside over the
proceedings. The awards rendered by the arbitrators shall be final and binding
upon both parties concerned, and judgment upon the award may be entered in any
court having jurisdiction thereof. The allocation of the expenses of the
arbitration shall be effected by the arbitration decision.
4
IN WITNESS WHEREOF, this Warrant has been executed effective as of the
Date of Issuance.
CITADEL MEDIA, INC.
By:
---------------------------------
Name: JAMES C. HECKMAN, JR.
Title: CHIEF EXECUTIVE OFFICER
5