EXHIBIT 10.4
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.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, VOIP, INC., a Texas corporation (hereinafter called
"Borrower"), hereby promises to pay to XXXXXXXXXXX LIMITED PARTNERSHIP, 00
Xxxxxx Xxxxxx Xxx., Xxxxxxx, Xxxxxxx X0X 0X0, Xxxxxx, Fax: (000) 000-0000 (the
"Holder") or its registered assigns or successors in interest or order, without
demand, the sum of ________________________________ Dollars ($__________)
("Principal Amount"), with simple and unpaid interest thereon, on July 5, 2007
(the "Maturity Date"), if not sooner paid.
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
INTEREST; AMORTIZATION
1.1. Intentionally Deleted.
1.2. Minimum Monthly Principal Payments. Amortizing payments of the
outstanding Principal Xxxxxx and interest of this Note shall commence on the
ninety-first (91st) day after the date of this Note and on the same day of each
month thereafter (each a "Repayment Date") until the Principal Amount has been
repaid in full, whether by the payment of cash or by the conversion of such
principal into Common Stock pursuant to the terms hereof. Subject to Section 2.1
and Article 3 below, on each Repayment Date, the Borrower shall make payments to
the Holder in the amount of 4.7621% of the initial Principal Amount together
with interest accrued on such portion of the initial Principal Amount and any
other amounts which are then owing under this Note that have not been paid
(collectively, the "Monthly Amount"). Amounts of conversions of Principal Xxxxxx
made by the Holder or Borrower pursuant to Section 2.1 or Article III shall be
applied first against outstanding fees and damages, then accrued interest on the
Principal Amount and then to Principal Amounts of not yet due Monthly Amounts,
commencing with the Monthly Amount next payable and then Monthly Amounts
thereafter in chronological order. Any Principal Amount, interest and any other
sum arising under the Transaction Documents that remains outstanding on the
Maturity Date shall be due and payable on the Maturity Date.
1.3. Default Interest Rate. Following the occurrence and during the
pendency of an Event of Default, which, if susceptible to cure is not cured
within twenty (20) days, otherwise then from the first date of such occurrence,
the annual interest rate on this Note shall (subject to Section 6.7)
automatically be fifteen percent (15%), and all outstanding obligations under
this Note shall accrue interest from the date of such Event of Default at such
interest rate applicable to such obligations until such Event of Default is
cured or waived.
ARTICLE II
CONVERSION REPAYMENT
2.1. Payment of Monthly Amount in Cash or Common Stock. Subject to Section
3.2 hereof, the Borrower, at the Borrower's election, shall pay the Monthly
Amount (i) in cash within three (3) business days after the applicable Repayment
Date, or (ii) in registered Common Stock at an applied conversion rate equal to
the lesser of (A) the Fixed Conversion Price (as defined in Section 3.1 hereof),
or (B) eighty-five percent (85%) of the weighted average volume price of the
Common Stock using the AQR function as reported by Bloomberg, L.P. for the
Principal Market for the fifteen (15) trading days preceding such Repayment
Date. Such shares of Common Stock must be delivered to the Holder not later than
three (3) business days of the applicable Repayment Date. If the Company elects
to pay the Monthly Amount in cash, then such payment must include an additional
amount equal to 8% of the principal portion of the Monthly Amount. Whichever of
the Principal Market or such other principal market or exchange where the Common
Stock is listed or traded is the principal trading exchange or market for the
Common Stock is the Principal Market. The Borrower must send notice to the
Holder by confirmed telecopier not later than 3:00 PM, New York City time on the
last Trading Day preceding a Repayment Date notifying Holder of Borrower's
election to pay the Monthly Redemption Amount in cash or stock. The Notice must
state the amount of cash and or stock to be paid and include supporting
calculations. Elections by the Borrower must be made to all Holders of Notes
similar to this Note in proportion to the relative Note principal held by such
Note Holders. If such notice is not timely sent or if the Monthly Redemption
Amount is not timely delivered, then Holder shall have the right, instead of the
Company, to elect within five trading days after the later of the applicable
Repayment Date or required Delivery Date, as the case may be whether to be paid
in cash or Common Stock. Such Holder's election shall not be construed to be a
waiver of any default by Borrower relating to non-timely compliance by Borrower
with any of its obligations under this Note.
2.2. No Effective Registration. Notwithstanding anything to the contrary
herein, no amount payable hereunder may be paid in shares of Common Stock by the
Borrower without the Holder's consent unless (a) either (i) an effective current
Registration Statement covering the shares of Common Stock to be issued in
satisfaction of such obligations exists, or (ii) an exemption from registration
of the Common Stock is available pursuant to Rule 144(k) of the Securities Act,
and (b) an Event of Default (or an event that with the passage of time or the
giving of notice could become an Event of Default) is not continuing or was not
extant during the prior twenty business days, then commencing after the date the
Registration Statement described in Section 11.1(iv) of the Subscription
Agreement has been declared effective ("Actual Effective Date") is not extent or
waived in writing by the Holder in whole or in part at the Holder's option.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. Subject to Section 3.2 and the mandatory
conversion provisions therein, the Holder shall have the right, but not the
obligation, to convert all or any portion of the then aggregate outstanding
Principal Amount of this Note, together with interest and fees due hereon, and
any sum arising under the Transaction Documents, including but not limited to
Liquidated Damages, into shares of Common Stock, subject to the terms and
conditions set forth in this Article III at the rate of $0.80 per share of
Common Stock ("Fixed Conversion Price") as same may be adjusted pursuant to this
Note and the Subscription Agreement. The Holder may exercise such right by
delivery to the Borrower of a written Notice of Conversion pursuant to Section
3.3.
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 nor may this Note be converted in whole or in part into an amount
of Common Stock that would be convertible into that number of Common Stock which
would exceed the difference between the number of shares of Common Stock
beneficially owned by such Holder and 4.99% of the outstanding shares of Common
Stock. For the 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 foregoing limitation shall be
calculated as of each Conversion Date. Aggregate conversions over time shall not
be limited to 4.99%. The Holder may waive the Conversion Share limitation
described in this Section 3.2, in whole or in part, upon 61 days prior notice to
the Borrower. 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 described
above and which shall be allocated to the excess above 4.99%.
3.3. Mechanics of Xxxxxx's Conversion.
(a) In the event that the Holder elects to convert any amounts
outstanding under this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion (a "Notice of Conversion") to the Borrower, which Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and amounts being converted. The original Note is
not required to be surrendered to the Borrower until all sums due under
the Note have been paid. 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. Each date on which a Notice of Conversion is
delivered or telecopied to the Borrower in accordance with the provisions
hereof shall be deemed a "Conversion Date." A form of Notice of Conversion
to be employed by the Holder is annexed hereto as Exhibit A.
(b) Pursuant to the terms of a Notice of Conversion, the Borrower
will issue instructions to the transfer agent accompanied by an opinion of
counsel, if so required by the Borrower's transfer agent, within two (2)
business days after the date of the delivery to Borrower 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 Borrower 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 Borrower of the Notice of Conversion. The Holder shall be treated for
all purposes as the record holder of such shares of Common Stock, unless
the Holder provides the Borrower written instructions to the contrary.
Notwithstanding the foregoing to the contrary, the Borrower or its
transfer agent shall only be obligated to issue and deliver the shares to
the DTC on the Holder's behalf via DWAC (or certificates free of
restrictive legends) if the registration statement providing for the
resale of the shares of Common Stock issuable upon the conversion of this
Note is effective and the Holder has complied with all applicable
securities laws in connection with the sale of the Common Stock,
including, without limitation, the prospectus delivery requirements. In
the event that Conversion Shares cannot be delivered to the Holder via
DWAC, the Borrower shall deliver physical certificates representing the
Conversion Shares by the Delivery Date.
3.4. Conversion Calculations and Adjustments.
(a) The number of shares of Common Stock to be issued upon each
conversion of this Note pursuant to this Article III shall be determined
by dividing that portion of the Principal Amount and interest and fees to
be converted, if any, by the then applicable Fixed Conversion Price.
(b) The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion shall be subject to
adjustment from time to time upon the happening of certain events while
this conversion right remains outstanding, as follows:
(A) Merger, 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,
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 any Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement), prior to the
complete conversion or payment of this Note, for a consideration
less than the Fixed Conversion Price that would be in effect at the
time of such issue, then, and thereafter successively upon each such
issuance, the Fixed Conversion Price shall be reduced to such other
lower issue price. For purposes of this adjustment, the issuance of
any security or debt instrument of the Borrower carrying the right
to convert such security or debt instrument into Common Stock or of
any warrant, right or option to purchase Common Stock shall result
in an adjustment to the Fixed Conversion Price upon the issuance of
the above-described security, debt instrument, warrant, right, or
option 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 Fixed Conversion Price described in this paragraph
is in addition to the other rights of the Holder described in the
Subscription Agreement.
(c) Whenever the Conversion Price is adjusted pursuant to Section
3.4(b) or any Transaction Document, the Borrower shall promptly deliver to
the Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a statement of the facts requiring such
adjustment.
3.5. Reservation. During the period the conversion right exists, Borrower
will reserve from its authorized and unissued Common Stock not less than two
hundred percent (200%) of the number of shares to provide for the issuance of
Common Stock upon the full conversion of this Note. 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.
3.6. Issuance of Replacement Note. Upon any partial conversion of this
Note, a replacement Note containing the same date and provisions of this Note
shall, at the written request of the Holder, be issued by the Borrower to the
Holder for the outstanding Principal Amount of this Note and accrued interest
which shall not have been converted or paid, provided Xxxxxx has surrendered an
original Note to the Company. In the event that the Holder elects not to
surrender a Note for reissuance upon partial payment or conversion, the Holder
hereby indemnifies the Borrower against any and all loss or damage attributable
to a third-party claim in an amount in excess of the actual amount then due
under the Note.
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.
ARTICLE V
EVENTS 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:
5.1. 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
five (5) business days after the due date.
5.2. 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.
5.3. 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.
5.4. 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.
5.5. 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 $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
5.6. 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 Fifty Thousand
Dollars (US $50,000.00) beyond any applicable grace period;
5.7. 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.
5.8. 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.
5.9. Stop Trade. An SEC or judicial stop trade order or Principal Market
trading suspension with respect to Xxxxxxxx's Common Stock that lasts for five
or more consecutive trading days.
5.10. 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.
5.11. Non-Registration Event. The occurrence of a Non-Registration Event
as described in the Subscription Agreement.
5.12. Reverse Splits. The Borrower effectuates a reverse split of its
Common Stock without twenty days prior written notice to the Holder.
5.13. 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.
ARTICLE VI
MISCELLANEOUS
6.1. 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.
6.2. 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: Xxxxxx Xxxxxxx, President
and CEO, telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxxx
X. Xxxxx, Esq., Xxxxxxx Xxxxx LLP, 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx
00000, 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.
6.3. 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.
6.4. 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.
6.5. 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.
6.6. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles that would result in the application of the substantive laws
of another jurisdiction. 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 Note 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. 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 unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
6.7. 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.
6.8. 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.
6.9. Redemption. This Note may not be redeemed or called without the
consent of the Holder except as described in this Note.
6.10. 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 the rights of a shareholder of the Borrower with
respect to the Shares of Common Stock to be received 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 5th day of July, 2005.
VOIP, INC.
By:
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Name:
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Title:
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Witness:
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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 June ___,
2005 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:
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Conversion Price:
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Number of Shares of Common Stock Beneficially Owned on the Conversion Date: Less
than 5% of the outstanding Common Stock of VoIP, Inc.
Shares To Be Delivered:
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Signature:
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Print Name:
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Address:
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