EXHIBIT 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
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, 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. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: July 15, 2004
Original Conversion Price (subject to adjustment herein): $0.50
$1,500,000
8% CONVERTIBLE DEBENTURE
DUE July 14, 2005
THIS DEBENTURE is one of a series of duly authorized and issued 8%
Convertible Debentures of Genio Group, Inc. a Delaware corporation, having a
principal place of business at 0000 Xxxxxx xx xxx Xxxxxxxx, Xxxxx 0000, Xxx
Xxxx, XX 00000 (the "Company"), designated as its 8% Convertible Debenture, due
July 14, 2005 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to CRESTVIEW CAPITAL
MASTER, LLC or its registered assigns (the "Holder"), the principal sum of
$1,500,000 on July 14, 2005 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 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:
"Alternate Consideration" shall have the meaning set forth in
Section 5(e)(iii).
"Automatic Conversion" shall have the meaning set forth in
Section 4(b).
"Automatic Conversion Amount" shall mean the sum of (i) the
principal amount of the Debenture then outstanding, (ii) accrued but
unpaid interest and (iii) accrued but unpaid liquidated damages.
"Automatic Conversion Notice" shall have the meaning set forth
in Section 4(b).
"Automatic Conversion Notice Date" shall have the meaning set
forth in Section 4(b).
"Bankruptcy Event" means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule
1.02(s) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Significant Subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or stayed
within 60 days; (e) the Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors; (f) the
Company or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates
its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of
the foregoing.
"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 are
authorized or required by law or other government action to close.
"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 13d5(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 50% of the voting securities
of the Company, or (ii) a replacement at one time or within a one 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
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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 (iii) 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 (ii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.0001 per
share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section
4(a) hereof.
"Dilutive Issuance" shall have the meaning set forth in
Section 5(b) hereof.
"Effectiveness Period" shall have the meaning given to such
term in the Registration Rights Agreement.
"Equity Conditions" Unless waived by a Holder as to a
particular event (which waiver shall apply only to such Holder), as of
such event date, the following conditions have been met: (i) the
Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring prior to such date; (ii) there is an
effective Registration Statement pursuant to which the Holders are
permitted to utilize the prospectus thereunder to resell all of the
Underlying Shares issued to the Holders and all of the Underlying
Shares as are issuable to the Holders upon conversion in full of the
Debenture (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future);
(iii) the Common Stock is listed for trading on the Trading Market (and
the Company believes, in good faith, that trading of the Common Stock
on the Trading Market will continue uninterrupted for the foreseeable
future); (iv) all liquidated damages and other amounts owing in respect
of the Debenture shall have been paid or will, concurrently with the
issuance of the Underlying Shares, be paid in cash; (v) there is a
sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the Underlying Shares
as are issuable to the Holder upon conversion in full of the Debenture;
(vi) no Event of Default has occurred and is continuing; (vii) all of
the Underlying Shares issuable to the Holder upon conversion in full of
the Debenture will not violate the limitations set forth in Section
4(d)(ii); and (viii) no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction has occurred
that has not been consummated.
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"Event of Default" shall have the meaning set forth in
Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(e)(iii) hereof.
"Forced Conversion Notice" shall have the meaning set forth in
Section 6(c).
"Force Conversion Notice Date" shall have the meaning set
forth in Section 6(c).
"Interest Conversion Rate" means 90% of the lesser of (i) the
average of the 20 VWAPs immediately prior to the applicable Interest
Payment Date or (ii) the average of the 20 VWAPs immediately prior to
the date the applicable interest payment shares are issued and
delivered if after the Interest Payment Date.
"Late Fees" shall have the meaning set forth in the second
paragraph to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the greater of: (A) 120% of the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon,
or (B) the principal amount of Debentures to be prepaid, plus all other
accrued and unpaid interest hereon, divided by the Set 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 VWAP 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.
"Optional Redemption" shall have the meaning set forth in
Section 6(a).
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"Optional Redemption Amount" shall mean the sum of (i) 110% of
the principal amount of the Debenture then outstanding, (ii) accrued
but unpaid interest and (iii) all liquidated damages and other amounts
due in respect of the Debenture.
"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).
"Optional Redemption Price" 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.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Preferred Stock" shall have the meaning as set forth in the
Purchase Agreement.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of July 15, 2004, 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 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 Underlying
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.
"Set Price" shall have the meaning set forth in Section 4(c).
"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(c).
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means 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 or the OTC
Bulletin Board.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
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"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance
with the terms hereof.
"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) using the VAP
function; (b) if the Common Stock is not then listed or quoted on a
Trading Market and if prices for the Common Stock are then reported in
the "Pink Sheets" published by the National Quotation Bureau
Incorporated (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 a nationally
recognized-independent appraiser selected in good faith by Purchasers
holding a majority of the principal amount of Securities then
outstanding, subject to the reasonable approval of 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 8% per
annum, payable quarterly on March 31, June 30, September 30 and
December 31, beginning on the first such date after the Original Issue
Date and on each Conversion Date (as to that principal amount then
being converted) 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) (each such date, an "Interest Payment Date"),
in cash or shares of Common Stock at the Interest Conversion Rate, or a
combination thereof; provided, however, payment in shares of Common
Stock may only occur if during the 20 Trading Days immediately prior to
the applicable Interest Payment Date all of the Equity Conditions have
been met and the Company shall have given the Holder notice in
accordance with the notice requirements set forth below.
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 discretion
of the Company. Not less than 20 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 20 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
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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(e) 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, provided that
the Company in fact delivers the Underlying Shares within the time
period required by Section 4(e). 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 partially in cash and partially in
shares of Common Stock, then such payment shall be distributed ratably
among the Holders based upon the principal amount of Debentures held by
each Holder.
d) Late Fee. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at the rate of 18% per annum (or
such lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fee") 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, at the
option of the Holder, 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 three 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 highest VWAP during the
period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made.
e) Prepayment. Except as otherwise set forth in Sections 7 or
9 of 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
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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(d)(ii) 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
3 Business Days of receipt of such notice. The Holder and 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) Automatic Conversion. At any time after the Original Issue
Date, if the Company has an effective Certificate of Designation (as
defined in the Purchase Agreement, and as attached to the Purchase
Agreement as Exhibit B), the Company shall, within 5 Trading Days of
notice from Delaware of the effectiveness of the Certificate of
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Designation, deliver a notice to the Holder (an "Automatic Conversion
Notice" and the date such notice is received by the Holder, the
"Automatic Conversion Notice Date"), to convert this Debenture, in
whole, into shares of Preferred Stock in the amount equal to Automatic
Conversion Amount (the "Automatic Conversion" and such date the
"Automatic Conversion Date"). To effect an Automatic Conversion
hereunder, the Holder shall be required to physically surrender the
Debenture to the Company (or provide an affidavit of lost certificate)
since the entire principal amount of this Debenture plus all accrued
and unpaid interest thereon will been so converted. Delivery of the
certificates for the Preferred Stock by the Company to the Holder shall
be as set forth in Section 4(e)(ii) - (iv) and Sections 4(e)(vi) -
(viii) herein. Furthermore, in order to effect an Automatic Conversion,
the Company shall cause its counsel to deliver a legal opinion to the
Holders immediately prior to the Automatic Conversion Notice Date
wherein the legal counsel opines that the Preferred Stock has been duly
authorized, is fully paid and non-assessable and constitutes a valid
and binding obligation of the Company upon issuance.
c) Set Price. The conversion price in effect on any Conversion
Date shall be equal to $0.50 (subject to adjustment herein)(the "Set
Price").
d) Conversion Limitations.
i. Intentionally Omitted.
ii. Holder's Restriction on Conversion. The Company
shall not effect any conversion of this Debenture, and the
Holder shall not have the right 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(d)(ii), beneficial ownership shall
be calculated in accordance with Section 13(d) of the Exchange
Act. To the
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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(d)(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(d)(ii) may be
waived by the Holder upon, at the election of the Holder, not
less than 61 days' prior notice to the Company, and the
provisions of this Section 4(d)(ii) 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).
e) Mechanics of Conversion.
i. Underlying Shares Issuable Upon Conversion of
Principal Amount. 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
Set Price. i. 21
ii. Delivery of Certificate Upon Conversion. Not
later than five Trading Days after any Conversion Date, the
Company will deliver to the Holder a certificate or
certificates representing the Underlying 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
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available and if allowed under applicable securities laws, use
its best 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
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. Partial Liquidated Damages. If the Company fails
for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(e)(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 $1,000 of principal amount being converted, $10 per
Trading Day (increasing to $20 per Trading Day after 5 Trading
Days after such damages begin to accrue and increasing to $200
per Trading Day 6 Trading Days after such after such damages
begin to accrue) for each Trading Day after such third Trading
Day until such certificates are delivered. The Company's
obligations to issue and deliver the Underlying 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 Underlying Shares; provided, however, such delivery 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
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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 Underlying Shares
or, if applicable, cash, upon a properly noticed conversion.
Nothing herein shall limit a Xxxxxx's right to pursue actual
damages or declare an Event of Default pursuant to Section 8
herein for the Company's failure to deliver Underlying 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 Holders from seeking to enforce
damages pursuant to any other Section hereof or under
applicable law.
v. 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(e)(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 an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder
anticipated receiving upon such conversion (a "Buy-In"), then
the Company shall (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,
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(e)(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 with respect to which the actual sale
price of the Underlying 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(e)(iv) in respect of the certificates resulting in such
Buy-In.
12
vi. Reservation of Shares Issuable Upon Conversion.
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 or for the purpose of 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 Holders, 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 4(e)) 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 and, if the
Registration Statement is then effective under the Securities
Act, registered for public sale in accordance with such
Registration Statement.
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 VWAP 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 the Debentures
shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, 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.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any
time while the Debentures are outstanding: (A) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of
its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt,
13
shall not include any shares of Common Stock issued by the Company
pursuant to this Debenture, including as interest thereon), (B)
subdivide outstanding shares of Common Stock into a larger number of
shares, (C) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or
(D) issue by reclassification of shares of the Common Stock any shares
of capital stock of the Company, then the Set Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares
of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 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 Debentures are 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 Set Price ("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 Set Price, such issuance shall be deemed
to have occurred for less than the Set Price), then, the Set Price
shall be reduced to equal the effective conversion, exchange or
purchase price for such Common Stock or Common Stock Equivalents
(including any reset provisions thereof) at issue. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents
are issued. 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.
c) Pro Rata Distributions. If the Company, at any time while
Debentures are outstanding, shall distribute to all holders of Common
Stock (and not to Holders) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security, then in
each such case the Set Price shall be determined by multiplying such
Set 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 VWAP determined as of
the record date mentioned above, and of which the numerator shall be
such VWAP on such record date less the then fair market value at
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such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the
Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided
to the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
d) 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 outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding.
e) Notice to Holders.
i. Adjustment to Set Price. Whenever the Set Price is
adjusted pursuant to any of this Section 5, the Company shall
promptly mail to each Holder a notice setting forth the Set
Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the
Company issues a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the Company
shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise
price at which such securities may be converted or exercised
in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price
in the case of an MFN Transaction (as defined in the Purchase
Agreement).
ii. Notice to Allow Conversion by Xxxxxx. 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; or (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 the Debentures, and shall cause to be mailed to
the Holders at their last addresses as they shall appear upon
the stock
15
books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to
be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of
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. Holders are entitled to convert Debentures during
the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
iii. 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 in which the Company's is not the surviving entity, (B)
the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (C) 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, 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 Underlying Share that would have been issuable upon such
conversion absent 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 Set 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 such
Fundamental Transaction, and the Company shall apportion the
Set 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
16
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 (c) and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
iv. Exempt Issuance. Notwithstanding the foregoing,
no adjustment will be made under this Section 5 in respect of
an Exempt Issuance.
Section 6. Redemption and Forced Conversion.
a) Optional Redemption at Election of Holder. Subject to the
provisions of this Section 6, a Holder may, if the Company shall enter
into a Change of Control Transaction at any time after the date of the
Purchase Agreement, deliver a notice to the Company (an "Optional
Redemption Notice" and the date such notice is deemed delivered
hereunder, the "Optional Redemption Notice Date") of its election to
cause the Company to redeem, all or part of the then outstanding
principal amount of the Debenture held by such Holder, for an amount
equal to the Optional Redemption 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 is due in full on the Optional Redemption
Date. The Company may effect an Optional Redemption in cash or in
shares of Common Stock; provided, that the Company may only effect an
Optional Redemption in the form of Common Stock if from the Optional
Redemption Notice Date through to the Optional Redemption Date, all of
the Equity Conditions are fulfilled; and the Company shall give the
Holder written notice of its election to pay the Optional Redemption
Amount in the form of Common Stock within two Trading Days of its
receipt of the Optional Redemption Notice.
b) Optional Redemption Procedure. The payment of cash or
Common Stock pursuant to an Optional Redemption shall be made on the
Optional Redemption Date. If the Company elects to pay the Optional
Redemption Amount in the form of Common Stock, such shares of Common
Stock shall be valued at 90% of the average of the 20 VWAPs immediately
prior to the Optional Redemption Date. If any portion of the cash
payment for an Optional Redemption shall not be paid by the Company by
the respective due date, interest shall accrue thereon at the rate of
18% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the payment of the Optional Redemption Amount
plus all amounts owing thereon is paid in full. In addition, if any
17
portion of the Optional Redemption Amount remains unpaid after such
date, the Holders 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. Notwithstanding anything to the contrary in this Section
6, the Company's determination to redeem in cash shall be applied
ratably among the Holders based upon the principal amount of the
Debenture initially purchased by each Holder, adjusted upward ratably
in the event the principal amount of the Debenture is no longer
outstanding.
c) Forced Conversion. Notwithstanding anything herein to the
contrary, if after the 180th day anniversary of the Effective Date (A)
the VWAP for each of any 20 consecutive Trading Days ("Threshold
Period"), which 20 consecutive Trading Day period shall have commenced
only after the Effective Date, exceeds $2.00, adjusted for any stock
splits, reverse splits and the like occurring after the Original Issue
Date, or (B) at any time, the Company completes a public offering of
Common Stock with (1) aggregate proceeds equal to or greater than
$20,000,000 and (2) a price per share of the Common Stock equal to or
greater than $2.00, adjusted for any stock splits, reverse splits and
the like occurring after the Original Issue Date, the Company may,
within 2 Trading Days after any such Threshold Period, deliver a notice
to all Holders (a "Forced Conversion Notice" and the date such notice
is received by the Holders, the "Forced Conversion Notice Date") to
cause the Holders to immediately convert all or part of the then
outstanding principal amount of Debentures pursuant to Section 4(a) and
the Holders shall surrender (if the principal amount of the Debenture
is no longer outstanding) their respective Debenture to the Company for
conversion within 10 Trading Days of the Forced Conversion Notice Date.
The Company may only effect a Forced Conversion Notice if all of the
Equity Conditions have been met during the Threshold Period through the
Forced Conversion Notice Date. Any Forced Conversion Notices shall be
applied ratably to all of the Holders based on the initial principal
amount of their Debenture pursuant to the Purchase Agreement.
Section 7. Negative Covenants. So long as any portion of this Debenture
is outstanding, the Company will not and will not permit any of its Subsidiaries
to directly or indirectly:
a) enter into, create, incur, assume or suffer to exist any
indebtedness, except as permitted pursuant to Section 4.16 of the
Purchase Agreement, or liens of any kind, on or with respect to any of
its 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 without the prior consent of the Holder, which consent shall
not be unreasonably withheld;
b) amend its certificate of incorporation, bylaws or to her
charter documents so as to adversely affect any rights of the Holder;
18
c) 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 Underlying Shares
to the extent permitted or required under the Transaction Documents or
as otherwise permitted by the Transaction Documents; or
d) 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 of
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 10
Trading Days;
ii. the failure of a Registration Statement to be
declared effective by the Commission on or prior to the 210th
day after the Original Issue Date;
iii. if, during the Effectiveness Period, the
effectiveness of the Registration Statement lapses for any
reason for more than an aggregate of 60 calendar days (which
need not be consecutive days) during any 12 month period, or
the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement)
under the Registration Statement for more than an aggregate of
60 calendar days (which need not be consecutive days) during
any 12 month period;
iv. the Company shall fail to deliver certificates
representing Underlying Shares issuable upon a conversion or
redemption hereunder that comply with the provisions hereof
prior to the 10th Trading Day after such shares are required
to be delivered hereunder, or the Company shall provide
written notice to any Holder, including by way of public
announcement, at any time, of its intention not to comply with
requests for conversion or redemption of any Debentures in
accordance with the terms hereof;
v. Not used;
19
vi. the Company shall fail for any reason to pay in
full the amount of cash due pursuant to a Buy-In within 5 days
after notice therefor is delivered hereunder or shall fail to
pay all amounts owed on account of an Event of Default within
five days of the date due;
vii. the Company shall fail to have available a
sufficient number of authorized and unreserved shares of
Common Stock to issue to such Holder upon a conversion
hereunder;
viii. the Company shall fail to observe or perform
any other material covenant, agreement or warranty contained
in, or otherwise commit any material breach of the Transaction
Documents, and such failure or breach shall not, if subject to
the possibility of a cure by the Company, have been remedied
within 30 calendar days after the date on which written notice
of such failure or breach shall have been given;
ix. any breach of the agreements delivered to the
initial Holders at the Closing pursuant to Section 2.2(a)(vi)
of the Purchase Agreement;
x. the Company shall redeem more than a de minimis
number of Common Stock Equivalents;
xi. there shall have occurred a Bankruptcy Event;
xii. the Common Stock shall fail to be listed or
quoted for trading on a Trading Market for more than 5
consecutive Trading Days;
xiii. the Company or any Subsidiary shall default in
any of its material 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 borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding
$150,000, 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.
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. 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
20
Debenture, the interest rate on this Debenture shall accrue at the rate
of 18% per annum, 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 Xxxxxx 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 Holders 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 0000 Xxxxxx xx xxx
Xxxxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000, facsimile number (212)
626-6703, Attn: Xxxxxx Xxxxxxxx, Chief Financial Officer, or such other
address or facsimile number as the Company may specify for such
purposes by notice to the Holders 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 Xxxxxx appearing on the books of the Company,
or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if 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 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.
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.
21
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 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.
22
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.
*********************
23
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
Genio Group, Inc.
By:__________________________________________
Name:
Title:
24
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8%
Convertible Debenture of Genio Group, Inc., a Delaware corporation (the
"Company"), due on July 14, 2005, into shares of common stock, par value $0.0001
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 Company's Common Stock
does not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this 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:
25
Schedule 1
CONVERSION SCHEDULE
The 8% Convertible Debentures due on July 14, 2005, in the aggregate principal
amount of $____________ issued by Genio Group, Inc.This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
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Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
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26
