EXHIBIT 10.22
9% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE
RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
PAWNBROKER.COM, INC.
No. 1 US $500,000
9% CONVERTIBLE DEBENTURE DUE DECEMBER 7, 2001
THIS DEBENTURE is issued by Pawnbroker.com, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Company") and is
designated as its 9% Convertible Debenture Due December 7, 2001.
FOR VALUE RECEIVED, the Company promises to pay to Lamothe Investing Corp.
or permitted assigns (the "Holder"), the principal sum of Five Hundred Thousand
Dollars and 00/100 (US $500,000) on December 7, 2001 (the "Maturity Date") and
to pay interest on the principal sum outstanding from time to time quarterly in
arrears at the rate of 9% per annum accruing from the date of initial issuance.
Accrual of interest shall commence on the first business day to occur after the
date of initial issuance and continue until payment in full of the principal sum
has been made or duly provided for. Quarterly interest payments shall be due and
payable on March 1, June 1, September 1, and December 1 of each year, commencing
with September 1, 2000. Accrued but unpaid interest shall also be due and
payable on any Conversion Date (as defined herein). If any interest payment date
or the Maturity Date is not a business day in the State of New York, then such
payment shall be made on the next succeeding business day.
The Company will pay the principal of and any accrued but unpaid interest
due upon this Debenture on the Maturity Date, by check or wire transfer to the
person who is the registered holder of this Debenture as of the tenth day prior
to the Maturity Date and addressed to such holder at the last address appearing
on the Debenture Register. The forwarding of such check, or completion of such
wire transfer, shall constitute a payment of principal and interest hereunder
and shall satisfy and discharge the liability for principal and interest on this
Debenture to the extent of the sum represented by such check or wire transfer.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of interest
on this Debenture any amounts required to be withheld under the applicable
provisions of the United States income tax laws or other applicable laws at the
time of such payments, and Holder shall execute and deliver all required
documentation in connection therewith.
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2. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. The Holder shall deliver written
notice to the Company of any proposed transfer of this Debenture. In the event
of any proposed transfer of this Debenture, the Company may require, prior to
issuance of a new Debenture in the name of such other person, that it receive
reasonable transfer documentation including legal opinions that the issuance of
the Debenture in such other name does not and will not cause a violation of the
Act or any applicable state or foreign securities laws. Prior to due presentment
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
Company's 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 be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary. This Debenture has been executed and
delivered pursuant to the Loan Agreement dated as of June 5, 2000 between the
Company and the original Holder (the "Loan Agreement"), and is subject to the
terms and conditions of the Loan Agreement, which are, by this reference,
incorporated herein and made a part hereof. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in the
Loan Agreement.
3. The rate of interest on this Debenture shall be reduced to seven percent
(7%), retroactive to the Closing Date, if the Registration Statement is declared
effective on or before one hundred (100) days from the Closing Date. The rate of
interest on this Debenture shall be reduced to six percent (6%), retroactive to
the Closing Date, if this Debenture is redeemed in full pursuant to Section 5
hereof on or before one hundred twenty (120) days from the Closing Date.
4. The Holder of this Debenture is entitled, at its option, to convert at
any time commencing one hundred twenty (120) days after the date hereof, the
principal amount of this Debenture or any portion thereof into shares of Common
Stock of the Company ("Conversion Shares") at a conversion price for each share
of Common Stock ("Conversion Price") equal to the lesser of (i) 115% of the
closing bid price of the Common Stock on the Principal Market on the Closing
Date, or (ii) 85% of the Market Price on the Conversion Date (as defined in
Section 6 hereof). The term "Market Price" shall have the meaning set forth in
the Loan Agreement. If, upon any conversion of this Debenture, the Company's
issuance of Conversion Shares would cause it to violate any listing requirement
of the Principal Market, then in lieu of such stock issuance, the Company shall
pay the Holder cash in an amount equal to the closing price of the Common Stock
on the Conversion Date multiplied by the number of shares which would otherwise
have been issuable upon such conversion.
5. The Company shall have the right at any time to deliver to the Holder a
written notice of the Company's intent to redeem the entire outstanding amount
of this Debenture at a price of (i) if after the Closing Date and on or before
the 90th day after the Closing Date, 110% of the outstanding principal balance,
plus all accrued but unpaid interest, (ii) if after the 90th day after the
Closing Date and on or before the 180th day after the closing date, 115% of the
outstanding principal balance, plus all accrued but unpaid interest and (iii) if
after the 180th day after the Closing Date, 120% of the outstanding principal
balance, plus all accrued but unpaid interest. The Company shall make the
redemption payment to the Holder within six (6) Trading Days of the redemption
date set forth in the Company notice of redemption, or else the redemption
notice shall be void, and the Company shall thereafter not have any further
right to redeem this Debenture. The Holder shall have the right to convert this
Debenture as set forth in Section 4 until the Trading Day prior to the Trading
Day set for payment of the redemption price, if this Debenture is otherwise
convertible at that time.
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6. (a) Conversion shall be effectuated by surrendering this Debenture to
the Company (if such Conversion will convert all outstanding principal) together
with the form of conversion notice attached hereto as Exhibit A (the "Notice of
Conversion"), executed by the Holder of this Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion (as above provided)
hereof, and accompanied, if required by the Company, by proper assignment hereof
in blank. Interest accrued or accruing from the date of issuance to the date of
conversion shall be paid in cash as set forth above on the Conversion Date. No
fraction of a share or scrip representing a fraction of a share will be issued
on conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The date on which Notice of Conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Holder faxes the Notice of
Conversion duly executed to the Company. Facsimile delivery of the Notice of
Conversion shall be accepted by the Company at facsimile number (775) 332-5048
Attn: Neil McElwee, Principal Financial and Accounting Officer. Certificates
representing Common Stock upon conversion will be delivered to the Holder within
three (3) Trading Days from the date the Notice of Conversion is delivered to
the Company. Delivery of shares upon conversion shall be made to the address
specified by the Holder in the Notice of Conversion.
(b) The Company understands that a delay in the issuance of shares of
Common Stock upon a conversion beyond the four (4) Trading Day period described
in Section 6(a) could result in economic loss to the Holder. As compensation to
the Holder for such loss, the Company agrees to pay late payments to the Holder
for late issuance of shares of Common Stock upon conversion in accordance with
the following schedule (where "No. Trading Days Late" is defined as the number
of Trading Days beyond three (3) Trading Days from the date the Notice of
Conversion is delivered to the Company).
No. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
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1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 6(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the
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Company's failure to issue and deliver Common Stock to the holder, including,
without limitation, the Holder's actual losses occasioned by any "buy-in" of
Common Stock necessitated by such late delivery. Furthermore, in addition to any
other remedies which may be available to the Holder, in the event that the
Company fails for any reason to effect delivery of such shares of Common Stock
within three (3) Trading Days from the date the Notice of Conversion is
delivered to the Company, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion, and in
such event no late payments shall be due in connection with such withdrawn
conversion.
(c) If at any time (a) the Company challenges, disputes or denies the right
of the Holder to effect the conversion of this Debenture into Common Stock or
otherwise dishonors or rejects any Notice of Conversion delivered in accordance
with this Section 6 or (b) any Company stockholder who is not and has never been
an Affiliate (as defined in Rule 405 under the Securities Act of 1933, as
amended) of the Holder obtains a judgment or any injunctive relief from any
court or public or governmental authority which denies, enjoins, limits,
modifies, delays or disputes the right of the holder hereof to effect the
conversion of this Debenture into Common Stock, then the Holder shall have the
right, by written notice, to require the Company to promptly redeem this
Debenture for cash at a redemption price equal to one hundred thirty percent
(130%) of the outstanding principal amount hereof and all accrued and unpaid
interest hereon. 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 disputing
any such action or pursuing its rights hereunder (in addition to any other
rights of the Holder), subject in the case of clause (b) to the Company's right
to control and assume the defense of any such action. In the absence of an
injunction precluding the same, the Company shall issue shares upon a properly
noticed conversion.
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C.ss.101 et seq. (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.ss.362 in respect of the Holder's conversion
privilege.
7. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the coin or
currency or shares of Common Stock, herein prescribed. This Debenture is a
direct obligation of the Company.
8. If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock (an "Organizational
Change"), then as a condition of such merger, consolidation, sale or transfer,
the Company and any such successor, purchaser or transferee shall agree that the
Debenture may thereafter be converted on the terms and subject to the conditions
set forth above into the kind and amount of stock, securities or property
receivable upon such Organizational Change by a Holder of the number of shares
of Common Stock into which this Debenture might have been converted immediately
before such merger, consolidation, sale or transfer, subject to adjustments,
which shall be as nearly equivalent as may be practicable. In the event of any
proposed Organizational Change, the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Organizational Change from the Company. In the
event the Holder hereof shall elect not to convert, the Company may prepay all
outstanding principal and accrued interest on this Debenture as provided in
Section 5, less all amounts
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required by law to be deducted, upon which tender of payment following such
notice, the right of conversion shall terminate.
9. This Debenture shall be governed by and construed in accordance with the
laws of the State of New York. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
10. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of three
(3) days; or
b. Any of the representations or warranties made by the Company
herein, in the Loan Agreement, the Registration Rights Agreement,
or in any agreement, certificate or financial or other written
statements heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this Debenture or
the Loan Agreement shall be false or misleading in any material
respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture, fails to
transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by this
Debenture or the Registration Rights Agreement, and such transfer
is otherwise lawful, or fails to remove any restrictive legend or
to cause its Transfer Agent to transfer any certificate or any
shares of Common Stock issued to the Holder upon conversion of
this Debenture as and when required by this Debenture, the Loan
Agreement or the Registration Rights Agreement and such legend
removal is otherwise lawful, and any such failure shall continue
uncured for five (5) business days; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision,
condition, agreement or obligation of the Company under the
Loan Agreement, the Registration Rights Agreement or this
Debenture and such failure shall continue uncured for a
period of thirty (30) days after written notice from the
Holder of such failure; or
e. The Company shall (1) admit in writing its inability to pay
its debts generally as they mature; (2) make an assignment
for the benefit of creditors or commence proceedings for its
dissolution; or (3) apply for or consent to the appointment
of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or
business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
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g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within sixty (60) days
thereafter; or
h. Any money judgment, writ or warrant of attachment, or
similar process in excess of One Hundred Thousand ($100,000)
Dollars in the aggregate shall be entered or filed against
the Company or any of its properties or other assets and
shall remain unpaid, unvacated, unbonded or unstayed for a
period of sixty (60) days or in any event later than five
(5) days prior to the date of any proposed sale thereunder;
or
i. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty
(60) days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such
proceeding; or
j. The Company shall have its Common Stock suspended or
delisted from trading on a Principal Market for in excess of
two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
11. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
12. In no event shall the Holder be permitted to convert this Debenture for
shares of Common Stock in excess of the amount of this Debenture upon the
conversion of which, (x) the number of shares of Common Stock owned by such
Holder (other than shares of Common Stock issuable upon conversion of this
Debenture) plus (y) the number of shares of Common Stock issuable upon
conversion of this Debenture, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon conversion of this Debenture held by such Holder after application of this
Section 12. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 12 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in the
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder's determination of whether this Debenture is
convertible (in relation to other securities owned by such holder) and of which
portion of this Debenture is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the
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accuracy of such determination. Nothing contained herein shall be deemed to
restrict the right of a holder to convert this Debenture into shares of Common
Stock at such time as such conversion will not violate the provisions of this
Section 12. The provisions of this Section 12 may be waived by the Holder of
this Debenture upon not less than 75 days' prior notice to the Company, and the
provisions of this Section 12 shall continue to apply until such 75th day (or
such later date as may be specified in such notice of waiver). No conversion of
this Debenture in violation of this Section 12 but otherwise in accordance with
this Debenture shall affect the status of the Common Stock issued upon such
conversion as validly issued, fully-paid and nonassessable.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by an officer thereunto duly authorized.
Dated: June 7, 2000
Pawnbroker.com, Inc.
By: /s/ Neil McElwee
------------------------------------
Name: Neil McElwee
Title: Chief Executive Officer
Attest:
-----------------------------------
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of Pawnbroker.com, Inc. (the "Company") according to the conditions hereof, as
of the date written below.
Date of Conversion* ------------------------------------------------------------
Applicable Conversion Price * --------------------------------------------------
Accrued Interest ---------------------------------------------------------------
Signature ----------------------------------------------------------------------
[Name]
Address: -----------------------------------------------------------------------
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