EXHIBIT 4.2
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE PURCHASE AGREEMENT.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
CONVERSION SET FORTH IN AN AMENDED AND RESTATED CONVERTIBLE DEBENTURE AND
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MARCH 18, 1997,
BETWEEN THE COMPANY AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICE OF YES! ENTERTAINMENT CORPORATION.
No. [ ] $[ ]
YES! ENTERTAINMENT CORPORATION
5% CONVERTIBLE DEBENTURE DUE JANUARY 28, 2000
THIS DEBENTURE is one of a duly authorized issue of debentures of YES!
Entertainment Corporation, a corporation organized and existing under the laws
of Delaware and having a principal place of business at 3875 Hopyard Road, Suite
375, Pleasanton, California 94588 (the "Company"), designated as its 5%
Convertible Debentures, due January 28, 2000 (the "Debentures"), in an aggregate
principal amount of $1,566,667. This Debenture supersedes in its entirety the
Debenture of like tenor, issued by the Company to the Holder on January 28,
1997.
FOR VALUE RECEIVED, the Company promises to pay to [ ], or its
registered assigns (the "Holder"), the principal sum of [ ] ($[ ]), on
January 28, 2000 or such earlier date as Debentures are required to be repaid as
provided hereunder (the "Maturity Date") and to pay interest to the Holder on
the principal sum, at the rate of 5% per annum, payable upon conversion as
provided hereunder, or on the Maturity Date if not earlier converted. Interest
shall accrue daily commencing on the Original Issue Date (as defined in Section
6) until payment in full of the principal sum represented hereby, together with
all accrued and unpaid interest and other amounts which may become due
hereunder, has been made or duly provided for. Interest shall be calculated
on the basis
of a 360-day year and for the actual number of days elapsed. Interest hereunder
will be paid 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") on the
Conversion Date (as defined in Section 4(b)) or the Maturity Date, as the case
may be; provided, however, that the Company's obligation to a transferee of this
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Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions hereof and of the Convertible Debenture
Purchase Agreement, dated as of January 28, 1997, as amended and restated by the
Amended and Restated Purchase Agreement, dated as of March 18, 1997, and
effective as of January 28, 1997, as amended from time to time (collectively,
the "Purchase Agreement"), each executed by the original Holder. All overdue
amounts hereunder shall bear interest at the rate of 15% per annum from the day
of conversion hereunder or the Maturity Date or earlier date on which this
Debenture is accelerated through and including the date of payment. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address of the Holder
last appearing on the Debenture Register, except that interest due hereunder
may, at the Company's option, be paid in shares of Common Stock (as defined in
Section 6) calculated based upon the average Per Share Market Value (as defined
in Section 6) for the five (5) Trading Days immediately preceding the Conversion
Date or Maturity Date, as the case may be; provided, however, that the Company
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may not pay interest hereon in cash without the prior written consent of BNY (as
defined in Section 6) to such payment free from the subordination provisions of
Section 8 hereof. All amounts due hereunder other than interest shall be paid in
cash. Notwithstanding anything to the contrary contained herein, the Company may
not issue shares of Common Stock in payment of interest on the Debentures
(including, without limitation, pursuant to Section 4(b)) if: (i) the number of
shares of Common Stock at the time authorized, unissued and reserved for all
purposes, or held as treasury stock, is insufficient to pay such interest in
shares of Common Stock; (ii) the shares of Common Stock to be issued in respect
of such interest are not registered for resale pursuant to an effective
registration statement that names the recipient of such interest as a selling
stockholder thereunder; (iii) the shares of Common Stock to be issued in respect
of such interest are not listed on the Nasdaq National Market or Nasdaq SmallCap
Market and each other exchange or quotation system on which the Common Stock is
then listed for trading; or (iv) if the recipient of such interest is the
original Holder or an affiliate thereof, the issuance of such shares would
result in such recipient beneficially owning more than 4.9% of the issued and
outstanding shares of Common Stock; provided, however, if ten Business Days
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shall have elapsed from the date that the Holder shall have declared an Event of
Default (as defined in Section 3) as having occurred, the provisions of this
clause (iv) shall be null and void, ab initio. In addition, any payment of
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interest hereunder in shares of Common Stock shall be subject to the provisions
of Section 4(a)(ii). A transfer of the right to receive principal and interest
under this Debenture shall be transferable only through an appropriate entry in
the Debenture Register as provided herein.
This Debenture is subject to the following additional provisions:
Section 1. The Debentures are issuable in denominations of One Hundred
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Thousand Dollars ($100,000) and integral multiples of Fifty Thousand Dollars
($50,000) in excess
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thereof. The Debentures are exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same but shall not be issuable in denominations of less
than integral multiplies of Fifty Thousand Dollars ($50,000). No service charge
will be made for such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain investment
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representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Securities Act of
1933, as amended (the "Act"), pursuant to an effective registration statement or
pursuant to an available exemption from the registration requirements under the
Act. Prior to due presentment to the Company for transfer of this Debenture,
the Company and any agent of the Company may treat the person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture is overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
Section 3. Events of Default.
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"Event of Default," wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(a) any default in the payment of the principal of or interest on
this Debenture as and when the same shall become due and payable, either on
the Conversion Date or the Maturity Date, by acceleration or otherwise;
(b) the Company shall fail to timely observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement, the Book Entry Transfer
Agreement, dated as of March 18, 1997, effective as of January 28, 1997
(the "Transfer Agent Agreement"), between the Company, the original Holder
and the transfer agent of the Company (the "Transfer Agent"), the
Certificate of Designation of Series A Convertible Preferred Stock of the
Company (the "Series A Certificate of Designation") or the Registration
Rights Agreement, dated as of January 28, 1997, between the Company and the
original Holder, as amended and restated by the Amended and Restated
Registration Rights Agreement, dated as of March 18, 1997, effective as of
January 28, 1997, between the Company and the original Holder
(collectively, the "Registration Rights Agreement"), and such failure or
breach shall not have been remedied within five (5) Business Days after the
date on which notice of such failure or breach shall have been given or
such other cure period as may specifically be provided herein or in such
other agreements with respect to any particular covenant, agreement or
warranty;
(c) the Company or any of its subsidiaries shall commence a voluntary
case under the United States Bankruptcy Code as now or hereafter in effect
or any successor thereto (the
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"Bankruptcy Code"); or an involuntary case is commenced against the Company
under the Bankruptcy Code and the petition is not controverted within 30
days, or is not dismissed within 60 days, after commencement of such
involuntary case; or a "custodian" (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or any substantial part of the
property of the Company or the Company commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Company or there is
commenced against the Company any such proceeding which remains undismissed
for a period of 60 days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the Company
makes a general assignment for the benefit of creditors; or the Company
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company shall by any act or
failure to act indicate its consent to, approval of or acquiescence in any
of the foregoing; or any corporate or other action is taken by the Company
for the purpose of effecting any of the foregoing;
(d) the Company shall fail to pay any amount of principal or interest
on any mortgage, credit agreement or other facility, indenture or other
instrument under which there may be issued, or by which there may be
secured or evidenced, any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000) (collectively,
"Indebtedness"), whether such Indebtedness now exists or shall hereafter be
created, when and as the same shall become due and payable, or the Company
shall fail to observe or perform any term, covenant or agreement contained
in any agreement or instrument evidencing or governing any of such
Indebtedness if the cure period for such term, covenant or agreement
contained in such agreement or instrument has run and the holder or holders
of such Indebtedness or a trustee on their behalf shall have the right to
cause such Indebtedness to become due prior to its stated maturity;
(e) the Company shall dispose of all or substantially all of its
assets in one or more transactions or shall be a party to any business
combination pursuant to which the Company shall not be the surviving
entity, except if, upon the effectiveness of such a business combination,
(i) the holders of the Common Stock immediately prior to such effectiveness
beneficially own (as determined under Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), in the
aggregate, 66 2/3% or more of the voting power of such surviving entity and
(ii) no Person or group (as described in Rule 13d-5(b) promulgated under
the Exchange Act) who was not a holder of the Common Stock immediately
prior to such business combination beneficially owns in excess of 16 2/3%
of the voting power of such surviving entity;
(f) the Company shall redeem or repurchase more than 10,000 of its
outstanding shares of Common Stock, other than a redemption or repurchase
of an employee's Common
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Stock upon termination of such employee's employment with the Company for
any reason and other than a redemption of shares of Series A Convertible
Preferred Stock issued under the Series A Certificate of Designation (the
"Series A Preferred") in accordance with the Series A Certificate of
Designation; or
(g) the entry of any judgments against the Company aggregating more
than $250,000 (except in connection with litigation specifically scheduled
in paragraph 3 of Schedule 3.1(g) to the Purchase Agreement).
If any Event of Default occurs and is continuing, and in every such case, then
so long as such Event of Default shall then be continuing, Holders of a majority
of the aggregate principal amount of Debentures then outstanding may, by notice
to the Company, declare the full outstanding principal amount of this Debenture,
together with all accrued but unpaid interest thereon and other amounts owing
hereunder, plus the "Adjustment Amount" (as defined in Section 6), through the
date of acceleration to be, whereupon the same shall become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are waived by the Company, notwithstanding anything herein contained to
the contrary, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 4. Conversion.
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(a) (i)This Debenture shall be convertible into shares of Common
Stock at the Conversion Ratio (as defined in Section 6) (subject to reduction
under Section 4(a)(ii) and Section 4(a)(iii) and to adjustment under Section
4(d)), at the option of the Holder in whole or in part at any time commencing on
the date hereof and prior to 7:30 p.m. (Eastern Standard Time) on the Maturity
Date. The Holder shall effect conversions by surrendering to the Transfer Agent
the Debentures (or such portions thereof) to be converted and to the Company and
the Transfer Agent deliver a conversion notice in the form attached hereto as
Exhibit A (the "Holder Conversion Notice"). Each Holder Conversion Notice shall
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specify the principal amount of Debentures to be converted and the date on which
such conversion is to be effected, which date may not be prior to the date the
Holder delivers such Holder Conversion Notice by facsimile (the "Holder
Conversion Date"). Subject to Sections 4(a)(ii) and 4(c), and, as to the
original Holder, subject to Section 4.8 of the Purchase Agreement, each Holder
Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the Debenture(s)
tendered by the Holder with the Holder Conversion Notice, the Company shall
promptly deliver or cause to be delivered to the Holder a new Debenture for such
principal amount as has not been converted.
(ii) Certain Regulatory Approval. If on the Conversion Date
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applicable to any conversion of any portion of the principal amount of this
Debenture (A) the Common Stock is listed for trading on the Nasdaq National
Market or, if the rules of the Nasdaq Stock Market are
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hereafter amended to extend Rule 4460(i) promulgated thereby (or any successor
or replacement provision thereof) to the Nasdaq SmallCap Market, the Nasdaq
SmallCap Market, (B) the Conversion Price (as defined in Section 4(d)(i)) then
in effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion of the entire outstanding principal amount of
Debentures and all outstanding shares of Series A Preferred, together with any
shares of Common Stock previously issued upon conversion of Debentures and
shares of Series A Preferred or in payment of interest or dividends, as the case
may be, thereunder in accordance herewith and the Series A Certificate of
Designation in shares of Common Stock, would equal or exceed 20% of the number
of shares of Common Stock outstanding on the Original Issue Date (the "Issuable
Maximum"), and (C) the Company has not previously obtained Shareholder Approval
(as defined below), then the Company shall issue to the converting Holder the
Issuable Maximum and, with respect to any shares of Common Stock that would be
issuable to such Holder in respect of the Conversion Notice at issue in excess
of the Issuable Maximum, the converting Holder shall have the option to require
the Company to (I) repay the balance of the principal amount of Debentures then
outstanding at a price equal to the product of (i) the average Per Share Market
Value for the five (5) Trading Days immediately preceding (1) the Conversion
Date or (2) the date of payment in full by the Company of such repayment price,
whichever is greater, and (ii) the Conversion Ratio calculated on the Conversion
Date or (II) as promptly as possible, but in no event later than 60 days after
such Conversion Date, convene a meeting of the holders of the Common Stock and
obtain the Shareholder Approval. If the Company fails for any reason to pay the
repayment price pursuant to this subsection within seven days after the
Conversion Date or fails to deliver good funds to the Transfer Agent for such
purpose, the Company will pay to the converting Holder interest on such
repayment price at a rate of 15% per annum accruing from the Conversion Date
until the repayment price plus any accrued but unpaid interest thereon is paid
in full. If the converting Holder shall have elected to require the Company to
obtain Shareholder Approval and such approval is not obtained by the Company
within 60 days, then the Company shall repay the principal amount of the
Debentures in excess of the Issuable Maximum as set forth in clause (I) above
and, in such case the interest contemplated by the immediately preceding
sentence shall be deemed to accrue from the Conversion Date. The entire
repayment price, including interest thereon, and any interest accrued because of
failure by the Company to obtain Shareholder Approval, shall be paid in cash by
wire transfer of same day funds. "Shareholder Approval" means the approval by a
majority of the total votes cast on the proposal, in person or by proxy, at a
meeting of the shareholders of the Company held in accordance with the Company's
articles of incorporation and by-laws, of the issuance by the Company of shares
of Common Stock exceeding the Issuable Maximum as a consequence of the
conversion of Debentures into Common Stock at a price less than the greater of
the book or market value on the Original Issue Date as and to the extent
required pursuant to Rule 4460(i) of the Nasdaq Stock Market (or any successor
or replacement provision thereof).
(iii) If on any Conversion Date applicable to a conversion under
Section 4(a) or 5(b) or a repurchase pursuant to Section 5 the average Per Share
Market Value for the five (5) Trading Days immediately preceding such Conversion
Date exceeds the Initial Conversion Price (defined in Section 4(d)(i) below) by
more than 50%, the Conversion Price otherwise applicable to such conversion
shall be increased by an amount equal to 50% of the difference between (A) the
average
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Per Share Market Value for the five (5) Trading Days immediately preceding such
Conversion Date, less (B) 150% of the Initial Conversion Price.
(b) At any time on or after the first anniversary of the Original
Issue Date, this Debenture shall be convertible in whole or in part and from
time to time at the option of the Company into shares of Common Stock at the
Conversion Ratio; provided, however, that the Company is not permitted to
deliver or cause to be delivered a Company Conversion Notice (as defined below)
(i) within 10 days of issuing any press release or other public statement
relating to such conversion, (ii) prior to the 270th day after the date the
Commission shall have declared effective a Registration Statement (as defined in
the Registration Rights Agreement) (an "Underlying Securities Registration
Statement"), (iii) at any time that an Underlying Securities Registration
Statement is not then effective, (iv) if the shares of Common Stock issuable
upon such conversion are not then listed for trading on the Nasdaq National
Market or Nasdaq SmallCap Market, (v) if the Company shall not have duly
reserved for issuance to the Holder a sufficient number of shares of Common
Stock to issue upon such conversion, (vi) such conversion does not contravene
Section 5(a)(ii) or (vii) at any time when while there are shares of Series A
Preferred outstanding. The Company shall effect such conversion by delivering or
causing to be delivered to the Holder a written notice in the form attached
hereto as Exhibit B (the "Company Conversion Notice"), which Company Conversion
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Notice, once given, shall be irrevocable. Each Company Conversion Notice shall
specify the principal amount (and the amount of accrued but unpaid interest
thereon) of Debentures required by the Company to be converted. The Company
shall deliver or cause to be delivered such Company Conversion Notice at least
two (2) Trading Days before the date of conversion indicated in the Company
Conversion Notice (such date is hereinafter referred to as the "Company
Conversion Date"). Any such conversion shall be effected on a pro rata basis
among all holders of Debentures. Upon its receipt of a Company Conversion
Notice, the Holder shall surrender the Debentures representing the principal
amount subject to such Company Conversion Notice at the office of the Company or
the Transfer Agent for the Debentures or Common Stock. The Company shall, upon
conversion of the principal amount of Debentures subject to such Company
Conversion Notice deliver or cause to be delivered to the appropriate tendering
Holder, a replacement Debenture for such principal amount of Debentures as have
not been converted. Each of a Holder Conversion Notice and a Company Conversion
Notice is sometimes referred to herein as a "Conversion Notice," and each of a
"Holder Conversion Date" and a "Company Conversion Date" is sometimes referred
to herein as a "Conversion Date."
(c) Not later than three (3) Trading Days after the Conversion Date,
the Company will cause the Transfer Agent to deliver to the Holder (i) a
certificate or certificates, representing the number of shares of Common Stock
being acquired upon the conversion of Debentures (subject to reduction pursuant
to Section 4(a)(ii) and (iii)), (ii) Debentures in a principal amount equal to
the principal amount of Debentures tendered in connection with a conversion
hereunder but not converted; (iii) a bank check in the amount of all accrued and
unpaid interest in respect of the Debentures tendered for conversion (if the
Company has elected (or is required pursuant to the terms hereof) to pay accrued
interest in cash) and (iv) if the Company has elected (and is permitted pursuant
to the terms hereof) to pay accrued interest in shares of Common Stock,
certificates representing
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such number of shares of Common Stock as equals such interest divided by the
average Per Share Market Value for the five (5) Trading Days immediately
preceding the Conversion Date. Any certificates representing shares of Common
Stock to be delivered upon a conversion hereunder shall be free of restrictive
legends and trading restrictions, except those contemplated by Section 4.1(b) of
the Purchase Agreement. The Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any Debentures
and the counting of Trading Days for purposes of any consequences under this
Section for a failure to deliver such certificates under this Section shall not
begin until Debentures representing the principal amount to be converted are
either delivered for conversion to the Transfer Agent for the Common Stock, or
until the Holder notifies the Company that such Debentures have been lost,
stolen or destroyed and provides a bond reasonably satisfactory to the Company
(or other adequate security reasonably acceptable to the Company) to indemnify
the Company from any loss incurred by it in connection therewith, provided that,
if the Company or the Transfer Agent receives the original Debentures being
converted on or prior to the time specified for the delivery of such shares of
Common Stock or on or prior to the time at which liquidated damages begin to
accrue, the date of the Holder Conversion Notice shall be deemed to be the date
of delivery of such original Debentures. The Company shall, upon request of the
Holder, use its best efforts to deliver any certificate or certificates required
to be delivered by the Company under this Section 4(c) electronically through
the Depository Trust Corporation or another established clearing corporation
performing similar functions. If such certificate or certificates are not
delivered by the date required under this Section 4(c), the Holder shall be
entitled by written notice to the Company and the Transfer Agent at any time on
or before its receipt of such certificate or certificates, to rescind such
conversion, in which event the Company shall immediately instruct the Transfer
Agent to return the Debentures representing the principal amount subject to such
conversion that were tendered for conversion. The Company shall pay to the
converting Holder as liquidated damages and not as penalty, $3,000 for each day
that the Company fails to deliver such certificate or certificates pursuant to
this Section commencing the fifth (5th) Trading Day after the applicable
Conversion Date. In addition, if the Company fails to deliver to the holder such
certificate or certificates pursuant to this Section prior to the 15th day after
the Conversion Date, the Company shall, at the Holder's option, (i) repay the
principal amount of Debentures then held by such Holder, as requested by such
Holder, in an amount equal to the repayment price contemplated below, and (ii)
pay all accrued but unpaid interest on account of the Debentures for which the
Company shall have failed to issue Common Stock certificates hereunder, in cash.
The repayment price shall be equal to the product of (A) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the Conversion
Date or (2) the date of payment in full by the Company of such repayment price,
whichever is greater, and (B) the Conversion Ratio calculated on the Conversion
Date. If the Holder has requested that the Company redeem Debentures pursuant to
this Section and the Company fails for any reason to pay the repayment price
under (2) above within seven days after such notice, the Company will pay
interest on such repayment price at a rate of 15% per annum, in cash to such
Holder, accruing from such seventh day until such repayment price and any
accrued but unpaid interest thereon is paid in full.
(d) (i) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of (A) the average Per Share Market Value
for the five (5)
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Trading Days immediately preceding the Original Issue Date (the "Initial
Conversion Price"), (B) the average of the lowest Per Share Market Values for
any five consecutive (5) Trading Days during the sixty (60) days immediately
following the Original Issue Date or (C) 82 1/2% of the average Per Share Market
Value for the five (5) Trading Days immediately preceding the Conversion Date;
provided that, if (a) an Underlying Securities Registration Statement is not
filed with the Securities and Exchange Commission (the "Commission") on or prior
to March 24, 1997, or (b) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days of the date
that the Company is notified by the Commission that an Underlying Securities
Registration Statement will not be reviewed, or (c) if the Underlying Securities
Registration Statement is not declared effective by the Commission on or prior
to May 5, 1997, or (d) if such Underlying Securities Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to be
effective at any time prior to the expiration of the "Effectiveness Period" (as
such term as defined in the Registration Rights Agreement), without being
succeeded within 10 Business Days by a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission (any
such failure being referred to as an "Event," and for purposes of clauses (A)
and (B) the date on which such Event occurs, or for purposes of clause (C) the
date on which such five (5) day period is exceeded, or for purposes of clause
(D) the date which such 10 Business Day-period is exceeded being referred to as
"Event Date"), the Initial Conversion Price (as adjusted) and the discount
comprising the Conversion Price (if different from the Initial Conversion Price)
shall be decreased by 1% each month (i.e., 81 1/2% as of the Event Date and 80
1/2% as of the one month anniversary of the Event Date) until such time as the
applicable Event is cured. If such Event is not cured by the third month
anniversary of the Event Date, commencing such third month anniversary the
Initial Conversion Price (as adjusted) and the discount comprising the
Conversion Price (if different from the Initial Conversion Price) shall be
decreased each month by .5% (i.e., 80% as of the third anniversary of the Event
Date and 79 1/2% as of the fourth month anniversary of the Event Date) and the
Company shall pay to the Holders in cash, as liquidated damages and not a
penalty, .5% of the aggregate principal amount of the Debentures outstanding on
each monthly anniversary of the Event Date (each Holder being entitled to
receive such portion of such amount as equals its pro rata portion of the
principal amount of Debentures then outstanding), until such time as the
applicable Event is cured. If such Event is not cured by the fifth month
anniversary of the Event Date, the Company shall pay to the Holders in cash, as
liquidated damages and not a penalty, 1% of the aggregate principal amount of
the Debentures outstanding (each Holder being entitled to receive such portion
of such amount as equals its pro rata portion of the principal amount of
Debentures then outstanding) until such time as the applicable Event is cured.
The adjustments contained in this Section are intended to be cumulative and any
decrease in the Conversion Price shall be permanent. The provisions of this
Section are not exclusive and shall in no way limit the Company's obligations
under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Junior Securities (as defined in Section 6) payable in shares
of its capital stock (whether payable in shares of its Common Stock or of
capital stock of any class), (b) subdivide outstanding shares of Common
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Stock into a larger number of shares, or (c) combine outstanding shares of
Common Stock into a smaller number of shares, the Initial Conversion Price (as
adjusted, if applicable) shall be multiplied by a fraction the numerator of
which shall be the number of shares of Common Stock of the Company outstanding
before such event and the denominator of which shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 4(d)(ii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the average Per Share Market Value at the record date in the
immediately following sentence, the Initial Conversion Price designated in
Section 4(d)(i) (as adjusted, if applicable) shall be multiplied by a fraction,
the denominator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any, but including warrants or options that would
be included for purposes of determining earnings per share in accordance with
generally accepted accounting principals) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and the numerator of which shall be the
number of shares of Common Stock (excluding treasury shares, if any, but
including warrants or options that would be included for purposes of determining
earnings per share in accordance with generally accepted accounting principals)
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such average Per Share Market Value. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to this
Section 4(d)(iii), if any such right or warrant shall expire and shall not have
been exercised, the Initial Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section 4 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to holders of
Debentures) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Section
4(d)(iii) above), then in each such case the Initial Conversion Price at which
each Debenture shall thereafter be convertible shall be determined by
multiplying the Initial Conversion Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction the denominator of which shall be the
-10-
Per Share Market Value determined as of such record date, and the numerator of
which shall be such average Per Share Market Value on such record date less the
then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Board of Directors in good faith; provided,
--------
however, that in the event of a distribution exceeding ten percent (10%) of the
- -------
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority of the
principal amount of the Debentures then outstanding; and provided, further, that
-------- -------
the Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in which case the fair market value
shall be equal to the average of the determinations by each such Appraiser. In
either case the adjustments shall be described in a statement provided to the
Holder and all other holders of Debentures of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Initial Conversion Price is adjusted pursuant to
Section 4(d)(ii),(iii), (iv) or (v), the Company shall instruct the Transfer
Agent to promptly mail to the Holder, a notice setting forth the Initial
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(vii) In case of any reclassification of the Common Stock or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, the Holder shall have the right thereafter to
convert the principal amount of this Debenture into the shares of stock and
other securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or compulsory share exchange and
the Holder shall be entitled upon such event to receive such amount of
securities or property as the shares of the Common Stock into which such
Debentures could have been converted immediately prior to such event.
(viii) If:
(A) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a
subdivision of the outstanding shares of Common Stock); or
(B) the Company shall declare a special nonrecurring cash
dividend on or authorize a repurchase or redemption of
more
-11-
than 10,000 shares of its then outstanding Common
Stock other than a repurchase or redemption of the Common
Stock of an employee upon termination of employment with
the Company for any reason; or
(C) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock (other than a subdivision or combination of
the outstanding shares of Common Stock), any consolidation
or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the
Company, or any compulsory share exchange whereby the
Common Stock is to be converted into other securities, cash
or property; or
(E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the Debenture Register, at
least 30 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up; provided,
--------
however, that the failure to mail such notice or any defect therein or in the
- -------
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Debentures and payment of interest on Debentures,
each as herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder, such number of
shares of Common Stock as shall be issuable upon the conversion of the aggregate
principal
-12-
amount of all outstanding Debentures and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid, and
nonassessable.
(f) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not to, or is unable to, make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
(g) The issuance of certificates for shares of Common Stock upon
conversion of Debentures shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder.
(h) Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the attention of the Chief
Financial Officer of the Company at the facsimile telephone number or address of
the principal place of business of the Company and if applicable to the Transfer
Agent, at the address set forth on the Book Entry Transfer Agent Agreement. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to the Holder at the facsimile
telephone number or address of the Holder appearing on the books of the Company,
or if no such facsimile telephone number or address appears, at the principal
place of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if delivered via facsimile at the facsimile telephone
number specified in the Purchase Agreement prior to 4:30 p.m. (Eastern Standard
Time) on a Trading Day, (ii) the Trading Day after the date of transmission, if
delivered via facsimile at the facsimile telephone number specified in the
Purchase Agreement later than 4:30 p.m. (Eastern Standard Time) on any date and
earlier than 11:59 p.m. (Eastern Standard Time) on such date, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 5. Prepayment by the Company.
---------- -------------------------
(a)(i) The Company shall have the right, exercisable at any time after
all shares of Series A Preferred have been converted or redeemed upon 20 Trading
Days notice to the Holders (the "Optional Prepayment Notice"), to prepay all or
any portion of the principal amount of the Debentures then outstanding at a
price (the "Optional Prepayment Price") equal to the product of (i)
-13-
the average Per Share Market Value for the five Trading Days immediately
preceding (1) the 20th Trading Day after the date of the Optional Prepayment
Notice or (2) the date of payment in full by the Company of the Optional
Prepayment Price, whichever is greater, and (ii) the Conversion Ratio calculated
on the 20th Trading Day after the Optional Prepayment Notice. The entire
Optional Prepayment Price shall be paid in cash.
(ii) The Holder shall have the right to continue to convert
Debentures hereunder (and the Company shall honor such conversions) at any time
from the date of the Optional Prepayment Notice through the 15th Trading Day
thereafter.
(iii) On the 16th Trading Day after the date of the Optional
Prepayment Notice, the Holder shall deliver to the Transfer Agent the Debentures
subject to the Optional Prepayment Notice that have not been previously tendered
for conversion and the Company shall deliver to the Transfer Agent in escrow for
the benefit of the Holder a sum (the "Escrowed Amount") equal to the product of
(i) the average Per Share Market Value for the five Trading Days immediately
preceding the 15th Trading Day after the date of the Optional Prepayment Notice
and (ii) the Conversion Ratio calculated on the 15th Trading Day after the
Optional Prepayment Notice.
(iv) On the 20th Trading Day after the date of the Optional
Prepayment Notice the Transfer Agent shall pay to the Holder the Escrowed Amount
and the Company shall pay to the Holder the Optional Prepayment Price minus the
Escrowed Amount.
(b) If the Optional Prepayment Price shall not be paid in full within
three Trading Days of the 20th Trading Day after the date of the Optional
Prepayment Notice, the Company shall pay as liquidated damages and not as a
penalty the sum of $7,500 per day in cash until such Optional Prepayment Price,
together with all such liquidated damages, is paid in full. In addition, if the
Company shall have failed to pay any portion of the Optional Prepayment Price
within such three Trading Day period, then the Holder may demand that the
Company (i) convert all or any portion of the principal amount of the Debentures
for which the Optional Prepayment Price shall not have been paid (the "Unpaid
Principal Portion") at a Conversion Price calculated as at the date of the
Optional Prepayment Notice or the date of such conversion, whichever is lower,
or (ii) promptly issue to the Holders new Debentures for a principal amount
equal to the Unpaid Principal Portion.
(c) Notwithstanding anything to the contrary contained herein, the Company
may not deliver an Optional Prepayment Notice unless (i) there are not
outstanding any shares of Series A Preferred for which a redemption notice has
not been delivered and (ii) it has received (and furnished to the Holder
evidence thereof reasonably satisfactory to it of) prior written consent of BNY
to make such prepayment free from the subordination provisions of Section 8
hereof.
Section 6. Definitions. For the purposes hereof, the following terms
---------- -----------
shall have the following meanings:
-14-
"Adjustment Amount" is equal to (i) the product of (A) the average Per
Share Market Value for the five Trading Days immediately preceding (1) the
applicable Trigger Date or (2) the date of payment of all amounts due as a
result of such Event of Default, whichever is greater, and (B) the Conversion
Ratio with respect to the aggregate principal amount of Debentures then
outstanding calculated on (1) the applicable Trigger Date or (2) the date of
payment of all amounts due as a result of such Event of Default, whichever
yields a lower Conversion Price denominator for the determination of the
Conversion Ratio, minus (ii) the aggregate principal amount of Debentures then
outstanding, plus all accrued and unpaid interest thereon, and all other amounts
due, except for those referred to in (i) above pursuant to the terms hereof.
"BNY" means BNY Financial Corporation, 1290 Avenue of the Americas,
New York, New York 10104.
"BNY Bank Obligations" means the borrowings and interest due thereon
(including, without limitation, any interest accruing after the commencement of
any case, proceeding or other action relating to the liquidation, dissolution,
assignment for the benefit of creditors, receivership, arrangement, bankruptcy,
insolvency or reorganization of the Company regardless of whether such interest
is allowable, payable or accruable to BNY in such case, proceeding or other
action) under the Receivables Agreement, as the same may from time to time be
amended, supplemented, otherwise modified, replaced or refinanced.
"Business Day" means any day of the year on which commercial banks are
not required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class
of Common Stock, par value $.001 per share, of the Company, stock of any other
class into which such shares may hereafter be reclassified or changed and any
other equity securities of the Company hereafter designated as Common Stock.
"Conversion Ratio" means, at any time, the quotient obtained by
dividing the principal amount represented by any Debenture plus accrued but
unpaid interest but only to the extent not paid in shares of Common Stock
pursuant to the terms hereof, by the Conversion Price at such time.
"Junior Securities" means the Common Stock, all other equity
securities of the Company and all other debt that is subordinated to the
Debentures by its terms.
"Original Issue Date" shall mean the date of the first issuance of
this Debenture regardless of the number of transfers hereof.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq National
Market or other stock exchange on which the Common Stock is then listed, as
reported on Bloomberg, L.P. or if there is no such bid price on such date, then
the last closing bid price on such exchange on the date nearest preceding
-15-
such date, as reported on Bloomberg, L.P., or (b) if the Common Stock is not
listed on the Nasdaq National Market or any stock exchange, the closing bid
price for a share of Common Stock in the Nasdaq SmallCap Market, as reported on
Bloomberg, L.P. (or similar organization or agency succeeding to its functions
of reporting prices), or (c) if the Common Stock is no longer reported on
Bloomberg, L.P. (or similar organization or agency succeeding to its functions
of reporting prices), then the average of the "Pink Sheet" quotes for the
relevant conversion period as determined by the Holder, or (d) if the Common
Stock is no longer publicly traded, the fair market value of a share of Common
Stock as determined by an Appraiser selected in good faith by the holders of a
majority of principal amount of outstanding Debentures; provided, however, that
-------- -------
the Company, after receipt of the determination by such Appraiser, shall have
the right to select an additional Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Appraiser.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Receivables Agreement" means the Accounts Receivable Management and
Security Agreement, dated as of July 31, 1995, among the Company and BNY.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq National Market or Nasdaq SmallCap Market or principal national
securities exchange or market on which the Common Stock has been listed or
quoted, or (b) if the Common Stock is not listed or quoted on the Nasdaq
National Market or Nasdaq SmallCap Market or any principal national securities
exchange or market, a day on which the Common Stock is traded in the over-the-
counter market, as reported by the NASDAQ Stock Market, or (c) if the Common
Stock is not listed on the American Stock Exchange, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices).
"Trigger Date" shall mean, (i) with respect to an Event of Default
caused by an event described in Section 3(a), the date the payment of principal
or interest at issue was due, (ii) with respect to an Event of Default caused by
an event described in Section 3(b), the date specified in any other provision of
this Debenture, the Purchase Agreement or the Registration Rights Agreement that
require repayment of the outstanding principal amount of this Debenture as a
result of an event so contemplated, if not, the date such event becomes and
Event of Default pursuant to Section 3(b), (iii) with respect to an Event of
Default caused by an event described in Section 3(c) or (d), the date of such
event becomes an Event of Default pursuant to such Sections and (v) with respect
to an Event of Default caused by an event described in Section 3(e), the
effective date of the merger or consolidation.
Section 7. Except as expressly provided herein, 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 coin or currency,
-16-
herein prescribed. This Debenture is a direct obligation of the Company. This
Debenture ranks pari passu with all other indebtedness, obligations or
----------
liabilities of the Company now or hereafter issued under the terms set forth
herein. The Company may not prepay the outstanding principal amount on the
Debentures except in accordance with the specific terms hereof.
Section 8. (a) This Debenture is subordinated to full payment of all
----------
of the Company's obligations under the BNY Bank Obligations. Except to the
extent otherwise specifically set forth in this Section, until such time as all
BNY Bank Obligations are indefeasibly paid to BNY, the Company shall not,
directly or indirectly, make any cash or other payment (except for the issuance
and delivery of shares of Common Stock in respect of conversions or payments of
interest hereunder) that is due and owing under this Debenture. Cash payments
contemplated by Sections 4(a)(ii), 4(c) or 4(d) hereof, to the extent such
payments do not exceed, in the aggregate, $500,000, may be made by the Company
to (and retained by) the Holders as long as (i) at the time any such payment is
due under such Sections, the Bank has not given notice to the Company of
acceleration of the Company's obligations under the Receivables Agreement or
(ii) the making of such payment shall not cause (as determined at the time such
payment shall become due to the Holders) the Company to exceed the borrowing
limitations set forth in Section 2 of the Receivables Agreement, or cause an
"Event of Default" (as defined under the Receivables Agreement) under Section
18(a) of the Receivables Agreement. Cash payments contemplated by Sections
4(a)(ii), 4(c) or 4(d) hereof, to the extent that such payments, in the
aggregate, exceed $500,000, may be made by the Company to (and retained by) the
Holders as long as (i) at the time any such payment is due under such Sections,
the Bank has not given notice to the Company of acceleration of the Company's
obligations under the Receivables Agreement, or (ii) at the time such payment
becomes due the Company shall not be in default of Sections 12(n), 12(o), 12(p),
12(q), 18(a), 18(i) or 18(j) of the Receivables Agreement, or (iii) the making
of such payment shall not cause (as determined at the time such payment shall
become due to the Holders) an Event of Default under such Receivables Agreement
sections set forth in (ii) immediately above or cause the Company to exceed the
borrowing limitations set forth in Section 2 of the Receivables Agreement. The
subordination provided hereunder shall in no way limit the Holders' ability to
convert Debentures into shares of Common Stock and to receive payment of
interest hereunder in shares of Common Stock, including after such time as any
Event of Default shall be declared hereunder.
(b) Should any payment, other than payments contemplated
in Section 8(a) above, be received by the Holders, such payment shall be held in
trust by the Holders for the benefit of BNY and shall be delivered forthwith to
BNY for application to BNY Bank Obligations, in the form received with any
necessary endorsement or assignment.
Section 9. This Debenture shall not entitle the Holder to any of the
----------
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
-17-
Section 10. If this Debenture shall be mutilated, lost, stolen or
-----------
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 11. This Debenture shall be governed by and construed in
-----------
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof.
Section 12. Any waiver by the Company or the Holder of a breach of
-----------
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 13. If any provision of this Debenture is invalid, illegal
-----------
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 14. Whenever any payment or other obligation hereunder shall
-----------
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day (or, if such next succeeding Business Day falls in
the next calendar month, the preceding Business Day in the appropriate calendar
month).
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized as of the date first above
indicated.
YES! ENTERTAINMENT
CORPORATION
Attest: ________________________ By:________________________________
Name: Donald D. Kingsborough
Title: Chief Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No. [ ]
into shares of Common Stock, par value $.001 per share (the "Common Stock"), of
YES! Entertainment Corporation (the "Company") according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of
a person other than undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the Holder for any conversion, except for such transfer
taxes, if any.
Conversion calculations:
______________________________________________________
Date to Effect Conversion
______________________________________________________
Principal Amount of Debentures to be Converted
______________________________________________________
Applicable Conversion Price
______________________________________________________
Amount of Interest due on the Principal Amount of
Debentures to be Converted
______________________________________________________
Signature
______________________________________________________
Name:
______________________________________________________
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, if the Company determines that such
conversion would result in the holder owning in excess of 4.9% of the
outstanding shares of Common Stock on such date, the Company shall convert up to
an amount equal to 4.9% of the outstanding shares of Common Stock and shall
issue to the holder one or more Debenture(s) which have not been converted as a
result of this provision.
EXHIBIT B
YES! ENTERTAINMENT CORPORATION
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of YES! Entertainment Corporation (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert the above Debenture No. [ ] into shares of
Common Stock, $.001 par value per share (the "Common Stock"), of the Company
according to the conditions hereof, as of the date written below. No fee will
be charged to the Holder for any conversion hereunder, except for such transfer
taxes, if any, which may be incurred by the Company if shares are to be issued
in the name of a person other than the person to whom this notice is addressed.
Conversion calculations:
______________________________________________________
Date to Effect Conversion
______________________________________________________
Principal Amount of Debentures to be Converted
______________________________________________________
Applicable Conversion Price
______________________________________________________
Amount of Interest due on the Principal Amount of
Debentures to be Converted
______________________________________________________
Number of Shares of Common Stock outstanding at close
of trading on Conversion Date
______________________________________________________
Signature
______________________________________________________
Name:
______________________________________________________
Address: