SECURED CONVERTIBLE NOTE
|
THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE COMMON SHARES 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 UNDER
SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VOIP INC.
THAT
SUCH REGISTRATION IS NOT REQUIRED.
|
| Principal Amount $_______________ | Issue Date: October ___, 2006 |
| Purchase Price $__________________ |
FOR
VALUE
RECEIVED, VOIP INC., a Texas corporation (hereinafter called "Borrower"), hereby
promises to pay to ______________________,
_________________________________________ (the "Holder") or order, without
demand, the sum of ________________________________________ Dollars
($_________), on December 31, 2007 (the "Maturity Date"), if not retired
sooner.
This
Note
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holder, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such Subscription Agreement.
Unless otherwise separately defined herein, all capitalized terms used in this
Note shall have the same meaning as is set forth in the Subscription Agreement.
The following terms shall apply to this Note:
ARTICLE
I
GENERAL
PROVISIONS
1.1 Payment
Grace Period.
The
Borrower shall have a ten (10) day grace period to pay any monetary amounts
due
under this Note, after which grace period and during the pendency of any other
Event of Default (as defined below) a default interest rate of fifteen percent
(15%) per annum shall apply to the amounts owed hereunder.
1.2 Conversion
Privileges.
Subject
to Section 11 of the Subscription Agreement, the Conversion Privileges set
forth
in Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date,
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred, the Borrower may extend
the
Maturity Date up to an amount of time equal to the pendency of the Event of
Default. Such extension must be on notice in writing.
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the principal and any interest due under
this Note into Shares of the Borrower's Common Stock, $.001 par value per share
(“Common Stock”) as set forth below.
2.1. Conversion
into the Borrower's Common Stock.
(a) Subject
to Section 9(f) and 9(s) of the Subscription Agreement, the Holder shall have
the right from and after the date of the issuance of this Note and then at
any
time until this Note is fully paid, to convert any outstanding and unpaid
principal portion of this Note, at the election of the Holder (the date of
giving of such notice of conversion being a "Conversion Date") into fully paid
and nonassessable shares of Common Stock as such stock exists on the date of
issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined
as provided herein. Upon delivery to the Borrower of a completed Notice of
Conversion, a form of which is annexed hereto, Borrower shall issue and deliver
to the Holder within three (3) business days after the Conversion Date (such
third day being the “Delivery Date”) that number of shares of Common Stock for
the portion of the Note converted in accordance with the foregoing. At the
election of the Holder, the Borrower will deliver accrued but unpaid interest
on
the Note, if any, through the Conversion Date directly to the Holder on or
before the Delivery Date (as defined in the Subscription Agreement). 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 of the Note to be
converted by the Conversion Price.
(b) Subject
to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
share shall be $0.28, subject to adjustment as described herein and in the
Subscription Agreement.
(c) The
Conversion Price and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a), shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
X. Xxxxxx,
Sale of Assets, etc. If the Borrower at any time shall consolidate with or
merge
into or sell or convey all or substantially all its assets to any other
corporation, this Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right to purchase
such number and kind of shares or other securities and property as would have
been issuable or distributable on account of such consolidation, merger, sale
or
conveyance, upon or with respect to the securities subject to the conversion
or
purchase right immediately prior to such consolidation, merger, sale or
conveyance. The foregoing provision shall similarly apply to successive
transactions of a similar nature by any such successor or purchaser. Without
limiting the generality of the foregoing, the anti-dilution provisions of this
Section shall apply to such securities of such successor or purchaser after
any
such consolidation, merger, sale or conveyance.
B. Reclassification,
etc. If the Borrower 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 that may be issued or outstanding, this Note, as to the unpaid
principal portion thereof 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 immediately prior to such reclassification
or
other change.
C. 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 in shares of Common Stock, the 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.
D. Share
Issuance. So long as this Note is outstanding, if the Borrower shall issue
or
agree to issue any shares of Common Stock except for the Excepted Issuances
(as
defined in the Subscription Agreement) for a consideration less than the
Conversion Price in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Conversion Price shall be reduced to
such
other lower issue price. For purposes of this adjustment, the issuance of any
security carrying the right to convert such security into shares of Common
Stock
or of any warrant, right or option to purchase Common Stock shall result in
an
adjustment to the Conversion Price upon the issuance of the above-described
security and again upon the issuance of shares of Common Stock upon exercise
of
such conversion or purchase rights if such issuance is at a price lower than
the
then applicable Conversion Price. The reduction of the Conversion Price
described in this paragraph is in addition to other rights of the Holder
described in this Note and the Subscription Agreement.
(d) Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring
such
adjustment.
(e) During
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Common Stock issuable upon the full conversion of this
Note
and as described in the Subscription Agreement. Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. Xxxxxxxx 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 shares of Common Stock upon the conversion of this
Note.
2.2. Optional
Redemption of Principal Amount.
Provided an Event of Default or an event which with the passage of time or
the
giving of notice could become an Event of Default has not occurred, whether
or
not such Event of Default has been cured, the Borrower will have the option
of
prepaying the outstanding Principal amount of this Note ("Optional Redemption"),
in whole or in part, by paying to the Holder a sum of money equal to the number
of Shares of Common Stock issuable upon an assumed conversion of the outstanding
principal and interest of this Note multiplied by $1.50, and any and all other
sums due, accrued or payable to the Holder arising under this Note or any
Transaction Document through and as of the Redemption Payment Date as defined
below (the "Redemption Amount"). Xxxxxxxx’s election to exercise its right to
prepay must be by notice in writing (“Notice of Redemption”). The Notice of
Redemption shall specify the date for such Optional Redemption (the "Redemption
Payment Date"), which date shall be thirty (30) 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 the Principal Amount for which
the Holder has a pending election to convert, or for conversions initiated
or
made by the Holder during the Redemption Period. On the Redemption Payment
Date,
the Redemption Amount, less any portion of the Redemption Amount against which
the Holder has exercised its conversion rights, shall be paid in good funds
to
the Holder. In the event the Borrower fails to pay the Redemption Amount on
the
Redemption Payment Date as set forth herein, then (i) such Notice of Redemption
will be null and void, (ii) Borrower will have no right to deliver another
Notice of Redemption, and (iii) Borrower’s failure may be deemed by Holder to be
a non-curable Event of Default. A Redemption Notice may be given only at a
time
a Registration Statement is effective. A Notice of Redemption may not be given
nor may the Borrower effectuate a Redemption without the consent of the Holder,
if at any time during the Redemption Period an Event of Default or an Event
which with the passage of time or giving of notice could become an Event of
Default (whether or not such Event of Default has been cured), has occurred
or
the Registration Statement registering the Registrable Securities is not
effective each day during the Redemption Period.
2.3. Method
of Conversion.
This
Note may be converted by the Holder in whole or in part as described in Section
2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this
Note, a new Note containing the same date and provisions of this Note shall,
at
the request of the Holder, be issued by the Borrower to the Holder for the
principal balance of this Note and interest which shall not have been converted
or paid.
2.4. Maximum
Conversion.
The
Holder shall not be entitled to convert on a Conversion Date that amount of
the
Note in connection with that number of shares of Common Stock which would be
in
excess of the sum of (i) the number of shares of Common Stock beneficially
owned
by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock
issuable in connection with the unconverted portion of the Note, and (iii)
the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock
of
the Borrower on such Conversion Date. For the purposes of the provision to
the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder
shall not be limited to aggregate conversions of only 4.99% and aggregate
conversion by the Holder may exceed 4.99%. The Holder shall have the authority
and obligation to determine whether the restriction contained in this Section
2.3 will limit any conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may waive the conversion
limitation described in this Section 2.3, in whole or in part, upon and
effective after 61 days prior written notice to the Borrower to increase such
percentage to up to 9.99%. The Holder may allocate which of the equity of the
Borrower deemed beneficially owned by the Holder shall be included in the 4.99%
amount or up to 9.99% amount as described above.
ARTICLE
III
EVENT
OF DEFAULT
The
occurrence of any of the following events of default ("Event of Default") shall,
at the option of the Holder hereof, make all sums of principal and interest
then
remaining unpaid hereon and all other amounts payable hereunder immediately
due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:
3.1 Failure
to Pay Principal or Interest.
The
Borrower fails to pay any installment of Principal Amount, interest or other
sum
due under this Note or any Transaction Document when due and such failure
continues for a period of ten (10) business days after the due
date.
3.2 Breach
of Covenant.
The
Borrower breaches any material covenant or other term or condition of the
Subscription Agreement, this Note or Transaction Document in any material
respect and such breach, if subject to cure, continues for a period of ten
(10)
business days after written notice to the Borrower from the Holder.
3.3 Breach
of Representations and Warranties.
Any
material representation or warranty of the Borrower made herein, in the
Subscription Agreement, Transaction Document or in any agreement, statement
or
certificate given in writing pursuant hereto or in connection herewith or
therewith shall be false or misleading in any material respect as of the date
made and as of each Closing Date.
3.4 Receiver
or Trustee.
The
Borrower or any Subsidiary of Borrower shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for them or for a substantial part of their property or business; or
such a receiver or trustee shall otherwise be appointed.
3.5 Judgments.
Any
money judgment, writ or similar final process shall be entered or filed against
Borrower or any Subsidiary of Borrower or any of their property or other assets
for more than One Hundred Thousand Dollars ($100,000),
and
shall remain unvacated, unbonded or unstayed for a period of forty-five (45)
days.
3.6 Non-Payment.
The
Borrower shall have received a notice of default, which remains uncured for
a
period of more than twenty (20) days, on the payment of any one or more debts
or
obligations aggregating in excess of One Hundred Thousand Dollars (US
$100,000.00) beyond any applicable grace period;
3.7 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law, or the issuance
of
any notice in relation to such event, for the relief of debtors shall be
instituted by or against the Borrower or any Subsidiary of Borrower and if
instituted against them are not dismissed within forty-five (45) days
of
initiation.
3.8 Delisting.
Delisting of the Common Stock from any Principal Market; failure to comply
with
the requirements for continued listing on a Principal Market for a period of
seven consecutive trading days; or notification from a Principal Market that
the
Borrower is not in compliance with the conditions for such continued listing
on
such Principal Market.
3.9 Stop
Trade.
An SEC
or judicial stop trade order or Principal Market trading suspension with respect
to Borrower’s Common Stock that lasts for five or more consecutive trading
days.
3.10 Failure
to Deliver Common Stock or Replacement Note.
Xxxxxxxx's failure to timely deliver Common Stock to the Holder pursuant to
and
in the form required by this Note or the Subscription Agreement, and, if
requested by Borrower, a replacement Note.
3.11 Non-Registration
Event.
The
occurrence of a Non-Registration Event as described in the Subscription
Agreement.
3.12 Reverse
Splits.
The
Borrower effectuates a reverse split of its Common Stock without twenty days
prior written notice to the Holder.
3.13 Cross
Default.
A
default by the Borrower of a material term, covenant, warranty or undertaking
of
any Transaction Document or other agreement to which the Borrower and Holder
are
parties, or the occurrence of a material event of default under any such other
agreement which is not cured after any required notice and/or cure
period.
3.14 Reservation
Default.
The
occurrence of Reservation Default as described in the Subscription
Agreement.
ARTICLE
IV
SECURITY
INTEREST
4. Security
Interest/Waiver of Automatic Stay.
This
Note is secured by a security interest granted to the Collateral Agent for
the
benefit of the Holder pursuant to a Security Agreement, as delivered by Borrower
to Holder. The Borrower acknowledges and agrees that should a proceeding under
any bankruptcy or insolvency law be commenced by or against the Borrower, or
if
any of the Collateral (as defined in the Security Agreement) should become
the
subject of any bankruptcy or insolvency proceeding, then the Holder should
be
entitled to, among other relief to which the Holder may be entitled under the
Transaction Documents and any other agreement to which the Borrower and Holder
are parties (collectively, "Loan Documents") and/or applicable law, an order
from the court granting immediate relief from the automatic stay pursuant to
11
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. TO THE EXTENT
PERMITTED BY LAW, THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC
STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT
IN
ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES
UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents
to
any motion for relief from stay that may be filed by the Holder in any
bankruptcy or insolvency proceeding initiated by or against the Borrower and,
further, agrees not to file any opposition to any motion for relief from stay
filed by the Holder. The Borrower represents, acknowledges and agrees that
this
provision is a specific and material aspect of the Loan Documents, and that
the
Holder would not agree to the terms of the Loan Documents if this waiver were
not a part of this Note. The Borrower further represents, acknowledges and
agrees that this waiver is knowingly, intelligently and voluntarily made, that
neither the Holder nor any person acting on behalf of the Holder has made any
representations to induce this waiver, that the Borrower has been represented
(or has had the opportunity to he represented) in the signing of this Note
and
the Loan Documents and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has discussed this waiver with
counsel.
ARTICLE
V
MISCELLANEOUS
5.1 Failure
or Indulgence Not Waiver.
No
failure or delay on the part of 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. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
5.2 Notices.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Borrower to: VoIP, Inc., 00000 XX00
Xxxxxx, Xxxxx 000, Xxxxxx Xxxx, Xxxxxxx 00000, Attn: Xxxxxxx Xxxxxxx, CEO,
telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxxxxxx
Xxxx Xxxxxxxx Xxxxxxx LLP, 0000 Xxxxxx xx Xxxxxxxx, Xxx Xxxx, XX 00000, Attn:
Xxxx Xxxx, Esq., telecopier:
(000) 000-0000, and (ii) if to the Holder, to the name, address and telecopy
number set forth on the front page of this Note, with a copy by telecopier
only
to Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
00000, telecopier number: (000) 000-0000.
5.3 Amendment
Provision.
The
term "Note" and all reference 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.
5.4 Assignability.
This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and assigns. The
Borrower may not assign any of its obligations under this Note without the
consent of the Holder.
5.5 Cost
of Collection.
If
default is made in the payment of this Note, Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys'
fees.
5.6 Governing
Law.
This
Note shall be governed by and construed in accordance with the laws of the
State
of New York. Any action brought by either party against the other concerning
the
transactions contemplated by this Agreement shall be brought only in the state
courts of New York or in the federal courts located in the state of New York.
Both parties and the individual signing this Agreement on behalf of the Borrower
agree to submit to the jurisdiction of such courts. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees
and
costs.
5.7 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 permitted by such law, any payments in excess
of
such maximum shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.
5.8 Shareholder
Status.
The
Holder shall not have rights as a shareholder of the Borrower with respect
to
unconverted portions of this Note. However, the Holder will have all the rights
of a shareholder of the Borrower with respect to the shares of Common Stock
to
be received by Holder after delivery by the Holder of a Conversion Notice to
the
Borrower.
IN
WITNESS WHEREOF,
Xxxxxxxx has caused this Note to be signed in its name by an authorized officer
as of the ____ day of October, 2006.
| VOIP INC. | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title | ||
| WITNESS: | |||
NOTICE
OF CONVERSION
(To
be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by VoIP Inc. on October ___, 2006 into
Shares of Common Stock of VoIP Inc. (the "Borrower") according to the conditions
set forth in such Note, as of the date written below.
| Date of Conversion: | |
| Conversion Price: | |
| Shares To Be Delivered: | |
| Signature: | |
| Print Name: | |
| Address: |
