Contract
Exhibit
10.50
THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS
NOTE OR SUCH SHARES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO XFONE, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
FOR
VALUE
RECEIVED, XFONE, INC., a Nevada corporation (the “Company”),
promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services
Limited, P.O. Box 309 GT, Xxxxxx House, South Church Street, Xxxxxx Town,
Grand
Cayman, Cayman Islands, Fax: 000-000-0000 (the “Holder”)
or its
registered assigns or successors in interest, the sum of Two Million Dollars
of
the United States of America (US$2,000,000), together with any accrued and
unpaid interest hereon, on September 27, 2008 (the “Maturity
Date”)
if not
sooner paid.
Capitalized
terms used herein without definition shall have the meanings ascribed to
such
terms in that certain Securities Purchase Agreement dated as of the date
hereof
by and between the Company and the Holder (as amended, modified and/or
supplemented from time to time, the “Purchase
Agreement”)
The
following terms shall apply to this Secured Convertible Term Note (this
“Note”):
ARTICLE
I
CONTRACT
RATE AND AMORTIZATION
1.1 Contract
Rate.
Subject
to Sections 4.2 and 5.10, interest payable on the outstanding principal amount
of this Note (the “Principal
Amount”)
shall
accrue at a rate per annum equal to the “prime rate” published in The
Wall Street Journal
from
time to time (the “Prime
Rate”),
plus
one and one half percent (1.50%) (the “Contract
Rate”).
The
Contract Rate shall be increased or decreased as the case may be for each
increase or decrease in the Prime Rate in an amount equal to such increase
or
decrease in the Prime Rate; each change to be effective as of the day of
the
change in the Prime Rate. Subject to Section 1.2, the Contract Rate shall
not at
any time be less than six percent (6.0%). Interest shall be (i) calculated
on
the basis of a 360 day year, and (ii) payable monthly, in arrears, commencing
on
October 1, 2005, on the first business day of each consecutive calendar month
thereafter through and including the Maturity Date, and on the Maturity Date,
whether by acceleration or otherwise.
1.2 Contract
Rate Adjustments and Payments.
The
Contract Rate shall be calculated on the last business day of each calendar
month hereafter (other than for increases or decreases in the Prime Rate
which
shall be calculated and become effective in accordance with the terms of
Section
1.1) until the Maturity Date (each a “Determination
Date”)
and
shall be subject to adjustment as set forth herein. If (i) the Company shall
have registered the shares of the Common Stock underlying the conversion
of this
Note and the exercise of the Warrant on a registration statement declared
effective by the Securities and Exchange Commission (the “SEC”),
and
(ii) the market price (the “Market
Price”)
of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market for the
five
(5) trading days immediately preceding a Determination Date exceeds the then
applicable Fixed Conversion Price (as defined in Section 2.1(a)) by at least
twenty-five percent (25%), the Contract Rate for the succeeding calendar
month
shall automatically be reduced by 200 basis points (200 b.p.) (2%) for each
incremental twenty-five percent (25%) increase in the Market Price of the
Common
Stock above the then applicable Fixed Conversion Price. Notwithstanding the
foregoing (and anything to the contrary contained herein), in no event shall
the
Contract Rate at any time be less than zero percent (0%).
1.3 Principal
Payments.
Amortizing payments of the aggregate principal amount outstanding under this
Note at any time (the “Principal
Amount”)
shall
be made by the Company on April 1, 2006 and on the first business day of
each
succeeding month thereafter through and including the Maturity Date (each,
an
“Amortization
Date”).
Subject to Article III below, commencing on the first Amortization Date,
the
Company shall make monthly payments to the Holder on each Amortization Date,
each such payment in the amount of $66,666.67 together with any accrued and
unpaid interest on such portion of the Principal Amount plus any and all
other
unpaid amounts which are then owing under this Note, the Purchase Agreement
and/or any other Related Agreement (collectively, the “Monthly
Amount”).
Any
outstanding Principal Amount together with any accrued and unpaid interest
and
any and all other unpaid amounts which are then owing by the Company to the
Holder under this Note, the Purchase Agreement and/or any other Related
Agreement shall be due and payable on the Maturity Date.
ARTICLE
II
CONVERSION
AND REDEMPTION
2.1 Payment
of Monthly Amount.
(a) Payment
in Cash or Common Stock.
Subject
to Section 2.1(b),
each
month by the fifth (5th)
business day prior to each Amortization
Date
(the
“Notice
Date”),
the
Holder shall deliver to the Company a written notice in the form of Exhibit
A
attached hereto (appropriately
completed) (each,
a
“Repayment
Notice”)
stating whether, according to the Conversion Criteria (as defined below),
the
Monthly Amount payable on the next Amortization
Date
shall be
paid in cash or shares of Common Stock, or a combination of both. If
a
Payment Election Notice
is
not delivered by the Holder on or before the applicable Notice Date for such
Amortization Date,
then the Company shall pay the Monthly Amount due on such Amortization Date
in
cash. If
the
Monthly Amount (or a portion of such Monthly Amount if not all of the Monthly
Amount shall have been converted into shares of Common Stock pursuant to
Section
3.2) is required to be paid in cash pursuant to Section 2.1(b), then
the
Company shall pay the Holder an amount in cash equal to 101% of the Monthly
Amount (or such portion of such Monthly Amount to be paid in cash) due and
owing
to the Holder on the Amortization Date. If the Monthly Amount (or a portion
of
such Monthly Amount if not all of the Monthly Amount may be converted into
shares of Common Stock pursuant to Section 3.2) is required to be paid in
shares
of Common Stock pursuant to Section 2.1(b), the number of such shares to
be
issued by the Company to the Holder on such Amortization Date (in respect
of
such portion of the Monthly Amount converted into shares of Common Stock
pursuant to Section 2.1(b)), shall be the number determined by dividing (i)
the
portion of the Monthly Amount converted into shares of Common Stock, by (ii)
the
then applicable Fixed Conversion Price. For purposes hereof, subject to Section
3.6 hereof, the initial “Fixed
Conversion Price”
means
$3.48.
(b) Monthly
Amount Conversion Conditions.
Subject
to Sections 2.1(a), 2.2, and 3.2 hereof, the Holder shall convert
into
shares of Common Stock all or a portion of the Monthly Amount due on each
Amortization Date if the following conditions (the “Conversion
Criteria”)
are
satisfied: (i) the average closing price of the Common Stock as reported
by
Bloomberg, L.P. on the Principal Market for the five (5) trading days
immediately preceding such Amortization Date shall be greater than or equal
to
115% of the Fixed Conversion Price and (ii) the amount of such conversion
does
not exceed twenty five percent (25%) of the aggregate dollar trading volume
of
the Common Stock for the period of twenty-two (22) trading days immediately
preceding such Amortization Date. If subsection (i) of the Conversion Criteria
is met but subsection (ii) of the Conversion Criteria is not met as to the
entire Monthly Amount, the Holder shall convert only such part of the Monthly
Amount that meets subsection (ii) of the Conversion Criteria. Any portion
of the
Monthly Amount due on an Amortization Date that the Holder has not been able
to
convert into shares of Common Stock due to the failure to meet the Conversion
Criteria, shall be paid in cash by the Company at the rate of 101% of the
Monthly Amount otherwise due on such Amortization Date, within three (3)
business days of such Amortization Date.
2.2 No
Effective Registration.
Notwithstanding anything to the contrary herein, none of the Company’s
obligations to the Holder may be converted into Common Stock unless (a) either
(i) an effective current Registration Statement (as defined in the Registration
Rights Agreement) covering the shares of Common Stock to be issued in connection
with satisfaction of such obligations exists or (ii) an exemption from
registration for resale of all of the Common Stock issued and issuable is
available pursuant to Rule 144 of the Securities Act and (b) no Event of
Default
(as hereinafter defined) exists and is continuing, unless such Event of Default
is cured within any applicable cure period or otherwise waived in writing
by the
Holder.
2.3 Optional
Redemption in Cash.
The
Company will have the option of redeeming this Note (“Optional
Redemption”)
by
paying to the Holder a sum of money equal to one hundred twenty percent (120%)
of the Principal Amount outstanding at such time together with accrued but
unpaid interest thereon and any and all other sums due, accrued or payable
to
the Holder arising under this Note, the Purchase Agreement or any other Related
Agreement (the “Redemption
Amount”)
outstanding on the Redemption Payment Date (as defined below). The Company
shall
deliver to the Holder a written notice of redemption (the “Notice
of Redemption”)
specifying the date for such Optional Redemption (the “Redemption
Payment Date”),
which
date shall be seven (7) business days after the date of the Notice of Redemption
(the “Redemption
Period”).
A
Notice of Redemption shall not be effective with respect to any portion of
this
Note for which the Holder has previously delivered a Notice of Conversion
(as
hereinafter defined) or for conversions elected to be made by the Holder
pursuant to Section 3.3 during the Redemption Period. The Redemption Amount
shall be determined as if the Holder’s conversion elections had been completed
immediately prior to the date of the Notice of Redemption. On the Redemption
Payment Date, the Redemption Amount must be paid in full in good funds to
the
Holder. In the event the Company fails to pay the Redemption Amount on the
Redemption Payment Date as set forth herein, then such Redemption Notice
will be
null and void.
ARTICLE
III
HOLDER’S
CONVERSION RIGHTS
3.1 Optional
Conversion.
Subject
to the terms set forth in this Article III, the Holder shall have the right,
but
not the obligation, to convert all or any portion of the outstanding Principal
Amount and/or accrued interest and fees due and payable into fully paid and
nonassessable shares of Common Stock at the Fixed Conversion Price. The shares
of Common Stock to be issued upon such conversion are herein referred to
as, the
“Conversion
Shares.”
3.2 Conversion
Limitation.
Notwithstanding anything contained herein to the contrary, the Holder shall
not
be entitled to convert pursuant to the terms of this Note an amount that
would
be convertible into that number of Conversion Shares which would exceed the
difference between (i) 4.99% of the issued and outstanding shares of Common
Stock and (ii) the number of shares of Common Stock beneficially owned by
the
Holder. For purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act
and
Regulation 13d-3 thereunder. The Conversion Share limitation described in
this
Section 3.2 shall automatically become null and void following notice to
the
Company upon the occurrence and during the continuance of an Event of Default,
or upon 75 days prior notice to the Company, except that at no time shall
the
number of shares of Common Stock beneficially owned by the Holder a exceed
19.99% of the outstanding shares of Common Stock. Notwithstanding anything
contained herein to the contrary, the number of shares of Common Stock issuable
by the Company and acquirable by the Holder at a price below $3.10 per share
pursuant to the terms of this Note, the Purchase Agreement or any other Related
Agreement, shall not exceed an aggregate of 1,377,533 shares of Common Stock
(subject to appropriate adjustment for stock splits, stock dividends, or
other
similar recapitalizations affecting the Common Stock) (the “Maximum
Common Stock Issuance”),
unless the issuance of Common Stock hereunder in excess of the Maximum Common
Stock Issuance shall first be approved by the Company’s shareholders. If at any
point in time and from time to time the number of shares of Common Stock
issued
pursuant to the terms of this Note, the Purchase Agreement or any other Related
Agreement, together with the number of shares of Common Stock that would
then be
issuable by the Company to the Holder in the event of a conversion or exercise
pursuant to the terms of this Note, the Purchase Agreement or any other Related
Agreement, would exceed the Maximum Common Stock Issuance but for this
Section 3.2, the Company shall promptly call a shareholders meeting
to
solicit shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance. Notwithstanding
anything contained herein to the contrary, the provisions of this Section
3.2
are irrevocable and may not be waived by the Holder or the Company. Except
for
conversions of lesser amounts made pursuant to Section 2.1(a) above, the
Holder
shall not, pursuant to any Notice of Conversion (defined below) convert an
amount less than Ten Thousand Dollars (US$10,000).
3.3 Mechanics
of Xxxxxx’s Conversion.
In
the
event that the Holder elects to convert this Note into Common Stock, the
Holder
shall give notice of such election by delivering an executed and completed
notice of conversion in substantially the form of Exhibit A hereto
(appropriately completed) (“Notice
of Conversion”)
to the
Company and such Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and fees that are being
converted. On each Conversion Date (as hereinafter defined) and in accordance
with its Notice of Conversion, the Holder shall make the appropriate reduction
to the Principal Amount, accrued interest and fees as entered in its records
and
shall provide written notice thereof to the Company within two (2) business
days
after the Conversion Date. Each date on which a Notice of Conversion is
delivered or telecopied to the Company in accordance with the provisions
hereof
shall be deemed a Conversion Date (the “Conversion
Date”).
Pursuant to the terms of the Notice of Conversion, the Company will issue
instructions to the transfer agent accompanied by an opinion of counsel within
three (3) business days of the date of the delivery to the Company of the
Notice
of Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account
of the
Holder’s designated broker with the Depository Trust Corporation (“DTC”)
through its Deposit Withdrawal Agent Commission (“DWAC”)
system
within three (3) business days after receipt by the Company of the Notice
of
Conversion (the “Delivery
Date”).
In
the case of the exercise of the conversion rights set forth herein the
conversion privilege shall be deemed to have been exercised and the Conversion
Shares issuable upon such conversion shall be deemed to have been issued
upon
the date of receipt by the Company of the Notice of Conversion. The Holder
shall
be treated for all purposes as the record holder of the Conversion Shares,
unless the Holder provides the Company written instructions to the contrary.
3.4 Late
Payments.
The
Company understands that a delay in the delivery of the Conversion Shares
in the
form required pursuant to this Article beyond the Delivery Date could result
in
economic loss to the Holder. As compensation to the Holder for such loss,
in
addition to all other rights and remedies which the Holder may have under
this
Note, applicable law or otherwise, the Company shall pay late payments to
the
Holder for any late issuance of Conversion Shares in the form required pursuant
to this Article II upon conversion of this Note, in the amount equal to $500
per
business day after the Delivery Date. The Company shall make any payments
incurred under this Section in immediately available funds upon
demand.
3.5 Conversion
Mechanics.
The
number of shares of Common Stock to be issued upon each conversion of this
Note
shall be determined by dividing that portion of the principal and interest
and
fees to be converted, if any, by the then applicable Fixed Conversion Price.
In
the event of any conversions of a portion of the outstanding Principal Amount
pursuant to this Article III, such conversions shall be deemed to constitute
conversions of the outstanding Principal Amount applying to Monthly Amounts
for
the remaining Amortization Dates in chronological order.
3.6 Adjustment
Provisions.
The
Fixed Conversion Price and number and kind of shares or other securities
to be
issued upon conversion determined pursuant to this Note shall be subject
to
adjustment from time to time upon the occurrence of certain events during
the
period that this conversion right remains outstanding, as follows:
(a) Reclassification.
If the
Company at any time shall, by reclassification or otherwise, change the Common
Stock into the same or a different number of securities of any class or classes,
this Note, as to the unpaid Principal Amount and accrued interest thereon,
shall
thereafter be deemed to evidence the right to purchase an adjusted number
of
such securities and kind of securities as would have been issuable as the
result
of such change with respect to the Common Stock (i) immediately prior to
or (ii)
immediately after, such reclassification or other change at the sole election
of
the Holder.
(b) Stock
Splits, Combinations and Dividends.
If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common
Stock
or any preferred stock issued by the Company in shares of Common Stock, the
Fixed Conversion Price shall be proportionately reduced in case of subdivision
of shares or stock dividend or proportionately increased in the case of
combination of shares, in each such case by the ratio which the total number
of
shares of Common Stock outstanding immediately after such event bears to
the
total number of shares of Common Stock outstanding immediately prior to such
event.
(c) Share
Issuances.
Subject
to the provisions of this Section 3.6, if the Company shall at any time prior
to
the conversion or repayment in full of the Principal Amount issue any shares
of
Common Stock or securities convertible into Common Stock to a Person other
than
the Holder (except (i) pursuant to Sections 3.6(a) or (b) above; (ii) pursuant
to options, warrants, or other obligations to issue shares outstanding on
the
date hereof as disclosed to the Holder in writing; or (iii) pursuant to options
that may be issued under any employee incentive stock option and/or any
qualified stock option plan adopted by the Company) for a consideration per
share (the “Offer
Price”)
less
than the Fixed Conversion Price in effect at the time of such issuance, then
the
Fixed Conversion Price shall be immediately reset pursuant to the formula
below.
For purposes hereof, the issuance of any security of the Company convertible
into or exercisable or exchangeable for Common Stock shall result in an
adjustment to the Fixed Conversion Price upon the issuance of such securities.
Notwithstanding the immediately foregoing, no adjustment contemplated by
this
Section 3.6(c) shall be required if the Company shall make such share issuances
as contemplated by this Section 3.6(c) in aggregate amount not to exceed
Five
Million Dollars ($5,000,000) in the period beginning September 1, 2005 and
ending on March 1, 2006 (the “Additional Financing Transactions”).
Other
than as expressly stated above, if the Company issues any additional shares
of
Common Stock for a consideration per share less than the then-applicable
Fixed
Conversion Price pursuant to this Section 3.6 then, and thereafter successively
upon each such issue, the Fixed Conversion Price shall be adjusted by
multiplying the then applicable Fixed Conversion Price by the following
fraction:
|
A
+
B
|
|
(A
+ B) + [((C - D) x B) / C]
|
|
A
=
Total amount of shares convertible pursuant to this
Note
|
|
|
B
=
Actual shares sold in the offering
|
|
|
C
=
Fixed Conversion Price
|
|
|
D
=
Offer Price.
|
(d) Computation
of Consideration.
For
purposes of any computation respecting consideration received pursuant to
Section 3.6(c) above, the following shall apply:
(i) in
the
case of the issuance of shares of Common Stock for cash, the consideration
shall
be the amount of such cash, provided that in no case shall any deduction
be made
for any commissions, discounts or other expenses incurred by the Company
for any
underwriting of the issue or otherwise in connection therewith;
(ii) in
the
case of the issuance of shares of Common Stock for a consideration in whole
or
in part other than cash, the consideration other than cash shall be deemed
to be
the fair market value thereof as determined in good faith by the Board of
Directors of the Company (irrespective of the accounting treatment thereof);
and
(iii) upon
any
such exercise, the aggregate consideration received for such securities shall
be
deemed to be the consideration received by the Company for the issuance of
such
securities plus the additional minimum consideration, if any, to be received
by
the Company upon the conversion or exchange thereof (the consideration in
each
case to be determined in the same manner as provided in subsections (i) and
(ii)
of this Section 3.6(d)).
3.7 Reservation
of Shares.
During
the period the conversion right exists, the Company will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Conversion Shares upon the full conversion of this Note
and
the Warrant. The Company represents that upon issuance, the Conversion Shares
will be duly and validly issued, fully paid and non-assessable. The Company
agrees that its issuance of this Note shall constitute full authority to
its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for the Conversion Shares upon the conversion of this Note.
3.8 Registration
Rights.
The
Holder has been granted registration rights with respect to the Conversion
Shares as set forth in the Registration Rights Agreement.
3.9 Issuance
of New Note.
Upon
any partial conversion of this Note, upon the surrender of the original Note
outstanding at the time of the conversion, a new Note containing the same
date
and provisions of this Note shall, at the request of the Holder, be issued
by
the Company to the Holder for the principal balance of this Note and interest
which shall not have been converted or paid. Subject to the provisions of
Article IV of this Note, the Company shall not pay any costs, fees or any
other
consideration to the Holder for the production and issuance of a new
Note.
3.10
Holder’s Status.
The
Holder shall not, by virtue of its status as a Holder of this Note, be entitled
to any rights of a shareholder in the Company, either at law or equity, and
the
rights of the Holder are limited to those expressly set forth in this
Note.
ARTICLE
IV
EVENTS
OF DEFAULT
4.1 Events
of Default.
The
occurrence of any of the following events set forth in this Section 4.1 shall
constitute an event of default (“Event
of Default”)
hereunder:
(a) Failure
to Pay.
The
Company fails to pay when due any installment of principal, interest or other
fees hereon in accordance herewith, or the Company fails to pay any of the
other
Obligations (under and as defined in the Master Security Agreement) when
due,
and, in any such case, such failure shall continue for a period of five (5)
days
following the date upon which any such payment was due.
(b) Breach
of Covenant.
The
Company or any of its Subsidiaries breaches any covenant or any other term
or
condition of this Note in any material respect and such breach, if subject
to
cure, continues for a period of twenty (20) days after the occurrence
thereof.
(c) Breach
of Representations and Warranties.
Any
representation, warranty or statement made or furnished by the Company or
any of
its Subsidiaries in this Note, the Purchase Agreement or any other Related
Agreement shall at any time be false or misleading in any material respect
on
the date as of which made or deemed made and have a Material Adverse
Effect.
(d) Default
Under Other Agreements.
The
occurrence of any default (or similar term) in the observance or performance
of
any other agreement or condition relating to any indebtedness or contingent
obligation of the Company or any of its Subsidiaries (including, without
limitation, the indebtedness evidenced by the Subordinated Debt Documentation
beyond the period of grace (if any), the effect of which default is to cause,
or
permit the holder or holders of such indebtedness or beneficiary or
beneficiaries of such contingent obligation to cause, such indebtedness to
become due prior to its stated maturity or such contingent obligation to
become
payable;
(e) Intentionally
omitted. ;
(f) Bankruptcy.
The
Company or any of its Subsidiaries shall (i) apply for, consent to
or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part
of
its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under the federal bankruptcy laws (as now
or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file
a
petition seeking to take advantage of any other law providing for the relief
of
debtors, (vi) acquiesce to, without challenge within ten (10) days of the
filing
thereof, or failure to have dismissed, within thirty (30) days, any petition
filed against it in any involuntary case under such bankruptcy laws, or (vii)
take any action for the purpose of effecting any of the foregoing;
(g) Judgments.
Attachments or levies in excess of $100,000 in the aggregate are made upon
the
Company or any of its Subsidiary’s assets or a judgment is rendered against the
Company’s property involving a liability of more than $100,000 which shall not
have been vacated, discharged, stayed or bonded within forty five (45) days
from
the entry thereof;
(h) Insolvency.
The
Company or any of its Subsidiaries shall admit in writing its inability,
or be
generally unable, to pay its debts as they become due or cease operations
of its
present business;
(i) Change
of Control.
A
Change of Control (as defined below) shall occur with respect to the Company,
unless Holder shall have expressly consented to such Change of Control in
writing. A “Change of Control” shall mean any event or circumstance as a result
of which (i) any “Person” or “group” (as such terms are defined in Sections
13(d) and 14(d) of the Exchange Act, as in effect on the date hereof), other
than the Holder, is or becomes the “beneficial owner” (as defined in Rules
13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of 35%
or
more on a fully diluted basis of the then outstanding voting equity interest
of
the Company (other than a “Person” or “group” that beneficially owns 35% or more
of such outstanding voting equity interests of the Company on the date hereof),
(ii) the Board of Directors of the Company shall cease to consist of a majority
of the Parent’s board of directors on the date hereof (or directors appointed by
a majority of the board of directors in effect immediately prior to such
appointment) or (iii) the Company or any of its Subsidiaries merges or
consolidates with, or sells all or substantially all of its assets to, any
other
person or entity;
(j) Indictment;
Proceedings.
The
indictment or threatened indictment of the Company or any of its Subsidiaries
or
any executive officer of the Company or any of its Subsidiaries under any
criminal statute, or commencement or threatened commencement of criminal
or
civil proceeding against the Company or any of its Subsidiaries or any executive
officer of the Company or any of its Subsidiaries pursuant to which statute
or
proceeding penalties or remedies sought or available include forfeiture of
any
of the property of the Company or any of its Subsidiaries;
(k) The
Purchase Agreement and Related Agreements.
(i) An
Event of Default shall occur under and as defined in the Purchase Agreement
or
any other Related Agreement, (ii) the Company or any of its Subsidiaries
shall
breach any term or provision of the Purchase Agreement or any other Related
Agreement in any material respect and such breach, if capable of cure, continues
unremedied for a period of fifteen (15) days after the occurrence thereof,
(iii)
the Company or any of its Subsidiaries attempts to terminate, challenges
the
validity of, or its liability under, the Purchase Agreement or any Related
Agreement, (iv) any proceeding shall be brought to challenge the validity,
binding effect of the Purchase Agreement or any Related Agreement or (v)
the
Purchase Agreement or any Related Agreement ceases to be a valid, binding
and
enforceable obligation of the Company or any of its Subsidiaries (to the
extent
such persons or entities are a party thereto);
(l) Stop
Trade.
An SEC
stop trade order or Principal Market trading suspension of the Common Stock
shall be in effect for five (5) consecutive days or five (5) days during
a
period of ten (10) consecutive days, excluding in all cases a suspension
of all
trading on a Principal Market, provided that the Company shall not have been
able to cure such trading suspension within thirty (30) days of the notice
thereof or list the Common Stock on another Principal Market within sixty
(60)
days of such notice; or
(m) Failure
to Deliver Common Stock or Replacement Note.
The
Company’s failure to deliver Common Stock to the Holder pursuant to and in the
form required by this Note and the Purchase Agreement and, if such failure
to
deliver Common Stock shall not be cured within two (2) business days or the
Company is required to issue a replacement Note to the Holder and the Company
shall fail to deliver such replacement Note within seven (7) business
days.
4.2 Default
Interest.
Following the occurrence and during the continuance of an Event of Default,
the
Company shall pay additional interest on this Note in an amount equal to
the
Contract Rate plus seven percent (7%) per annum and all outstanding obligations
under this Note, the Purchase Agreement and each other Related Agreement,
including unpaid interest, shall continue to accrue interest at such additional
interest rate from the date of such Event of Default until the date such
Event
of Default is cured or waived.
4.3 Default
Payment.
Following the occurrence and during the continuance of an Event of Default,
the
Holder, at its option, may demand repayment in full of all obligations and
liabilities owing by Company to the Holder under this Note, the Purchase
Agreement and/or any other Related Agreement and/or may elect, in addition
to
all rights and remedies of the Holder under the Purchase Agreement and the
other
Related Agreements and all obligations and liabilities of the Company under
the
Purchase Agreement and the other Related Agreements, to require the Company
to
make a Default Payment (“Default
Payment”).
The
Default Payment shall be one hundred and twenty five percent (125%) of the
outstanding principal amount of the Note, plus accrued but unpaid interest,
all
other fees then remaining unpaid, and all other amounts payable hereunder.
The
Default Payment shall be applied first to any fees due and payable to the
Holder
pursuant to this Note, the Purchase Agreement, and/or the other Related
Agreements, then to accrued and unpaid interest due on this Note and then
to the
outstanding principal balance of this Note. The Default Payment shall be
due and
payable immediately on the date that the Holder has exercised its rights
pursuant to this Section 4.3.
ARTICLE
V
MISCELLANEOUS
5.1 Conversion
Privileges.
The
conversion privileges set forth in Article III shall remain in full force
and
effect immediately from the date hereof until the date this Note is indefeasibly
paid in full and irrevocably terminated.
5.2 Cumulative
Remedies.
The
remedies under this Note shall be cumulative and not exclusive of, any rights
or
remedies otherwise available.
5.3 Failure
or Indulgence Not Waiver.
No
failure or delay on the part of the Holder hereof in the exercise of any
power,
right or privilege hereunder shall operate as a waiver thereof, nor shall
any
single or partial exercise of any such power, right or privilege preclude
other
or further exercise thereof or of any other right, power or privilege.
.
5.4 Notices.
Any
notice herein required or permitted to be given shall be in writing and shall
be
deemed effectively given: (a) upon personal delivery to the party notified,
(b)
when sent by confirmed telex or facsimile if sent during normal business
hours
of the recipient, if not, then on the next business day, (c) five business
days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) two (2) days after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the Company
at the
address provided in the Purchase Agreement executed in connection herewith,
and
to the Holder at the address provided in the Purchase Agreement for such
Holder,
with a copy to Xxxx X. Xxxxxx, Esq., 000 Xxxxx Xxxxxx, 00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx number (000) 000-0000, or at such other
address as the Company or the Holder may designate by ten days advance written
notice to the other parties hereto. A Notice of Conversion shall be deemed
given
when made to the Company pursuant to the Purchase Agreement.
5.5 Amendment
Provision.
The
term “Note” and all references thereto, as used throughout this instrument,
shall mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented, and any successor instrument
as such successor instrument may be amended or supplemented.
5.6 Assignability.
This
Note shall be binding upon the Company and its successors and assigns, and
shall
inure to the benefit of the Holder and its successors and assigns, and may
be
assigned by the Holder in accordance with the requirements of the Purchase
Agreement. The Company may not assign any of its obligations under this Note
without the prior written consent of the Holder, any such purported assignment
without such consent being null and void.
5.7 Cost
of Collection.
In case
of any Event of Default under this Note, the Company shall pay the Holder
reasonable costs of collection, including reasonable attorneys’
fees.
5.8 Governing
Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS
NOTE
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
(b) THE
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE
HAND,
AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR ANY OF THE
OTHER
RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE
OR
ANY OF THE RELATED AGREEMENTS; PROVIDED,
THAT
THE COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD
BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK;
AND
FURTHER PROVIDED,
THAT
NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS.
THE
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT
AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS,
PROPER
POSTAGE PREPAID.
(c) THE
COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS
TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
5.9 Severability.
In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision
which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of this Note.
5.10 Maximum
Payments.
Nothing
contained herein shall be deemed to establish or require the payment of a
rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other
charges
hereunder exceed the maximum rate permitted by such law, any payments in
excess
of such maximum rate shall be credited against amounts owed by the Company
to
the Holder and thus refunded to the Company.
5.11 Security
Interest and Guarantee.
The
Holder has been granted a security interest (i) in certain assets of the
Company
and its Subsidiaries as more fully described in the Master Security Agreement
dated as of the date hereof and (ii) in the equity interests of the Companies’
Subsidiaries pursuant to the Stock Pledge Agreement dated as of the date
hereof.
The obligations of the Company under this Note are guaranteed by certain
Subsidiaries of the Company pursuant to the Subsidiary Guaranty dated as
of the
date hereof.
5.12 Accredited
Investor.
The
Holder has substantial experience in evaluating, lending and investing in
private placement transactions of securities in companies similar to the
Company
so that it is capable of evaluating the merits and risks of its investment
in
the Company and has the capacity to protect its own interests. The Holder
must
bear the economic risk of this transaction until the Securities are sold
pursuant to: (i) an effective registration statement under the Securities
Act;
or (ii) an exemption from registration is available with respect to such
sale.
The Holder represents that by reason of its, or of its management’s, business
and financial experience, the Holder has the capacity to evaluate the merits
and
risks of its investment in the Note, the Warrant and the Securities deriving
from this transaction, and to protect its own interests in connection with
the
transactions contemplated in the Purchase Agreement and any Related Agreement,
and is experienced in evaluating and investing in private placement transactions
of securities of companies in a similar stage of development. Further, Xxxxxx
has not lent the monies involved and entered into this transaction as a result
of any form of general advertising, including advertisements, articles, notices,
or other communications in any newspaper, magazine, or similar media, or
telecommunications in connection with the transactions contemplated in the
Purchases Agreement or any Related Agreement. The
Holder represents that it is an accredited investor within the meaning of
Regulation D under the Securities Act
5.13 Construction.
Each
party acknowledges that its legal counsel participated in the preparation
of
this Note and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the
other.
[Balance
of page intentionally left blank; signature page follows]
IN
WITNESS WHEREOF,
the
Company has caused this Secured Convertible Term Note to be signed in its
name
effective as of this 27th day of September 2005.
XFONE,
INC.
By:__________________________________
Name: Xxx
Xxxxxxxxx
Title: President
& CEO
WITNESS:
__________________________________
EXHIBIT
A
NOTICE
OF CONVERSION
(To
be
executed by the Holder in order to convert all or part of
the
Secured Convertible Term Note into Common Stock)
[Name
and
Address of Company]
The
undersigned hereby converts $_________ of the principal due on [specify
applicable Amortization Date] under the Secured Convertible Term Note dated
as
of _________, 200__ (the “Note”)
issued
by XFONE, INC.(the “Company”)
by
delivery of shares of Common Stock of the Company (“Shares”)
on and
subject to the conditions set forth in the Note.
1. Date
of
Conversion _______________________
2. Shares
To
Be Delivered:
_______________________
[HOLDER]
By:_______________________________
Name:_____________________________
Title:______________________________
Laurus
Master Fund, Ltd.
c/o
Laurus Capital Management, LLC
000
Xxxxx
Xxxxxx, 00xx
Xxxxx
September
27, 2005
Xfone,
Inc.
c/o
Xfone
018 Ltd.
0
Xxxxxx
Xxxxxx, 3rd
Floor
Kiryat
Xxxxxxx,
Petach
Tikva
Israel
Re: Adjustment
Provision Waiver Agreement
Reference
is made in this letter agreement (this “Agreement”) to that certain Securities
Purchase Agreement, dated as of September 27, 2005 (as amended, modified
or
supplemented from time to time, the “Purchase Agreement”), between Xfone, Inc.,
a Nevada corporation (“Xfone” or the “Company”), and Laurus Master Fund, Ltd.
(“Laurus”), pursuant to which Xfone issued to Laurus a Secured Convertible Term
Note in the aggregate principal amount of Two Million Dollars ($2,000,000)
(as
amended, modified or supplemented from time to time, the "Note"). Capitalized
terms used but not defined herein shall have the meanings ascribed to such
terms
in the Purchase Agreement or the Note, as applicable, including, without
limitation, the meaning of the defined term “Additional Financing Transactions”
as defined in Section 3.6(c) of the Note.
In
supplement of, and notwithstanding anything to the contrary set forth in,
Section 3.6(c) of the Note, the provisions relating to the adjustment of
the
Fixed Conversion Price set forth in said Section 3.6(c) shall not be applicable
in respect of any shares of Common Stock and/or warrants exercisable for
shares
of Common Stock to the extent issued, issuable and/or granted by the Company
in
connection with the Additional Financing Transactions by and among the Company
and the original investors (other than Xxxxxx) in respect of such Additional
Financing Transactions (collectively, the “Original Investors”); provided that,
(x) such Additional Financing Transactions shall not be in the form of
convertible indebtedness and (y) the per share price of the Common Stock
issued
and/or granted by the Company to the Original Investors pursuant to the terms
of
such Additional Financing Transactions on the closing date of each such
transaction shall be no less than $2.25 per share.
Furthermore,
in connection with the foregoing and subject to the conditions set forth
herein,
in addition to the waiver of the application of Section 3.6(c) of the Note
as
contemplated in the paragraph set forth immediately above, Xxxxxx hereby
further
agrees in respect of the Additional Financing Transaction, to waive the
application of Section 3.6(c) of the Note to the extent otherwise applicable
to
additional shares of Common Stock and/or warrants issued, issuable and/or
granted by the Company to the Original Investors subsequent to the consummation
of such Additional Financing Transactions; provided that, (x) such issuance
and/or grant is expressly required by the terms of such Additional Financing
Transactions (as in effect on the initial closing date of each such transaction
without giving effect to amendments subsequent to such initial closing date)
in
response to a reduction in the Fixed Conversion Price (other than a reduction
occurring as a result of application of Section 3.6 of the Note), (y) such
subsequent issuance and/or grant to the Original Investors occurs within
ten
(10) business days after a reduction in the Fixed Conversion Price (other
than a
reduction occurring as a result of application of Sections 3.6 of the Note)
and
(z) such subsequent issuance and/or grant to such Original Investors shall
be
proportional in economic effect, based on the initial amounts of such Additional
Financing Transactions to which such Original Investors are party as compared
to
the amount of the financing extended to the Company pursuant to the Purchase
Agreement and the Related Agreements referred to therein, to the economic
benefit derived by Xxxxxx as a result of such reduction to the Fixed Conversion
Price; such determination by the Company of proportionality to be reasonably
acceptable to Xxxxxx with the foregoing principal of economic parity in mind.
The
Company understands that the Company has an affirmative obligation to make
prompt public disclosure of material agreements and material amendments to
such
agreements. It is the Company’s determination that neither this Agreement nor
the terms and provisions of this Agreement, (collectively, the “Information”)
are material. The Company has had an opportunity to consult with counsel
concerning this determination. The Company hereby agrees that Xxxxxx shall
not
be in violation of any duty to the Company or its shareholders, nor shall
Laurus
be deemed to be misappropriating any information of the Company, if Xxxxxx
sells
shares of common stock of the Company, or otherwise engages in transactions
with
respect to securities of the Company, while in possession of the Information.
Except
as
specifically set forth in this Agreement, there are no other amendments,
modifications or waivers to the Note and all of the other forms, terms and
provisions of the Note remain in full force and effect.
From
and
after the date on which each of the parties hereto shall have signed and
returned to Laurus their respective signature pages to this Agreement, all
references in the Note, the Purchase Agreement and the other Related Agreements
referred to therein to the Note shall be deemed to be a reference to the
Note as
modified hereby.
This
Agreement (and Xfone’s rights and obligations hereunder and thereunder) shall
not be assignable by Xfone to any person or entity without the prior written
consent of Xxxxxx (and any purported assignment without such consent shall
be
null and void). This Agreement may not be amended or waived except by an
instrument in writing signed by Xfone and Xxxxxx. This Agreement may be executed
in any number of counterparts, each of which shall be an original and all
of
which, when taken together, shall constitute one agreement. Delivery of an
executed signature page of this Agreement by facsimile transmission shall
be
effective as delivery of a manually executed counterpart hereof or thereof,
as
the case may be. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. This Agreement sets forth the entire agreement between
the
parties hereto as to the matters set forth herein and supersede all prior
communications, written or oral, with respect to the matters
herein.
EACH
OF
XFONE AND LAURUS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY
CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED BY THIS
AGREEMENT. EACH OF XFONE AND LAURUS HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE COUNTY
OF
NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS AGREEMENT OR ANY
MATTERS
CONTEMPLATED HEREBY OR THEREBY.
* * * *
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the first
date
written above.
LAURUS
MASTER FUND, LTD.
By:________________________
Name:
Title:
XFONE,
INC.
By:________________________
Name:
Xxx
Xxxxxxxxx
Title:
President and CEO
