6% CONVERTIBLE DEBENTURE DUE MARCH 22, 2012
Exhibit 10.9
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
| Original Issue Date: _____, 2010 | $_____ |
6% CONVERTIBLE DEBENTURE
DUE MARCH 22, 2012
DUE MARCH 22, 2012
THIS 6% CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 6%
Convertible Debentures of EClips Media Technologies, Inc., a Delaware corporation, (the
“Company”), having its principal place of business at 000 Xxxxxx Xxxxxx, Xxxxx 000, Xxx
Xxxx, Xxx Xxxx 00000, designated as its 6% Convertible Debenture due
_____, 2012 (this
debenture, the “Debenture” and, collectively with the other debentures of such series, the
“Debentures”).
FOR VALUE RECEIVED, the Company promises to pay to
_____
or its registered assigns (the
“Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of
$_____
on
_____, 2012 (the “Maturity Date”) or such earlier date as this Debenture is
required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture in accordance with
the provisions hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have
the meanings set forth in the Securities Purchase Agreement and (b) the following terms shall have
the following meanings:
“Alternate Consideration” shall have the meaning set forth in Section 5(e).
“Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary
thereof any such case or proceeding that is not dismissed within 60 days after commencement,
(c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or proceeding is entered, (d)
the Company or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not discharged or stayed
within 60 calendar days after such appointment, (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company
or any Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts or (g) the Company or any
Significant Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.
“Business Day” means any day except any Saturday, any Sunday, any day which
shall be a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
“Change of Control Transaction” means the occurrence after the date hereof of
any 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 Company, by contract
or otherwise) of in excess of 50% of the voting securities of the Company (other than by
means of conversion or exercise of the Debentures and the Securities issued together with
the Debentures), (b) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such transaction own less
than 50% of the aggregate voting power of the Company or the successor entity of such
transaction, or (c) the Company sells or transfers all or substantially all of its assets to
another Person and the stockholders of the Company immediately prior to such transaction own
less than 50% of the aggregate voting power of the acquiring entity immediately after the
transaction, (d) a replacement at one time or within a three year period of more than
one-half of the members of the Board of Directors 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), or (e) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing for any of the
events set forth in clauses (a) through (d) above. Notwithstanding anything herein to the
contrary, a Change of Control shall not be deem to occur in connection with the execution or
performance of the Purchase Agreement.
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“Closing Bid Price” means on any particular date (a) the last reported closing
bid price per share of Common Stock on such date on the Trading Market (as reported by
Bloomberg L.P. at 4:15 p.m. (New York City time)), or (b) if there is no such price on such
date, then the closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (c) if
the Common Stock is not then listed or quoted on a Trading Market and if prices for the
Common Stock are then reported in the “pink sheets” published by Pink Sheets LLC (or a
similar organization or agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported, or (d) if the shares of Common
Stock are not then publicly traded the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule
1 attached hereto.
“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of this Debenture in accordance with the terms hereof.
“Debenture Register” shall have the meaning set forth in Section 2(c).
“Event of Default” shall have the meaning set forth in Section 7(a).
“Fundamental Transaction” shall have the meaning set forth in Section 5(e).
“Interest Payment Date” shall have the meaning set forth in Section 2(a).
“Late Fees” shall have the meaning set forth in Section 2(d).
“New York Courts” shall have the meaning set forth in Section 8(d).
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“Original Issue Date” means the date of the first issuance of the Debentures,
regardless of any transfers of any Debenture and regardless of the number of instruments
which may be issued to evidence such Debentures.
“Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).
“Subsidiary” shall have the meaning set forth in the Purchase Agreement.
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“Securities Purchase Agreement” means the Securities Purchase Agreement, dated
as of March 22, 2010 among the Company and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.
“Trading Day” means a day on which the New York Stock Exchange is open for
business.
“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American Stock Exchange,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction Documents” shall have the meaning set forth in the Securities
Purchase Agreement.
“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted for
trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time)); (b) if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for
trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in
the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith by the Holder
and reasonably acceptable to the Company.
Section 2. Interest.
a) Payment of Interest. The Company shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture at the rate of
six (6%) percent per annum, on each Conversion Date (as to that principal amount then being
converted) and on the Maturity Date (each such date, an “Interest Payment Date”) (if
any Interest Payment Date is not a Business Day, then the applicable payment shall be due on
the next succeeding Business Day), in cash.
b) [Intentionally Omitted]
c) Interest Calculations. Interest shall be calculated on the basis of a
360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily
commencing on the Original Issue Date until payment in full of the outstanding principal,
together with all accrued and unpaid interest, liquidated damages and other amounts which
may become due hereunder, has been made. Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the Company regarding registration
and transfers of this Debenture (the “Debenture Register”).
4
d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the
maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily
from the date such interest is due hereunder through and including the date of actual
payment in full.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. 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 payable for such
registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in the Securities
Purchase Agreement and may be transferred or exchanged only in compliance with the
Securities Purchase Agreement and applicable federal and state securities laws and
regulations.
c) Reliance on Debenture Register. Prior to due presentment for transfer to the
Company of this Debenture, the Company and any agent of the Company may treat the Person in
whose name this Debenture is duly registered on the Debenture Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other purposes, whether
or not this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this
Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in
part, into shares of Common Stock at the option of the Holder, at any time and from time to
time. The Holder shall effect conversions by delivering to the Company a Notice of
Conversion, the form of which is attached hereto as Annex A (each, a “Notice of
Conversion”), specifying therein the principal amount of this Debenture to be converted
and the date on which such conversion shall be effected (such date, the “Conversion
Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To
effect conversions hereunder, the Holder shall not be required to physically surrender this
Debenture to the Company unless the entire principal amount of this Debenture, plus all
accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Debenture in an amount equal
to the applicable conversion. The Holder and the Company shall maintain records showing the
principal amount(s) converted and the date of such conversion(s). The Company may deliver
an objection to any Notice of Conversion within 1 Business Day of delivery of such Notice of
Conversion. The Holder, and any assignee by acceptance of this Debenture, acknowledge and
agree that, by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture,
the unpaid and unconverted principal amount of this Debenture may be less than the
amount stated on the face hereof.
5
b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to the lesser of (i) $0.025 per share of Common Stock or (z) until the
eighteen (18) months anniversary of the Original Issue Date, the lowest price paid per share
(other than in connection with any Excepted Issuance (as defined below)) or the lowest
conversion price per share (other than in connection with any Excepted Issuance) in a
subsequent sale of the Company’s equity and/or convertible debt securities paid by investors
after the Original Issue Date (the “Conversion Price”).
c) Maximum Exercise. The Holder shall not be entitled to convert this
Debenture on any conversion date, in connection with that number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock beneficially
owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of
Common Stock issuable upon the conversion of this Debenture with respect to which the
determination of this limitation is being made on an exercise date, which would result in
beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding
shares of Common Stock on such date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the
1934 Act and Rule 13d-3 thereunder. Subject to the foregoing, the Holder shall not be
limited to aggregate exercises which would result in the issuance of more than 9.99%.
d) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The
number of Conversion Shares issuable upon a conversion hereunder shall be determined
by the quotient obtained by dividing (x) the outstanding principal amount of this
Debenture to be converted by (y) the Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after each Conversion Date (the “Share Delivery Date”), the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or
certificates representing the Conversion Shares which, on or after the six month
anniversary of the Original Issue Date, shall be free of restrictive legends and
trading restrictions (other than those which may then be required by the Purchase
Agreement) representing the number of Conversion Shares being acquired upon the
conversion of this Debenture and (B) a bank check in the amount of accrued and
unpaid interest. On or after the six month anniversary of the Original Issue Date,
the Company shall use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 4(d) electronically
through the Depository Trust Company or another established clearing corporation
performing similar functions.
6
iii. Failure to Deliver Certificates. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after the Conversion Date, the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Debenture delivered to the Company and the Holder shall promptly return to
the Company the Common Stock certificates representing the principal amount of this
Debenture unsuccessfully tendered for conversion to the Company.
iv. Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its authorized
and unissued shares of Common Stock for the sole 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 (and the other holders of the Debentures), not less
than such aggregate number of shares of the Common Stock as shall (subject to the
terms and conditions set forth in the Securities Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued, fully
paid and nonassessable.
v. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Debenture. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon such
conversion, the Company shall at its election, either pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by the
Conversion Price or round up to the next whole share.
vi. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Debenture shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates, provided that, the Company
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 this Debenture so converted and the Company
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 Company the
amount of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
7
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this
Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any Common
Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon conversion of, or payment of interest on, the Debentures),
(ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii)
combines (including by way of a reverse stock split) outstanding
shares of Common Stock into a smaller number of shares or (iv) issues, in the event of
a reclassification of shares of the Common Stock, any shares of capital stock of the
Company, then the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately 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.
b) Subsequent Rights Offerings. If the Company, at any time while the
Debenture is outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common
Stock at a price per share that is lower than the VWAP on the record date referenced 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 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 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
(assuming delivery to the Company in full of all consideration payable upon exercise of such
rights, options or warrants) would purchase at such VWAP. 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.
c) Pro Rata Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences
of its indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security (other than the Common Stock, which shall be subject
to Section 5(b)), then in each such case the Conversion Price shall be adjusted by
multiplying such 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 VWAP determined as of the record date mentioned above, and of
which the numerator shall be such VWAP 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 1 outstanding share of the Common Stock as determined by the Board of
Directors of the Company in good faith. In either case the adjustments shall be described
in a statement delivered to the Holder describing the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to 1 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.
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d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of its assets
in one transaction or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant to
which holders of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (iv) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then, upon any subsequent conversion of this Debenture,
the Holder shall have the right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock
(the “Alternate Consideration”). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion
the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any successor
to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder
a new debenture consistent with the foregoing provisions and evidencing the Holder’s right
to convert such debenture into Alternate Consideration. The terms of any agreement pursuant
to which a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 5(e) and
insuring that this Debenture (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding
anything herein to the contrary, a Fundamental Transaction shall not be deemed to have
occurred in connection with the execution or performance of the Purchase Agreement.
e) Calculations. All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding any treasury
shares of the Company) issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, the Company shall promptly
deliver to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
9
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock, (C) the Company shall authorize the granting to
all holders of the Common Stock of 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 Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the assets
of the Company, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (E) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company, then, in each case, the Company shall cause to be filed at each
office or agency maintained for the purpose of conversion of this Debenture, and
shall cause to be delivered to the Holder at its last address as it shall appear
upon the Debenture Register, 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 deliver such notice or any defect therein or in the
delivery 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 period commencing on the date of such notice through the effective
date of the event triggering such notice.
g) Excepted Issuances. Notwithstanding anything in this Agreement to the
contrary, no adjustment under this Agreement shall be made, and a Change of Control shall
not be deemed to have occurred, in the event of any issuance that constitutes an Excepted
Issuance (as defined below).
Section 6. Favored Nations Provision. Other than in connection with:
(i) full or partial consideration in connection with a strategic merger, acquisition,
consolidation or purchase of substantially all of the securities or assets of a corporation
or other entity which holders of such securities or debt are not at any time granted
registration rights equal to or greater than those granted to the Holders, (ii) the
Company’s issuance of securities in connection with strategic license agreements and other
partnering arrangements so long as such issuances are not for the purpose of raising capital
and which holders of such securities or debt are not at any time granted registration rights
equal to or greater than those granted to the Holders, (iii) the Company’s issuance of
Common Stock or the issuances or grants of options to purchase Common Stock to employees,
directors, and consultants, pursuant to plans approved by the Board of Directors of the
Company in an amount not to exceed fifteen (15%) of the outstanding primary shares of the
Company on the date of issuance, (iv) securities upon the exercise or
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exchange of or
conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this
Agreement on the terms in effect on the Closing Date including the permissible amendment
thereof after the Closing Date, and pursuant to (v) above), (v) as a result of the exercise
of Warrants or conversion of Notes which are granted or issued pursuant to this Agreement,
and (vi) the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock to consultants and service providers approved by the Board of
Directors other than as consideration for capital raising (collectively, the foregoing (i)
through (vi) are “Excepted Issuances”), if at any time the Debenture is outstanding, the
Company shall issue (the “Lower Price Issuance”) any Common Stock or securities convertible
into or exercisable for shares of Common Stock (or modify any of the foregoing which may be
outstanding) to any person or entity at a price per share or conversion or exercise price
per share which shall be less than the Conversion Price in effect at such time (or provide
other value to such person or entity in connection with an equivalent price issuance or
Lower Price Issuance), without the consent of the Holders, then the Conversion Price shall
automatically be reduced to such other lower price and the Holders shall be entitled to
receive any additional consideration as shall be issued to such person or entity. The
provisions of this Section 6 shall terminate eighteen (18) months of the date of this
Debenture (the “MFN Date”). Securities issued or issuable by the Company for no
consideration or for consideration that cannot be determined at the time of issue will be
deemed issuable or to have been issued for $0.0001 per share of Common Stock. The rights of
Holders set forth in this Section 6 are in addition to any other rights the Holders have
pursuant to this Agreement or the Debentures and any other agreement referred to or entered
into in connection herewith or to which Holders and Company are parties.
Section 7. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event 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 (A) the principal amount of any Debenture or
(B) interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which default,
solely in the case of an interest payment or other default under clause (B) above,
is not cured within 10 Trading Days;
ii. the Company shall fail to observe or perform any other covenant or
agreement contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion, which
breach is addressed in clause (xi) below) which failure is not cured, if possible to
cure, within the earlier to occur of (A) 10 Trading Days after notice of such
failure sent by the Holder or by any other Holder to the Company and (B) 15 Trading
Days after the Company has become or should have become aware of such failure;
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iii. a default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument) shall occur under (A)
any of the Transaction Documents or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is obligated (and not
covered by clause (vi) below);
iv. any representation or warranty made in this Debenture, any other
Transaction Documents, any written statement pursuant hereto or thereto or any other
report, financial statement or certificate made or delivered to the Holder or any
other Holder shall be untrue or incorrect in any material respect as of the date
when made or deemed made;
v. the Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
vi. the Company or any Subsidiary shall default on any of its obligations under
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 that (a) involves an obligation greater
than $150,000, whether such indebtedness now exists or shall hereafter be created,
and (b) results in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for listing or quotation for
trading on a Trading Market and shall not be eligible to resume listing or quotation
for trading thereon within seven Trading Days;
viii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction or shall agree to sell or dispose of all or in excess of 50%
of its assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);
ix. any Person shall breach any agreement delivered to the initial Holders
pursuant to Section 2.2 of the Purchase Agreement; or
x. any monetary judgment, writ or similar final process shall be entered or
filed against the Company, any subsidiary or any of their respective property or
other assets for more than $50,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.
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b) Remedies Upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated
damages and other amounts owing in respect thereof through the date of acceleration, shall
become, at the Holder’s election, immediately due and payable in cash at the Mandatory
Default Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted under applicable law. Upon the payment in full of
the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as
directed by the Company. In connection with such acceleration described herein, the Holder
need not provide, and the Company 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 acceleration may be rescinded and annulled by
Xxxxxx at any time prior to payment hereunder and the Holder shall have all rights as a
holder of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address set forth
above, or such other facsimile number or address as the Company may specify for such purpose
by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices
or other communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of the Holder
appearing on the books of the Company, or if no such facsimile number or address appears, at
the principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile
number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the
date immediately following the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified on the signature page between 5:30
p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second
Business Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) upon actual receipt by the party to whom such notice is required to
be given.
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b) Absolute Obligation. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, liquidated damages and accrued interest, as
applicable, on this Debenture at the time, place, and rate, and in the coin or currency,
herein prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter issued
under the terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for
and upon cancellation of a 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, reasonably
satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without regard to
the principles of conflict of laws thereof. Each party agrees that all legal proceedings
concerning the interpretation, enforcement and defense of the transactions contemplated by
any of the Transaction Documents (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the Southern District of New York (the
“Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such Courts, or such Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices to it under
this Debenture and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by applicable law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to this
Debenture or the transactions contemplated hereby. If either party shall commence an action
or proceeding to enforce any provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys fees and other
costs and expenses incurred in the investigation, preparation and prosecution of such action
or proceeding.
e) Amendment; Waiver. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an amendment,
by the Company and the Holders of at least 51% of the Debentures then outstanding or, in the
case of a waiver, by the party against whom enforcement of any such waived provision is
sought. Any waiver by the Company or 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
Company or 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.
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f) Severability. 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 violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to equal the
maximum rate of interest permitted under applicable law. The Company 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 Company 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 Company (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 impede 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.
g) Next Business Day. 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.
h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect any of the
provisions hereof.
i) Assumption. Any successor to the Company or any surviving entity in a
Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the
obligations of the Company under this Debenture and the other Transaction Documents pursuant
to written agreements in form and substance satisfactory to the Holder (such approval not to
be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such
successor entity evidenced by a written instrument substantially similar in form and
substance to this Debenture, including, without limitation, having a principal amount and
interest rate equal to the principal amount and the interest rate of this Debenture and
having similar ranking to this Debenture, which shall be satisfactory to the Holder (any
such approval not to be unreasonably withheld or delayed). The provisions of this Section
9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Debenture.
*********************
(Signature pages to Follow)
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly
authorized officer as of the date first above indicated.
| ECLIPS MEDIA TECHNOLOGIES, INC. | ||||||
| By: | ||||||
| Title: Chief Executive Officer | ||||||
| Facsimile No. for delivery of Notices: _____________ | ||||||
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 6% Convertible Debenture due
_____, 2012 of EClips Media Technologies, Inc., a Delaware corporation (the “Company”),
into shares of common stock (the “Common Stock”), of the Company according to the
conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the
name of a person other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations: |
||
| Date to Effect Conversion: | ||
| Principal Amount of Debenture to be Converted: | ||
| Number of shares of Common Stock to be issued: | ||
| Signature: | ||
| Name: | ||
| Address for Delivery of Common Stock Certificates: | ||
| Or | ||
| DWAC Instructions: | ||
| Broker No: | ||
| Account No: |
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Schedule 1
CONVERSION SCHEDULE
The 6% Convertible Debenture due on
_______ ___, 2012 in the original principal amount of $_____
is
issued by EClips Media Technologies, Inc., a Delaware corporation. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
| Aggregate | ||||||||
| Principal | ||||||||
| Amount | ||||||||
| Remaining | ||||||||
| Subsequent to | ||||||||
| Conversion | ||||||||
| Date of Conversion | (or original | |||||||
| (or for first entry, | Amount of | Principal | ||||||
| Original Issue Date) | Conversion | Amount) | Company Attest |
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