Form of Note
Form
of
Note
The
payment of principal and interest on this Note is subject to certain recoupment
provisions set forth herein and in the Purchase Agreement (defined below)
between the issuer of this Note and the holder to whom this Note originally
was
issued. This Note was originally issued on June 30, 2008, and has not been
registered under the Securities Act of 1933, as amended, or any state securities
act, and may not be sold or transferred in the absence of such registration
or
qualification or an exemption therefrom under the securities act or any such
state securities laws that may be applicable. The sale or transfer of this
Note
is subject to certain restrictions set forth in the Purchase Agreement. The
issuer of this Note will furnish a copy of these provisions to the holder hereof
without charge upon written request.
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US$1,750,000.00
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June
30, 2008
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1. Principal
and Interest.
(a)
FOR
VALUE
RECEIVED, New Motion, Inc., a Delaware corporation (“Maker”),
promises to pay in lawful money of the United States of America to the order
of
▇▇▇▇▇▇▇▇.▇▇▇, LLC, a Minnesota limited liability company (“Payee”),
the
total principal sum of One Million Seven Hundred Fifty Thousand Dollars
($1,750,000.00), with interest thereon until fully paid. This Note is being
entered into pursuant to the Asset Purchase Agreement (the “Purchase
Agreement”)
entered into on June 30, 2008, by and between Maker and Payee.
(b) This
Note
shall bear interest until paid at a rate of ten percent (10%) per annum;
provided, however, that from
and
after an Event of Default and written notice from the Payee to the Maker, this
Note shall bear interest at fifteen percent (15%) per annum. Interest
shall accrue from the date of this Note. Interest shall be computed on the
basis
of a year of 365 days and the actual number of days elapsed.
2. Maturity
Date.
On
the
earliest to occur of (i) July 1, 2009, (ii) when declared due and payable by
the
Payee upon the occurrence of an Event of Default (as defined below), or (iii)
five (5) days after the Maker gives written notice to the Payee of its intent
to
prepay the Note (such earliest date, the “Maturity
Date”),
Payee, in its sole discretion may: (i) demand Maker to pay Payee the amount
by
which the principal amount of this Note plus accrued interest thereon (after
reduction for Uncontested Setoff Amounts, if any, as described below) exceeds
any Contested Amounts (as defined below) plus any amounts which Payee may
contest pursuant to Section 3(c) below (the “Payoff
Amount”),
or,
(ii) convert, in accordance with the procedure set forth in Section 4, the
Payoff Amount into that number of fully paid and nonassessable shares of the
Maker’s common stock (the “Equity
Interests”)
at a
conversion price equal to $5.42 per share (subject to adjustment for any stock
splits or stock dividends). Upon payment in full, or conversion into Equity
Interests, of all principal and interest payable hereunder, this Note shall
be
surrendered to the Maker for cancellation, and the Maker shall be forever
released from all of its obligations and liabilities under this
Note.
3. Setoff.
(a) At
anytime or from time to time on or prior to the Maturity Date, Maker shall
have
the right to setoff against any amounts due Payee pursuant to this Note for
Adverse Consequences (as defined in the Purchase Agreement) Maker, its
affiliates, and their respective officers, directors and employees may have
suffered, which entitle Maker to indemnification under the Purchase Agreement.
Such setoff will be first applied to reduce any accrued interest under this
Note. Maker shall notify Payee prior to setting off such losses against amounts
due Payee pursuant to this Note (such notification, the “Setoff
Notice”).
The
Setoff Notice shall (i) state that Maker believes that there is or has been
a
breach of a representation or warranty contained in the Purchase Agreement
or
that Maker is otherwise entitled to indemnification under the Purchase
Agreement, (ii) set forth the estimated amount of the Adverse Consequences
claimed (the “Setoff
Amount”)
and
(iii) include a summary of known, relevant facts with respect to the
claim.
(b) If
Payee
does not contest a Setoff Notice in writing within thirty (30) days of the
date
of the Setoff Notice, Maker shall proceed with the setoff described in the
Setoff Notice and the principal amount of this Note shall be automatically
reduced in an amount equal to such uncontested Setoff Amount (the “Uncontested
Setoff Amount”);
provided, if Payee pays to Maker in cash (in immediately available funds) all
or
a portion of such Uncontested Setoff Amount within five (5) days following
the
determination of such Uncontested Setoff Amount, this Note shall not be reduced
to the extent of such payment.
(c) If
Payee
gives written notice to Maker contesting all or a portion of the Setoff Notice
within thirty (30) days of the date of the Setoff Notice (such notice, the
“Dispute
Notice”
and
the
amount so contested the “Contested
Amount”),
the
parties shall meet within ten (10) business days from the date of the Dispute
Notice for the purpose of resolving the dispute. Any portion of a Setoff Notice
that is not contested or is subsequently settled in Makers favor shall be
treated as an Uncontested Setoff Amount.
(d) If
the
parties are unable to reach agreement with respect to the Contested Amount,
at
the time payment would otherwise be due to Payee pursuant to this Note, Maker
shall deposit an amount in cash equal to the Contested Amount with a third
party
escrow agent designated by Maker, and reasonably acceptable to Payee, pending
resolution of the dispute. Such escrow agent shall be based in the United States
and shall be in the business of regularly providing escrow services. At the
time
the Contested Amount is placed into escrow, Maker, Payee and the escrow agent
shall enter into an escrow agreement reasonably acceptable to the parties.
The
escrow agreement shall provide for the investment of the Contested Amount in
accordance with the directions of Payee, so long as such directions are
reasonably acceptable to Maker. Any accrued interest, earnings or income earned
on such investment shall be added to the Contested Amount. Payee shall be
responsible for any taxes on the interest, earnings or income related to the
investment of the Contested Amount, provided,
however,
that
Payee may request the escrow agent to release from escrow an amount equal to
Payee’s tax obligation so long as the original Contested Amount remains intact.
The Contested Amount shall be held by the escrow agent: (i) until receipt of
a
settlement agreement executed by Maker and Payee setting forth a resolution
of
the Contested Amount and the amount to be delivered to the parties; or (ii)
until receipt of a written notice from a party attaching a copy of a judgment
or
an order of a court with proper jurisdiction specifying the release of the
Contested Amount, or (iii) in the event that the indemnification claim, which
formed the subject of the Setoff Notice related to a third party claim, then
the
Contested Amount will be released upon proof of settlement or payment in full,
and related releases, of such claim, whichever of the foregoing events occurs
first. Maker and Payee shall be equally responsible for the fees of the escrow
agent. Maker shall not be responsible for and shall have no further obligation
with respect to the payment of the Contested Amount, or interest thereon,
pursuant to this Note once such amount is placed into escrow and Payee shall
look solely to the escrow agent for payment of such amount. In accordance with
the provisions of this Note, Payee may elect to convert into Equity Interests
any Contested Amount it is ultimately entitled to receive by delivery of written
notice to Maker during the five (5) day period following the resolution,
judgment or determination of such Contested Amount.
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4. Mechanics
of Conversion.
In
connection with any conversion of this Note, Payee shall execute and deliver
to
the Maker a purchase agreement and other agreements or documents governing
the
issuance of the Equity Interests to Payee. Upon conversion of this Note, Payee
shall surrender this Note, duly endorsed, at the principal office of the Maker.
As promptly as practicable after the conversion and surrender of this Note,
the
Maker, at its expense, will issue and deliver to the Payee of this Note a
certificate or certificates for the number of full shares of Equity Interests
issuable upon such conversion (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to the
Maker). No fractional shares of Equity Interests shall be issued upon conversion
of this Note. In lieu of the Maker issuing any fractional shares to the Payee
upon the conversion of this Note, the number of shares of Equity Interests
to be
issued shall be rounded to the nearest whole number.
5. Currency.
This
Note
is denominated in U.S. Dollars and all cash payments hereunder shall be
calculated and paid in U.S. Dollars.
6. Waivers.
Maker
and
any endorsers of this Note hereby waive demand, grace, notice, presentment
for
payment, and protest, and agree and consent that this Note may be renewed,
and
the time of payment extended without notice, and without releasing any party
hereto.
7. Events
of Default.
Upon
the
happening of an Event of Default (as defined below), the Payee shall be
entitled, by written notice to the Maker, to declare the principal amount of
this Note, together with accrued interest, to be, and upon receipt of such
declaration by the Maker, this Note shall be accelerated and become, immediately
due and payable.
The
occurrence of any of the following events shall constitute an “Event
of Default”:
(a)
failure by Maker to pay amounts due under this Note within five (5) days after
they become due; (b) the commencement of any proceedings under any
bankruptcy or insolvency laws by or against Maker; (c) the sale or transfer
by
Maker (or any affiliate of Maker) to a third party of all or substantially
all
of the Acquired Assets (as that term in defined in the Purchase Agreement);
(d)
change-of-control (a merger, consolidation, or other reorganization as a result
of which a third party acquires more than 50% of the outstanding voting
securities of Maker); (e) if Maker’s common stock is no longer listed on the
NASDAQ Global Market, NASDAQ Capital Market, AMEX or NYSE; and (f) any material
breach of the representations and warranties of Maker set forth in this Note
or
the Purchase Agreement.
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8. Representations
and Warranties of Maker.
This
Note has been duly authorized, and upon issuance in accordance with the terms
of
the Purchase Agreement, will be validly issued, will be issued in compliance
with all applicable federal and state securities laws as presently in effect,
and will not be subject to any preemptive rights, rights of first refusal or
restrictions on transfer other than under the Purchase Agreement and under
applicable federal and state securities laws. The shares of Maker’s common stock
issuable upon conversion of this Note have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of this Note, will
be
duly and validly issued, fully paid and nonassessable, will be issued in
compliance with all applicable federal and state securities laws as presently
in
effect, and will not be subject to any preemptive rights, rights of first
refusal or restrictions on transfer other than under the Purchase Agreement
and
under applicable federal and state securities laws.
9. Attorney’s
Fees.
If
this
Note is placed in the hands of an attorney for collection or collected through
bankruptcy or other judicial proceedings, or if suit is brought hereon, Maker
agrees to pay in cash, in addition to all other amounts owing hereunder, all
reasonable expenses and costs of collection, including reasonable attorneys’
fees, incurred by the owner or holder hereof in connection with such collection
or proceedings.
10. Transfer.
This
obligation is registered as to both principal and any stated interest with
Maker
(or its agent) and transfer of the obligation may be effected only by surrender
of the old instrument and either the reissuance by Maker of the old instrument
to the new holder or the issuance by Maker of a new instrument to the new
holder. Maker agrees that Payee may assign or transfer this Note to its
Affiliates (as defined in the Purchase Agreement) or to one or more holders
of
Payee’s Membership Interests pursuant to the terms of the Purchase Agreement.
Maker may not assign or transfer this Note without the prior approval of
Payee.
11. Governing
Law.
All
terms, obligations, and provisions of this Note are to be determined and
governed by the laws of the State of New York, excluding that body of law
relating to conflict of laws. Should any term or provision of this Note be
declared invalid, such determination shall not affect the remaining provisions
hereof, which shall remain in full force and effect. Notwithstanding any
provision contained herein to the contrary, the Payee shall not be entitled
to
receive, collect, or apply as interest on the obligation evidenced hereby,
any
amount in excess of the maximum rate of interest permitted by applicable
law.
12. Notices.
All
notices and communications required or permitted to be given under this Note
shall be in writing and shall be deemed to have been duly given if delivered
(i) by hand (including by reputable overnight courier), (ii) by mail
(certified or registered mail, return receipt requested) or (iii) by
telecopy facsimile transmission (receipt of which is confirmed):
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If
to
Maker:
▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
Chief Executive Officer
And
a
copy (which shall not constitute notice) to:
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & Markiles, LLP
▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇▇▇▇▇
If
to
Payee:
▇▇▇▇▇▇▇▇.▇▇▇,
LLC
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇
▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇
Attention:
General Counsel
or
to
such other person or address as a person named above shall specify by notice
in
writing to the other persons. All such notices and communications shall be
deemed to have been given (i) on the date on which so hand-delivered,
(ii) on the third business day following the date on which so mailed and
(iii) on the date on which telecopied and confirmed, except for a notice of
change of address, which shall be effective only upon receipt
thereof.
13. Heading;
References.
All
headings used herein are used for convenience only and shall not be used to
construe or interpret this Note. Except where otherwise indicated, all
references herein to Sections refer to Sections hereof.
14. Entire
Agreement; Amendments.
Any
term
of this Note may be amended or terminated and the observance of any term of
this
Note may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Maker and
the
Payee. No waivers of or exceptions to any term, condition or provision of this
Note, in any one or more instances, shall be deemed to be, or construed as,
a
further or continuing waiver of any such term, condition or provision. Any
waiver or amendment effected in accordance with this Section shall be binding
upon and inure to the benefit of the parties and their successors,
assigns,
heirs,
administrators and transferees.
15. Stockholder’s
Rights.
Nothing
contained in this Note shall be construed as conferring upon the Payee or any
other person the right to vote or to consent or to receive notice as a
stockholder in respect of meetings of stockholders for the election of directors
of the Maker or any other matters or any rights whatsoever as a stockholder
of
the Maker; and no dividends or interest shall be payable or accrued in respect
of this Note or the Equity Interests issuable upon the conversion hereunder
until, and only to the extent that, this Note shall have been
converted.
[REMAINDER
OF THIS PAGE INTENTIONALLY BLANK]
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IN
WITNESS WHEREOF, Maker has caused this Convertible Promissory Note to be issued
as of the date first set forth above.
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MAKER:
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By:
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Its:
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