Dated: March 15, 2007
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, 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.
No. CERTO-1-1 $365,000
THE CERTO GROUP CORP.
Secured Convertible Debenture
Due: March 15, 2010
This Secured Convertible Debenture (the "Debenture") is issued by THE CERTO
GROUP CORP., a Delaware corporation (the "Company"), to CORNELL CAPITAL
PARTNERS, L.P. (the "Holder"), pursuant to that certain Securities Purchase
Agreement (the "Securities Purchase Agreement") dated March 15, 2007.
FOR VALUE RECEIVED, the Company hereby promises to pay to the Holder or its
successors and assigns the principal sum of Three Hundred Sixty Five Thousand
Dollars ($365,000) together with accrued but unpaid interest on or before March
15, 2010 (the "Maturity Date") in accordance with the following terms:
Section 1. General Terms
(a) Interest. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to twelve percent (12%). Interest shall be
calculated on the basis of a 365-day year and the actual number of days elapsed,
to the extent permitted by applicable law. Interest hereunder shall be paid on
the Maturity Date (or sooner as provided herein) to the Holder or its assignee
in whose name this Debenture is registered on the records of the Company
regarding registration and transfers of Debentures in cash or in Common Stock
(valued at the Closing Bid Price on the Trading Day immediately prior to the
date paid) at the option of the Company.
(b) Security. The Debenture is secured by (i) a security interest in all of
the assets of the Company and in the stock and assets of each of the Company's
subsidiaries as evidenced by the Security Agreements as defined in the
Securities Purchase Agreement and the corresponding UCC-1's identified therein
and (ii) the Guaranty Agreement of even date herewith (the "Guaranty
Agreement"), (the "Guaranty Agreement," and together with the Security
Agreements, are collectively referred to as the "Security Documents").
Section 2. Events of Default.
(a) An "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 the principal of, interest on or other
charges in respect of this Debenture, free of any claim of subordination, as and
when the same shall become due and payable whether upon an Optional Redemption
(as defined in Section 3(a)), the Maturity Date, by acceleration, or otherwise;
(ii) The Company or any subsidiary of the Company shall commence, or
there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any subsidiary of the Company
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary of the Company or there is commenced against the
Company or any subsidiary of the Company any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 61 days; or the
Company or any subsidiary of the Company is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary of the Company suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;
(iii) The Company or any subsidiary of the Company shall default in any
of its obligations under any other debenture or 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 or any subsidiary of the Company in an
amount exceeding $100,000, 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;
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(iv) Once the Common Stock resumes to be quoted for trading and/or is
listed on the Nasdaq OTC Bulletin Board ("OTC") the Common Stock shall cease to
be quoted for trading or listing for trading on the OTC (also referred to as the
"Primary Market") and shall not again be quoted or listed for trading on the
Primary Market within five (5) Trading Days of such delisting;
(v) The Company or any subsidiary of the Company shall be a party to any
Change of Control Transaction (as defined in Section 6);
(vi) The Company shall fail to file the Underlying Shares Registration
Statement (as defined in Section 6) with the Commission (as defined in Section
6), or the Underlying Shares Registration Statement shall not have been declared
effective by the Commission, in each case within the time periods set forth in
the Investor Registration Rights Agreement ("Registration Rights Agreement")
dated March 15, 2007 between the Company and the Holder;
(vii) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted to resell
the shares of Common Stock underlying this Debenture under the Underlying Shares
Registration Statement, in either case, for more than five (5) consecutive
Trading Days or an aggregate of eight Trading Days (which need not be
consecutive Trading Days);
(viii) The Company shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a Conversion
Date, or the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply with requests
for conversions in accordance with the terms hereof;
(ix) The Company shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within three (3) days after notice
is claimed delivered hereunder;
(x) The Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision of this Debenture (except as may be covered by Section 2(a)(i)
through 2(a)(ix) hereof) or any Transaction Document (as defined in Section 6)
which is not cured with in the time prescribed;
(b) During the time that any portion of this Debenture is outstanding, if
any Event of Default has occurred, the full principal amount of this Debenture,
together with interest and other amounts owing in respect thereof, to the date
of acceleration shall become at the Holder's election, immediately due and
payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Company.
Furthermore, in addition to any other remedies, the Holder shall have the right
(but not the obligation) to convert this Debenture at any time after (x) an
Event of Default or (y) the Maturity Date at the Conversion Price then
in-effect. The Holder need not provide and the Company hereby waives any
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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. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon. Except
with respect to the limitation set forth in Section 4(b)(i) hereof upon an Event
of Default, notwithstanding any other provision of this Debenture or any
Transaction Document, the Holder shall have no obligation to comply with or
adhere to any limitations, if any, on the conversion of this Debenture or the
sale of the Underlying Shares.
Section 3. Redemptions.
(a) Company's Optional Cash Redemption. The Company at its option shall
have the right to redeem ("Optional Redemption") a portion or all amounts
outstanding under this Debenture prior to the Maturity Date provided that as of
the date of the Holder's receipt of a Redemption Notice (as defined herein) (i)
the Closing Bid Price of the of the Common Stock, as reported by Bloomberg, LP,
is less than the Conversion Price, (ii) the Underlying Share Registration
Statement is effective, and (iii) no Event of Default has occurred. The Company
shall pay an amount equal to the principal amount being redeemed plus a
redemption premium ("Redemption Premium") equal to twenty percent (20%) of the
principal amount being redeemed, and accrued interest, (collectively referred to
as the "Redemption Amount"). In order to make a redemption, the Company shall
first provide written notice to the Holder of its intention to make a redemption
(the "Redemption Notice") setting forth the amount of principal it desires to
redeem. After receipt of the Redemption Notice the Holder shall have three (3)
business days to elect to convert all or any portion of this Debenture, subject
to the limitations set forth in Section 4(b). On the fourth (4th) business day
after the Redemption Notice, the Company shall deliver to the Holder the
Redemption Amount with respect to the principal amount redeemed after giving
effect to conversions effected during the three (3) business day period.
Section 4. Conversion.
(a) Conversion at Option of Holder.
(i) 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,
after the Original Issue Date (as defined in Section 6) (subject to the
limitations on conversion set forth in Section 4(b) hereof). The number of
shares of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in Section 4(c)(i)). The
Company shall deliver Common Stock certificates to the Holder prior to the Fifth
(5th) Trading Day after a Conversion Date.
(ii) Notwithstanding anything to the contrary contained herein, if on
any Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay principal and interest hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the a Primary
Market; or (3) the Company has failed to timely satisfy a conversion; then, at
the option of the Holder, the Company, in lieu of delivering shares of Common
Stock pursuant to Section 4(a)(i), shall deliver, within three (3) Trading Days
of each applicable Conversion Date, an amount in cash equal to the product of
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the outstanding principal amount to be converted divided by the applicable
Conversion Price, and multiplied by the highest Closing Bid Price of the stock
from date of the conversion notice till the date that such cash payment is made.
Further, if the Company shall not have delivered any cash due in respect of
conversion of this Debenture by the fifth (5th) Trading Day after the Conversion
Date, the Holder may, by notice to the Company, require the Company to issue
shares of Common Stock pursuant to Section 4(c), except that for such purpose
the Conversion Price applicable thereto shall be the lesser of the Conversion
Price on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provisions of this Section.
(iii) The Holder shall effect conversions by delivering to the Company a
completed notice in the form attached hereto as Exhibit A (a "Conversion
Notice"). The date on which a Conversion Notice is delivered is the "Conversion
Date." Unless the Holder is converting the entire principal amount outstanding
under this Debenture, the Holder is not required to physically surrender this
Debenture to the Company in order to effect conversions. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture plus all accrued and unpaid interest thereon 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. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error.
(b) Certain Conversion Restrictions.
(i) The Company shall not effect any conversions of this Debenture and
the Holder shall not have the right to convert any portion of this Debenture or
receive shares of Common Stock as payment of interest hereunder to the extent
that after giving effect to such such conversion or receipt of such interest
payment, the Holder, together with any affiliate thereof, would beneficially own
(as determined in accordance with Section 13(d) of the Exchange Act and the
rules promulgated thereunder) in excess of 4.99% of the number of shares of
Common Stock outstanding immediately after giving effect to such conversion or
receipt of shares as payment of interest. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.99% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of this
Debenture is convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of this Debenture that, without regard to any other shares that the Holder or
its affiliates may beneficially own, would result in the issuance in excess of
the permitted amount hereunder, the Company shall notify the Holder of this fact
and shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 4(a)(i) and, any principal amount tendered for conversion in excess of
the permitted amount hereunder shall remain outstanding under this Debenture.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 65 days prior notice to the
Company. Other Holders shall be unaffected by any such waiver.
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(c) Conversion Price and Adjustments to Conversion Price.
(i) The conversion price in effect on any Conversion Date shall be equal
to the lesser of (a) Eighty Cents ($.80) (the "Fixed Conversion Price") or (b)
eighty percent (80%) of the lowest Volume Weighted Average Price of the Common
Stock during the thirty (30) trading days immediately preceding the Conversion
Date as quoted by Bloomberg, LP (the "Market Conversion Price"). The Fixed
Conversion Price and the Market Conversion Price are collectively referred to as
the "Conversion Price." The Conversion Price may be adjusted pursuant to the
other terms of this Debenture.
(ii) If the Company, at any time while this Debenture is outstanding,
shall (a) 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, (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 Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section 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.
(iii) If the Company, at any time while this Debenture is outstanding,
shall issue rights, options or warrants to all holders of Common Stock (and not
to the Holder) entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Conversion Price, then the Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants (plus the number
of additional shares of Common Stock offered for subscription or purchase), and
of which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants, plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at the Conversion Price.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights, options or warrants. However,
upon the expiration of any such right, option or warrant to purchase shares of
the Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section, if any such right, option or warrant
shall expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such rights or warrants) had
6
the adjustment of the Conversion Price made upon the issuance of such rights,
options or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such rights, options or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable, at any
time while this Debenture is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock ("Common Stock Equivalents")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent 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 a price per share which is less than the Conversion Price, such
issuance shall be deemed to have occurred for less than the Conversion Price),
then, at the sole option of the Holder, the Conversion Price shall be adjusted
to mirror the 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 one
(1) business day following the issuance of any Common Stock or Common Stock
Equivalent subject to this Section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms. No adjustment under this Section shall be made as a result of
issuances of Excluded Securities.
(v) If the Company, at any time while this Debenture is outstanding,
shall distribute to all holders of Common Stock (and not to the Holder)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security, then in each such case the Conversion Price at which
this Debenture shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Closing Bid Price determined as
of the record date mentioned above, and of which the numerator shall be such
Closing Bid Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of 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 Holder 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.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder shall have the right thereafter
to, at its option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
7
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) require the Company to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive reclassifications or
share exchanges.
(vii) Whenever the Conversion Price is adjusted pursuant to Section 4
hereof, the Company shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(viii) 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 this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Company, at least twenty (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. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(ix) In case of any (1) merger or consolidation of the Company or any
subsidiary of the Company with or into another Person, or (2) sale by the
Company or any subsidiary of the Company of more than one-half of the assets of
the Company in one or a series of related transactions, a Holder shall have the
right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
8
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a principal amount
equal to the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.
(d) Other Provisions.
(i) The Company shall at all times reserve and keep available out of its
authorized Common Stock the full number of shares of Common Stock issuable upon
conversion of all outstanding amounts under this Debenture; and within three (3)
Business Days following the receipt by the Company of a Holder's notice that
such minimum number of Underlying Shares is not so reserved, the Company shall
promptly reserve a sufficient number of shares of Common Stock to comply with
such requirement.
(ii) All calculations under this Section 4 shall be rounded up to the
nearest $0.0001 or whole share.
(iiii) 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 this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
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 this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) upon the
conversion of the outstanding principal amount of this Debenture 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 Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration Statement.
(iv) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
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(v) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder 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 Debenture 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.
(vi) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to Section 2 herein for the
Company 's failure to deliver certificates representing shares of Common Stock
upon conversion 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,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(vii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4(a)(i) by the fifth (5th) Trading Day after the Conversion Date, and
if after such fifth (5th) Trading Day the Holder purchases (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 market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue a Debenture in
the 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(a)(i). 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 market price of the
Underlying Shares on the date of conversion 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.
Section 5. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms hereof must be
in writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
10
kept on file by the sending party); or (iii) one (1) Trading Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company, to: The Certo Group Corp.
000 Xxxxxx Xxxxx Xxxxx Xxxxxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxx Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Cornell Capital Partners, L.P.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Approved Stock Plan" means a stock option plan that has been approved by
the Board of Directors of the Company prior to the date of the Securities
Purchase Agreement, pursuant to which the Company's securities may be issued
only to any employee, officer or director for services provided to the Company.
11
"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 are authorized or required by law or other government action to
close.
"Change of Control Transaction" means the occurrence of (a) an acquisition
after the date hereof by an individual or legal entity or "group" (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Company (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Company which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Company or any subsidiary of the Company in one or a series of
related transactions with or into another entity, or (d) 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 (a), (b) or (c).
"Closing Bid Price" means the price per share in the last reported trade of
the Common Stock on a Primary Market or on the exchange which the Common Stock
is then listed as quoted by Bloomberg, LP.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001, of the Company and
stock of any other class into which such shares may hereafter be changed or
reclassified.
"Conversion Date" shall mean the date upon which the Holder gives the
Company notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Securities" means, (a) shares issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan (b) shares of Common
Stock issued or deemed to be issued by the Company upon the conversion, exchange
or exercise of any right, option, obligation or security outstanding on the date
prior to date of the Securities Purchase Agreement, provided that the terms of
such right, option, obligation or security are not amended or otherwise modified
on or after the date of the Securities Purchase Agreement, and provided that the
conversion price, exchange price, exercise price or other purchase price is not
reduced, adjusted or otherwise modified and the number of shares of Common Stock
issued or issuable is not increased (whether by operation of, or in accordance
with, the relevant governing documents or otherwise) on or after the date of the
12
Securities Purchase Agreement, and (c) the shares of Common Stock issued or
deemed to be issued by the Company upon conversion of this Debenture and (d) any
shares of Common Stock to be issued to Xxxxxxx Xxxxx in connection with any
option agreement or employment agreement to be approved by the Board of
Directors of the Company subsequent to the date hereof.
"Original Issue Date" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers 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.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are quoted on
the OTC or quoted or traded on such Primary Market on which the shares of Common
Stock are then quoted or listed; provided, that in the event that the shares of
Common Stock are not listed or quoted, then Trading Day shall mean a Business
Day.
"Transaction Documents" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Documents, the Irrevocable Transfer
Agent Instructions, and the Registration Rights Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"Underlying Shares 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.
"Volume Weighted Average Price" means the volume weighted average price per
share of the Common Stock on a Primary Market or on the exchange which the
Common Stock is then listed as quoted by Bloomberg, LP.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Company shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire 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 (iii) enter into any agreement with respect to any of the
foregoing.
13
Section 8. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 9. If this Debenture is mutilated, lost, stolen or destroyed, the
Company shall execute and deliver, in exchange and substitution for and upon
cancellation of the 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.
Section 10. No indebtedness of the Company is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. Without the Holder's consent, the Company will not
and will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness 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 there from that is senior in
any respect to the obligations of the Company under this Debenture.
Section 11. This Debenture shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflicts of
laws thereof. Each of the parties consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Xxxxxx County, New Jersey and the
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection with any dispute arising under this Debenture and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions.
Section 12. If the Company fails to strictly comply with the terms of this
Debenture, then the Company shall reimburse the Holder promptly for all fees,
costs and expenses, including, without limitation, attorneys' fees and expenses
incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
Section 13. Any waiver by the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the 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.
14
Section 14. 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 shall violate
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.
Section 15. 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.
Section 16. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 17. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
15
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
COMPANY:
THE CERTO GROUP CORP.
By: /s/ Xxxxxxx Xxxxx
----------------------
Name: Xxxxxxx Xxxxx
Title: President, Chief Executive Officer
and Chairman
16
EXHIBIT A
CONVERSION NOTICE
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal
amount of Debenture No. CERTO-1-1into Shares of Common Stock of THE CERTO GROUP
CORP., according to the conditions stated therein, as of the Conversion Date
written below.
Conversion Date: ______________________________________
Amount to be converted: $_____________________________________
Conversion Price: $_____________________________________
Number of shares of Common Stock to be
issued: ______________________________________
Amount of Debenture
Unconverted: $_____________________________________
Please issue the shares of Common Stock in the following name and to the
following address: Issue to:
Authorized Signature: _________________________________________________
Name: _________________________________________________
Title: _________________________________________________
Broker DTC Participant Code:
Account Number:
