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 SECURE D BY SUCH SECURITIES.
Date of Issuance: May 10th, 2010
$20,000
9% SECURED CONVERTIBLE DEBENTURE
DUE December 23rd, 2010
THIS DEBENTURE is a duly authorized 9% Convertible Debenture of GENESIS
ELECTRONICS GROUP, INC., a Nevada corporation (the "Company") issued to
TANGIERS INVESTORS, LP (the "Holder") and designated as its 9%
Convertible Debenture, due December 23, 2010 (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to the Holder, the
principal sum of Twenty Thousand ($20,000) on December23, 2010 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 at the rate of 9% per annum, payable on the
Maturity Date, unless the Debenture is converted to shares of common
stock in accordance with the terms and conditions herein.
THE COMPANY MAY PREPAY ANY PORTION OF THE PRINCIPAL AMOUNT AT 150% OF
SUCH AMOUNT ALONG WITH ANY ACCRUED INTEREST OF THIS DEBENTURE AT ANY
TIME WITH WRITTEN APPROVAL FROM THE HOLDER.
This Debenture is subject to the following additional provisions:
Section 1. Exchange. 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 2. Transferability. This Debenture may be transferred or
exchanged only in compliance with applicable federal and state
securities laws and regulations. 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.
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Section 3. 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 the principal of, interest (including
Late Fees) on, or liquidated damages in respect to this Debenture, 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 is not cured, if possible to
cure, within 3 days of notice of such default sent by the Holder;
ii) the Company or any of its subsidiaries shall commence, or there
shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter
in effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to
the Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 30 days; or
the Company or any subsidiary thereof 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 thereof
suffers any appointment of any custodian or the like for it or any
substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; or 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 thereof 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 thereof 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 thereof for the purpose of
effecting any of the foregoing;
(iii) the Company shall fail to timely file all reports required to be
filed by it with the SEC pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"),
or otherwise required by the Exchange Act; or
(iv) the Common Stock of the Company shall cease to be quoted for
trading or listing for trading on any of (a) the American Stock
Exchange, (b) New York Stock Exchange, (c) the Nasdaq National Market,
(d) the Nasdaq Capital Market, or (e) the NASD OTC Bulletin Board
("OTC") (each, a "Primary Market") and shall not again be quoted or
listed for trading on any Primary Market within five (5) trading days
of such delisting.
b) If any Event of Default occurs and is continuing, 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 Holder
need
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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 4. Conversion.
i) At any time after the Original Issue Date until this Debenture is no
longer outstanding, this Debenture, including interest and principal,
shall be convertible into shares of Common Stock at the lower of $0.01
per share or a price of seventy percent (70%) of the average of the two
lowest VWAPs, determined on the then current trading market for the
Company's common stock, for ten (10) trading days prior to conversion
(the "Set Price"), at the option of the Holder, in whole at any time
and from time to time. 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 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. The Company
shall deliver any objection to any Notice of Conversion within 2
Business Days of receipt of such notice. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. 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.
ii) Upon receipt of a Notice of Conversion from the Holder, the Company
shall immediately issue a written request to its transfer agent
instructing its transfer agent to issue to the Holder the number of
shares contained in the Notice of Conversion (the "Transfer Request").
The Company shall deliver the Transfer Request to its transfer agent
5
within two (2) business days from the receipt of the Notice of
Conversion and shall deliver a copy of the Transfer Request to the
Holder within the same time frame. If the Transfer Request and a copy
of the Transfer Request are not delivered to the Company's transfer
agent and to the Holder within 2 (two) business days of conversion
notice delivery then a penalty of $2,000 per day will be assessed for
each day after the second business day (inclusive of the day of the
conversion) until the Holder receives a copy of the Transfer Request.
Any such penalty will be added to the principal balance of the Note,
under Holders expectation that any penalty amounts will tack back to
the original date of the note). In addition to the $2,000 penalty, if
the Company does not request the issuance of the shares underlying this
Debenture after receipt of a notice of conversion within three (3)
business days following the period allowed for any objection, Xxxxxx X.
Xxxxxx shall, in his personal capacity, be responsible for any
differential in the value of the converted shares underlying this
Debenture between the value of the closing price on the date the shares
should have been requested for transfer to the Holder and delivered
(the third business day following the submission of a conversion
request) and the date the shares are actually delivered. 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.
Section 5. Dividends and Restructuring
i) If the Company, at any time while this Debenture is 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, 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 reclassification.
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ii) Whenever the Set Price is adjusted pursuant to any of Section 4,
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.
iii) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the approval
of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger
to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share
exchange whereby the Common Stock is converted into other securities,
cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of
the Company; then, in each case, the Company shall cause to be filed at
each office or agency maintained for the purpose of conversion of the
Debentures, and shall cause to be mailed to the Holders at their last
addresses as they shall appear upon the stock 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 20day period commencing the
date of such notice to the effective date of the event triggering such
notice.
iv) If, at any time while this Debenture is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into
another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related
transactions, (C) 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
7
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 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. If any
Fundamental Transaction constitutes or results in a Change of Control
Transaction, then at the request of the Holder delivered before the 90
day after such Fundamental Transaction, the Company (or any such
successor or surviving entity) will purchase the Debenture from the
Holder for a purchase price, payable in cash within five Trading Days
after such request (or, if later, on the effective date of the
Fundamental Transaction), equal to the 100% of the remaining
unconverted principal amount of this Debenture on the date of such
request, plus all accrued and unpaid interest thereon, plus all other
accrued and unpaid amounts due hereunder.
Section 6. Reservation of Shares. 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 Debenture
Section 7. 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 the address set forth or
8
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.
Section 8. 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:
"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.
"Common Stock" means the common stock, $.001 par value per share, of
the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"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
"Set Price" shall have the meaning set forth in Section 4.
Section 9. Obligations. 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.
9
This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter
issued under the terms set forth herein. As long as this Debenture is
outstanding, the Company shall not and shall cause it subsidiaries not
to, without the consent of the Holder, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely
affect any rights of the Holder; (b) 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 hereunder; or
(c) enter into any agreement with respect to any of the foregoing.
Section 10. Lost or Stolen. 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.
Section 11. Jurisdiction. 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 California, 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 hereby (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 California. Each party hereto hereby irrevocably submits to
the exclusive jurisdiction of the California courts for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, 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 California 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
10
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.
Section 12. Waiver. Any waiver by the Holder shall not operate as or be
construed to be a waiver of any other breach of such provision or of
any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of
this Debenture on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any
waiver must be in writing.
Section 13. Piggy Back Registration Rights. For six months from the
date of this Debenture, the Holders shall be entitled to "piggyback"
registration rights on registrations initiated by the Company on forms
which permit the general sale of securities to the public, subject to
customary cut-backs if deemed necessary or advisable by the
underwriters for any such registration; except for any draw down or
"Pipe" transactions.
Section 14. Unenforceability. 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 the Debentures 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. 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.
*********************
Signature Page Follows
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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
GENESIS ELECTRONICS GROUP, INC.
/s/Xxxxxx X. Xxxxxx
--------------------------
Name: Xxxxxx X. Xxxxxx Title: CEO
12
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 9%
Convertible Debenture of GENESIS ELECTRONICS GROUP, INC. (the
"Company"), due on _________, 20____, into ____________ shares of
common stock, $.001 par value 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.
Conversion calculations:
Date to Effect Conversion: ____________________
70% of the average of the two lowest VWAPs for 10 trading days prior to
conversion.
Principal Amount of Debentures to be Converted:
Interest Amount of Debentures to be Converted
Number of shares of Common Stock to be issued:
Signature: ____________________________
Name: _______________________________
Address:_____________________________
