EXHIBIT 10.28
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
8 3/4% CONVERTIBLE DEBENTURE
Company: PayStar Corporation
Company Address: 0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx 00, Xxxx, Xxxxxxxxxx 00000
Maturity Date: October 30, 2004
Principal Amount: $150,000
PayStar Corporation, a Nevada corporation, and any successor or
resulting corporation by way of merger, consolidation, sale or exchange of
all or substantially all of the assets or otherwise (the "Company"), for
value received, hereby promises to pay to the Holder (as such term is
hereinafter defined), or such other Person (as such term is hereinafter
defined) upon order of the Holder, on October 30, 2004 (the "Maturity
Date"), the principal sum of one hundred fifty thousand dollars ($150,000),
as such sum may be adjusted pursuant to Article 3, and to pay interest
thereon from the date hereof, monthly in arrears, on the 15th day of each
month (each an "Interest Payment Due Date" and collectively, the "Interest
Payment Due Dates"), commencing on December 15, 2002, at the rate of eight
and three-quarter percent (8 3/4%) per annum (the "Debenture Interest Rate"),
until the Principal Amount (as such term is hereinafter defined) of this
Debenture has been paid in full. All interest payable on the Principal
Amount of this Debenture shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. Payment of interest on this
Debenture shall be in cash. This Debenture may not be prepaid without the
written consent of the Holder.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article
whenever used in this Debenture have the following respective meanings:
(i) "Affiliate" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(ii) "Bankruptcy Code" means the United States Bankruptcy Code of
1986, as amended (11 U.S.C. sections 101 et. seq.).
(iii) "Business Day" means a day other than Saturday, Sunday
or any day on which banks located in the State of California are authorized
or obligated to close.
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(iv) "Capital Shares" means the Common Stock and any other shares
of any other class or series of capital stock, whether now or hereafter
authorized and however designated, which have the right to participate in
the distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Company.
(v) "Closing Date" means October 30, 2002.
(vi) "Common Shares" or "Common Stock" means shares of the
Company's Common Stock.
(vii) "Common Stock Issued at Conversion", when used with
reference to the securities deliverable upon conversion of this Debenture,
means all Common Shares now or hereafter Outstanding and securities of any
other class or series into which this Debenture hereafter shall have been
changed or substituted, whether now or hereafter created and however
designated.
(viii) "Conversion" or "conversion" means the repayment by the
Company of the Principal Amount of this Debenture (and, to the extent the
Holder elects as permitted by Section 3.1, accrued and unpaid interest
thereon) by the delivery of Common Stock on the terms provided in Section
3.2, and "convert," "converted," "convertible" and like words shall have a
corresponding meaning.
(ix) "Conversion Date" means any day on which all or any portion
of the Principal Amount of this Debenture is converted in accordance with
the provisions hereof.
(x) "Conversion Notice" means a written notice of conversion
substantially in the form annexed hereto as Exhibit A.
(xi) "Conversion Price" on any date of determination means the
applicable price for the conversion of this Debenture into Common Shares on
such day as set forth in Section 3.1(a).
(xii) "Current Market Price" on any date of determination
means the closing price of a Common Share on such day as reported on the
NASDAQ OTCBB Exchange; provided that, if such security is not listed or
admitted to trading on the NASDAQ OTCBB, as reported on the principal
national security exchange or quotation system on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
(xiii) "Deadline" means the date that is the 90th day from the
Closing Date.
(xiv) "Debenture" or "Debentures" means this 8 3/4% Convertible
Debenture of the Company or such other convertible debenture(s) exchanged
therefor as provided in Section 2.1.
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(xv) "Discount Multiplier" has the meaning set forth in Section
3.1(a).
(xvi) "Event of Default" has the meaning set forth in Section
6.1.
(xvii) "Holder" means La Jolla Cove Investors, Inc., any
successor thereto, or any Person to whom this Debenture is subsequently
transferred in accordance with the provisions hereof.
(xviii) "Interest Payment Due Date" has the meaning set forth
in the opening paragraph of this Debenture.
(xix) "Market Disruption Event" means any event that results
in a material suspension or limitation of trading of the Common Shares.
(xx) "Market Price" per Common Share means the lowest price of
the Common Shares during any Trading Day as reported on the NASDAQ OTCBB;
provided that, if such security is not listed or admitted to trading on the
NASDAQ OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the lowest price of the Common
Shares during any Trading Day on the over-the-counter market as reported by
Bloomberg LP or a similar generally accepted reporting service, as the case
may be.
(xxi) "Maximum Rate" has the meaning set forth in Section
6.3.
(xxii) "Outstanding" when used with reference to Common Shares
or Capital Shares (collectively, "Shares") means, on any date of
determination, all issued and outstanding Shares, and includes all such
Shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in such Shares; provided, however, that
any such Shares directly or indirectly owned or held by or for the account
of the Company or any Subsidiary of the Company shall not be deemed
"Outstanding" for purposes hereof.
(xxiii) "Person" means an individual, a corporation, a
partnership, an association, a limited liability company, an unincorporated
business organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality
thereof.
(xxiv) "Principal Amount" means, for any date of calculation,
the principal sum set forth in the first paragraph of this Debenture (but
only such principal amount as to which the Holder has (a) actually advanced
pursuant to the Securities Purchase Agreement (b) not theretofore furnished
a Conversion Notice in compliance with Section 3.2).
(xxv) "Registration Rights Agreement" means that certain
Registration Rights Agreement of even date herewith by and between the
Company and Holder, as the same may be amended from time to time.
(xxvi) "SEC" means the United States Securities and Exchange
Commission.
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(xxvii) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in
effect at the time.
(xxviii) "Securities Purchase Agreement" means that certain
Securities Purchase Agreement of even date herewith by and among the
Company and Holder, as the same may be amended from time to time.
(xxix) "Subsidiary" means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions are
owned directly or indirectly by the Company.
(xxx) "Trading Day" means any day on which (i) purchases and
sales of securities on the principal national security exchange or
quotation system on which the Common Shares are traded are reported
thereon, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, as reported by Bloomberg LP or a
similar generally accepted reporting service, as the case may be, (ii) at
least one bid for the trading of Common Shares is reported and (iii) no
Market Disruption Event occurs.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
EXCHANGES, TRANSFER AND OPTIONAL REDEMPTION
SECTION 2.1 Exchange and Registration of Transfer of Debentures.
The Holder may, at its option, surrender this Debenture at the principal
executive offices of the Company and receive in exchange therefor a
Debenture or Debentures, each in the denomination of $1,000 or an integral
multiple of $500 in excess thereof, dated as of the date of this Debenture
(which shall accrue interest from the most recent Interest Payment Due Date
on which an interest payment was made in full), and payable to such Person
or order as may be designated by such Holder. The aggregate Principal
Amount of the Debenture or Debentures exchanged in accordance with this
Section 2.1 shall equal the aggregate unpaid Principal Amount of this
Debenture as of the date of such surrender; provided, however, that upon
any exchange pursuant to this Section 2.1 there shall be filed with the
Company the name and address for all purposes hereof of the Holder or
Holders of the Debenture or Debentures delivered in such exchange. This
Debenture, when presented for registration of transfer or for exchange or
conversion, shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company duly executed, by the Holder duly authorized
in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Debenture and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Company shall make, issue and deliver,
in lieu of such lost, stolen, destroyed or mutilated Debenture, a new
Debenture of like tenor and unpaid Principal Amount dated as of the date
hereof (which shall accrue interest from the most recent Interest
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Payment Due Date on which an interest payment was made in full). This
Debenture shall be held and owned upon the express condition that the
provisions of this Section 2.2 are exclusive with respect to the replacement
of a mutilated, destroyed, lost or stolen Debenture and shall preclude any
and all other rights and remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the
Person in whose name this Debenture shall be registered upon the registry
books of the Company to be, and may treat it as, the absolute owner of this
Debenture (whether or not this Debenture shall be overdue) for the purpose
of receiving payment of or on account of the Principal Amount of this
Debenture, for the conversion of this Debenture and for all other purposes,
and the Company shall not be affected by any notice to the contrary. All
such payments and such conversions shall be valid and effectual to satisfy
and discharge the liability upon this Debenture to the extent of the sum or
sums so paid or the conversion or conversions so made.
SECTION 2.4 Repayment at Maturity. At the Maturity Date, the
Company shall repay the outstanding Principal Amount of this Debenture in
whole in cash, together with all accrued and unpaid interest thereon, in
cash, to the Maturity Date.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price; Valuation Event. (a) At
the option of the Holder, this Debenture may be converted, either in whole
or in part, up to the full Principal Amount hereof (in increments of $1,000
in Principal Amount) into Common Shares (calculated as to each such
conversion to the nearest 1/100th of a share), at any time and from time to
time on any Business Day, subject to compliance with Section 3.2. The
number of Common Shares into which this Debenture may be converted is equal
to (i) the Principal Amount of the Debenture being converted at the
Conversion Date (plus, at the option of the Holder, any accrued and unpaid
interest on the Debenture being converted through the Conversion Date)
divided by (ii) the Conversion Price. In addition, the Company shall pay
to the Holder on the Conversion Date, in cash, any accrued and unpaid
interest on the Debenture being converted not included at the option of the
Holder in clause (i) of the immediately preceding sentence. The
"Conversion Price" shall be equal to the lesser of (i) $0.50, or
(ii) eighty percent (80%) of the average of the three lowest Market Prices
during the twenty (20) Trading Days prior to Holder's election to convert
(a "Discount Multiplier"); provided, that in the event the Registration
Statement has not been declared effective by the SEC by the Deadline or, if
the Registration Statement has theretofore been declared effective but is
not thereafter effective, then the applicable Discount Multiplier shall
decrease by three percentage points (3%) for each month or partial month
occurring after the Deadline that the Registration Statement is not
effective.
(b) Notwithstanding the provisions of Section 3.1(a), in the
event the Company's Registration Statement has not been declared effective
by the Deadline or, if the Registration Statement has theretofore been
declared effective but is not thereafter effective, the following will also
apply in addition to any damages incurred by the Holder as a result
thereof:
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(i) The Holder may demand repayment of one hundred and
fifty percent (150%) of the Principal Amount of the Debenture, together
with all accrued and unpaid interest thereon, in cash, at any time prior to
the Company's Registration Statement being declared effective by the SEC or
during the period that the Company's Registration Statement is not
effective, such repayment to be made within three (3) business days of such
demand. In the event that the Debenture is so accelerated, in addition to
the repayment of one hundred and fifty percent (150%) of the Principal
Amount together with accrued interest as aforesaid, the Company shall
immediately issue and pay, as the case may be, to the Holder 50,000 Shares
of Common Stock and $15,000 for each thirty (30) day period, or portion
thereof, during which the Principal Amount, including interest thereon,
remains unpaid, with the monthly payment amount to increase to $20,000 for
each thirty (30) day period, or portion thereof, after the first ninety
(90) day period;
(ii) If the Holder does not elect to accelerate the
Debenture, the Company shall immediately issue or pay, as the case may be,
to Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30)
day period, or portion thereof, that the Registration Statement is not
effective, with the monthly payment amount to increase to $20,000 for each
thirty (30) day period, or portion thereof, after the first ninety (90) day
period.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of
this Debenture may be exercised on any Business Day by the Holder by
telecopying an executed and completed Conversion Notice to the Company.
Each date on which a Conversion Notice is telecopied to the Company in
accordance with the provisions of this Section 3.2 shall constitute a
Conversion Date. The Company shall convert this Debenture and issue the
Common Stock Issued at Conversion in the manner provided below in this
Section 3.2, and all voting and other rights associated with the beneficial
ownership of the Common Stock Issued at Conversion shall vest with the
Holder, effective as of the Conversion Date at the time specified in the
Conversion Notice. The Conversion Notice also shall state the name or
names (with addresses) of the persons who are to become the holders of the
Common Stock Issued at Conversion in connection with such conversion. The
Holder shall deliver this Debenture by express courier within thirty (30)
days following the date on which the telecopied Conversion Notice has been
transmitted to the Company. Upon surrender for conversion, this Debenture
shall be accompanied by a proper assignment hereof to the Company or be
endorsed in blank. As promptly as practicable after the receipt of the
Conversion Notice as aforesaid, but in any event not more than three (3)
Business Days after the Company's receipt of such Conversion Notice, the
Company shall (i) issue the Common Stock Issued at Conversion in accordance
with the provisions of this Article 3 and (ii) cause to be mailed for
delivery by overnight courier, or if a Registration Statement covering the
Common Stock has been declared effective by the SEC cause to be
electronically transferred, to Holder (x) a certificate or certificate(s)
representing the number of Common Shares to which the Holder is entitled by
virtue of such conversion, (y) cash, as provided in Section 3.3, in respect
of any fraction of a Common Share deliverable upon such conversion and
(z) cash or shares of Common Stock, as applicable, representing the amount of
accrued and unpaid interest on this Debenture as of the Conversion Date.
Such conversion shall be deemed to have been effected at the time at which
the Conversion Notice indicates, and at such time the rights of the Holder
of this Debenture, as such (except if and to the extent that any Principal
Amount thereof remains unconverted), shall cease and the Person and Persons
in whose name or names the Common Stock Issued at Conversion shall be
issuable shall be deemed to have become the holder
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or holders of record of the Common Shares represented thereby, and all voting
and other rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons. The Conversion
Notice shall constitute a contract between the Holder and the Company,
whereby the Holder shall be deemed to subscribe for the number of Common
Shares which it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment
to which it is entitled pursuant to Section 3.4), to surrender this Debenture
and to release the Company from all liability thereon (except if and to the
extent that any Principal Amount thereof remains unconverted). No cash
payment aggregating less than $1.00 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the
Company challenges, disputes or denies the right of the Holder hereof to
effect the conversion of this Debenture into Common Shares or otherwise
dishonors or rejects any Conversion Notice delivered in accordance with
this Section 3.2 or (ii) any third party who is not and has never been an
Affiliate of the Holder commences any lawsuit or legal proceeding or
otherwise asserts any claim before any court or public or governmental
authority which seeks to challenge, deny, enjoin, limit, modify, delay or
dispute the right of the Holder hereof to effect the conversion of this
Debenture into Common Shares, then the Holder shall have the right, by
written notice to the Company, to require the Company to promptly redeem
this Debenture for cash at one hundred and fifty (150%) of the Principal
Amount thereof, together with all accrued and unpaid interest thereon to
the date of redemption. Under any of the circumstances set forth above,
the Company shall be responsible for the payment of all costs and expenses
of the Holder, including reasonable legal fees and expenses, as and when
incurred in defending itself in any such action or pursuing its rights
hereunder (in addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under the Bankruptcy
Code. In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. section 362 in respect of the Holder's conversion
privilege. The Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. section 362 in respect of the
conversion of this Debenture. The Company agrees, without cost or expense
to the Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. section 362.
SECTION 3.3 Fractional Shares. No fractional Common Shares or
scrip representing fractional Common Shares shall be delivered upon
conversion of this Debenture. Instead of any fractional Common Shares
which otherwise would be delivered upon conversion of this Debenture, the
Company shall pay a cash adjustment in respect of such fraction in an
amount equal to the same fraction multiplied by the Current Market Price on
the Conversion Date. No cash payment of less than $1.00 shall be required
to be given unless specifically requested by the Holder.
SECTION 3.4 Adjustments. The Conversion Price and the number of
shares deliverable upon conversion of this Debenture are subject to
adjustment from time to time as follows:
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(i) Reclassification, Etc. In case the Company shall reorganize
its capital, reclassify its capital stock, consolidate or merge with or
into another Person (where the Company is not the survivor or where there
is a change in or distribution with respect to the Common Stock of the
Company), sell, convey, transfer or otherwise dispose of all or
substantially all its property, assets or business to another Person, or
effectuate a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of
(each, a "Fundamental Corporate Change") and, pursuant to the terms of such
Fundamental Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription
or purchase rights) in addition to or in lieu of common stock of the
successor or acquiring corporation ("Other Property") are to be received by
or distributed to the holders of Common Stock of the Company, then the
Holder of this Debenture shall have the right thereafter, at its sole
option, to (x) require the Company to prepay this Debenture for cash at one
hundred and fifty percent (150%) of the Principal Amount thereof, together
with all accrued and unpaid interest thereon to the date of prepayment,
(y) receive the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property as is receivable upon or as a result of
such Fundamental Corporate Change by a holder of the number of shares of
Common Stock into which such the outstanding portion of this Debenture may
be converted at the Conversion Price applicable immediately prior to such
Fundamental Corporate Change or (z) require the Company, or such successor,
resulting or purchasing corporation, as the case may be, to, without
benefit of any additional consideration therefor, execute and deliver to
the Holder a debenture with substantial identical rights, privileges,
powers, restrictions and other terms as this Debenture in an amount equal
to the amount outstanding under this Debenture immediately prior to such
Fundamental Corporate Change. For purposes hereof, "common stock of the
successor or acquiring corporation" shall include stock of such corporation
of any class which is not preferred as to dividends or assets over any
other class of stock of such corporation and which is not subject to
prepayment and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for
any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions shall
similarly apply to successive Fundamental Corporate Changes.
SECTION 3.5 Certain Conversion Limits.
Notwithstanding anything herein to the contrary, if and to the extent
that, on any date, the holding by the Holder of this Debenture would result
in the Holder being deemed the beneficial owner of more than ten percent
(10%) of the then Outstanding shares of Common Stock, then the Holder shall
not have the right, and the Company shall not have the obligation, to
convert any portion of this Debenture as shall cause such Holder to be
deemed the beneficial owner of more than ten percent (10%) of the then
Outstanding shares of Common Stock. If any court of competent jurisdiction
shall determine that the foregoing limitation is ineffective to prevent a
Holder from being deemed the beneficial owner of more than ten percent
(10%) of the then Outstanding shares of Common Stock, then the Company shall
prepay the such portion of this Debenture as shall cause such Holder to be
deemed the beneficial owner of more than ten percent (10%) of the then
Outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Holder shall have no interest in or rights
under such portion of the
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Debenture. Any and all interest paid on or prior to the date of such
determination shall be deemed interest paid on the remaining portion of
this Debenture held by the Holder. Such prepayment shall be for cash at
a prepayment price of one hundred and fifty percent (150%) of the Principal
Amount thereof, together with all accrued and unpaid interest thereon to
the date of prepayment.
SECTION 3.6 Surrender of Debentures. Upon any redemption of this
Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant
to Section 2.4, the Holder shall either deliver this Debenture by hand to
the Company at its principal executive offices or surrender the same to the
Company at such address by nationally recognized overnight courier.
Payment of the redemption price or the amount due on maturity specified in
Section 2.4, shall be made by the Company to the Holder against receipt of
this Debenture (as provided in this Section 3.5) by wire transfer of
immediately available funds to such account(s) as the Holder shall specify
by written notice to the Company. If payment of such redemption price is
not made in full by the redemption date, or the amount due on maturity is
not paid in full by the Maturity Date, the Holder shall again have the
right to convert this Debenture as provided in Article 3 hereof or to
declare an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture constitutes a
legal, valid and binding obligation of the Company, enforceable in
accordance with its terms subject, as to enforceability, to general
principles of equity and to principles of bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating
to or affecting creditors' rights and remedies generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any
Common Shares deliverable upon the conversion hereof, have not been
registered under the Securities Act. The Holder by accepting this
Debenture agrees that this Debenture and the shares of Common Stock to be
acquired as interest on and upon conversion of this Debenture may not be
assigned or otherwise transferred unless and until (i) the Company has
received the opinion of counsel for the Holder that this Debenture or such
shares may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to this Debenture
or such shares has been filed by the Company and declared effective by the
SEC.
Each certificate for shares of Common Stock deliverable hereunder
shall bear a legend as follows unless and until such securities have been
sold pursuant to an effective registration statement under the Securities
Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"). The securities may not be offered for sale,
sold or otherwise transferred except (i) pursuant to an effective
registration statement under the Securities Act or (ii) pursuant
to an exemption from registration under the Securities Act in
respect of which the issuer of this certificate has received an
opinion of
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counsel satisfactory to the issuer of this certificate to such
effect. Copies of the agreement covering both the purchase of the
securities and restrictions on their transfer may be obtained at no
cost by written request made by the holder of record of this
certificate to the Secretary of the issuer of this certificate at
the principal executive offices of the issuer of this certificate."
ARTICLE 5
COVENANTS
SECTION 5.1 Conversion. The Company shall cause the transfer
agent, not later than three (3) Business Days after the Company's receipt
of a Conversion Notice, to issue and deliver to the Holder the requisite
shares of Common Stock Issued at Conversion. Such delivery shall be by
electronic transfer if a Registration Statement covering the Common Stock
has been declared effective by the SEC.
SECTION 5.2 Notice of Default. If any one or more events occur
which constitute or which, with notice, lapse of time, or both, would
constitute an Event of Default, the Company shall forthwith give notice to
the Holder, specifying the nature and status of the Event of Default or
such other event(s), as the case may be.
SECTION 5.3 Payment of Obligations. So long as this Debenture
shall be outstanding, the Company shall pay, extend, or discharge at or
before maturity, all its respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may
be contested in good faith by appropriate proceedings.
SECTION 5.4 Compliance with Laws. So long as this Debenture shall
be outstanding, the Company shall comply with all applicable laws,
ordinances, rules, regulations and requirements of governmental
authorities, except for such noncompliance which would not have a material
adverse effect on the business, properties, prospects, condition (financial
or otherwise) or results of operations of the Company and the Subsidiaries.
SECTION 5.5 Inspection of Property, Books and Records. So long as
this Debenture shall be outstanding, the Company shall keep proper books of
record and account in which full, true and correct entries shall be made of
all material dealings and transactions in relation to its business and
activities and shall permit representatives of the Holder at the Holder's
expense to visit and inspect any of its respective properties, to examine
and make abstracts from any of its respective books and records, not
reasonably deemed confidential by the Company, and to discuss its
respective affairs, finances and accounts with its respective officers and
independent public accountants, all at such reasonable times and as often
as may reasonably be desired.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used
herein means any one of the following events:
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(i) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable
and, in the case of an interest payment default, such default shall
continue for five (5) Business Days after the date such interest payment
was due, or the Company shall fail to perform or observe in any other
covenant, agreement, term, provision, undertaking or commitment under this
Debenture, the Conversion Warrants (as defined in the Securities Purchase
Agreement), the Securities Purchase Agreement or the Registration Rights
Agreement and such default shall continue for a period of ten (10) Business
Days after the delivery to the Company of written notice that the Company
is in default hereunder or thereunder;
(ii) any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights
Agreement or in any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture, the Warrants,
the Securities Purchase Agreement or the Registration Rights Agreement
shall be false or misleading in a material respect on the Closing Date;
(iii) under the laws of any jurisdiction not otherwise
covered by clauses (iv) and (v) below, the Company or any Subsidiary
(A) becomes insolvent or generally not able to pay its debts as they become
due, (B) admits in writing its inability to pay its debts generally or
makes a general assignment for the benefit of creditors, (C) institutes or
has instituted against it any proceeding seeking (x) to adjudicate it a
bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors including any plan of compromise or arrangement or other
corporate proceeding involving or affecting its creditors or (z) the entry
of an order for relief or the appointment of a receiver, trustee or other
similar person for it or for any substantial part of its properties and
assets, and in the case of any such official proceeding instituted against
it (but not instituted by it), either the proceeding remains undismissed or
unstayed for a period of sixty (60) calendar days, or any of the actions
sought in such proceeding (including the entry of an order for relief
against it or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its properties and
assets) occurs or (D) takes any corporate action to authorize any of the
above actions;
(iv) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company under the Bankruptcy Code or any other applicable Federal or
state law, or appointing a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or ordering the winding-up or liquidation
of its affairs, and any such decree or order continues and is unstayed and
in effect for a period of sixty (60) calendar days;
(v) the institution by the Company or any Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Bankruptcy Code or any other applicable federal or
state law, or the consent
11
by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as and when they become due, or the taking of corporate action by the
Company in furtherance of any such action;
(vi) a final judgment or final judgments for the payment of money
shall have been entered by any court or courts of competent jurisdiction
against the Company and remains undischarged for a period (during which
execution shall be effectively stayed) of thirty (30) days, provided that
the aggregate amount of all such judgments at any time outstanding (to the
extent not paid or to be paid, as evidenced by a written communication to
that effect from the applicable insurer, by insurance) exceeds One Hundred
Thousand Dollars ($100,000);
(vii) it becomes unlawful for the Company to perform or
comply with its obligations under this Debenture, the Conversion Warrant,
the Securities Purchase Agreement or the Registration Rights Agreement in
any respect;
(viii) the Common Shares shall be delisted from the NASDAQ
OTCBB (the "Trading Market" or, to the extent the Company becomes eligible
to list its Common Stock on any other national security exchange or
quotation system, upon official notice of listing on any such exchange or
system, as the case may be, it shall be the "Trading Market") or suspended
from trading on the Trading Market, and shall not be reinstated, relisted
or such suspension lifted, as the case may be, within five (5) days or;
(ix) the Company shall default (giving effect to any applicable
grace period) in the payment of principal or interest as and when the same
shall become due and payable, under any indebtedness, individually or in
the aggregate, of more than One Hundred Thousand Dollars ($100,000);
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If
an Event of Default occurs and is continuing, then and in every such case
the Holder may, by a notice in writing to the Company, rescind any
outstanding Conversion Notice and declare that all amounts owing or
otherwise outstanding under this Debenture are immediately due and payable
and upon any such declaration this Debenture shall become immediately due
and payable in cash at a price of one hundred and fifty percent (150%) of
the Principal Amount thereof, together with all accrued and unpaid interest
thereon to the date of payment; provided, however, in the case of any Event
of Default described in clauses (iii), (iv), (v) or (vii) of Section 6.1,
such amount automatically shall become immediately due and payable without
the necessity of any notice or declaration as aforesaid.
SECTION 6.3 Late Payment Penalty. If any portion of the principal
of or interest on this Debenture shall not be paid within ten (10) days of
when it is due, the Discount Multiplier under this Debenture, and under all
warrants granted by the Company to the Holder, shall decrease by one
percentage point (1%) for all conversions of this Debenture and warrant
exercises thereafter.
12
SECTION 6.4 Maximum Interest Rate. Notwithstanding anything herein
to the contrary, if at any time the applicable interest rate as provided
for herein shall exceed the maximum lawful rate which may be contracted
for, charged, taken or received by the Holder in accordance with any
applicable law (the "Maximum Rate"), the rate of interest applicable to
this Debenture shall be limited to the Maximum Rate. To the greatest
extent permitted under applicable law, the Company hereby waives and agrees
not to allege or claim that any provisions of this Note could give rise to
or result in any actual or potential violation of any applicable usury
laws.
SECTION 6.5 Remedies Not Waived. No course of dealing between the
Company and the Holder or any delay in exercising any rights hereunder
shall operate as a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the
occurrence of any event described in Section 3.4 of this Debenture, the
Company shall cause to be mailed to the Holder of this Debenture at its
last address as it appears in the Company's security registry, at least
twenty (20) days prior to the applicable record, effective or expiration
date hereinafter specified (or, if such twenty (20) days' notice is not
possible, at the earliest possible date prior to any such record, effective
or expiration date), a notice thereof, including, if applicable, a
statement of (y) the date on which a record is to be taken for the purpose
of such dividend, distribution, issuance or granting of rights, options or
warrants, or if a record is not to be taken, the date as of which the
holders of record of Common Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (z) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected
to become effective, and the date as of which it is expected that holders
of record of Common Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-
up.
SECTION 7.2 Register. The Company shall keep at its principal
office a register in which the Company shall provide for the registration
of this Debenture. Upon any transfer of this Debenture in accordance with
Articles 2 and 4 hereof, the Company shall register such transfer on the
Debenture register.
SECTION 7.3 Withholding. To the extent required by applicable law,
the Company may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Company from any payments made pursuant to this
Debenture.
SECTION 7.4 Transmittal of Notices. Except as may be otherwise
provided herein, any notice or other communication or delivery required or
permitted hereunder shall be in writing and shall be delivered personally,
or sent by telecopier machine or by a nationally recognized overnight
courier service, and shall be deemed given when so delivered personally, or
by telecopier machine or overnight courier service as follows:
13
(1) if to the Company, to:
PayStar Corporation
0000 X. Xxxxxxxxx Xxxx, Xxxxx 00
Xxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
(2) if to the Holder, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each of the Holder or the Company may change the foregoing address by
notice given pursuant to this Section 7.4.
SECTION 7.5 Attorneys' Fees. Should any party hereto employ an
attorney for the purpose of enforcing or construing this Agreement, or any
judgment based on this Agreement, in any legal proceeding whatsoever,
including insolvency, bankruptcy, arbitration, declaratory relief or other
litigation, the prevailing party shall be entitled to receive from the
other party or parties thereto reimbursement for all reasonable attorneys'
fees and all reasonable costs, including but not limited to service of
process, filing fees, court and court reporter costs, investigative costs,
expert witness fees, and the cost of any bonds, whether taxable or not, and
that such reimbursement shall be included in any judgment or final order
issued in that proceeding. The "prevailing party" means the party
determined by the court to most nearly prevail and not necessarily the one
in whose favor a judgment is rendered.
SECTION 7.5 Governing Law. This Debenture shall be governed by,
and construed in accordance with, the laws of the State of California
(without giving effect to conflicts of laws principles). With respect to
any suit, action or proceedings relating to this Debenture, the Company
irrevocably submits to the exclusive jurisdiction of the courts of the
State of California sitting in San Diego and the United States District
Court located in the City of San Diego and hereby waives, to the fullest
extent permitted by applicable law, any claim that any such suit, action or
proceeding has been brought in an inconvenient forum. Subject to
applicable law, the Company agrees that final judgment against it in any
legal action or proceeding arising out of or relating to this Debenture
shall be conclusive and may be enforced in any other jurisdiction within or
outside the United States by suit on the judgment, a certified copy of
which judgment shall be conclusive evidence thereof and the amount of its
indebtedness, or by such other means provided by law.
14
SECTION 7.6 Headings. The headings of the Articles and Sections of
this Debenture are inserted for convenience only and do not constitute a
part of this Debenture.
SECTION 7.7 Payment Dates. Whenever any payment hereunder shall be
due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
SECTION 7.8 Binding Effect. Each Holder by accepting this
Debenture agrees to be bound by and comply with the terms and provisions of
this Debenture.
SECTION 7.9 No Stockholder Rights. Except as otherwise provided
herein, 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 7.10 Facsimile Execution. Facsimile execution shall be
deemed originals.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
by its duly authorized officer on the date of this Debenture.
PayStar Corporation
By: /s/ Xxxxxxx Xxxxx
Title: CEO
15
EXHIBIT A
DEBENTURE CONVERSION NOTICE
TO: PayStar Corporation
The undersigned owner of this 8 3/4% Convertible Debenture due October
30, 2004 (the "Debenture") issued by PayStar Corporation (the "Company")
hereby irrevocably exercises its option to convert $__________ Principal
Amount of the Debenture [and accrued and unpaid interest thereon to the
date of this Notice] into shares of Common Stock in accordance with the
terms of the Debenture. The undersigned hereby instructs the Company to
convert the portion of the Debenture specified above into shares of Common
Stock Issued at Conversion in accordance with the provisions of Article 3
of the Debenture. The undersigned directs that the Common Stock and
certificates therefor deliverable upon conversion, the Debenture reissued
in the Principal Amount not being surrendered for conversion hereby, [the
check or shares of Common Stock in payment of the accrued and unpaid
interest thereon to the date of this Notice,] together with any check in
payment for fractional Common Stock, be registered in the name of and/or
delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Debenture. The conversion
pursuant hereto shall be deemed to have been effected at the date and time
specified below, and at such time the rights of the undersigned as a Holder
of the Principal Amount of the Debenture set forth above shall cease and
the Person or Persons in whose name or names the Common Stock Issued at
Conversion shall be registered shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby and all voting
and other rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons.
Date and time: _________________
By: ____________________________
Title: _________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):
________________________________
________________________________
________________________________
