<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>4
<FILENAME>exha_991612.txt
<DESCRIPTION>EXHIBIT 4.21
<TEXT>
EXHIBIT 4.21
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE
UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
THIS DEBENTURE IS SUBORDINATED TO THE PAYMENT IN LIQUIDATION OF SENIOR DEBT
(HEREINAFTER DEFINED) TO THE EXTENT SET FORTH HEREIN.
ORIGINAL ISSUE DATE: FEBRUARY ___, 2005
ORIGINAL CONVERSION PRICE (SUBJECT TO ADJUSTMENT HEREIN): $4.07
$_______________
7% CONVERTIBLE DEBENTURE
DUE FEBRUARY ___, 2009
THIS DEBENTURE is one of a series of duly authorized and issued 7%
Convertible Debentures of Access Integrated Technologies, Inc., a Delaware
corporation, having a principal place of business at 55 Madison Avenue, Suite
300, Morristown, New Jersey 07960 (the "COMPANY"), designated as its 7%
Convertible Debenture, due February ___, 2009 (the "DEBENTURE(S)").
FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "HOLDER"), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________ by February __, 2009 , or
such earlier date as the Debentures are required or permitted to be repaid as
provided hereunder (the "MATURITY DATE"), and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture shall be
subordinate and junior in right of payment in liquidation to the Company's two
outstanding secured promissory notes, each in the principal amount of $1,500,000
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and each dated November 14, 2003 (collectively, the "SENIOR Debt"). This
Debenture is subject to the following additional provisions:
SECTION 1. DEFINITIONS. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"ACQUISITION REDEMPTION" shall have the meaning set forth in Section
6(c).
"ACQUISITION REDEMPTION AMOUNT" shall mean the sum of (i) 115% of the
principal amount of the Debenture to be redeemed pursuant to an Acquisition
Redemption, (ii) accrued but unpaid interest on such amount and (iii) all
liquidated damages and other amounts due in respect of the Debenture on
such amount.
"ACQUISITION REDEMPTION NOTICE" shall have the meaning set forth in
Section 6(c).
"ACQUISITION REDEMPTION NOTICE DATE" shall have the meaning set forth
in Section 6(c).
"ACQUISITION REDEMPTION WARRANTS" means warrants to purchase a number
of shares of Common Stock equal to 50% of the shares of Common Stock
issuable upon the conversion of all of the principal amount of the
Debenture then subject to an Acquisition Redemption, exercisable beginning
immediately following the date of issuance thereof, with an exercise price
equal to the average of the five consecutive Closing Prices immediately
preceding the Acquisition Redemption Date and a term of exercise equal to
five years from such initial exercise date, otherwise in the form of the
Warrants.
"ALTERNATE CONSIDERATION" shall have the meaning set forth in Section
5(d).
"BASE CONVERSION PRICE" shall have the meaning set forth in Section
5(b).
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York or New Jersey are authorized
or required by law or other government action to close.
"BUY-IN" shall have the meaning set forth in Section 4(d)(v).
"CHANGE OF CONTROL TRANSACTION" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 40% of the voting power of the Company, or (ii)
the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 60% of the aggregate voting power
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of the Company or the successor entity of such transaction, or (iii) a
replacement at one time or within a three year period of more than one-half
of the members of the Company's board of directors which is not approved by
a majority of those individuals who are members of the board of directors
on the date hereof (or by those individuals who are serving as members of
the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of
directors who are members on the date hereof), or (iv) the execution by the
Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (i) or (iv).
"COMMON STOCK" means the Class A Common Stock, par value $0.001 per
share, of the Company and stock of any other class of securities into which
such securities may hereafter have been reclassified or changed into.
"CONVERSION DATE" shall have the meaning set forth in Section 4(a).
"CONVERSION PRICE" shall have the meaning set forth in Section 4(b).
"CONVERSION SHARES" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"DEBENTURE REGISTER" shall have the meaning set forth in Section 2(c).
"DILUTIVE ISSUANCE" shall have the meaning set forth in Section 5(b).
"DILUTIVE ISSUANCE NOTICE" shall have the meaning set forth in Section
5(b).
"EFFECTIVENESS PERIOD" shall have the meaning given to such term in
the Registration Rights Agreement.
"EQUITY CONDITIONS" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions occurring
by virtue of one or more Notice of Conversions, if any, (ii) all liquidated
damages and other amounts owing in respect of the Debentures shall have
been paid; (iii) there is an effective Registration Statement pursuant to
which the Holder is permitted to utilize the prospectus thereunder to
resell all of the shares issuable pursuant to the Transaction Documents
(and the Company believes, in good faith, that such effectiveness will
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continue uninterrupted for the foreseeable future), or the Holder is able
to sell all of the shares issuable pursuant to the outstanding Securities
held by it pursuant to Rule 144(k) under the Securities Act, (iv) the
Common Stock is trading on the Trading Market and all of the shares
issuable pursuant to the Transaction Documents are listed for trading on a
Trading Market (and the Company believes, in good faith, that trading of
the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance
of all of the shares issuable pursuant to the Transaction Documents, (vi)
there is then existing no Event of Default or event which, with the passage
of time or the giving of notice, would constitute an Event of Default,
(vii) the issuance of all of the shares issued or issuable pursuant to the
Transaction Documents would not violate the limitations set forth in
Sections 4(c)(i) and 4(c)(ii) and (viii) other than with respect to a
transaction which is the subject or trigger of the exercise of an
Acquisition Redemption, no public announcement of a pending or proposed
Fundamental Transaction, Change of Control Transaction or acquisition
transaction has occurred that has not been consummated.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
and the rules and regulations promulgated thereunder.
"FUNDAMENTAL TRANSACTION" shall have the meaning set forth in Section
5(d).
"FORCED CONVERSION NOTICE" shall have the meaning set forth in Section
6(e).
"FORCED CONVERSION NOTICE DATE" shall have the meaning set forth in
Section 6(e).
"INTEREST CONVERSION RATE" means 93% of the average of the five
Closing Prices immediately prior to the applicable Interest Payment Date.
"INTEREST PAYMENT DATE" shall have the meaning set forth in Section
2(a).
"LATE FEES" shall have the meaning set forth in Section 2(d).
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal the sum
of (i) the greater of: (A) 130% of the principal amount of Debentures to be
prepaid, plus all accrued and unpaid interest thereon (provided that if the
applicable Event of Default is solely the result of a Change of Control
Transaction, such amount shall equal 100% of the principal amount subject
to acceleration, plus all accrued and unpaid interest thereon and all
interest that otherwise would have accrued and been paid had this Debenture
been outstanding until the Maturity Date), or (B) other than with respect
to an Event of Default that is solely the result of a Change of Control
Transaction, the principal amount of Debentures to be prepaid, plus all
other accrued and unpaid interest hereon, divided by the Conversion Price
on (x) the date the Mandatory Prepayment Amount is demanded or otherwise
due or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is less, multiplied by the Closing Price on (x) the date the
Mandatory Prepayment Amount is demanded or otherwise due or (y) the date
the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of such Debentures.
"MONTHLY REDEMPTION" shall mean the redemption of the Debenture
pursuant to Section 6(b) hereof.
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"MONTHLY REDEMPTION AMOUNT" shall mean, as to a Monthly Redemption, an
amount equal to one third of the principal amount of this Debenture
outstanding on the 1st Business Day of the 36th complete month following
the Original Issue Date divided by 12, or such lesser amount as may then be
outstanding.
"MONTHLY REDEMPTION DATE" means the 1st Business Day of each month,
commencing on the 37th complete month following the Original Issue Date and
ending 12 months thereafter.
"NEW YORK COURTS" shall have the meaning set forth in Section 9(d).
"NOTICE OF CONVERSION" shall have the meaning set forth in Section
4(a).
"OPTIONAL REDEMPTION" shall have the meaning set forth in Section
6(a).
"OPTIONAL REDEMPTION AMOUNT" shall mean the sum of (i) 110% of the
principal amount of the Debenture to be redeemed pursuant to an Optional
Redemption, (ii) accrued but unpaid interest on such amount and (iii) all
liquidated damages and other amounts due in respect of the Debenture on
such amount.
"OPTIONAL REDEMPTION NOTICE" shall have the meaning set forth in
Section 6(a).
"OPTIONAL REDEMPTION NOTICE DATE" shall have the meaning set forth in
Section 6(a).
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"PERMITTED DEBT" means trade payables and indebtedness consisting of
capitalized lease obligations and purchase money indebtedness incurred in
connection with acquisition of capital assets and obligations under
sale-leaseback arrangements with respect to newly acquired or leased
assets; PROVIDED, HOWEVER, that in each case such obligations are not
secured by liens on any assets of the Company or its Subsidiaries existing
as of the date of the Purchase Agreement and may only be secured by the
assets so acquired or leased thereafter.
"PERMITTED LIEN" mean (a) Liens with respect to the payment of taxes
or governmental charges in all cases which are not yet due or which are
subject to a good faith contest; (b) any Liens incurred in connection with
Permitted Debt provided that such liens are not secured by assets of the
Company or its Subsidiaries other than the assets so acquired or leased;
and (c) statutory Liens of landlords or equipment lessors against any
property of the Company or its Subsidiaries existing as of the date of the
Purchase Agreement in favor of suppliers, mechanics, carriers, materialmen,
warehousemen or workmen.
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"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"PRIME RATE" means the rate of interest publicly announced by The Bank
of New York, New York, as its prime rate, on the Business Day immediately
preceding the date that the Late Fee shall begin to accrue.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated as
of February 9, 2005 to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"REDEMPTION WARRANTS" means warrants to purchase a number of shares of
Common Stock equal to 35% of the shares of Common Stock issuable upon the
conversion of all of the principal amount of the Debenture then subject to
an Optional Redemption, exercisable beginning immediately following the
date of issuance thereof, with an exercise price equal to the average of
the five consecutive Closing Prices immediately preceding the Optional
Redemption Date and a term of exercise equal to five years from such
initial exercise date, otherwise in the form of the Warrants.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SHAREHOLDER APPROVAL" shall have the meaning given to such term in
the Purchase Agreement.
"SUBSIDIARY" shall have the meaning given to such term in the Purchase
Agreement.
"THRESHOLD PERIOD" shall have the meaning given to such term in
Section 6(e).
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market.
"TRADING MARKET" means the primary one of the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the
date in question: the Nasdaq SmallCap Market, the American Stock Exchange,
the New York Stock Exchange or the Nasdaq National Market.
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"TRANSACTION DOCUMENTS" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed
or quoted on a Trading Market and if prices for the Common Stock are then
quoted on the OTC Bulletin Board, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
OTC Bulletin Board and if prices for the Common Stock are then reported in
the "Pink Sheets" published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (c)
in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the
holders of the Debentures and reasonably acceptable to the Company.
SECTION 2. INTEREST.
a) PAYMENT OF INTEREST IN CASH OR KIND. The Company shall pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 7% per annum, payable monthly
on the first Business Day of each month, beginning on the first such date after
the Original Issue Date, as well as on each Conversion Date (as to that
principal amount then being converted), each Forced Conversion Date (as to that
principal amount then being forced to convert), each Optional Redemption Date
(as to that principal amount being redeemed) and each Acquisition Redemption
Date, if any or all of such shall occur, and on the Maturity Date (except that,
if any such date is not a Business Day, then such payment shall be due on the
next succeeding Business Day and in each such case, through and including such
Trading Day) (each such date, an "INTEREST PAYMENT DATE"), in (x) cash or (y)
shares of Common Stock (all, not in part as to any Interest Payment Date) in an
amount equal to the total amount of interest then payable, divided by the
Interest Conversion Rate; PROVIDED, HOWEVER, payment in shares of Common Stock
may only occur if (i) during the 20 Trading Days immediately prior to the
applicable Interest Payment Date all of the Equity Conditions have been met,
(ii) the Company shall have given the Holder notice in accordance with the
notice requirements set forth below and (iii) during the 10 Trading Days
immediately prior to the applicable Interest Payment Date the value of shares of
Common Stock traded on the Trading Market for each such day exceeds $15,000,
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which value shall be calculated by multiplying the trading volume (as reported
by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time
to 4:02 p.m. Eastern Time)) on such day by the VWAP on such day.
b) COMPANY'S ELECTION TO PAY INTEREST IN KIND. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in shares
of Common Stock or cash shall be at the sole discretion of the Company. Not less
than 6 Trading Days prior to each Interest Payment Date, the Company shall
provide the Holder with written notice of its election to pay interest hereunder
either in cash or shares of Common Stock (the Company may indicate in such
notice that the election contained in such notice shall continue for later
periods until revised). Within 6 Trading Days prior to an Interest Payment Date,
the Company's election (whether specific to an Interest Payment Date or
continuous) shall be irrevocable as to such Interest Payment Date. Subject to
the aforementioned conditions, failure to timely provide such written notice
shall be deemed an election by the Company to pay the interest on such Interest
Payment Date in cash.
c) INTEREST CALCULATIONS. Interest shall be calculated on the basis
of a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Payment of interest in shares of Common Stock shall otherwise occur pursuant to
Section 4(d)(ii) and only for purposes of the payment of interest in shares, the
Interest Payment Date shall be deemed the Conversion Date. Interest shall cease
to accrue with respect to any principal amount converted upon the applicable
Interest Payment Date, provided that the Company in fact delivers the Conversion
Shares within the time period required by Section 4(d)(ii). Interest hereunder
will be paid to the Person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of Debentures (the
"DEBENTURE REGISTER"). Except as otherwise provided herein, if at any time the
Company pays interest in cash or in shares of Common Stock, then such payment
shall be distributed similarly among all Holders.
d) LATE FEE. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate per annum equal to the Prime Rate
plus ten percent (10%) (or such lower maximum amount of interest permitted to be
charged under applicable law) ("LATE FEES") which will accrue daily, from the
date such interest is due hereunder through and including the date of payment.
Notwithstanding anything to the contrary contained herein, if on any Interest
Payment Date the Company has elected to pay interest in Common Stock and is not
able to pay accrued interest in the form of Common Stock because it does not
then satisfy the conditions for payment in the form of Common Stock set forth
above, then, the Company, in lieu of delivering either shares of Common Stock
pursuant to this Section 2 or paying the regularly scheduled cash interest
payment, shall deliver, within five Trading Days of each applicable Interest
Payment Date, an amount in cash equal to the product of the number of shares of
Common Stock otherwise deliverable to the Holder in connection with the payment
of interest due on such Interest Payment Date and the average Closing Price
during the period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made.
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e) PREPAYMENT. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.
SECTION 3. REGISTRATION OF TRANSFERS AND EXCHANGES.
a) DIFFERENT DENOMINATIONS. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
b) INVESTMENT REPRESENTATIONS. This Debenture has been issued
subject to certain investment representations of the original Holder set forth
in the Purchase Agreement and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state securities laws and
regulations.
c) RELIANCE ON DEBENTURE REGISTER. 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 4. CONVERSION.
a) VOLUNTARY CONVERSION. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time (subject to the limitations on
conversion set forth in Section 4(c) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of Conversion
attached hereto as ANNEX A (a "NOTICE OF CONVERSION"), specifying therein the
principal amount of Debentures to be converted and the date on which such
conversion is to be effected (a "CONVERSION DATE"). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion is provided hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender Debentures
to the Company unless the entire principal amount of this Debenture plus all
accrued and unpaid interest thereon has been so converted. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture in an amount equal to the applicable conversion. The Holder and the
Company shall maintain records showing the principal amount converted and the
date of such conversions. The Company shall deliver any objection to any Notice
of Conversion within 1 Business Day of receipt of such notice. The Holder and
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any assignee, by acceptance of this Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a portion of
this Debenture, the unpaid and unconverted principal amount of this Debenture
may be less than the amount stated on the face hereof.
b) CONVERSION PRICE. The conversion price in effect on any
Conversion Date shall be equal to $4.07 (subject to adjustment herein)(the
"CONVERSION PRICE").
c) CONVERSION LIMITATIONS.
i. TRADING MARKET LIMITATIONS. Notwithstanding anything herein or
in any other Transaction Document to the contrary, if the Company has not
obtained Shareholder Approval, if required by the applicable rules and
regulations of the Trading Market (or any successor entity), then the Company
may not and shall not issue upon conversion of this Debenture in excess of
1,871,083 shares of Common Stock, less the number of shares issued prior to such
Conversion Date pursuant to any Debentures (such number of shares, the "ISSUABLE
MAXIMUM"). The Holder shall be entitled to a portion of the Issuable Maximum
equal to the quotient obtained by dividing (x) the aggregate principal amount of
the Debenture(s) issued and sold to such Holder on the Original Issue Date by
(y) the aggregate principal amount of all Debentures issued and sold by the
Company on the Original Issue Date. If any Holder shall no longer hold the
Debenture(s), then such Holder's remaining portion of the Issuable Maximum shall
be allocated pro-rata among the remaining Holders. If on any Conversion Date:
(1) the applicable Conversion Price then in effect is such that the shares
issuable under this Debenture on any Conversion Date together with the aggregate
number of shares of Common Stock that would then be issuable upon conversion in
full of all other then outstanding Debentures would exceed the Issuable Maximum,
and (2) the Company has not obtained Shareholder Approval, then the Company
shall issue to the Holder, upon its request to convert this Note (or any part
hereof), such number of shares of Common Stock equal to its pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the Issuable Maximum
and, with respect to the remainder of the aggregate principal amount of the
Debentures (including any accrued interest) then held by it for which a
conversion in accordance with the applicable conversion price would result in an
issuance of shares of Common Stock in excess of its pro-rata portion (which
shall be calculated pursuant to the terms hereof) of the Issuable Maximum (the
"EXCESS PRINCIPAL"), the Company shall be prohibited from converting such Excess
Principal, and shall notify the Holder of the reason therefor. This Debenture
shall thereafter be unconvertible to such extent until and unless Shareholder
Approval is subsequently obtained or is otherwise not required, but this
Debenture shall otherwise remain in full force and effect. The Company shall not
have any liability to the Holder, any other holder of Debentures or any other
Person, for refusing or otherwise failing to issue any shares of Common Stock if
prohibited by this Section 4(c)(i).
ii. HOLDER'S RESTRICTION ON CONVERSION. The Company shall not
effect any conversion of this Debenture, and the Holder shall not have the right
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to convert any portion of this Debenture, pursuant to Section 4(a) or otherwise,
to the extent that after giving effect to such conversion, the Holder (together
with the Holder's affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 9.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to such conversion.
For purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with respect
to which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) conversion of
the remaining, nonconverted portion of this Debenture beneficially owned by the
Holder or any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Debentures or the Warrants) subject to
a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 4(c)(ii),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. To the extent that the limitation contained in this section
applies, the determination of whether this Debenture is convertible (in relation
to other securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of such Holder. To
ensure compliance with this restriction, the Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 4(c)(ii), in determining the number
of outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most recent
Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company's Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company shall
within two Trading Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this
Debenture, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The provisions of
this Section 4(c) may be waived by the Holder upon, at the election of the
Holder, upon not less than 61 days' prior notice to the Company, and the
provisions of this Section 4(c) shall continue to apply until such 61st day (or
such later date, as determined by the Holder, as may be specified in such notice
of waiver).
d) MECHANICS OF CONVERSION
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i. CONVERSION SHARES ISSUABLE UPON CONVERSION OF PRINCIPAL AMOUNT.
Subject to the provisions of Section 4(c), the number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by the quotient
obtained by dividing (x) the outstanding principal amount of this Debenture to
be converted by (y) the Conversion Price.
ii. DELIVERY OF CERTIFICATE UPON CONVERSION. Not later than three
Trading Days after any Conversion Date, the Company will deliver or cause to be
delivered to the Holder (A) a certificate or certificates representing the
Conversion Shares which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of
Debentures (including, if so timely elected by the Company, shares of Common
Stock representing the payment of accrued interest) and (B) a bank check in the
amount of accrued and unpaid interest (if the Company is required to pay accrued
interest in cash). The Company shall, if available and if allowed under
applicable securities laws, use its commercially reasonable efforts to deliver
any certificate or certificates required to be delivered by the Company under
this Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
iii. FAILURE TO DELIVER CERTIFICATES. If in the case of any Notice
of Conversion such certificate or certificates representing Conversion Shares
are not delivered to or as directed by the applicable Holder by the fifth
Trading Day after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing the principal
amount of Debentures tendered for conversion.
iv. OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES. If the Company
fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date,
the Company shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, for each $1000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day after 10 Trading Days after such damages
begin to accrue) for each Trading Day after such fifth Trading Day until such
certificates are delivered. The Company's obligations to issue and deliver the
Conversion Shares upon conversion of this Debenture in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with the issuance of such Conversion Shares; PROVIDED, HOWEVER, such delivery
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shall not operate as a waiver by the Company of any such action the Company may
have against the Holder. In the event a Holder of this Debenture shall elect to
convert any or all of the outstanding principal amount hereof, the Company may
not refuse conversion based on any claim that the Holder or any one associated
or affiliated with the Holder of has been engaged in any violation of law,
agreement or for any other reason, unless, an injunction from a court, on
notice, restraining and or enjoining conversion of all or part of this Debenture
shall have been sought and obtained and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the principal amount of this
Debenture outstanding, which is subject to the injunction, 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 to the extent it
obtains judgment. In the absence of an injunction precluding the same, the
Company shall issue Conversion Shares upon a properly noticed conversion.
Nothing herein shall limit a Holder's right to pursue actual damages or declare
an Event of Default pursuant to Section 8 herein for the Company's failure to
deliver Conversion Shares within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
v. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. In addition to any other rights available to the
Holder, if the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading
Day after the Conversion Date, and if after such fifth Trading Day the Holder is
required by its brokerage firm to purchase in a bona fide arm's length
transaction for fair market value (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon such conversion (a
"BUY-IN"), then the Company shall (A) pay in cash to the Holder (in addition to
any remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the actual sale price of the Common Stock
at the time of the sale (including brokerage commissions, if any) giving rise to
such purchase obligation and (B) at the option of the Holder given within 3
Trading Days of the Buy-In, either reissue Debentures in principal amount equal
to the principal amount of the attempted conversion or deliver to the Holder the
number of shares of Common Stock that would have been issued had the Company
timely complied with its delivery requirements under Section 4(d)(ii). For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of Debentures
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with respect to which the actual sale price of the Conversion Shares at the time
of the sale (including brokerage commissions, if any) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In. Notwithstanding anything contained
herein to the contrary, if a Holder requires the Company to make payment in
respect of a Buy-In for the failure to timely deliver certificates hereunder and
the Company timely pays in full such payment, the Company shall not be required
to pay such Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.
vi. RESERVATION OF SHARES ISSUABLE UPON CONVERSION. Subject to
limitations set forth in Section 4(c), the Company covenants that it will at all
times reserve and keep available out of its authorized and unissued shares of
Common Stock solely for the purpose of issuance upon conversion of the
Debentures and payment of interest on the Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (and the other holders of the Debentures), not
less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the
outstanding principal amount of the 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, nonassessable.
vii. FRACTIONAL SHARES. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing fractions of
shares of the Common Stock, but may if otherwise permitted, make a cash payment
in respect of any final fraction of a share based on the Closing Price at such
time. If the Company elects not, or is unable, to make such a cash payment, the
Holder shall be entitled to receive, in lieu of the final fraction of a share,
one whole share of Common Stock.
viii. TRANSFER TAXES. The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without charge to
the Holder hereof 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 of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
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SECTION 5. CERTAIN ADJUSTMENTS.
a) STOCK DIVIDENDS AND STOCK SPLITS. If the Company, at any time
while this Debenture is outstanding: (i) pays a stock dividend or otherwise make
a distribution or distributions on shares of its Common Stock, the Company's
Class B Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this Debenture,
including as interest hereon), (ii) subdivides outstanding shares of Common
Stock into a larger number of shares, (iii) combines (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (iv) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Simultaneously with any
adjustment to the Conversion Price pursuant to this Section 5(a), the number of
Conversion Shares which may be issued upon conversion of this Debenture or as
payment interest hereon shall be increased or decreased proportionately, so that
after such adjustment, the aggregate amount of the adjusted Conversion Price
multiplied by the aggregate adjusted amount of Conversion Shares shall equal the
aggregate amount of the unadjusted Conversion Price multiplied by the aggregate
unadjusted amount of Conversion Shares. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) SUBSEQUENT EQUITY SALES. If the Company or any Subsidiary
thereof, as applicable, at any time while this Debenture is outstanding, shall
offer, sell, grant any option to purchase or offer, sell or grant any right to
reprice its securities, or otherwise dispose of or issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any Common Stock, or
Common Stock Equivalents, entitling any Person to acquire shares of Common
Stock, at an effective price per share less than the then Conversion Price (such
lower price, the "BASE CONVERSION PRICE" and such issuances collectively, a
"DILUTIVE ISSUANCE"), as adjusted hereunder (if the holder of the Common Stock
or Common Stock Equivalents so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per share
which is issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less than the
Conversion Price, such issuance shall be deemed to have occurred for less than
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the Conversion Price), then the Conversion Price shall be reduced by multiplying
the Conversion Price by a fraction, the numerator of which is the number of
shares of Common Stock issued and outstanding immediately prior to the Dilutive
Issuance plus the number of shares of Common Stock, and Common Stock issuable in
connection with Common Stock Equivalents, which the aggregate consideration
received or receivable by the Company in connection with such Dilutive Issuance
would purchase at the then effective Conversion Price, and the denominator of
which shall be the sum of the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance plus the number of shares
of Common Stock, or Common Stock Equivalents so issued or issuable in connection
with the Dilutive Issuance. The Company shall notify the Holder in writing, no
later than the Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this section, indicating therein the applicable
issuance price, or of applicable reset price, exchange price, conversion price
and other pricing terms (such notice the "DILUTIVE ISSUANCE NOTICE"). For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion.
c) PRO RATA DISTRIBUTIONS. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders (and not to Holders on
a pro-rata basis) of Common Stock, including the holders of Class B Common Stock
evidences of its indebtedness or assets (including cash or cash dividends) or
rights or warrants to subscribe for or purchase any security, then in each such
case the Conversion Price shall be adjusted by multiplying such Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Closing Price determined as of the record date
mentioned above, and of which the numerator shall be such Closing Price on such
record date less the then the per share fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock or Common Stock equivalent share of
Class B Common Stock (determined by dividing the amount distributed by the then
issued and outstanding shares of Common Stock), as the case may be, as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock (or for an
equivalent measure of Class B Common Stock). Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date mentioned above.
d) FUNDAMENTAL TRANSACTION. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
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any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities (other than capital stock of the Company), cash
or property (in any such case, a "FUNDAMENTAL TRANSACTION"), then upon any
subsequent conversion of this Debenture, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the "ALTERNATE CONSIDERATION"). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in
connection with such Fundamental Transaction, and the Company shall apportion
the Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(d) and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
e) CALCULATIONS. 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.
For purposes of this Section 5, the number of shares of Common Stock deemed to
be issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding at the close of the Trading Day on or, if not applicable, most
recently preceding such given date.
f) EXEMPT ISSUANCE. Notwithstanding anything in this Section 5 to
the contrary, no adjustment will be made under this Section 5 in respect of an
Exempt Issuance.
g) NOTICE TO HOLDERS.
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i. ADJUSTMENT TO CONVERSION PRICE. Whenever the Conversion Price is
adjusted pursuant to this Section 5, the Company shall promptly provide notice
to each Holder setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
ii. NOTICE TO ALLOW CONVERSION BY HOLDER. If (A) the Company shall
declare a dividend (or any other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption of
the Common Stock; (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; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the 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, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Debenture, and shall cause to be mailed to the Holder at its last address as it
shall appear upon the books of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the record date established for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the record date established for such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture (or any part
hereof) during the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice. Notwithstanding the
foregoing, the delivery of the notice described in this Section 5(g) is not
intended to and shall not bestow upon the Holder any voting rights whatsoever
with respect to outstanding unconverted Debentures.
SECTION 6. REDEMPTION AND FORCED CONVERSION.
a) OPTIONAL REDEMPTION AT ELECTION OF COMPANY. Subject to the
provisions of this Section 6, at any time after the 24-month anniversary of the
Original Issue Date, the Company may deliver a notice to the Holder (an
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"OPTIONAL REDEMPTION NOTICE" and the date such notice is deemed delivered
hereunder, the "OPTIONAL REDEMPTION NOTICE DATE") of its irrevocable election to
redeem some or all of the then outstanding Debentures, for an amount, in cash,
equal to the Optional Redemption Amount plus, the issuance of Redemption
Warrants issuable as a result of the Optional Redemption of such principal
amount, on the 20th Trading Day following the Optional Redemption Notice Date
(such date, the "OPTIONAL REDEMPTION DATE" and such redemption, the "OPTIONAL
REDEMPTION"). The Optional Redemption Amount and Redemption Warrants are due in
full on the Optional Redemption Date. The Company may only effect an Optional
Redemption if during the period commencing on the Optional Redemption Notice
Date through to the Optional Redemption Date, each of the Equity Conditions
shall have been met. If any of the Equity Conditions shall cease to be satisfied
at any time during the required period, then the Holder may elect to nullify the
Optional Redemption Notice by notice to the Company within 3 Trading Days after
the first day on which any such Equity Condition has not been met (provided that
if, by a provision of the Transaction Documents the Company is obligated to
notify the Holder of the non-existence of an Equity Condition, such notice
period shall be extended to the third Trading Day after proper notice from the
Company) in which case the Optional Redemption Notice shall be null and void, AB
INITIO. The Company covenants and agrees that it will honor all Notice of
Conversions tendered from the time of delivery of the Optional Redemption Notice
through the date all amounts owing thereon are due and paid in full. The
Company's election to exercise an Optional Redemption shall be applied ratably
to all of the holders of Debentures based on their initial purchases of
Debenture pursuant to the Purchase Agreement.
b) MONTHLY REDEMPTION. On each Monthly Redemption Date, the Company
shall redeem the Monthly Redemption Amount plus accrued but unpaid interest, the
sum of all liquidated damages and any other amounts then owing to such Holder in
respect of the Debenture. The Monthly Redemption Amount due on each Monthly
Redemption Date shall be paid in cash only. The Holder may convert, pursuant to
Section 4(a), any principal amount of this Debenture subject to a Monthly
Redemption at any time prior to the date that the Monthly Redemption Amount and
all amounts owing thereon are due and paid in full. Unless otherwise indicated
by the Holder in the applicable Notice of Conversion, any principal amount of
Debenture converted during any 20 day period until the date the Monthly
Redemption Amount is paid shall be first applied to the principal amount subject
to the Monthly Redemption and such Holder's cash payment of the Monthly
Redemption Amount on such Monthly Redemption Date shall be reduced accordingly,
and any remaining principal amount so converted shall be applied against the
last principal scheduled to be repaid, in reverse time order. The Company
covenants and agrees that it will honor all Notice of Conversions tendered up
until such amounts are paid in full.
c) ACQUISITION REDEMPTION. Subject to the provisions of this
Section 6, upon one occasion after the 6-month anniversary of the Original Issue
Date and prior to the 24-month anniversary of the Original Issue Date, in
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connection with the acquisition of a business or assets by the Company or by a
subsidiary of the Company, which financing requires the Company or its
Subsidiaries to incur additional senior indebtedness or liens as part of such
financing, the Company may deliver a notice to the Holder (an "ACQUISITION
REDEMPTION NOTICE" and the date such notice is deemed delivered hereunder, the
"ACQUISITION REDEMPTION NOTICE DATE") of its irrevocable election to redeem all
of the then outstanding Debentures, for an amount, in cash, equal to the
Acquisition Redemption Amount plus, the issuance of Acquisition Redemption
Warrants issuable as a result of the Acquisition Redemption of such principal
amount, on the 20th Trading Day following the Acquisition Redemption Notice Date
(such date, the "ACQUISITION REDEMPTION DATE" and such redemption, the
"ACQUISITION REDEMPTION"). The Acquisition Redemption Amount and Redemption
Warrants are due in full on the Acquisition Redemption Date. The Company may
only effect an Acquisition Redemption if during the period commencing on the
Acquisition Redemption Notice Date through to the Acquisition Redemption Date,
each of the Equity Conditions shall have been met. If any of the Equity
Conditions shall cease to be satisfied at any time during the required period,
then the Holder may elect to nullify the Acquisition Redemption Notice by notice
to the Company within 3 Trading Days after the first day on which any such
Equity Condition has not been met (provided that if, by a provision of the
Transaction Documents the Company is obligated to notify the Holder of the
non-existence of an Equity Condition, such notice period shall be extended to
the third Trading Day after proper notice from the Company) in which case the
Acquisition Redemption Notice shall be null and void, AB INITIO. The Company
covenants and agrees that it will honor all Notices of Conversion tendered from
the time of delivery of the Acquisition Redemption Notice through the date all
amounts owing thereon are due and paid in full. Notwithstanding anything herein
to the contrary, at any time prior to the Acquisition Redemption Date, the
Holder may elect in writing to the Company, in its sole discretion, to nullify
and void, all or part of, the Acquisition Redemption, AB INITIO, provided that
if such election is made by the Holder, from such date thereafter Sections 7(a)
and 7(b) of this Debenture shall thereafter and forever be deemed waived by the
Holder and of no further force or effect. If the Company elects to exercise its
right to an Acquisition Redemption hereunder, such election shall be made to all
Holders of outstanding Debentures.
d) REDEMPTION PROCEDURE. The payment of cash pursuant to the
Monthly Redemption, an Optional Redemption or Acquisition Redemption shall be
made on the Monthly Redemption Date, the Optional Redemption Date or Acquisition
Redemption Date, as applicable. If any portion of the cash payment for a Monthly
Redemption, an Optional Redemption or Acquisition Redemption Date, as
applicable, shall not be paid by the Company by the respective due date,
interest shall accrue thereon at the rate per annum equal to the Late Fee rate
(or the maximum rate permitted by applicable law, whichever is less) until the
payment of the Monthly Redemption Amount, the Optional Redemption Amount or
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Acquisition Redemption Amount, as applicable, plus all amounts owing thereon is
paid in full. Alternatively, if any portion of the Monthly Redemption Amount,
the Optional Redemption Amount or the Acquisition Redemption Amount, as
applicable, remains unpaid after such date, the Holder subject to such
redemption may elect, by written notice to the Company given at any time
thereafter, to invalidate AB INITIO such redemption. Notwithstanding anything
herein contained to the contrary, and, with respect to the Company's failure to
honor the Optional Redemption or Acquisition Redemption, as applicable, the
Company shall have no further right to exercise such Optional Redemption or
Acquisition Redemption. The Holder may elect to convert the outstanding
principal amount of the Debenture pursuant to Section 4 prior to actual payment
in cash for any redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company.
e) FORCED CONVERSION. Notwithstanding anything herein to the
contrary, if after the 24 month anniversary of the Original Issue Date (A) each
of the Closing Prices for any 20 consecutive Trading Days (such period
commencing only after such anniversary, such period the "THRESHOLD PERIOD"))
exceeds 200% of $3.95 (subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions of
the Common Stock that occur after the Original Issue Date) and (B) the trading
volume of the Common Stock (as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time)) for each
Trading Day during the Threshold Period is greater than or equal to 100,000
shares (subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the Original Issue Date), the Company may, within 1 Trading Day
of the end of any such period, deliver a notice to the Holder (a "FORCED
CONVERSION NOTICE" and the date such notice is received by the Holder, the
"FORCED CONVERSION NOTICE DATE") to cause the Holder to immediately convert all
or part of the then outstanding principal amount of Debentures pursuant to
Section 4(a). The Company may only effect a Forced Conversion Notice if all of
the Equity Conditions are met through the applicable Threshold Period until the
date of the applicable Forced Conversion. Any Forced Conversion shall be applied
ratably to all Holders based on their initial purchases of Debentures pursuant
to the Purchase Agreement.
SECTION 7. NEGATIVE COVENANTS. So long as any portion of this Debenture is
outstanding, the Company will not, directly or indirectly:
a) except for (A) Permitted Debt and (B) a one-time unsecured
parent guarantee of $1,700,000 of unsecured indebtedness for borrowed money on
the property and assets of ADM Cinema Corporation ("ADM") to be incurred in
connection with the acquisition of certain of the assets of Prichard Square
Cinema, LLC d/b/a Pavilion Theatre, a New York limited liability company, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind,
including but not limited to, a guarantee, on or with respect to any of its (as
of the Original Issue Date) property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom that is senior to, or
pari passu with, in any respect, the Company's obligations under the Debentures;
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b) except for permitted liens, enter into, create, incur, assume or
suffer to exist any liens of any kind, on or with respect to any of its or its
existing Subsidiaries' (as of Original Issue Date) property or assets now owned
or hereafter acquired or any interest therein or any income or profits therefrom
that is senior to, in any respect, the Company's obligations under the
Debentures;
c) amend its certificate of incorporation, bylaws or other charter
documents so as to materially adversely affect any rights of the Holder;
d) other than with respect to and under (i) the Company's stock
repurchase program, as further described in that certain Current Report on Form
8-K, filed with the Commission on August 12, 2004 (provided any such issuances
shall not exceed $500,000 in any 12 month period) and (ii) the Company's
existing obligation, during the period beginning from March 30, 2005 until 90
days thereafter, to purchase 53,534 shares of the Company's Common Stock from
The Boeing Company for an aggregate purchase price of $250,000, repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its Common Stock or other equity securities other
than as to the Conversion Shares to the extent permitted or required under the
Transaction Documents or as otherwise permitted by the Transaction Documents; or
e) enter into any agreement with respect to any of the foregoing.
SECTION 8. EVENTS OF DEFAULT.
a) "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
i. any default in the payment of (A) the principal amount of any
Debenture, or (B) interest (including Late Fees) on, or liquidated damages in
respect of, any Debenture, in each case free of any claim of subordination, as
and when the same shall become due and payable (whether on a Conversion Date or
the Maturity Date or by acceleration or otherwise) which default, solely in the
case of an interest payment or other default under clause (B) above, is not
cured, within 5 Trading Days after notice of such default sent by Holder;
ii. the Company shall fail to observe or perform any other covenant
or agreement contained in this Debenture (other than a breach by the Company of
its obligations to deliver shares of Common Stock to the Holder upon conversion
which breach is addressed in clause (xii) below) which failure is not cured, if
possible to cure, within the earlier to occur of (A) 5 Trading Days after notice
of such default sent by the Holder or by any other Holder and (B)10 Trading Days
after the Company shall become or should have become aware of such failure;
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iii. a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or instrument) shall
occur under (A) any of the Transaction Documents other than the Debentures, or
(B) any other material agreement, lease, document or instrument to which the
Company or any Subsidiary is bound, which default or event of default in Clause
(B) only would have a Material Adverse Effect on the business of the Company and
its Subsidiaries, taken as a whole;
iv. any representation or warranty made herein, or in any other
Transaction Document, the breach or falsity of which would have a Material
Adverse Effect;
v. (i) the Company or any of its Subsidiaries shall commence, or
there shall be commenced against the Company or any such Subsidiary, a case
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any Subsidiary 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 any
Subsidiary thereof or (ii) there is commenced against the Company or any
Subsidiary thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or (iii) the Company or any
Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent
or bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company or any Subsidiary thereof 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
(v) the Company or any Subsidiary thereof makes a general assignment for the
benefit of creditors; or (vi) the Company shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or (vii) the Company or any Subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company or any Subsidiary thereof
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the purpose of
effecting any of the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
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borrowed money or money due under any long term leasing or factoring arrangement
of the Company in an amount exceeding $250,000, whether such indebtedness now
exists or shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on or
quoted for trading on a Trading Market and shall not again be eligible for and
quoted or listed for trading thereon within five Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose of all or
in excess of 40% of its assets in one or more related transactions (whether or
not such sale would constitute a Change of Control Transaction) other than
inventory in the ordinary course of business, or shall redeem or repurchase more
than a de minimis number of its outstanding shares of Common Stock or other
equity securities of the Company (other than redemptions of Conversion Shares
and repurchases of shares of Common Stock or other equity securities of
departing officers and directors of the Company; provided such repurchases shall
not exceed $100,000, in the aggregate, for all officers and directors during the
term of this Debenture);
ix. a Registration Statement shall not have been declared effective
by the Commission on or prior to the 240th calendar day after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration Statement
lapses for any reason or the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement, in either case, for more than 60 consecutive or
non-consecutive Trading Days during any 12 month period; PROVIDED, HOWEVER, that
in the event that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a similar
transaction and in the written opinion of counsel to the Company, the
Registration Statement, would be required to be amended to include information
concerning such transactions or the parties thereto that is not available or may
not be publicly disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading Days during any 12 month period relating to
such an event;
xi. the Company shall fail for any reason to deliver certificates
to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to
and in accordance with Section 4(d) or the Company shall provide notice to the
Holder, including by way of public announcement, at any time, of its intention
not to comply with requests for conversions of any Debentures in accordance with
the terms hereof; or
xii. any Person shall breach the agreements delivered to the
initial Holders pursuant to Section 2.2(a)(iv) of the Purchase Agreement and the
Company does not obtain Shareholder Approval.
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b) REMEDIES UPON EVENT OF DEFAULT. If any Event of Default occurs,
the full principal amount of this Debenture, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall become, at
the Holder's election, immediately due and payable in cash, provided such Event
of Default has not been cured at the time of Holder's election. The aggregate
amount payable upon an Event of Default shall be equal to the Mandatory
Prepayment Amount. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at the Late Fee rate, or such lower
maximum amount of interest permitted to be charged under applicable law. All
Debentures for which the full Mandatory Prepayment Amount hereunder shall have
been paid in accordance herewith shall promptly be surrendered to or as directed
by the Company. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under this Section
shall have been received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
SECTION 9. MISCELLANEOUS.
a) NOTICES. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile
number (973) 290-0081, ATTN: GENERAL COUNSEL, or such other address or facsimile
number as the Company may specify for such purposes by notice to the Holder
delivered in accordance with this Section. 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 addressed to each Holder at the facsimile telephone
number or address of such Holder appearing on the books of the Company which
shall, on the Original Issue Date, be such information as is provided on the
original Holder signature pages to the Purchase Agreement, 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 such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 5:30 p.m. (New
York 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 5:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second
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Business 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. Notwithstanding anything herein to the contrary,
in the event notice is sent by facsimile transmission, the sending party shall
also send such notification by e-mail if the receiving party has included an
e-mail address below or on their respective signature page.
b) ABSOLUTE OBLIGATION. 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, interest and
liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks PARI PASSU with all other
Debentures now or hereafter issued under the terms set forth herein.
c) LOST OR MUTILATED DEBENTURE. 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.
d) GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the "NEW YORK COURTS"). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or such
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New York Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
e) WAIVER. 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.
f) SEVERABILITY. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
violates applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
g) NEXT BUSINESS DAY. 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.
h) HEADINGS. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be deemed to
limit or affect any of the provisions hereof.
*********************
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
ACCESS INTEGRATED TECHNOLOGIES, INC.
By:_______________________________________
Name:
Title:
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 7%
Convertible Debenture due February ___, 2009 of Access Integrated
Technologies, Inc., a Delaware corporation (the "COMPANY"), into shares of
common stock, par value $0.001 per share (the "COMMON STOCK"), of 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 the 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.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of the Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on
Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The 7% Convertible Debentures due February ___, 2009, in the aggregate
principal amount of $____________ issued by Access Integrated Technologies,
Inc. This Conversion Schedule reflects conversions made under Section 4 of
the above referenced Debenture.
Dated:
Aggregate
Principal
Amount
Date of Conversion Remaining
(or for first Subsequent to
entry, Original Conversion
Issue Date) Amount of (or original Company Attest
Conversion Principal
Amount)
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</DOCUMENT>