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: February 15, 2005
Original Conversion Price (subject to adjustment herein): $0.023
$150,000
PRIME PLUS 2% CONVERTIBLE DEBENTURE
DUE APRIL 30, 2005
THIS DEBENTURE is issued by Genio Group, Inc. a Delaware corporation,
having a principal place of business at 00 Xxxx 00xx Xxxxxx, Xxxxx 0000 Xxx
Xxxx, XX 00000 (the "Company"), designated as its 8% Convertible Debenture, due
April 30, 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
$150,000 on April 30, 2005 or such earlier date as this Debenture is 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 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 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
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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.
"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.
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"Optional Redemption" shall have the meaning set forth in Section
6(a).
"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 Holder are parties, as
amended, modified or supplemented from time to time in accordance with its
terms. All capitalized terms used but not otherwise defined herein shall
have the meanings set forth in the Purchase Agreement.
"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
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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.
"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. The Company shall pay interest to the Holder
on the aggregate unconverted and then outstanding principal amount of this
Debenture at the prime rate as published from time to time in The Wall
Street Journal plus 2%, per annum, payable 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) (the "Interest Payment Date"), in
cash.
b) 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. 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").
5
c) 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.
d) 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 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. 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
6
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) Set Price. The conversion price in effect on any Conversion Date
shall be equal to $0.023 subject to adjustment herein)(the "Set Price").
c) Intentionally Omitted
d) 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.
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 a standard 1933 Act legend) representing the
number of shares of Common Stock being acquired upon the conversion of
Debentures and (B) a bank check in the amount of accrued and unpaid
interest. The Company shall, if 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)
7
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 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
8
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.
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 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 and nonassessable.
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.
9
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, 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
10
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 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
11
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 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
12
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.
iv. Exempt Issuance. Notwithstanding the foregoing, no adjustment
will be made under this Section 5 in respect of an Exempt Issuance.
Section 6. Intentionally Omitted.
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, 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 this Debenture 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;
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; or
d) enter into any agreement with respect to any of the foregoing.
13
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
this Debenture, or (B) interest (including Late Fees) on, or
liquidated damages in respect of, this 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 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;
iii. 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;
iv. 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;
v. the Company shall fail to observe or perform any other
material covenant, agreement or warranty contained in, or otherwise
commit any material breach of this Debenture, 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;
vi. the Company shall redeem for value more than a de minimis
number of Common Stock Equivalents;
vii. there shall have occurred a Bankruptcy Event;
viii. 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
14
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
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 00 XXXX 00XX XXXXXX, XXXXX 0000, XXX XXXX, XX
00000, XXXXXXXXX XXXXXX (000) 000-0000, ATTN: 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.
15
(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. 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
16
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. 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.
*********************
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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.
GENIO GROUP, INC.
By: /s/ Xxxx Xxxxx
---------------------------------
Name: Xxxx Xxxxx
Title: Chief Executive Officer
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Convertible
Debenture of Genio Group, Inc., a Delaware corporation (the "Company"), due on
April 30, 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.
Conversion calculations: Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The Convertible Debenture due on April 30, 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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