EXHIBIT A
to Securities Purchase Agreement
Dated: October 20, 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, 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.
No. 1 $4,000,000.00
INTERACTIVE TELEVISION NETWORKS, INC.
17% SECURED CONVERTIBLE DEBENTURE
DUE OCTOBER 1, 2008
THIS DEBENTURE is issued by INTERACTIVE TELEVISION NETWORKS, INC., a Nevada
Corporation (the "Company"). This Debenture is designated as the Company's 17%
Secured Convertible Debenture, due on the date set forth above, in the aggregate
principal amount of Four Million Dollars ($4,000,000.00) (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to PENTAGON BERNINI FUND,
LTD., an international business company organized under the laws of the British
Virgin Islands, or its registered assigns (the "Holder"), the principal sum of
$4,000,000.00, on or before the due date, or such earlier date or dates as the
Debenture is required to be repaid as provided hereunder (the "Maturity Date")
and to pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 17% per annum.
Interest on this Debenture shall accrue daily commencing on the Original
Issue Date (as defined in Section 5) until payment in full of the unconverted
outstanding principal sum, together with all accrued and unpaid interest and
other amounts, which may become due hereunder, has been made. Interest shall be
payable quarterly in arrears on the last day of each January, April, July, and
October, commencing on January 31, 2006 (except that, if any such day is not a
Business Day, then such payment shall be due on the next succeeding Business
Day) (each such date, an "Interest Payment Date"). Interest shall be payable in
cash, except that the Company may, in its sole discretion, pay up to 50% of the
amount of interest payable on any Interest Payment Date by issuing additional
debentures in accordance with the same terms as this Debenture (the "Interest
Debentures"). Interest hereunder will be paid ratably to the Persons (as defined
in Section 5) in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of Debentures (the "Debenture
Register") on the applicable Record Date (as defined in Section 5). Interest
shall be calculated based on a 365-day year.
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On the first day of each month, commencing on May 1, 2007, and continuing
monthly thereafter in accordance with the amortization schedule set forth on
Exhibit A hereto (each, a "Monthly Redemption Date"), the Company shall make a
principal payment on the Debenture in the amount of $222,222.00 (except that the
payment due on October 1, 2008, shall be in an amount equal to the greater of
$222,222.00 or the then-remaining outstanding principal balance of the
Debenture) (each a "Principal Payment"). Principal hereunder will be paid
ratably to the Persons in whose name this Debenture is registered on the
Debenture Register on the applicable Record Date. The principal amount of this
Debenture that is subject to redemption and repayment on the Maturity Date shall
be reduced by the amount of principal that is, from time to time, converted into
Common Stock by the Holder pursuant to Section 4. In the event that the
outstanding principal balance of this Debenture is partially reduced as a result
of a conversion of a portion of this Debenture, such reduction of the
outstanding principal balance of this Debenture shall be applied to Principal
Payments in reverse order of maturity and shall reduce/eliminate the Principal
Payments payable on the latest Monthly Redemption Dates first.
The Company shall have the right to prepay this Debenture, in whole or in
part, at any time and from time to time before the Maturity Date upon not less
than fifteen (15) days prior written notice to the Holder specifying the
prepayment date. Concurrently with each such prepayment, the Company shall pay
all accrued and unpaid interest on the principal amount of the Debenture that is
prepaid. No Prepayment Fee shall be payable with respect to prepayments of
principal on this Debenture.
In the event that the Company issues any additional debt or equity
securities (other than Interest Debentures or Common Stock issued upon a
conversion pursuant to Section 4 hereof or upon exercise of any of the
Warrants), the Holder shall have the right to require that fifty percent (50%)
of the net proceeds of such debt or equity securities be applied to repay all or
a portion of the principal amount outstanding on this Debenture.
The performance of the Company's obligations under this Debenture is
secured by (i) that certain Security Agreement of even date executed by the
Company encumbering substantially all of the Company's personal property, and
(ii) the pledge by Xxxxxxx Xxxxxxxx and Xxxxx Xxxxxx (collectively, the
"Pledgors") of a total of 10,000,006 shares of common stock of the Company
(collectively, the "Pledged Shares") pursuant to the terms of that certain Stock
Pledge Agreement of even date between the Pledgors and the Holder (the "Stock
Pledge Agreement").
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.
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Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 5) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 5) 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 3. 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
damages in respect of the Debenture, free of any claim of subordination, 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 is not cured within three
(3) days after the date the payment became due and payable;
(ii) the failure to file a Registration Statement with the
Commission on or before sixty (60) days after the Original Issue Date,
registering the resale of the Underlying Shares;
(iii) the failure to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of this
Debenture, the Purchase Agreement or the Registration Rights Agreement, and such
failure or breach shall not have been remedied within ten (10) days after the
date on which notice of such failure or breach shall have been given;
(iv) the Company shall commence, or there shall be commenced against
the Company and not dismissed within 60 days, a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or any successor
thereto, or the Company 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 Company, or there is commenced against the Company and
not dismissed within 60 days, any such bankruptcy, insolvency or other
proceeding; or the Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the
Company suffers any appointment of any custodian or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of 60 days; or the Company makes a general assignment for the benefit of
creditors; or the Company 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
Company shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the Company 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 Company for the purpose of effecting any of the foregoing;
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(v) the Common Stock shall cease to be quoted for trading or listed
for trading on the National Association of Securities Dealers OTC Bulletin Board
("OTC") or the 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;
(vi) the Company shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a Conversion
Date pursuant to and in accordance with Section 4(b), or the Company 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 the
Debenture in accordance with the terms hereof. If the Company's transfer agent
is not open for business during a Trading Day, such Trading Day shall not be
counted for purposes of determining the number of days for delivery of a Common
Stock certificate;
(vii) the Company shall fail for any reason to deliver the payment
in cash pursuant to a Buy-In (as defined herein) within ten (10) Business Days
after notice is deemed delivered hereunder;
(viii) the Company shall fail for any reason to cause the number of
authorized but unissued shares of its Common Stock to be increased to an amount
sufficient to enable the Company to comply with the reserve requirement of
Section 4(c)(v) within a period of sixty (60) days following its receipt of any
Holder's notice under Section 4(c)(v) that such reserve is not being satisfied
if, at the time of the notice, the number of authorized shares of the Company's
Common Stock is insufficient for this purpose; or
(ix) the Company shall fail to cause the Commission to declare the
Registration Statement effective within ninety (90) days after the date on which
it is filed with the Commission (or within 120 days after such filing date if
the Commission provides comments on the Registration Statement), to file the
final prospectus with the Commission pursuant to Rule 424(b) with a copy thereof
provided to Holder within ninety (90) days (or 120 days, if applicable) after
the date on which the Registration Statement is filed with the Commission, or to
maintain the effectiveness of the Registration Statement until the earlier of
(a) the date that all of the Underlying Shares and all shares issuable upon the
exercise of the Warrants have been sold, or (b) all of the Underlying Shares (as
defined in Section 5) and all shares of Common Stock issuable upon exercise of
the Warrants issued to Holder concurrently with the issuance of this Debenture
may be freely traded without registration under the Securities Act, under Rule
144 promulgated under the Securities Act or otherwise.
(x) a breach by the Company of any of the covenants, representations
or warranties set forth herein or in the Purchase Agreement of even date
herewith.
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(b) If an Event of Default occurs, the Holder shall have the right to
declare immediately due and payable all amounts owing under this Debenture. 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
declaration may be rescinded and annulled by the Holder 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.
(c) If an Event of Default under Section 3(a)(i) occurs, then the Company
shall pay, in addition to the amount of the required payment, a late charge
equal to ten percent (10%) of the amount of the late payment as liquidated
damages and not as a penalty. The Company acknowledges that the damage the
Holder would suffer in the event of a late payment of any amount owing under
this Debenture would be difficult or impossible to ascertain, and that the
foregoing amount is a reasonable estimate of the damage the Holder would suffer
in such event.
(d) If an Event of Default under Section 3(a)(ii) or (ix) occurs, then (i)
the Company shall pay liquidated damages to Holder equal to $1,000.00 for each
day during which such Event of Default remains uncured; and (ii) the Conversion
Price shall be reduced to $1.50 per share. Any amounts to be paid as liquidated
damages shall be paid in cash monthly in arrears on or before the 30th day
following the end of the month or partial month to which they relate. The
Company acknowledges that the damage the Holder would suffer in the event of an
Event of Default under Section 3(a)(ii) or (ix) would be difficult or impossible
to ascertain, and that the foregoing amount is a reasonable estimate of the
damage the Holder would suffer in such event.
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 declaration may be rescinded and annulled by Holder 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.
Section 4. Conversion.
(a) (i) Conversion at Option of the 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 (subject to the limitations on conversion
set forth in Section 4(a)(ii) hereof). The number of shares of Common Stock
issuable upon a conversion hereunder equals the quotient obtained by dividing
(x) the outstanding balance of this Debenture (principal plus unpaid interest)
to be converted by (y) the Conversion Price (as defined in Section 4(c)(i)).
(B) The Holder shall effect conversions by simultaneously delivering
to the Company a completed notice in the form attached hereto as Exhibit B (a
"Conversion Notice") and a completed Conversion Schedule in the form of Schedule
I attached to the Conversion Notice (as to each Conversion Notice, the
"Conversion Schedule"). The Conversion Schedule shall set forth the remaining
principal amount of this Debenture and all accrued and unpaid interest thereon
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subsequent to the conversion at issue. The date on which a Conversion Notice is
delivered to the Company is the "Conversion Date" relating to such Conversion
Notice. 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 Company in order to effect conversions. Subject to Section
4(b), each Conversion Notice, once given, shall be irrevocable. Conversions
hereunder shall have the effect of reducing the outstanding principal amount of
this Debenture plus all accrued and unpaid interest thereon by amount of the
applicable conversion, which shall be evidenced by entries set forth in the
Conversion Schedule. The Holder and the Company 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. (i) The Holder may not convert
the Debenture, if and to the extent such issuance of conversion shares 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 9.9910% of the then-issued and
outstanding shares of Common Stock, including shares issuable upon conversion of
the Debenture held by such Holder after application of this Section 4(a)(ii).
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of a conversion hereunder, the
Company may issue Interest Shares or Principal Shares unless such issuance would
result in the issuance of shares of Common Stock in excess of 9.9910% of the
then outstanding shares of Common Stock known by the Company to be owned by the
Holder and its affiliates. In addition, unless the conversion at issue would
result in the issuance of shares of Common Stock in excess of 9.9910% of the
then-outstanding shares of Common Stock without regard to any other shares of
Common Stock that 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 4(a)(ii) will limit any particular
conversion hereunder, and to the extent that the Holder determines that the
limitation contained in this Section 4(a)(ii) applies, the determination of
which portion of the principal amount of the 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 the Debenture that, without regard
to any other shares that the Holder or its affiliates may beneficially own,
would result in an issuance in excess of the amount permitted hereunder, the
Company 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 4(b) and, at the option of
the Holder, either retain any principal amount tendered for conversion in excess
of the amount permitted 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 Company. Other Holders shall be unaffected by any
such waiver.
(b) (i) Reserved.
(ii) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to Section 3 herein for the
Company'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. The exercise of any
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such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law. Further, if the
Company shall not have delivered any cash due in respect of conversion of the
Debenture or as payment of interest thereon by the third (3rd) Trading Day after
the Conversion Date, the Holder may, by notice to the Company, require the
Company to issue shares of Common Stock pursuant to Section 4(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.
(iii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder any certificate or certificates
representing shares of Common Stock upon conversion within the period specified
herein by the third (3rd) Trading Day after the Conversion Date, and if after
such third (3rd) 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 Company 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 Company timely complied with its delivery requirements. If the Company's
transfer agent is not open for business during a Trading Day, such Trading Day
shall not be counted for purposes of determining the number of days for delivery
of a Common Stock certificate. 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 Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The "Conversion Price" shall be Two Dollars ($2.00) per share.
(ii) If the Company, at any time while the 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 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 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 4(c)(ii) 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.
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(iii) If the Company, at any time while the 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 the 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 Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value 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 written statement provided to the Holder
describing 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.
(iv) 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 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 only 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 the 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 Company 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.
(v) The Company shall maintain a share reserve of not less than 105%
of the shares of Common Stock issuable upon conversion of the Debenture; and
within five (5) Business Days following the receipt by the Company of a Holder's
notice that such minimum number of Underlying Shares is not so reserved, the
Company shall if there are sufficient authorized but unissued shares promptly
reserve a sufficient number of shares of Common Stock to comply with such
requirement. If there are not sufficient authorized but unissued shares, the
Company shall use its best efforts to call a special shareholders' meeting
within sixty (60) days of such notice to increase the number of authorized
shares of Common Stock.
(vi) All calculations under this Section 4 shall be made to the
nearest ten thousandth. No adjustments in either the Conversion Price shall be
required if such adjustment is less than $0.0001, provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
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(vii) Whenever the Conversion Price is adjusted pursuant to this
Section 4(c), the Company 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.
(viii) If (A) the Company shall declare a dividend (or any other
distribution) 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 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; (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 the Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Company, at least ten (10) 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 the Debenture during the ten
(10) day calendar period commencing the date of such notice to the effective
date of the event triggering such notice.
(ix) In case of any (1) merger or consolidation of the Company with
or into another Person, or (2) sale by the Company of more than one-half (1/2)
of its assets in one or a series of related transactions, a Holder shall have
the right to (A) convert the aggregate principal amount of the 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 the Debenture could have been converted immediately prior to such
merger, consolidation or sales would have been entitled, or (B) 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 the 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 the Debenture set forth herein and the agreements
pursuant to which the Debentures were issued. In the case of clause (B), the
conversion price applicable for the newly issued shares of convertible preferred
9
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 Company 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 the Debenture and payment of interest
on the Debenture, each as herein provided, free from preemptive rights or any
other actual or 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 Company as to reservation of such shares set
forth in the Debenture) be issuable (taking into account the adjustments and
restrictions of Section 4(a)(ii)) upon the conversion of the outstanding
principal amount of the Debenture and payment of interest hereunder. The Company
covenants that all shares of Common Stock so issuable shall, upon issue, be duly
and validly authorized, issued and fully paid, nonassessable and, if the
Registration Statement has been declared effective under the Securities Act,
registered for public sale in accordance with such Registration Statement.
(e) Upon a conversion hereunder the Company 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 Per Share Market Value at such time. If the Company 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.
t 6 0 (f) The issuance of certificates for shares of the Common Stock on
conversion of the 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
issuance 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 or delivery of any such certificates upon conversion in
a name other than that of the Holder of the 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.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at
10
If to the Company:
Interactive Television Networks,
Inc.
00000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx Xxxxxxxx, CFO
If to the Holder:
Pentagon Bernini Fund, Ltd.
c/o Pentagon Capital Management
Plc.
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxx X0X 0XX
Telephone No.: +44 (0)20
7299-9999
Facsimile No.: +44 (0)20
7299-9988
Attention: Mr. Xxxxx Xxxxxxx,
CEO
With a copy to:
Sheppard, Mullin, Xxxxxxx &
Hampton, LLP
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxx,
Esquire
or such other address or facsimile number as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this Section. 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,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company. 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
telephone number specified in this Section prior to 5:00 p.m. (the recipient's
time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:00 p.m. (the recipient's time) on any
date and earlier than 11:59 p.m. (the recipient's time) on such date, (iii) four
(4) days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
11
Section 5. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day that is 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.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $[0.01] par value per share, of the
Company 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.
"Market Price" on any given date means the average of the three lowest
intra-day trading prices of the Company's Common Stock during the ten (10)
immediately preceding Trading Days (which may include Trading Days prior to the
Original Issue Date), provided, that such 10-Trading Day period shall be
extended by the number of Trading Days during such period on which (i) trading
in the Common Stock is suspended by, or not traded on, the OTC or a Subsequent
Market on which the Common Stock is then traded, or (ii) after the date the
Registration Statement for the Underlying Shares is declared effective by the
SEC, the prospectus included in the Registration Statement may not be used by
the Holder for resale of Underlying Shares (provided such inability to use the
prospectus is not (a) caused by the Holder or (b) the result of the Company's
filing of post-effective amendments to the Registration Statement.
"Original Issue Date" means the date of the first issuance of the
Debenture, regardless of the number of transfers and regardless of the number of
instruments that may be issued to evidence such Debenture.
"Per Share Market Value" on any given date means the price per share in
the last reported trade of the Common Stock on the OTC or on a Subsequent Market
on which the Common Stock is then listed.
"Person" means an individual, a corporation, a limited liability company,
a partnership, an unincorporated association, a business trust, a government or
political subdivision thereof or a governmental agency.
"Purchase Agreement" means that certain Securities Purchase Agreement
dated as of October 20, 2005, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in accordance
with its terms.
"Record Date" means, with respect to each Interest Payment Date or
Quarterly Redemption Date, the date that is five (5) Business Days prior to such
Interest Payment Date or Quarterly Redemption Date.
12
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of October 20, 2005, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Statement" means the registration statement to be filed by
the Company with the SEC pursuant to the Registration Rights Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which shares of Common Stock are quoted on
the OTC or quoted or traded on any Subsequent Market on which shares of Common
Stock are then quoted or listed; provided that in the event shares of Common
Stock are not so quoted or listed, then "Trading Day" shall mean a Business Day.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Debenture in accordance with the terms hereof.
"Warrants" means the Warrants to Purchase Common Stock, dated as of the
date of this Debenture, that are being issued by the Company under the Purchase
Agreement to the Holder and all other Holders concurrently with the issuance of
the Debentures.
Section 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of, and interest 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 Company. This Debenture
ranks pari passu with all other Debentures previously issued or issued
concurrently herewith and shall be senior to other convertible Debentures issued
in the future. As long as the Debenture is outstanding, the Company shall not
and shall cause its subsidiaries not to, without the consent of the Holder,
amend its certificate of incorporation, bylaws or other charter documents so as
to adversely affect any rights of the Holder.
Section 7. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, 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
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 8. If this Debenture is mutilated, lost, stolen or destroyed, the
Company 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 Company.
Section 9. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE
TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL
COURTS LOCATED IN THE STATE OF NEW YORK, COUNTY OF NEW YORK AND HEREBY SUBMIT TO
THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
13
Section 10. 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. Any waiver
must be in writing.
Section 11. 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 Company covenants (to the extent that it may lawfully do so) that they 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 the 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 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 12. 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 13. The Company may not assign this Debenture or any rights or
obligations hereunder without the prior written consent of Holder. Holder may
assign this Agreement, in whole or in part, and any rights or obligation
hereunder without the prior written consent of Company by delivery of written
notice to Company of such assignment.
Section 14. The Company shall provide the Holder with no less than fifteen
(15) Trading Days advance notice, in writing, of a redemption/prepayment of some
or all of the outstanding principal balance of this Debenture. Such written
notice shall state the (i) amount of this Debenture that will be subject to
redemption/prepayment, and (ii) the payment date of the pre-payment/redemption.
The Holder shall be entitled to convert some or all of this Debenture until the
close of business on the Business Day immediately preceding the date set by the
Company for the pre-payment/redemption pursuant to this Section 14.
14
Section 15. If any action at law or equity is necessary to enforce or
interpret this Agreement, the prevailing party shall be entitled to received
from the other party or parities reasonable attorneys fees, costs and necessary
disbursements (including costs of collection) in addition to any other relief to
which the prevailing party or parties maybe entitled.
IN WITNESS WHEREOF, the Company has caused this 17% Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.
INTERACTIVE TELEVISION NETWORKS,
INC., a Nevada corporation
By: ___________________________________
Name: ________________________________
Title: _______________________________
15
EXHIBIT A
AMORTIZATION SCHEDULE
-------------------------------------------------------------------------------
May 1, 2007 $222,222.00
-------------------------------------------------------------------------------
June 1, 2007 $222,222.00
-------------------------------------------------------------------------------
July 1, 2007 $222,222.00
-------------------------------------------------------------------------------
August 1, 2007 $222,222.00
-------------------------------------------------------------------------------
September 1, 2007 $222,222.00
-------------------------------------------------------------------------------
October 1, 2007 $222,222.00
-------------------------------------------------------------------------------
November 1, 2007 $222,222.00
-------------------------------------------------------------------------------
December 1, 2007 $222,222.00
-------------------------------------------------------------------------------
January 1, 2008 $222,222.00
-------------------------------------------------------------------------------
February 1, 2008 $222,222.00
-------------------------------------------------------------------------------
March 1, 2008 $222,222.00
-------------------------------------------------------------------------------
April 1, 2008 $222,222.00
-------------------------------------------------------------------------------
May 1, 2008 $222,222.00
-------------------------------------------------------------------------------
June 1, 2008 $222,222.00
-------------------------------------------------------------------------------
July 1, 2008 $222,222.00
-------------------------------------------------------------------------------
August 1, 2008 $222,222.00
-------------------------------------------------------------------------------
September 1, 2008 $222,222.00
-------------------------------------------------------------------------------
October 1, 2008 $222,222.00
-------------------------------------------------------------------------------
16
EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $[0.01] par value per share (the "Common Stock"), of Interactive
Television Networks, Inc., a [Nevada] corporation (the "Company"), according to
the conditions hereof, as of the date written below. If shares 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 Debentures to be Converted
$
----------
-------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------
Applicable Conversion Price
-------------------------------------------
Signature
-------------------------------------------
Name
-------------------------------------------
Address
17
Schedule 1
CONVERSION SCHEDULE
INTERACTIVE TELEVISION NETWORKS, INC.
17% Convertible Debenture due October ___, 2008, in the aggregate principal
amount of $4,000,000.00 issued by Interactive Television Networks, Inc., a
[Nevada] corporation. This Conversion Schedule reflects conversions made under
Section 4(a)(i) of the above-referenced Debenture.
Dated:
--------------------------------------------------------------------------------
Aggregate
Principal
Date of Amount
Conversion Remaining
Subsequent to
(or for first Conversion
entry, Original Amount of (or original Company Attest
Issue Date) Conversion Principal
Amount)
--------------------------------------------------------------------------------
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18
