EXHIBIT 10.46

 

EUNIVERSE, INC.

 

SECURED NOTE PURCHASE AGREEMENT

 

This Secured Note Purchase Agreement (the “Agreement”) is made this 15th day of
July, 2003 (the “Effective Date”) by and between eUniverse, Inc., a Delaware
corporation (the “Company”), and VP Alpha Holdings IV, L.L.C. (the “Purchaser”).

 

RECITALS

 

WHEREAS, on the terms and subject to the conditions of this Agreement, the
Company desires to issue and sell, and the Purchaser desires to purchase from
the Company, a secured note in the aggregate principal amount of $2,500,000, in
the form attached hereto as Exhibit A (the “Note”), in consideration of
$2,000,000 loaned directly to the Company and the cancellation of a $500,000
note (the “Assigned Note”) purchased by the Purchaser from 550 DMV (as defined
below) in connection herewith;

 

WHEREAS, in further consideration of the purchase by the Purchaser of the Note,
the Company may, subject to certain conditions, issue to the Purchaser a warrant
to purchase 200,000 shares of the Company’s Series B Convertible Preferred
Stock, par value $0.10 per share (or a substantially similar preferred stock
with the changes set forth in the Option Agreement (as defined below)), in the
form attached hereto as Exhibit B (the “Warrant”); and

 

WHEREAS, the Note, the Warrant, and any Preferred Stock issuable upon exercise
of the Warrant are collectively referred to herein as the “Securities.”

 

AGREEMENT

 

In consideration of the mutual promises contained herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties to
this Agreement agree as follows:

 

1. Purchase and Sale of Note.

 

(a) Sale and Issuance of Note. At the Closing (as hereinafter defined), on the
terms and subject to the conditions of this Agreement, the Purchaser agrees to
purchase from the Company, and the Company agrees to issue and sell to the
Purchaser, the Note.

 

(b) Closings.

 

(i) The sale and purchase of the Note to be purchased by the Purchaser (the
“Closing”) shall occur at the offices of Fulbright & Jaworski L.L.P. 865 S.
Figueroa St., 29th Floor, Los Angeles, CA 90017, at 10:00 a.m. (Los Angeles
time), on July 16, 2003 or on such other business day thereafter as may be
agreed upon by the Company and the Purchaser. At the Closing, the Company will
deliver to the Purchaser the Note dated the date of the Closing, and

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registered in the name of the Purchaser, in exchange for delivery by the
Purchaser to the Company or its order of immediately available funds in the
amount of $2,000,000 and the Assigned Note.

 

2. Security Interest. The indebtedness represented by the Note shall be secured
and shall be entitled to the benefit of a security agreement, in the form
attached hereto as Exhibit C (the “Security Agreement”), pursuant to which the
Purchaser shall be granted a first priority security interest in all of the
assets of the Company, pari passu with the first priority security interest in
favor of 550 DMV (as defined below) pursuant to the certain Security Agreement
dated September 6, 2000, as amended or modified to date.

 

3. Conditions to Closing(s). The Purchaser’s obligation to purchase and pay for
the Notes to be sold to it at the Closing is subject to the fulfillment of the
following conditions (unless waived in writing by Purchaser):

 

(a) Representations and Warranties. The representations and warranties of the
Company in the Transaction Documents (as defined in Section 4(a)) shall be
correct when made and at the time of the Closing.

 

(b) Performance; No Default. The Company shall have performed and complied with
all agreements and conditions contained in the Transaction Documents required to
be performed or complied with by it prior to or at the Closing.

 

(c) Compliance Certificates. The Company shall have delivered to the Purchaser
an officer’s certificate, dated the date of the Closing, certifying that the
conditions specified in Section 3(a) and Section 3(b) have been fulfilled.

 

(d) Due Diligence. Purchaser shall have completed its business and legal due
diligence of Borrower and approved the same in its sole discretion.

 

(e) No Material Adverse Change. Since the date hereof, there shall have been no
material adverse change or effect that, individually or when taken together with
all other changes or effects, is or could be likely to be materially adverse to
the business assets, financial condition, operations, capitalization, or
prospects of the Company and its subsidiaries, taken as a whole.

 

(f) Note. The Company shall have delivered to Purchaser the Note, duly executed
by the Company.

 

(g) The Security Agreement. The Company shall have delivered to Purchaser the
Security Agreement, duly executed by the Company.

 

(h) The Option Agreement. The Company shall have delivered to Purchaser the
Option Agreement, duly executed by the Company and 550 DMV shall have delivered
the Option Agreement (as defined in Section 7(k)), duly executed by 550 DMV.

 

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(i) The Intercreditor Agreement. The Company shall have delivered to Purchaser
an Intercreditor Agreement in the form of Exhibit D hereto (the “Intercreditor
Agreement”), duly executed by the Company and 550 DMV shall have delivered the
Intercreditor Agreement, duly executed by 550 DMV.

 

(j) Financing Statements. The Company shall have delivered to Purchaser UCC-1
financing statements and other documents and instruments which Purchaser may
reasonably request to perfect its security interest in the collateral described
in the Security Agreement, duly executed by the Company.

 

(k) Expenses. The Company shall have reimbursed Purchaser for its transaction
expenses in accordance with Section 10(a).

 

(l) Opinion of Counsel. Purchaser shall have received an opinion of legal
counsel for the Company in the form of Exhibit E.

 

(m) Certificate of Good Standing. A Certificate of Good Standing with respect to
the Company, certified as of a recent date prior to the Closing by the Secretary
of State of the State of Delaware.

 

(n) Secretary’s Certificate. A certificate of the Secretary of the Company,
dated the Closing Date, certifying that (1) the Certificate of Incorporation of
the Company, delivered to Purchaser pursuant to the terms hereof, is in full
force and effect and has not been amended, supplemented, revoked or repealed
since the date of such certification; (2) attached thereto is a true and correct
copy of the Bylaws of the Company as in effect on the Closing Date; (3) attached
thereto is a true and correct copy of resolutions duly adopted by the Board of
Directors of the Company authorizing the execution, delivery, and performance by
the Company of this Agreement and the other Transaction Documents (as defined in
Section 4(a)) and the consummation of the transactions contemplated hereby and
thereby; and (4) there are no proceedings for the dissolution or liquidation of
the Company that have commenced or, to the knowledge of the Company, been
threatened.

 

4. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Purchaser that as of the date hereof:

 

(a) Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. It has all requisite right, power and authority to (i) own or
lease and operate its properties and assets, (ii) conduct its business as
presently conducted, and (iii) engage in and consummate the transactions
contemplated hereby, except as set forth on Schedule 4(a). The Company is duly
qualified or otherwise authorized as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification or
authorization is required by applicable law except for those jurisdictions in
which failure to do so would not have a material adverse effect on (x) the
Company’s ability to perform its obligations under this Agreement, the Note, the
Security Agreement, the Option Agreement, the Intercreditor Agreement or that
certain Amendment to Second Amended and Restated Convertible Secured

 

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Promissory Note by the Company in favor of the Purchaser, dated as of the date
hereof (the “Transaction Documents”) or (y) the results of operations, condition
(financial or otherwise), business, assets or liabilities of the Company and its
Subsidiaries, taken as a whole (in either case, a “Material Adverse Effect”).

 

(b) Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement and the authorization, sale, issuance and
delivery of the Note, and the performance of all obligations of the Company
hereunder and thereunder has been taken. The Agreement and the Note, when
executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors’ rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies. The Company’s Board of Directors has determined in its
good faith business judgment that the issuance of the Securities hereunder and
the consummation of the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.

 

(c) No Conflict with Other Instruments. Except as set forth on Schedule 4(c),
the execution, delivery and performance of this Agreement and the Note will not
result in any violation of, be in conflict with, or constitute a default under,
with or without the passage of time or the giving of notice: (i) any provision
of the Company’s Certificate of Incorporation (the “Certificate”) or the
Company’s by-laws; (ii) any provision of any judgment, decree or order to which
the Company is a party or by which it is bound; (iii) any material contract,
obligation or commitment to which the Company is a party or by which it is bound
or other contract, obligation or commitment to which the Company is a party or
by which it is bound and which would reasonably be expected to have a Material
Adverse Effect or impair the Company’s performance of this Agreement or the
Note; or (iv) any statute, rule or governmental regulation applicable to the
Company.

 

(d) Securities Law Compliance. Subject to the accuracy of the representations
and warranties of the Purchaser set forth in Section 5, the offer, issue, and
sale of the Note is exempt from the registration requirements of Section 5 of
the Securities Act of 1933, as amended (the “Act”) and the qualification
requirements, if any, of applicable state securities laws.

 

(e) Subsidiaries. Except as set forth on Schedule 4(e), the Company has no
Subsidiaries. For purposes of this Agreement, “Subsidiary” means any
corporation, association or other business entity in which the Company or one or
more of its Subsidiaries owns sufficient equity or voting interests to enable it
or them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or persons performing similar functions) of such
entity, and any partnership or joint venture if more than a 50% interest in the
profits or capital thereof is owned by the Company or one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of the Company or one or more of its
Subsidiaries).

 

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(f) Absence of Changes. Since March 31, 2003, except as set forth on Schedule
4(f) hereto, the Company and its Subsidiaries have not (1) sold, leased,
transferred or otherwise disposed of any material portion of their assets (other
than dispositions in the ordinary course of business consistent with past
practices), (2) terminated or amended in any material respect any Material
Contract to which the Company or any of its Subsidiaries is a party or to which
it is bound or to which its properties are subject, (3) suffered any loss,
damage or destruction, whether or not covered by insurance, which has had a
Material Adverse Effect, (4) incurred any liabilities for indebtedness (other
than in the ordinary course of business or contractual liabilities) which,
individually or in the aggregate, have had a Material Adverse Effect, (5)
incurred, created or suffered to exist any material Liens on its assets, (6)
suffered any labor dispute, strike, or other work stoppage, (7) made or
obligated itself to make any capital expenditures in excess of $100,000
individually, (8) paid any dividends, whether in cash or property, on account
of, or repurchased any of, the Common Stock, (9) increased the compensation
payable or to become payable to any of its executive officers out of the
ordinary course of business,(10) entered into any contract or other agreement
requiring the Company or a Subsidiary to make payments in excess of $250,000
individually, other than in the ordinary course of business consistent with past
practices or (11) entered into any agreement to do any of the foregoing.

 

(g) Governmental Authorizations, Etc. No consent, approval or authorization of,
or registration, filing (other than notice filings) or declaration with, any
court or any federal, state, municipal or local government or any political
subdivision, governmental department, board, agency or instrumentality thereof,
and any administrative or regulatory agency (each, a “Governmental Authority”)
is required in connection with the execution, delivery or performance by the
Company of this Agreement or the issuance, sale and delivery of the Note.

 

(h) Litigation. Except as set forth on Schedule 4(h) hereto, there is no
litigation, action, complaint, claim or suit, judicial or administrative action,
audit, proceeding or governmental investigation pending or, to the knowledge of
the Company, threatened, against the Company or its Subsidiaries or any of their
respective properties. Neither the Company nor any Subsidiary is in default in
any material respect under any judgment, order or decree of a Governmental
Authority. There is no judgment, order, decree, injunction, stipulation or
settlement against the Company or any Subsidiary that is reasonably likely to
prevent, enjoin or materially alter or delay any of the transactions
contemplated by this Agreement or that would reasonably be likely to cause a
Material Adverse Effect.

 

(i) Taxes. Except as set forth on Schedule 4(i), the Company and its
Subsidiaries have timely filed all income tax returns that are required to have
been filed in any jurisdiction, and have paid all taxes shown to be due and
payable on such returns and all other taxes and assessments payable by them, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (x) the amount
of which is not individually or in the aggregate material or (y) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
Except as set forth on Schedule 4(i), none of the Company’s or its Subsidiaries’
tax returns is currently subject to an audit.

 

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(j) Title to Property; Leases. Except as set forth on Schedule 4(j) hereto, the
Company and its Subsidiaries have good and sufficient title to their respective
properties and assets, including the properties and assets reflected in the most
recent audited balance sheet of the Company or purported to have been acquired
by the Company or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of
Liens, except for those defaults in title and Liens which do not and will not
materially detract from the value of the property subject thereto or interfere
with the use of the property subject thereto or materially impair the respective
operations of the Company and any Subsidiary involving such property. All leases
of the Company and its Subsidiaries are valid and subsisting and are in full
force and effect in all material respects. Neither the Company nor any of its
Subsidiaries owns any real property and none of them is in material breach of
any real property lease.

 

(k) Licenses, Permits, Etc. The Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that are material, without
known conflict with the rights of others, except for those conflicts that,
individually or in the aggregate, would not have a Material Adverse Effect.

 

(l) Employee Benefit Plans. Except as set forth on Schedule 4(l) hereto: (i)
neither the Company nor any Subsidiary has employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”));
(ii) the Company and each Subsidiary does not now, or has it ever, maintained,
established, sponsored, participated in, or contributed to, any pension plan
within the meaning of Section 3(2) of ERISA which is subject to Title IV of
ERISA or Section 412 of the Internal Revenue Code of 1986, as amended; and (iii)
at no time has the Company or any Subsidiary contributed to or been requested to
contribute to any multiemployer plan as defined in Section 3(37) of ERISA.

 

(m) Existing Indebtedness. Except as described therein, Schedule 4(m) hereto
sets forth a complete and correct list of all outstanding Indebtedness (as
hereinafter defined) of the Company and its Subsidiaries as of May 31, 2003,
since which date there has been no material change in the amounts, interest
rates, sinking funds, installment payments or maturities of the Indebtedness of
the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in
default and no waiver of default is currently in effect, in the payment of any
principal or interest on any Indebtedness of the Company or such Subsidiary and
no event or condition exists with respect to any Indebtedness of the Company or
any Subsidiary that would permit (or that with notice or the lapse of time, or
both, would permit) one or more persons to cause such Indebtedness to become due
and payable before its stated maturity or before its regularly scheduled dates
of payment. For purposes of this Agreement, “Indebtedness” with respect to the
Company means, at any time, without duplication, (i) its liabilities for
borrowed money and its redemption obligations in respect of mandatorily
redeemable preferred stock; (ii) its liabilities for the deferred purchase price
of property acquired by the Company (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or arising
under any conditional sale or other title retention agreement with respect to
any such property); (iii) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of capital leases; (iv) all liabilities for
borrowed money secured by any Lien with respect to any

 

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property owned by the Company (whether or not it has assumed or otherwise become
liable for such liabilities); (v) all its liabilities in respect of letters of
credit or instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not representing
obligations for borrowed money); and (vi) any guaranty of the Company with
respect to liabilities of a type described in any of subclauses (i) through (v)
hereof. Except as set forth on Schedule 4(m), since the date of the 2003
Financial Statements (as defined in Section 4(q)), neither the Company nor any
Subsidiary has incurred any liabilities of any kind, character and description,
whether accrued, absolute, secured or unsecured, contingent or otherwise of a
kind that would have been required to be disclosed on such 2003 Financial
Statements if they were dated as of the date hereof other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of the 2003
Financial Statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the 2003 Financial Statements.

 

(n) Patents, Copyrights and Trademarks. The Company owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any conflict with, or infringement of the rights of, others
(collectively, “Intellectual Property”). A list of the Company’s registered
trademarks, copyrights and service marks, patents and domain names is set forth
on Schedule 4(n). The Company has not received any written communications
alleging that any of the Company’s material Intellectual Property has violated
any of the patents, trademarks, service marks, trade names, copyrights, trade
secrets or other proprietary rights or processes of any other person or entity.
Neither the execution nor delivery of this Agreement, nor the carrying on of the
Company’s business by the employees of the Company, nor the conduct of the
Company’s business as proposed, will, to the Company’s knowledge, conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees is now obligated. The Company does not believe it is or will be
necessary to use any inventions of any of its employees (or persons it currently
intends to hire) made prior to their employment by the Company, other than those
which have been assigned to the Company. The Company has no actual knowledge of
any unauthorized use, infringement or misappropriation of its intellectual
property rights or of any obligation on the part of the Company to pay any
royalties or other payments to third parties. The Company has entered into
written agreements with all key employees and key contractors of the Company and
each Subsidiary with provisions seeking to protect the confidentiality of all
Company Intellectual Property and to ensure full and unencumbered ownership by
the Company or a Subsidiary of all Company Intellectual Property including,
without limitation, appropriate “work for hire” language.

 

(o) Status under Certain Statutes. Neither the Company nor any Subsidiary is
subject to regulation under the Investment Company Act of 1940, as amended, the
Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce
Act, as amended, or the Federal Power Act, as amended.

 

(p) Capitalization. The authorized capital stock of the Company consists of

 

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250,000,000 shares of Common Stock, par value $0.001 per share, and 40,000,000
shares of preferred stock (“Preferred Stock”), par value $0.10 per share.
10,000,000 shares of the Preferred Stock have been designated as Series A 6%
Convertible Preferred Stock (the “Series A”) and 4,098,335 shares of preferred
stock have been designated Series B Preferred Shares (the “Series B”). There are
outstanding 26,562,239 shares of Common Stock, 350,250 shares of Series A and
1,923,077 shares of Series B, and the Company has no other shares of capital
stock outstanding. All of the outstanding shares of capital stock of the Company
have been duly authorized, validly issued and are fully paid and nonassessable.

 

Except as set forth on Schedule 4(p): (1) there are no outstanding options,
warrants, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock, nor are any such issuances or arrangements contemplated other
than pursuant to the eUniverse, Inc. 1999 Stock Awards Plan and the eUniverse,
Inc. 2002 Employee Stock Purchase Plan, (2) there are no agreements or
arrangements under which the Company is obligated to register the sale of any of
its securities under the Securities Act of 1933, as amended (the “Securities
Act”) and (3) the Company has no obligations (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof.

 

The Company has furnished to the Purchaser true and correct copies of the
Company’s certificate of incorporation, including any certificates of
designation (the “Certificate of Incorporation”) as in effect on the date
hereof, and the Company’s by-laws (the “By-laws”) as in effect on the date
hereof. The Company is not in violation of any provision of its Certificate of
Incorporation or By-laws. Except as set forth in the Certificate of
Incorporation or on Schedule 4(p) none of the Note or Series B are subject to
preemptive rights or any other similar rights of the stockholders of the
Company.

 

(q) Financial Statements. The Company has delivered or caused to be delivered to
the Purchaser audited consolidated balance sheets and audited consolidated
statements of income and retained earnings and cash flows of the Company and any
Subsidiaries, as applicable, as of March 31, 2001, and March 31, 2002 (the
“Delivered Financial Statements”). Attached hereto as Schedule 4(q) are an
unaudited consolidated balance sheet of the Company and the Subsidiaries, as
applicable, as of March 31, 2003, and unaudited consolidated statements of
income of the Company and any Subsidiaries, as applicable, for the year ended
March 31, 2003 (the “2003 Financial Statements”). Except as set forth on
Schedule 4(q), the Delivered Financial Statements were prepared in conformity
with generally accepted accounting principles (“GAAP”) applied on a consistent
basis (except as may be indicated in the notes thereto) and present fairly, in
all material respects, the financial position and the results of operations of
the Company and the Subsidiaries, as applicable, as of the dates, and for the
periods, referred to therein. Except as set forth on Schedule 4(q), the 2003
Financial Statements were prepared in conformity with GAAP applied on a
consistent basis (except for the lack of footnote disclosure) and present
fairly, in all material respects, the financial position and the results of
operations of the Company and the Subsidiaries, as applicable, as of the dates,
and for the periods, referred to therein.

 

(r) SEC Documents. Set forth in Schedule 4(r) is a list of all reports,

 

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schedules, forms, statements and other documents filed by the Company with the
Securities and Exchange Commission (the “SEC”) pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) (all of the foregoing filed prior to the date hereof, and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to herein as the
“SEC Documents”) since March 31, 2003. Except as set forth on Schedule 4(r), the
Company has delivered to the Purchaser true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied with the
requirements of the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

 

(s) Foreign Corrupt Practices Act. Neither the Company nor any Subsidiary,
director, officer, agent, employee or other Person acting on behalf of the
Company or any Subsidiary has, in the course of his, her or its actions for, or
on behalf of, the Company or any Subsidiary, offered or made, directly or
indirectly through any other Person, any payments of anything of value (in the
form of a contribution, gift, entertainment or other expense), to (a) any Person
employed by, or acting in an official capacity on behalf of, any governmental
agency, department or instrumentality, or (b) any foreign or domestic government
official, political party or official of such party, or any candidate for
political office or employee thereof. Neither the Company, any Subsidiary, nor
any director, officer, agent, employee or other Person acting on behalf of the
Company or any Subsidiary has violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or unlawful payment to any foreign
or domestic government or political party official, employee, appointee or
candidate.

 

(t) Material Contracts. Each contract of the Company or a Subsidiary of the
Company the absence of which would reasonably be expected to have a Material
Adverse Effect (each “Material Contract”) is listed on Schedule 4(t) hereof.
Each such Material Contract is the legal, valid and binding obligation of the
Company, enforceable against the Company and/or such Subsidiary, as the case may
be, in accordance with its terms. Except as set forth on Schedule 4(t) there has
not occurred any breach, violation or default by the Company or any event that,
with the lapse of time, the giving of notice or the election of any Person, or
any combination thereof, would constitute a breach, violation or default by the
Company or a Subsidiary, as the case may be, under any such contract or, to the
knowledge of the Company or its Subsidiary, as the case may be, by any other
Person to any such contract. Except as set forth on Schedule 4(t) neither the
Company nor any Subsidiary has been notified that any party to any Material
Contract intends to cancel, terminate, not renew or exercise an option under any
Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.

 

(u) Right of First Refusal; Voting and Registration Rights. To the Company’s
actual knowledge and except as set forth on Schedule 4(u) or in the Certificate
of Incorporation, no party has any right of first refusal, right of first offer,
right of co-sale, preemptive right or other similar right with respect to the
Note or Series B. Except as set forth on Schedule 4(u) or in the Certificate of
Incorporation or the By-laws of the Company or any of

 

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its Subsidiaries, there are no agreements to which the Company or any of its
Subsidiaries is a party and no agreements by which the Company, any of its
Subsidiaries are bound, which (1) may restrict the voting rights of the
Purchaser with respect to the Note or Series B in its capacity as a stockholder
of the Company, (2) restrict the ability of the Purchaser, or any successor
thereto or assignee or transferee thereof, to transfer the Note or Series B, (3)
require the vote of more than a majority of the Company’s issued and outstanding
Common Stock, voting together as a single class, to take or prevent any
corporate action, other than those matters requiring a class vote under Delaware
law, or (4) entitle any party to nominate or elect any director of the Company
or require any of the Company’s stockholders to vote for any such nominee or
other Person as a director of the Company in each case, except as provided for
in or contemplated by this Agreement.

 

(v) Compliance with Laws. Except as set forth in Schedule 4(v), neither the
Company nor any Subsidiary has received notification from any Governmental
Entity (1) asserting a material violation of any law, statute, ordinance or
regulation or the terms of any judgments, orders, decrees, injunctions or writs
applicable to the conduct of its business, (2) threatening to revoke any
material license, franchise, permit or government authorization, or (3)
materially restricting or in any material way limiting its operations as
currently conducted. Except as set forth in Schedule 4(v), the Company is in
full compliance with all laws, governmental rules, and regulations to which it
is subject, the violation of which would reasonably be expected to result in a
Material Adverse Affect.

 

(w) Employee Relations. All material bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock plan, stock option or award plan, health
and medical insurance plans, life insurance and disability insurance plans,
other material employee benefit plans, contracts or arrangements which cover
multiple employees of the Company or the Subsidiaries including, but not limited
to, “employee benefit plans” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”) (collectively, the
“Employee Benefit Plans”), are listed on Schedule 4(w). No Employee Benefit
Plans are or were collectively bargained for or have terms requiring assumption
of any guarantee by the Purchaser.

 

There have been no violations of ERISA or the Internal Revenue Code of 1986, as
amended (the “Code”) by the Company relating to any Employee Benefit Plan that
would reasonably be expected to have a Material Adverse Effect. The Company has
timely filed all documents, notes and reports (including IRS Form 5500) for each
such Employee Benefit Plan with all applicable governmental authorities and has
timely furnished all required documents to the participants or beneficiaries of
each such Employee Benefit Plans, except where the failure to timely file or
furnish the foregoing would not reasonably be expected to have a Material
Adverse Effect.

 

The Company and its Subsidiaries have operated and administered all plans,
programs and arrangements providing compensation and benefits to employees
materially in accordance with their terms and applicable laws.

 

The Company and its Subsidiaries are not delinquent in payments to any of their
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed through the date hereof. The Company and
its Subsidiaries are in compliance

 

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with all applicable federal and state laws, rules and regulations respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, except for either immaterial instances of noncompliance or
instances of noncompliance of which the Company is unaware. Neither the Company
nor any Subsidiary is party to any collective bargaining agreement. There is no
labor strike, dispute, slowdown or stoppage actually pending or, to the
knowledge of the Company, threatened against or involving the Company or any
Subsidiary.

 

No director, officer or other employee of the Company or any Subsidiary will
become entitled to any retirement, severance or similar benefit or enhanced or
accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any Employee Benefit Plan)
solely as a result of the transactions contemplated in this Agreement; and no
payment made or to be made to any current or former employee or director of the
Company or any of its Affiliates by reason of the transactions contemplated
hereby (whether alone or in connection with any other event, including, but not
limited to, a termination of employment) will constitute an “excess parachute
payment” within the meaning of Section 280G of the Code. For the purposes of
this Agreement “Affiliate” has the meanings assigned to such terms in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.

 

(x) Brokers. There is no investment banker, broker, finder, financial advisor or
other Person which has been retained by or is authorized to act on behalf of the
Company who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement payable by Purchaser.

 

(y) Environmental Matters. (i) (A) No written notice, notification, demand,
request for information, citation, summons, complaint or order has been received
by, and no action, claim, suit or proceeding is pending or, to the knowledge of
the Company, threatened by any Person against, the Company or any Subsidiary,
and no penalty has been assessed against the Company or any Subsidiary, in each
case, with respect to any matters relating to or arising out of any
Environmental Law; (ii) to the actual knowledge of the Company, the Company and
its Subsidiaries are in compliance with all Environmental Laws; and (iii) to the
actual knowledge of the Company, there are no liabilities of or relating to the
Company or any Subsidiary relating to or arising out of any Environmental Law.

 

For purposes of this Agreement, the term “Environmental Laws” means federal and
state, statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders and codes, relating to human health and the environment,
including, but not limited to, Hazardous Materials; and the term “Hazardous
Material” means all substances or materials regulated as hazardous, toxic,
explosive, dangerous, flammable or radioactive under any Environmental Law
including, but not limited to: (A) petroleum, asbestos, or polychlorinated
biphenyls and (B) in the United States, all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan.

 

(z) Related-Party Transactions. Except as set forth on Schedule 4(z) hereto, no
employee, officer, director, or Affiliate of the Company or member of his or her
immediate family is currently indebted to the Company or any of its Subsidiaries
in an aggregate amount in excess of $50,000, nor is the Company or any of its
Subsidiaries indebted to any of such individuals in an aggregate amount in
excess of $50,000. Except as set forth on Schedule 4(z)

 

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hereto, as of the date hereof none of such Persons has any direct or indirect
ownership interest exceeding ten percent in any firm or corporation with which
the Company is affiliated (other than any Subsidiary) or with which the Company
has a material business relationship, or any firm or corporation that directly
competes with the Company. No officer or director of the Company is a party to
any Material Contract with the Company, other than contracts relating to his or
her employment or service as a director.

 

(aa) Insurance. The Company has in force fire, casualty, product liability and
other insurance policies, with extended coverage, sufficient in amount to allow
it to replace any of its material properties or assets which might be damaged or
destroyed or sufficient to cover liabilities to which the Company or any
Subsidiary may reasonably become subject. The Company has directors’ and
officers’ liability insurance policies (primary and excess) that are in full
force and effect for an aggregate of $10 million of coverage.

 

(bb) Acknowledgment Regarding the Purchaser’s Purchase of the Securities. The
Company acknowledges and agrees that the Purchaser and its agents, employees,
attorneys and affiliates are not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement or the
transactions contemplated hereby, and the relationship between the Company and
the Purchaser is “arms length” and that, except for the representations and
warranties of the Purchaser under this Agreement, any statement made by the
Purchaser or any of its representatives, employees, attorneys, affiliates or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to the
Purchaser’s purchase of Securities and has not been relied upon by the Company,
its officers or directors in any way. The Company further represents to the
Purchaser that the Company’s decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.

 

(cc) Disclosure. No representation or warranty by the Company contained in the
Transaction Documents, and no representation, warranty or statement by the
Company contained in any certificate or schedule furnished to the Purchaser
pursuant to the Transaction Documents, contains any untrue statement by the
Company of a material fact or omits to state any material fact necessary to make
any statement herein or therein not misleading.

 

5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company that:

 

(a) Purchase Entirely for Own Account. The Securities to be acquired by the
Purchaser will be acquired for investment for the Purchaser’s own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof in any manner that would cause issuance of the Securities hereunder
to fail to be exempt from the registration requirements of the Act, and the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same in any manner that would cause issuance of the
Securities hereunder to fail to be exempt from the registration requirements of
the Act. The Purchaser has not been formed for the specific purpose of acquiring
any of the Securities.

 

(b) Knowledge. The Purchaser is aware of the Company’s business affairs and
financial condition and has acquired sufficient information about the Company to
reach an

 

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informed and knowledgeable decision to acquire the Securities. Without limiting
the foregoing, the Purchaser is aware that the Company intends to restate its
financial statements for at least the second and third quarter of the fiscal
year ended March 31, 2003 (“Fiscal 2003”), has issued an earnings warning for
the fourth quarter of fiscal 2003, is the subject of an informal inquiry and a
pending delisting proceeding with the NASDAQ and an informal inquiry from the
SEC and is named as a defendant in several pending class action and shareholder
derivative lawsuits. Nothing contained in this Section 5(b) shall be deemed to
in any way qualify any of the representations and warranties of the Company
contained in Section 4.

 

(c) Restricted Securities. The Purchaser understands that the Securities have
not been registered under the Act, by reason of a specific exemption from the
registration provisions of the Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Purchaser’s
representations as expressed herein. The Purchaser understands that the
Securities are “restricted securities” under applicable U.S. federal and state
securities laws and that, pursuant to these laws, the Purchaser must hold the
Securities indefinitely unless they are registered with the Securities and
Exchange Commission and qualified by state authorities, or an exemption from
such registration and qualification requirements is available. The Purchaser
further acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser’s
control, and which the Company is under no obligation and may not be able to
satisfy.

 

(d) Legends. The Purchaser understands that the Securities, and any securities
issued in respect thereof or exchange therefor, may bear one or all of the
following legends:

 

(i) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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, AS AMENDED.”

 

(ii) Any legend required by the Blue Sky laws of any state to the extent such
laws are applicable to the shares represented by the certificate so legended.

 

(e) Accredited Investor. The Purchaser is an “accredited investor” as defined in
Rule 501(a) of Regulation D promulgated under the Act.

 

6. Financial Statements and Information. The Company shall deliver to the
Purchaser so long as the Purchaser holds the Note:

 

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(a) Quarterly Statements. Within 60 days after the end of each quarterly fiscal
period in each fiscal year of the Company (other than the last quarterly fiscal
period of each such fiscal year), copies of, (i) a consolidated balance sheet of
the Company and its Subsidiaries as at the end of such quarter, and (ii)
consolidated statements of income, changes in shareholders’ equity and cash
flows of the Company and its Subsidiaries, for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal year ending with
such quarter, setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial statements
generally, and certified by a senior financial officer of the Company as fairly
presenting, in all material respects, the financial position of the companies
being reported on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments, provided that delivery within the
time period specified above of copies of the Company’s Quarterly Report on Form
10-Q prepared in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this Section 6(a).

 

(b) Annual Statements. Except with respect to fiscal 2003, within 105 days after
the end of the fiscal year of the Company, copies of, (i) a consolidated balance
sheet of the Company and its Subsidiaries as at the end of such year, and (ii)
consolidated statements of income, changes in shareholders’ equity and cash
flows of the Company and its Subsidiaries, for such year, setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP, and accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, provided that
delivery within the time period specified above of copies of the Company’s
Annual Report on Form 10-K for such fiscal year (together with the Company’s
annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the
Security Exchange Act of 1934, as amended) prepared in accordance with the
requirements therefor and filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this Section 6(b).

 

(c) SEC and Other Reports. Promptly upon their becoming available, one copy of
(i) each financial statement, report, notice or proxy statement sent by the
Company or any Subsidiary to public securities holders generally, and (ii) each
regular and periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by the Purchaser), and
each final prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission.

 

(d) Notice of Default or Event of Default. Promptly, and in any event within
five days after the chief financial officer, principal accounting officer,
treasurer or controller (each, a “Senior Financial Officer”) of the Company
becoming aware of the existence of any event or condition, not otherwise
disclosed herein or in the schedules hereto, the occurrence or

 

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existence of which would, with the lapse of time or the giving of notice, or
both, become an Event of Default (as hereinafter defined) (a “Default”) or Event
of Default, a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with respect
thereto.

 

(e) Requested Information. With reasonable promptness, such other data and
information relating to the operations, condition (financial or otherwise),
business, assets or liabilities of the Company, or any of its Subsidiaries or
relating to the ability of the Company to perform its obligations hereunder and
under the Note as from time to time may be reasonably requested by the
Purchaser.

 

(f) Notices from Governmental Entity. Promptly, and in any event within 30 days
of receipt thereof, copies of any notice to the Company or any Subsidiary from
any Governmental Entity relating to any order, ruling, statute or other law or
regulation that would reasonably be expected to have a Material Adverse Effect.

 

7. Additional Agreements of the Parties.

 

(a) Use of Proceeds. The Company shall use the net cash proceeds from the sale
of the Note for working capital purposes.

 

(b) Visits and Inspections. The Company agrees to permit, or, in the case of
properties, books, records or persons not within its immediate control, promptly
take such actions as are reasonably practicable in order to permit,
representatives (whether or not officers or employees) of the Purchaser, from
time to time upon reasonable advance notice to the chief executive officer,
secretary or chief financial officer of the Company, as often as may be
reasonably requested, to (i) visit and inspect any properties of the Company and
its Subsidiaries, (ii) inspect and make extracts from the books and records of
the Company and its Subsidiaries, including management letters prepared by its
independent certified public accountants, and (iii) discuss with any person,
including the principal officers and the independent certified public
accountants of the Company, the results of operations, condition (financial or
otherwise), business, assets or liabilities of the Company. All such information
received shall be held by the Purchaser and its representatives subject to the
confidentiality requirements of that certain Mutual Nondisclosure Agreement,
dated as of May 27, 2003 by and between the Company and VantagePoint Venture
Partners (the “Nondisclosure Agreement”).

 

(c) No Impairment. The Company will not, by amendment of its Certificate or
By-laws, or through reorganization, consolidation, merger, dissolution, issuance
or sale of securities, sale of assets or any other voluntary action, willfully
avoid or seek to avoid the observance or performance of any of the terms of this
Agreement, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Purchaser under this Agreement
against wrongful impairment.

 

(d) Compliance with Law. The Company will and will cause each of its
Subsidiaries to comply with all laws, ordinances or governmental rules or
regulations to which

 

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each of them is subject and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations would not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect.

 

(e) Insurance. The Company will and will cause each of its Subsidiaries to
maintain, with financial sound and reputable insurers, insurance with respect to
their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated. So long as the Note is outstanding, the Company shall maintain
directors and officers insurance policies with an aggregate policy limit of at
least ten million dollars ($10,000,000)

 

(f) Maintenance of Properties. The Company will and will cause each of its
Subsidiaries to maintain and keep, or cause to be maintained and kept, their
respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the business carried on in connection therewith
may be properly conducted at all times, provided that this Section shall not
prevent the Company or any Subsidiary from discontinuing the operation and
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
would not, individually or in the aggregate, have a Materially Adverse Effect.

 

(g) Payment of Taxes. The Company will and will cause each of its Subsidiaries
to file all income tax or similar tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies
payable by any of them, to the extent such taxes and assessments have become due
and payable and before they have become delinquent, provided that neither the
Company nor any Subsidiary need pay any such tax or assessment if (i) the
amount, applicability or validity thereof is contested by the Company or such
Subsidiary on a timely basis in good faith and in appropriate proceedings, and
the Company or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Company or such Subsidiary or (ii) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a Material Adverse Effect.

 

(h) Corporation Existence. The Company will at all times preserve and keep in
full force and effect its corporation existence. The Company will at all times
preserve and keep in full force and effect the corporate existence of each of
its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights
and franchises of the Company and its Subsidiaries unless, in the good faith
judgment of the Company, the termination of or failure to preserve and keep in
full force and effect such corporate existence, right or franchise would not,
individually or in the aggregate, have a Material Adverse Effect.

 

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(i) Transactions with Affiliates. The Company will not and will not permit any
Subsidiary to enter into directly or indirectly any material transaction or
material group of related transactions (including without limitation the
purchase, lease, sale or exchange of properties of any kind or rendering of any
services) with any affiliate (other than the Company or another Subsidiary),
except pursuant to the reasonable requirements of the Company’s or such
Subsidiary’s business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtainable in a comparable
arm’s-length transaction with a person not an affiliate of the Company.

 

(j) Merger, Consolidation, etc. The Company shall not consolidate with or merge
with any other corporation or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to any person unless
(i) the successor formed by such consolidation or the survivor of such merger or
the person that acquires by conveyance, transfer or lease substantially all of
the assets of the Company as an entirety, as the case may be, shall be a solvent
corporation organized and existing under the laws of the U.S. or any state
thereof (including the District of Columbia), and, if the Company is not such a
corporation, such corporation shall have executed and delivered to the Purchaser
its assumption of the due and punctual performance and observance of each
covenant and condition of this Agreement, the Note and the other Transaction
Documents; and (ii) immediately after giving effect to such transaction, no
Default or Event of Default (as hereinafter defined) shall have occurred and be
continuing. No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 7(k) from its liability under this Agreement, the
Note or the other Transaction Documents.

 

(k) Contingent Warrant Issuance. The Company and Purchaser acknowledge that
concurrently herewith Purchaser is entering into an Option Agreement (the
“Option Agreement”) with 550 Digital Media Ventures, Inc. (“550 DMV”), pursuant
to which Purchaser is being given the right to purchase certain shares of the
Company’s capital stock from 550 DMV. If Purchaser does not exercise its option
to purchase such stock under the Option Agreement within 120 days of the date
hereof, Purchaser may elect, by written notice to the Company given within ten
(10) days of the expiration of such 120 day period, to transfer all its rights
under the Option Agreement to the Company in exchange for the Warrant.

 

(l) Indemnification. The Company agrees to protect, indemnify, defend and hold
harmless Purchaser and all of its affiliates, partners, and their respective
directors, members, attorneys (including, without limitation, those retained in
connection with the transactions contemplated by the Transaction Documents),
representatives, officers, and employees (collectively, the “Indemnitees”) from
and against any and all liabilities, losses, damages or expenses (including in
respect of or for attorney’s fees and other expenses) of any kind or nature and
from any suits, claims or demands, causes of action, proceedings, (payable by
the Company monthly in advance of being incurred if the Company is not
immediately assuming satisfactory defense of the matter, in the amounts
reasonably estimated by the Purchaser to be incurred) arising on account of,
relating to, in connection with, or as a result of (i) any breach of a
representation or warranty of the Company contained herein, (ii) any breach of
any covenant, agreement or obligation of the Company contained in any of the
Transaction Documents or in

 

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Term Sheet #2 (as defined in Section 10(b)), (iii) any use by the Company of any
proceeds of the Note, and (iv) any violation by the Company, its Subsidiaries or
their respective officers, directors and employees of the Act, the Exchange Act,
or any other applicable rule, regulation or law arising on account of, relating
to, in connection with, or as a result of the Transaction Documents and/or the
transactions contemplated therein or in Term Sheet #2 (as defined in Section
10(b)), except to the extent such liability is finally judicially determined to
directly arise from the willful misconduct or gross negligence of any such
Indemnitee. Upon receiving knowledge of any suit, claim or demand asserted by a
third party that Purchaser believes is covered by this indemnity, Purchaser
shall give the Company notice of the matter and an opportunity to defend it, at
the Company’s sole cost and expense, with legal counsel reasonably satisfactory
to Purchaser. Any failure or delay of Purchaser to notify the Company of any
such suit, claim or demand shall not relieve the Company of its obligations
under this Section 7(l) but shall reduce such obligations to the extent of any
increase in those obligations caused solely by any such failure or delay which
is unreasonable. The obligations of the Company under this Section 7(l) shall
survive the payment and performance of the Company’s obligations under the
Transaction Documents.

 

8. Events of Default. An “Event of Default” shall exist if any of the following
conditions or events shall occur and be continuing:

 

(a) Failure to Pay. The Company’s failure to pay any of the Principal Amount (as
defined in the Note) due under the Note on the date the same becomes due and
payable, or any accrued interest or other amounts due under the Note after the
same becomes due and payable; or

 

(b) Representations and Warranties. Any representation and warranty made in
writing by or on behalf of the Company or by any officer of the Company in this
Agreement or in any writing furnished in connection with the transactions
contemplated hereby proves to have been false or incorrect in any material
respect on the date as of which made; or

 

(c) Default in Performance. The Company defaults in the performance of or
compliance with any term contained herein and such default is not remedied
within 30 days after the earlier of (i) an officer of the Company obtaining
actual knowledge of such default, and (ii) the Company receiving written notice
of such default from the Purchaser (any such written notice to be identified as
a “notice of default”); or

 

(d) Other Defaults. The Company or any Subsidiary is in default (as principal or
as guarantor or other surety) in the payment of any principal of or premium or
make-whole amount or interest on any Indebtedness that is outstanding in any
aggregate principal amount of at least $100,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Subsidiary is in
default in the performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least $100,000
or of any mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such
Indebtedness has become, or has been declared due and payable before its stated
maturity or before its regularly scheduled dates of payment; or

 

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(e) Inability to Pay Debts. The Company or any Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other similar officer with similar powers
with respect to it or with respect to any substantial part of its property, (v)
is adjudicated as insolvent or to be liquidated, or (vi) takes corporation
action for the purpose of any of the foregoing; or

 

(f) Defaults under Security Agreement. Any Event of Default under the Security
Agreement; or

 

(g) Monetary Judgments. A final judgment or judgments for the payment of money
(including a determination by the Pension Benefit Guaranty Corporation that the
Company is so liable) aggregating in excess of $250,000 are rendered against one
or more of the Company and its Subsidiaries and which judgments are not, within
60 days after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 60 days after the expiration of such stay.

 

9. Remedies on Default, Etc.

 

(a) Acceleration.

 

(i) If an Event of Default with respect to the Company described in Section 8(e)
has occurred, the Note shall automatically become due and payable.

 

(ii) If any other Event of Default has occurred and is continuing, the Purchaser
may at any time at its option, by notice to the Company, declare the Note to be
immediately due and payable.

 

Upon the Note becoming due and payable under this Section 9(a), whether
automatically or by declaration, the Note will forthwith mature and the entire
unpaid principal amount of the Note plus all accrued and unpaid interest thereon
shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
Effective upon an Event of Default that is not cured, the interest rate on the
Note shall increase by the lesser of (i) 2% or (ii) the maximum penalty as shall
be permitted by applicable law (the “Default Rate”).

 

(b) Other Remedies. If any Default or Event of Default has occurred and is
continuing, and irrespective of whether the Note has become or has been declared
immediately due and payable under Section 9(a), the Purchaser may proceed to
protect and enforce its rights by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein, in the Note or in the other Transaction Documents, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.

 

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(c) No Waiver or Election of Remedies, Expenses, Etc. No course of dealing and
no delay on the part of the Purchaser in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise prejudice the Purchaser’s rights,
powers and remedies. No right, power or remedy conferred by this Agreement, the
Note or the Security Agreement upon the Purchaser shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Section 9(a), the Company will pay to the
Purchaser on demand such further amount as shall be sufficient to cover all
costs and expenses of the Purchaser incurred in any enforcement or collection
under this Section 9, including, without limitation, reasonable attorneys’ fees,
expenses and disbursements.

 

10. Miscellaneous.

 

(a) Transaction Expenses. The Company shall pay to Purchaser at the Closing,
Purchaser’s attorneys’ fees and due diligence expenses incurred in connection
with this transaction. Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including attorneys’
fees) incurred by Purchaser in connection with the transactions contemplated
hereby.

 

(b) Survival of Representations and Warranties; Entire Agreement. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the Note and the purchase or transfer by the
Purchaser of the Note or portions thereof or interest therein, and may be relied
upon by any subsequent holder of the Note, regardless of any investigation made
at any time by or on behalf of the Purchaser or any such holder, until such time
as the Note is paid in full. All statements contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant to this
Agreement shall be deemed representations and warranties of the Company under
this Agreement. Subject to the preceding sentence, the Transaction Documents and
the Nondisclosure Agreement embody the entire agreement and understandings
between the Purchaser and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof, except that certain Term
Sheet #2, dated as of July 1, 2003, (“Term Sheet #2”) shall continue in full
force and effect according to its terms as it relates to a potential PIPE
transaction described therein and the rights of the Purchaser contained under
“Due Diligence Period and Right to Invest” and the “Miscellaneous” clause
contained therein. Without limiting the foregoing, the section of Term Sheet #2
entitled “Indemnification” is hereby superseded by this Agreement.

 

(c) Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Notwithstanding the foregoing, the Purchaser may assign its
rights under this Agreement in whole or in part to any of its affiliates. No
such assignment shall relieve the Purchaser of any of its obligations hereunder.
The Company shall not have the right to assign this Agreement without the
Purchaser’s written consent.

 

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(d) Governing Law. This Agreement and all acts and transactions pursuant hereto
and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.

 

(e) Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one instrument.

 

(f) Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. Except as otherwise stated, all section and
schedule references refer to Sections and Schedules in this Agreement.

 

(g) Notices. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or 3 business
days after being deposited in the U.S. mail as certified or registered mail with
postage prepaid, if such notice is addressed to the party to be notified at such
party’s address or facsimile number as set forth on the signature page hereto or
as subsequently modified by written notice.

 

(h) Finder’s Fee. Each party represents that it neither is nor will be obligated
for any finder’s fee or commission in connection with this transaction. The
Purchaser agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder’s fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Purchaser or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless the Purchaser from any liability for any commission or compensation in
the nature of a finder’s fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.

 

(i) Amendments and Waivers. Any term of this Agreement may be amended or waived
only with the written consent of the Company and the Purchaser. Any amendment or
waiver effected in accordance with this Section shall be binding upon the
Purchaser and each transferee of the Securities, each future holder of all such
Securities, and the Company.

 

(j) Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.

 

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(k) Payments Due on Non-Business Days. Anything in this Agreement or the Note to
contrary notwithstanding, any payment of principal or interest on the Note that
is due on a date other than a business day shall be made on the next succeeding
business day without including the additional days elapsed in the computation of
the interest payable on such next succeeding business day.

 

(l) Construction. All provisions of this Agreement have been negotiated at arms
length, each party having legal counsel, and this Agreement shall not be
construed for or against any party by reason of the authorship or alleged
authorship of any provision hereof, notwithstanding that each party may have
signed a separate signature page. The language in this Agreement shall be
construed as to its fair meaning and not strictly for or against any party.

 

[Signature Page Follows]

 

 

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The parties have executed this Secured Note Purchase Agreement as of the date
first written above.

 

COMPANY:

 

eUNIVERSE, INC.

By:

 

/s/    BRAD GREENSPAN        

--------------------------------------------------------------------------------

    Brad Greenspan, Chief Executive Officer

Address:

 

6060 Center Drive

Suite 300

Los Angeles, CA 90045

PURCHASER:

 

VP ALPHA HOLDINGS IV, L.L.C.

By:

 

VANTAGE POINT VENTURE ASSOCIATEs IV,

L.L.C., its Managing Member

By:

 

/s/    ALAN E. SALZMAN        

--------------------------------------------------------------------------------

   

Name:                Alan E. Salzman

Title:                Managing Member

Address:

 

c/o Vantage Point Venture Partners

1001 Bayhill, Suite 300

San Bruno, CA 94066

Facsimile: 650-869-6344

 

 

[SIGNATURE PAGE TO SECURED NOTE PURCHASE AGREEMENT]

 

 

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EXHIBITS

 

Exhibit A  

–

  

Form of Secured Promissory Note

Exhibit B  

–

  

Form of Warrant

Exhibit C  

–

  

Form of Security Agreement

Exhibit D  

–

  

Form of Intercreditor Agreement

Exhibit E  

–

  

Form of Opinion of Company Counsel