FORM OF NON-CONVERTIBLE 10% DEBENTURE
EXHIBIT
10.2
FORM
OF NON-CONVERTIBLE
10%
DEBENTURE
|
$___________
|
October
__, 2006
|
FOR
VALUE
RECEIVED, Theater Xtreme Entertainment Group, Inc., a Florida corporation (the
“Maker”),
with
its primary offices located at 000 Xxxxxxxxx Xxxxxxxxx, Xxxxxx X & X,
Xxxxxx, Xxxxxxxx 00000, promises to pay to the order of ________________, or
its
registered assigns (the “Payee”),
upon
the terms set forth below, the principal sum of ______________ ($____________)
plus interest on the unpaid principal sum outstanding at the rate of 10% per
annum (this “Debenture”).
Capitalized
terms used and not otherwise defined herein that are defined in the Securities
Purchase Agreement, dated October __, 2006 (the “Purchase
Agreement”)
shall have the respective meanings given such terms in the Purchase
Agreement.
1. Payments.
(a)
The
full
amount of principal and accrued interest under this Debenture shall be due
on
the earlier of (i) November 13, 2007 and (ii) the date that the Maker shall
have
received net proceeds, in the aggregate since the issue date of this Debenture
and in one or more transactions during such period, from debt and/or equity
financings, of at least $2,000,000 (the “Maturity
Date”),
unless due earlier in accordance with the terms of this Debenture.
(b)
The
Maker
shall pay interest to the Payee on the aggregate then outstanding principal
amount of this Debenture at the rate of 10% per annum, payable quarterly on
January 1, April 1, July 1 and October 1, beginning on April 1, 2007, and on
the
Maturity Date which interest shall accrue as of October 13, 2006.
(c)
All
overdue accrued and unpaid principal and interest to be paid hereunder shall
entail a late fee at the rate of 22% per annum (or such lower maximum amount
of
interest permitted to be charged under applicable law) which will accrue daily,
from the date such principal and/or interest is due hereunder through and
including the date of payment.
(d) The
Maker
shall have the right to prepay this Debenture prior to the Maturity Date without
penalty or premium.
2.
[INTENTIONALLY
DELETED]
3.
Events
of Default.
(a) “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, or the interest on, this Debenture,
as and when the same shall become due and payable or with a grace period of
three Trading Days thereafter in the case of interest payments;
(ii)
Maker
shall fail to observe or perform any obligation or shall breach any term or
provision of this Debenture and such failure or breach shall not have been
remedied within ten days after the date on which notice of such failure or
breach shall have been delivered;
(iii)
Maker
shall fail to observe or perform any of its obligations owed to Payee or any
other covenant, agreement, representation or warranty contained in, or otherwise
commit any breach hereunder or under any other agreement executed in connection
herewith;
(iv)
Maker
shall commence, or there shall be commenced against Maker a case under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or Maker 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 Maker, or there is commenced against Maker
any
such bankruptcy, insolvency or other proceeding which remains undismissed for
a
period of 60 days; or Maker is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is entered;
or
Maker 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 Maker makes a general assignment for the benefit of
creditors; or Maker 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 Maker
shall call a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or Maker 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 Maker for the
purpose of effecting any of the foregoing;
(v)
Maker
or
shall default in any of its respective obligations under any other Debenture
or
any mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which
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there
may
be issued, or by which there may be or evidenced any indebtedness for borrowed
money or money due under any long term leasing or factoring arrangement of
Maker, whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise become due and
payable; or
(vi)
Maker
shall (a) be a party to any Change of Control Transaction (as defined below),
(b) agree to sell or dispose of more than of 50% of its assets in one or more
transactions (whether or not such sale would constitute a Change of Control
Transaction), (c) make any distribution or declare or pay any dividends (in
cash
or other property, other than common stock) on, or purchase, acquire, redeem,
(not counting any such shares deemed to have been redeemed in a cashless
exercise of employee stock options issued pursuant to the Maker’s Stock Option
Plan) or retire any of Maker's capital stock, of any class, whether now or
hereafter outstanding. “Change
of Control Transaction”
means
the occurrence of any of: (i) 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 Securities Exchange Act of 1934, as amended) of effective
control (whether through legal or beneficial ownership of capital stock of
Maker, by contract or otherwise) of in excess of 50% of the voting securities
of
Maker, (ii) a replacement at one time or over time of more than one-half of
the
members of Maker's 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),
(iii) the merger of Maker with or into another entity that is not wholly-owned
by Maker, or (iv) the execution by Maker of an agreement to which Maker is
a
party or by which it is bound, providing for any of the events set forth above
in (i), (ii) or (iii).
(b) If
any
Event of Default occurs, the full principal amount of this Debenture, together
with all accrued interest thereon, shall become, at the Payee's election,
immediately due and payable in cash. Commencing 5 days after the occurrence
of
any Event of Default that results in the acceleration of this Debenture, the
interest rate on this Debenture shall accrue at the rate of 18% per annum,
or
such lower maximum amount of interest permitted to be charged under applicable
law. The Payee need not provide and Maker hereby waives any presentment, demand,
protest or other notice of any kind, and the Payee 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 Xxxxx at any time prior to payment
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hereunder.
No such rescission or annulment shall affect any subsequent Event of Default
or
impair any right consequent thereon.
4.
Negative
Covenants.
So
long
as any portion of this Debenture is outstanding, the Maker will not and will
not
permit any of its Subsidiaries to directly or indirectly:
a) other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including
but
not limited to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom;
b) other
than Permitted Liens, enter into, create, incur, assume or suffer to exist
any
liens of any kind, on or with respect to any of its property or assets now
owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
c) amend
its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Payee;
d) except
as
contractually required by the Maker as of the date of issuance of this
Debenture, repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of securities;
e) enter
into any agreement with respect to any of the foregoing;
or
f) pay
cash
dividends or distributions on any equity securities of the Maker.
“Permitted
Indebtedness”
shall
mean (a)
the
indebtedness of the Maker existing on the date of issuance of this Debenture,
(b) indebtedness
incurred by the Maker that does not mature or require payments of principal
prior to the Maturity Date of this Debenture and is made expressly subordinate
in right of payment to the indebtedness evidenced by this Debenture, as
reflected in a written agreement acceptable to the Payee and approved by the
Payee in writing and (c) up to $300,000, in the aggregate, of additional
unsecured indebtedness incurred after the date of issuance of this
Debenture.
“Permitted
Lien”
shall
mean the individual and collective reference to the following: (a) liens for
taxes, assessments and other governmental charges or levies not yet due or
liens
for taxes, assessments and other governmental charges or levies being contested
in good faith and by appropriate proceedings for which adequate reserves (in
the
good faith judgment of the management of the Maker) have been established in
accordance with generally accepted accounting procedures and (b) liens imposed
by law which were incurred in the ordinary
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course
of
business, such as carriers’, warehousemen’s and mechanics’ liens, statutory
landlords’ liens, and other similar liens arising in the ordinary course of
business, and (x) which do not individually or in the aggregate materially
detract from the value of such property or assets or materially impair the
use
thereof in the operation of the business of the Maker and its consolidated
subsidiaries or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or
sale of the property or asset subject to such lien.
6. No
Waiver of Payee's Rights.
All
payments of principal and interest shall be made without setoff, deduction
or
counterclaim. No delay or failure on the part of the Payee in exercising any
of
its options, powers or rights, nor any partial or single exercise of its
options, powers or rights shall constitute a waiver thereof or of any other
option, power or right, and no waiver on the part of the Payee of any of its
options, powers or rights shall constitute a waiver of any other option, power
or right. Maker hereby waives presentment of payment, protest, and all notices
or demands in connection with the delivery, acceptance, performance, default
or
endorsement of this Debenture. Acceptance by the Payee of less than the full
amount due and payable hereunder shall in no way limit the right of the Payee
to
require full payment of all sums due and payable hereunder in accordance with
the terms hereof.
7.
Modifications.
No term
or provision contained herein may be modified, amended or waived except by
written agreement or consent signed by the party to be bound
thereby.
8.
Cumulative
Rights and Remedies; Usury.
The
rights and remedies of Payee expressed herein are cumulative and not exclusive
of any rights and remedies otherwise available under this Debenture, the
Security Agreements, or applicable law (including at equity). The election
of
Payee to avail itself of any one or more remedies shall not be a bar to any
other available remedies, which Maker agrees Payee may take from time to time.
If it shall be found that any interest due hereunder shall violate applicable
laws governing usury, the applicable rate of interest due hereunder shall be
reduced to the maximum permitted rate of interest under such law.
9.
Use
of
Proceeds.
Maker
shall use the proceeds from this Debenture hereunder for working capital
purposes and not for the satisfaction of any portion of Maker’s debt (other than
payment of trade payables in the ordinary course of Maker's business and prior
practices or that repayment of that certain note payable to Theaters 4U, LLC
in
the approximate amount of $137,000), to redeem any of Maker’s or subsidiary’s
equity or equity-equivalent securities or to settle any outstanding
litigation.
10.
Collection
Expenses.
If
Payee shall commence and prevail in an action or proceeding to enforce this
Debenture, then Maker shall reimburse Payee for its costs of collection and
reasonable attorneys fees incurred with the investigation, preparation and
prosecution of such action or proceeding.
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11.
Severability.
If any
provision of this Debenture is declared by a court of competent jurisdiction
to
be in any way 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.
12.
Successors
and Assigns.
This
Debenture shall be binding upon Maker and its successors and shall inure to
the
benefit of the Payee and its successors and assigns. The term "Payee" as used
herein, shall also include any endorsee, assignee or other holder of this
Debenture.
13.
Lost
or Stolen Debenture.
If this
Debenture is lost, stolen, mutilated or otherwise destroyed, Maker shall execute
and deliver to the Payee a new Debenture containing the same terms, and in
the
same form, as this Debenture. In such event, Maker may require the Payee to
deliver to Maker an affidavit of lost instrument and customary indemnity in
respect thereof as a condition to the delivery of any such new
Debenture.
14.
Due
Authorization.
This
Debenture has been duly authorized, executed and delivered by Maker and is
the
legal obligation of Maker, enforceable against Maker in accordance with its
terms. No consent of any other party and no consent, license, approval or
authorization of, or registration or declaration with, any governmental
authority, bureau or agency is required in connection with the execution,
delivery or performance by the Maker, or the validity or enforceability of
this
Debenture other than such as have been met or obtained. The execution, delivery
and performance of this Debenture and all other agreements and instruments
executed and delivered or to be executed and delivered pursuant hereto or
thereto of this will not violate any provision of any existing law or regulation
or any order or decree of any court, regulatory body or administrative agency
or
the certificate of incorporation or by-laws of the Maker or any mortgage,
indenture, contract or other agreement to which the Maker is a party or by
which
the Maker or any property or assets of the Maker may be bound.
15.
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 conflicts of law thereof. Each of Maker and Payee agree that
all
legal proceedings concerning the interpretations, enforcement and defense of
this Debenture shall be commenced in the state and federal courts sitting in
the
City of New York, Borough of Manhattan (the "New York Courts"). Each of Maker
and Payee hereby irrevocably submit to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder (including with
respect to the enforcement of this Debenture), 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 any such court, that such suit,
action or proceeding is improper. Each of Maker and Payee hereby
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irrevocably
waive 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 the other
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 manner permitted by law. Each of Maker and Payee hereby
irrevocably waive, 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.
16.
Notice.
Any and
all notices or other communications or deliveries to be provided by the Payee
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 the Maker, Theater Xtreme
Entertainment Group, Inc., or such other address or facsimile number as the
Maker may specify for such purposes by notice to the Payee delivered in
accordance with this paragraph. Any and all notices or other communications
or
deliveries to be provided by the Maker 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 the Payee at the address of the Payee appearing on the books
of the
Maker, or if no such address appears, at the principal place of business
of the
Payee. Any notice or other communication or deliveries hereunder shall be
deemed
given and effective on the earliest of (i) the date of transmission if delivered
by hand or by telecopy that has been confirmed as received by 5:00 P.M. on
a
business day, (ii) one business day after being sent by nationally recognized
overnight courier or received by telecopy after 5:00 P.M. on any day, or
(iii)
five business days after being sent by certified or registered mail, postage
and
charges prepaid, return receipt requested.
17. Required
Notice to Payee.The
Payee
is to be immediately notified by the Maker, in accordance with Section 16,
of
the existence or occurrence, of any Event of Default.
The
undersigned signs this Debenture as a maker and not as a surety or guarantor
or
in any other capacity.
By:
_____________________
Name:
Title:
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