Exhibit 10.2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY THE SECURITIES.
THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF APPLYING THE U.S.
FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS DEBENTURE. THIS
DEBENTURE HAS AN ISSUE PRICE OF $_________, AN AGGREGATE AMOUNT OF OID OF
$__________, AN ISSUE DATE OF MAY 22, 2002, AND A YIELD TO MATURITY OF ____%.
No._____ $________
HOLLYWOOD MEDIA CORP.
6% SENIOR CONVERTIBLE DEBENTURE DUE MAY 22, 2005
THIS DEBENTURE (this "Debenture") is one of a duly authorized
issue of Debentures of HOLLYWOOD MEDIA CORP., a corporation duly organized and
existing under the laws of the State of Florida (the "Company"), designated as
its 6% Senior Convertible Debentures Due May 22, 2005, in an aggregate principal
amount of up to Five Million, Seven Hundred Thousand U.S. Dollars (U.S.
$5,700,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________, the holder hereof, or its registered assigns (the "Holder"),
the principal sum of _____ Million Dollars ($_________) on May 22, 2005 (subject
to extension as provided herein, the "Maturity Date") and to pay interest
("Interest Payments") on the Outstanding Principal Amount at the rate of 6% per
annum which shall be cumulative, accrue daily from the date of issuance of this
Debenture and be due and payable in arrears on the first day of each Quarterly
Period commencing with the Quarterly Period immediately following the date of
issuance of this Debenture (each, an "Interest Payment Date"). If the Maturity
Date is not a Business Day, then the Maturity Date shall be deemed to be the
Business Day immediately following such date. If an Interest Payment Date is not
a Business Day, then the Interest Payment shall be due and payable on the
Business Day immediately following such Interest Payment Date. Subject to the
limitations in Sections 11 and 26, interest shall be payable by the issuance of
shares of Common Stock ("Interest Shares") to the Holder or, at the option of
the Company, in cash (the "Cash Interest Payment"); provided, however, that the
Company may not make Cash Interest Payments and interest payments shall be
payable in Interest Shares unless the Company provides written notice to each
holder of Debentures at least five Business Days prior to the applicable
Interest Payment Date that such Interest Payments shall be made in cash.
Interest Shares shall be paid in a number of fully paid and nonassessable shares
(rounded up or down to the nearest whole share) of Common Stock equal to the
quotient of (1) the amount of the Interest Payment due on the applicable
Interest Payment Date divided by (2) ninety-five percent (95%) of the arithmetic
average of the Closing Sale Price of the Common Stock on the five consecutive
Business Days ending on and including the third Business Day immediately
preceding the applicable Interest Payment Date (the "Interest Share Conversion
Rate"). Notwithstanding the foregoing, the Company shall be required to make a
Cash Interest Payment on any Interest Payment Date if (a) any event constituting
an Event of Default or an event that with the passage of time and without being
cured would constitute an Event of Default, has occurred and is continuing on
the Interest Payment Date or any date which is within 10 Business Days prior to
the Interest Payment Date, unless otherwise consented to in writing by the
holder of the Debenture entitled to receive such Interest Payment or (b) from
and after the time that any Registration Statement (as defined in the
Registration Rights Agreement, the "Registration Statement") is required to be
effective, such Registration Statement is not then effective and available for
the resale of all of the Registrable Securities (as defined in the Registration
Rights Agreement) on the Interest Payment Date or each date which is within 10
Business Days prior to the Interest Payment Date. Any accrued and unpaid
interest which is not paid within five (5) Business Days of the Interest Payment
Date on which such payment of interest was due shall bear interest at the rate
of 14.0% per annum from such Interest Payment Date until the same is paid in
full (or, if less, the maximum interest rate then permitted by applicable law)
(the "Default Interest").
Interest Payments and payments of principal will be paid only
to the person in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register").
This Debenture is subject to the following additional
provisions:
1. Exchange. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different denominations, as requested by the
Holder surrendering the same. No service charge will be charged to the Holder
for such registration transfer or exchange.
2. Transfers. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act"), and applicable state securities laws. Prior to due
presentment for transfer of this Debenture, the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
all other purposes, whether or not this Debenture is overdue, and the Company
shall not be affected by notice to the contrary.
3. Definitions. For purposes of this Debenture, the location of defined
terms in this Debenture is set forth on the Index of Terms attached hereto and
the following terms shall have the following meanings:
"Approved Stock Plan shall mean any employee benefit plan,
stock incentive plan or other similar plan or arrangement which has been
approved by the Board of Directors of the Company or any authorized committee
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thereof, pursuant to which the Company's securities may be issued to any
employee, officer, consultant or director for services provided to the Company.
"Bloomberg" shall mean Bloomberg Financial Markets or any
other similar financial reporting service as may be selected from time to time
by the Company and the holders of not less than 60% of the then Outstanding
Principal Amount of Debentures issued on the Original Issuance Date.
"Business Day" shall mean any day other than Saturday, Sunday
or any other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
"Cash Transaction" means any Organic Change with a third party
on an arm's length basis pursuant to which the holders of the Common Stock are
to receive consideration consisting solely of cash.
"Closing Date" shall mean the first date on which Debentures
are issued pursuant to the Securities Purchase Agreement.
"Closing Sale Price" shall mean, for any security as of any
date, the last closing trade price for such security on the Principal Market as
reported by Bloomberg, or if the Principal Market begins to operate on an
extended hours basis, and does not designate the closing trade price, then the
last trade price at 4:00 p.m., New York City Time, as reported by Bloomberg, or
if the foregoing do not apply, the last closing trade price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no last closing trade price is reported for
such security by Bloomberg, the last closing ask price of such security as
reported by Bloomberg, or, if no last closing ask price is reported for such
security by Bloomberg, the average of the highest bid price and the lowest ask
price of any market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc. If the Closing Sale Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Sale Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of no less than 60% of the
Outstanding Principal Amount of the Debentures issued on the Original Issuance
Date then outstanding. If the Company and the holders of the Debentures are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 4(d)(iii) below. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
"Common Stock" shall mean the Common Stock, par value $0.01
per share, of the Company.
"Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
6(a)(i) and 6(a)(ii) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable upon
conversion of the Debentures or exercise of the Warrants.
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"Conversion Failure" shall mean that for any reason the Holder
has not received all of the shares of Common Stock to which the Holder is
entitled prior to the tenth (10th) Business Day after the Share Delivery Date
with respect to a conversion of this Debenture.
"Conversion Price" shall mean as of any Conversion Date or
other date of determination $3.46, subject to adjustment as provided in Section
6, Anti-dilution Adjustments to Conversion Price.
"Convertible Securities" shall mean any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Stock.
"Default Conversion Price" means the lower of (a) the
Conversion Price then in effect and (b) 95% of the lowest Closing Sale Price
during the three (3) trading days ending on and including the Conversion Date or
other date of determination.
"Issuance Date" shall mean, with respect to each Debenture,
the date of issuance of the applicable Debenture.
"Maturity Conversion Price" means the arithmetic average of
the Weighted Average Price of the Common Stock on each trading day during the
Maturity Measuring Period; provided, however, that for each Price Failure Date
during the Maturity Measuring Period, for purposes of calculating the Maturity
Conversion Price, the Weighted Average Price of the Common Stock on such Price
Failure Date shall be equal to $3.00 (subject to adjustment for stock splits,
stock dividends, stock combinations and similar transactions).
"Maturity Date Conversion Conditions" means all of the
following: (1) as of the date of the Maturity Date Election Notice, the Weighted
Average Price is no less than $3.00 (subject to adjustment for stock splits,
stock dividends, stock combinations and similar transactions), (2) the average
daily volume of the Common Stock during the period commencing at 9:30 a.m., New
York City time, and ending at 4:00 p.m., New York City time, on the Principal
Market for the 20 trading days prior to the date of the Maturity Date Election
Notice is no less than 100,000, excluding in each calculation of average daily
volume all block trades of 15,000 or more shares of the Common Stock, (3) the
average daily volume of the Common Stock during the period commencing at 9:30
a.m., New York City time, and ending at 4:00 p.m., New York City time, on the
Principal Market for the 60 trading days prior to the date of the Maturity Date
Election Notice is no less than 100,000, excluding in each calculation of
average daily volume all block trades of 15,000 or more shares of the Common
Stock, (4) no event constituting an Event of Default or an event that with the
passage of time and without being cured would constitute an Event of Default has
occurred and is continuing on (i) the date of the Maturity Date Election Notice,
(ii) the Maturity Date or (iii) any date which is within 10 Business Days prior
to the date of the Maturity Date Election Notice or the Maturity Date and (5)
each Registration Statement that is required to be effective shall be effective
and available for the resale of all of the Registrable Securities (as defined in
the Registration Rights Agreement) on (i) the date of the Maturity Date Election
Notice, (ii) the Maturity Date and (iii) any date which is within 10 Business
Days prior to the date of the Maturity Date Election Notice and the Maturity
Date.
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"Maturity Measuring Period" means the 40 trading days
immediately preceding May 22, 2005.
"NASDAQ" shall mean The Nasdaq National Market, The Nasdaq
Small Cap Market or the American Stock Exchange.
"NYSE" shall mean The New York Stock Exchange, Inc.
"Options" shall mean any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
"Original Issuance Date" shall mean the first date on which
any Debentures have been issued pursuant to the Securities Purchase Agreement.
"Outstanding Principal Amount" shall mean the principal sum
outstanding from time to time under this Debenture.
"Person" shall mean an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"Price Failure Date" means each trading day during the
Maturity Measuring Period during which the Weighted Average Price of the Common
Stock is less than $3.00 (subject to adjustment for stock splits, stock
dividends, stock combinations and similar transactions).
"Principal Market" shall mean NASDAQ, or if the Common Stock
is not traded on NASDAQ, then the principal securities exchange or trading
market for the Common Stock.
"Quarterly Period" means each of the following periods: the
period beginning on and including January 1 and ending on and including March
31; the period beginning on and including April 1 and ending on and including
June 30, the period beginning on and including July 1 and ending on and
including September 30; and the period beginning on and including October 1 and
ending on and including December 31.
"Registration Rights Agreement" shall mean that certain
registration rights agreement between the Company and the initial holders of the
Debentures relating to the filing of a registration statement covering the
resale of the shares of Common Stock issuable upon conversion of the Debentures
and exercise of the Warrants, as such agreement may be amended from time to time
as provided in such agreement.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Securities Purchase Agreement" shall mean that certain
securities purchase agreement between the Company and the initial holders of the
Debentures, as such agreement may be amended from time to time as provided in
such agreement.
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"Strategic Financing" shall mean the issuance of Common Stock
or Options in connection with any acquisition by the Company, by whatever means,
of any business, assets or technologies, or to any strategic investor, vendor,
customer, lease or similar arrangement, the primary purpose of which is not to
raise equity capital; provided that the aggregate number of shares of Common
Stock which the Company may issue pursuant to this definition shall not exceed
(i) 25% of the total outstanding equity on the Closing Date in connection with
any one or more related issuances to strategic investors, vendors, customers,
lessors or similar parties or (ii) 40% of the total outstanding equity on the
Closing Date in connection with all issuances to strategic investors, vendors,
customers, lessors or similar parties (in each case, subject to adjustment for
stock splits, stock dividends, stock combinations and similar transactions).
"Warrants" shall mean the warrants to purchase shares of
Common Stock issued by the Company pursuant to the Securities Purchase
Agreement.
"Weighted Average Price" shall mean, for any security as of
any date, the dollar volume-weighted average price per share for such security
on the Principal Market during the period beginning at 9:30 a.m., New York City
Time, and ending at 4:00 p.m., New York City Time, as reported by Bloomberg
through its "Volume at Price" function or, if the foregoing does not apply, the
dollar volume-weighted average price per share of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30 a.m., New York City Time, and ending at 4:00
p.m., New York City Time, as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for
such hours, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Weighted Average Price of such security on such date shall be the
fair market value as mutually determined by the Company and the holders of no
less than 60% of the Outstanding Principal Amount of the Debentures issued on
the Original Issuance Date then outstanding. If the Company and the holders of
the Debentures are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 4(d)(iii) with
the term "Weighted Average Price" being substituted for the term "Closing Sale
Price." All such determinations shall be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.
4. Conversion at the Option of the Holder. The Holder of this Debenture
shall have the following conversion rights:
(a) Holder's Right to Convert. Subject to Sections 11 and 26,
at any time or times until 5:00 p.m., New York City Time, on the Business Day
prior to the Maturity Date this Debenture is convertible, at the option of the
Holder hereof, into fully paid, validly issued and nonassessable shares of
Common Stock in accordance with Section 4(d) at the Conversion Rate (as defined
below). The Holder hereof may convert a portion of the Outstanding Principal
Amount of this Debenture if such portion is an integral multiple of $1,000. If
this Debenture remains outstanding on the Maturity Date, then this Debenture
shall be redeemed or converted into shares of Common Stock by the Company in
accordance with Section 5(a). Notwithstanding anything herein to the contrary,
concurrent with each delivery of Conversion Shares to a holder pursuant to this
Debenture, the Company shall pay (in Interest Shares, only if all terms,
6
conditions and requirements set forth in this Debenture concerning payment of
interest in the form of Interest Shares are satisfied, or cash as determined by
the Company) to such holder all accrued and unpaid interest on the Outstanding
Principal Amount then being converted from the last date on which interest had
been paid on such Outstanding Principal Amount through the Conversion Date.
(b) Partial Conversion of Debenture. If this Debenture is
converted in part, the remaining portion of this Debenture not so converted
shall remain entitled to the conversion rights provided herein.
(c) Conversion Price for Holder Converted Shares. The
Outstanding Principal Amount of this Debenture that is converted into shares of
Common Stock shall be convertible into the number of shares of Common Stock
which results from application of the following formula:
P
------------------------------
Conversion Price
P = Outstanding Principal Amount of this Debenture submitted for
conversion The number of shares of Common Stock into which this Debenture hereto
may be converted pursuant to the foregoing formula is hereafter referred to as
the "Conversion Rate."
(d) Mechanics of Conversion. The conversion of this Debenture
shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert this
Debenture (in whole or in part) into full shares of Common Stock on any date,
the Holder shall (A) transmit by facsimile (or otherwise physically deliver),
for receipt on or prior to 5:00 p.m., New York City Time, on such date, a copy
of a properly completed notice of conversion executed by the Holder in the form
attached hereto as Exhibit I (the "Conversion Notice") to the Company and the
Company's designated transfer agent (the "Transfer Agent") and (B) surrender
this Debenture to a common carrier for delivery to the Company as soon as
practicable following such date.
(ii) Company's Response. Upon receipt by the Company of
a copy of a Conversion Notice, the Company shall (A) as soon as practicable, but
in any event within two (2) Business Days, send, via facsimile, a confirmation
of receipt of such Conversion Notice to such holder and the Transfer Agent,
which confirmation shall constitute an instruction to the Transfer Agent to
process such Conversion Notice in accordance with the terms herein and (B) then,
on or before the second (2nd) Business Day following the date of receipt by the
Company of such Conversion Notice (the "Share Delivery Date"), (x) issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled, or (y) in the case of a
public resale of such Conversion Shares in accordance with the provisions of the
Irrevocable Transfer Agent Instructions, provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program and, if required by DTC, the holder provides a customary
representation letter to DTC, upon the request of the holder, credit such
aggregate number of shares of Common Stock to which the holder shall be entitled
7
to the holder's designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system. If the specified principal amount submitted
for conversion is less than the then Outstanding Principal Amount of this
Debenture, then the Company shall, as soon as practicable using reasonable best
efforts, and in no event later than five Business Days after receipt of the
Debenture (the "Debenture Delivery Date") and at its own expense, issue and
deliver to the holder a new Debenture representing the Outstanding Principal
Amount not converted. The effective date of conversion (the "Conversion Date")
shall be deemed to be the date on which the Company receives by facsimile the
Conversion Notice, and the Person or Persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Closing Sale Price, the Conversion Price or the
arithmetic calculation of the Conversion Rate, the Company shall instruct the
Transfer Agent to issue to the Holder the number of shares of Common Stock that
is not disputed and shall transmit an explanation of the disputed determinations
or arithmetic calculations to the Holder via facsimile within two (2) Business
Days of receipt of the Holder's Conversion Notice or other date of
determination. If the Holder and the Company are unable to agree upon the
determination of the Closing Sale Price, the Conversion Price or arithmetic
calculation of the Conversion Rate within two (2) Business Days of such disputed
determination or arithmetic calculation being transmitted to the Holder, then
the Company shall within two (2) Business Days submit via facsimile (A) the
disputed determination of the Closing Sale Price to an independent, reputable
investment bank selected by the Company and approved by the holders of at least
60% of the Outstanding Principal Amount of the Debentures issued on the Original
Issuance Date then outstanding or (B) the disputed determination of the
Conversion Price or the disputed arithmetic calculation of the Conversion Rate
to the Company's independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holders of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent manifest error.
(iv) Company's Failure to Timely Convert.
(A) If (x) within five (5) Business Days after
the Company's receipt of the facsimile copy of a Conversion Notice the Company
has failed to issue and deliver a certificate to a Holder or credit the Holder's
designee's balance account with DTC, in accordance with Section 4(d) hereof for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder's conversion of this Debenture or (y) within five (5) Business Days of
the Company's receipt of this Debenture the Company has failed to issue and
deliver a Debenture representing the principal amount of this Debenture not so
converted, then in addition to all other available remedies which such holder
may pursue hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof), the Company shall pay additional
damages to such holder for each day after the Share Delivery Date that such
conversion is not timely effected and/or each day after the Debenture Delivery
Date that this Debenture is not delivered in an amount equal to 0.05% of the
product of (I) the sum of the number of shares of Common Stock not issued to the
8
holder on or prior to the Share Delivery Date and to which such holder is
entitled as set forth in the applicable Conversion Notice and, in the event the
Company has failed to deliver a Debenture to the holder on or prior to the
Debenture Delivery Date, the number of shares of Common Stock issuable upon
conversion of this Debenture as of the Debenture Delivery Date and (II) the
Closing Sale Price of the Common Stock on the Share Delivery Date, in the case
of the failure to deliver Common Stock, or the Debenture Delivery Date, in the
case of failure to deliver a Debenture. The foregoing notwithstanding, the
damages set forth in this Section 4(d)(iv) shall be stayed with respect to the
number of shares of Common Stock for which there is a good faith dispute being
resolved pursuant to Section 4(d)(iii), pending the resolution of such dispute.
(B) If for any reason a holder has not received
all of the shares of Common Stock to which such holder is entitled prior to the
tenth (10th) Business Day after the Share Delivery Date with respect to a
conversion of this Debenture, then the Holder, upon written notice to the
Company, with a copy to the Transfer Agent, may void its Conversion Notice;
provided that the voiding of the Holder's Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued prior to the date
of such notice pursuant to Section 4(d)(iv)(A) or otherwise.
(e) No Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. If the issuance would
result in the issuance of a fraction of a share of Common Stock, the Company
shall round such fraction of a share of Common Stock up or down to the nearest
whole share.
5. Redemption, Conversion and Defeasement.
(a) Mandatory Redemption and Conversion at Maturity.
(i) If (A) this Debenture remains outstanding on the
Maturity Date, (B) the Maturity Date Conversion Conditions shall have been
satisfied or waived in writing by the Holder and (C) the Company shall have
delivered to the Holder a Maturity Date Election Notice in the manner provided
in Section 5(a)(ii), the Company shall convert, without the Holder being
required to give a Conversion Notice (a "Maturity Date Mandatory Conversion"),
the amount of the Outstanding Principal Amount of this Debenture designated for
conversion in the Maturity Date Election Notice less any amount of the
Outstanding Principal Amount that has been converted by the Holder pursuant to
Section 4(a) between the date of delivery of the Maturity Date Election Notice
and the date on which a Maturity Date Mandatory Conversion is effected, into the
number of fully paid, validly issued and nonassessable shares of Common Stock,
which results from application of the following formula:
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P
------------------------------------
Maturity Conversion Price
P = Outstanding Principal Amount of this Debenture subject to
the Maturity Date Mandatory Conversion
(ii) If the Company desires to effect a Maturity Date
Mandatory Conversion, then on or prior to the date which is 60 trading days
prior to the Maturity Date, the Company shall deliver written notice to the
Holder (a "Maturity Date Election Notice"), which Maturity Date Election Notice
shall state (x) the Outstanding Principal Amount of this Debenture the Company
has elected to convert on the Maturity Date pursuant to a Maturity Date
Mandatory Conversion, which amount shall not exceed fifty percent (50%) of the
Outstanding Principal Amount of this Debenture on the date immediately preceding
the delivery of the Maturity Date Election Notice and (y) the Outstanding
Principal Amount of this Debenture the Company has elected to redeem on the
Maturity Date pursuant to a Maturity Date Mandatory Redemption (as defined
below). If the Company has elected more than one of the Maturity Date Mandatory
Conversion and Maturity Date Mandatory Redemption with respect to the Maturity
Date, then the Company shall redeem the Outstanding Principal Amount of this
Debenture and/or convert the Outstanding Principal Amount of this Debenture pro
rata from the Holders of Debentures then outstanding (based on the Outstanding
Principal Amount of this Debenture on the Issuance Date relative to the total
Outstanding Principal Amount issued to all Holders on the Issuance Date (such
relative amount being referred to herein as each such Holder's "Maturity
Allocation Percentage")). In the event that any initial Holder of this Debenture
shall sell or otherwise transfer any portion of this Debenture, then the
transferee shall be allocated a pro rata portion of such Holder's Maturity Date
Allocation Percentage. If the Company fails to deliver to the Holder a Maturity
Date Election Notice at least 60 trading days prior to the Maturity Date, then
the Company shall be deemed to have elected a Maturity Date Mandatory Redemption
for the entire Outstanding Principal Amount of this Debenture.
(iii) In the event there is a Maturity Date Mandatory
Conversion and one or more Price Failure Dates occur during the Maturity
Measuring Period, the Company shall (A) pay on the Maturity Date, in addition to
the payment of the Maturity Date Redemption Price to be paid to the holder
pursuant to Section 5(b), an amount equal to the product of (x) the quotient of
the aggregate number of Price Failure Dates divided by 40 and (y) the Maturity
Date Redemption Price that would have been paid if the Company had not elected a
Maturity Date Mandatory Conversion with respect to the Outstanding Principal
Amount of this Debenture subject to the Maturity Date Mandatory Conversion (the
"Price Failure Payment"), and (B) shall reduce the number of shares of Common
Stock deliverable on the Maturity Date by the product of (x) the quotient of the
aggregate number of Price Failure Dates divided by 40 and (y) the number of
shares of Common Stock otherwise deliverable on the Maturity Date pursuant to
the Maturity Date Mandatory Conversion.
(iv) If the Company has elected a Maturity Date
Mandatory Conversion, then the Outstanding Principal Amount of this Debenture
subject thereto shall be converted at the Maturity Conversion Price as if the
Holder had delivered a Conversion Notice with respect to such Outstanding
Principal Amount on the Maturity Date. Promptly following the Maturity Date, the
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Holder shall surrender this Debenture to the Company. If the Company has elected
a Maturity Date Mandatory Conversion and the Holder of this Debenture has not
received all of the shares of Common Stock to which the Holder is entitled
and/or the Company has failed to pay the Maturity Date Redemption Price and/or
any portion of a Price Failure Payment in a timely manner as described above,
then the Maturity Date shall be automatically extended until the date the Holder
receives such shares of Common Stock and/or Maturity Date Redemption Price
and/or Price Failure Payment, as applicable, and shall be further extended for
as long as an Event of Default shall have occurred and be continuing or an event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and during any such extended
period, the Holder shall have the right to convert at any time and from time to
time all or any portion of the Outstanding Principal Amount of this Debenture
that is subject to a Maturity Date Mandatory Conversion into shares of Common
Stock pursuant to Section 4 at the lower of (A) the Maturity Conversion Price
and (B) the Default Conversion Price. Notwithstanding anything to the contrary
in this Section 5(a), the Holder may convert the Outstanding Principal Amount of
this Debenture (including the Outstanding Principal Amount with respect to which
the Company has elected a Maturity Date Mandatory Conversion or has elected a
Maturity Date Mandatory Redemption), but subject to Section 11, into shares of
Common Stock pursuant to Section 4 on or prior to the date immediately preceding
the Maturity Date.
(v) In the event a Holder delivers a Conversion Notice
to the Company after such Holder's receipt of a Maturity Date Election Notice
and the Company has elected in such Maturity Date Election Notice both of the
Maturity Date Mandatory Conversion and Maturity Date Mandatory Redemption, then
the Outstanding Principal Amount covered by such Conversion Notice shall be
deducted, first, from the Outstanding Principal Amount designated by the Company
as being subject to a Maturity Date Mandatory Conversion in the Maturity Date
Election Notice, and then from the Outstanding Principal Amount designated by
the Company as being subject to a Maturity Date Mandatory Redemption in such
Maturity Date Election Notice.
(b) Mandatory Redemption at Maturity. If this Debenture
remains outstanding on the Maturity Date, the Company shall redeem (a "Maturity
Date Mandatory Redemption") the Outstanding Principal Amount of this Debenture
that is not subject to a Maturity Date Mandatory Conversion for an amount in
cash (the "Maturity Date Redemption Price") equal to the Outstanding Principal
Amount of the Debenture not converted into shares of Common Stock pursuant to a
Maturity Date Mandatory Conversion, or otherwise, plus accrued and unpaid
interest thereon. The Maturity Date Redemption Price shall be paid on the
Maturity Date to the Holder by wire transfer of immediately available funds to
an account designated in writing by such Holder. Promptly following payment of
the Maturity Date Redemption Price, the Holder shall surrender this Debenture to
the Company.
(c) Payment Failures If the Company fails to make any payment
of a Maturity Date Redemption Price and/or fails to make any Price Failure
Payment, then in addition to any remedy the Holder may have under this
Debenture, the Securities Purchase Agreement and the Registration Rights
Agreement, until the Maturity Date Redemption Price and/or Price Failure
Payment, as applicable, is paid in full, (x) the Maturity Date Redemption Price
and/or the amount of any Price Failure Payment, as applicable, payable in
respect of such unpaid Maturity Date Redemption Price and/or unpaid Price
Failure Payment shall bear interest at the rate of 1.5% per month, prorated for
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partial months, and (y) the Holder shall have the option to require the Company
to convert any or all of the Outstanding Principal Amount of this Debenture
subject to redemption and for which the Maturity Date Redemption Price (together
with any interest thereon) has not been paid and/or any amount of a Price
Failure Payment (together with any interest thereon) that has not been paid,
into a number of shares of Common Stock equal to the quotient of the Maturity
Date Redemption Price (together with any interest thereon) and/or the Price
Failure Payment (together with any interest thereon), as applicable, divided by
the Default Conversion Price.
(d) Trading Restrictions. On each trading day during the
Maturity Measuring Period, the Holder shall not sell (including short sales)
shares of Common Stock representing more than ten percent (10%) of the trading
volume of the Common Stock on the Principal Market on such trading day.
(e) Covenant Defeasance. On and after the date all of the
conditions set forth below are satisfied, the Company may, upon written notice
to each holder of Debentures, at any time, elect to be released from any
obligations under the covenants contained in Section 4(o) of the Securities
Purchase Agreement and Section 25 of this Debenture, it being understood and
agreed that partial defeasances provided for under Section 25 hereof shall not
effect a release of such covenants, but only the obligation of the Company to
comply with the specific covenant in Section 25 (or portion thereof) to which
such defeasance relates. The following shall be the conditions to the Company's
release of its obligations under this Section 5(e): (I) the Company must
irrevocably deposit, or cause to be irrevocably deposited, in an account within
the control of the holders of Debentures (a "Control Account"), in trust, or
issue or cause to be issued an irrevocable letter of credit for the ratable
benefit of all holders of outstanding Debentures by a reputable financial
institution reasonably acceptable to the holders of 60% of the Outstanding
Principal Amount of all Debentures issued on the Original Issuance Date then
outstanding, the then total Outstanding Principal Amount of all Debentures in
cash in U.S. Dollars to secure payment of the principal of, premium, if any,
penalties, if any, and interest due on the outstanding Debentures, all pursuant
to a written agreement and other arrangements satisfactory to the holders of 60%
of the Outstanding Principal Amount of all Debentures issued on the Original
Issuance Date then outstanding, which shall among other things, confirm that the
funds deposited in a Control Account and the proceeds of any letter of credit
issued shall be subject to a perfected first priority security interest in favor
of the holders of Debentures; (II) provided that if after the Issuance Date
there has been a change in U.S. tax laws, rules or regulations concerning the
treatment of the Debentures in connection with a covenant defeasance of the type
contemplated by this Section 5(e), and if requested by the holders of 60% of the
Outstanding Principal Amount of all Debentures issued on the Original Issuance
Date then outstanding, the Company shall have delivered to each holder of
outstanding Debentures an opinion of reputable outside U.S. tax counsel in form
and substance satisfactory to the holders of 60% of the Outstanding Principal
Amount of all Debentures issued on the Original Issuance Date then outstanding
confirming that the holders of outstanding Debentures will not recognize income,
gain or loss for U.S. Federal income tax purposes as a result of the release of
the Company's obligations pursuant to this Section 5(e) and will be subject to
such tax on the same amounts, in the same manner and at the same times as would
have been the case if such release had not occurred; (III) no Event of Default
with respect to the Debentures or event which with the giving of notice or the
lapse of time, or both, would become an Event of Default with respect to the
12
Debentures shall have occurred and be continuing on the date of such deposit or
the issuance of a letter of credit; (IV) such release shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument to which the Company or any of its consolidated subsidiaries is a
party or by which the Company or any such consolidated subsidiary is bound; and
(V) the Company shall have delivered to each holder of Debentures a certificate
of the Chief Executive Officer of the Company stating that all conditions
precedent provided for or relating to the release of such covenant obligations
have been complied with.
6. Anti-dilution Adjustments to Conversion Price. The Conversion Price
will be subject to adjustment from time to time as provided in this Section 6:
(a) Anti-dilution Adjustment of Conversion Price upon Issuance
of Common Stock. If and whenever on or after the Closing Date and prior to the
twelve (12) month anniversary of the Closing Date, the Company issues or sells,
or in accordance with this Section 6(a) is deemed to have issued or sold, any
shares of Common Stock (but excluding shares of Common Stock: (v) deemed to have
been issued by the Company in connection with an Approved Stock Plan; (w) deemed
to have been issued upon issuance of the Debentures or the Warrants, or issued
upon conversion of the Debentures or exercise of the Warrants; (x) issued upon
exercise of Options or Convertible Securities which are outstanding on the date
immediately preceding the Closing Date, provided that such issuance of shares of
Common Stock upon exercise of such Options or Convertible Securities is made
pursuant to the terms of such Options or Convertible Securities in effect on the
date immediately preceding the Closing Date, such Options or Convertible
Securities are not amended after the date immediately preceding the Closing Date
other than with respect to Options originally issued pursuant to an Approved
Stock Plan and the purchase or exercise price provided for in any such Options,
the additional consideration, if any, payable upon the issue, conversion,
exchange or exercise of any such Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable or exercisable
for Common Stock does not change at any time after the Original Issuance Date;
(y) issued to the public pursuant to an underwritten offering registered
pursuant to the Securities Act (but in all events excluding offerings pursuant
to "equity lines" or similar products); and (z) issued pursuant to a Strategic
Financing ((v) through (z) collectively "Excluded Issuances")) for a
consideration per share (the "New Securities Issuance Price") less than the
Conversion Price in effect immediately prior to such time (each such sale or
issuance, a "Dilutive Issuance"), then concurrent with such Dilutive Issuance,
the Conversion Price then in effect shall be reduced to an amount equal to the
New Securities Issuance Price. If and whenever on or after the twelve (12) month
anniversary of the Closing Date and prior to the Maturity Date, the Company
issues or sells, or in accordance with this Section 6(a) is deemed to have
issued or sold, any shares of Common Stock (but excluding shares of Common Stock
issued or deemed to have been issued pursuant to any Excluded Issuance) in a
Dilutive Issuance, then concurrent with such Dilutive Issuance, the Conversion
Price then in effect shall be reduced to a price (rounded to the nearest cent)
equal to the product of (A) the Conversion Price in effect immediately prior to
such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum
of (I) the product derived by multiplying the Conversion Price in effect
immediately prior to such Dilutive Issuance and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Conversion Price in effect
immediately prior to such Dilutive Issuance by (II) the number of shares of
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Common Stock Deemed Outstanding immediately after such Dilutive Issuance. For
purposes of determining the adjusted Conversion Price under this Section 6(a),
the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants or sells any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Conversion Price in effect immediately
prior to such Dilutive Issuance, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share. For purposes of
this Section 6(a)(i), the "lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion,
exchange or exercise of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, upon exercise of the Option
and upon conversion, exchange or exercise of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such conversion,
exchange or exercise thereof is less than the Conversion Price in effect
immediately prior to such Dilutive Issuance, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance of sale of such Convertible Securities for
such price per share. For the purposes of this Section 6(a)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon such
conversion, exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion, exchange or exercise of such
Convertible Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock upon conversion, exchange or
exercise of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Conversion Price had been or are to be made pursuant to other provisions
of this Section 6(a), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If
the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or exercise
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable or exercisable for Common Stock changes at
any time, the Conversion Price in effect at the time of such change shall be
adjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold. For purposes of this Section
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6(a)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of the Debentures are changed in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any
Option is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, then solely
for purposes of this Section 6, the Options will be deemed to have been issued
for a consideration of $0.01. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the gross amount
received by the Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the arithmetic average of the Closing Sale Prices of such securities
during the ten (10) consecutive trading days ending on the date of receipt of
such securities. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of at least
60% of the Outstanding Principal Amount of the Debentures issued on the Original
Issuance Date then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser selected by the Company and the
holders of at least 60% of the Outstanding Principal Amount of the Debentures
issued on the Original Issuance Date then outstanding. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(b) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time combines (by combination, reverse stock split or otherwise)
its outstanding shares of Common Stock into a smaller number of shares and the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
15
(c) Holder's Right of Alternative Conversion Price Following
Issuance of Convertible Securities. If the Company issues or sells any Options
or Convertible Securities after the Closing Date that are convertible into or
exchangeable or exercisable for Common Stock at a price which varies or may vary
with the market price of the Common Stock, including by way of one or more
reset(s) to a fixed price (each of the formulations for such variable price
being herein referred to as, the "Variable Price"), the Company shall provide
written notice thereof via facsimile and overnight courier to the Holder (the
"Variable Notice") on the date of issuance of such Convertible Securities or
Options. From and after the date the Company issues any such Convertible
Securities or Options with a Variable Price, but only for so long as such
Convertible Securities or Options are outstanding, the Holder shall have the
right, but not the obligation, in its sole discretion to substitute the Variable
Price for the Conversion Price upon conversion of any Debentures held by it by
designating in the Conversion Notice delivered upon conversion of such
Debentures that solely for purposes of such conversion the Holder is relying on
the Variable Price rather than the Conversion Price then in effect. The Holder's
election to rely on a Variable Price for a particular conversion of Debentures
shall not obligate the Holder to rely on a Variable Price for any future
conversions of Debentures.
(d) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 6 in a private transaction (the primary
purpose of which is to raise equity capital) but not expressly provided for by
such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features
other than pursuant to an Excluded Issuance), then the Company's Board of
Directors will make an appropriate adjustment in the Conversion Price so as to
protect the rights of the holders of the Debentures; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 6.
(e) Notices.
(i) Promptly following any adjustment of the Conversion
Price pursuant to this Section 6, the Company will give written notice thereof
to the Holder, setting forth in reasonable detail, and certifying, the
calculation of such adjustment. In the case of a dispute as to the determination
of such adjustment, then such dispute shall be resolved in accordance with the
procedures set forth in Section 4(d)(iii).
(ii) The Company will give written notice to the Holder
at least ten (10) Business Days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change (as defined in Section 7(a)), dissolution or liquidation,
provided that the Company need not in any case provide such notice prior to the
time such information is made known to the public.
(iii) The Company will also give written notice to the
Holder at least ten (10) Business Days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that the Company
need not in any case provide such notice prior to the time such information is
made known to the public.
16
7. Other Rights.
(a) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "Organic Change." Prior to the
consummation of any (i) sale of all or substantially all of the Company's assets
to an acquiring Person or (ii) other Organic Change following which the Company
is not a surviving entity, the Company will secure from the Person purchasing
such assets or the successor, or, if applicable, the parent of the successor,
resulting from such Organic Change (in each case, the "Acquiring Entity") a
written agreement to deliver to each holder of Outstanding Principal Amount of
the Debentures in exchange for such securities, a security of the Acquiring
Entity evidenced by a written instrument substantially similar in form and
substance to the Debentures, and reasonably satisfactory to the holders of at
least 60% of the Outstanding Principal Amount of the Debentures issued on the
Original Issuance Date then outstanding; provided that the new security of the
Acquiring Entity shall not be required to be of rank equal to the Debenture if
the issuance of a security of such rank is not permitted by, or is inconsistent
with, any agreement or instrument to which the Acquiring Entity is a party or
any security of the Acquiring Entity that is outstanding, upon the consummation
of the Organic Change. Prior to the consummation of any other Organic Change,
the Company shall make appropriate provision to insure that each of the holders
of the Debentures will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Debentures such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Debentures as of the date of such Organic
Change (without taking into account any limitations or restrictions on the
convertibility of the Debentures).
(b) Optional Redemption at Holder's Election Upon Change of
Control. In addition to the rights of the holders of Debentures under this
Debenture, the Securities Purchase Agreement and the Registration Rights
Agreement, upon a Change of Control (as defined below) of the Company each
holder of Debentures shall have the right, at such holder's option, to require
the Company to redeem all or a portion of such holder's Debentures at a price
equal to 100% of the Outstanding Principal Amount of such Debentures plus the
product of (1) 1.75 and (2) the dollar amount of all Interest Payments scheduled
to be paid following the consummation of the Change of Control and on or prior
to the Maturity Date on the total Outstanding Principal Amount of the Debentures
on the date of consummation of the Change of Control ("Change of Control
Redemption Price"). No sooner than 20 Business Days nor later than 10 Business
Days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier (a "Notice of Change of
Control") to each holder of Debentures. At any time during the period beginning
after receipt of a Notice of Change of Control (or, in the event a Notice of
Change of Control is not delivered at least 10 Business Days prior to a Change
of Control, at any time on or after the date which is 10 Business Days prior to
a Change of Control) and ending on the date one (1) Business Day prior to such
Change of Control, any holder of the Debentures then outstanding may require the
17
Company to redeem all or a portion of the holder's Debentures then outstanding
by delivering written notice thereof via facsimile and overnight courier (a
"Notice of Redemption Upon Change of Control") to the Company, which Notice of
Redemption Upon Change of Control shall indicate (i) the principal amount of the
Debentures that such holder is submitting for redemption, and (ii) the
applicable Change of Control Redemption Price, as calculated pursuant to this
Section 7(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Change of Control from any holder of Debentures, the Company shall promptly, but
in no event later than two (2) Business Days following such receipt, notify each
holder of Debentures by facsimile of the Company's receipt of such Notice(s) of
Redemption Upon Change of Control. The Company shall deliver to the holder of
each Debenture who has delivered a Notice of Redemption upon Change of Control,
the applicable Change of Control Redemption Price simultaneously with the
consummation of the Change of Control provided that a holder's Debentures shall
have been so delivered to the Company. For purposes of this Section 7(b),
"Change of Control" means (i) the consolidation, merger or other business
combination of the Company with or into another Person (other than (A) a
consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets, or (iii) a tender
or exchange offer made to and accepted by the holders of more than 50% of the
aggregate voting power of the outstanding Common Stock.
(c) Optional Redemption At the Company's Election Upon Cash
Transaction. At any time or times on or after the date the Company publicly
discloses a pending, proposed or intended Cash Transaction, the Company shall
have the right, in its sole discretion, to require that all, but not less than
all, of the Outstanding Principal Amount of this Debenture be redeemed ("Cash
Transaction Redemption Election") at a price equal to 100% of the Outstanding
Principal Amount of this Debenture plus the product of (1) 1.75 and (2) the
dollar amount of all Interest Payments scheduled to be paid following the
consummation of the Cash Transaction and on or prior to the Maturity Date on the
total Outstanding Principal Amount of the Debentures redeemed on the date of
consummation of the Cash Transaction (the "Cash Transaction Redemption Price").
The Company shall exercise its right to make a Cash Transaction Redemption
Election by providing each holder of Debentures written notice ("Notice of Cash
Transaction Redemption") by facsimile or overnight courier, after the public
disclosure of a proposed, pending or intended Cash Transaction and at least ten
(10) Business Days prior to the date of consummation of the Cash Transaction
("Cash Transaction Election Redemption Date"), which Cash Transaction Election
Redemption Date shall be the date of the consummation of the Cash Transaction.
The Notice of Cash Transaction Redemption shall indicate the anticipated Cash
Transaction Election Redemption Date. If the Company has exercised its right of
Cash Transaction Redemption Election then the Outstanding Principal Amount of
the Debenture at the time of the consummation of the Cash Transaction shall be
redeemed on the Cash Transaction Election Redemption Date by payment by or on
behalf of the Company to each holder of Debentures of the applicable Cash
Transaction Redemption Price concurrent with the closing of the Cash
Transaction. All holders of Debentures shall thereupon, if the Cash Transaction
Redemption Price has been paid, except as specifically set forth herein, in the
18
Securities Purchase Agreement or in the Registration Rights Agreement, cease to
have any rights with respect to the Debentures and within two (2) Business Day
after the Cash Transaction Election Redemption Date, or such earlier date as the
Company and holders of no less then 60% of the Outstanding Principal Amount of
the Debentures issued on the Original Issuance Date mutually agree, shall
surrender all Debentures to the Company.
(d) Right to Convert on an Organic Change or Change of Control
or Agreement of the Parties. In addition to the foregoing, following the
announcement of any Change of Control or other Organic Change following which
the Company is not the surviving entity or otherwise upon the mutual agreement
of the Company and holders of at least 60% of the Outstanding Principal Amount
of all Debentures issued on the Original Issuance Date, the Holder shall
continue pursuant to Section 4(a) hereof to have the right to convert the
Outstanding Principal Amount of this Debenture at the then prevailing Conversion
Rate until the Debenture is redeemed or otherwise converted pursuant to this
Section 7.
8. Reservation of Stock Issuable Upon Conversion. The Company shall, so
long as any of the Debentures are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversions of the Debentures, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Debentures then outstanding; provided that
the number of shares of Common Stock so reserved shall at no time be less than
120% of the number of shares of Common Stock needed to provide for the issuance
of the shares of Common Stock upon conversion of all of the Debentures (without
regard to any limitations on conversion).
9. No Reissuance of Debentures. No Debentures acquired by the Company
by reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such Debentures shall be retired. No additional Debentures (other than
the Debentures issued pursuant to the Securities Purchase Agreement) shall be
authorized or issued without the consent of the holders of at least 60% of the
Outstanding Principal Amount of the Debentures issued on the Original Issuance
Date.
10. No Impairment. The Company shall not intentionally take any action
which would impair the rights and privileges of the Debentures set forth herein
or the Holders thereof.
11. Limitation on Beneficial Ownership. The Company shall not effect
and shall have no obligation to effect any conversion of Debentures, and no
holder of Debentures shall have the right to convert any Debentures, to the
extent that after giving effect to such conversion, the beneficial owner of such
shares (together with such Person's affiliates) would have acquired, through
conversion of Debentures or otherwise, beneficial ownership of a number of
shares of Common Stock that exceeds 9.99% of the number of shares of Common
Stock outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by a Person and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of the Debentures with respect
to which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) conversion of
the remaining, nonconverted Debentures beneficially owned by such Person or any
of its affiliates and (B) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company (including, without
19
limitation, any warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by such Person
or any of its affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 11, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Section 11, in determining the number of
outstanding shares of Common Stock, a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q, Form 10-K or other public filing with the SEC, as the case may be,
(2) a more recent public announcement by the Company, or (3) any other notice by
the Company or its transfer agent setting forth the number of shares of Common
Stock outstanding. Upon the written request of the Holder, the Company shall
promptly, but in no event later than two (2) Business Days following the receipt
of such notice, confirm in writing to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to conversions of Debentures by
the Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
12. Obligations Absolute. No provision of this Debenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Debenture at the time, place and
rate, and in the manner, herein prescribed.
13. Waivers of Demand, Etc. The Company hereby expressly waives (to the
extent permitted by applicable law) demand and presentment for payment, notice
of nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, bringing of suit and diligence in taking
any action to collect amounts called for hereunder and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
14. Replacement Debentures. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed, replacement
Debenture(s) identical in all respects to the original Debenture(s) (except for
registration number and Outstanding Principal Amount, if different than that
shown on the original Debenture(s)) shall be issued by the Company to the
Holder, provided that the Holder executes and delivers to the Company an
agreement reasonably satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such Debenture(s).
14A. Payment of Expenses. The Company agrees to pay all reasonable
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in successfully enforcing the provisions of this Debenture and/or
successfully collecting any amount due under this Debenture, the Securities
Purchase Agreement, the Warrants or the Registration Rights Agreement.
15. Defaults. The following shall constitute "Events of Default":
(a) Any Event of Default under any other Debenture; or
20
(b) The suspension from trading or failure of the Common Stock
to be listed on NASDAQ or the NYSE for more than an aggregate of ten (10)
trading days in any 365-day period; or
(c) Any money judgment (including any arbitration award, but
only if reduced to a judgment), writ or warrant of attachment, or similar
process in excess of Two Hundred and Fifty Thousand Dollars ($250,000) in the
aggregate, net of any applicable insurance coverage, shall be entered or filed
against the Company, its subsidiaries or any of their properties or other assets
and which shall remain unpaid, unvacated, unbonded and unstayed for a period of
seventy-five (75) days; or
(d) The Company shall default in the payment when due of (i)
interest on this Debenture, and such default shall continue for thirty (30)
calendar days after the due date thereof, or (ii) the Outstanding Principal
Amount of this Debenture; or
(e) Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement, the Warrants or the
Registration Rights Agreement shall be untrue in any material respect at the
time made and such condition (to the extent capable of being cured) shall
continue uncured for a period of ten (10) Business Days after notice from the
Holder of such condition; and such breach of representations and warranties,
singly or in the aggregate, would have a Material Adverse Effect or materially
impair the ability of the Company to perform or satisfy its obligations to the
Holder pursuant to the Transaction Documents; or
(f) The Company shall fail to perform or observe in any
material respect any material covenant or agreement in the Securities Purchase
Agreement, the Warrants, the Registration Rights Agreement or this Debenture,
including, without limitation, the failure to honor any Conversion Notice and
deliver shares pursuant thereto, and such failure shall continue uncured for a
period of ten (10) Business Days after notice from the Holder of such failure;
or
(g) The Company shall (i) become insolvent; (ii) admit in
writing its inability to pay its debts generally as they mature; (iii) make an
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (iv) apply for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part of its property or
business; or
(h) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(i) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days thereafter; or
(j) The Company shall fail to pay any debt for borrowed money
or other similar obligation or liability ("Indebtedness") (excluding
Indebtedness evidenced by the Debentures, Subordinated Indebtedness and Pari
Passu Indebtedness) of the Company, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), in an outstanding principal amount equal to or in excess of One
21
Million Dollars ($1,000,000), singly or in the aggregate and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness, or any such Indebtedness of the
Company shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof;
(k) The Company shall fail to make any payment of principal in
respect of Subordinated Indebtedness or Pari Passu Indebtedness or any interest
or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Subordinated Indebtedness or Pari Passu
Indebtedness, or any such Subordinated Indebtedness or Pari Passu Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof;
(l) The Company's Chief Executive Officer shall fail to
perform or observe in any material respect any covenant or agreement in the Line
of Credit Agreement (as defined in the Securities Purchase Agreement),
(m) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other similar proceedings, or relief under any bankruptcy law or
any similar law for the relief of debt shall be instituted by or against the
Company and, if instituted against the Company, shall not be dismissed within
sixty (60) days after such institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any such proceedings or admit to
any material allegations of, or default in answering a petition filed in any
such proceeding.
Unless an Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default),
upon the occurrence of an Event of Default, and for so long as such Event of
Default shall be continuing, at the option of and (except in the case of clause
(h) above) on notice by the Holder to the Company in writing and in the Holder's
sole discretion, the Holder may consider this Debenture immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any other instruments
contained to the contrary notwithstanding to the extent permitted by applicable
law, and the Holder may immediately, and without expiration of any further
period of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law. In such event
this Debenture shall be redeemed at a redemption price equal to 100% of the
Outstanding Principal Amount of the Debenture, plus accrued and unpaid interest
on this Debenture. In addition to the foregoing, upon an Event of Default, the
rate of interest on this Debenture, shall, to the maximum extent of the law, be
permanently increased by two percent (2%) per annum (i.e., from 6% to 8% per
annum) commencing on the first day of the thirty (30) day period (or part
thereof) following the Event of Default; and, solely in the case of an Event of
Default triggered by a Conversion Failure, an additional two percent (2%) per
annum commencing on the first day of each of the second and third such thirty
(30) day periods (or part thereof); and an additional one percent (1%) on the
first day of each consecutive thirty (30) day period (or part thereof)
thereafter until this Debenture has been duly converted or redeemed as herein
provided; provided that in no event shall the rate of interest exceed the lower
of 20% or the highest rate permitted by applicable law. The Company shall within
22
one (1) Business Day notify each Holder of Debentures upon becoming aware of the
occurrence of any Event of Default (whether or not waived by any other Holder of
Debentures) or of any action taken by any Holder of Debentures with respect to
the occurrence of any Event of Default.
16. Savings Clause. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
17. Entire Agreement. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
18. Assignment, Etc. The Holder may, subject to compliance with the
Securities Purchase Agreement and to applicable federal and state securities
laws, transfer or assign this Debenture or any portion thereof and may pledge,
encumber or transfer its rights or interest in and to this Debenture or any part
hereof, provided, that such transfer or assignment of this Debenture does not
result in more than ten (10) holders of the total Outstanding Principal Amount
of all Debentures and any such part or portion of this Debenture constitutes at
least 10% of the Outstanding Principal Amount or such lesser amount if such
transfer involves the entire Outstanding Principal Amount then held by such
transferor. Any such transfer or assignment shall only be effective upon the
Company's receipt of written notice thereof. Each such assignee, transferee and
pledgee shall have all of the rights of the Holder under this Debenture. The
Company agrees that, subject to compliance with the Securities Purchase
Agreement, after receipt by the Company of written notice of assignment from the
Holder and the Holder's assignee, all principal, interest and other amounts
which are then, and thereafter become, due under this Debenture shall be paid to
such assignee, transferee or pledgee at the place of payment designated in such
notice. This Debenture shall be binding upon the Company and its successors and
shall inure to the benefit of the Holder and its successors and registered
assigns.
19. No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
20. Notices. Unless otherwise provided herein, any notices, consents,
waivers or other communications required or permitted to be given under the
terms of this Debenture 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) Business 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:
23
If to the Company:
Hollywood Media Corp.
2255 Glades Road
Suite 237W
Boca Raton, FL 33431
Telephone: (561) 998-8000
Facsimile: (561) 998-2974
Attention: Chief Executive Officer
With a copy to:
Hollywood Media Corp.
2255 Glades Road
Suite 237W
Boca Raton, FL 33431
Telephone: (561) 998-8000
Facsimile: (561) 998-2974
Attention: General Counsel
24
and
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, TX 77002
Telephone: (713) 546-5275
Facsimile: (713) 224-9511
Attention: W. Robert Shearer, Esq.
If to a holder, to its address and facsimile number set forth
on the Schedule of Buyers attached to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on the Schedule of Buyers,
or to 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 five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) 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 (C)
provided by a courier or overnight courier 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.
21. Miscellaneous. Whenever the sense of this Debenture requires, words
in the singular shall be deemed to include the plural and words in the plural
shall be deemed to include the singular. Paragraph headings are for convenience
only and shall not affect the meaning of this document.
22. Choice of Law and Venue; Waiver of Jury Trial. THIS DEBENTURE SHALL
BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW (OTHER THAN SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW). The parties hereto hereby agree that all
actions or proceedings arising directly or indirectly from or in connection with
this Debenture shall be litigated only in the Supreme Court of the State of New
York or the United States District Court for the Southern District of New York
located in New York County, New York. The parties hereto consent to the
jurisdiction and venue of the foregoing courts and consent that any process or
notice of motion or other application to either of said courts or a judge
thereof may be served inside or outside the State of New York or the Southern
District of New York by registered mail, return receipt requested, directed as
provided in Section 20 (and service so made shall be deemed complete five (5)
days after the same has been posted as aforesaid) or by personal service or in
such other manner as may be permissible under the rules of said courts. The
parties hereto hereby waive any right to a jury trial in connection with any
litigation pursuant to this Debenture.
25
23. Rule 144. With a view to making available to the Holder the
benefits of Rule 144 promulgated under the Act ("Rule 144") and any other rule
or regulation of the SEC that may at any time permit the Holder to sell the
underlying stock of the Company issuable upon conversion or exercise of the
Debentures and the Warrants to the public without registration, the Company
agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); and
(c) furnish to any Holder, promptly upon request, a written
statement by the Company (provided true at the time) that it has complied with
the applicable reporting and filing requirements of the Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
copies of such other reports and documents (if any) so filed by the Company as
may be reasonably requested to permit any such Holder to take advantage of any
rule or regulation of the SEC permitting the selling of any such securities
without registration.
24. Restriction on Redemption, Stock Repurchases and Cash Dividends.
Unless all of the Debentures have been converted or redeemed as provided herein,
the Company shall not, directly or indirectly, redeem, repurchase (whether by
way of open market purchases, tender offers, private transactions or otherwise)
or declare or pay any dividend or distribution on, its capital stock (other than
distributions or dividends in the form of shares of Common Stock for which an
adjustment to the Conversion Price is provided hereunder) without the prior
express written consent of the holders of not less than 60% of the Outstanding
Principal Amount of the Debentures issued on the Original Issuance Date then
outstanding.
25. Rank; Incurrence of Indebtedness.
(a) For purposes of this Section 25, the following terms shall
have the following meanings:
"Acquisition Indebtedness" shall mean any Indebtedness
incurred, assumed or guaranteed by the Company or any of its subsidiaries in
respect of the purchase price for, or in connection with the purchase of, any
assets, business or securities (an "Acquired Business") acquired by the Company
or any of its subsidiaries.
"Acquisition Multiple" shall mean, subject in all respects to
the final sentence of Section 25(b) hereof, (i) in the event the Acquired
Business is not a Qualified Competitor, three times the EBITDA of the Acquired
Business, (ii) in the event the Acquired Business is a Qualified Competitor,
four times the EBITDA of the Acquired Business or (iii) with respect to the
acquisition during the twelve (12) months following the Closing Date of one
Acquired Business that is a Qualified Competitor for an aggregate purchase price
of less than $5,000,000, 1.5 times the sum of (x) the EBITDA of the Acquired
Business for the twelve (12) full months immediately preceding the closing date
in respect of the purchase of the Acquired Business plus (y) the aggregate
overhead expenses of the Acquired Business for the twelve (12) full months
26
immediately preceding the closing date in respect of the purchase of the
Acquired Business that will not be assumed, directly or indirectly, by the
Company or any of its subsidiaries, at any time after closing of the
acquisition; provided, however, that if prior to the closing of the acquisition
of any Acquired Business under subsections (i) or (ii) of this definition, the
Company has not been furnished with financial statements of such Acquired
Business that have been audited by a reputable auditing firm, the Acquisition
Multiple shall be two and one half (2 1/2) times the EBITDA of the Acquired
Business.
"EBITDA" shall mean (1) the earnings before interest, income
taxes, depreciation and amortization of the Acquired Business for the twelve
(12) full months immediately preceding the closing date in respect of the
purchase of the Acquired Business less (2) any capital expenditures of the
Acquired Business during such period.
"Pari Passu Indebtedness" shall mean Indebtedness that is made
expressly "pari passu" in right of payment with the Debentures in an aggregate
of (i) up to an aggregate principal amount of $5,000,000 of Indebtedness, (ii)
up to an additional aggregate principal amount of $5,000,000 of Indebtedness
incurred at any time after the eighteen (18) month anniversary of the Closing
Date, provided that in order to incur any Pari Passu Indebtedness pursuant to
this clause (ii) the arithmetic average of the Weighted Average Price of the
Common Stock on each trading day during the twenty consecutive trading day
period prior to the incurrence of any such Pari Passu Indebtedness under this
clause (ii) must equal or exceed 150% of the Conversion Price then in effect,
(iii) up to an additional aggregate principal amount of $4,000,000 of
Indebtedness incurred any time after the Outstanding Principal Amount of all
Debentures is less than $1,000,000; provided, that in order to incur any Pari
Passu Indebtedness under this clause (iii) the arithmetic average of the
Weighted Average Price of the Common Stock on each trading day during the twenty
consecutive trading day period prior to the incurrence of any such Pari Passu
Indebtedness under this clause (iii) must equal or exceed 150% of the Conversion
Price then in effect (iv) Acquisition Indebtedness, (v) Indebtedness in an
aggregate principal amount of up to $5,000,000 outstanding under the line of
credit by Mitchell Rubenstein and Laurie Silvers in favor of the Company, as
amended as of the date hereof (the "Rubenstein Line of Credit") and (vi) any
other indebtedness of the Company which the Company and the holders of more than
60% of the then Outstanding Principal Amount of the Debentures issued on the
Original Issuance Date may hereafter from time to time expressly and
specifically agree in writing shall constitute Pari Passu Indebtedness.
"Qualified Competitor" shall mean an Acquired Business that is
competitive with and in the same business with a business of the Company or any
of its subsidiaries, where the Company's Board of Directors determines, in its
reasonable judgment, that substantially all overhead expenses of the Acquired
Business during the trailing twelve months immediately preceding the acquisition
of such Acquired Business are duplicative with overhead expenses of the Company
or any of such subsidiaries and such duplicative expenses will be eliminated
within six (6) months immediately following the purchase of the Acquired
Business.
"Qualified Indebtedness" shall mean Pari Passu Indebtedness
that is not evidenced by any certificate, instrument, note or other agreement
that, directly or indirectly, permits or requires such Indebtedness to be
convertible into or exercisable or exchangeable for Common Stock (other than
Options that may be issued by the Company to the holder(s) of such Indebtedness,
27
the value of which does not exceed 10% of the principal amount of Indebtedness
so incurred, as determined using the Black-Scholes valuation methodology).
(b) So long as any of the Debentures are outstanding, the
Company shall not, and the Company shall not permit any of its subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (A) the Indebtedness evidenced by the Debentures which
shall rank ratably and equally with each other, (B) Pari Passu Indebtedness that
does not provide at any time for the payment of any principal thereon until at
least 91 days after the Maturity Date of the Debentures (except for the payment
of principal on Qualified Indebtedness to the extent permitted under Section
25(e)(ii)), (C) Indebtedness represented by trade payables incurred by the
Company in the ordinary course of business, (D) Indebtedness secured solely by
accounts receivable and incurred by the Company and any of its subsidiaries
pursuant to the Accounts Receivable Purchase Agreement, dated as of October 15,
2001, as in effect on the date hereof, without any material modification, or any
successor agreement on substantially the same terms, provided, that such
accounts receivable shall not have a face value in the aggregate exceeding the
lesser of (i) $2,000,000 and (ii) eighty-five percent (85%) of the face value of
the accounts receivable secured thereby at any time; provided, further, that the
sole collateral of the lender(s) under such agreement(s) shall be the accounts
receivable subject to the agreement and not any other assets of the Company or
any of its subsidiaries, (E) Indebtedness in an aggregate principal amount of up
to $500,000 secured solely by ticket inventory of Broadway.com, Inc. and (F)
Indebtedness that is made expressly subordinate in right of payment to the
Debentures and that does not provide at any time for the payment of any
principal thereon until at least 91 days after the Maturity Date of the
Debentures ("Subordinated Indebtedness") pursuant to a subordination agreement
containing the provisions attached hereto as Exhibit A executed and delivered by
the Company and any holder of Subordinated Indebtedness to each holder of
Debentures as a condition to the incurrence of such Indebtedness.
Notwithstanding anything herein to the contrary, no Qualified Indebtedness may
be incurred (but excluding Acquisition Indebtedness) unless as a condition to
the incurrence of such Indebtedness, the Company shall have defeased an
aggregate amount of Outstanding Principal Amount of all Debentures as of the
date of the incurrence of such Indebtedness (pro rata among all holders of
Debentures) in accordance with Section 5(e) hereof equal to fifty percent (50%)
of the principal amount of the Indebtedness so incurred or an amount as
otherwise required by this Section 25. The Company shall file with the SEC on
Form 8-K true and complete copies of the financial statements of an Acquired
Business for which the purchase price is paid or payable in cash and/or cash
equivalents and/or Indebtedness indicating thereon, among other things, the
items comprising the EBITDA of the Acquired Business and contemporaneously
therewith, but in no event prior to the filing of such Form 8-K, deliver a copy
of such financial statements to each holder of Debentures; provided, however,
that, notwithstanding anything herein to the contrary, if the Company does not
file with the SEC financial statements of any Acquired Business for which the
purchase price is paid or payable in cash and/or cash equivalents and/or
Indebtedness in the time and manner provided herein, then the Acquisition
Multiple with respect to such Acquired Business shall be deemed zero (0) and the
Company shall not be entitled to acquire such Acquired Business unless as a
condition thereto, the Company shall have contemporaneously with the closing of
the acquisition of such Acquired Business defeased an aggregate Outstanding
Principal Amount of the Debentures then outstanding (pro rata among all holders
of Debentures) in an amount equal to 100% of the aggregate cash, cash
28
equivalents and Acquisition Indebtedness incurred in connection with the
acquisition of such Acquired Business in accordance with Section 5(e) hereunder.
(c) Notwithstanding the foregoing, no Pari Passu Indebtedness
or Subordinated Indebtedness may be incurred, directly or indirectly, by the
Company or any of its subsidiaries if during the period commencing on the tenth
(10th) Business Day (or in the case of clause (ii) of the definition of Pari
Passu Indebtedness, the twentieth (20th) Business Day) immediately preceding the
incurrence of any such Pari Passu Indebtedness or Subordinated Indebtedness and
ending on and including the date on which any such Pari Passu Indebtedness or
Subordinated Indebtedness is incurred (A) an event constituting an Event of
Default or an event that with the passage of time and without being cured would
constitute an Event of Default, has occurred and is continuing, (B) any
Registration Statement that is required to be effective pursuant to the
Registration Rights Agreement is not effective and available for the sale of at
least all of the Registrable Securities (as defined in the Registration Rights
Agreement) required to be included in such Registration Statement or (C) there
has been any Grace Period (as such term is defined in the Registration Rights
Agreement).
(d) If at any time when any of the Debentures are outstanding
and have not been defeased in full in accordance with Section 5(e), the Company
shall purchase any Acquired Business, whether in one or a series of
transactions, for an amount of aggregate consideration (whenever paid in the
form of cash, cash equivalents or Acquisition Indebtedness) that exceeds the
Acquisition Multiple for such Acquired Business, (such excess amount, the
"Excess Permitted Aggregate Consideration"), the Company shall, simultaneous
with the closing of the purchase of the Acquired Business, defease an aggregate
Outstanding Principal Amount of the Debentures (pro rata among all holders of
Debentures) in accordance with Section 5(e) hereof equal to one hundred percent
(100%) of the Excess Permitted Aggregate Consideration.
(e) Notwithstanding anything herein to the contrary, the
Company shall not, and the Company shall not permit any of its subsidiaries to,
directly or indirectly redeem, defease, repurchase, repay or make any payments
in respect of, by the payment of cash or marketable securities, including,
without limitation, Common Stock (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any
portion of any Pari Passu Indebtedness or Subordinated Indebtedness of the
Company or any of its subsidiaries, whether by way of payment in respect of
principal of (or premium, if any) or interest on, such Pari Passu Indebtedness
or Subordinated Indebtedness or otherwise; provided, however, that, so long as
no event constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is continuing, on the
date any of the following payments is due or is otherwise made and subject to
the terms and conditions of any subordination agreement entered into in
connection with the issuance of any Subordinated Indebtedness as provided
herein, the Company may, without regard to the foregoing limitation: (i) pay in
cash scheduled interest payments, in each case in the manner set forth in the
original documentation governing such Pari Passu Indebtedness or Subordinated
Indebtedness, at an annual rate not to exceed (A) 10% per annum, if such
interest rate is fixed, or (B) the prime rate plus two percent (2%), if such
interest rate is floating, of such Pari Passu Indebtedness or Subordinated
Indebtedness, and (ii) make any principal payments when due on any Qualified
Indebtedness at any time prior to the two-year anniversary of the Closing Date;
provided, however, that the Company may not make any such principal payments
unless as a condition to each time any such Qualified Indebtedness is incurred,
29
other than Acquisition Indebtedness, (including each time any Qualified
Indebtedness is incurred under a revolving credit facility or otherwise), the
Company shall have defeased an aggregate amount of Outstanding Principal Amount
of all Debentures then outstanding at the time such Qualified Indebtedness was
incurred (pro rata among all holders of Debentures) in accordance with Section
5(e) hereof equal to (X) in the case of the first $1,000,000 of Qualified
Indebtedness incurred pursuant to the Rubenstein Line of Credit, twenty-five
percent (25%) of the principal amount of the Qualified Indebtedness so incurred
and (Y) in the case of all other Qualified Indebtedness (including all
Indebtedness under the Rubenstein Line of Credit beyond the first $1,000,000
outstanding thereunder), fifty percent (50%) of the principal amount of the
Qualified Indebtedness so incurred, it being understood and agreed that, for the
avoidance of doubt, if the Company has not satisfied its defeasance obligation
in connection with the incurrence of any such Qualified Indebtedness, the
Company may not make any of the principal payments otherwise permitted under
this subsection (ii).
(f) The Company may not, directly or indirectly, sell,
transfer or otherwise dispose of any of its equity interests in
MovieTickets.com, Inc. or any successor thereto, unless, as a condition to each
such sale, transfer or disposition, the Company shall have contemporaneously
with such sale, transfer or disposition defeased an aggregate amount of
Outstanding Principal Amount of all Debentures then outstanding at the time of
each such sale, transfer or disposition (pro rata among all holders of
Debentures) in accordance with Section 5(e) hereof equal to 50% of the gross
proceeds of such sale, transfer or disposition.
26. Limitation on Number of Conversion Shares. The Company (1) shall
not be obligated to issue Conversion Shares upon conversion of this Debenture
and (2) shall not be permitted to issue Interest Shares (but instead shall make
Cash Interest Payments) to the extent that the issuance of such shares of Common
Stock would cause the Company to exceed that number of shares of Common Stock
which the Company may issue under this Debenture (the "Exchange Cap") without
breaching the Company's obligations under the rules or regulations of the
Principal Market, except that such limitation shall not apply in the event that
the Company obtains the approval of its stockholders as required by the
Principal Market (or any successor rule or regulation) for issuances of Common
Stock in excess of such amount. Until such approval is obtained, the holder of
this Debenture shall not be issued, upon conversion of this Debenture,
Conversion Shares in an amount greater than the difference between (i) the
product of (x) the Exchange Cap amount multiplied by (y) a fraction, the
numerator of which is the aggregate principal amount of Debentures issued to
such Holder pursuant to the Securities Purchase Agreement and the denominator of
which is the aggregate principal amount of all the Debentures issued to all
Debenture holders pursuant to the Securities Purchase Agreement and (ii) the sum
of (A) the aggregate number of Interest Shares issued to the holder of this
Debenture (and all predecessor holders) as of the date of such conversion plus
(B) the aggregate number of shares of Common Stock issued to the holder of this
Debenture (and all predecessor holders) upon the exercise of any Warrants held
by such holder (and all predecessor holders) as of the date of such conversion
(such difference, the "Cap Allocation Amount"). If at any time when the Holder
shall deliver a Conversion Notice pursuant to Section 4 hereof the Company shall
be prohibited pursuant to the provisions of this Section 26 from issuing all or
any portion of the Conversion Shares issuable pursuant to such Conversion
Notice, then the Company shall pay in immediately available funds to the holder
of this Debenture within two (2) Business Days of the date of delivery of such
30
Conversion Notice, an amount in cash equal to the product of (X) the number of
shares of Common Stock which could not be issued by virtue of the limitations
contained in this Section 26 multiplied by (Y) the average of the Closing Sale
Prices of the Common Stock on each of the five (5) trading days ending on the
third trading day immediately preceding the date the date of delivery of such
Conversion Notice. The Outstanding Principal Amount of this Debenture shall be
reduced by an amount equal to the Outstanding Principal Amount of this Debenture
designated in the Conversion Notice that could not be converted by virtue of the
limitations set forth in this Section 26 and for which the Company has made
payment pursuant to the immediately preceding sentence.
27. Taxes.
(a) The Company shall pay any and all documentary, stamp,
transfer (but only in respect of the registered holder thereof) and other
similar taxes that may be payable with respect to the issuance and delivery of
Common Stock upon the conversion of Debentures; provided, however, that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issue or delivery of Common Stock or other
securities or property in a name other than that of the registered holder of
this Debenture to be converted and such holder shall pay such amount, if any, to
cover any applicable transfer or similar tax.
(b) The Company shall be permitted to withhold from any
amounts payable to a Debenture holder or a holder of Common Stock any taxes
required by law to be withheld from such amount. If the Company shall be
required to withhold or deduct any tax, levy or other governmental charge,
excluding (A) net income taxes, franchise taxes, or taxes imposed on or measured
by net income (or overall gross receipts, to the extent such tax is imposed in
lieu of a tax on net income by a jurisdiction that does not impose any tax based
on or measured by net income) on any Debenture holder by the jurisdiction in
which such Debenture holder is organized or any other jurisdiction in which such
Debenture holder would be subject to tax without regard to the transactions
contemplated hereby and (B) U.S. Federal withholding taxes (unless such U.S.
Federal withholding taxes would not be imposed but for a change in or amendment
to the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
Regulations or any other administrative authority thereunder or any tax treaty
or the release or promulgation of any judicial decision relating thereto, in
each case, on or after the date such Debenture holder acquires a Debenture
(each, a "Change in Law")) (all such non-excluded taxes, levies or other
governmental charges, "Taxes") from any payment of interest, or any accrual of
original issue discount, for U.S. Federal income tax purposes made hereunder or
under any Debenture to or for the benefit of any Debenture holder, then (A) the
amount payable shall be increased by the amount necessary so that after making
all required deductions and withholdings (including deductions and withholdings
with respect to additional amounts payable under this Section 27(b)) such
Debenture holder shall receive an amount equal to the amount it would have
received if no such deduction or withholding of Taxes had been required, (B) the
Company shall make such deduction or withholding and (C) the Company shall pay
the full amount deducted to the appropriate governmental authority in accordance
with applicable law. If any Debenture holder is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (each a "Non-U.S. Debenture Holder"), it shall deliver to the Company
two copies of either (A) U.S. Internal Revenue Service Form W-8BEN (claiming
complete exemption from U.S. Federal withholding tax under an income tax
treaty), or any successor form; (B) U.S. Internal Revenue Service Form W-8ECI
31
(claiming complete exemption from U.S. Federal withholding tax because the
income is effectively connected with a U.S. trade or business), or any successor
form; (C) in the case of a Non-U.S. Debenture Holder claiming exemption from
U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code, with
respect to payments of "portfolio interest," U.S. Internal Revenue Service Form
W-8BEN (certifying as to beneficial ownership), or any successor form, and a
certificate in form and substance reasonably acceptable to the Company
representing that such Non-U.S. Debenture Holder is not a "bank" for purposes of
Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning
of Section 871(h)(3)(B) of the Code) of the Company and is not a "controlled
foreign corporation" related to the Company (within the meaning of Section
864(d)(4) of the Code); or (D) other applicable form, certificate or document
prescribed by the U.S. Internal Revenue Service certifying as to such Non-U.S.
Debenture Holder's entitlement to a complete exemption from U.S. Federal
withholding tax, as applicable, in all cases such forms and other documents
being properly completed and duly executed by such Non-U.S. Debenture Holder
claiming complete exemption from U.S. Federal withholding tax on payments of
interest (or of original issue discount) for U.S. Federal income tax purposes by
the Company under the Debentures. Each Debenture holder and each holder of
common stock that is organized under the laws of a jurisdiction other than the
United States, any State thereof or the District of Columbia (each a "Non-U.S.
Equity Holder") also shall deliver to the Company, to the extent legally able to
do so, with respect to payments of dividends for U.S. Federal income tax
purposes by the Company, if applicable, two copies of either (A) U.S. Internal
Revenue Service Form W-8BEN (claiming a reduction of U.S. Federal withholding
tax under an applicable income tax treaty, if any), or any successor form, (B)
U.S. Internal Revenue Service Form W-8ECI (claiming complete exemption from U.S.
Federal withholding tax because the income is effectively connected with a U.S.
trade or business), or any successor form, or (C) other applicable form,
certificate or document prescribed by the U.S. Internal Revenue Service
certifying as to such Non-U.S. Equity Holder's entitlement to an exemption from,
or a reduction of, U.S. Federal withholding tax on payments of dividends for
U.S. Federal income tax purposes by the Company, as applicable, in all cases
such forms and other documents being properly completed and duly executed by
such Non-U.S. Equity Holder. In addition, each Debenture holder and each holder
of Common Stock that is not otherwise exempt from "back-up withholding" shall
deliver to the Company two properly completed and duly executed copies of either
(A) U.S. Internal Revenue Service Form W-8BEN, or any successor form, (B) U.S.
Internal Revenue Service Form W-8ECI, or any successor form, (C) U.S. Internal
Revenue Service Form W-9, or any successor form, or (D) other applicable form,
certificate or document prescribed by the U.S. Internal Revenue Service, as
applicable, in each case indicating that such Debenture holder or holder of
Common Stock is not subject to "back-up withholding" for U.S. Federal income tax
purposes. The forms and other documents required to be delivered pursuant to
this Section 27(b) shall be delivered (A) on or prior to the Initial Closing
Date and (B) from time to time thereafter if within ten (10) Business Days after
receipt of a written request therefor by the Company. In addition, each
Debenture holder and each holder of Common Stock shall promptly notify the
Company at any time it determines that it is no longer in a position to provide
any previously delivered (or requested) form, document or certificate to the
Company, including as a result in whole or in part from a Change in Law;
provided, however, that the failure to provide such notice shall not affect any
Debenture holder's right to any additional amounts hereunder.
32
(c) Notwithstanding anything to the contrary in Section 27(b) above, the Company
shall not be required to pay any additional amount to any Debenture holder
pursuant to the preceding paragraph to the extent the Tax in respect of which
such additional amount would otherwise be payable would not have been imposed
but for the failure of such Debenture holder to comply with its obligations
under such paragraph; provided, however, that the failure to provide the
applicable form, document or certificate pursuant to the preceding paragraph as
provided in the notice required by the preceding paragraph resulting in whole or
in part from a Change in Law shall not affect such Debenture holder's right to
any additional amounts hereunder.
33
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized.
Dated: May 22, 2002
HOLLYWOOD MEDIA CORP.
By:
-----------------------------------------
Name:
Title:
Print Address:
Telephone:
Facsimile:
ATTEST
- ------------------------------
Name:
Title:
34
EXHIBIT I
(To be Executed by Registered Holder
in order to Convert Debenture)
CONVERSION NOTICE
FOR
6% SENIOR CONVERTIBLE DEBENTURE DUE MAY 22, 2005
The undersigned, as Holder of the 6% Senior Convertible
Debenture Due May 22, 2005 of HOLLYWOOD MEDIA CORP. (the "Company"), No. _, in
the outstanding principal amount of $_______ (the "Debenture"), hereby elects to
convert $_______ of the outstanding principal amount of the Debenture into
shares of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company according to the conditions of the Debenture, as of the date written
below.
Date of Conversion:
---------------------------------------------------
Principal Amount of Debentures to be converted:
-----------------------
Tax ID Number (If applicable):
---------------------------------------
Please confirm the following information:
--------------------------------------
Conversion Price:
-----------------------------------------------------
Number of shares of Common Stock to be issued:
------------------------
Is the Variable Price being relied on pursuant to Section 6(c) of the
Debenture? (check one) YES ____ No ____
35
Please issue the Common Stock into which the Debentures are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
----------------------------------------------------
-------------------------------------------------------------
Address:
-----------------------------------------------------
Telephone Number:
--------------------------------------------
Facsimile Number:
--------------------------------------------
Authorization:
-----------------------------------------------
By:
----------------------------------------------------------
Title:
-------------------------------------------------------
Dated:
Account Number (if electronic book entry transfer):
----------
Transaction Code Number (if electronic book entry transfer):
-------------------------------------------------------------
[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]
36
Acquiring Entity............................................................17
Act..........................................................................2
Approved Stock Plan..........................................................3
Bloomberg....................................................................3
Business Day.................................................................3
Cap Allocation Amount.......................................................31
Cash Interest Payment........................................................1
Cash Transaction.........................................................3, 19
Change of Control...........................................................18
Change of Control Redemption Price..........................................18
Closing Date.................................................................3
Closing Sale Price........................................................3, 6
Common Stock..............................................................3, i
Common Stock Deemed Outstanding..............................................3
Company......................................................................1
Conversion Date..............................................................8
Conversion Failure...........................................................4
Conversion Notice............................................................7
Conversion Price.............................................................4
Conversion Rate..............................................................7
Convertible Securities.......................................................4
Debenture....................................................................1
Debenture Delivery Date......................................................8
Debenture Register...........................................................2
Debentures...................................................................1
Default Conversion Price.....................................................4
Default Interest.............................................................2
Dilutive Issuance...........................................................14
DTC..........................................................................8
Events of Default...........................................................21
Exchange Act................................................................27
Exchange Cap................................................................31
Holder.......................................................................1
Indebtedness................................................................22
Interest Payment Date........................................................1
Interest Payments............................................................1
Issuance Date.............................................................4, 5
Maturity Conversion Price............................................4, 10, 11
Maturity Date................................................................1
Maturity Date Conversion Conditions..........................................4
Maturity Date Mandatory Redemption..........................................12
Maturity Date Redemption Price..............................................12
Maturity Measuring Period.................................................4, 5
NASDAQ.......................................................................5
New Securities Issuance Price...............................................14
37
Notice of Change of Control.................................................18
Notice of Redemption Upon Change of Control.................................18
NYSE.........................................................................5
Options......................................................................5
Organic Change..............................................................17
Outstanding Principal Amount.................................................5
Person.......................................................................5
Price Failure Date........................................................4, 5
Principal Market.............................................................5
Quarterly Period.............................................................5
Registration Rights Agreement................................................5
Rule 144....................................................................27
SEC..........................................................................6
Securities Purchase Agreement................................................6
Share Delivery Date..........................................................8
Strategic Financing..........................................................6
Transfer Agent...............................................................7
Valuation Event.............................................................16
Warrants.....................................................................6
Weighted Average Price.......................................................6
38
EXHIBIT A
---------
Subordination Provisions
------------------------
Section 1. Definitions. As used herein, the following terms
shall have the following meanings:
"Borrower" means [Hollywood][applicable subsidiary of
Hollywood].
"Hollywood" means Hollywood Media Corp., a Florida
corporation.
"Loan Documents" means any agreement executed in
connection with the issuance of the Senior Debt, in each case as amended,
supplemented or otherwise modified from time to time.
"Obligations" means the obligations of the Borrower
now or hereafter existing in favor of the holders of the Senior Debt, whether
for principal, interest (including interest accruing subsequent to the filing of
any petition initiating any bankruptcy, insolvency, arrangement, reorganization
or receivership proceedings relating to the Borrower), fees, expenses or
otherwise.
"Senior Debt" means the Borrower's 6% Senior
Convertible Debentures due May 22, 2005.
"Subordinated Creditor" means _______________.
"Subordinated Debt" means all indebtedness of the
Borrower now or hereafter existing in favor of the Subordinated Creditor,
whether created directly or acquired by assignment or otherwise, all interest
thereon and all fees, premiums and other amounts payable in respect thereof.
"Subordinated Loan Documents" means the instruments
and agreements to which the Borrower is a party evidencing or relating to any
Subordinated Debt.
Section 2. Agreement to Subordinate. Each of the Subordinated
Creditor, Hollywood and the Borrower agrees that the Subordinated Debt is and
shall be subordinate, to the extent and in the manner hereinafter set forth, in
right of payment to the prior payment in full of the Obligations.
Section 3. Restrictions on Payment of the Subordinated Debt.
(a) The Subordinated Creditor may receive, and the Borrower
may pay, interest on the Subordinated Debt evidenced by the Subordinated Loan
Documents, in the stated amounts and on the stated dates of payment thereof as
set forth in the Subordinated Loan Documents, provided, however, that no such
payments shall be received or made at any time during which an Event of Default
(as defined in the Senior Debt) shall have occurred and be continuing on any
Senior Debt.
39
(b) In the event of any dissolution, winding up, liquidation,
arrangement or reorganization relating to Hollywood or the Borrower, in any
bankruptcy, insolvency, arrangement, reorganization or receivership proceedings
or upon an assignment for the benefit of creditors or any other marshalling of
the assets and liabilities of Hollywood or the Borrower, any payment or
distribution of any kind (whether in cash, securities or other property) which
otherwise would be payable or deliverable upon or with respect to the
Subordinated Debt shall be paid or delivered directly to the holders of the
Senior Debt for application (in the case of cash) to, or as collateral (in the
case of securities or other non-cash property) for, the payment or prepayment of
the Obligations until the Obligations shall have been paid in full.
(c) All payments or distributions upon or with respect to the
Subordinated Debt which are received by the Subordinated Creditor contrary to
these subordination provisions shall be received in trust for the benefit of the
holders of the Senior Debt for the ratable benefit of such holders, shall be
segregated from other funds and property held by the Subordinated Creditor and
shall be forthwith paid over to the holders of the Senior Debt for the ratable
benefit of such holders in the same form as so received (with any necessary
endorsement) to be applied (in the case of cash) to or held as collateral (in
the case of securities or other non-cash property) for the payment or prepayment
of the Obligations until the Obligations shall have been paid in full.
Section 4. Obligations Unconditional.
(a) All rights and interests of the holders of the Senior Debt
hereunder, and all agreements and obligations of the Subordinated Creditor,
Hollywood and the Borrower hereunder, shall remain in full force and effect
irrespective of: (i) any lack of validity or enforceability of any Loan Document
or any other agreement or instrument relating thereto, (ii) any change in the
time, manner or place of payment of, or in any other term in respect of, all or
any of the Obligations, or any other amendment or waiver of or any consent to
departure from any Loan Document, (iii) any exchange or release of, or
non-perfection of any lien on or security interest in, any collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Obligations, or (iv) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, Hollywood or the
Borrower in respect of the Obligations or the Subordinated Creditor, Hollywood
or the Borrower in respect of these subordination provisions.
(b) These subordination provisions shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by the
holders of the Senior Debt upon the insolvency, bankruptcy or reorganization of
Hollywood or the Borrower or otherwise, all as though such payment had not been
made.
Section 5. Waivers. Each of the Subordinated Creditor,
Hollywood and the Borrower waives (i) promptness and diligence, (ii) notice of
acceptance and notice of the incurrence of any Obligation by Hollywood or the
Borrower, (iii) notice of any actions taken by the holders of the Senior Debt,
Hollywood or the Borrower under any Loan Document or any other agreement or
instrument relating thereto, (iv) all other notices, demands and protests, and
all other formalities of every kind in connection with the enforcement of the
Obligations or of the obligations of the Subordinated Creditor, Hollywood and
40
the Borrower under these subordination provisions, the omission of or delay in
which, but for the provisions of this Section 5, might constitute grounds for
relieving the Subordinated Creditor, Hollywood or the Borrower of its
obligations under these subordination provisions and (v) any requirement that
the holders of the Senior Debt protect, secure, perfect or insure any security
interest or other lien or any property subject thereto or exhaust any right to
take any action against Hollywood or the Borrower or any other person.
Section 6. Subrogation. No payment or distribution to the
holders of the Senior Debt pursuant to these subordination provisions shall
entitle the Subordinated Creditor to exercise any rights of subrogation in
respect thereof until the Obligations shall have been satisfied in full.
Section 7. Miscellaneous.
(a) Each of the Subordinated Creditor, Hollywood and the
Borrower will, at its expense and at any time and from time to time, promptly
execute and deliver all further instruments and other documents, and take all
further action that the holders of the Senior Debt may reasonably request in
order to reflect the subordination provisions set forth herein.
(b) These subordination provisions shall be governed by and
construed in accordance with the law of the State of New York.
41