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Sample Business Contracts

Promissory Note - Knowledge Kids Enterprises Inc. and Michael Wood

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                                                     NOTICE TO BORROWER:
                                                     THIS DOCUMENT CONTAINS
                                                     PROVISIONS WHICH REQUIRE A
                                                     BALLOON PAYMENT AT MATURITY


                                 PROMISSORY NOTE

$1,756,097.28                                                      June 30, 2000

         FOR VALUE RECEIVED, the undersigned ("Borrower"), hereby promises to
pay in United States legal tender to the order of the Knowledge Kids
Enterprises, Inc., a Delaware corporation ("Lender"), at Lender's principal
place of business, or such other place as Lender may from time to time designate
by written notice to Borrower, the principal sum of One Million Seven Hundred
Fifty-Six Thousand Ninety-Seven Dollars and Twenty-Eight Cents ($1,756,097.28)
together with interest as specified below in accordance with the following
provisions:

         1. Interest. The principal sum hereof outstanding from time to time
shall bear interest from the date hereof at an annual rate of 6.62% per annum,
compounded annually.

         2. Payment of Principal and Interest. The principal sum hereof,
together with all unpaid interest then accrued thereon shall become due and
payable in full on the earlier to occur of: (i) December 31, 2006 or (ii) the
tenth day following the expiration of the "lock-up" period applicable to the
Class A Common Stock of Lender pledged to Lender by Borrower pursuant to the
Stock Pledge referenced in paragraph 3 below (the "Option Shares"), if any,
pursuant to the terms of an underwriters agreement as referenced in Section 14
of that certain Amended And Restated Stock Option Agreement dated January 1,
2000 between Borrower as Optionee and Lender as the Company (the "Stock Option
Agreement"), following an "Initial Public Offering," as defined in Lender's
Stock Option Plan, and if there shall be no applicable lock-up period, then the
tenth day following the "Initial Public Offering" if such Option Shares are
tradeable pursuant to applicable securities laws, and if such Option Shares are
not then tradeable pursuant to applicable securities law, then the tenth day
following the date they become so tradeable. All payments hereunder shall be
applied first to any then unpaid, but accrued, interest and then to principal.

         3. Security. Borrower's obligations hereunder are secured pursuant to
that certain Stock Pledge of even date herewith in which Borrower pledged
609,756 shares of the Class A Common Stock of Lender to Lender as security for
the repayment of this Note.

         4. Recourse. Borrowers obligation to pay the principal and interest on
this Note shall be on a full recourse basis to the Borrower. Borrower shall be
directly personally liable for all amounts owing hereunder notwithstanding the
fact that this Note is secured by the pledge of stock pursuant to the Stock
Pledge. Without limiting the generality of the foregoing, Borrower shall be
liable for any deficiency if Lender does not recover payment in full from the
pledged shares.


                                       1.
<PAGE>
         5. Right of Offset. Notwithstanding that this Note may not otherwise be
due and payable, if Lender elects to exercise its repurchase right pursuant to
Section 5 of the Option Agreement, Lender may offset against the consideration
due to Borrower pursuant to such repurchase right any and all amounts owed by
Borrower to Lender pursuant to this Note.

         6. Events of Default. Any one or more of the following acts, events, or
omissions by Borrower shall be deemed an event of default under this Note:

                  (a) Borrower fails to make any payment of principal and/or
interest on this Note on the date that said payment is due.

                  (b) Borrower is in violation of or fails to comply with any of
the terms or provisions of this Note or the Stock Pledge.

                  (c) Borrower is insolvent by being unable to pay his debts
when they become due or by having the amount of his liabilities exceed the
amount of his assets; or Borrower voluntarily files a petition in bankruptcy or
petition for an arrangement under any provisions of the Bankruptcy Act; or a
petition for an arrangement under any of the provisions of the Bankruptcy Act is
filed against Borrower, if said petition is not vacated, dismissed, or otherwise
terminated within sixty (60) days after the filing thereof.

                  (d) A receiver is appointed in bankruptcy for the assets of
Borrower or Borrower applies for or consents to the appointment of, or the
taking of possession by a receiver, custodian, trustee, or liquidator of all or
a substantial part of his property, or Borrower files a petition so that he can
take advantage of any law providing for relief of debtors.

                  (e) Borrower makes an assignment or consents to an assignment
for the benefit of creditors.

         7. Rights of Default.

                  (a) Interest shall accrue and be payable upon any amounts
payable to Lender hereunder, including, without limitation, upon interest
payments, at a rate equal to the prime rate floating, of Bank of America, N.A.,
as declared from time to time, plus 2-1/2% per annum from the date any payment
becomes due or, if applicable, the date of any event of default until the date
payment is made, except as otherwise provided herein.

                  (b) Upon any event of default as stated above, all principal
and interest then accrued on this Note shall become immediately due and payable,
and Payee shall have all of its rights and remedies at law and in equity.

                  (c) All rights and remedies hereunder shall be cumulative and
concurrent and may be pursued singularly, successively, or together, at the sole
discretion of Lender, and maybe exercised as often as occasion therefore may
arise under the terms of this Note.

         8. Prepayment. Borrower shall have the right to prepay all or any part
of the amount owed pursuant to this Note without penalty.


                                       2.
<PAGE>
         9. Notices. All notices, consents, waivers, demands, approvals,
requests, or other instruments or communications provided for under this Note or
by law to be served or given to either Borrower or Lender or which either party
may desire to give hereunder shall be in writing and deemed delivered if
personally delivered, delivered by facsimile transmission, or mailed by
registered or certified mail, return receipt requested, by depositing the same
in the United States Mail depository for mailing in a sealed envelope with
postage prepaid and addressed as follows:

         To Lender:        Knowledge Kids Enterprises, Inc.
                           1400 65th Street
                           Suite 200
                           Emeryville, CA 94608
                           Attention: Chief Financial Officer

                  With a copy to:   Stanley E. Maron, Esq.
                                    Maron & Sandler
                                    844 Moraga Drive
                                    Los Angeles, CA 90049

         To Borrower:      Michael Wood
                           At the most recent address
                           provided to the Lender by
                           Borrower

or such other address as the respective parties may from time to time designate
in writing to the other. All such notices, demands, consents, waivers,
approvals, or requests of other instruments shall be deemed to have been served
two days after the date that they are postmarked or upon the date they are
delivered in the event they are personally delivered or delivered by facsimile
transmission.

         10. Waivers. No failure on the part of Lender to exercise, nor delay in
exercising, any right, remedy, power, or privilege under this Note shall operate
as a waiver thereof, nor shall a single or partial exercise thereof, preclude
any further exercise of such right, remedy, power, or privilege or any other
right, remedy, power, or privilege. Waiver by Lender of any default hereunder
shall not be deemed, nor shall the same constitute, a waiver of any subsequent
default on the part of Borrower of the same or a different nature.

         11. Waiver of Presentment. Borrower hereby expressly waives
presentment, demand for payment, notice of dishonor, protest, notice of
nonpayment or protest, and diligence in the collection of the sums due
hereunder.

         12. Captions. All captions contained in this Note are for convenient
reference only and shall not be considered in any way in connection with the
interpretation or enforcement of any provision hereof.

         13. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of California. The parties
hereto further consent to service of process by certified mail directed to the
addresses set forth above.


                                       3.
<PAGE>
         14. Successors in Interest. This Note shall be binding upon and inure
to the benefit of the Borrower and Lender and their respective successors and
assigns provided that Borrower's obligations hereunder are not transferable.

         15. Severability. In the event any one or more of the provisions
contained in this Note or any application thereof shall be invalid, illegal, or
enforceable in any respect, the validity, legality, and enforceability of the
remaining provisions contained herein and the application thereof shall not in
any way be affected or impaired thereby.

         16. Usury Law. It is the intention of the parties to conform strictly
to applicable usury laws from time to time in force, and all agreements between
Borrower and Lender, whether now existing or hereafter arising and whether oral
or written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid to Lender or the holder hereof, or collected by
Lender or such holder, for the use, forbearance or detention of the money to be
lent hereunder or otherwise, or for the payment or performance of any covenant
or obligation contained herein or in any other document evidencing, securing, or
pertaining to the indebtedness evidenced hereby, exceed the maximum amount
permissible under applicable usury laws. If under any circumstances whatsoever
fulfillment of any provision hereof at the time performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
law, then ipso facto, the obligation to be fulfilled shall be reduced to the
limit of such validity; and if under any circumstances Lender or other holder-
hereof shall ever receive an amount deemed interest, by applicable law, which
would exceed the highest lawful rate, such amount that would be excessive
interest under applicable usury laws shall be applied to the reduction of the
principal amount owing hereunder and not to the payment of interest, or if such
excessive interest exceeds the unpaid principal amount, the excess shall be
deemed to have been a payment made by mistake and shall be refunded to Borrower
or to any other person making such payment on Borrower's behalf. The terms and
provisions of this paragraph shall control and supersede every other provision
of all agreements between Lender and Borrower and any endorser or guarantor of
this Note.

         17. Attorneys' Fees. In the event this Note is turned over to an
attorney at law for collection after default, in addition to the principal and
accrued interest, Lender shall be entitled to collect all costs of collection,
including but not limited to reasonable attorneys' fees, incurred in connection
with any of Lender's collection efforts, whether or not suit on this Note is
filed, and all such costs and expenses shall be payable on demand.

                                       Borrower:

                                       /s/ Michael C. Wood
                                       ----------------------------------------
                                       Michael Wood


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