Consolidated Acquisition Agreement - Headliners Entertainment Group Inc., Paul Butler ad JHF Properties LLC
CONSOLIDATED ACQUISITION AGREEMENT
AGREEMENT made this 29th day of March, 2005 by and among HEADLINERS
ENTERTAINMENT GROUP, INC., a Delaware corporation with offices at 501
Bloomfield Avenue, Montclair, NJ 07042 ("Headliners"), PAUL BUTLER, with
offices at 6728 Hyland Croy, Dublin, OH 43016 ("Butler"), and JHF
PROPERTIES, LLC, an Ohio limited liability company with offices at 6728
Hyland Croy, Dublin, OH 43016 ("JHF")
WHEREAS, Headliners is engaged in the business of developing, owning
and operating comedy clubs under the service mark "Rascals" (the "Rascals
Mark") and Butler and JHF (referred to herein collectively as the
"Transferors") are engaged in the business of developing, owning and
operating dance clubs under several service marks, including "Banana
Joe's," "Margarita Mama's," "Red Cheetah," "Parrot Beach" and "Cactus Cafe"
(collectively, the "JHF Marks"); and
WHEREAS, Headliners, Butler and JHF are parties to a "Properties
Acquisition Agreement - Butler" dated June 23, 2004 (the "Butler
Agreement"), Headliners, Butler and JHF are parties to a "Project
Acquisition Agreement" dated June 23, 2004 (the "Projects Agreement"), both
of which were modified by an Omnibus Modification Agreement dated November
22, 2004; and
WHEREAS, the parties wish to modify the two agreements recited above
and to consolidate their terms, as modified, into one single agreement.
NOW, THEREFORE, it is agreed:
A. TERMINATION OF BUTLER AGREEMENT AND PROJECTS AGREEMENT
The Butler Agreement and the Projects Agreement are hereby
terminated, and shall have no further force or effect.
I. ACQUISITION OF PROPERTIES
1.1 The Properties. JHF manages entertainment facilities in
Cincinnati, Kansas City, Tucson, Jackson, Omaha and Louisville that carry
on business under one of the JHF Marks (the "Projects"). Each Project is
owned and operated by an Ohio limited liability company (a "Project Owner")
as follows:
a. 1133 Sycamore St. LLC (Cincinnati)
b. 4115 Mil. Street LLC (Kansas City)
c. 296 N. Stone LLC (Tucson)
d. 6107 Ridgewood Rd LLC (Jackson)
e. 1299 Farnam St LLC (Omaha)
f. JP 4th Street Line LLC (Louisville)
1.2 Initial Closing. On the Initial Closing Date, the Transferors
shall transfer to Headliners all of their record and equity interest in the five
Project Owners other than JP 4th Street Line LLC ("Louisville"). Each of
the Transferors shall execute and deliver such documents as are necessary
to permit Headliners to assume control of the five Project Owners and to
own and operate the businesses carried on by the Projects, including, as
needed, assignments of leaseholds, liquor licenses, permits, and any other
rights, interests and privileges which may be impaired by the assignment of
ownership of a Project Owner. On the Initial Closing Date the Transferors
shall also be deemed to have assigned to Headliners the right to receive
the Net Cash Flow (as defined in Article III herein) of Louisville until
the earlier of (a) a Second Closing pursuant to Section 1.3 hereof or (b) a
termination of the assignment pursuant to Section 3.5.1.3 hereof.
1.3 Second Closing. On the Second Closing Date, the Transferors
shall transfer to Headliners all of their record and equity interest in
Louisville. Each of the Transferors shall execute and deliver such
documents as are necessary to permit Headliners to assume control of
Louisville and to own and operate the business carried on by Louisville,
including, as needed, assignments of leaseholds, liquor licenses, permits,
and any other rights, interests and privileges which may be impaired by the
assignment of ownership of that Project Owner.
1.4 Warranties. The Transferors, jointly and severally, represent
and warrant to Headliners that:
1.4.1 The assignment of the Transferors' interests in the Project
Owners pursuant to Section 1.2 and Section 1.3 will vest in
Headliners all of the right, title and interest in the Project
Owners, free of liens, claims and encumbrances.
1.4.2 The Project Owners hold unencumbered title to the leaseholds
used by the Projects, and have full unencumbered right to the
revenues generated by the Projects.
1.5 Convertible Debenture. On the Initial Closing Date Headliners
will issue to JHF a convertible debenture in the principal amount of Five
Hundred Thousand Dollars ($500,000) and will issue to Butler a convertible
debenture in the principal amount of Four Million Five Hundred Thousand
Dollars ($4,500,000) (collectively, the "Convertible Debentures"). Each of
the Convertible Debentures will be in the form annexed hereto as Appendix
A. The Convertible Debentures, the Two Million Two Hundred Forty Thousand
Dollars ($2,240,000) previously paid by Headliners to JHF, and the other
undertakings by Headliners in this agreement will constitute the
consideration given for the Project Owners.
1.6 Registration Statement. As soon as practicable after the
Initial Closing Date, Headliners shall prepare and file with the Securities
and Exchange Commission a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of counsel for
Headliners in order to comply with the provisions of the Securities Act, so
as to permit a public sale by JHF and Butler of the common shares issuable
upon conversion of the Convertible Debentures and the shares issued in June
2004 to JHF that are referenced in Section 2.2 of this agreement (the
"Registrable Shares"). In connection with the registration of the
Registrable Shares, Headliners covenants and agrees as follows:
a) Headliners will use its best efforts to cause the
registration statement to be declared effective as promptly as practicable.
b) Until either (i) all of the Registrable Shares have been
sold or (ii) JHF and Butler will be able to sell all of the remaining
Registrable Shares in the public market without a prospectus
within a six month period, Headliners will file such amendments
to the registration statement as are necessary in order to
permit continued use of the prospectus.
c) Headliners acknowledges that JHF and Butler are unfamiliar
with the rules and procedures of the Securities and Exchange
Commission, and will rely on Headliners and its counsel for
compliance therewith.
1.7 Sale of Registrable Shares. Butler and JHF jointly agree that
the maximum number of Registrable Shares which they will sell is that
number of Registrable Shares that yields approximately $100,000 in net
proceeds per week, averaged over a four week period. Upon request (made no
more than once per month), Butler and JHF will account to Headliners for
all sales of Registrable Shares, showing dates of sale and net proceeds.
The parties agree that any material breach by Butler or JHF of the covenant
in this Section 1.7 will justify action by Headliners that will effect a
de-registration of the remaining Registrable Shares. Prior to taking any
action to effect a de-registration of the Registrable Shares, Headliners
will give Butler written notice of the breach and allow him fifteen days to
effect a cure.
1.8 Initial Closing. The "Initial Closing" will take place at the
offices of Headliners within two days after the execution of this
agreement. The date on which the Initial Closing occurs will be the
"Initial Closing Date." At the Initial Closing, in addition to all
deliveries recited herein, each party will deliver to the other a
certification attesting that the warranties and representations of that
party made herein are true and correct on the Closing Date as if made with
reference to the Closing Date. In the event that the Closing has not
occurred on or prior to March 31, 2005, any of the parties may terminate
this Agreement by notice to the other parties.
1.9 Second Closing. The "Second Closing" will take place at the
offices of Headliners on a date fixed by Headliners in a Closing Notice
addressed to JHF. The date on which the Second Closing occurs will be the
"Second Closing Date." The "Closing Notice" may be given at any time after
the net proceeds realized by JHF from sale of shares obtained pursuant to
Section 3.5.1 of this agreement equal or exceed Two Million Three Hundred
Thousand Dollars ($2,300,000).
II ADDITIONAL PROJECTS
2.1 The Virginia Project. The parties have commenced development
of a project in Hampton VA (the "Virginia Project"). Prior to this date
JHF has delivered to Headliners a design for the Virginia Project, which
has been approved by Headliners. The Virginia Project will include a
comedy club utilizing the Rascals Mark and related trade dress in close
location to a dance club utilizing one of the JHF Marks and related trade
dress. Headliners hereby retains JHF to design and develop the Virginia
Project.
2.2 Virginia Fee. JHF will be responsible for supervising the
development and construction of the Virginia Project. The "Fee" charged by
JHF to Headliners for design, development and completion of the Virginia
Project is One Million Four Hundred Thousand Dollars ($1,400,000) plus the
value of the seven million common shares issued by Headliners to JHF in
June 2004. The cash Fee will be payable at the Initial Closing. The Fee
includes all costs and expenses of bringing the Virginia Project to its
opening, including materials, labor, subcontractor invoices, and all
compensation to be paid to JHF for its services and reimbursement of JHF's
expenses. In the event that due to extraordinary, unforeseen
circumstances, the Fee proves inadequate for the Virginia Project, JHF will
provide Headliners with a detailed explanation of the cost overrun, and the
parties will negotiate in good faith towards a resolution of the issue.
Headliners acknowledges its understanding that the following items in
connection with the initiation of operations of the Virginia Project are
not included in the Fee and must be funded otherwise: inventory, training
wages, advertising, initial cash drawer and similar expenditures.
2.3 Virginia Development. JHF has organized an Ohio limited
liability company named "JEP, Power Plant Way, LLC" (the "Virginia LLC")
and owns all of the equity in the Virginia LLC. JHF will retain, in its
own name and for its account or in the name of the Virginia LLC and for its
account, such architects, contractors, and tradesmen as are required to
construct the Project. JHF has delivered to Headliners a written schedule
for completion of the Project, identifying and scheduling all significant
development events.
2.4 Virginia Cash Flow. The Net Cash Flow (as defined in Article
III hereof) from the Virginia Project is hereby assigned to Headliners
until the earlier of (a) a Virginia Closing pursuant to Section 2.5 hereof
or (b) a termination of the assignment pursuant to either Section 3.5.1.1
or Section 3.5.1.2 hereof.
2.5 Virginia Closing. The "Virginia Closing" will take place at
the offices of Headliners on a date fixed by Headliners in a Virginia
Closing Notice addressed to JHF. The date on which the Virginia Closing
occurs will be the "Virginia Closing Date." The "Virginia Closing Notice"
may be given at any time after the net proceeds realized by JHF from sale
of shares obtained pursuant to Section 3.5.1 of this agreement equal or
exceed One Million Three Hundred Thousand Dollars ($1,300,000). On the
Virginia Closing Date, JHF shall transfer to Headliners all of its record
and equity interest in the Virginia LLC. JHF shall execute and deliver
such documents as are necessary to permit Headliners to assume control of
the Virginia LLC and to own and operate the business carried on by the
Virginia LLC, including, as needed, assignments of leaseholds, liquor
licenses, permits, and any other rights, interests and privileges which may
be impaired by the assignment of ownership of the Virginia LLC.
III. MANAGEMENT SERVICES
3.1 Services. During the period commencing on the Initial Closing
Date and continuing until the second anniversary of the Second Closing
Date, JHF will provide such operational and financial management services
as are required by the Projects and the Virginia Project and any other
similar ventures jointly developed by Headliners and JHF (collectively, the
"Managed Projects").
3.2 Reports. JHF shall perform all services required under this
Article III as an independent contractor; provided, however, that JHF shall
consult with management of Headliners when requested and shall deliver such
reports to Headliners as are reasonably requested in order to permit
Headliners to assess the results of operations and the prospects of the
ventures managed by JHF. Said reports to be delivered to Headliners will
be identical in style and substance to the reports that JHF currently
prepares for operations of the Project Owners, examples of which have been
delivered to Headliners.
3.3 Assignment of Obligations. At any time during the term of this
Article III, the principals of JHF may organize a separate entity or
entities, independent of JHF, for the purpose of assuming JHF's
responsibilities under this Section III and receiving the related
compensation. Such an assignment will be permissible hereunder if each new
entity is managed by the principals and executives of JHF, and the services
are performed by the principals and executives of JHF. Throughout this
Section III, any reference to JHF will include any assignee of JHF
permitted under this Section 3.3.
3.4 Bookkeeping, Banking and Finances.
3.4.1 JHF shall provide Headliners with weekly financial reports for
each of the Managed Projects. The weekly reports will be presented in the
format now utilized by JHF for bookkeeping and financial reporting, samples
of which have been provided to Headliners.
3.4.2 JHF shall assist and cooperate with Headliners' internal
bookkeeping and accounting staff and Headliners' independent accountants to
permit them to prepare financial statements of the Managed Projects in
accordance with generally accepted accounting standards, and to permit them
to deliver such statements to Headliners no less than three weeks prior to
each date on which Headliners is required to file consolidated financial
statements with the Securities and Exchange Commission. JHF shall also
cooperate in the implementation of any internal controls procedures which
are recommended by Headliners or its independent accountants in order to
comply with the regulations of the Securities and Exchange Commission. The
foregoing notwithstanding, JHF shall have no liability for the costs,
expenses or fees of Headliners' internal bookkeeping and accounting staff
and Headliners' independent accountants, all of which shall be borne by
Headliners. The cost of the audit shall not be allowed to impact any
payments to JHF.
3.4.3 One or more of the principals or executives of JHF shall be
signatory on the bank accounts of each entity managed by JHF hereunder.
JHF is hereby authorized to make such payments on behalf of the Managed
Projects as are appropriate to their business interests. JHF is further
authorized to pay to itself from the cash resources of the managed entities
amounts due pursuant to Section 3.5 or Section 3.7 hereof, to the extent
that such payments shall not interfere with the business operations of the
managed entities. JHF shall promptly account to Headliners in writing or
electronically for any payment made by a managed entity to JHF. Such
prompt accounting can be accomplished through the weekly reports referred
to in Section 3.2 above.
3.4.4 On Tuesday of each week, JHF shall cause each of the Managed
Projects to wire to Headliners' account its entire bank balance less (a)
the sum of all previously-issued but uncleared checks and (b) a reserve
equal to ___________________.
3.5 Compensation. The following payments and deliveries shall be
made to JHF in compensation for the management services to be rendered
pursuant to this Article III.
3.5.1 Stock. On the Initial Closing Date Headliners shall issue to
JHF shares of Headliners common stock that have a Market Value of Two
Million Three Hundred Thousand Dollars ($2,300,000). JHF agrees that it
will sell the shares for up to One Hundred Thousand Dollars ($100,000) per
week, and shall deliver to Headliners copies of the confirmations of each
sale. Three days after JHF notifies Headliners that it has sold all of the
shares issued pursuant to this Section 3.5.1, Headliners shall issue to JHF
additional shares of Headliners common stock whose Market Value equals the
remainder of (i) $2,300,000 less (ii) the net proceeds of sales by JHF of
shares previously issued pursuant to this Section 3.5.1 plus any payments
by Headliners pursuant to Section 3.5.1.1, Section 3.5.1.2 or Section
3.5.1.3. Headliners shall continue to issue shares to JHF in this manner
until the earlier of (x) the date on which the net proceeds of sales by JHF
plus payments pursuant to Section 3.5.1.1 and Section 3.5.1.2 equal or
exceed $2,300,000 or (y) the date on which, pursuant to Section 3.5.1.3
hereof, JHF terminates Headliners' right to give notice of the Second
Closing Date. The issuance of shares pursuant to this Section 3.5.1 shall
be made pursuant to the terms of an equity incentive plan that Headliners
shall register with the SEC on Form S-8 and no additional registration
statement will be necessary to permit JHF to resell the shares to the
public. Headliners acknowledges that the shares being issued pursuant to
this Section 3.5.1 compensate JHF primarily for services that will be
rendered promptly after the Initial Closing Date, involving the
implementation of systems necessary in order for the Project Owners to
function as subsidiaries of a public company. For that reason, Headliners
agrees that its obligation under this Section 3.5.1 is absolute and the
shares to be issued hereunder are non-refundable, notwithstanding non-
performance, underperformance or other breach by JHF. Headliners'
obligation under this Section 3.5.1 shall not be subject to any right of
offset.
3.5.1.1 Liquidation Shortfall - Virginia (10 Weeks). In the event
that on the date which is 10 weeks after April 18, 2005 (the "First
Virginia Testing Date"), despite best efforts by JHF, the net proceeds of
sales by JHF of Headliners shares is less than Five Hundred Thousand
Dollars ($500,000), then Headliners will have sixty (60) days after the
First Virginia Testing Date to effect a cure. The shortfall will be deemed
to have been cured if on or before that sixtieth day the aggregate of (a)
the net proceeds as of the First Virginia Testing Date plus (b) net
proceeds realized by JHF after the Virginia Testing Date in excess of Fifty
Thousand Dollars ($50,000) per week plus (c) cash paid by Headliners to JHF
for this purpose equals or exceeds $500,000. The date on which the
shortfall is cured is identified herein as the "First Virginia Cure Date."
In the event that Headliners fails to effect a cure for the shortfall
within the terms of this Section 3.5.1.1, JHF may by written notice to
Headliners terminate Headliners' right hereunder to give notice of a
Virginia Closing Date and terminate the assignment of Net Cash Flow
described in Section 2.4 hereof. JHF's right to terminate Headliners'
rights with respect to the Virginia Project will be JHF's exclusive remedy
for Headliners' failure to cure a shortfall within the terms of this
Section 3.5.1.1
3.5.1.2 Liquidation Shortfall - Virginia (26 Weeks). In the event
that on the date which is 16 weeks after the later of the First Virginia
Testing Date or the First Virginia Cure Date (the "Second Virginia Testing
Date"), despite best efforts by JHF, the net proceeds of sales by JHF of
Headliners shares is less than One Million Three Hundred Thousand Dollars
($1,300,000), then Headliners will have sixty (60) days after the Second
Virginia Testing Date to effect a cure. The shortfall will be deemed to
have been cured if on or before that sixtieth day the aggregate of (a) the
net proceeds as of the Second Virginia Testing Date plus (b) net proceeds
realized by JHF after the Second Virginia Testing Date in excess of Fifty
Thousand Dollars ($50,000) per week plus (c) cash paid by Headliners to JHF
for this purpose equals or exceeds $1,300,000. The date on which the
shortfall is cured is identified herein as the "Second Virginia Cure Date."
In the event that Headliners fails to effect a cure for the shortfall
within the terms of this Section 3.5.1.2, JHF may by written notice to
Headliners terminate Headliners' right hereunder to give notice of a
Virginia Closing Date and terminate the assignment of Net Cash Flow
described in Section 2.4 hereof. JHF's right to terminate Headliners'
rights with respect to the Virginia Project will be JHF's exclusive remedy
for Headliners' failure to cure a shortfall within the terms of this
Section 3.5.1.2
3.5.1.3 Liquidation Shortfall - Louisville. In the event that on
the date which is 20 weeks after the later of the Second Virginia Testing
Date or the Second Virginia Cure Date (the "Louisville Testing Date"),
despite best efforts by JHF, the net proceeds of sales by JHF of Headliners
shares is less than Two Million Three Hundred Thousand Dollars
($2,300,000), then Headliners will have sixty (60) days after the
Louisville Testing Date to effect a cure. The shortfall will be deemed to
have been cured if on or before that sixtieth day the aggregate of (a) the
net proceeds realized by JHF from sale of Headliners shares plus (b) cash
paid by Headliners to JHF for this purpose equals or exceeds $2,300,000.
In the event that Headliners fails to effect a cure for the shortfall
within the terms of this Section 3.5.1.3, JHF may by written notice to
Headliners terminate Headliners' right hereunder to give notice of a Second
Closing Date and terminate the assignment of Net Cash Flow of Louisville
described in Section 1.2 hereof. JHF's right to terminate Headliners'
rights with respect to Louisville will be JHF's exclusive remedy for
Headliners' failure to cure a shortfall within the terms of this Section
3.5.1.3
3.5.2 Cash Payments.
3.5.2.1 Headliners shall pay to JHF a weekly fee, based on a
"Week" commencing on Sunday and ending on Saturday. The weekly
fee will equal (a) the Net Cash Flow of the Managed Projects
during the Week less (b) Thirty-Two Thousand Five Hundred
Dollars ($32,500), but the fee shall not exceed the Weekly Cap.
The weekly fee will be paid on or before the Tuesday following
the Week, prior to the transfer to Headliners of the bank
balances required by Section 3.4.4 hereof. The "Weekly Cap"
will be the greater of (A) Eleven Thousand Five Hundred Thirty-
Eight Dollars ($11,538) or (B) 200% of the average weekly
salary and bonus paid in cash to Headliners' Chief Executive
Officer; provided, however, that if (a) any of the present
principals or executives of JHF reduces the time he devotes to
services under this Section III by more than seventy percent
(70%) for a period of two months, and (b) Headliners gives
written notice to JHF specifying the details of the reduction,
and (c) the performance level is not substantially restored
within two weeks after notice is given, then the Weekly Cap
shall be reduced to Five Thousand Seven Hundred Sixty-Nine
Dollars ($5,769). The term "Net Cash Flow" as applied to a
Managed Property means the cash receipts from operations of the
Managed Property less cash expenditures attributable to the
business of the Managed Property other than payments pursuant
to this agreement.
3.5.2.2 Headliners will pay to JHF the sum of Three Thousand Five
Hundred ($3,500) per week to reimburse it for office staff and
other expenses it may incur in managing the Projects and the
Properties;
3.5.2.3 Headliners will pay to JHF the sum of Three Thousand Six
Hundred Dollars ($3,600) per month to reimburse a car allowance
for the principals and executives of JHF; and
3.5.2.4 Headliners will reimburse JHF for health insurance premiums
paid for the benefit of its principals, provided that the
premiums do not exceed the premiums paid by Headliners for
health insurance for its senior executives.
3.6 Expenses of Operations. All travel cost, wage cost, accounting
fees, consulting fees and any other cost directly associated with the
operations of an entity managed by JHF hereunder will be born by the entity
or by Headliners. JHF shall have no obligation to assume liability for any
such expenses. In the event that JHF does satisfy any obligation of a
managed entity, Headliners will reimburse JHF promptly.
3.7 Lease. Headliners will enter into a lease for premises owned
by JHF at 6728 Hyland Croy, Dublin, Ohio. The lease shall be for a term of
five years. The total financial obligation of Headliners under the lease
shall be a payment of Fifteen Thousand Dollars ($15,000) per month, which
includes all CAM charges. Headliners shall make the premises available to
JHF for its offices, including but not limited to the offices required for
it to satisfy its obligations under this Article III.
IV WARRANTIES AND REPRESENTATIONS
4.1 Transferors Warranties. The Transferors, jointly and
severally, warrant and represent to Headliners that:
4.1.1 Governmental Matters. JHF has each permit, license, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other U.S., state,
county, local or foreign governmental authority, instrumentality, agency or
commission that is required by or with respect to the Project Owners, the
Projects and their business ("Government Privileges"). On the Initial
Closing Date, the Project Owners will have all such Government Privileges
in full force and effect. JHF has not received notice that any
governmental agency or authority is actively contemplating withdrawing or
terminating any of the Governmental Privileges.
4.1.2 Taxes. Each of the Project Owners has filed all tax returns
that it is required to file with all governmental agencies, wherever situate,
and has paid or accrued for payment all taxes as shown on such returns except
for taxes being contested in good faith. There is no material claim for
taxes that is a lien against the property of any Project Owner other than
liens for taxes not yet due and payable.
4.1.3 Pending Actions. There are no material legal actions, lawsuits,
proceedings or investigations, either administrative or judicial, pending or
threatened, against or affecting any of the Project Owners or any of the
Projects. None of the Project Owners is subject to any order, writ, judgment,
injunction, decree, determination or award of any court, arbitrator or
administrative, governmental or regulatory authority or body which would be
likely to have a material adverse effect on the business of the Project
Owner.
4.1.4 Financial Statements. JHF has delivered to Headliners the
audited financial statements of the Project Owners as of September 30, 2004
("Project Financial Statements"). The Project Financial Statements fairly
present the financial condition of the Project Owners as of the date shown on
the Project Financial Statements and the results of operations of the Project
Owners for the period covered in the Project Financial Statements.
4.1.5. Absence Of Certain Changes Or Events. To the knowledge of
JHF, since September 30, 2004:
(A) there has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of the Projects or
(ii) any damage, destruction, or loss to any of the Projects (whether or
not covered by insurance) materially and adversely affecting the business,
operations, properties, assets, or condition of that Project;
(B) None of the Project Owners has (i) made any material change in
its method of management, operation, or accounting; (ii) other than in the
ordinary course of business, entered into any other material transaction;
(iii) other than pursuant to any existing employment agreement, made any
accrual or arrangement for payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee; (iv) other than pursuant to any existing employment
agreement, increased the rate of compensation payable or to become payable
by it to any of its officers or any of its employees whose monthly
compensation exceeds $5,000; or (v) other than pursuant to any existing
employment agreement, made any increase in any profit sharing, bonus,
deferred compensation, insurance, pension, retirement, or other employee
benefit plan, payment, or arrangement made to, for, or with its officers,
directors, or employees;
(C) None of the Project Owners has (i) materially borrowed or
agreed to borrow any funds, or incurred, or become subject to, any material
obligation or liability (absolute or contingent) except liabilities
incurred in the ordinary course of business; (ii) paid any material
obligation or liability (absolute or contingent) other than current
liabilities reflected in or shown on the Project Financial Statements and
current liabilities incurred since that date in the ordinary course of
business; (iii) sold or transferred, or agreed to sell or transfer, any of
its assets, properties, or rights (except non-material assets, properties,
or rights not used or useful in its business which, in the aggregate have a
value of less than $50,000), or canceled, or agreed to cancel, any debts or
claims (except non-material debts or claims which in the aggregate are of a
value of less than $50,000); or (iv) made or permitted any amendment or
termination of any contract, agreement, or license to which it is a party
if such amendment or termination is material, considering the business of
the Project); and
(D) to the knowledge of the Transferors, none of the Projects has
become subject to any law or regulation which materially and adversely
affects, or in the future is substantially likely to have a material
adverse effect on the Project.
4.1.6 Ownership of Assets. Except as specifically identified in the
Project Financial Statements, each of the Project Owners has good, marketable
title, without any liens or encumbrances of any nature whatever, to all of
its assets.
4.1.7 No Interest in Suppliers, Customers, Creditors or Competitors.
Neither JHF nor any principal or executive of JHF nor any member of their
respective families has any interest of any nature whatever in any supplier,
creditor or competitor of any of the Projects.
4.1.8. No Debt Owed to JHF. None of the Project Owners owes any
money or property to JHF or to a principal or executive of JHF or any member
of their families or to any company controlled by or under common control with
such a person, directly or indirectly.
4.1.9. Compliance with Laws. The operations of the Projects have
been conducted in all material respects in accordance with all applicable
statutes, laws, rules and regulations.
4.2 Headliners Warranties. Headliners warrants and represents to
the Transferors that:
4.2.1 Due Authority. The execution, delivery, and performance of this
Agreement by the executive officers of Headliners has been duly authorized
by all necessary corporate and shareholder action, and this Agreement, upon
its execution by the parties, will constitute the valid and binding
obligation of Headliners enforceable against it in accordance with and
subject to its terms, except as enforceability may be affected by
bankruptcy, insolvency or other laws of general application affecting the
enforcement of creditors' rights
4.2.2 SEC Filings. The reports filed by Headliners with the SEC
since January 1, 2004 are complete and accurate in all material respects,
and comply with the filing requirements of the Rules of the SEC.
4.2.3 Absence Of Certain Changes Or Events. Except as set forth in
filings made by Headliners with the SEC, to the knowledge of Headliners,
since September 30, 2004:
(A) there has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of Headliners or
(ii) any damage, destruction, or loss to any of its properties (whether or
not covered by insurance) materially and adversely affecting the business,
operations, properties, assets, or condition of Headliners;
(B) Headliners has not (i) made any material change in its method
of management, operation, or accounting; or (ii) other than in the ordinary
course of business, entered into any other material transaction;
(C) Headliners has not (i) materially borrowed or agreed to borrow
any funds, or incurred, or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the
ordinary course of business; (ii) paid any material obligation or liability
(absolute or contingent) other than current liabilities; (iii) sold or
transferred, or agreed to sell or transfer, any of its assets, properties,
or rights (except non-material assets, properties, or rights not used or
useful in its business which, in the aggregate have a value of less than
$50,000), or canceled, or agreed to cancel, any debts or claims (except
non-material debts or claims which in the aggregate are of a value of less
than $50,000); or (iv) made or permitted any amendment or termination of
any contract, agreement, or license to which it is a party if such
amendment or termination is material, considering the business of
Headliners); and
(D) to the knowledge of Headliners, none of its properties has
become subject to any law or regulation which materially and adversely
affects, or in the future is substantially likely to have a material
adverse effect on Headliners.
V. FUTURE PROJECTS
5.1 JHF Marks. JHF specifically retains the right to use the JHF
Marks in developing projects and properties, provided that such projects
and properties do not compete directly with any of the Projects. Two
properties will be deemed to be in competition with each other if they are
located within fifty (50) miles of each other.
5.2 Headliners Right of First Refusal. In the event that either of
the Transferors wishes to develop a property that will utilize any of the
JHF Marks in connection with its operations, JHF will deliver to Headliners
a detailed business plan for the property, together with a budget for its
development. Within thirty days after receipt of the business plan,
Headliners may choose to provide the financing required by the budget in
exchange for 100% of the equity interest in the resulting property. Any
such property that Headliners opts to fund will be developed and assigned
in the manner described in Section II of this Agreement with respect to the
Virginia Project.
5.3 JHF Right of First Refusal. In the event that Headliners
wishes to develop a property using the Rascals Mark and/or one of the JHF
Marks, Headliners will deliver to JHF a detailed business plan for the
property, together with a budget for its development. Within thirty days
after receipt of the business plan, JHF may undertake to design, develop
and manage the property. Any such property that JHF opts to develop and
manage will be developed and assigned in the manner described in Section II
of this Agreement with respect to the Virginia Project.
VI PLEDGE OF SECURITIES
On the Initial Closing Date, Headliners will execute and tender to
JHF the Securities Pledge Agreement in the form annexed hereto as Appendix
B, in which Headliners will pledge 66?% of its interest in the Project
Owners identified as Cincinnati, Kansas City and Tucson to secure the
obligations set forth in this Agreement.
VII MISCELLANEOUS
7.1 Notice. All notices given in writing shall be effective when
either served by personal delivery or by an overnight courier with a
national reputation, if the signature of the intended recipient is
obtained. In order to be effective, all notices shall addressed to the
President of the party at the address set forth on the first page of this
Agreement, or to such other address as either party may later specify by
written notice.
7.2 Governing Law. This agreement shall be governed by the laws of
the State of New Jersey applicable to contracts made and to be carried out
therein.
7.3 Arbitration. All disputes, controversies, or claims arising
out of or relating to this Agreement or a breach thereof shall be submitted
to and finally resolved by arbitration under the rules of the American
Arbitration Association ("AAA") then in effect. There shall be one
arbitrator, and such arbitrator shall be chosen by mutual agreement of the
parties in accordance with AAA rules. The arbitration shall take place in
Newark, New Jersey. The findings of the arbitrator shall be final and
binding on the parties, and may be entered in any court of competent
jurisdiction for enforcement.
IN WITNESS WHEREOF, the parties have executed this agreement as of
the date written on its first line.
HEADLINERS ENTERTAINMENT JHF PROPERTIES, LLC
GROUP, INC.
By: /s/ Eduardo Rodriguez By:/s/ Paul Butler
------------------------- -------------------
Eduardo Rodriguez, C.E.O. Paul Butler, C.E.O.
/s/ Paul Butler
-------------------
PAUL BUTLER
APPENDIX A
THIS DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY,
THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE
SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER
REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS
THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE
MADE EXCEPT IN COMPLIANCE WITH THE ACT.
HEADLINERS ENTERTAINMENT GROUP, INC.
0% Convertible Debenture
March ___, 2006
No. US$
This Debenture (the "Debenture") is issued on March ___, 2005
(the "Closing Date") by Headliners Entertainment Group, Inc., a Delaware
corporation (the "Company"), to ___________________________________(together
with its permitted successors and assigns, the "Holder") pursuant to
exemptions from registration under the Securities Act of 1933, as amended.
1.01 Principal and Interest. For value received, the Company hereby
promises to pay to the order of the Holder on March ___, 2008 (the "Payment
Date") in lawful money of the United States of America and in immediately
available funds the principal sum of ___________________________ U.S.
Dollars ($_____________). This obligation shall not bear interest. At the
Company's option, the entire principal amount that remains outstanding on the
Payment Date may be converted in accordance with Section 1.02 herein. In no
event shall the Holder be entitled to convert this Debenture for a number of
shares of Common Stock in excess of that number of shares of Common Stock
which, upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the Holder and its
affiliates to exceed 9.99% of the outstanding shares of the Common Stock
following such conversion.
1.02 Optional Conversion. The Holder is entitled, at its option, to
convert, and sell on the same day, at any time and from time to time, until
payment in full of this Debenture, all or any part of the principal amount of
the Debenture into shares (the "Conversion Shares") of the Company's common
stock, $.001 par value ("Common Stock"), at the price per share (the
"Conversion Price") equal to the average of the closing bid prices of the
Company's Common Stock, as quoted by Bloomberg, LP, for the five (5) trading
days immediately preceding the Conversion Date (as defined herein). No
fraction of shares or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded to the
nearest whole share. To convert this Debenture, the Holder hereof shall
deliver written notice thereof, substantially in the form of Exhibit "A" to
this Debenture, with appropriate insertions (the "Conversion Notice"), to the
Company at its address as set forth herein. The date upon which the
conversion shall be effective (the "Conversion Date") shall be deemed to be
the date set forth in the Conversion Notice.
1.03 Right of Redemption. The Company, at its option, shall have the
right to redeem, with five (5) business days advance written notice (the
"Redemption Notice"), a portion or all of the outstanding principal amount of
this Debenture. The redemption price shall be par.
1.04 Events of Default. An "Event of Default" is defined as follows:
(a) failure by the Company to pay amounts due hereunder within fifteen (15)
days of the date of maturity of this Debenture; (b) failure by the Company
for ten (10) days after notice to it to comply with any of its other
agreements in the Debenture; or (c) events of bankruptcy or insolvency. Upon
the occurrence of an Event of Default, the Holder may, in its sole
discretion, accelerate full repayment of the Debentures or may,
notwithstanding any limitations contained in this Debenture, convert the
entire principal amount of this Debentures outstanding into shares of Common
Stock pursuant to Section 1.02 herein.
2.01 Notice. Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Company, to:
Headliners Entertainment Group, Inc.
501 Bloomfield Avenue
Montclair, NJ 07042
Attention: Ed Rodriguez
Telephone: (973) 233-1233
Facsimile: (973) 233-1299
With a copy to:
Robert Brantl, Esq.
322 4th Street
Brooklyn, NY 11215
Telephone: (718) 768-6045
Facsimile: (718) 965-4042
If to the Holder:
Telephone:
Facsimile:
2.02 Governing Law. This Debenture shall be deemed to be made under
and shall be construed in accordance with the laws of the State of New Jersey
without giving effect to the principals of conflict of laws thereof.
2.03 Arbitration. All disputes, controversies, or claims arising out
of or relating to this Debenture shall be submitted to and finally resolved
by arbitration under the rules of the American Arbitration Association
("AAA") then in effect. There shall be one arbitrator, and such arbitrator
shall be chosen by mutual agreement of the parties in accordance with AAA
rules. The arbitration shall take place in Newark, New Jersey. The findings
of the arbitrator shall be final and binding on the parties, and may be
entered in any court of competent jurisdiction for enforcement.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of the date first written above.
HEADLINERS ENTERTAINMENT GROUP, INC.
By:
Name: Eduardo Rodriguez
Title: President
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert US$ __________
of the principal amount of the above Debenture into Shares of
Common Stock of Headliners Entertainment Group, Inc., according to the
conditions stated therein, as of the Conversion Date written below.
Conversion Date:
Applicable Conversion
Price:______________________________________________
Signature:__________________________________________
Name:_______________________________________________
Address:____________________________________________
Amount to be converted:US$__________________________
Amount of Debenture unconverted:US$_________________
Conversion Price per share:US$______________________
Number of shares of Common Stock to be issued:
____________________________________________________
Please issue the shares of Common Stock in the
following name and to the following address:
Issue to: __________________________________________
Authorized Signature:_______________________________
Name:_______________________________________________
Title:______________________________________________
Phone Number:_______________________________________
Broker DTC Participant Code:________________________
Account Number:_____________________________________
APPENDIX B
SECURITIES PLEDGE AGREEMENT
This SECURITIES PLEDGE AGREEMENT (the "Agreement") is made and entered
into as of March 29, 2005 by and among HEADLINERS ENTERTAINMENT GROUP, INC.,
a Delaware corporation with offices at 501 Bloomfield Avenue, Montclair, NJ
07042 ("Debtor"), PAUL BUTLER, with offices at 6728 Hyland Croy, Dublin, OH
43016 for himself and as agent for JHF PROPERTIES, LLC, an Ohio limited
liability company with offices at 6728 Hyland Croy, Dublin, OH 43016
(together, "Secured Party").
RECITALS
Pursuant to the terms of a Consolidated Acquisition Agreement dated
March 29, 2005 (the "Secured Agreement"), the Debtor agreed to make certain
payments and deliveries to the Secured Party in exchange for the equity in
certain entities now owned by the Secured Party. Pursuant to the provisions
of the Secured Agreement, the Debtor has agreed to provide certain collateral
to secure the Debtor's obligations to the Secured Party under the Secured
Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
set forth herein, the Secured Party and the Debtor hereby agree as follows:
ARTICLE I
COLLATERAL
As security for the Debtor's obligations under the Secured Agreement,
the Debtor hereby grants to the Secured Party a continuing security interest
in the a divided two-third's share of Debtor's right, title and interest in
each of the following entities (the "Collateral"):
a. 1133 Sycamore St. LLC (Cincinnati)
b. 4115 Mill Street LLC (Kansas City)
c. 296 N. Stone LLC (Tucson)
The Collateral shall be reduced as the Debtor's obligation to the Secured
Party under the 0% Convertible Debenture dated the same date as this
agreement (the "Debenture") is satisfied. When the Debtor's obligation under
the Debenture has been reduced by One Million Dollars ($1,000,000), the
pledge of the Debtor's interest in the entity identified as "Cincinnati" will
terminate. When the Debtor's obligation under the Debenture has been
reduced by Two Million Dollars ($2,000,000), the pledge of the Debtor's
interest in the entity identified as "Kansas City" will terminate. When
the Debtor's obligation under the Debenture has been reduced by Three Million
Dollars ($3,000,000), this agreement and the pledge of Debtor's interest in
the entity identified as Tucson will terminate.
ARTICLE II
OBLIGATIONS SECURED
The Collateral and the power of collection pertaining thereto shall
secure the prompt and complete performance and payment of any and all
obligations of the Debtor to the Secured Party pursuant to the Secured
Agreement, except such obligations as to which the Secured Agreement recites
an exclusive remedy, together with all fees, expenses, commissions, charges,
penalties, and other amounts owing by or chargeable to the Debtor under this
Agreement (collectively, the "Obligations").
ARTICLE III
DUTIES OF THE DEBTOR REGARDING COLLATERAL
At all times hereafter, the Debtor shall:
(a) maintain good and complete title to the Collateral;
(b) keep the Collateral free and clear at all times of all
other security interests, liens, or encumbrances of any kind, including,
without limitation, any lien arising as a result of the Debtor's failure to
pay any and all taxes or governmental assessments or charges of any kind
whatsoever;
(c) refrain from selling, assigning or otherwise disposing of
any of the Collateral without the prior written consent of the Secured Party,
or until all of the Debtor's obligations have been paid in full; and
(d) refrain from transferring or impairing the assets of
any entity included in the Collateral outside the ordinary course of business
without the prior written consent of the Secured Party or until all of the
Debtor's obligations have been paid in full.
ARTICLE IV
EVENTS OF DEFAULT
Section 4.1 Definition. For purposes hereof, the failure of the
Debtor to perform or comply with any act, duty or obligation required to be
performed under this Agreement or under the Secured Agreement shall be an
"Event of Default" if such failure is not remedied within ten (10) days
following receipt by the Debtor of notice of such failure from the Secured
Party.
Section 4.2 Rights and Remedies Upon Default. If an Event of
Default shall have occurred and be continuing, the Secured Party may, at his
sole option, without notice or demand, declare the Obligations to be
immediately due and payable. As to any Collateral, the Secured Party shall
have the rights and remedies of any secured creditor under the Uniform
Commercial Code as in effect, from time to time, in New Jersey ("UCC"), such
rights to be exercised in such order or manner as the Secured Party may
determine in his sole discretion against the Debtor. If for any reason the
Secured Party should be required by law or otherwise to give notice to the
Debtor of the sale of any Collateral, the Debtor agrees that any written
notice sent by overnight delivery service not less than five (5) calendar
days before the sale or mailed postage prepaid to the Debtor's executive
offices (attention: President) not less than ten (10) calendar days before
the sale shall be deemed reasonable and adequate.
ARTICLE V
WAIVERS
Section 5.1 Waivers of Rights. The Debtor waives any right to
require the Secured Party to (a) proceed against any person, (b) proceed
against any other collateral under any other agreement, (c) pursue any other
remedy in the Secured Party's power, and (d) make presentment, demand,
dishonor, notice of dishonor, acceleration and/or notice of non-payment.
Section 5.2 Waiver of Defense. The Debtor waives any defense
that it may have to the exercise by Secured Party of its rights under this
Agreement, other than payment in full of the Obligations.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Attorney-in-Fact. The Debtor appoints the Secured
Party its true attorney-in-fact to perform any of the following powers, which
are irrevocable until termination of this Agreement and may be exercised,
from time to time, by the Secured Party in the event of an Event of Default:
(i) to perform any obligation of the Debtor hereunder in the Debtor's name or
otherwise; (ii) to collect by legal proceedings or otherwise all dividends,
interest, principal or other sums now or hereafter payable upon or on account
of the Collateral, to accept other property in exchange for the Collateral,
and any money or property received in exchange for the Collateral may be
applied to the Obligations to the Secured Party or held by the Secured Party
under this Agreement; (iii) to make any compromise or settlement the Secured
Party deems desirable or proper in respect of the Collateral; (iv) to insure,
process and preserve the Collateral. The foregoing power of attorney shall
take effect only upon an Event of Default or upon failure by Debtor to
perform any of its obligations hereunder. The Debtor further authorizes the
Secured Party to file Form UCC-1 Financing Statements naming Debtor as the
debtor thereunder without the signature of Debtor in such jurisdictions as
shall be necessary to perfect Secured Party's security interest as
contemplated by the Agreement.
Section 6.2 Fees and Expenses. On demand by the Secured Party,
after an Event of Default, the Debtor shall pay all reasonable fees, costs,
and expenses (including without limitation reasonable attorneys' fees and
legal expenses) incurred by the Secured Party in connection with (a) filing
or recording any documents (including all taxes in connection therewith) in
public offices; and (b) paying or discharging any taxes, counsel fees,
maintenance fees, encumbrances, or other amounts in connection with
protecting, maintaining, or preserving the Collateral or defending or
prosecuting any actions or proceedings arising out of or related to the
Collateral.
Section 6.3 No Waiver. No course of dealing between the Debtor
and the Secured Party, nor any failure to exercise nor any delay in
exercising, on the part of the Secured Party, any right, power, or privilege
under this Agreement or under the Secured Agreements shall operate as a
waiver. No single or partial exercise of any right, power, or privilege
under this Agreement by the Secured Party shall preclude any other or further
exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege by the Secured Party.
Section 6.4 Amendments; Entire Agreement. This Agreement is
subject to modification only by a writing signed by the parties. To the
extent that any provision of this Agreement conflicts with any provision of
the Secured Agreements, the provision giving the Secured Party greater rights
or remedies shall govern, it being understood that the purpose of this
Agreement is to add to, and not detract from, the rights granted to Secured
Party under the Secured Agreements. This Agreement, the Project Agreement,
the Properties Agreement, and the documents relating thereto comprise the
entire agreement of the parties with respect to the matters addressed in this
Agreement.
Section 6.5 Further Assurances. At the Secured Party's request,
Debtor shall execute and deliver to the Secured Party any further instruments
or documentation, and perform any acts, that may be reasonably necessary or
appropriate to implement this Agreement, including without limitation any
instrument or documentation reasonably necessary or appropriate to create,
maintain, perfect, or effectuate the Secured Party's security interests in
the Collateral.
Section 6.6 Release. At such time as the Debtor shall completely
satisfy all of the Obligations or such time as this agreement shall terminate
as set forth in Article I, the Secured Party shall execute and deliver to the
Debtor all assignments and other instruments as may be reasonably necessary
or proper to terminate this Agreement and the Secured Party's security
interest in the Collateral, subject to any disposition of the Collateral
which may have been made by the Secured Party pursuant to this Agreement, and
shall file a UCC-3 Termination Statement in every jurisdiction where it filed
a UCC-1 in the name of the Debtor. For the purpose of this Agreement, the
Obligations shall be deemed to continue if the Debtor enters into any
bankruptcy or similar proceeding at a time when any amount paid to the
Secured Party could be ordered to be repaid as a preference or pursuant to a
similar theory, and shall continue until it is finally determined that no
such repayment can be ordered.
Section 6.7 Successors. The benefits and burdens of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties; provided, however, that the
Debtor may not transfer any of the Collateral or any rights hereunder,
without the prior written consent of the Secured Party, except as
specifically permitted hereby.
IN WITNESS WHEREOF, the Debtor and the Secured Party have duly executed
this Agreement as of the day and year first written above.
HEADLINERS ENTERTAINMENT JHF PROPERTIES, LLC
GROUP, INC.
By:______________________________ By:___________________________
Eduardo Rodriguez, C.E.O. Paul Butler, C.E.O.
______________________________
PAUL BUTLER