ACCESS PROPELLER HOLDINGS LLC
10% SECURED PROMISSORY NOTE
$300,000 SEPTEMBER ___, 2003
FOR VALUE RECEIVED, ACCESS PROPELLER HOLDINGS LLC, a Delaware limited
liability company (the "Company") with its principal executive offices at 641
Lexington Avenue, New York, New York 10022, promises to pay to the order of
Digital Creative Development Corporation, a Utah corporation with offices at 101
Larkspur Circle, Larkspur, California 94939 or registered assigns (the "Payee")
the principal amount of Three Hundred Thousand ($300,000) Dollars (the
"Principal Amount"), together with interest thereon, on the earlier of (i)
February 4, 2004; (ii) the closing of a public or private offering of the
Company's debt or equity securities resulting in gross proceeds of at least
$900,000; or (iii) the consummation by the Company of a merger, combination or
sale of substantially all of its assets or the purchase by a single entity or
person or group of affiliated entities or persons of more than 50% of the
Company's outstanding capital or membership interests (the "Maturity Date").
Interest on this Secured Promissory Note (this "Note") shall accrue on the
Principal Amount outstanding from time to time at a rate per annum computed in
accordance with Section 2 hereof. This Note may not be prepaid without the prior
written consent of the Payee.
Each payment by the Company pursuant to this Note shall be made without
set-off or counterclaim and in immediately available funds. All payments or
prepayments of principal and interest and other sums due pursuant to this Note
shall be made by check to Payee at its address set forth above or such other
address as shall be designated by Payee, or in immediately available funds by
wire transfer to Payee's account at such bank as Payee shall have previously
designated to the Company.
The Company (i) waives presentment, demand, protest or notice of any kind
in connection with this Note and (ii) agrees, in the event of an Event of
Default (as defined below), to pay to Payee, on demand, all costs and expenses
(including reasonable legal fees) incurred in connection with the enforcement
and collection of this Note.
This Note is secured by a Security Agreement (the "Security Agreement") of
the Company in favor of the Payee covering certain collateral (the
"Collateral"), all as more particularly described and provided therein, and is
entitled to the benefits thereof.
1. Conversion Into Private Placement Securities. If at any time during the
period that the Principal Amount of this Note is outstanding, the Company
consummates a private placement of its securities, including, without
limitation, the Series A Offering (defined below), the Payee may elect in its
sole discretion, to convert some or all of the outstanding Principal Amount of
this Note into the securities offered in such placement at the lowest average
price per security (or unit of securities) paid by any investor in such
placement and on no less favorable terms and conditions as generally apply to
the investors in such placement. All accrued but unpaid interest on the portion
of the Principal Amount of this Note to be converted shall be paid to the Payee
in cash upon conversion of this Note. The Company shall notify the Payee, in
writing, of the terms of any such placement within three business days after
prospective investors are provided with offering materials relating thereto. The
Payee shall have until the date of the final closing of the placement to notify
the Company as to whether it elects to convert all or a portion of the
outstanding Principal Amount of the Note.
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2. Interest. The outstanding Principal Amount shall bear interest at the
rate of ten (10%) percent per annum based on a year of 360 days, comprised of
twelve 30-day months, for the number of days actually elapsed. In the event the
Principal Amount is not repaid on the Maturity Date, the rate of interest
applicable to the unpaid Principal Amount shall be adjusted to twelve (12%)
percent per annum from the date of default until repayment which penalty
interest shall be calculated and compounded semi-annually.
3. Covenants of Company.
A. Affirmative Covenants. The Company covenants and agrees that, so
long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 3A:
(i) Taxes and Levies. The Company (and each of its
subsidiaries) will promptly pay and discharge all taxes, assessments, and
governmental charges or levies imposed upon the Company or upon its income and
profits, or upon any of its property, before the same shall become delinquent,
as well as all claims for labor, materials and supplies which, if unpaid, might
become a lien or charge upon such properties or any part thereof; provided,
however, that the Company shall not be required to pay and discharge any such
tax, assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings and the Company shall set
aside on its books adequate reserves in accordance with generally accepted
accounting principles ("GAAP") with respect to any such tax, assessment, charge,
levy or claim so contested;
(ii) Maintenance of Existence. The Company (and each of its
subsidiaries) will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its existence as a limited liability
company (or corporation in the event the Company converts into a corporation as
contemplated by Section 3A(viii) hereof), rights and franchises and comply with
all laws applicable to the Company;
(iii) Maintenance of Property. The Company (and each of its
subsidiaries) will at all times maintain, preserve, protect and keep its
property used or useful for the conduct of its business in good repair, working
order and condition, and from time to time make all needful and proper repairs,
renewals, replacements and improvements thereto as shall be reasonably required
in the conduct of its business;
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(iv) Insurance. The Company (and each of its subsidiaries)
will, to the extent necessary for the operation of its business, keep adequately
insured by financially sound reputable insurers, all property of a character
usually insured by similar business entities and carry such other insurance as
is usually carried by similar business entities;
(v) Books and Records. The Company (and each of its
subsidiaries) will at all times keep true and correct books, records and
accounts reflecting all of its business affairs and transactions in accordance
with GAAP. Such books and records shall be open at reasonable times and upon
reasonable notice to the inspection of the Payee or its agents;
(vi) Notice of Certain Events. The Company (and each of its
subsidiaries) will give prompt written notice (with a description in reasonable
detail) to the Payee of:
(a) the occurrence of any Event of Default or any event which, with
the giving of notice or the lapse of time, would constitute an Event of Default;
and
(b) the delivery of any notice effecting the acceleration of any
indebtedness in excess of $10,000;
(vii) Use of Proceeds. The Company shall use the proceeds of
the loan evidenced by this Note for working capital purposes only, including for
marketing, further development of the "PenPal portal" and licensing of content,
and for direct investment into its subsidiary Jippii USA Inc.;
(viii) Series A Financing. Within 60 days of the date of this
Note, the Company shall convert to a corporation and provide the Payee with the
opportunity to invest up to an additional $900,000 in an offering (the "Series A
Offering") of shares of a series of convertible preferred stock of the Company,
which (i) upon conversion of such shares and the shares issuable to the Payee
upon the conversion of this Note, would constitute at least 51% of the Company's
outstanding shares of common stock on a fully diluted basis, and (ii) will
provide the Payee with the rights and preferences, and be subject to the terms
and conditions, set forth in the Term Sheet between the Company and Payee
annexed hereto as Exhibit A (the "Term Sheet"), it being understood that such
opportunity shall invest in the Series A Offering shall remain open until (A)
Payee shall have notified the Company that it does not intend to participate in
the Series A Offering as aforesaid or (B) the six month anniversary of the date
of this Note; and
(ix) Fees. The Company shall pay all out-of-pocket losses,
costs and expenses incurred by Payee in connection with this Note, including,
without limitation, for all fees and expenses, including attorneys fees of
counsel to the Payee, incurred in connection with the preparation and
negotiation of this Note and the Security Agreement (up to a maximum of $7,500),
the enforcement of any provision of this Note or the Security Agreement, or the
collection of any amount due hereunder or thereunder, including, but not limited
to, the reasonable fees and disbursements of counsel to the Payee in the course
of so enforcing such rights.
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B. Negative Covenants. The Company covenants and agrees that, so
long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 3B:
(i) Liquidation, Dissolution. The Company will not (and will
not permit any of its subsidiaries to) liquidate or dissolve, consolidate with,
or merge into or with, any other corporation or other entity, except (x) where
the Company's obligations under this Note are repaid in full concurrently with
the consummation of such liquidation, dissolution, consolidation or merger, (y)
that any wholly-owned subsidiary may merge with another wholly-owned subsidiary
or with the Company (so long as the Company is the surviving entity and no Event
of Default shall occur as a result thereof), and (z) the Company may convert
into a corporation in connection with its obligations under Section 3(A)(viii)
above;
(ii) Sales of Assets. The Company will not (nor permit any of
its subsidiaries with respect to their assets and properties) sell, transfer,
lease or otherwise dispose of, or grant options, warrants or other rights with
respect to, all or a substantial part of its properties or assets to any person
or entity except where the Company's obligations under this Note are repaid in
full concurrently therewith;
(iii) Redemptions. The Company will not redeem or repurchase
any outstanding equity and/or debt securities of the Company (or its
subsidiaries);
(iv) Indebtedness. Other than indebtedness of the Company
existing on the date of this Note as expressly set forth in Schedule 3(B)(iv)
hereto, the Company will hereafter not create, incur, assume or suffer to exist,
contingently or otherwise, any indebtedness other than trade payables incurred
in the ordinary course of business;
(v) Negative Pledge. Other than Liens (as defined below)
existing on the date of this Note as expressly set forth in Schedule 3(B)(v),
the Company will not (nor will it permit its subsidiaries to) hereafter create,
incur, assume or suffer to exist any mortgage, pledge, hypothecation,
assignment, security interest, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including any conditional sale or other title
retention agreement and any financing lease, but excluding (i) liens in respect
of taxes not yet due; (ii) workers', mechanics', materialmens' and similar liens
arising by operation of law in respect of obligations not in default; and (iii)
minor easements, encumbrances and defects of title that do not adversely affect
the Company's use of its assets and properties for their intended purposes)
(each, a "Lien") upon any of its property, revenues or assets, whether now owned
or hereafter acquired;
(vi) Investments. The Company will not (and will not permit
any of its subsidiaries to) purchase, own, invest in or otherwise acquire,
directly or indirectly, any stock or other securities or make or permit to exist
any investment or capital contribution or acquire any interest whatsoever in any
other person or entity or permit to exist any loans or advances for such
purposes except for (x) investments existing on the date hereof in the Company's
subsidiaries, (y) investments from and after the date hereof in Jippii USA Inc.
or (z) investments in direct obligations of the United States of America or any
agency thereof, obligations guaranteed by the United States of America and
certificates of deposit or other obligations of any bank or trust company
organized under the laws of the United States or any state thereof and having
capital and surplus of at least $500,000,000;
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(vii) Transactions with Affiliates. The Company will not (and
will not permit any of its subsidiaries to) enter into any transaction,
including, without limitation, the purchase, sale, lease or exchange of
property, real or personal, the purchase or sale of any security, the borrowing
or lending of any money, or the rendering of any service, with any person or
entity affiliated with the Company or any of its subsidiaries (including
officers, directors and shareholders owning three (3%) percent or more of the
Company's outstanding capital stock or membership interests), except in the
ordinary course of and pursuant to the reasonable requirements of its business
and upon fair and reasonable terms not less favorable than would be obtained in
a comparable arms-length transaction with any other person or entity not
affiliated with the Company and, where the transaction is valued at in excess of
$50,000, with the prior written consent of the Payee.
(viii) Dividends. The Company will not (nor permit any of its
subsidiaries to) declare or pay any cash dividends or distributions on its
outstanding capital stock or membership interests.
(ix) Compensation. The Company will not increase the
compensation of its executive officers without the approval of the Payee.
4. Representations and Warranties.
The Company hereby represents and warrants to the Payee that:
(a) The Company (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) is duly qualified and in good standing in every jurisdiction in which it
presently engages in business and in which such qualification is required; (iii)
has the power, authority and legal right to engage in its business as presently
conducted; and (iv) has the power, authority and legal right to enter into and
execute this Note and the Security Agreement; (b) The capitalization and
ownership of the Company is set forth on Schedule 4(b) hereto;
(c) The security interests created under the Security Agreement as
collateral for the loan evidenced by this Note constitutes valid, first and
prior perfected liens in favor of the Payee; and
(d) The Company has no indebtedness other than (i) indebtedness set
forth on Schedule 3(B)(iv) hereto, (ii) trade payables incurred in the ordinary
course of business, and (iii) capital lease obligations.
5. Events of Default.
Remedies upon Event of Default. If any of the following events shall occur
for any reason whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation by law or otherwise)
(each, an "Event of Default"):
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(i) Non-Payment of Obligations. The Company shall default in the
payment of any amount due under this Note as and when the same shall become due
and payable (whether by acceleration or otherwise) ;
(ii) Non-Performance of Affirmative Covenants. The Company shall
materially default in the due observance or performance of any covenant set
forth in Section 3A, which default shall continue uncured for five (5) days
after notice thereof from Payee;
(iii) Non-Performance of Negative Covenants. The Company shall
default in the due observance or performance of any covenant set forth in
Section 3B, which default (if curable) shall continue for five (5) days after
notice thereof from Payee;
(iv) Bankruptcy, Insolvency, Etc. The Company (or any of its
subsidiaries) shall:
(a) in any legal document admit in writing its inability to
pay its debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Company or any of
its property, or make a general assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiesce
in, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or for any part of its property;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of the Company, and, if such case or proceeding is not
commenced by the Company or converted to a voluntary case, such case or
proceeding shall be consented to or acquiesced in by the Company or shall result
in the entry of an order for relief; or
(e) take any corporate, company or other action authorizing,
or in furtherance of, any of the foregoing;
(v) Cross-Default. The Company shall default in the payment when
due, including any applicable grace period, of any amount payable under any
obligation of the Company for money borrowed in excess of $10,000;
(vi) Cross-Acceleration. Indebtedness for borrowed money of the
Company (or any of its subsidiaries) in an aggregate principal amount exceeding
$10,000 shall be duly declared to be or shall become due and payable prior to
the stated maturity thereof or shall not be paid as and when the same becomes
due and payable including any applicable grace period;
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(vii) Other Breaches, Defaults. The Company shall materially default
and/or be in material breach of any term and/or provision in the Security
Agreement, or any representation or warranty made by the Company in this Note or
the Security Agreement shall be false or misleading;
(viii) Security Agreement. Payee shall cease to have a valid and
perfected Lien in and to any material Collateral; or
(ix) Series A Offering. The Company is unable or unwilling to
proceed with the Series A Offering on the terms and conditions set forth in the
Term Sheet;
then, and in any such event, the Payee shall, by notice to the Company,
take any or all of the following actions, without prejudice to the rights of the
Payee to enforce its claims against the Company: (1) declare the principal of
and any accrued interest and all other amounts payable under this Note to be due
and payable, whereupon the same shall become, forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company, (2) proceed to enforce or cause to be enforced any
remedies provided under the Security Agreement, and (3) exercise any other
remedies available at law or in equity, either by suit in equity or by action at
law, or both, whether for specific performance of any covenant or other
agreement contained in this Note; provided, that upon the occurrence of any
Event of Default referred to in Section 5(iv) then (without prejudice to the
rights and remedies specified in clause (3) above) automatically, without
notice, demand or any other act by the Payee, the principal of and any accrued
interest and all other amounts payable under this Note shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Company, anything
contained in this Note to the contrary notwithstanding. No remedy conferred in
this Note upon the Payee is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereinafter existing at law or in equity
or by statute or otherwise. No failure to exercise and no delay in exercising,
on the part of Payee, any right, power or privilege under this Note or the
Security Agreement shall operate as a waiver thereof nor shall simple or partial
exercise of any right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other power, right or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies provided by law.
6. Miscellaneous.
A. Successors and Assigns. This Note shall be binding upon the
successors and assigns of the Company and shall inure to the benefit of the
successors and assigns of the Payee.
B. 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. Sections 5-1401 and 5-1402 of the General
Obligations Law of the State of New York shall apply to this Note, and the
Company hereby waives any right to stay or dismiss on the basis of forum non
conveniens any action or proceeding brought before the courts of the State of
New York sitting in New York County or of the United States of America for the
Southern District of New York, and hereby submits to the jurisdiction of such
courts.
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C. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND
DELIVERED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PAYEE OR THE COMPANY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING THIS NOTE.
D. Set-Off, etc. IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS NOTE, THE COMPANY WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE,
SET-OFF, COUNTERCLAIM OR CROSS-CLAIM OF ANY NATURE OR DESCRIPTION WHATSOEVER.
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
specified above by the duly authorized representative of the Company.
ACCESS PROPELLER HOLDINGS LLC
By:________________________________
Name:
Title:
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Schedule 3(B)(iv)
INDEBTEDNESS
None
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Schedule 3(B)(v)
LIENS
None
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Schedule 4(b)
CAPITALIZATION
CURRENT CAPITALIZATION:
50% membership interests held by Nordberg Capital Group, Inc.
50% membership interests held by Media Farm Ventures LLC
NOTE: The Company intends to issue membership interests to Bill Deutch and Peter
Nordberg, as a result of which the capitalization of the Company would
ultimately be:
44% membership interests held by Nordberg Capital Group, Inc.
44% membership interests held by Media Farm Ventures LLC
6% membership interests held by Peter Nordberg (one half of which will vest 18
months from May 1, 2003)
6% membership interests held by Bill Deutch (one half of which will vest 18
months from May 1, 2003)
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EXHIBIT A
TERM SHEET
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