Dated: June 28, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE
IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.
No. CCP-1 $3,000,000
HEADLINERS ENTERTAINMENT GROUP, INC.
Secured Convertible Debenture
Due December 28, 2006
This Secured Convertible Debenture (the "Debenture"), dated June
28, 2005, is issued by HEADLINERS ENTERTAINMENT GROUP, INC., a Nevada
corporation (the "Obligor"), to CORNELL CAPITAL PARTNERS, LP (the
"Holder").
WHEREAS, the Obligor and Ckrush Entertainment, Inc. ("Ckrush")
entered into a Subscription Agreement dated as of the date hereof (the
"Subscription Agreement") in connection with an investment of $2,500,000
by the Company in exchange for units of revenue participation rights in
connection with two motion pictures (the "Pictures"),
WHEREAS, the principal amount of this Debenture consists of
$2,500,000 of gross proceeds ("Gross Proceeds") to be disbursed to the
Obligor (less any fees described below) plus a preferred return of
$500,000, and
WHEREAS, in accordance with the Subscription Agreement, in exchange
for its investment in the Pictures, the Obligor is entitled to receive
payments out of the first revenues actually generated by commercial
exportation of the Pictures (subject to limited deductions as set forth
in the Subscription Agreement) of up to $3,000,000 ("Disbursements") plus
a percentage of the Adjusted Gross Revenue (as that term is defined in
the Subscription Agreement), the payment of which will be made monthly
out of a collection account administered by an escrow agent (the "Escrow
Agent").
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the
Holder or its successors and assigns the principal sum of Three Million
Dollars ($3,000,000,) which amount includes interest, on or before
December 28, 2006 (the "Maturity Date") in accordance with the following
terms:
Principal and Interest. The Obligor hereby promises to pay to the
order of the Holder on the Maturity Date in lawful money of the United
States of America and in immediately available funds the sum of Three
Million Dollars ($3,000,000), subject to payments of Disbursements set
forth below.
Payments of Disbursements. The Obligor shall pay directly to the
Holder, or shall cause the Escrow Agent to pay directly to the Holder,
all the Disbursements received or entitled to be received by the Obligor
in connection with the Pictures. All such payments shall be due and
payable promptly upon receipt by the Obligor or the Escrow Agent, even if
before the Maturity Date. Promptly upon appointment of the Escrow Agent,
the Obligor shall instruct the Escrow Agent to pay the Disbursements
directly to the Holder. All Disbursements paid to the Holder shall be
applied to the outstanding balance under this Debenture. In the event
that there are no payments of the Disbursements, or the payments of
Disbursements are not sufficient to repay all amounts outstanding under
this Debenture, the Obligor shall pay all amounts remaining under this
Debenture on the Maturity Date.
Secured Nature of this Debenture. This Debenture is secured by the
Security Agreement dated the date hereof between the Obligor and the
Holder (the "Headliners Security Agreement"), the collateral assignment
of the Obligor's rights under the Security Agreement dated the date
hereof by and between TV The Movie Holdings, LLC, the Obligor, and the
Other Investors (as defined therein) (the "TV The Move Security
Agreement"), the collateral assignment of the Obligor's rights under the
Security Agreement dated the date hereof by and between Beer League
Holdings, LLC, the Obligor, and the Other Investors (as defined therein)
(the "Beer League Security Agreement"), the Amended Pledge and Escrow
Agreement dated the date hereof between the Company, the Lender, and
Xxxxx Xxxxxxxx, Esq. (the "Pledge Agreement"), the Guarantee Agreement by
and among Xxxxxx Xxxxxxx Promotions, Inc., Ckrush, and the Obligor (the
"Guarantee"), the Security Agreement dated the date hereof by and among
Ckrush and the Holder (the "Ckrush Security Agreement") and the
collateral assignment the Obligor's rights in the Subscription Agreement
(the "Collateral Assignment") (collectively this Note, the Headliners
Security Agreement, the TV The Movie Security Agreement, the Beer League
Security Agreement, the Pledge Agreement, the Guarantee, the Ckrush
Security Agreement, the Collateral Assignment, and any other related
agreements entered into between the Company and the Lender are
collectively referred to herein as the "Transaction Documents").
Consent of Holder to Sell Capital Stock or Grant Security
Interests. Except for the capital stock to be issued pursuant to the
Standby Equity Distribution Agreement of even date herewith between the
Obligor and Cornell Capital Partners, LP, so long as any of the principal
amount or interest on this Debenture remains unpaid and unconverted, the
Obligor shall not, without the prior consent of the Holder, (i) issue or
sell any Common Stock or preferred stock with or without consideration,
(ii) issue or sell any preferred stock, warrant, option, right, contract,
call, or other security or instrument granting the holder thereof the
right to acquire Common Stock with or without consideration, (iii) enter
into any security instrument granting the holder a security interest in
any of the assets of the Obligor, or (iv) file any registration
statements on Form S-8.
Use of Proceeds. The Obligor shall pay the Holder a structuring
fee of $25,000 on the date hereof, which shall be deducted directly from
the Gross Proceeds. The entire net proceeds to be received by the
Obligor in connection with this Debenture shall be used for the Obligor's
investment in the Pictures pursuant to the Subscription 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.
Section 2. Events of Default.
(a) An "Event of Default", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(i) Any default in the payment of the principal of,
interest on or other charges in respect of this Debenture, free of any
claim of subordination, as and when the same shall become due and payable
(whether on a Disbursement payment due date, a Conversion Date or the
Maturity Date or by acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach or default of any provision of this Debenture (except as may be
covered by Section 2(a)(i) hereof), any breach under the Transaction
Document which is not cured with in the time prescribed, any breach
under the Limited Liability Company Agreement of TV The Movie Holdings,
LLC, or any breach under the Limited Liability Company Agreement of Beer
League Holdings, LLC;
(iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any
subsidiary of the Obligor under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Obligor or any subsidiary of the Obligor commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Obligor
or any subsidiary of the Obligor or there is commenced against the
Obligor or any subsidiary of the Obligor any such bankruptcy, insolvency
or other proceeding which remains undismissed for a period of 61 days; or
the Obligor or any subsidiary of the Obligor is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case
or proceeding is entered; or the Obligor or any subsidiary of the Obligor
suffers any appointment of any custodian, private or court appointed
receiver or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of sixty one (61) days;
or the Obligor or any subsidiary of the Obligor makes a general
assignment for the benefit of creditors; or the Obligor or any subsidiary
of the Obligor shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due;
or the Obligor or any subsidiary of the Obligor shall call a meeting of
its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Obligor or any subsidiary of the
Obligor shall by any act or failure to act expressly indicate its consent
to, approval of or acquiescence in any of the foregoing; or any corporate
or other action is taken by the Obligor or any subsidiary of the Obligor
for the purpose of effecting any of the foregoing;
(iv) The Obligor or any subsidiary of the Obligor shall
default in any of its obligations under any other debenture or any
mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued,
or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or factoring
arrangement of the Obligor or any subsidiary of the Obligor in an amount
exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date on which it
would otherwise become due and payable;
(v) The Common Stock shall cease to be quoted for trading
or listed for trading on either the Nasdaq OTC Bulletin Board ("OTC"),
Nasdaq SmallCap Market, New York Stock Exchange, American Stock Exchange
or the Nasdaq National Market (each, a "Subsequent Market") and shall not
again be quoted or listed for trading thereon within five (5) Trading
Days of such delisting;
(vi) The Obligor or any subsidiary of the Obligor shall be a
party to any Change of Control Transaction (as defined in Section 4);
(vii) If the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture
under the Underlying Shares Registration Statement, in either case, for
more than five (5) consecutive Trading Days or an aggregate of eight
Trading Days (which need not be consecutive Trading Days);
(viii) The Obligor shall fail for any reason to deliver
Common Stock certificates to a Holder prior to the fifth (5th) Trading Day
after a Conversion Date or the Obligor shall provide notice to the
Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of this Debenture
in accordance with the terms hereof;
(ix) The Obligor shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within three (3)
days after notice is claimed delivered hereunder;
(b) During the time that any portion of this Debenture is
outstanding, if any Event of Default has occurred, the full principal
amount of this Debenture, together with interest and other amounts owing
in respect thereof, to the date of acceleration shall become at the
Holder's election, immediately due and payable in cash, provided however,
the Holder may request (but shall have no obligation to request) payment
of such amounts in Common Stock of the Obligor. If an Event of Default
occurs and remains uncured, the Conversion Price shall be reduced to Ten
Cents ($0.10). In addition to any other remedies, the Holder shall have
the right (but not the obligation) to convert this Debenture at any time
after (x) an Event of Default or (y) the Maturity Date at the Conversion
Price then in-effect. The Holder need not provide and the Obligor hereby
waives any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder.
No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon. Upon an Event of
Default, notwithstanding any other provision of this Debenture or any
Transaction Document, the Holder shall have no obligation to comply with
or adhere to any limitations, if any, on the conversion of this Debenture
or the sale of the Underlying Shares.
Section 3. Conversion.
(a) (i) Conversion at Option of Holder.
(A) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at any time
and from time to time, after the Original Issue Date (as defined in
Section 4) (subject to the limitations on conversion set forth in Section
3(a)(ii) hereof). The number of shares of Common Stock issuable upon a
conversion hereunder equals the quotient obtained by dividing (x) the
outstanding amount of this Debenture to be converted by (y) the
Conversion Price (as defined in Section 3(c)(i)). The Obligor shall
deliver Common Stock certificates to the Holder prior to the Fifth (5th)
Trading Day after a Conversion Date.
(B) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date: (1) the number of shares of Common
Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay principal and interest
hereunder in shares of Common Stock; (2) the Common Stock is not listed
or quoted for trading on the OTC or on a Subsequent Market; (3) the
Obligor has failed to timely satisfy its conversion; or (4) the issuance
of such shares of Common Stock would result in a violation of Section
3(a)(ii), then, at the option of the Holder, the Obligor, in lieu of
delivering shares of Common Stock pursuant to Section 3(a)(i)(A), shall
deliver, within three (3) Trading Days of each applicable Conversion
Date, an amount in cash equal to the product of the outstanding principal
amount to be converted plus any interest due therein divided by the
Conversion Price and multiplied by the highest closing price of the stock
from date of the conversion notice till the date that such cash payment
is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest thereon
by the fifth (5th) Trading Day after the Conversion Date, the Holder may,
by notice to the Obligor, require the Obligor to issue shares of Common
Stock pursuant to Section 3(c), except that for such purpose the
Conversion Price applicable thereto shall be the lesser of the Conversion
Price on the Conversion Date and the Conversion Price on the date of such
Holder demand. Any such shares will be subject to the provisions of this
Section.
(C) The Holder shall effect conversions by delivering to
the Obligor a completed notice in the form attached hereto as Exhibit A
(a "Conversion Notice"). The date on which a Conversion Notice is
delivered is the "Conversion Date." Unless the Holder is converting the
entire principal amount outstanding under this Debenture, the Holder is
not required to physically surrender this Debenture to the Obligor in
order to effect conversions. Conversions hereunder shall have the effect
of lowering the outstanding principal amount of this Debenture plus all
accrued and unpaid interest thereon in an amount equal to the applicable
conversion. The Holder and the Obligor shall maintain records showing the
principal amount converted and the date of such conversions. In the event
of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert this Debenture or
receive shares of Common Stock as payment of interest hereunder to the
extent such conversion or receipt of such interest payment would result
in the Holder, together with any affiliate thereof, beneficially owning
(as determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 4.9% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of, and payment of interest on, this Debenture held by such
Holder after application of this Section. Since the Holder will not be
obligated to report to the Obligor the number of shares of Common Stock
it may hold at the time of a conversion hereunder, unless the conversion
at issue would result in the issuance of shares of Common Stock in excess
of 4.9% of the then outstanding shares of Common Stock without regard to
any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit
any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of this Debenture
is convertible shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Conversion Notice for a principal amount of
this Debenture that, without regard to any other shares that the Holder
or its affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Obligor shall notify the
Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in
accordance with the periods described in Section 3(a)(i)(A) and, at the
option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to
itself and not to any other Holder) upon not less than 65 days prior
notice to the Obligor. Other Holders shall be unaffected by any such
waiver.
(b) (i) Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to Section 2
herein for the Obligor 's failure to deliver certificates representing
shares of Common Stock upon conversion within the period specified herein
and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief, in each case without the
need to post a bond or provide other security. The exercise of any such
rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
(ii) In addition to any other rights available to the
Holder, if the Obligor fails to deliver to the Holder such certificate or
certificates pursuant to Section 3(a)(i)(A) by the fifth (5th) Trading Day
after the Conversion Date, and if after such fifth (5th) Trading Day the
Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Obligor shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the market price of the Common
Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue a Debenture in the
principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Obligor timely complied with its
delivery requirements under Section 3(a)(i)(A). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of Debentures with
respect to which the market price of the Underlying Shares on the date of
conversion was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Obligor shall be required to pay the Holder
$1,000. The Holder shall provide the Obligor written notice indicating
the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The conversion price (the "Conversion Price") in effect
on any Conversion Date shall be equal to Fifty Five Cents ($0.55), which
may be adjusted pursuant to the other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock,
(b) subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of the Common Stock any shares of capital
stock of the Obligor, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(iii) If the Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of
Common Stock (and not to the Holder) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
Closing Bid Price at the record date mentioned below, then the Conversion
Price shall be multiplied by a fraction, of which the denominator shall
be the number of shares of the Common Stock (excluding treasury shares,
if any) outstanding on the date of issuance of such rights or warrants
(plus the number of additional shares of Common Stock offered for
subscription or purchase), and of which the numerator shall be the number
of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants, plus the
number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Closing Bid Price. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants. However, upon the expiration of any such right, option or
warrant to purchase shares of the Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this
Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration
be increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the provisions
of this Section after the issuance of such rights or warrants) had the
adjustment of the Conversion Price made upon the issuance of such rights,
options or warrants been made on the basis of offering for subscription
or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such rights, options or warrants actually
exercised.
(iv) If the Obligor or any subsidiary thereof, as
applicable, with respect to Common Stock Equivalents (as defined below),
at any time while this Debenture is outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt
that are convertible into or exchangeable for shares of Common Stock
("Common Stock Equivalents") entitling any Person to acquire shares of
Common Stock, at a price per share less than the Conversion Price (if the
holder of the Common Stock or Common Stock Equivalent so issued shall at
any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of
Common Stock at a price per share which is less than the Conversion
Price, such issuance shall be deemed to have occurred for less than the
Conversion Price), then, at the sole option of the Holder, the Conversion
Price shall be adjusted to mirror the conversion, exchange or purchase
price for such Common Stock or Common Stock Equivalents (including any
reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. The
Obligor shall notify the Holder in writing, no later than one (1)
business day following the issuance of any Common Stock or Common Stock
Equivalent subject to this Section, indicating therein the applicable
issuance price, or of applicable reset price, exchange price, conversion
price and other pricing terms. No adjustment under this Section shall be
made as a result of issuances and exercises of options to purchase shares
of Common Stock issued for compensatory purposes pursuant to any of the
Obligor's stock option or stock purchase plans.
(v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to
the Holder) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security, then in each such case the
Conversion Price at which this Debenture shall thereafter be convertible
shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the Closing Bid Price determined as of the
record date mentioned above, and of which the numerator shall be such
Closing Bid Price on such record date less the then fair market value at
such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the
Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided to
the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
(vi) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder shall have
the right thereafter to, at its option, (A) convert the then outstanding
principal amount, together with all accrued but unpaid interest and any
other amounts then owing hereunder in respect of this Debenture into the
shares of stock and other securities, cash and property receivable upon
or deemed to be held by holders of the Common Stock following such
reclassification or share exchange, and the Holder of this Debenture
shall be entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the Obligor into
which the then outstanding principal amount, together with all accrued
but unpaid interest and any other amounts then owing hereunder in respect
of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled, or (B)
require the Obligor to prepay the outstanding principal amount of this
Debenture, plus all interest and other amounts due and payable thereon.
The entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vii) The Obligor shall maintain a share reserve of not less
than 100% of the shares of Common Stock issuable upon conversion of this
Debenture; and within three (3) Business Days following the receipt by
the Obligor of a Holder's notice that such minimum number of Underlying
Shares is not so reserved, the Obligor shall promptly reserve a
sufficient number of shares of Common Stock to comply with such
requirement.
(viii) All calculations under this Section 3 shall be
rounded up to the nearest $0.001 of a share.
(ix) Whenever the Conversion Price is adjusted pursuant to
Section 3 hereof, the Obligor shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(x) If (A) the Obligor shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Obligor shall declare a
special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Obligor shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights; (D) the approval of any
stockholders of the Obligor shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to
which the Obligor is a party, any sale or transfer of all or
substantially all of the assets of the Obligor, of any compulsory share
exchange whereby the Common Stock is converted into other securities,
cash or property; or (E) the Obligor shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor shall cause to be filed at each
office or agency maintained for the purpose of conversion of this
Debenture, and shall cause to be mailed to the Holder at its last address
as it shall appear upon the stock books of the Obligor, at least twenty
(20) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of
which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective
or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange, provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder is
entitled to convert this Debenture during the 20-day calendar period
commencing the date of such notice to the effective date of the event
triggering such notice.
(xi) In case of any (1) merger or consolidation of the
Obligor or any subsidiary of the Obligor with or into another Person, or
(2) sale by the Obligor or any subsidiary of the Obligor of more than
one-half of the assets of the Obligor in one or a series of related
transactions, a Holder shall have the right to (A) exercise any rights
under Section 2(b), (B) convert the aggregate amount of this Debenture
then outstanding into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be
entitled upon such event or series of related events to receive such
amount of securities, cash and property as the shares of Common Stock
into which such aggregate principal amount of this Debenture could have
been converted immediately prior to such merger, consolidation or sales
would have been entitled, or (C) in the case of a merger or
consolidation, require the surviving entity to issue to the Holder a
convertible Debenture with a principal amount equal to the aggregate
principal amount of this Debenture then held by such Holder, plus all
accrued and unpaid interest and other amounts owing thereon, which such
newly issued convertible Debenture shall have terms identical (including
with respect to conversion) to the terms of this Debenture, and shall be
entitled to all of the rights and privileges of the Holder of this
Debenture set forth herein and the agreements pursuant to which this
Debentures were issued. In the case of clause (C), the conversion price
applicable for the newly issued shares of convertible preferred stock or
convertible Debentures shall be based upon the amount of securities, cash
and property that each share of Common Stock would receive in such
transaction and the Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue
to give the Holder the right to receive the securities, cash and property
set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such
events.
(d) The Obligor covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of this Debenture and
payment of interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holder, not less than such number of shares of the
Common Stock as shall (subject to any additional requirements of the
Obligor as to reservation of such shares set forth in this Debenture) be
issuable (taking into account the adjustments and restrictions of
Sections 2(b) and 3(c)) upon the conversion of the outstanding principal
amount of this Debenture and payment of interest hereunder. The Obligor
covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public
sale in accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Obligor shall not be required
to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Closing Bid Price
at such time. If the Obligor elects not, or is unable, to make such a
cash payment, the Holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock
on conversion of this Debenture shall be made without charge to the
Holder thereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate, provided
that the Obligor shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder
of such Debenture so converted and the Obligor shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Obligor the amount
of such tax or shall have established to the satisfaction of the Obligor
that such tax has been paid.
(g) Any notices, consents, waivers or other communications
required or permitted to be given under the terms hereof must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated
and kept on file by the sending party); or (iii) one (1) trading day after
deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company, to:
Headliners Entertainment Group, Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx Xxxxxxxxx
Telephone: (000) 000-0000
Facsimile:
With a copy to:
Xxxxxx Xxxxxx, Esq.
000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder:
Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to:
Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention
of such other person as the recipient party has specified by written
notice given to each other party three (3) business days prior to the
effectiveness of such change. Written confirmation of receipt (i) given
by the recipient of such notice, consent, waiver or other communication,
(ii) mechanically or electronically generated by the sender's facsimile
machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (iii) provided by a
nationally recognized overnight delivery service, shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with
clause (i), (ii) or (iii) above, respectively.
Section 4. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions are authorized or required by law or other
government action to close.
"Change of Control Transaction" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial ownership
of capital stock of the Obligor, by contract or otherwise) of in excess
of fifty percent (50%) of the voting securities of the Obligor (except
that the acquisition of voting securities by the Holder shall not
constitute a Change of Control Transaction for purposes hereof), (b) a
replacement at one time or over time of more than one-half of the members
of the board of directors of the Obligor which is not approved by a
majority of those individuals who are members of the board of directors
on the date hereof (or by those individuals who are serving as members of
the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of
directors who are members on the date hereof), (c) the merger,
consolidation or sale of fifty percent (50%) or more of the assets of the
Obligor or any subsidiary of the Obligor in one or a series of related
transactions with or into another entity, or (d) the execution by the
Obligor of an agreement to which the Obligor is a party or by which it is
bound, providing for any of the events set forth above in (a), (b) or
(c).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001, of the
Obligor and stock of any other class into which such shares may hereafter
be changed or reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Funding Event" means any transaction or series of transactions
closed after the Original Issue Date in which the Obligor raises $100,000
or more through the sale of their equity securities or securities
exercisable or convertible into equity securities.
"Original Issue Date" shall mean the date of the first issuance of
this Debenture regardless of the number of transfers and regardless of
the number of instruments, which may be issued to evidence such
Debenture.
"Closing Bid Price" means the price per share in the last reported
trade of the Common Stock on the OTC or on the exchange which the Common
Stock is then listed as quoted by Bloomberg, LP.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent Market on which
the shares of Common Stock are then quoted or listed; provided, that in
the event that the shares of Common Stock are not listed or quoted, then
Trading Day shall mean a Business Day.
"Transaction Documents" shall have the meaning assigned above.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with
the terms hereof.
"Underlying Shares Registration Statement" means a registration
statement covering among other things the resale of the Underlying Shares
and naming the Holder as a "selling stockholder" thereunder.
Section 5. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligations of the Obligor,
which are absolute and unconditional, to pay the principal of, interest
and other charges (if any) on, this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Debenture is
a direct obligation of the Obligor. This Debenture ranks pari passu with
all other Debentures now or hereafter issued under the terms set forth
herein. As long as this Debenture is outstanding, the Obligor shall not
and shall cause their subsidiaries not to, without the consent of the
Holder, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the Holder;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (iii) enter into any agreement with respect to
any of the foregoing.
Section 6. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Obligor, including without limitation,
the right to vote, to receive dividends and other distributions, or to
receive any notice of, or to attend, meetings of stockholders or any
other proceedings of the Obligor, unless and to the extent converted into
shares of Common Stock in accordance with the terms hereof.
Section 7. If this Debenture is mutilated, lost, stolen or
destroyed, the Obligor shall execute and deliver, in exchange and
substitution for and upon cancellation of the mutilated Debenture, or in
lieu of or in substitution for a lost, stolen or destroyed Debenture, a
new Debenture for the principal amount of this Debenture so mutilated,
lost, stolen or destroyed but only upon receipt of evidence of such loss,
theft or destruction of such Debenture, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Obligor.
Section 8. No indebtedness of the Obligor is senior to this
Debenture in right of payment, whether with respect to interest, damages
or upon liquidation or dissolution or otherwise. Without the Holder's
consent, the Obligor will not and will not permit any of their
subsidiaries to, directly or indirectly, enter into, create, incur,
assume or suffer to exist any indebtedness of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is
senior in any respect to the obligations of the Obligor under this
Debenture.
Section 9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving
effect to conflicts of laws thereof. Each of the parties consents to the
jurisdiction of the Superior Courts of the State of New Jersey sitting in
Xxxxxx County, New Jersey and the U.S. District Court for the District of
New Jersey sitting in Newark, New Jersey in connection with any dispute
arising under this Debenture and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum
non conveniens to the bringing of any such proceeding in such
jurisdictions.
Section 10. If the Obligor fails to strictly comply with the terms
of this Debenture, then the Obligor shall reimburse the Holder promptly
for all fees, costs and expenses, including, without limitation,
attorneys' fees and expenses incurred by the Holder in any action in
connection with this Debenture, including, without limitation, those
incurred: (i) during any workout, attempted workout, and/or in connection
with the rendering of legal advice as to the Holder's rights, remedies
and obligations, (ii) collecting any sums which become due to the Holder,
(iii) defending or prosecuting any proceeding or any counterclaim to any
proceeding or appeal; or (iv) the protection, preservation or enforcement
of any rights or remedies of the Holder.
Section 11. Any waiver by the Holder of a breach of any provision
of this Debenture shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term
of this Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it
shall nevertheless remain applicable to all other persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder shall violate applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically
be lowered to equal the maximum permitted rate of interest. The Obligor
covenants (to the extent that it may lawfully do so) that it shall not at
any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Obligor from paying all or any
portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which
may affect the covenants or the performance of this indenture, and the
Obligor (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any
power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.
Section 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
Section 14. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PARTIES' ACCEPTANCE OF THIS AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date
set forth above.
HEADLINERS ENTERTAINMENT GROUP, INC.
By: /s/ Xxxxxxx Xxxxxxxxx
--------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: Chairman
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $
of the principal amount of the above Debenture into
Shares of Common Stock of Headliners Entertainment Group, Inc., according
to the conditions stated therein, as of the Conversion Date written
below.
Conversion Date:
---------------------------------
Applicable Conversion Price:
---------------------------------
Signature:
---------------------------------
Name:
---------------------------------
Address:
---------------------------------
Amount to be converted: $
---------------------------------
Amount of Debenture unconverted: $
---------------------------------
Conversion Price per share: $
---------------------------------
Number of shares of Common Stock to
be issued:
---------------------------------
Please issue the shares of Common
Stock in the following name and
to the following address:
---------------------------------
Issue to:
---------------------------------
Authorized Signature:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
Phone Number:
---------------------------------
Broker DTC Participant Code:
---------------------------------
Account Number:
---------------------------------
