EXHIBIT 10.2
MODIFICATION OF LOAN AND CONVERTIBLE DEBENTURE PURCHASE
AGREEMENTS AND RELATED TRANSACTION DOCUMENTS
THIS MODIFICATION OF LOAN AND CONVERTIBLE DEBENTURE PURCHASE AGREEMENTS AND
RELATED TRANSACTION DOCUMENTS (this "Agreement"), is made and entered into as of
November 14, 2002 between Scores Holding Company, Inc., a corporation organized
and existing under the laws of the State of Utah (the "Company"), HEM Mutual
Assurance Fund Limited, a Hong Kong corporation ("HEM I") and HEM Mutual
Assurance Fund Limited, LLC, a limited liability company ("HEM II") and Xxxxxx
Xxxxxxxxxx & Xxxxxxxx, LLP ("Escrow Agent").
WHEREAS, the Company and HEM I entered into a Loan Agreement dated as of
August 7, 2002 (the "Loan Agreement"), pursuant to which HEM I lent to the
Company the sum of one million dollars ($1,000,000), which loan is evidenced by
a promissory note dated as of August 7, 2002 (the "Promissory Note").
WHEREAS, Heir Holding Company, Inc., a corporation organized and existing
under the laws of the State of Delaware ("Heir"), and a wholly owned subsidiary
of the Company, entered into a Convertible Debenture Purchase Agreement under
Rule 504 under the Securities Act of 1933 (the "504 Purchase Agreement"),
pursuant to which HEM I purchased the Company's 1% Convertible Debenture in the
principal amount of one million dollars ($1,000,000) (the "504 Debenture"). The
Company has assumed all of Heir's obligations and liabilities under the 504
Purchase Agreement and the 504 Debenture, and for all purposes of this Agreement
the Company is considered to be the primary obligor on the 504 Purchase
Agreement and the 504 Debenture.
WHEREAS; the Company and HEM II entered into a Convertible Debenture
Purchase Agreement dated as of August 7, 2002 involving a "PIPE" investment (the
"PIPE Purchase Agreement"), pursuant to which, among other things, the Company
agreed to issue a 1% Convertible Debenture (the "PIPE Debenture") to HEM II at a
closing that would occur after certain conditions were met or satisfied.
WHEREAS, pursuant to the PIPE Purchase Agreement the Company issued a
Common Stock Purchase Warrant for five hundred thousand (500,000) shares of the
Company's common stock (the "Termination Warrant"), in the name of HEM II and
delivered it to Xxxxxx Gottbetter & Xxxxxxxx (the "Escrow Agent"), to be held in
escrow, pursuant to the terms of an Escrow Agreement dated as of August 7, 2002,
among HEM II, the Company and the Escrow Agent (the "Escrow Agreement").
WHEREAS, pursuant to the PIPE Purchase Agreement the Company and HEM II
executed a Special Registration Rights Agreement (the "Registration Rights
Agreement"), dated as of August 7, 2002, and delivered it to the Escrow Agent to
be held in escrow pursuant to the terms of the Escrow Agreement. The
Registration Rights Agreement grants certain piggyback registration rights to
HEM II.
32
WHEREAS, the Company, HEM I, HEM II and Escrow Agent desire to modify the
terms of the Loan Agreement, Promissory Note, 504 Purchase Agreement, 504
Debenture and the PIPE Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Company , HEM I, HEM II and Escrow Agent agree as follows:
1. Certain Definitions. Capitalized terms used in this Agreement and not
defined herein shall have the meanings ascribed to them in the 504
Purchase Agreement and the PIPE Purchase Agreement, as the context
requires.
2. Prepayment of Promissory Note and 504 Debenture. The Company and HEM I
warrant and represent that the outstanding principal balance of the
Promissory Note is one million dollars ($1,000,000) and the
outstanding principal balance of the 504 Debenture is eight hundred
thirty thousand dollars ($830,000). The balance of the 504 Debenture
is determined after taking Section 8 below into account.
Notwithstanding anything to the contrary set forth in the Promissory
Note or the 504 Debenture, the Company shall prepay the Promissory
Note and the 504 Debenture, making payment in the manner provided
therein, as follows:
(a) a payment in the amount of four hundred seventy thousand dollars
($470,000), shall be due and payable on November 15, 2002;
(b) a payment in the amount of five hundred thousand dollars
($500,000), shall be due and payable on December 15, 2002;
(c) a payment in the amount of five hundred thousand dollars
($500,000), shall be due and payable on February 15, 2003;
(d) a payment in the amount of five hundred thousand dollars
($500,000), shall be due and payable on March 15, 2003; and
(e) a payment in the amount of five hundred thousand dollars
($500,000), shall be due and payable on March 31, 2003,
(collectively, the payments due under this section 2 are the
"Mandatory Prepayments").
If each of the Mandatory Prepayments are paid when due, the Company
will have paid and HEM I will have received a premium equal to
approximately thirty-five percent (35%) of the outstanding principal
amounts of the Promissory Note and 504 Debenture at the time of each
such Mandatory Prepayment. The Mandatory Prepayments will be made in
lieu of the redemption premium of forty percent (40%) of the
outstanding principal amount of the 504 Debenture set forth in section
5 of the 504 Debenture. The Mandatory Prepayments shall be applied
against the Promissory Note and the 504 Debenture and shall leave the
remaining unpaid principal balances thereon in the manner and the
amounts described in Schedule 1 attached hereto.
33
3. Notation on Promissory Note and 504 Debenture. The original executed
copy of each of the Promissory Note and the 504 Debenture shall be
endorsed with a legend on the face thereof which states as follows:
"The terms of payment of this instrument have been modified by an
Agreement dated [the date of this Agreement], a copy of which is
annexed to this instrument. Any assignee or transferee of this
instrument takes it subject to the terms of said Agreement."
4. Grace Period. The Company shall have a grace period of five (5)
business days following the due date of each of the Mandatory
Prepayments before it shall be in default of its obligations under the
Promissory Note, the 504 Debenture or this Agreement..
5. Default. In the event of a default in the payment of any of the
Mandatory Prepayments, the Promissory Note and the 504 Debenture shall
both be in default and an Event of Default will be deemed to have
occurred thereunder, entitling the holders thereof to exercise any and
all remedies available to them in the event of such default or Event
of Default.
6. Termination Warrant and Registration Rights Agreement. Notwithstanding
anything to the contrary set forth in the PIPE Purchase Agreement, the
Company consents and agrees to the delivery of the Termination Warrant
and Registration Rights Agreement (granting certain piggyback
registration rights to HEM II) by the Escrow Agent to HEM II. HEM II
acknowledges receipt of the Termination Warrant and Registration
Rights Agreement. Upon delivery to HEM II, the Termination Warrant and
Registration Rights Agreement shall be in full force and effect in
accordance with their terms and conditions. Simultaneously with the
execution of this Agreement and delivery of the Termination Warrant to
HEM II, HEM II shall exercise the Termination Warrant. The exercise
price for the Termination Warrant shall be delivered to the Company,
and five (5) certificates in denominations of one hundred thousand
(100,000) shares each, representing the shares underlying the
Termination Warrant (the "Warrant Shares"), shall be delivered to the
Escrow Agent. The certificates for the Warrant Shares shall be held in
escrow subject to all of the terms and conditions of the Escrow
Agreement. The Escrow Agent shall release and deliver the certificates
for the Warrant Shares to HEM II in five (5) equal distributions of
one hundred thousand (100,000) shares each for five consecutive
months, commencing on the date occurring one (1) year after the
exercise of the Termination Warrant and on the same date of the
following four (4) months.
7. Delivery of Certain Shares Into Escrow. HEM I warrants and represents
that it is the registered owner of two hundred forty one thousand
(241,000) shares of common stock of the Company (the "HEM I Shares")
and that the HEM I Shares are held in an account for HEM I at CIBC.
Promptly after the execution of this Agreement, HEM I shall instruct
CIBC to obtain a certificate evidencing the HEM I Shares and to
deliver such certificate, along with a medallion guaranteed executed
stock power executed by HEM I, to the Escrow Agent. HEM I, the Company
and the Escrow Agent agree that upon receipt thereof the Escrow Agent
shall hold the certificate for the HEM I Shares in escrow until June
30, 2003 (the "Release Date"). On the Release Date, the Escrow Agent
34
shall deliver and release to HEM I the certificate for the HEM I
Shares, unless the Company shall have exercised the purchase option
described in the next sentence of this paragraph. During the thirty
(30) day period prior to the Release Date, the Company may elect, by
giving written notice to HEM I and the Escrow Agent, to purchase any
amount of the HEM I Shares at a price equal to seventy percent (70%)
of the average Per Share Market Value for the Hem I Shares during the
five (5) days preceding the Release Date. For this purpose, "Per Share
Market Value" shall have the meaning set forth in section 1.1 of the
504 Debenture. In the event of this election, the Company shall
deliver the purchase price for the HEM I Shares in good funds to the
Escrow Agent within five (5) days of the Release Date. The Escrow
Agent shall then deliver the certificate for the HEM I Shares and the
stock power to the Company and the purchase price for the HEM I Shares
to HEM I. The election shall be void if the purchase price in good
funds is not delivered to the Escrow Agent within such five (5) day
period. The certificate for the Hem I Shares shall be held in escrow
subject to all of the terms and conditions of the Escrow Agreement.
8. Recent Conversion of 504 Debenture. HEM I sent a notice of conversion
of the 504 Debenture in the principal amount of seventy five thousand
dollars ($75,000) dated October 23, 2002, pursuant to which HEM I
received 736,845 shares of the Company's common stock (the "Conversion
Shares"). HEM I warrants and represents that it has sold 190,000 of
the Conversion Shares (the "Sold Conversion Shares") and as of the
date hereof holds 546,845 of the Conversion Shares (the "Remaining
Conversion Shares"). The Company and HEM I shall treat such conversion
as being rescinded as follows: (a) the principal balance of the 504
Debenture shall be deemed to be eight hundred thirty thousand dollars
($830,000) for all purposes of this Agreement, which principal balance
includes adding back fifty-five thousand dollars ($55,000) of the
principal amount set forth in such notice of conversion, (b) HEM I
shall deliver the certificate for the Remaining Conversion Shares to
the Company for cancellation or to be held as treasury shares, in the
discretion of the Company, and (c) HEM I shall retain all of the
proceeds of sale of the Sold Conversion Shares, free from all claims
of the Company.
9. Termination of PIPE Purchase Agreement and PIPE Debenture. Except as
specifically provided herein with respect to the Termination Warrant,
Registration Rights Agreement and the Escrow Agreement, all of the
rights, obligations and liabilities of HEM II and the Company under
the PIPE Purchase Agreement, the PIPE Debenture and all other
agreements defined in the PIPE Purchase Agreement as "Transaction
Documents" are hereby released and discharged without any further
performance or consideration required by HEM II or the Company. The
PIPE Purchase Agreement, the PIPE Debenture and the Transaction
Documents shall be of no further force or effect.
10. No Conversions by HEM I. HEM I shall not exercise its right to convert
any amount of the 504 Debenture into shares of the Company's common
stock, provided that the Company is not in default and that no Event
of Default has occurred under this Agreement, the 504 Purchase
Agreement, the 504 Debenture, the Loan Agreement or the Promissory
Note.
11. Right of First Refusal. During the one (1) year period commencing with
the date of this Agreement, HEM II shall have the right of first
refusal in the event that the Company proposes to license the Scores
and related trademarks to any entity for use in an establishment in
Japan. The Company shall give notice (the "Offering Notice") of any
such proposed use to HEM II prior to granting any such license rights,
which notice shall set forth all of the terms and conditions of the
proposed license. HEM II shall have thirty (30) days after receipt of
such notice to elect, by notice given to the Company, to license the
35
use of the Scores and related trademarks from the Company upon all of
the terms and conditions set forth in the Offering Notice. If HEM II
makes such election, HEM II and the Company shall promptly enter into
a license agreement that includes all of the terms and conditions set
forth in the Offering Notice.
12. General. Except as herein specifically provided to the contrary, the
504 Purchase Agreement, the 504 Debenture, the Loan Agreement and the
Promissory Note shall remain in full force and effect in accordance
with their terms.
[Signatures on following page]
36
In witness whereof, the undersigned have executed this Agreement as of the
day first written above.
Scores Holding Company, Inc.
By: /s/Xxxxxxx Xxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: President
Hem Mutual Assurance Fund Limited
By: /s/Xxxxxx Xxxxxxxx
-------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Director
Hem Mutual Assurance, LLC
By: /s/Xxxxx X. Xxxxxxxx
----------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Manager
Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP
By: /s/Xxxx X. Xxxxxxxxxx
-------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Partner
37
Schedule 1
Schedule of Application of Mandatory Prepayments to
Promissory Note and 504 Debenture
Date of Amount of Reduction of Interest and Reduction of Interest and
Prepayment Prepayment Promissory Redemption 504 Debenture Redemption
---------- ---------- Note Principal Premium on Principal Premium on
-------------- Promissory ------------- 504 Debenture
Note -------------
-------------
Nov. 15, 2002 $ 470,000 $ 200,000 $ 70,000 $ 150,000 $ 50,000
Dec.15, 2002 $ 500,000 $ 200,000 $ 70,000 $ 170,000 $ 60,000
Feb. 15, 2003 $ 500,000 $ 200,000 $ 70,000 $ 170,000 $ 60,000
Mar.15, 2003 $ 500,000 $ 200,000 $ 70,000 $ 170,000 $ 60,000
Mar. 31, 2003 $ 500,000 $ 200,000 $ 70,000 $ 170,000 $ 60,000
---------- ---------- ---------- ---------- ----------
Totals $2,470,000 $1,000,000 $ 350,000 $ 830,000 $ 290,000
Schedule of Outstanding Balances of Promissory Note and 504 Debenture
Following Each Mandatory Prepayment
Date of Prepayment Balance of Promissory Note Balance of 504 Debenture
------------------ After Prepayment After Prepayment
-------------------------- ------------------------
Nov. 15, 2002 $800,000 $680,000
Dec 15, 2002 $600,000 $510,000
Feb 15, 2003 $400,000 $340,000
Mar. 15, 2003 $200,000 $170,000
Mar. 31, 2003 $0 $0
38
