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EXHIBIT 4.34
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
TEAM COMMUNICATIONS GROUP, INC.
(Incorporated in the State of California)
12% CONVERTIBLE DEBENTURES DUE 2002
No. CD-1 Principal Amount U.S. $4,000,000
Original Issue Date: August 5, 1999
FOR VALUE RECEIVED, Team Communications Group, Inc., a corporation duly
incorporated and existing under the laws of the State of California (the
"Company"), hereby promises to pay to the order of Hudson Investors LLC, or
registered assigns (hereinafter, the "Holder"), the principal sum of Four
Million Dollars ($4,000,000) United States Dollars on November 30, 2002 (the
"Maturity Date"), subject to earlier conversion or redemption as provided
herein. The Debentures will be convertible into common stock, no par value per
share, of the Company on the terms and subject to the conditions hereinafter set
forth at any time after the date hereof. Interest shall be paid on the unpaid
principal balance of this Debenture at the rate of 12% per annum from the date
hereof, payable, in the manner set forth below, upon conversion, redemption or
maturity of this Debenture to the person that is the Holder on the date of such
event. Interest hereon shall be calculated on the basis of a 360 day year
consisting of twelve 30-day months.
1. General.
(a) This Debenture is one of a duly authorized issue of Debentures of
the Company in original aggregate principal amount of $4,000,000 designated as
its 12% Convertible Debentures due November 30, 2002 (herein called the
"Debentures"), issued pursuant to the authorization of the Board of Directors of
the Company and issued pursuant to a Securities Purchase Agreement, dated August
, 1999, by and among the Company and the Purchasers identified therein (the
"Securities Purchase Agreement"). The Securities Purchase Agreement contains
certain additional terms that are binding upon the Company and each Holder of
the Debentures.
(b) The Debentures are issuable, without coupons, in principal
denominations of U.S. $100,000.00 and integral multiples thereof. The
Debentures, and transfers thereof, shall be in registered form as provided in
Section 4 hereof. The registered holder of a Debenture shall (to the fullest
extent permitted by applicable law) be treated at all times, by all persons and
for all purposes as the absolute owner of such Debenture, regardless of any
notice of ownership, theft or loss or of any writing thereon.
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2. Principal Payment; Redemption. Payment of the principal of this
Debenture shall be made upon presentation of this Debenture at the Company's
principal office for surrender upon payment in full. The Company may not prepay
all or any portion of this Debenture; provided, however, if the Company
consummates an offering of equity securities prior to November 30, 1999, the
Company shall promptly notify the Holder in writing and the Holder may, within
three Trading Days of receipt of such notice (or, if such notice is not
received, upon such Holder becoming aware of the consummation of an offering),
require the Company to redeem the Debentures for an amount equal to the
principal amount of the Debentures plus accrued and unpaid interest thereon
through the date of redemption.
3. Interest. Each Debenture shall be entitled to receive cumulative
interest at the rate of 12% per annum, compounded semi-annually, in cash, on the
principal amount thereof. Such interest shall be due and payable upon
conversion, redemption or maturity of this Debenture. Interest shall accrue from
the Original Issue Date (as defined herein), whether or not earned or declared,
until maturity or such time as the Debenture has been converted or redeemed as
herein provided. The interest so payable will be paid to the person in whose
name the Debentures (or one or more predecessor debentures) are registered on
the records of the Company regarding registration and transfers of the
Debentures; provided, however, that the Company's obligation to a transferee of
a Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions hereof and the Securities Purchase
Agreement.
4. Transfers. The Debentures have been issued subject to investment
representations of the original purchaser and may be transferred or exchanged
only in compliance with the Securities Act of 1933, as amended, and applicable
state securities laws. Prior to due presentment for transfer of each Debenture,
the Company may treat the Holder as the owner thereof for the purpose of
receiving payments as herein provided and all other purposes, and the Company
shall not be affected by any notice to the contrary.
5. Conversion at the Option of the Holder.
(a) (i) All or any part of the unpaid principal amount of this
Debenture may be converted into shares of Common Stock (subject to Section
5(a)(ii) and Section 5(a)(iii)) at the Conversion Ratio (as defined in Section
8) at the option of the Holder in whole or in part at any time on and after
November 30, 1999. The Holders shall effect conversions by surrendering the
Debentures to be converted to the Company, together with the form of conversion
notice attached hereto as Exhibit 1 (the "Conversion Notice"). The Conversion
Notice may be delivered by facsimile, with the Debenture to follow within three
Trading Days. Each Conversion Notice shall specify the principal amount of
Debentures to be converted. The date on which such conversion is to be effected
shall be the date the Holder delivers such Conversion Notice by facsimile (the
"Conversion Date"). Subject to Sections 5(a)(ii), 5(b) and 5(k) hereof, each
Conversion Notice, once given, shall be irrevocable. If the Holder is converting
less than all of the principal amount represented by the Debenture tendered by
the Holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall promptly deliver to such
Holder, at the expense of the Company, (in the manner and within the time set
forth in Section 5(b)) a new Debenture representing the unconverted principal
amount, to
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the same extent as if the Debenture theretofore representing such unconverted
principal amount had not been surrendered on conversion.
(ii) If on the Conversion Date applicable to any conversion, (A) the
Common Stock is then listed for trading on the Nasdaq National Market, the New
York Stock Exchange, the American Stock Exchange or The Nasdaq Small Cap Market,
(B) the Conversion Price then in effect is such that the aggregate number of
shares of Common Stock that would then be issuable upon conversion of all the
outstanding Debentures, together with any shares of Common Stock previously
issued upon conversion of Debentures, 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 (or attempted
pursuant to clause (i) of this subsection to obtain) Shareholder Approval (as
defined below), then the Company shall issue to any Holder so requesting
conversion of Debentures its pro rata portion of the Issuable Maximum in the
same ratio that the principal amount of Debentures held by any such Holder bears
to the aggregate principal amount of Debentures then outstanding and, with
respect to the aggregate principal amount of the Debentures that remains
outstanding after such issuance (the "Remaining Principal Amount"), the Company
shall at the Holder's request, (x) 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 use its best efforts to obtain the Shareholder Approval or a
waiver of such approval from The Nasdaq Stock Market or the appropriate exchange
and (y) (1) as promptly as possible from time to time, after a written request
by the Holder, issue shares of Common Stock at a Conversion Price equal to the
Per Share Market Value on the Trading Day immediately preceding the date of such
request for all or a portion of Remaining Principal Amount (plus any accrued
interest thereon) held by such Holder (whether or not subject to the Conversion
Notice specified above) or (2) as promptly as possible but in any event within
seven days after a request by the Holder redeem all or a portion of the
Remaining Principal Amount (plus any accrued interest thereon) to which such
Conversion Notice applies, for an amount, paid in cash, equal to the greater of
(A) the aggregate principal amount of such Debentures, plus accrued and unpaid
interest, multiplied by 130%, or (B) the applicable Conversion Ratio as of the
Conversion Date multiplied by the average Per Share Market Value for the five
Trading Days immediately preceding the Conversion Date or the date of payment,
whichever is greater. If the Holder has requested that the Company redeem
Debentures pursuant to this Section and the Company fails for any reason to pay
the redemption price, as calculated pursuant to the immediately preceding
sentence, within seven days after such notice is deemed delivered pursuant to
the preceding sentence, the Company will pay interest on the redemption price at
a rate of 15% per annum, in cash to such Holder, accruing from such seventh day
until the redemption price and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty).
"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 the 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, Inc.'s Marketplace Rules (or any successor or
replacement provision thereof).
(iii) In no event shall a Holder be permitted to convert in excess of
such principal amount of Debentures upon the conversion of which, (x) the number
of shares of Common Stock
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owned by such Holder (other than shares of Common Stock issuable upon conversion
of Debentures or upon exercise of the Warrants (as defined in the Securities
Purchase Agreement) plus (y) the number of shares of Common Stock issuable upon
such conversion of such Debentures, would be equal to or exceed (z) 9.999% of
the number of shares of Common Stock then issued and outstanding, including
shares issuable on conversion of the Debentures held by such Holder after
application of this Section 5(a)(iii). To the extent that the limitation
contained in this Section 5(a)(iii) applies, the determination of whether
Debentures are convertible (in relation to other securities owned by a Holder)
and of which Debentures are convertible shall be in the sole discretion of such
Holder, and the submission of Debentures for conversion shall be deemed to be
such Holder's determination of whether such Debentures are convertible (in
relation to other securities owned by a Holder) and of which Debentures are
convertible, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. Nothing contained herein shall be deemed to restrict the right of
a Holder to convert such Debentures at such time as such conversion will not
violate the provisions of this paragraph. The provisions of this Section
5(a)(iii) may be waived by a Holder of Debentures as to itself (and solely as to
itself) upon not less than 60 days prior notice to the Company, and the
provisions of this Section 5(a)(iii) shall continue to apply until such 60th day
(or later, if stated in the notice of waiver). No conversion in violation of
this paragraph but otherwise in accordance with this Debenture shall affect the
status of the securities issued upon such conversion as validly issued,
fully-paid and nonassessable.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the applicable Holder by express courier (A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Securities Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of Debentures (subject to reduction pursuant
to Section 5(a)(ii) and Section 5(a)(iii)) and (B) a new Debenture representing
the unconverted principal amount. If in the case of any Conversion Notice such
Debenture or Debentures are not delivered to or as directed by the applicable
Holder by the seventh Trading Day after the Conversion Date (the "Delivery
Date"), the holder shall be entitled by written notice to the Company at any
time on or before its receipt of such Debenture or Debentures thereafter, to
rescind such conversion, in which event the Company shall immediately return the
Debentures tendered for conversion, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the delivery
of such notice of revocation, except that any amounts described in Sections
5(b)(ii) and (iii) shall be payable through the date notice of rescission is
given to the Company.
(ii) The Company understands that a delay in the delivery of the shares
of Common Stock upon conversion of Debentures and failure to deliver a new
Debenture representing the unconverted principal amount beyond the Delivery Date
could result in economic loss to the Holder. If the Company fails to deliver to
the Holder such certificate or certificates pursuant to this Section hereunder
by the Delivery Date for any reason other than the failure to obtain Shareholder
Approval as provided in Section 5(a)(ii), the Company shall pay to such Holder,
in cash, an amount per Trading Day for each Trading Day until such certificates
are delivered, together with interest on such amount at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full,
equal to (i) 1% of the aggregate principal amount of the Debentures, plus the
accrued and
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unpaid interest thereon, requested to be converted for the first four
Trading Days after the Delivery Date and (ii) 2% of the aggregate principal
amount of the Debentures, plus the accrued and unpaid interest thereon,
requested to be converted for each Trading Day thereafter (which amounts shall
be paid as liquidated damages and not as a penalty). If the Company fails to
deliver to the Holder such certificate or certificates pursuant to this Section
prior to the 15th Trading Day after the Conversion Date, the Company shall, at
the Holder's option, redeem in cash, from funds legally available therefor at
the time of such redemption, such principal amount of Debentures then held by
such Holder, plus the accrued and unpaid interest thereon, as requested by such
Holder, in cash. The redemption price shall be equal to the aggregate principal
amount of Debentures then held by such Holder, plus accrued and unpaid interest
thereon, multiplied by the average Per Share Market Value for the five Trading
Days immediately preceding (A) the proposed Conversion Date or (B) the date of
payment in full by the Company of such prepayment price, whichever is greater,
multiplied by 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 redemption price, as calculated
pursuant to the immediately preceding sentence, within seven days after such
notice is deemed delivered pursuant to Section 5(a)(i), the Company will pay
interest on the redemption price at a rate of 15% per annum, in cash to such
Holder, accruing from such seventh day until the redemption price and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein (including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving certificates representing shares of Common Stock upon
conversion, such damages to be in an amount equal to (A) the aggregate amount
paid by such holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the sale
of the shares of Common Stock issued by the Company pursuant to such
conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(iii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 5(b)(i) by the Delivery Date and if after the Delivery Date the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (A) the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal amount of the
Debentures for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 aggregate principal
amount of the Debentures, the Company shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The conversion price for the Debentures (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (A) an amount
equal to 120% of the average Per Share Market Value for five consecutive Trading
Days immediately prior to the Original Issue Date and (B)
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an amount equal to 88% of the Per Share Market Value for the three (3) Trading
Days having the lowest Per Share Market Value during the twenty-five (25)
Trading Days prior to the Conversion Date (the "Look Back Period"), except that
if during any period (a "Black-out Period"), a Holder is unable to trade any
Common Stock issued or issuable upon conversion of Debentures immediately due to
the postponement of filing or delay or suspension of effectiveness of a
registration statement or because the Company has otherwise informed such Holder
that an existing prospectus cannot be used at that time in the sale or transfer
of such Common Stock, such Holder shall have the option but not the obligation
on any Conversion Date within ten Trading Days following the expiration of the
Blackout Period of using the Conversion Price applicable on such Conversion Date
or any Conversion Price selected by such Holder that would have been applicable
had such Conversion Date been at any earlier time during the Black-out Period or
within the ten Trading Days thereafter. Beginning on the 150th day following the
Original Issue Date, the number of Trading Days used in clause (B) above in
calculating the Look Back Period shall be increased by two Trading Days per
month up to a maximum of an additional 12 Trading Days.
Notwithstanding the foregoing, if the Company has failed to file a
registration statement as required by the Registration Rights Agreement within
15 days after the Filing Date (as such term is defined in the Registration
Rights Agreement), or if any registration statement required to be filed by the
Company pursuant to the Registration Rights Agreement has not been declared
effective within sixty (60) days after the Filing Date, or if the Company has
allowed any registration statement required to be filed pursuant to the
Registration Rights Agreement to lapse for a period of 30 consecutive days, then
the Conversion Price shall, immediately after such 15th or 30th or 60th day, as
applicable, be decreased by 3% and shall be further decreased by an additional
0.1% for each subsequent day thereafter until such time as such registration
statement is filed, declared effective or had its effectiveness reinstated, as
applicable; provided, that if any such registration statement is not effective
within 120 days after the Filing Date, then the Conversion Price shall be
decreased by an additional 1.25% for each seven calendar days following such
120th day and continuing until any such registration statement is effective;
provided further, that the Conversion Price shall not be decreased by more than
50%. 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 Common Stock or any other equity security payable in shares of
Common Stock, (b) subdivide outstanding shares of Common Stock into a larger
number of shares, (c) combine outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of Common Stock any
shares of capital stock of the Company, the applicable Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution
in the case of clause (a) of this paragraph, and shall become effective
immediately after the effective date in the case of clauses (b), (c) and (d) of
this paragraph.
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(iii) If the Company, at any time while Debentures are outstanding,
shall sell or issue additional shares of Common Stock or rights or warrants to
acquire shares of Common Stock at a price per share less than the Per Share
Market Value at the record date mentioned below, excluding any rights of the
holder of the Debentures or the holders of the Warrants issued pursuant to the
Securities Purchase Agreement to acquire Common Stock, the applicable Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such shares, rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such shares,
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 Per Share Market
Value. Such adjustment shall be made whenever such shares, rights or warrants
are issued, and shall become effective immediately after the issuance of such
shares, rights or warrants or, if such rights or warrants are issued to
shareholders of the Company, the record date for the determination of
shareholders 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 applicable Conversion Price pursuant to
this Section 5(c)(iii), if any such right or warrant shall expire and shall not
have been exercised, the applicable Conversion Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the applicable Conversion Price made pursuant to the provisions
of this Section 5 after the issuance of such rights or warrants) had the
adjustment of the applicable 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 Sections
5(c)(ii) and (iii) above), then in each such case the applicable Conversion
Price at which the Debentures shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of shareholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such 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 of the net assets of
the Company, such fair market value shall be determined by an Independent
Appraiser (as defined below) selected in good faith by the holders of a majority
in interest of the principal amount of the Debentures then outstanding; and
provided, further, that the Company, after receipt of the determination by such
Independent Appraiser shall have the right to select an additional Independent
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Independent Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights
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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 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the applicable Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii) or (iv) (for purposes of this Section 5(c)(vi), each an
"adjustment"), the Company shall cause its Chief Financial Officer to prepare
and execute a certificate setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), and the applicable Conversion Price
after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to each Holder promptly after each adjustment. Any
dispute between the Company and the Holders with respect to the matters set
forth in such certificate may at the option of the Holders be submitted to one
of the national accounting firms currently known as the "big five" selected by
the holders of a majority in interest of the principal amount of the Debentures
then outstanding, provided that the Company shall have ten days after receipt of
notice from such Holders of their selection of such firm to object thereto, in
which case the holders of a majority in interest of the principal amount of the
Debentures then outstanding shall select another such firm and the Company shall
have no such right of objection. The firm selected by the holders of a majority
in interest of the principal amount of the Debentures then outstanding as
provided in the preceding sentence shall be instructed to deliver a written
opinion as to such matters to the Company and the Holders within thirty days
after submission to it of such dispute. Such opinion shall be final and binding
on the parties hereto. The fees and expenses of such accounting firm shall be
paid by the Company.
(vii) In case the Company after the Original Issue Date shall do any of
the following (each, a "Triggering Event") (a) consolidate with or merge into
any other person and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other person to
consolidate with or merge into the Company and the Company shall be the
continuing or surviving person but, in connection with such consolidation or
merger, any capital stock of the Company shall be changed into or exchanged for
securities of any other person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other person, or (d)
effect a capital reorganization or reclassification of its capital stock, the
holders of the Debentures then outstanding shall have the right thereafter to
convert such shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such Triggering Event, and the holders of the Debentures shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which such Debentures
could have been converted immediately prior to such Triggering Event would have
been entitled; provided, however, that each Holder shall have the option to
require the Company to redeem, from funds legally available therefor at the time
of such redemption, any principal amount of its Debentures at a price equal to
the aggregate principal amount of Debentures to be redeemed, plus accrued and
unpaid interest thereon, multiplied by the product of (i) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the effective
date, the date of the closing or the date of the announcement, as the case may
be, of the Triggering Event triggering such redemption right or (2) the date of
payment in full by the Company
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of the redemption price hereunder, whichever is greater, and (ii) the Conversion
Ratio calculated on the date of the closing or the effective date or the date of
announcement, as the case may be, of the Triggering Event triggering such
redemption right, as the case may be. The entire redemption price shall be paid
in cash. If the Holder has requested that the Company redeem Debentures pursuant
to this Section and the Company fails for any reason to pay the redemption
price, as calculated pursuant to the immediately preceding sentence, within
seven days after such notice is deemed delivered pursuant to the preceding
sentence, the Company will pay interest on the redemption price at a rate of 15%
per annum, in cash to such Holder, accruing from such seventh day until the
redemption price and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). The terms of any such
Triggering Event shall include such terms so as to continue to give to the
holder of Debentures the right to receive the securities, cash or property set
forth in this Section 5(c)(vii) upon any conversion or redemption following such
Triggering Event. This provision shall similarly apply to successive Triggering
Events.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; 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 shareholders of the Company shall
be required in connection with any Triggering Event;
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
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, 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 or
share exchange is expected to become effective or close, 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, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; 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
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notice. Holders are entitled to convert Debentures during the 30-day period
commencing the date of such notice to the effective date of the event triggering
such notice.
(d) If at any time conditions shall arise by reason of action taken by
the Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Debentures (different than or distinguished
from the effect generally on rights of holders of any class of the Company's
capital stock) or if at any time any such conditions are expected to arise by
reason of any action contemplated by the Company, the Company shall mail a
written notice briefly describing the action contemplated and the material
adverse effects of such action on the rights of the holders of Debentures at
least 10 calendar days prior to the effective date of such action, and an
Independent Appraiser selected by the holders of majority in interest of the
principal amount of the Debentures then outstanding shall give its opinion as to
the adjustment, if any (not inconsistent with the standards established in this
Section 5), of the Conversion Price (including, if necessary, any adjustment as
to the securities into which Debentures may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of Debentures; provided, however, that the Company, after
receipt of the determination by such Independent Appraiser, shall have the right
to select an additional Independent Appraiser, in good faith, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Independent Appraiser. The Board of Directors shall make the adjustment
recommended forthwith upon the receipt of such opinion or opinions or the taking
of any such action contemplated, as the case may be; provided, however, that no
such adjustment of the Conversion Price shall be made which in the opinion of
the Independent Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the Conversion Price
then in effect.
(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 free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Debentures, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Securities Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5(c)) upon the conversion of
all outstanding Debentures. 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, nonassessable and freely tradable.
(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, or is unable, to make such a cash payment, the holder of a Debenture
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 on
conversion of Debentures shall be made without charge to the holders thereof for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate.
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(h) Debentures converted into Common Stock shall be canceled and
retired by the Company.
(i) Any and all notices or other communications or deliveries to be
provided by the holders of Debentures hereunder, including, without limitation,
any Conversion Notice, shall be in writing and delivered personally, by
facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the President and to the Secretary of the Company
at the facsimile telephone number or address of the principal place of business
of the Company as set forth in the Securities Purchase 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 or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Debentures at the facsimile telephone number or address of such 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
earlier of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m., West Coast City time, (ii) the date after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 5:00 p.m.,
West Coast City time, on any date and earlier than 11:59 p.m., West Coast City
time, on such date, (iii) receipt, if sent by a nationally recognized overnight
courier service, or (iv) actual receipt by the party to whom such notice is
required to be given.
(j) In the event a Holder shall elect to convert any Debentures as
provided herein, the Company cannot refuse conversion based on any claim that
such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or any portion of said Debentures
shall have issued and the Company posts a surety bond for the benefit of such
Holder in the amount of the principal amount of Debentures sought to be
converted, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
6. Events of Default.
Each of the following shall constitute an event of default ("Event of
Default"), whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
administrative, governmental or non-governmental body or otherwise howsoever:
(a) the Company shall default in any payment of principal of, or
interest on, the Debentures or any other amounts due under the Transaction
Documents when and as due (whether at maturity, upon acceleration or otherwise);
or
(b) the Company shall fail duly to perform or observe any term,
covenant or agreement contained in any of the Debentures or in the Securities
Purchase Agreement or in the
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Registration Rights Agreement for a period of seven days after the date on which
written notice of such failure shall first have been given to the Company; or
(c) (i) a final judgment shall be entered by any court against the
Company for the payment of money which together with all other outstanding final
judgments against the Company exceeds $10,000 in the aggregate, or (ii) a
warrant of attachment or execution or similar process shall be issued or levied
against any of the Company's property which exceeds in value $10,000 in the
aggregate, and if, within 30 days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged; or
(d) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of the property of it or ordering the winding-up or liquidation
of the affairs of it and such decree or order shall remain unstayed and in
effect for a period of 30 days; or
(e) the Company shall commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due or
shall take any corporate action in furtherance of any of the foregoing; or
(f) an event of default, as defined in any indenture or instrument
evidencing or under which the Company shall have outstanding indebtedness for
borrowed money in excess of $10,000, inclusive of accrued interest, accrued
premium, if any, or any additional amounts payable, shall happen and be
continuing and such default shall involve the failure to pay the principal of
such indebtedness (or any part thereof), when due and payable after the
expiration of any applicable grace period with respect thereto, or such
indebtedness shall have been accelerated so that the same shall be or become due
and payable prior to the date on which the same would otherwise have become due
and payable, and such failure to pay shall not have been cured by the Company
within 30 days after such failure or such acceleration shall not be rescinded or
annulled within 30 days after notice thereof shall have first been given to the
Company; provided that if such event of default under such indenture or
instrument shall be remedied or cured by the Company or waived by the holders of
such indebtedness, then the Event of Default hereunder by reason thereof shall
be deemed likewise to have been thereupon remedied, cured or waived without
further action upon the part of any of the holders of Debentures; or
(g) the Common Stock is delisted from, or trading in the Common Stock
shall have been suspended for more than ten Trading Days on, The Nasdaq
Small-Cap Market or such other principal market or exchange on which the Common
Stock is listed for trading; or
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(h) the Company fails to timely deliver the shares of Common Stock to
the Holder or a replacement Debenture representing any unconverted portion of
this Debenture pursuant to this Debenture; or
(i) the issuance by the Securities and Exchange Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities (as defined in the Registration Rights
Agreement) or the initiation of any proceedings for that purpose.
With the exception of an Event of Default specified in clauses (d) or
(e) above, upon the occurrence and continuance of an Event of Default, the
Holder may declare the principal of and interest on the Debentures and all other
amounts owing under the Transaction Documents to be forthwith due and payable by
giving written notice thereof to the Company without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything in the Transaction Documents to the contrary notwithstanding. Upon the
occurrence and continuance of an Event of Default specified in clauses (d) or
(e) above, such principal, interest and other amounts shall thereupon and
concurrently therewith become automatically due and payable all without any
action by the Holder and without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in the Transaction
Documents to the contrary notwithstanding.
Interest on overdue principal and interest (and other amounts, if any)
shall accrue from the date on which such principal and interest (and other
amounts, if any) were due and payable to the date such principal and interest
(and other amounts, if any) are paid or duly provided for, at a rate of 15% per
annum (to the extent payment of such interest shall be legally enforceable).
7. Definitions. For the purposes hereof, the following terms shall have the
following meanings:
"Bloomberg" shall mean Bloomberg L.P.
"Common Stock" means the common stock, no par value per share, of the Company
and stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Conversion Ratio" means the number of shares of Common Stock issuable
upon conversion of each Debentures determined by the application of the
following formula where "D" equals the accrued and unpaid interest on the
aggregate principal amount of Debentures so converted as of the Conversion Date:
Principal Amount to be Converted + D
------------------------------------
Conversion Price
"Independent Appraiser" means 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) that is
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regularly engaged in the business of appraising the capital stock or assets of
corporations or other entities as going concerns, and which is not affiliated
with either the Company or any Holder.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Original Issue Date" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any particular Debentures
and regardless of the number of certificates which may be issued to evidence
such Debentures.
"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 Small-Cap
Market, the Nasdaq National Market or other registered national stock exchange
on which the Common Stock is then listed or if there is no such price on such
date, as reported by Bloomberg, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, as reported by
Bloomberg, or (b) if the Common Stock is not listed then on The Nasdaq Small-Cap
Market, the Nasdaq National Market or any registered national stock exchange,
the closing bid price for a share of Common Stock in the over-the-counter market
as reported by Bloomberg (or, if such prices are not reported by Bloomberg, then
such prices as reported by NASDAQ or in the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the over-the-counter quotes on the Electronic Bulletin Board
of the National Association of Securities Dealers, Inc. for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded, the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by
the holders of a majority in interest of the shares of the Debentures; provided,
however, that the Company, after receipt of the determination by such
Independent Appraiser, shall have the right to select an additional Independent
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Independent Appraiser; and provided, further
that all determinations of the Per Share Market Value shall be appropriately
adjusted for any stock dividends, stock splits or other similar transactions
during such period. The determination of fair market value by an Independent
Appraiser shall be based upon the fair market value of the Company determined on
a going concern basis as between a willing buyer and a willing seller and taking
into account all relevant factors determinative of value, and shall be final and
binding on all parties. In determining the fair market value of any shares of
Common Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities laws, or
to the existence or absence of, or any limitations on, voting rights.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
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"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange or quotation system on which the Common Stock has been
listed, or (b) if the Common Stock is not listed on The Nasdaq Small-Cap Market,
the Nasdaq National Market or any registered national stock exchange or
quotation system, a day or which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, 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); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the number of shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Securities Purchase Agreement.
9. Taxes. The Company shall pay any and all taxes attributable to the
issuance and delivery of Common Stock or other securities upon conversion of the
Debentures.
10. No Impairment. The Company shall not by any action including,
without limitation, amending the articles of incorporation or the by-laws of the
Company, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment. Without limiting the
generality of the foregoing, the Company will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Conversion Price, (ii) not
amend or modify any provision of the articles of incorporation or by-laws of the
Company in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Debentures, (iii) take all such action as may be reasonably necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this
Debentures, and (iv) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be reasonably necessary to enable the Company to perform its
obligations under this Debenture.
11. Governing Law. The Debentures shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of law.
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12. Countersignature and Registration. This Debenture shall not become
valid or obligatory for any purpose until the Debentures shall have been duly
executed by the Company and such signature attested to by an authorized Officer
thereof.
13. Warranty of the Company. The Company hereby certifies and warrants
that all acts, conditions and things required to be done and performed and to
have happened precedent to the creation and issuance of this Debenture, and to
constitute the same as legal, valid and binding obligations of the Company
enforceable in accordance with their terms, have been done and performed and
have happened in due and strict compliance with all applicable laws.
14. Descriptive Headings. The descriptive headings appearing herein are
for convenience of reference only and shall not alter, limit or define the
provisions hereof.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed in its corporate name by the manual or facsimile signature of a duly
authorized signatory, as attested to by another duly authorized signatory of the
Company.
Dated: August 5, 1999
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ Jonathan D. Shapiro
------------------------------------
Name: Jonathan D. Shapiro
----------------------------------
Title: President & COO
---------------------------------
ATTEST:
By: /s/ Eric Elias
------------------------------------
Name: Eric Elias
----------------------------------
Title: Sr. V.P.
---------------------------------
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EXHIBIT 1
CONVERSION NOTICE
Reference is made to the debenture certificate (the "Debenture Certificate") of
Team Communications Group, Inc., a California corporation (the "Company"). In
accordance with and pursuant to the Debenture Certificate, the undersigned
hereby elects to have the Company convert the principal amount of 12%
Convertible Debentures due 2002 (the "Debentures"), of the Company, indicated
below into shares of Common Stock, no par value per share (the "Common Stock"),
of the Company, by tendering the certificate(s) representing the Debentures
specified below as of the date specified below.
Date of Conversion: ___________________________
Principal amount of Debentures to be converted: ___________________________
Certificate no(s). of Debentures to be converted: ___________________________
Please confirm the following information:
Conversion Price: ___________________________
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Debentures are being converted in the following
name and to the following address:
Issue to: ___________________________
___________________________
___________________________
___________________________
Facsimile Number: ___________________________
Authorization: ___________________________
By:________________________
Title:_____________________
Dated: ___________________________
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