EXHIBIT 4.2
No. 104 US $273,068.49
AMERICAN HEALTHCHOICE, INC.
8% SENIOR SECURED CONVERTIBLE DEBENTURE DUE AUGUST 19, 2003
THIS DEBENTURE is one of a duly authorized issue of $4,621,684.24 principal
amount of Debentures (the "Class 6 Debentures") of AMERICAN HEALTHCHOICE,
INC., a corporation duly organized and existing under the laws of the State
of New York (the "Company"), as reorganized pursuant to a certain Order Of
The United States Bankruptcy Court For The Northern District Of Texas Dated
August 8, 2000 (as it may be amended or modified from time to time, the
"Confirmation Order") confirming the Amended Joint Plan Of Reorganization
dated March 31, 2000 as amended by modification dated June 5, 2000 (the
"Plan") of Debtors American Healthchoice, Inc. and AHC Physicians
Corporation (as it may be amended or modified from time to time, the
"Plan"). This Debenture is issued pursuant to the Plan and is designated as
one of the Class 6 Debentures thereunder and replaces and supercedes any
prior debt obligation by the Company to the Holder hereof. Upon execution
hereof, the Company shall issue and deliver to Krieger & Prager, LLP, as
Trustee (the "Trustee") of the Post-Confirmation Stock Trust of the Company
(the "Stock Trust") 20,475,000 shares into which this Debenture shall be
convertible.
FOR VALUE RECEIVED, the Company promises to pay to Atlantis Capital Fund,
Ltd. registered holder hereof (the "Holder"), subject to the terms and
conditions herein, the principal sum of Two Hundred Seventy-Three Thousand
Sixty-Eight and 49/100 (US $273,068.49) Dollars on August 19, 2003 (the
"Maturity Date") and to pay interest on the principal sum outstanding from
time to time in arrears upon the earlier of the Conversion Date, as defined
below or the Maturity Date at the rate of 8% per annum accruing from the
date of initial issuance. Interest shall accrue from the date hereof until
payment in full of the principal sum has been made or duly provided for.
Interest on this Debenture (a) shall be paid annually, on each anniversary
of the date hereof and on the Maturity Date, (b) shall be paid in shares of
fully paid and nonassessable Common Stock of the Company, $.001 par value
("Common Stock"), valued at fair market value, based on the average last
sale prices for the Common Stock (or if no such prices are available, on the
average closing bid prices for the Common Stock) for the five (5) trading
days prior to the date of payment of interest, directly to the Holder (and
not to the Trustee) at the address last appearing on the Debenture Register
of the Company as designated in writing by the Holder from time to time (the
"Interest Stock"), and (c) shall be calculated based upon the average of the
daily outstanding principal amounts of this Debenture during the period from
the last Interest payment date through the Interest payment date for which
said calculation is being made. The Company will pay the principal of and
interest upon this Debenture on the Maturity Date, less any amounts required
by law to be deducted, to the registered holder of this Debenture as of the
Maturity Date and addressed to such Holder at the last address appearing on
the Debenture Register.
<PAGE>
This Debenture is subject to the following additional provisions:
Denominations. The Debentures are issuable in denominations of Ten Thousand
Dollars (US$10,000) and integral multiples thereof, or such lesser amount as
shall represent the remaining principal amount after issuing multiples of
Ten Thousand Dollars. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holders. No service charge will be made for such
registration or transfer or exchange.
Withholding. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax
laws or other applicable laws at the time of such payments, and Holder shall
execute and deliver all required documentation in connection therewith.
Transfer. This Debenture has been issued pursuant to the Confirmation Order
and the Plan and pursuant to Section 1145 of the United States Bankruptcy
Code (the "Bankruptcy Code"). Pursuant to Section 1145 of the Bankruptcy
Code, this Debenture and the Common Stock issuable upon conversion hereof
and/or in lieu of interest hereon, are exempt from registration under the
Securities Act Of 1933, as amended (the "Act"). Accordingly, they have not
been registered under the Act or any otherwise applicable securities laws
and certificates representing this Debenture and any such shares of Common
Stock shall be issued free of restrictive legend. Prior to due presentment
for transfer of this Debenture, the Company, the Trustee and any agent of
the Company or the Trustee, may treat the person in whose name this
Debenture is duly registered on the Company's Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Debenture be overdue, and neither
the Company, the Trustee, nor any such agent shall be affected by notice to
the contrary.
Conversion Privilege. The Holder of this Debenture is entitled, at its
option, to convert at any time, the principal amount of this Debenture
together with the accrued interest thereon and any other amounts due to the
Holder hereunder or pursuant to the Confirmation Order and Plan, into a pro
rata portion, with the other holders of the Class 6 Debentures, of a total
of 20,475,000 shares of Common Stock of the Company at a conversion price
for each share of Common Stock equal to twenty-two and five hundred seventy-
two one-thousandths of one cent ($.22572) (the "Conversion Price") subject
to the limitation set forth in paragraph 7 hereof. Conversion shall be
effectuated by surrendering the Debentures to be converted to the Trustee
with the form of conversion notice attached hereto as Exhibit A (the
"Conversion Notice"), executed by the Holder of the Debenture evidencing
such Holder's intention to convert a portion of this Debenture (as above
provided), and accompanied, if required by the Trustee, by proper assignment
hereof in blank. Copies of such documents shall be simultaneously delivered
to the Company. No fractional 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. The date on which notice of
conversion is given (the "Conversion Date") shall be deemed to be the date
on which the Holder has delivered this Debenture, with the Conversion Notice
duly executed, to the Trustee, with a copy to the Company. Facsimile
delivery of the Conversion Notice shall be accepted by the Trustee, and the
Conversion Date shall be deemed the date of such facsimile delivery,
provided that original documentation is provided promptly thereafter.
Certificates representing shares of Common Stock upon conversion will be
delivered within five (5) business days from the Conversion Date in
accordance with section 9 hereof.
<PAGE>
Limitation on Number of Outstanding Shares; Adjustment to Exercise Price.
(a) The Company hereby agrees that it shall not issue any
additional shares of its Common Stock, other than as set forth in
the Plan (including the shares to be issued to Dr. Voracek for the
purchase of his clinics) and/or upon conversions hereunder, prior
to the first anniversary of the date hereof.
(b) Upon each issuance of shares of Common Stock prior to the
first anniversary of the date hereof (the "Trigger Event") and
while any principal amount hereof is outstanding, the Conversion
Price shall be lowered to a price at which, upon full conversion,
the Holder of this Debenture would receive a number of shares of
Common Stock equal to the same percentage of the outstanding
Common Stock as the shares into which the Holder of this Debenture
could convert the outstanding principal amount of this Debenture
immediately prior to the Trigger Event. Upon the occurrence of a
Trigger Event, the Company shall (a) provide notice thereof to the
Holder hereof, and (b) issue and deposit with the Trustee stock
certificates representing such number of additional shares as may
be issued upon conversion at the adjusted Conversion Price.
Mandatory Conversion. Except as otherwise provided in paragraph 10, in the
event all or any portion of this Debenture remains outstanding on the
Maturity Date, the unconverted portion of the Debenture will automatically
be converted into shares of Common Stock on such date in the manner set
forth in paragraph 4 as if the Maturity Date were the Conversion Date. If,
and to the extent that the aggregate outstanding principal amount of the
Class 6 Debentures shall be convertible into (without giving effect to
paragraph 7) a number of shares fewer than 3,300,000 shares, the Company may
likewise cause the unconverted portion of the Debenture to be automatically
converted into shares of Common Stock on such date in the manner set forth
in paragraph 4.
Limitation on Conversion. Except in the case of Mandatory Conversion, in no
event shall the Holder be entitled to convert an amount of the Debenture in
excess of that amount upon conversion of which the sum of (1) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures), and (2)
the number of shares of Common Stock issuable upon the conversion of the
Debenture with respect to which the determination of this paragraph is being
made, would result in beneficial ownership by the Holder and its affiliates
of more than 4.9% of the outstanding Common stock of the Company. For
purposes of the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13(d) thereunder, except as
otherwise provided in clause (1) of the immediately preceding sentence.
<PAGE>
Issuance of Common Stock.
(c) Upon the execution hereof, certificates representing 1,209,749
shares of Common Stock are being delivered to the Trustee pursuant
to the terms of the Stock Trust and upon conversion of the
Debentures as provided herein, the Company shall cause the Trustee
to release stock certificates to the Holder (or its designee)
representing the number of shares of Common Stock issuable upon
such conversion.
(d) Upon the execution hereof, the Company shall issue a standing
letter of instruction to Corporate Stock Transfer, its stock
transfer agent (the "Transfer Agent"), directing the Transfer
Agent to honor requests by the Trustee, after conversion of any
part hereof to Common Stock, to reissue certificates received
from the Trustee, free of restrictive legends or stop transfer
orders, and to deliver such reissued certificates in accordance
with the Trustee's instructions within five (5) business days of
receipt of such instructions (the "Transfer Agent Instructions").
(c) In lieu of delivering physical certificates representing the
reissued Common Stock upon conversion of this Debenture, provided
the Transfer Agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon
request of the Holder or the Trustee, the Company shall use its
best efforts to cause the Transfer Agent to electronically
transmit the shares of The Company's Common Stock by crediting the
account of the Holder's Prime Broker with DTC through its
Depositary Withdrawal Agent Commission system.
Delivery of Common Stock. In the event that (i) certificates representing
the shares of Common Stock into which this Debenture is convertible are not
delivered to the Trustee under the Stock Trust within five (5) days of the
execution hereof, (ii) a Trigger Event under paragraph 5(b) hereof shall
occur and certificates representing such additional shares of Common Stock
to be issued upon conversion of this Debenture shall not be delivered to the
Trustee under the Stock Trust within five (5) days after notification by
Holder to the Company of such Trigger Event, (iii) after conversion of any
part hereof into Common Stock, the Company's Transfer Agent shall not cause
the Common Stock into which this Debenture has been converted to be reissued
free of restrictive legends or stop transfer orders, in accordance with
the written instructions of the Trustee within five (5) business days after
the giving of such instructions and giving the Company notice of such action
by the Transfer Agent, and allowing the Company five (5) business days to
make diligent effort to resolve the problem, (iv) the Company fails to issue
the Transfer Agent Instructions, withdraws the Transfer Agent Instructions
or issues a stop or hold on any properly issued Transfer Agent Instructions,
or (v) if, at any time, Holder submits a Conversion Notice and the Company
does not have a sufficient number of shares of Common Stock in the Stock
Trust to effect, in full, a conversion of the Debenture, then in any such
event (a "Conversion Default") the Company shall pay to Holder (and not the
Trustee) one percent (1%) of the aggregate principal amount of the
Debentures being converted for each day after the fifth (5th) business day
following the date of the Certificate Default, such payment to be made in
shares of Common Stock, based upon the Conversion Price (as same may
adjusted pursuant to paragraphs 5 and 12).
<PAGE>
(e) Nothing herein shall limit a Holder's right to pursue
actual damages against the Company upon any Conversion Default.
(f) Upon a Conversion Default of a type special in clause (v)
above, the Company shall cause the issuance to the Holder of all
of the shares of Common Stock which are available for issuance,
and the Conversion Notice as to any Debentures requested to be
converted but not converted (the "Unconverted Debentures"), upon
Holder's sole option, may be deemed null and void.
(g) The Company and the Trustee shall provide notice of any
Conversion Default ("Notice of Conversion Default") to all
existing Holders of outstanding Class 6 Debentures, by facsimile,
within one (1) business day of such default (with the original
delivered by overnight or two day courier), and in the case of a
Conversion Default of the type specified in clause (v) above, the
Holder shall give notice to the Company and the Trustee by
facsimile within five (5) business days of receipt of the
original Notice of Conversion Default (with the original delivered
by overnight or two day courier) of its election to either nullify
or confirm the Notice of Conversion.
Security. Payment to the Holder of this Debenture is secured by a first
priority lien and security interest in and to all of the assets of the
Company and its subsidiaries, now or hereafter arising or acquired, pursuant
to a certain Security Agreement of even date herewith by and among the
Company, the Holders of the Class 6 Debentures and Krieger & Prager, LLP (in
such capacity, the "Collateral Agent") as agent for the Holders of the Class
6 Debentures (as it may be amended or modified from time to time, the
"Security Agreement"). By its acceptance of this Debenture and the Security
Agreement, each Holder agrees to be bound by the provisions of the Security
Agreement as if such Holder was an original signatory thereto.
Notwithstanding the foregoing, pursuant to the Confirmation Order and the
Plan, the lien and security interest granted under the Security Agreement
shall be subordinate to a certain purchase money security interest with
respect to any and all assets purchased by the Company from Dr. Voracek
and/or his entities that own clinics being purchased by the Company in
accordance with the terms of the Plan together with all replacement
collateral thereof.
Anti-Dilution Provisions.
(h) In the event that, at any time and from time to time, the
Company shall issue additional shares of Common Stock (or
securities convertible into or exchangeable for Common Stock) in a
stock dividend, stock distribution, or subdivision paid with
respect to Common Stock, or declare any dividend or other
distribution payable with additional shares of Common Stock (or
securities convertible into or exchangeable for Common Stock) with
respect to Common Stock, or effect a split or subdivision of the
outstanding shares of Common Stock, the Conversion Price shall,
concurrently with the effectiveness of such stock dividend, stock
distribution, or subdivision, or the earlier declaration thereof,
be proportionately decreased to avoid dilution of the Holder's
position, and the Holder shall thereafter be entitled to receive
on conversion of this Debenture an additional number of shares of
Common Stock which such Holder would have received upon or by
reason of any of the events described above, had this Debenture
been converted immediately prior to the occurrence of such event.
<PAGE>
(i) In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the
Conversion Price shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased so
that the Holder shall be entitled to receive upon conversion of
this Debenture, the aggregate number of shares of Common Stock
which such Holder would have been entitled to receive if this
Debenture had been converted immediately prior to the occurrence
of such combination or consolidation.
Performance. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder or under the Plan and
Confirmation Order, by the Company but will at all times in good faith
assist in the carrying out of all the provisions of this Debenture and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Debentures against
impairment.
Absolute and Unconditional Obligation. No provision of this Debenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the manner, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms
are direct obligations of the Company.
Usury. Nothing contained in this Debenture shall be deemed to establish or
require the payment of interest to the Holder at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of
interest required to be paid under the Debenture exceeds the maximum rate
permitted by governing law, the rate of interest required to be paid
thereunder shall be automatically reduced to the maximum rate permitted
under the governing law and any amounts collected in excess of the
permissible amount shall be deemed a payment of principal. To the extent
that such excess amount exceeds the aggregate principal amount of this
Debenture, such excess shall be returned with reasonable promptness by the
Holder to the Company.
<PAGE>
Merger or Consolidation. Notwithstanding the purchases of Dr. Voracek's
clinics, if the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person
and the holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common Stock, then
as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee agree that the Debenture may
thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable
upon such merger, consolidation, sale or transfer by a holder of the number
of shares of Common Stock into which this Debenture might have been
converted immediately before such merger, consolidation, sale or transfer,
subject to adjustments which shall be as nearly equivalent as may be
practicable. It shall be a condition precedent to the occurrence of any
such merger, consolidation, sale or transfer that the successor in interest
to the Company agree to the foregoing provision. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially
all of the assets of the Company (a "Sale"), the Holder hereof shall have
the right to convert by delivering a Conversion Notice to the Company within
fifteen (15) days of receipt of notice of such Sale from the Company. In the
event the Holder hereof shall elect not to convert, the Company may prepay
all outstanding principal and accrued interest on this Debenture, less all
amounts required by law to be deducted, upon which tender of payment
following such notice, the right of conversion shall terminate.
Governing Law. Except as to the application of this Debenture as it relates
to the Plan, this Debenture shall be governed by and construed in accordance
with the laws of the State of New York. The parties agree that any action
relating to the failure of the Company or its Transfer Agent to perform in
accordance herewith shall be properly venued in the courts of the State of
New York located in New York City or in federal courts in and for the
Southern District of New York. Any dispute as to the application of this
Debenture as it relates to the Plan shall be governed by the laws of Texas
and properly venued in the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division.
<PAGE>
Notices. All notices, requests and/or other communications provided for
herein shall be made in writing and shall be delivered by hand or by
overnight courier, and shall be deemed given when delivered to the
recipient, and shall be addressed to the parties at their respective
addresses listed below or to such other persons or addresses as to itself
from time to time in writing delivered in like manner:
If to the Company:
American HealthChoice, Inc.
1300 Walnut Hill Lane, Suite 275
Irving, Texas 75038
with copy to:
Jay Stucki, Esq.
Hulse & Stucki
1300 Walnut Hill Lane, Suite 275
Irving, Texas 75038
If to the Holder hereof:
Atlantis Capital Fund, Ltd.
c/o Citco Fund Services (Bahamas) Limited
Bahamas Financial Centre
3rd Floor
Shirley & Charlotte Streets
P.O. Box 13136
Nassau, Bahamas
with copy to:
Andrew B. Eckstein, Esq.
Blank Rome Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
If to the Trustee:
Krieger& Prager, LLP
39 Broadway, Suite 1440
New York, New York 10006
Attn: Samuel M. Krieger
<PAGE>
Events of Default. The following shall constitute an "Event of Default":
(j) The Company shall default in the performing its obligations
hereunder or under this Debenture, the Plan or the Stock Trust; or
(k) The Company shall fail to issue shares of Common Stock into
which this Debenture is convertible to the Trustee under the Stock
Trust and/or fails to issue such additional shares to the Trustee
as may be required upon the occurrence of a Trigger Event under
paragraph 5(b) hereof or otherwise in accordance with the terms of
this Debenture; or
(l) Subject to the provisions of paragraph 9 hereof, the Company
or the Company's Transfer Agent shall fail to transfer any
certificate for shares of Common Stock issued to the Stock Trust
after conversion of this Debenture when requested by Holder or the
Trustee to do so or upon any successive transfer thereof free of
restrictive legend pursuant to the Plan, the Confirmation Order
and 11 U.S.C. [S] 1145 and any such failure shall continue uncured
for five (5) business days;
(m) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement
or obligation of the Company under this Debenture, the Plan, the
Confirmation Order, or the Security Agreement and such failure
shall continue uncured for a period of ten (10) days after written
notice from the Holder of such failure; or
(n) The Company shall (1) admit in writing its inability to pay
its debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
(o) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
(p) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or
control of all or any substantial portion of the properties or
assets of the Company and shall not be dismissed within sixty (60)
days thereafter; or
(q) Any money judgment, writ or warrant of attachment, or similar
process in excess of One Million Five Hundred Thousand
($1,500,000) Dollars in the aggregate shall be entered or filed
against the Company or any of its properties or other assets and
shall remain unpaid, unvacated, unbonded or unstayed for a period
of sixty (60) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or
<PAGE>
(r) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or
against the Company and, if instituted against the Company, shall
not be dismissed within sixty (60) days after such institution or
the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any
such proceeding; or
(s) The Company shall have its Common Stock suspended from
trading, or delisted from an exchange to a level below the over-
the-counter bulletin board market.
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
Interest Rate Upon Event of Default. Upon an Event of Default, the interest
rate hereunder shall increase from 8% to 15% per annum.
Application of Payments. Any and all payments hereunder shall be applied
first to interest and then to principal. If an Event of Default shall have
occurred hereunder or under the Security Agreement, proceeds recovered shall
be applied first to costs, fees and expenses reasonably incurred in
connection with efforts to remedy such Event of Default or collect the
amounts due hereunder, second to interest accrued hereunder, and third to
principal.
No Rights as Shareholder. Nothing contained in this Debenture shall be
construed as conferring upon the Holder the right to vote or to receive
dividends or to consent or receive notice as a shareholder in respect of any
meeting of shareholders or any rights whatsoever as a shareholder of the
Company, unless and to the extent converted or attempted to be converted in
accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: August 19, 2000
AMERICAN HEALTHCHOICE, INC.
By: _____________________________________
Name:
Title:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debentures)
The Holder hereby irrevocably elects, as of ____________, 200_ to convert
$_____________ of Debentures of American HealthChoice Inc. (the "Company")
into shares of Common Stock of the Company according to the conditions set
forth in the Debenture, Plan, Confirmation Order.
Date of Conversion: _____________________________________________________
[Applicable Conversion Price:] ___________________________________________
Number of Shares of Common Stock: ________________________________________
Signature
________________________________________
Print Name
Address for delivery of the
Common Stock: ____________________________________________________________
Phone ____________________________________________________________________
Fax ______________________________________________________________________
Tax I.D. No. _____________________________________________________________
