EXHIBIT 4.9
4 3/4 % CONVERTIBLE DEBENTURE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
4 3/4 % CONVERTIBLE DEBENTURE
Company: American HealthChoice, Inc.
Company Address: 0000 Xxxxxx Xxxx, Xxxxx 000-000, Xxxxxx Xxxxx, Xxxxx 00000
Closing Date: December 29, 2005
Maturity Date: December 29, 2008
Principal Amount: $30,000
First Payment Due Date: January 15, 2006
American HealthChoice, Inc., a New York corporation, and any successor
or resulting corporation by way of merger, consolidation, sale or exchange
of all or substantially all of the assets or otherwise (the "Company"), for
value received, hereby promises to pay to the Holder (as such term is
hereinafter defined), or such other Person (as such term is hereinafter
defined) upon order of the Holder, on the Maturity Date, the Principal
Amount (as such term is hereinafter defined), as such sum may be adjusted
pursuant to Article 3, and to pay interest thereon from the Closing Date,
monthly in arrears, on the 15th day of each month (each an "Interest Payment
Due Date" and collectively, the "Interest Payment Due Dates"), commencing on
the First Payment Due Date, at the rate of four and three-quarter percent (4
3/4 %) per annum (the "Debenture Interest Rate"), until the Principal
Amount of this Debenture has been paid in full. All interest payable on
the Principal Amount of this Debenture shall be calculated on the basis of a
360-day year for the actual number of days elapsed. Payment of interest on
this Debenture shall be in cash or, at the option of the Holder, in shares
of Common Stock of the Company valued at the then applicable Conversion
Price (as defined herein). This Debenture may not be prepaid without the
written consent of the Holder.
DEFINITIONS
Definitions. The terms defined in this Article whenever used in this
Debenture have the following respective meanings:
"Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
"Bankruptcy Code" means the United States Bankruptcy Code of 1986,
as amended (11 U.S.C. SS 101 et. seq.).
"Business Day" means a day other than Saturday, Sunday or any day
on which banks located in the State of California are authorized or
obligated to close.
"Capital Shares" means the Common Stock and any other shares of
any other class or series of capital stock, whether now or hereafter
authorized and however designated, which have the right to participate in
the distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Company.
"Common Shares" or "Common Stock" means shares of the Company's
Common Stock.
"Common Stock Issued at Conversion", when used with reference to
the securities deliverable upon conversion of this Debenture, means all
Common Shares now or hereafter Outstanding and securities of any other class
or series into which this Debenture hereafter shall have been changed or
substituted, whether now or hereafter created and however designated.
"Conversion" or "conversion" means the repayment by the Company of
the Principal Amount of this Debenture (and, to the extent the Holder elects
as permitted by Section 3.1, accrued and unpaid interest thereon) by the
delivery of Common Stock on the terms provided in Section 3.2, and
"convert," "converted," "convertible" and like words shall have a
corresponding meaning.
"Conversion Date" means any day on which all or any portion of the
Principal Amount of this Debenture is converted in accordance with the
provisions hereof.
"Conversion Notice" means a written notice of conversion
substantially in the form annexed hereto as Exhibit A.
"Conversion Price" on any date of determination means the
applicable price for the conversion of this Debenture into Common Shares on
such day as set forth in Section 3.1(a).
"Current Market Price" on any date of determination means the
closing price of a Common Share on such day as reported on the NASDAQ OTCBB
Exchange; provided that, if such security is not listed or admitted to
trading on the NASDAQ OTCBB, as reported on the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on
any national securities exchange or quotation system, the closing bid price
of such security on the over-the-counter market on the day in question as
reported by Bloomberg LP or a similar generally accepted reporting service,
as the case may be.
"Deadline" means the date that is the 90th day from the Closing
Date.
"Debenture" or "Debentures" means this Convertible Debenture of
the Company or such other convertible debenture(s) exchanged therefor as
provided in Section 2.1.
"Discount Multiplier" has the meaning set forth in Section 3.1(a).
"Event of Default" has the meaning set forth in Section 6.1.
"Holder" means Golden Gate Investors, Inc., any successor thereto,
or any Person to whom this Debenture is subsequently transferred in
accordance with the provisions hereof.
"Interest Payment Due Date" has the meaning set forth in the
opening paragraph of this Debenture.
"Market Disruption Event" means any event that results in a
material suspension or limitation of trading of the Common Shares.
"Market Price" per Common Share means the lowest price of the
Common Shares during any Trading Day as reported on the NASDAQ OTCBB;
provided that, if such security is not listed or admitted to trading on the
NASDAQ OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the lowest price of the Common
Shares during any Trading Day on the over-the-counter market as reported by
Bloomberg LP or a similar generally accepted reporting service, as the case
may be.
"Maximum Rate" has the meaning set forth in Section 6.4.
"Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares") means, on any date of determination, all
issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that any such Shares directly
or indirectly owned or held by or for the account of the Company or any
Subsidiary of the Company shall not be deemed "Outstanding" for purposes
hereof.
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
"Principal Amount" means, for any date of calculation, the
principal sum set forth in the first paragraph of this Debenture (but only
such principal amount as to which the Holder has (a) actually advanced
pursuant to the Securities Purchase Agreement, and (b) not theretofore
furnished a Conversion Notice in compliance with Section 3.2).
"Registration Rights Agreement" means that certain Registration
Rights Agreement of even date herewith by and between the Company and
Holder, as the same may be amended from time to time.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the
time.
"Securities Purchase Agreement" means that certain Securities
Purchase Agreement of even date herewith by and among the Company and
Holder, as the same may be amended from time to time.
"Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
"Trading Day" means any day on which (i) purchases and sales of
securities on the principal national security exchange or quotation system
on which the Common Shares are traded are reported thereon, or, if not
quoted or listed or admitted to trading on any national securities exchange
or quotation system, as reported by Bloomberg LP or a similar generally
accepted reporting service, as the case may be, (ii) at least one bid for
the trading of Common Shares is reported and (iii) no Market Disruption
Event occurs.
"Volume Weighted Average Price" per Common Share means the
volume weighted average price of the Common Shares during any Trading Day as
reported on the NASDAQ OTCBB; provided that, if such security is not listed
or admitted to trading on the NASDAQ OTCBB, as reported on the principal
national security exchange or quotation system on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system,
the volume weighted average price of the Common Shares during any Trading
Day on the over-the-counter market as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
All references to "cash" or "$" herein means currency of the
United States of America.
EXCHANGES, TRANSFER AND REPAYMENT
Registration of Transfer of Debentures. This Debenture, when presented
for registration of transfer, shall (if so required by the Company) be duly
endorsed, or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing.
Loss, Theft, Destruction of Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Company, or,
in the case of any such mutilation, upon surrender and cancellation of this
Debenture, the Company shall make, issue and deliver, in lieu of such lost,
stolen, destroyed or mutilated Debenture, a new Debenture of like tenor and
unpaid Principal Xxxxxx dated as of the date hereof (which shall accrue
interest from the most recent Interest Payment Due Date on which an interest
payment was made in full). This Debenture shall be held and owned upon the
express condition that the provisions of this Section 2.2 are exclusive with
respect to the replacement of a mutilated, destroyed, lost or stolen
Debenture and shall preclude any and all other rights and remedies
notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
Who Deemed Absolute Owner. The Company may deem the Person in whose
name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of
receiving payment of or on account of the Principal Amount of this
Debenture, for the conversion of this Debenture and for all other purposes,
and the Company shall not be affected by any notice to the contrary. All
such payments and such conversions shall be valid and effectual to satisfy
and discharge the liability upon this Debenture to the extent of the sum or
sums so paid or the conversion or conversions so made.
Repayment at Maturity. At the Maturity Date, the Company shall repay
the outstanding Principal Amount of this Debenture in whole in cash,
together with all accrued and unpaid interest thereon, in cash, to the
Maturity Date.
CONVERSION OF DEBENTURE
Conversion; Conversion Price; Valuation Event.
(a) At the option of the Holder, this Debenture may be converted,
either in whole or in part, up to the full Principal Amount hereof into
Common Shares (calculated as to each such conversion to the nearest 1/100th
of a share), at any time and from time to time on any Business Day, subject
to compliance with Section 3.2. The number of Common Shares into which this
Debenture may be converted is equal to the dollar amount of the Debenture
being converted multiplied by 110, minus the product of the Conversion Price
multiplied by 100 times the dollar amount of the Debenture being converted,
and the entire foregoing result shall be divided by the Conversion Price. In
addition, the Company shall pay to the Holder on the Conversion Date, in
cash, any accrued and unpaid interest on the Debenture being converted not
included at the option of the Holder in clause (i) of the immediately
preceding sentence. The "Conversion Price" shall be equal to the lesser of
(i) $0.25 while the Debenture Principal Amount is greater than $200,000,
$0.40 while the Debenture Principal Amount is between $100,000 and $200,000,
and $0.75 while the Debenture Principal Amount is less than $100,000, or
(ii) 85% of the average of the 5 lowest Volume Weighted Average Prices
during the 20 Trading Days prior to Holder's election to convert, or (iii)
85% of the Volume Weighted Average Price on the Trading Day prior to
Holder's election to convert (the percentage figure being a "Discount
Multiplier"); provided, that in the event the Registration Statement has not
been declared effective by the SEC by the Deadline then the applicable
Discount Multiplier shall decrease by three percentage points for each month
or partial month occurring after the Deadline that the Registration
Statement is not effective or, if the Registration Statement has theretofore
been declared effective but is not thereafter effective, then the applicable
Discount Multiplier shall decrease by three percentage points for each week
or partial week occurring after the Deadline that the Registration Statement
is not effective. In addition, if the Registration Statement has theretofore
been declared effective but is not thereafter effective, Holder, at its
option, shall be entitled to the Conversion Price on the date that the
Registration Statement is no longer effective, for a period beginning on the
date that the Registration Statement is declared effective and continuing
for the number of days that a Registration Statement was not effective.
Beginning in the first full calendar month after the Registration Statement
is declared effective, Holder shall convert at least 5%, but no more than
10% (such 10% maximum amount to be cumulative from the Deadline), of the
face value of the Debenture per calendar month into Common Shares of the
Company, provided that the Common Shares are available, registered and
freely tradable. If Holder converts more than 5% of the face value of the
Debenture in any calendar month, the excess over 5% shall be credited
against the next month's minimum conversion amount. The 10% monthly maximum
amount shall not be applicable if the Current Market Price of the Common
Stock at anytime during the applicable month is higher than the Current
Market Price of the Common Stock on the Closing Date. In the event Holder
does not convert at least 5% of the Debenture in any particular calendar
month, Holder shall not be entitled to collect interest on the Debenture for
that month if the Company gives Holder written notice, at least 5 business
days prior to the end of the month, of Xxxxxx's failure to convert the
minimum required amount for that month.
If the Holder elects to convert a portion of the Debenture and, on the day
that the election is made, the Volume Weighted Average Price is below
$0.075, the Company shall have the right to prepay that portion of the
Debenture that Holder elected to convert, plus any accrued and unpaid
interest, at 120% of such amount. In the event that the Company elects to
prepay that portion of the Debenture, Holder shall have the right to
withdraw its Conversion Notice. If, at anytime during the month, the Volume
Weighted Average Price is below $0.075, Holder shall not be obligated to
convert any portion of the Debenture during that month.
(b) Notwithstanding the provisions of Section 3.1(a), in the
event the Company's Registration Statement has not been declared effective
by the Deadline or, if the Registration Statement has theretofore been
declared effective but is not thereafter effective, the following will also
apply in addition to any damages incurred by the Holder as a result thereof:
(i) The Holder may demand repayment of one hundred and
twenty percent (120%) of the Principal Amount of the Debenture, together
with all accrued and unpaid interest thereon, in cash, at any time prior to
the Company's Registration Statement being declared effective by the SEC or
during the period that the Company's Registration Statement is not
effective, such repayment to be made within three (3) business days of such
demand. In the event that the Debenture is so accelerated, in addition to
the repayment of one hundred and twenty percent (120%) of the Principal
Amount together with accrued interest as aforesaid, the Company shall
immediately issue and pay, as the case may be, to the Holder 50,000 Shares
of Common Stock and $15,000 for each thirty (30) day period, or portion
thereof, during which the Principal Amount, including interest thereon,
remains unpaid, with the monthly payment amount to increase to $20,000 for
each thirty (30) day period, or portion thereof, after the first ninety (90)
day period;
(ii) If the Holder does not elect to accelerate the
Debenture, the Company shall immediately issue or pay, as the case may be,
to Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day
period, or portion thereof, that the Registration Statement is not
effective, with the monthly payment amount to increase to $20,000 for each
thirty (30) day period, or portion thereof, after the first ninety (90) day
period.
(iii) If the SEC indicates that the Company's
Registration Statement will be declared effective upon request by the
Company, and the Company does not, within 3 business days of the SEC
indication, request that the Registration Statement become effective, the
amounts set forth in subsections (ii) and (iii) above shall double.
Exercise of Conversion Privilege. (a) Conversion of this Debenture may
be exercised on any Business Day by the Holder by telecopying an executed
and completed Conversion Notice to the Company. Each date on which a
Conversion Notice is telecopied to the Company in accordance with the
provisions of this Section 3.2 shall constitute a Conversion Date. The
Company shall convert this Debenture and issue the Common Stock Issued at
Conversion in the manner provided below in this Section 3.2, and all voting
and other rights associated with the beneficial ownership of the Common
Stock Issued at Conversion shall vest with the Holder, effective as of the
Conversion Date at the time specified in the Conversion Notice. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock Issued at
Conversion in connection with such conversion. As promptly as practicable
after the receipt of the Conversion Notice as aforesaid, but in any event
not more than two (2) Business Days after the Company's receipt of such
Conversion Notice, the Company shall (i) issue the Common Stock Issued at
Conversion in accordance with the provisions of this Article 3 and (ii)
cause to be mailed for delivery by overnight courier, or if a Registration
Statement covering the Common Stock has been declared effective by the SEC
cause to be electronically transferred, to Holder (x) a certificate or
certificate(s) representing the number of Common Shares to which the Holder
is entitled by virtue of such conversion, (y) cash, as provided in Section
3.3, in respect of any fraction of a Common Share deliverable upon such
conversion and (z) cash or shares of Common Stock, as applicable,
representing the amount of accrued and unpaid interest on this Debenture as
of the Conversion Date. Such conversion shall be deemed to have been
effected at the time at which the Conversion Notice indicates, and at such
time the rights of the Holder of this Debenture, as such (except if and to
the extent that any Principal Amount thereof remains unconverted), shall
cease and the Person and Persons in whose name or names the Common Stock
Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby, and
all voting and other rights associated with the beneficial ownership of such
Common Shares shall at such time vest with such Person or Persons. The
Conversion Notice shall constitute a contract between the Holder and the
Company, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion and,
in payment and satisfaction of such subscription (and for any cash
adjustment to which it is entitled pursuant to Section 3.4), to surrender
this Debenture and to release the Company from all liability thereon (except
if and to the extent that any Principal Amount thereof remains unconverted).
No cash payment aggregating less than $1.00 shall be required to be given
unless specifically requested by the Holder.
If, at any time after the date of this Debenture, (i) the Company
challenges, disputes or denies the right of the Holder hereof to effect the
conversion of this Debenture into Common Shares or otherwise dishonors or
rejects any Conversion Notice delivered in accordance with this Section 3.2
or (ii) any third party who is not and has never been an Affiliate of the
Holder commences any lawsuit or legal proceeding or otherwise asserts any
claim before any court or public or governmental authority which seeks to
challenge, deny, enjoin, limit, modify, delay or dispute the right of the
Holder hereof to effect the conversion of this Debenture into Common Shares,
then the Holder shall have the right, but not the obligation, by written
notice to the Company, to require the Company to promptly redeem this
Debenture for cash at one hundred and twenty (120%) of the Principal Amount
thereof, together with all accrued and unpaid interest thereon to the date
of redemption. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of the
Holder, including reasonable legal fees and expenses, as and when incurred
in defending itself in any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under the Bankruptcy Code. In
the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives to the fullest extent permitted any rights to relief it may
have under 11 U.S.C. S 362 in respect of the Holder's conversion privilege.
The Company hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C. S 362 in respect of the conversion of
this Debenture. The Company agrees, without cost or expense to the Holder,
to take or consent to any and all action necessary to effectuate relief
under 11 U.S.C. S 362.
Fractional Shares. No fractional Common Shares or scrip representing
fractional Common Shares shall be delivered upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would be
delivered upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same
fraction multiplied by the Current Market Price on the Conversion Date. No
cash payment of less than $1.00 shall be required to be given unless
specifically requested by the Holder.
Adjustments. The Conversion Price and the number of shares deliverable
upon conversion of this Debenture are subject to adjustment from time to
time as follows:
Reclassification, Etc. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into
another Person (where the Company is not the survivor or where there is a
change in or distribution with respect to the Common Stock of the Company),
sell, convey, transfer or otherwise dispose of all or substantially all its
property, assets or business to another Person, or effectuate a transaction
or series of related transactions in which more than fifty percent (50%) of
the voting power of the Company is disposed of (each, a "Fundamental
Corporate Change") and, pursuant to the terms of such Fundamental Corporate
Change, shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property") are to be received by or distributed to the
holders of Common Stock of the Company, then the Holder of this Debenture
shall have the right thereafter, at its sole option, to (x) require the
Company to prepay this Debenture for cash at one hundred and twenty percent
(120%) of the Principal Amount thereof, together with all accrued and unpaid
interest thereon to the date of prepayment, (y) receive the number of shares
of common stock of the successor or acquiring corporation or of the Company,
if it is the surviving corporation, and Other Property as is receivable upon
or as a result of such Fundamental Corporate Change by a holder of the
number of shares of Common Stock into which the outstanding portion of this
Debenture may be converted at the Conversion Price applicable immediately
prior to such Fundamental Corporate Change or (z) require the Company, or
such successor, resulting or purchasing corporation, as the case may be, to,
without benefit of any additional consideration therefor, execute and
deliver to the Holder a debenture with substantial identical rights,
privileges, powers, restrictions and other terms as this Debenture in an
amount equal to the amount outstanding under this Debenture immediately
prior to such Fundamental Corporate Change. For purposes hereof, "common
stock of the successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject
to prepayment and shall also include any evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable for
any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions shall
similarly apply to successive Fundamental Corporate Changes.
Certain Conversion Limits.
Notwithstanding anything herein to the contrary, if and to the extent
that, on any date, the holding by the Holder of this Debenture would result
in the Holder's being deemed the beneficial owner of more than 9.99% of the
then Outstanding shares of Common Stock, then the Holder shall not have the
right, and the Company shall not have the obligation, to convert any portion
of this Debenture as shall cause such Holder to be deemed the beneficial
owner of more than 9.99% of the then Outstanding shares of Common Stock. If
any court of competent jurisdiction shall determine that the foregoing
limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 9.99% of the then Outstanding shares of Common
Stock, then the Company shall prepay such portion of this Debenture as shall
cause such Holder not to be deemed the beneficial owner of more than 9.99%
of the then Outstanding shares of Common Stock. Upon such determination by
a court of competent jurisdiction, the Holder shall have no interest in or
rights under such portion of the Debenture. Any and all interest paid on or
prior to the date of such determination shall be deemed interest paid on the
remaining portion of this Debenture held by the Holder. Such prepayment
shall be for cash at a prepayment price of the Principal Amount thereof,
together with all accrued and unpaid interest thereon to the date of
prepayment.
Surrender of Debentures. Upon any redemption of this Debenture
pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to Section
2.4, the Holder shall either deliver this Debenture by hand to the Company
at its principal executive offices or surrender the same to the Company at
such address by nationally recognized overnight courier. Payment of the
redemption price or the amount due on maturity specified in Section 2.4,
shall be made by the Company to the Holder against receipt of this Debenture
(as provided in this Section 3.5) by wire transfer of immediately available
funds to such account(s) as the Holder shall specify by written notice to
the Company. If payment of such redemption price is not made in full by the
redemption date, or the amount due on maturity is not paid in full by the
Maturity Date, the Holder shall again have the right to convert this
Debenture as provided in Article 3 hereof or to declare an Event of Default.
STATUS; RESTRICTIONS ON TRANSFER
Status of Debenture. This Debenture constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms
subject, as to enforceability, to general principles of equity and to
principles of bankruptcy, insolvency, reorganization and other similar laws
of general applicability relating to or affecting creditors' rights and
remedies generally.
Restrictions on Transfer. This Debenture, and any Common Shares
deliverable upon the conversion hereof, have not been registered under the
Securities Act. The Holder by accepting this Debenture agrees that this
Debenture and the shares of Common Stock to be acquired as interest on and
upon conversion of this Debenture may not be assigned or otherwise
transferred unless and until (i) the Company has received the opinion of
counsel for the Holder that this Debenture or such shares may be sold
pursuant to an exemption from registration under the Securities Act or (ii)
a registration statement relating to this Debenture or such shares has been
filed by the Company and declared effective by the SEC.
Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Securities Act"). The securities may not
be offered for sale, sold or otherwise transferred
except (i) pursuant to an effective registration
statement under the Securities Act or (ii) pursuant to
an exemption from registration under the Securities Act
in respect of which the issuer of this certificate has
received an opinion of counsel satisfactory to the
issuer of this certificate to such effect. Copies of
the agreement covering both the purchase of the
securities and restrictions on their transfer may be
obtained at no cost by written request made by the
holder of record of this certificate to the Secretary of
the issuer of this certificate at the principal
executive offices of the issuer of this certificate."
COVENANTS
Conversion. The Company shall cause the transfer agent, not later than
two (2) Business Days after the Company's receipt of a Conversion Notice, to
issue and deliver to the Holder the requisite shares of Common Stock Issued
at Conversion. Such delivery shall be by electronic transfer if a
Registration Statement covering the Common Stock has been declared effective
by the SEC.
Notice of Default. If any one or more events occur which constitute or
which, with notice, lapse of time, or both, would constitute an Event of
Default, the Company shall forthwith give notice to the Holder, specifying
the nature and status of the Event of Default or such other event(s), as the
case may be.
Payment of Obligations. So long as this Debenture shall be
outstanding, the Company shall pay, extend, or discharge at or before
maturity, all its respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings.
Compliance with Laws. So long as this Debenture shall be outstanding,
the Company shall comply with all applicable laws, ordinances, rules,
regulations and requirements of governmental authorities, except for such
noncompliance which would not have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or
results of operations of the Company and the Subsidiaries.
Inspection of Property, Books and Records. So long as this Debenture
shall be outstanding, the Company shall keep proper books of record and
account in which full, true and correct entries shall be made of all
material dealings and transactions in relation to its business and
activities and shall permit representatives of the Holder at the Holder's
expense to visit and inspect any of its respective properties, to examine
and make abstracts from any of its respective books and records, not
reasonably deemed confidential by the Company, and to discuss its respective
affairs, finances and accounts with its respective officers and independent
public accountants, all at such reasonable times and as often as may
reasonably be desired.
SECTION 5.6 Right of First Refusal on Other Financing. In the event
that the Company obtains a commitment for any other financing (either debt,
equity, or a combination thereof) which is to close during the term of this
Debenture, Holder shall be entitled to a right of first refusal to enable it
to match the terms of the other financing. The Company shall deliver to
Holder, at least 10 days prior to the proposed closing date of such
transaction, written notice describing the proposed transaction, including
the terms and conditions thereof, and providing Holder an option during the
10 day period following delivery of such notice to provide the financing
being offered in such transaction on the same terms as contemplated by such
transaction.
EVENTS OF DEFAULT; REMEDIES
Events of Default. "Event of Default" wherever used herein means any
one of the following events:
the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable
and, in the case of an interest payment default, such default shall continue
for five (5) Business Days after the date such interest payment was due, or
the Company shall fail to perform or observe any other covenant, agreement,
term, provision, undertaking or commitment under this Debenture, the
Warrants (as defined in the Securities Purchase Agreement), the Securities
Purchase Agreement or the Registration Rights Agreement and such default
shall continue for a period of ten (10) Business Days after the delivery to
the Company of written notice that the Company is in default hereunder or
thereunder;
any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights
Agreement or in any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture, the Warrants,
the Securities Purchase Agreement or the Registration Rights Agreement shall
be false or misleading in a material respect on the Closing Date;
under the laws of any jurisdiction not otherwise covered by
clauses (iv) and (v) below, the Company or any Subsidiary (A) becomes
insolvent or generally not able to pay its debts as they become due, (B)
admits in writing its inability to pay its debts generally or makes a
general assignment for the benefit of creditors, (C) institutes or has
instituted against it any proceeding seeking (x) to adjudicate it a bankrupt
or insolvent, (y) liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors
including any plan of compromise or arrangement or other corporate
proceeding involving or affecting its creditors or (z) the entry of an order
for relief or the appointment of a receiver, trustee or other similar person
for it or for any substantial part of its properties and assets, and in the
case of any such official proceeding instituted against it (but not
instituted by it), either the proceeding remains undismissed or unstayed for
a period of sixty (60) calendar days, or any of the actions sought in such
proceeding (including the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official for
it or for any substantial part of its properties and assets) occurs or (D)
takes any corporate action to authorize any of the above actions;
the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company under
the Bankruptcy Code or any other applicable Federal or state law, or
appointing a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs, and any
such decree or order continues and is unstayed and in effect for a period of
sixty (60) calendar days;
the institution by the Company or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under the Bankruptcy Code or any other applicable federal or state
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its debts
generally as and when they become due, or the taking of corporate action by
the Company in furtherance of any such action;
a final judgment or final judgments for the payment of money shall
have been entered by any court or courts of competent jurisdiction against
the Company and remains undischarged for a period (during which execution
shall be effectively stayed) of thirty (30) days, provided that the
aggregate amount of all such judgments at any time outstanding (to the
extent not paid or to be paid, as evidenced by a written communication to
that effect from the applicable insurer, by insurance) exceeds One Hundred
Thousand Dollars ($100,000);
it becomes unlawful for the Company to perform or comply with its
obligations under this Debenture, the Conversion Warrant, the Securities
Purchase Agreement or the Registration Rights Agreement in any respect;
the Common Shares shall be delisted from the NASDAQ OTCBB (the
"Trading Market" or, to the extent the Company becomes eligible to list its
Common Stock on any other national security exchange or quotation system,
upon official notice of listing on any such exchange or system, as the case
may be, it shall be the "Trading Market") or suspended from trading on the
Trading Market, and shall not be reinstated, relisted or such suspension
lifted, as the case may be, within five (5) days or;
the Company shall default (giving effect to any applicable grace
period) in the payment of principal or interest as and when the same shall
become due and payable, under any indebtedness, individually or in the
aggregate, of more than One Hundred Thousand Dollars ($100,000);
Acceleration of Maturity; Rescission and Annulment. If an Event of
Default occurs and is continuing, then and in every such case the Holder
may, by a notice in writing to the Company, rescind any outstanding
Conversion Notice and declare that all amounts owing or otherwise
outstanding under this Debenture are immediately due and payable and upon
any such declaration this Debenture shall become immediately due and payable
in cash at a price of one hundred and twenty percent (120%) of the Principal
Amount thereof, together with all accrued and unpaid interest thereon to the
date of payment; provided, however, in the case of any Event of Default
described in clauses (iii), (iv), (v) or (vii) of Section 6.1, such amount
automatically shall become immediately due and payable without the necessity
of any notice or declaration as aforesaid.
Late Payment Penalty. If any portion of the principal of or interest
on this Debenture shall not be paid within ten (10) days of when it is due,
the Discount Multiplier under this Debenture, and under all warrants granted
by the Company to the Holder, shall decrease by one percentage point (1%)
for all conversions of this Debenture and warrant exercises thereafter.
Maximum Interest Rate. Notwithstanding anything herein to the
contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged,
taken or received by the Holder in accordance with any applicable law (the
"Maximum Rate"), the rate of interest applicable to this Debenture shall be
limited to the Maximum Rate. To the greatest extent permitted under
applicable law, the Company hereby waives and agrees not to allege or claim
that any provisions of this Note could give rise to or result in any actual
or potential violation of any applicable usury laws.
Remedies Not Waived. No course of dealing between the Company and the
Holder or any delay in exercising any rights hereunder shall operate as a
waiver by the Holder.
SECTION 6.6 Remedies. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations under this Debenture will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Debenture, that the Holder shall be entitled to all other available
remedies at law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing
any breach of this Debenture and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss and
without any bond or other security being required.
SECTION 6.7 Payment of Certain Amounts. Whenever pursuant to this
Debenture the Company is required to pay an amount in excess of the
Principal Amount plus accrued and unpaid interest, the Company and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be
so paid by the Company represents stipulated damages and not a penalty and
is intended to compensate the Holder in part for loss of the opportunity to
convert this Debenture and to earn a return from the sale of shares of
Common Stock acquired upon conversion of this Debenture at a price in excess
of that price paid for such shares pursuant to this Debenture. The Company
and the Holder hereby agree that such amount of stipulated damages is not
disproportionate to the possible loss to the Holder from the receipt of a
cash payment without the opportunity to convert this Debenture into shares
of Common Stock.
MISCELLANEOUS
Notice of Certain Events. In the case of the occurrence of any event
described in Section 3.4 of this Debenture, the Company shall cause to be
mailed to the Holder of this Debenture at its last address as it appears in
the Company's security registry, at least twenty (20) days prior to the
applicable record, effective or expiration date hereinafter specified (or,
if such twenty (20) days' notice is not possible, at the earliest possible
date prior to any such record, effective or expiration date), a notice
thereof, including, if applicable, a statement of (y) the date on which a
record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is not
to be taken, the date as of which the holders of record of Common Stock to
be entitled to such dividend, distribution, issuance or granting of rights,
options or warrants are to be determined or (z) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as
of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale
transfer, dissolution, liquidation or winding-up.
Register. The Company shall keep at its principal office a register in
which the Company shall provide for the registration of this Debenture.
Upon any transfer of this Debenture in accordance with Articles 2 and 4
hereof, the Company shall register such transfer on the Debenture register.
Withholding. To the extent required by applicable law, the Company may
withhold amounts for or on account of any taxes imposed or levied by or on
behalf of any taxing authority in the United States having jurisdiction over
the Company from any payments made pursuant to this Debenture.
Transmittal of Notices. Except as may be otherwise provided herein,
any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
telecopier machine or by a nationally recognized overnight courier service,
and shall be deemed given when so delivered personally, or by telecopier
machine or overnight courier service as follows:
(1) If to the Company, to:
American HealthChoice, Inc.
0000 Xxxxxx Xxxx, Xxxxx 000-000
Xxxxxx Xxxxx, Xxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
(2) If to the Holder, to:
Golden Gate Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each of the Holder or the Company may change the foregoing address by notice
given pursuant to this Section 7.4.Attorneys' Fees. Should any party hereto
employ an attorney for the purpose of enforcing or construing this
Debenture, or any judgment based on this Debenture, in any legal proceeding
whatsoever, including insolvency, bankruptcy, arbitration, declaratory
relief or other litigation, the prevailing party shall be entitled to
receive from the other party or parties thereto reimbursement for all
reasonable attorneys' fees and all reasonable costs, including but not
limited to service of process, filing fees, court and court reporter costs,
investigative costs, expert witness fees, and the cost of any bonds, whether
taxable or not, and that such reimbursement shall be included in any
judgment or final order issued in that proceeding. The "prevailing party"
means the party determined by the court to most nearly prevail and not
necessarily the one in whose favor a judgment is rendered.
Governing Law. This Debenture shall be governed by, and construed in
accordance with, the laws of the State of California (without giving effect
to conflicts of laws principles). With respect to any suit, action or
proceedings relating to this Debenture, the Company irrevocably submits to
the exclusive jurisdiction of the courts of the State of California sitting
in San Diego and the United States District Court located in the City of San
Diego and hereby waives, to the fullest extent permitted by applicable law,
any claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Subject to applicable law, the Company agrees that
final judgment against it in any legal action or proceeding arising out of
or relating to this Debenture shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States by suit on the
judgment, a certified copy of which judgment shall be conclusive evidence
thereof and the amount of its indebtedness, or by such other means provided
by law.
SECTION 7.7 Waiver of Jury Trial. To the fullest extent permitted by
law, each of the parties hereto hereby knowingly, voluntarily and
intentionally waives its respective rights to a jury trial of any claim or
cause of action based upon or arising out of this Debenture or any other
document or any dealings between them relating to the subject matter of this
Debenture and other documents. Each party hereto (i) certifies that neither
of their respective representatives, agents or attorneys has represented,
expressly or otherwise, that such party would not, in the event of
litigation, seek to enforce the foregoing waivers and (ii) acknowledges that
it has been induced to enter into this Debenture by, among other things, the
mutual waivers and certifications herein.
SECTION 7.8 Headings. The headings of the Articles and Sections of
this Debenture are inserted for convenience only and do not constitute a
part of this Debenture.
SECTION 7.9 Payment Dates. Whenever any payment hereunder shall be
due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
SECTION 7.10 Binding Effect. Each Holder by accepting this Xxxxxxxxx
agrees to be bound by and comply with the terms and provisions of this
Debenture.
SECTION 7.11 No Stockholder Rights. Except as otherwise provided
herein, 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 7.12 Facsimile Execution. Facsimile execution shall be deemed
originals.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
by its duly authorized officer on the date of this Debenture.American
HealthChoice, Inc.
By:
Title: _____________________________________
EXHIBIT A
---------
DEBENTURE CONVERSION NOTICE
---------------------------
TO: American HealthChoice, Inc.
The undersigned owner of this Convertible Debenture due December
___, 2008 (the "Debenture") issued by American HealthChoice, Inc. (the
"Company") hereby irrevocably exercises its option to convert $__________
Principal Amount of the Debenture into shares of Common Stock in accordance
with the terms of the Debenture. The undersigned hereby instructs the
Company to convert the portion of the Debenture specified above into shares
of Common Stock Issued at Conversion in accordance with the provisions of
Article 3 of the Debenture. The undersigned directs that the Common Stock
and certificates therefor deliverable upon conversion, the Debenture
reissued in the Principal Amount not being surrendered for conversion
hereby, [the check or shares of Common Stock in payment of the accrued and
unpaid interest thereon to the date of this Notice,] together with any check
in payment for fractional Common Stock, be registered in the name of and/or
delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Debenture. The conversion
pursuant hereto shall be deemed to have been effected at the date and time
specified below, and at such time the rights of the undersigned as a Holder
of the Principal Amount of the Debenture set forth above shall cease and the
Person or Persons in whose name or names the Common Stock Issued at
Conversion shall be registered shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby and all voting
and other rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons.
Date and time: ________________
________________________________
By: ____________________________
Title: _________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):
________________________________
________________________________
________________________________
