EXHIBIT 10.20C
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAVE BEEN (OR WILL BE, WITH
RESPECT TO THE SECURITIES ISSUABLE UPON CONVERSION HEREOF) ISSUED IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS.
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS
PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
NON-NEGOTIABLE 8% CONVERTIBLE PROMISSORY NOTE
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$288,000 Culver City, California
October 1, 1996
FOR VALUE RECEIVED, the undersigned, THINK New Ideas, Inc., a Delaware
corporation (hereinafter referred to as the "Maker"), hereby promises to pay to
Xx. Xxx Xxxxxxxx (the "Payee") at 000 Xx. Xxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxx
00000, or at such other place as the holder hereof may from time to time
designate in writing, the principal sum of Two Hundred Eighty-eight Thousand
Dollars ($288,000) in one installment due upon the date (the "Maturity Date")
that is the earlier of: (i) March 31, 1998 or such later date as extended by
the Payee as set forth below; (ii) the Maker's receipt of proceeds of at least
Three Million Dollars ($3,000,000) from one or more public or private equity or
debt offerings (a "Private Offering") conducted by the Maker; (iii) immediately
prior to an initial public offering of securities of the Maker (the "Public
Offering"); or (iv) the sale of 50% or more of the assets or properties of the
Maker (an "Asset Disposition"), together with interest from and after July 1,
1996 at the rate of eight percent (8%) per annum computed on the unpaid
principal balance. Interest shall be paid by Maker to the Payee on the Maturity
Date. By acceptance of this Note, the Payee represents, warrants, covenants and
agrees that he will abide by and be bound by its terms.
1. Prepayment and Notices. The unpaid principal balance outstanding under this
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Note may be prepaid in part or in full by the Maker without penalty, upon five
(5) days notice to the Payee stating the repayment amount and repayment date
(the "Repayment Date"). The Maker must provide notice five (5) business days
prior to the Maturity Date to the Payee.
2. Conversion.
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(a) The unpaid principal amount of this Note shall be convertible at the
option of the Payee (the "Conversion Right") upon the earlier of: (i) January
31, 1998; or (ii) upon completion of a Private Offering or an Asset Disposition
as set forth above prior to the close of business on the Maturity Date in the
manner and on the terms hereinafter set forth, into shares of common stock, par
value $.0001 per share (the "Common Stock") of the Maker at a price per share
equal to the initial offering price of shares of Common Stock in the Public
Offering or, in the absence of consummation of the Public Offering, at $7.50 per
share (the "Conversion Price"), subject to adjustment pursuant to Section 4
hereof.
(b) The Maker may, at its option and upon notice given no later than
February 28, 1998, elect to extend the Maturity Date to a date after March 31,
1998, provided that this Note has not previously been prepaid or converted.
(c) Notwithstanding any other provision of this Note to the contrary, upon
receipt of notice of the Maker's intent to prepay part or all of the principal
amount hereunder or of a Maturity Date, the Payee may elect to exercise the
Conversion Right and convert pursuant to Section 2(a) hereof a portion (as set
forth in subsection (a) hereof) of the amount of unpaid principal which the
Maker intends to prepay, up to the close of business on the last business day
before the stated Repayment Date.
(d) Notwithstanding any other provision hereof, the Conversion Right may not
be exercised at any time during which a registration statement under the
Securities Act of 1933 is filed but not effective, absent the written consent of
the Company.
3. Conversion Procedure. The Conversion Right may be exercised by the Payee by
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the surrender of this Note (along with the conversion form attached hereto, duly
executed) to the Maker at the principal office of the Maker. Risk of loss prior
to surrender of this Note shall be borne by the Payee. Consequently, hand
delivery with written acknowledgement of receipt by the Maker or registered or
certified mail, return receipt requested, is the preferred mode of delivery.
Conversion shall be deemed to have been effected on the date when such delivery
of the conversion notice is actually made or, if earlier, at the expiration of
five (5) calendar days after being sent to the Maker by the Payee by registered
or certified mail, return receipt requested, with postage thereon fully prepaid
(the "Conversion Date"). As promptly as practicable thereafter, the Maker shall
issue and deliver to the Payee: (a) a new note representing the difference
between principal amount of this Note and the principal amount hereof which has
been converted pursuant hereto; and (b) certificates representing the number of
shares of Common Stock to which the Payee is entitled. The Maker shall not be
obligated to issue certificates representing shares of Common Stock in the name
of any party other than the Payee. The person or entity in whose name the
certificates representing the shares of Common Stock issuable upon conversion
hereof shall be deemed to have become a holder of record on the next succeeding
day on which the transfer books are open, but the Conversion Price shall be that
in effect on the Conversion Date. The Maker covenants that all securities which
may be issued upon exercise of the Conversion Right will, upon issuance, be
fully paid and nonassessable and free of all taxes, liens and charges caused or
created by the Maker with respect to the issuance thereof.
4. Adjustments. The number and kind of securities which may be received upon
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the exercise of the Conversion Right and the Conversion Price shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or from
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time to time after the date hereof effect a subdivision of its outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately
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decreased, and conversely, if the Maker shall at any time or from time to time
after the date hereof combine its outstanding shares of Common Stock, the
Conversion Price then in effect immediately before such combination shall be
proportionately increased. Any adjustment under this section shall become
effective upon the close of business on the date the subdivision or combination
becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
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shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event, the Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
that such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(ii) the denominator of which shall be the sum of the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date and the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed and such
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dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter such Conversion Price shall
be adjusted pursuant to this subsection as of the time of actual payment of such
dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
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any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Maker other than shares of Common Stock, then and in each such event
provisions shall be made so that the holder of this Note shall receive, upon
conversion of this Note, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Maker which such holder
would have received had its Note been converted into shares of Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the Conversion Date, retained such securities
(together with any distributions payable thereon during such period) receivable
by the holder as aforesaid during such period, giving application to all
adjustments called for during such period under this section with respect to the
rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of Common
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Stock issuable upon the conversion of this Note shall be changed into the same
or different number of shares of any class or classes of capital stock, whether
by capital reorganization, reclassification
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or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation or sale
of assets provided for in subsection (e) below), then and in each such event,
the holder of this Note shall have the right thereafter to convert this Note
into the kind and amount of shares of capital stock and other securities and
property receivable upon such reorganization, reclassification or other change,
as the holder of the number of shares of Common Stock into which this Note might
have been converted immediately prior to such reorganization, reclassification
or change, all subject to further adjustment as provided herein.
(e) Reorganization or Consolidation. If, at any time or from time to
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time, there shall be a capital reorganization of the shares of Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this section) then as a part of such reorganization or
consolidation, provision shall be made so that the holder of this Note shall
thereafter be entitled to receive upon conversion of this Note, the number of
shares of capital stock or other securities or property of the Maker, or of the
successor corporation resulting from such merger or consolidation or sale, to
which the holder of shares of Common Stock deliverable upon conversion would
have been entitled on such reorganization or consolidation.
(f) Minimum Adjustment. Notwithstanding anything to the contrary set forth
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herein, no adjustment of the Conversion Price shall be made in an amount equal
to less than five cents ($.05), but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to five cents ($.05) or more.
(g) Certificate of Adjustment. Upon the occurrence of each adjustment or
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readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(h) Exceptions. Notwithstanding any other provision in this Section 4, no
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adjustment shall be made to the number or kind of securities issuable upon
exercise of the Conversion Right, and the Conversion Price shall not be adjusted
in the event of the issuance of securities by the Company for consideration,
such as in the sale of securities or the issuance of securities in a merger,
consolidation or acquisition of operations or assets of another person or
entity.
(i) Notices of Record Date. If and in the event that:
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(i) the Maker shall set a record date for the purpose of entitling the
holders of shares of Common Stock to receive a dividend, or any other
distribution, payable otherwise than in cash;
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(ii) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Common Stock);
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least ten (10) days prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution; or (B) on which such
reclassification or reorganization is to take place and the record date as of
which the holder of record shall be entitled to exchange this Note for
securities or other property deliverable upon such reclassification or
reorganization.
5. Reservation. The Maker covenants that, during the period within which the
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Conversion Right may be exercised, the Maker will at all times have authorized
and reserved for the purpose of issuance upon exercise of the Conversion Right,
a sufficient number of shares of Common Stock (or other securities subject to
the Conversion Right) to provide for the exercise of the Conversion Right in
full.
6. Fractional Shares. No fractional shares of Common Stock shall be issued
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upon conversion of this Note. In lieu of any fractional shares of Common Stock
to which the Payee would otherwise be entitled, the Maker shall pay an amount
equal to the product of such fraction multiplied by the fair value of one share
of Common Stock on the Conversion Date, as determined in good faith by the Board
of Directors of the Maker.
7. Registration Rights. The Maker hereby covenants and agrees as follows:
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(a) Definitions. For purposes of this section:
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(i) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration of effectiveness of such registration
statement or other document by the Securities and Exchange Commission (the
"SEC").
(ii) The term "Registrable Securities" means: (A) the shares of Common
Stock issued or issuable upon conversion of this Note; or (B) any other
securities of the Maker issued as (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, in exchange for or in replacement of the shares of
Common Stock referenced in subsection (A) immediately above, excluding in all
cases, however, any Registrable Securities sold to the public pursuant to a
registration or an exemption from registration.
(iii) The number of shares of "Registrable Securities then
outstanding" shall be the number of securities outstanding which are Registrable
Securities.
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(iv) The term "Holder" as used hereinafter in this section means any
person or entity owning of record Registrable Securities.
(b) Registration Rights. In the event that the Conversion Right is
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exercised, then as soon thereafter as is reasonably practicable the Maker shall
cause the Registrable Securities to be included in a registration statement
filed by the Maker under the Securities Act of 1933 as amended. To the extent
that a Holder is offered the opportunity to include all of its Registrable
Securities in a registration statement, the Maker shall have satisfied all of
its obligations under this section.
(c) Obligations of the Maker. Whenever required under this section to
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file a registration statement to effect the registration of any Registrable
Securities, the Maker shall:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of at least fifty percent (50%) of the Registrable Securities registered
thereunder, keep such registration statement effective for at least four (4)
months.
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus included therein as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the 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 jurisdiction.
(v) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering.
(vi) Notify the Holders promptly after the Maker shall have received
notice thereof, of the time when the registration statement becomes effective or
any supplement to any prospectus forming a part of the registration statement
has been filed.
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(vii) Notify the Holders of any stop order suspending the effectiveness
of the registration statement and use its reasonable best efforts to remove such
stop order.
(d) Furnish Information. It shall be a condition precedent to the
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obligations of the Maker to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Maker pursuant hereto shall furnish to the Maker such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of its Registrable Securities. In that connection, each such
Holder shall be required to represent to the Maker that all such information
which is given is both complete and accurate in all material respects. Each of
such Holders shall deliver to the Maker a statement in writing from the
beneficial owners of such securities that such beneficial owners bona fide
intend to sell, transfer or otherwise dispose of such securities.
(e) Definition of Expenses.
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(i) "Registration Expenses" shall mean all expenses incurred by the
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Maker in complying with Sections 7(b) and 7(c) hereof, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Maker, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Maker which shall be
paid in any event by the Maker).
(ii) "Selling Expenses" shall mean all underwriting discounts, selling
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commissions and underwriters' expense allowance applicable to the sale and all
fees and disbursements of any counsel (other than the Maker's regular counsel)
for any Holder.
(f) Expenses of Registration. All Registration Expenses incurred in
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connection with any registration, qualification or compliance herewith, shall be
borne by the Maker, and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered; provided, however, that the Maker shall not be
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required to pay any Registration Expenses if, as a result of the withdrawal of a
request for registration by Initiating Holders, the registration statement does
not become effective. In the case of such withdrawal and the failure of the
Holders to agree so to forfeit, the Holders shall bear such Registration
Expenses pro rata on the basis of the number of Registrable Securities so
included in the registration request.
(g) Underwriting Requirements. All Holders proposing to distribute
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their securities through an underwriting pursuant hereto shall (together with
the Maker and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Maker.
Notwithstanding any other provision of this section, at the request of the
managing underwriter, the Holder shall delay the sale of Registrable Securities
which such Holder has requested be registered under this section for the ninety
(90) day period commencing with the effective date
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of the registration statement. Notwithstanding anything to the contrary herein,
no such delay shall be required with respect to securities offered by holders of
securities who have requested the Maker to register such securities pursuant to
a mandatory registration obligation of the Maker if other security holders of
the Maker who have not made requests pursuant to such an obligation are not
subject to a similar delay. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the Maker
and the underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(h) Delay of Registration. No Holder shall have any right to obtain or
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seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this section.
(i) Reports Under Securities Exchange Act of 1934. With a view toward
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making available to Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Maker to the public without
registration, the Maker agrees to:
(i) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times;
(ii) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Maker under the Securities Act
and the Exchange Act; and
(iii) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request such information as may be
reasonably requested in order to allow any Holder to avail himself of any rule
or regulation of the SEC which permits the selling of any such securities
without registration.
(j) Termination of the Maker's Obligations.
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(i) The Maker shall have no obligation pursuant to Section 7(c) with
respect to any request made by any Holder after the second (2nd) anniversary of
the Maturity Date.
(ii) Notwithstanding any provision hereof to the contrary, the Maker
shall not be required to effect any registration under the Securities Act or
under any state securities laws on behalf of any Holder or Holders if, in the
opinion of counsel for the Maker, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred and the method of offering or
transfer) is exempt from the registration requirements of the Securities Act and
the securities laws of applicable states.
(k) Lock Ups. The Payee (and any subsequent Holder) by acceptance hereof,
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hereby acknowledges that it is the Maker's intention to conduct the Public
Offering, which offering is
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contemplated to be underwritten; the Payee (and any subsequent Holder) by
acceptance hereof hereby agrees: (i) that its rights to request registration
pursuant to the provisions hereof shall be subject in all respects to the prior
approval of the underwriter of the Public Offering (the "Underwriter"); and (ii)
the Payee (and any subsequent Holder) shall agree to refrain from exercising
such rights or transferring any of the Registrable Securities for a period of up
to thirteen (13) months, should the Underwriter so request.
8. Miscellaneous.
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(a) Restricted Securities. By acceptance hereof, the Payee understands and
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agrees that this Note and the shares of Common Stock issuable upon conversion
hereof are "restricted securities" under the federal securities laws inasmuch as
they are being acquired from the Maker in a transaction not involving a public
offering and have not been the subject of registration under the Securities Act
and that under such laws and applicable regulations such securities may be
resold in the absence of registration under the Securities Act only in certain
limited circumstances. The Payee hereby represents that he is taking the Note
for long term investment purposes and not with a view toward resale or
distribution and that he is familiar with Rule 144 promulgated under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
(b) Further Limitations on Disposition. This Note may not be negotiated,
----------------------------------
assigned or transferred by Payee. The Payee further agrees not to make any
disposition of all or any portion of this Note (or of the securities issuable
upon conversion hereof) unless and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement;
(ii) such disposition is made in accordance with Rule 144 under the
Securities Act; or
(iii) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed statement of the
circumstances surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to the Maker, that such disposition will not require
registration under the Securities Act and will be in compliance with applicable
state securities laws.
(c) Legends. It is understood that this Note and each certificate
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evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with respect thereto pursuant to any stock split,
stock dividend, reorganization or recapitalization) shall bear the legends (in
addition to any legends which may be required in the opinion of the Maker's
counsel by the securities laws of the state where the Payee is located) set
forth on the first page of this Note.
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9. Notices.
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(a) Notices to the Payee. Any notice required by the provisions of this
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Note to be given to the holder hereof shall be in writing and may be delivered
by personal service, facsimile transmission or by registered or certified mail,
return receipt requested, with postage thereon fully prepaid or overnight
delivery courier. All such communications shall be addressed to the Payee of
record at its address appearing on the books of the Maker. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note requires a
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notice to be given or a request to be made to the Maker by the Payee or the
holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed by
the Payee of this Note or other holder giving such notice or request (or, in the
case of a notice or request by Holders of a specified percent in aggregate
principal amount of outstanding Notes, unless signed by each Holder of a Note
whose Note has been counted in constituting the requisite percentage of Notes
required to give such notice or make such request).
11. Construction; Governing Law. The validity and construction of this Note
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and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Delaware without regard to the conflicts of law principles
thereof.
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this Non-Negotiable 8% Convertible Promissory Note and
affixed its corporate seal as of this _____ day of ___________, 1996.
THINK NEW IDEAS, INC.
By:
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Xxxxx X. Xxxxxxx, Chief Executive Officer
ATTEST:
By:
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Xxx Xxxxxxx, Secretary
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CONVERSION FORM
The undersigned hereby elects to convert the following principal amount of
the attached Non-Negotiable 8% Convertible Promissory Note (the "Note") (not to
exceed $__________) into shares of common stock, par value $.0001 per share, of
THINK New Ideas, Inc.
State such amount: _____________________________ Dollars ($___________).
Date: Signature:
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(Sign exactly as your name appears on the Note)
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