Convertible Promissory Note - Encoding.com Inc. and Martin Tobias
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, 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
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$454,117.06 June 5, 1998
Seattle, Washington
For value received, Encoding.com, Inc., a Delaware corporation (the
"Company"), promises to pay to Martin Tobias (the "Holder"), the principal sum
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of Four Hundred Fifty Four Thousand One Hundred Seventeen Dollars and Six Cents
($454,117.06). Interest shall accrue from the date of this Note on the unpaid
principal amount at a rate equal to five and one-half percent (5.5 %) per annum,
compounded annually. This Note is subject to the following terms and
conditions:
1. Maturity. Unless converted as provided in Section 2, this Note will
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automatically mature and be due and payable on December 31, 1998 (the "Maturity
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Date"). Subject to Section 2 below, interest shall accrue on this Note.
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Notwithstanding the foregoing, the entire unpaid principal sum of this Note,
together with accrued and unpaid interest thereon, shall become immediately due
and payable upon the insolvency of the Company, the commission of any act of
bankruptcy by the Company, the execution by the Company of a general assignment
for the benefit of creditors, the filing by or against the Company of a petition
in bankruptcy or any petition for relief under the federal bankruptcy act or the
continuation of such petition without dismissal for a period of ninety (90) days
or more, or the appointment of a receiver or trustee to take possession of the
property or assets of the Company.
2. Conversion.
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(a) Investment by the Holder. Some or all of the entire principal
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amount of and (at the Company's option) accrued interest on this Note shall be
converted into shares of the Company's equity securities (the "Equity
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Securities") issued and sold at the close of the Company's next equity financing
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in a single transaction or a series of related transactions yielding gross
proceeds to the Company of at least $1,000,000 in the aggregate (the "Next
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Equity Financing"). The number of shares of Equity Securities to be issued upon
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such conversion shall be equal to the quotient obtained by dividing (i) the
entire principal amount of this Note plus (if applicable) accrued interest by
(ii) the price per share of the Equity Securities, rounded to the nearest whole
share, and the issuance of
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such shares upon such conversion shall be upon the terms and subject to the
conditions applicable to the Next Equity Financing. If the Company elects to
convert accrued interest into Equity Securities, this election shall apply
equally to all of the Notes.
(b) Mechanics and Effect of Conversion. No fractional shares of the
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Company's capital stock will be issued upon conversion of this Note. In lieu of
any fractional share to which the Holder would otherwise be entitled, the
Company will pay to the Holder in cash the amount of the unconverted principal
and interest balance of this Note that would otherwise be converted into such
fractional share. Upon conversion of this Note pursuant to this Section 2, the
Holder shall surrender this Note, duly endorsed, at the principal offices of the
Company or any transfer agent of the Company. At its expense, the Company will,
as soon as practicable thereafter, issue and deliver to such Holder, at such
principal office, a certificate or certificates for the number of shares to
which such Holder is entitled upon such conversion, together with an other
securities and property to which the Holder is entitled upon such conversion
under the terms of this Note, including a check payable to the Holder for any
cash amounts payable as described herein. Upon conversion of this Note, the
Company will be forever released from all of its obligations and liabilities
under this Note with regard to that portion of the principal amount and accrued
interest being converted including without limitation the obligation to pay such
portion of the principal amount and accrued interest.
3. Payment. All payments shall be made in lawful money of the United
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States of America at such place as the Holder hereof may from time to time
designate in writing to the Company. Payment shall be credited first to the
accrued interest then due and payable and the remainder applied to principal.
Prepayment of this Note may be made at any time without penalty.
4. Transfer; Successors and Assigns. The terms and conditions of this Note
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shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Notwithstanding the foregoing, the Holder may not
assign, pledge, or otherwise transfer this Note without the prior written
consent of the Company, except for transfers to affiliates. Subject to the
preceding sentence, this Note may be transferred only upon surrender of the
original Note for registration of transfer, duly endorsed, or accompanied by a
duly executed written instrument of transfer in form satisfactory to the Holder.
Thereupon, a new note for the same principal amount and interest will be issued
to, and registered in the name of, the transferee. Interest and principal are
payable only to the registered holder of this Note.
5. Governing Law. This Note and all acts and transactions pursuant hereto
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and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
6. Notices. Any notice required or permitted by this Note shall be in
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writing and shall be deemed sufficient upon delivery, when delivered
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personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), 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.
7. Amendments and Waivers. Any term of this Note may be amended only with
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the written consent of the Company and the Holder. Any amendment or waiver
effected in accordance with this Section 7 shall be binding upon the Company,
the Holder and each transferee of the Note.
8. Stockholders, Officers and Directors Not Liable. In no event shall any
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stockholder, officer or director of the Company be liable for any amounts due or
payable pursuant to this Note.
COMPANY:
ENCODING.COM, INC.
/s/ Martin Tobias
By:______________________________
Martin Tobias
Name:____________________________
(print)
Minister of Order & Reason
Title:___________________________
Address: 1725 Westlake Ave. North
Suite 102
Seattle, Washington 98109
AGREED TO AND ACCEPTED:
MARTIN TOBIAS
/s/ Martin Tobias
By:________________________________
Martin Tobias
Name:______________________________
(print)
Minister of Order & Reason
Title:_____________________________
3601 East Union
Address:___________________________
Seattle, WA 98122
___________________________________
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