Dated: August 19, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.
No. CCP-2 $7,953,698
HEADLINERS ENTERTAINMENT GROUP, INC.
Secured Convertible Debenture
Due July 1, 2007
This Secured Convertible Debenture (the "Debenture") is issued by
HEADLINERS ENTERTAINMENT GROUP, INC., a Delaware corporation (the
"Obligor"), to CORNELL CAPITAL PARTNERS, LP (the "Holder"), pursuant to that
certain Securities Purchase Agreement (the "Securities Purchase Agreement")
of even date herewith.
WHEREAS, on January 25, 2005, the Obligor issued a 12% secured
promissory note to the Holder in the principal amount of Four Million Five
Hundred Thousand Dollars ($4,500,000) (the "January Promissory Note") which
was secured by a pledge of assets by the Obligor in accordance with the
Security Agreement dated January 25, 2005 between the Obligor and the Holder
(the "January Security Agreement");
WHEREAS, on March 21, 2005, the Obligor issued a 12% secured
promissory note to the Holder in the principal amount of Three Million
Dollars ($3,000,000) (the "March Promissory Note") which was secured by a
pledge of assets by the Obligor in accordance with the Security Agreement
dated March 21, 2005 between the Obligor and the Holder (the "March Security
Agreement") and a pledge of 100,000,000 shares of the Obligor's Common Stock
in accordance with the Pledge and Escrow Agreement dated March 21, 2005
among the Obligor, the Holder, and Xxxxx Xxxxxxxx, Esq. (the "Pledge
Agreement");
WHEREAS, in connection with an additional loan the Holder made to the
Obligor in the form of a convertible debenture on June 28, 2005, the Obligor
and the Holder amended the Pledge Agreement (the "Amended Pledge Agreement")
so that the shares pledged as security for the March Promissory Note were
also pledged to secure the obligations of the Obligor under the January
Promissory Note and the June 28, 2005 convertible debenture.
WHEREAS, the parties desire that this Debenture amend and supersede
the January Promissory Note and the March Promissory Note and that all
amounts owed to the Holder under the January Promissory Note and the March
Promissory Note are hereinafter memorialized by and contained in this
Debenture;
WHEREAS, the principal amount of this Debenture shall include the
entire outstanding principal sum of the January Promissory Note of Four
Million Five Hundred Thousand Dollars ($4,500,000) plus the accrued and
unpaid interest of $305,767 on the January Promissory Note from January 25,
2005 through the date hereof and the entire outstanding principal sum of the
March Promissory Note of Three Million Dollars ($3,000,000) plus the accrued
and unpaid interest of $148,931 on the March Promissory Note from March 21,
2005 through the date hereof; and
WHEREAS, this Debenture shall be secured by a pledge of assets of the
Obligor pursuant to the January Security Agreement and the March Security
Agreement, and secured by the pledge of 100,000,000 shares of Common Stock
pursuant to the Amended Pledge Agreement.
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder
or its successors and assigns the principal sum of Seven Million Nine
Hundred Fifty Three Thousand Six Hundred Ninety Eight Dollars ($7,953,698)
together with accrued but unpaid interest on or before July 1, 2007 (the
"Maturity Date") in accordance with the following terms:
Interest. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to twelve percent (12%). Interest shall be
calculated on the basis of a 360-day year and the actual number of days
elapsed, to the extent permitted by applicable law. Interest hereunder will
be paid to the Holder or its assignee (as defined in Section 4) in whose
name this Debenture is registered on the records of the Obligor regarding
registration and transfers of Debentures (the "Debenture Register").
Monthly Payments. The Obligor shall make monthly scheduled payments
("Scheduled Payments") consisting of principal and accrued interest as set
forth on the Payment Schedule attached as "Schedule A". The first Scheduled
Payment shall be due and payable on December 1, 2005, and each subsequent
Scheduled Payment shall be due and payable on the first day of each
subsequent calendar month until the Maturity Date. Each Scheduled Payment
shall consist of $400,000 of principal, plus accrued and unpaid interest as
set forth in the Payment Schedule. All payments in respect of the
indebtedness evidenced hereby shall be made in collected funds, and shall be
applied to principal, accrued interest and charges and expenses owing under
or in connection with this Debenture in such order as the Holder elects,
except that payments shall be applied to accrued interest before principal.
Notwithstanding the foregoing, this Debenture shall become due and
immediately payable, including all accrued but unpaid interest, upon the
closing of a Funding Event (as defined in Section 4 hereof) or pursuant to
an Event of Default (as defined in Section 2 hereof).
Right of Redemption. If the closing bid price of the of the Obligor's
Common Stock, as reported by Bloomberg, LP, is less than the Conversion
Price, the Obligor at its option shall have the right, with three (3)
business days advance written notice (the "Redemption Notice"), to redeem a
portion or all amounts outstanding under this Debenture prior to the
Maturity Date or any Scheduled Payment date in an amount equal to the
principal amount outstanding and accrued interest being redeemed, plus a
redemption premium of ten percent (10%) of the principal amount paid
("Redemption Premium") (collectively referred to as the "Redemption
Amount"). The Obligor shall deliver to the Holder the Redemption Amount on
the third (3rd) business day after the Redemption Notice.
In the event that the Obligor redeems a portion of the amount
outstanding under this Debenture, or the Holder converts a portion of the
principal amount outstanding and accrued interest under this Debenture as
contemplated herein, the Obligor shall be entitled to an off-set of the
amount of principal and accrued interest due pursuant to the Schedule
Payment equal to the amount of principal and accrued interest redeemed or
converted (the "Off-Set Amount"). In such event the Obligor shall still be
obligated to make a Scheduled Payment reduced by the Off-Set Amount as
contemplated hereunder.
Notwithstanding the foregoing in the event that the Obligor has
elected to redeem a portion of the outstanding principal amount and accrued
interest under this Debenture the Holder shall still be entitled to
effectuate Conversions as contemplated hereunder.
Security Agreements. This Debenture is secured by the January
Security Agreement, the March Security Agreement, and the Amended Pledge
Agreement.
Consent of Holder to Sell Capital Stock or Grant Security Interests.
Except for the capital stock to be issued pursuant to the Standby Equity
Distribution Agreement of even date herewith between the Obligor and Cornell
Capital Partners, LP, so long as any of the principal amount or interest on
this Debenture remains unpaid and unconverted, the Obligor shall not,
without the prior consent of the Holder, (i) issue or sell any common stock
or preferred stock with or without consideration, (ii) issue or sell any
preferred stock, warrant, option, right, contract, call, or other security
or instrument granting the holder thereof the right to acquire common stock
with or without consideration, (iii) enter into any security instrument
granting the holder a security interest in any of the assets of the Obligor,
or (iv) file any registration statements on Form S-8.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be
made for such registration of transfer or exchange.
Section 2. Events of Default.
(a) An "Event of Default", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary
or involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) Any default in the payment of the principal of, interest
on or other charges in respect of this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether on
a Scheduled Payment due date, a Conversion Date or the Maturity Date or by
acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach
or default of any provision of this Debenture (except as may be covered by
Section 2(a)(i) hereof) or any Transaction Document (as defined in Section
4) which is not cured with in the time prescribed;
(iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any subsidiary
of the Obligor under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Obligor or any
subsidiary of the Obligor commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Obligor or any subsidiary
of the Obligor or there is commenced against the Obligor or any subsidiary
of the Obligor any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 61 days; or the Obligor or any
subsidiary of the Obligor is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is entered;
or the Obligor or any subsidiary of the Obligor suffers any appointment of
any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed
for a period of sixty one (61) days; or the Obligor or any subsidiary of the
Obligor makes a general assignment for the benefit of creditors; or the
Obligor or any subsidiary of the Obligor shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts generally as
they become due; or the Obligor or any subsidiary of the Obligor shall call
a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Obligor or any subsidiary
of the Obligor shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Obligor or any subsidiary of the
Obligor for the purpose of effecting any of the foregoing;
(iv) The Obligor or any subsidiary of the Obligor shall
default in any of its obligations under any other debenture or any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement
or other instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money due under
any long term leasing or factoring arrangement of the Obligor or any
subsidiary of the Obligor in an amount exceeding $100,000, whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior
to the date on which it would otherwise become due and payable;
(v) The Common Stock shall cease to be quoted for trading or
listed for trading on either the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq
SmallCap Market, New York Stock Exchange, American Stock Exchange or the
Nasdaq National Market (each, a "Subsequent Market") and shall not again be
quoted or listed for trading thereon within five (5) Trading Days of such
delisting;
(vi) The Obligor or any subsidiary of the Obligor shall be a
party to any Change of Control Transaction (as defined in Section 4);
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 4) with the Commission (as
defined in Section 4), or the Underlying Shares Registration Statement shall
not have been declared effective by the Commission, in each case within the
time periods set forth in the Registration Rights Agreement of even date
herewith between the Obligor and the Holder;
(viii) If the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture
under the Underlying Shares Registration Statement, in either case, for more
than five (5) consecutive Trading Days or an aggregate of eight Trading Days
(which need not be consecutive Trading Days);
(ix) The Obligor shall fail for any reason to deliver Common
Stock certificates to a Holder prior to the fifth (5th) Trading Day after a
Conversion Date or the Obligor shall provide notice to the Holder, including
by way of public announcement, at any time, of its intention not to comply
with requests for conversions of this Debenture in accordance with the terms
hereof;
(x) The Obligor shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within three (3)
days after notice is claimed delivered hereunder;
(b) During the time that any portion of this Debenture is
outstanding, if any Event of Default has occurred, the full principal amount
of this Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become at the Holder's election,
immediately due and payable in cash, provided however, the Holder may
request (but shall have no obligation to request) payment of such amounts in
Common Stock of the Obligor. If an Event of Default occurs and remains
uncured, the Conversion Price shall be reduced to Two Cents ($0.02). In
addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of
Default or (y) the Maturity Date at the Conversion Price then in-effect.
The Holder need not provide and the Obligor hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may immediately
and without expiration of any grace period enforce any and all of its rights
and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Xxxxxx at
any time prior to payment hereunder. No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent
thereon. Upon an Event of Default, notwithstanding any other provision of
this Debenture or any Transaction Document, the Holder shall have no
obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
Section 3. Conversion.
(a) (i) Conversion at Option of Holder.
(A) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at any time and
from time to time, after the Original Issue Date (as defined in Section 4)
(subject to the limitations on conversion set forth in Section 3(a)(ii)
hereof). The number of shares of Common Stock issuable upon a conversion
hereunder equals the quotient obtained by dividing (x) the outstanding
amount of this Debenture to be converted by (y) the Conversion Price (as
defined in Section 3(c)(i)). The Obligor shall deliver Common Stock
certificates to the Holder prior to the Fifth (5th) Trading Day after a
Conversion Date.
(B) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date: (1) the number of shares of Common Stock
at the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay principal and interest hereunder in
shares of Common Stock; (2) the Common Stock is not listed or quoted for
trading on the OTC or on a Subsequent Market; (3) the Obligor has failed to
timely satisfy its conversion; or (4) the issuance of such shares of Common
Stock would result in a violation of Section 3(a)(ii), then, at the option
of the Holder, the Obligor, in lieu of delivering shares of Common Stock
pursuant to Section 3(a)(i)(A), shall deliver, within three (3) Trading Days
of each applicable Conversion Date, an amount in cash equal to the product
of the outstanding principal amount to be converted plus any interest due
therein divided by the Conversion Price and multiplied by the highest
closing price of the stock from date of the conversion notice till the date
that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest thereon by
the fifth (5th) Trading Day after the Conversion Date, the Holder may, by
notice to the Obligor, require the Obligor to issue shares of Common Stock
pursuant to Section 3(c), except that for such purpose the Conversion Price
applicable thereto shall be the lesser of the Conversion Price on the
Conversion Date and the Conversion Price on the date of such Holder demand.
Any such shares will be subject to the provisions of this Section.
(C) The Holder shall effect conversions by delivering to the
Obligor a completed notice in the form attached hereto as Exhibit A (a
"Conversion Notice"). The date on which a Conversion Notice is delivered is
the "Conversion Date." Unless the Holder is converting the entire principal
amount outstanding under this Debenture, the Holder is not required to
physically surrender this Debenture to the Obligor in order to effect
conversions. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture plus all accrued and unpaid
interest thereon in an amount equal to the applicable conversion. The Holder
and the Obligor shall maintain records showing the principal amount
converted and the date of such conversions. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error.
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert this Debenture or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 4.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, this Debenture held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Obligor
the number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of
shares of Common Stock in excess of 4.9% of the then outstanding shares of
Common Stock without regard to any other shares which may be beneficially
owned by the Holder or an affiliate thereof, the Holder shall have the
authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the
extent that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of the principal amount
of this Debenture is convertible shall be the responsibility and obligation
of the Holder. If the Holder has delivered a Conversion Notice for a
principal amount of this Debenture that, without regard to any other shares
that the Holder or its affiliates may beneficially own, would result in the
issuance in excess of the permitted amount hereunder, the Obligor shall
notify the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Conversion Date
in accordance with the periods described in Section 3(a)(i)(A) and, at the
option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 65 days prior notice to the
Obligor. Other Holders shall be unaffected by any such waiver.
(b) (i) Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to Section 2 herein
for the Obligor 's failure to deliver certificates representing shares of
Common Stock upon conversion within the period specified herein and such
Holder shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance
and/or injunctive relief, in each case without the need to post a bond or
provide other security. The exercise of any such rights shall not prohibit
the Holder from seeking to enforce damages pursuant to any other Section
hereof or under applicable law.
(ii) In addition to any other rights available to the Holder,
if the Obligor fails to deliver to the Holder such certificate or
certificates pursuant to Section 3(a)(i)(A) by the fifth (5th) Trading Day
after the Conversion Date, and if after such fifth (5th) Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Stock
to deliver in satisfaction of a sale by such Holder of the Underlying Shares
which the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Obligor shall (A) pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for
the Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder anticipated receiving from
the conversion at issue multiplied by (2) the market price of the Common
Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue a Debenture in the principal
amount equal to the principal amount of the attempted conversion or deliver
to the Holder the number of shares of Common Stock that would have been
issued had the Obligor timely complied with its delivery requirements under
Section 3(a)(i)(A). For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of Debentures with respect to which the market price of
the Underlying Shares on the date of conversion was a total of $10,000 under
clause (A) of the immediately preceding sentence, the Obligor shall be
required to pay the Holder $1,000. The Holder shall provide the Obligor
written notice indicating the amounts payable to the Holder in respect of
the Buy-In.
(c) (i) The conversion price (the "Conversion Price") in effect
on any Conversion Date shall be equal to Twenty Cents ($0.20), which may be
adjusted pursuant to the other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c)
combine (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of the Common Stock any shares of capital stock
of the Obligor, then the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or re-classification.
(iii) If the Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of
Common Stock (and not to the Holder) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Closing
Bid Price at the record date mentioned below, then the Conversion Price
shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants (plus the
number of additional shares of Common Stock offered for subscription or
purchase), and of which the numerator shall be the number of shares of the
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants, plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Closing Bid Price. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such rights, options or warrants. However, upon the expiration of
any such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section, if any such right, option or warrant shall expire and shall
not have been exercised, the Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section after the issuance of such rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights, options or
warrants been made on the basis of offering for subscription or purchase
only that number of shares of the Common Stock actually purchased upon the
exercise of such rights, options or warrants actually exercised.
(iv) If the Obligor or any subsidiary thereof, as applicable,
with respect to Common Stock Equivalents (as defined below), at any time
while this Debenture is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible
into or exchangeable for shares of Common Stock ("Common Stock Equivalents")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise
or exchange prices or otherwise, or due to warrants, options or rights per
share which is issued in connection with such issuance, be entitled to
receive shares of Common Stock at a price per share which is less than the
Conversion Price, such issuance shall be deemed to have occurred for less
than the Conversion Price), then, at the sole option of the Holder, the
Conversion Price shall be adjusted to mirror the conversion, exchange or
purchase price for such Common Stock or Common Stock Equivalents (including
any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. The
Obligor shall notify the Holder in writing, no later than one (1) business
day following the issuance of any Common Stock or Common Stock Equivalent
subject to this Section, indicating therein the applicable issuance price,
or of applicable reset price, exchange price, conversion price and other
pricing terms. No adjustment under this Section shall be made as a result of
issuances and exercises of options to purchase shares of Common Stock issued
for compensatory purposes pursuant to any of the Obligor's stock option or
stock purchase plans.
(v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the
Conversion Price at which this Debenture shall thereafter be convertible
shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Closing Bid Price determined as of the record date mentioned
above, and of which the numerator shall be such Closing Bid Price on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described
in a statement provided to the Holder of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(vi) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder shall have the right
thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts
then owing hereunder in respect of this Debenture into the shares of stock
and other securities, cash and property receivable upon or deemed to be held
by holders of the Common Stock following such reclassification or share
exchange, and the Holder of this Debenture shall be entitled upon such event
to receive such amount of securities, cash or property as the shares of the
Common Stock of the Obligor into which the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts
then owing hereunder in respect of this Debenture could have been converted
immediately prior to such reclassification or share exchange would have been
entitled, or (B) require the Obligor to prepay the outstanding principal
amount of this Debenture, plus all interest and other amounts due and
payable thereon. The entire prepayment price shall be paid in cash. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(vii) The Obligor shall maintain a share reserve of not less
than 100% of the shares of Common Stock issuable upon conversion of this
Debenture; and within three (3) Business Days following the receipt by the
Obligor of a Holder's notice that such minimum number of Underlying Shares
is not so reserved, the Obligor shall promptly reserve a sufficient number
of shares of Common Stock to comply with such requirement.
(viii) All calculations under this Section 3 shall be
rounded up to the nearest $0.001 of a share.
(ix) Whenever the Conversion Price is adjusted pursuant to
Section 3 hereof, the Obligor shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(x) If (A) the Obligor shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of any stockholders of the
Obligor shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Obligor is a party,
any sale or transfer of all or substantially all of the assets of the
Obligor, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or (E) the Obligor shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of the Obligor; then, in each case, the Obligor shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be mailed to the Holder at
its last address as it shall appear upon the stock books of the Obligor, at
least twenty (20) calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be
specified in such notice. The Holder is entitled to convert this Debenture
during the 20-day calendar period commencing the date of such notice to the
effective date of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of the Obligor
or any subsidiary of the Obligor with or into another Person, or (2) sale by
the Obligor or any subsidiary of the Obligor of more than one-half of the
assets of the Obligor in one or a series of related transactions, a Holder
shall have the right to (A) exercise any rights under Section 2(b), (B)
convert the aggregate amount of this Debenture then outstanding into the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of this Debenture could have been converted immediately prior to such
merger, consolidation or sales would have been entitled, or (C) in the case
of a merger or consolidation, require the surviving entity to issue to the
Holder a convertible Debenture with a principal amount equal to the
aggregate principal amount of this Debenture then held by such Holder, plus
all accrued and unpaid interest and other amounts owing thereon, which such
newly issued convertible Debenture shall have terms identical (including
with respect to conversion) to the terms of this Debenture, and shall be
entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the
newly issued shares of convertible preferred stock or convertible Debentures
shall be based upon the amount of securities, cash and property that each
share of Common Stock would receive in such transaction and the Conversion
Price in effect immediately prior to the effectiveness or closing date for
such transaction. The terms of any such merger, sale or consolidation shall
include such terms so as to continue to give the Holder the right to receive
the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall
similarly apply to successive such events.
(d) The Obligor covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than
the Holder, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Obligor as to reservation of
such shares set forth in this Debenture) be issuable (taking into account
the adjustments and restrictions of Sections 2(b) and 3(c)) upon the
conversion of the outstanding principal amount of this Debenture and payment
of interest hereunder. The Obligor covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, if the Underlying Shares
Registration Statement has been declared effective under the Securities Act,
registered for public sale in accordance with such Underlying Shares
Registration Statement.
(e) Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Closing Bid Price at such time. If
the Obligor elects not, or is unable, to make such a cash payment, the
Holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Obligor shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
Debenture so converted and the Obligor shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Obligor the amount of such tax
or shall have established to the satisfaction of the Obligor that such tax
has been paid.
(g) Any notices, consents, waivers or other communications required
or permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) trading day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company, to:
Headliners Entertainment Group, Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx Xxxxxxxxx
Telephone: (000) 000-0000
Facsimile:
With a copy to:
Xxxxxx Xxxxxx, Esq.
000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder:
Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to:
Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of
such other person as the recipient party has specified by written notice
given to each other party three (3) business days prior to the effectiveness
of such change. Written confirmation of receipt (i) given by the recipient
of such notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of
such transmission or (iii) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt
by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
Section 4. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which
banking institutions are authorized or required by law or other government
action to close.
"Change of Control Transaction" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial ownership of
capital stock of the Obligor, by contract or otherwise) of in excess of
fifty percent (50%) of the voting securities of the Obligor (except that the
acquisition of voting securities by the Holder shall not constitute a Change
of Control Transaction for purposes hereof), (b) a replacement at one time
or over time of more than one-half of the members of the board of directors
of the Obligor which is not approved by a majority of those individuals who
are members of the board of directors on the date hereof (or by those
individuals who are serving as members of the board of directors on any date
whose nomination to the board of directors was approved by a majority of the
members of the board of directors who are members on the date hereof), (c)
the merger, consolidation or sale of fifty percent (50%) or more of the
assets of the Obligor or any subsidiary of the Obligor in one or a series of
related transactions with or into another entity, or (d) the execution by
the Obligor of an agreement to which the Obligor is a party or by which it
is bound, providing for any of the events set forth above in (a), (b) or
(c).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001, of the
Obligor and stock of any other class into which such shares may hereafter be
changed or reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Funding Event" means any transaction or series of transactions closed
after the Original Issue Date in which the Obligor raises $100,000 or more
through the sale of their equity securities or securities exercisable or
convertible into equity securities.
"Original Issue Date" shall mean the date of the first issuance of
this Debenture regardless of the number of transfers and regardless of the
number of instruments, which may be issued to evidence such Debenture.
"Closing Bid Price" means the price per share in the last reported
trade of the Common Stock on the OTC or on the exchange which the Common
Stock is then listed as quoted by Bloomberg, LP.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent Market on which the
shares of Common Stock are then quoted or listed; provided, that in the
event that the shares of Common Stock are not listed or quoted, then Trading
Day shall mean a Business Day.
"Transaction Documents" means the Promissory Note Purchase Agreement
dated January 25, 2005 between the Obligor and the Holder or any other
agreement delivered in connection with the Promissory Note Purchase
Agreement, including, without limitation, the January Security Agreement,
the March Security Agreement, the Amended Pledge Agreement, the Investor
Registration Rights Agreement dated the date hereof between the Obligor and
the Holder, and the Irrevocable Transfer Agent Instructions among the
Obligor, the Holder, Interwest Stock Transfer Company, and Xxxxx Xxxxxxxx,
Esq.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with
the terms hereof.
"Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares
and naming the Holder as a "selling stockholder" thereunder.
Section 5. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other
charges (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation
of the Obligor. This Debenture ranks pari passu with all other Debentures
now or hereafter issued under the terms set forth herein. As long as this
Debenture is outstanding, the Obligor shall not and shall cause their
subsidiaries not to, without the consent of the Holder, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer
to repay, repurchase or otherwise acquire shares of its Common Stock or
other equity securities other than as to the Underlying Shares to the extent
permitted or required under the Transaction Documents; or (iii) enter into
any agreement with respect to any of the foregoing.
Section 6. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Obligor, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive
any notice of, or to attend, meetings of stockholders or any other
proceedings of the Obligor, unless and to the extent converted into shares
of Common Stock in accordance with the terms hereof.
Section 7. If this Debenture is mutilated, lost, stolen or
destroyed, the Obligor shall execute and deliver, in exchange and substitution
for and upon cancellation of the mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for
the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership hereof, and indemnity,
if requested, all reasonably satisfactory to the Obligor.
Section 8. No indebtedness of the Obligor is senior to this
Debenture in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder's consent, the
Obligor will not and will not permit any of their subsidiaries to, directly
or indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income
or profits there from that is senior in any respect to the obligations of
the Obligor under this Debenture.
Section 9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect
to conflicts of laws thereof. Each of the parties consents to the
jurisdiction of the Superior Courts of the State of New Jersey sitting in
Xxxxxx County, New Jersey and the U.S. District Court for the District of
New Jersey sitting in Newark, New Jersey in connection with any dispute
arising under this Debenture and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens to the bringing of any such proceeding in such jurisdictions.
Section 10. If the Obligor fails to strictly comply with the terms
of this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this
Debenture, including, without limitation, those incurred: (i) during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to the Holder's rights, remedies and obligations, (ii) collecting
any sums which become due to the Holder, (iii) defending or prosecuting any
proceeding or any counterclaim to any proceeding or appeal; or (iv) the
protection, preservation or enforcement of any rights or remedies of the
Holder.
Section 11. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Holder to insist upon strict adherence to
any term of this Debenture on one or more occasions shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Debenture. Any waiver must
be in writing.
Section 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due
hereunder shall violate applicable laws governing usury, the applicable rate
of interest due hereunder shall automatically be lowered to equal the
maximum permitted rate of interest. The Obligor covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Obligor from paying all or any portion of the principal of or
interest on this Debenture as contemplated herein, wherever enacted, now or
at any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Obligor (to the extent it may
lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder,
but will suffer and permit the execution of every such as though no such law
has been enacted.
Section 13. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
Section 14. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PARTIES' ACCEPTANCE OF THIS AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date
set forth above.
HEADLINERS ENTERTAINMENT GROUP, INC.
By: /s/Xxxxxxx Xxxxxxxxx
---------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: President
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $
of the principal amount of the above Debenture into
Shares of Common Stock of Headliners Entertainment Group, Inc., according to
the conditions stated therein, as of the Conversion Date written below.
Conversion Date:
Applicable Conversion
Price:
Signature:
_____________________________________________________________
Name:
_____________________________________________________________
Address:
_____________________________________________________________
Amount to be converted: $_______________________________________________
Amount of Debenture unconverted: $______________________________________
Conversion Price per share: $__________________________________________
Number of shares of Common Stock to be issued:__________________________
Please issue the shares
of Common Stock in the
following name and to the
following address:
_____________________________________________________________
Issue to:
_____________________________________________________________
Authorized Signature:
_____________________________________________________________
Name:
_____________________________________________________________
Title:
_____________________________________________________________
Phone Number:
_____________________________________________________________
Broker DTC Participant Code:
_____________________________________________________________
Account Number:
_____________________________________________________________
SCHEDULE A
PAYMENT SCHEDULE
----------------
Principal $7,953,698
Interest 12%
Redemption Premium 10%
Closing Date August 19, 2005
Payment Outstanding
Payment Due Date Interest Principal Total Payment Principal
--------------------------------------------------------------------------
1 12/1/2005 $271,951.10 $400,000.00 $671,951.10 7,553,698
2 1/1/2006 $76,985.63 $400,000.00 $476,985.63 7,153,698
3 2/1/2006 $72,908.92 $400,000.00 $472,908.92 6,753,698
4 3/1/2006 $62,171.03 $400,000.00 $462,171.03 6,353,698
5 4/1/2006 $64,755.50 $400,000.00 $464,755.50 5,953,698
6 5/1/2006 $58,721.40 $400,000.00 $458,721.40 5,553,698
7 6/1/2006 $56,602.07 $400,000.00 $456,602.07 5,153,698
8 7/1/2006 $50,830.99 $400,000.00 $450,830.99 4,753,698
9 8/1/2006 $48,448.65 $400,000.00 $448,448.65 4,353,698
10 9/1/2006 $44,371.94 $400,000.00 $444,371.94 3,953,698
11 10/1/2006 $38,995.38 $400,000.00 $438,995.38 3,553,698
12 11/1/2006 $36,218.51 $400,000.00 $436,218.51 3,153,698
13 12/1/2006 $31,104.97 $400,000.00 $431,104.97 2,753,698
14 1/1/2007 $28,065.09 $400,000.00 $428,065.09 2,353,698
15 2/1/2007 $23,988.37 $400,000.00 $423,988.37 1,953,698
16 3/1/2007 $17,984.73 $400,000.00 $417,984.73 1,553,698
17 4/1/2007 $15,834.95 $400,000.00 $415,834.95 1,153,698
18 5/1/2007 $11,378.94 $400,000.00 $411,378.94 753,698
19 6/1/2007 $ 7,681.52 $400,000.00 $407,681.52 353,698
20 7/1/2007 $ 3,488.53 $353,698.00 $357,186.53 0
------------
$7,953,698.00
============
