THE SECURITIES REPRESENTED BY THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("ACT"), 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
Date of Note: March
9, 2003
(US $250,000)
FOR VALUE
RECEIVED, Citadel Media, Inc., a Washington corporation
(hereinafter "Maker"), with its principal
business address at 2125 Western
Avenue, Suite 200, Seattle, Washington
98121, promises to pay to the order of
Orion Acquisition Corp. II, a Delaware
corporation, and its successors and
assigns (hereinafter referred to as the
"Holder"), at 401 Wilshire Boulevard,
Suite 1020, Santa Monica, California, 90401
or such other place as may be
designated by the Holder hereof, from time
to time, the unpaid principal balance
of this Note, with interest thereon from
the date hereof, on the terms and
conditions set forth herein.
1. INTEREST
RATE: The rate of interest on the unpaid balance of this Note
shall be ten percent (10.0%) per annum,
compounded annually. All interest will
be calculated based on a 360 day year and
applied to the actual number of days
elapsed. If this Note is in default, the
aforementioned rate of interest on the
unpaid balance of this Note will increase
to eighteen percent (18%) per annum,
compounded annually.
2. PAYMENTS:
Maker shall pay interest on the principal outstanding amount
on the Maturity Date or when the principal
amount of this Note is paid, unless
the Note is converted as provided in
Section 10, in which there shall be no
obligation to pay interest on this Note.
The principal amount of this Note shall
be due in full on the Maturity Date.
Principal and interest shall be paid in
lawful money of the United States of
America.
3. ALLOCATION OF
PAYMENTS: All sums paid by Maker shall be applied first to
the payment of any costs or expenses due
Holder, then to any late charges then
due, then to any interest then due, and
finally to payment of principal.
4. PREPAYMENT:
Maker may prepay its obligation under this Note in full (but
not in part) on any day prior to the
Maturity Date, plus accrued but unpaid
interest thereon, upon fifteen (15) days
advance written notice to Holder. This
Note and any outstanding or accrued
interest will be extinguished on the
consummation of the Merger.
5. EVENTS OF
DEFAULT: The occurrence of one or more of the following events
(herein called "Event of Default") shall
constitute a default under this Note:
5.1 Maker fails
to pay the principal and interest payment when due under
this Note;
5.2 Maker shall
makes a general assignment for the benefit of creditors, or
shall file a voluntary petition for
bankruptcy, or shall file any petition or
answer in bankruptcy seeking for itself in
any reorganization, arrangement,
composition, readjustment, dissolution or
similar relief, or shall file any
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answer admitting the material allegations
of a petition for bankruptcy filed
against Maker in any such proceeding, or
shall seek or consent to or acquiesce
in the appointment of any trustee, receiver
or liquidator of Maker, or of all or
any substantial part of the properties of
Maker;
5.3 Within
ninety (90) days after the commencement of any proceeding
against Maker seeking in bankruptcy any
reorganization, arrangement,
composition, readjustment, liquidation,
dissolution or similar relief under
bankruptcy laws, such proceeding shall not
have been dismissed or, within ninety
(90) days after the appointment without the
consent or acquiescence of Maker of
any trustee, receiver or liquidator of
Maker or of all or any substantial part
of the properties of Maker, such
appointment shall not have been vacated;
5.4 Any default
or breach by Maker or its Subsidiaries of the terms of the
Security Agreement;
5.5 Upon the
default by Maker or any of its Subsidiaries in the payment of
institutional or other debt or obligation
(other than trade payables)
aggregating three hundred thousand dollars
($300,000.00) or more or any single
debt or obligation (other than trade
payables) of two hundred thousand dollars
($200,000.00) or more;
5.6 Upon the
default by Maker in the payment or the terms of the promissory
note dated December 9, 2003 in the
principal amount of $500,000 to Holder
(December Orion Note");
5.7 Failure to
observe any material obligation of Maker under this Note.
6. REMEDIES: If
an Event of Default has occurred, the Holder shall give
written notice of the Event of Default to
Maker, which if not cured within ten
(10) business days of the giving of the
notice, then the entire indebtedness
hereby represented shall become immediately
due and payable. Notwithstanding the
foregoing, if the Event of Default has
occurred in the payment of principal and
interest due hereunder or an event of
default has occurred under the December
Orion Note as set forth in the December
Orion Note, it will be deemed to be an
immediate Event of Default, not requiring
any notice thereof before the Holder
may pursue any of its remedies hereunder or
under the Security Agreement. All
past due amounts of principal, interest,
attorneys fees, advisor's fees and
expenses incurred by Holder in connection
with any default shall be added to the
principal balance.
7. COSTS OF
COLLECTION: If this Note is placed in the hands of any attorney
for collection after any Event of Default,
whether suit be brought or not, Maker
promises to pay a reasonable sum as an
attorney fee, in addition to all costs
and expenses incurred by Holder including
costs of suit and preparation
therefor. Costs and fees covered by this
paragraph include, without limitation,
attorneys' fees and expenses for bankruptcy
proceedings (including efforts to
modify or vacate any automatic stay or
injunction), appeals and any anticipated
post-judgment collection services, to the
extent permitted by applicable law.
8. SECURITY:
This Note is secured by a Security Agreement dated December 9,
2003, as amended of even date herewith (the
"Security Agreement") which gives a
lien upon the collateral therein described,
the terms of which are incorporated
herein.
9. WAIVER:
Except for the notices provided herein, Maker waives
presentment, demand, protest and notice of
demand, protest and nonpayment and
consents to any and all renewals and
extensions of the time of payment hereof,
and further agrees that at any time the
terms of payment hereof may be modified
or security released without affecting the
liability of Maker to this Note.
Maker particularly waives
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<PAGE>
the right to demand any marshalling of
assets as a condition to or in connection
with the bringing of action hereon against
Maker or any other party.
10. CONVERSION
OF NOTE:
10.1 Conversion
Option. If there is no Merger as a result of a Media
Withdrawal, then, at the sole option of
Holder, Holder may convert prior to the
Maturity Date all (but not less than all)
of the then unpaid principal balance
of this Note into 250,000 shares of Series
E Preferred Stock, as provided in
Section 10.2 hereof; provided however, if
the Note is not paid in full by the
Maturity Date of June 30, 2004, Holder may
elect to convert this Note at any
time from the Maturity Date of June 30,
2004 until paid in full.
10.2 Series E
Preferred Stock.
(a). The number of shares of Series E Preferred Stock to be
issued
upon conversion of this Note shall be
250,000 shares of Series E Preferred
Stock.
(b). If the Note is converted into Series E Preferred Stock,
Maker
shall also issue to Holder, a Warrant,
substantially in the form attached hereto
as Exhibit 10.2(b) hereof.
(c). If the Note is converted into Series E Preferred Stock, no
interest shall be due on this Note and all
accrued interest shall be deemed paid
in full upon issuance of the Warrant.
10.3 Mechanics
and Effect of Conversion. Upon conversion of this Note,
Holder shall surrender this Note, duly
endorsed, at the principal offices of
Maker or any transfer agent of Maker. At
its expense, Maker will, as soon as
practicable thereafter, time being of the
essence, issue and deliver to Holder
the Warrant and a certificate or
certificates for 250,000 shares of Series E
Preferred Stock. Upon conversion of this
Note, the Security Agreement shall be
terminated and Maker will be forever
released from all of its payment
obligations under this Note, including,
without limitation, obligation to pay
interest on this Note; provided, however,
that for clarity purposes, the other
provisions of this Note shall continue in
full force and effect, including
without limitations, the Section 10,
Section 11, Section 13, Section 16 and
Section 17 hereof.
10.4 Note
Definitions.
(a). "Maturity Date" means June 30, 2004.
(b). "Media Withdrawal" shall occur if (i) Maker withdraws from
the
negotiations of the Merger, without good
reason or cause, which such terms shall
include a withdrawal to pursue other
financings, Sale of Maker or the like (it
being the obligation of Media to negotiate
in good faith and in good faith
complete the Merger), or (ii) Maker fails
to negotiate the terms of the Merger
in good faith, or (iii) if a merger
agreement is approved by Maker and Orion,
Maker, or its shareholders, thereafter
fails to approve, vote for, or otherwise
complete the Merger pursuant to said merger
agreement.
(c). "Merger" means any merger, consolidation, or combination of
Maker
and Orion prior to the Maturity Date in
which Orion is the survivor thereof.
(d). "Orion" means Orion Acquisition Corp. II, a Delaware
corporation.
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<PAGE>
(e). "Sale of Maker" means a sale of all or substantially all
of
Maker's assets, or any merger or
consolidation of Maker with or into another
corporation, other than a merger or
consolidation where Maker is the survivor
thereof.
(f). "Securities" means this Note, the Series E Preferred Stock
and
any common stock of Maker acquired pursuant
to the Warrant.
(g). "Series E Preferred Stock" means the Series E Preferred Stock,
as
provided for in the Articles of
Incorporation of Maker.
10.5 Transfer
Restrictions.
(a). Before any Securities held by Holder or any transferee of
Holder
(either being sometimes referred to as the
"Holder") may be sold or otherwise
disposed of Maker or its assignee(s) shall
have a right of first refusal to
purchase the Securities on the terms and
conditions set forth in this Section
10.5 ("Right of First Refusal").
(b). The Holder of the Securities shall deliver to Maker a
written
notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or
otherwise transfer such Securities; (ii)
the name and address of any proposed
purchaser or other transferee ("Proposed
Transferee"); (iii) the number of
Securities to be transferred; and (iv) the
terms and conditions of any proposed
sale or transfer, including the proposed
purchase price for the Securities to be
transferred (the "Offered Price").
(c). At any time within thirty (30) days after receipt of the
Notice,
Maker and/or its assignee(s) may, by giving
written notice to the Holder, elect
to purchase all or any portion of the
Securities proposed to be transferred to
any one or more of the Proposed
Transferees, at the purchase price determined in
accordance with Section 10.5(c) below. The
purchase price ("Purchase Price") for
the Securities purchased by Maker or its
assignee(s) under this Section Section
10.5 shall be the Offered Price. If the
Offered Price includes consideration
other than cash, the cash equivalent value
of the non-cash consideration shall
be determined by the Board in good
faith.
(d). If any of the Securities proposed in the Notice to be
transferred
to a given Proposed Transferee are not
purchased by Maker and/or its assignee(s)
as provided in Section 10.5, then the
Holder may sell or otherwise transfer such
Securities to that Proposed Transferee at
the Offered Price or at a higher
price, provided that such sale or other
transfer is consummated within sixty
(60) days after the date of the Notice and
provided further that any such sale
or other transfer is effected in accordance
with any applicable securities laws
and the Proposed Transferee and any spouse
executes an agreement, in such form
required by Maker, agreeing and
acknowledging that the provisions of this
Agreement shall continue to apply to the
Securities in the hands of such
Proposed Transferee. If the Securities are
not transferred to the Proposed
Transferee within such period, or if the
Holder proposes to change the price or
other terms to make them more favorable to
the Proposed Transferee, a new Notice
shall be given to Maker, and Maker and/or
its assignees shall again be offered
the Right of First Refusal before any
Securities held by the Holder may be sold
or otherwise transferred.
(e). The provisions of this Section 10.5 shall terminate upon
the
earlier of (i) Merger; (ii) closing of the
first sale of common stock of Maker
to the general public (an "Initial Public
Offering") under a registration
statement declared effective under the
Securities Act of 1933, as amended, or
any successor statute; (iii) Sale of Maker
or (iv) release or terminate of these
re
