AGREEMENT
This AGREEMENT (this "Agreement") is made and entered into as of
November 10, 2004 by and between Xxxxxx Xxxxxx ("Assignee") and Fusion
Telecommunications International, Inc., a Delaware corporation, with a principal
place of business at 000 Xxxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxx, Xxx Xxxx 00000
("Debtor").
WHEREAS, on or about January 25, 2001, Xxxxxx Xxxxx ("Assignor")
entered into a Promissory Note and Security Agreement with Debtor ("Note 1") a
copy of which is attached to and made a part of this Agreement as Exhibit A,
Schedule A pursuant to which Assignor loaned Debtor $1,000,000 plus principal
and interest; which interest is currently $108,333.45.
WHEREAS, Assignor desires to assign her rights and privileges under
Note 1 and Assignee desires to accept such agreement in accordance with the
terms and conditions of the Assignment (Exhibit "A"); and
WHEREAS, Debtor consents to Assignment of Note 1 under the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt, adequacy and sufficiency of which is
acknowledged, the parties agree as follows:
1. The effective date of the Assignment shall be November 10,
2004 (the "Effective Date").
2. A copy of the Assignment Agreement is attached hereto as
Exhibit A and incorporated herein.
3. Contemporaneous with the closing of the Assignment, Assignee
and Debtor will amend Note 1 as follows: (i) release the security interest in
65% of the Debtor's accounts receivable; (ii) upon request of the Debtor and
agreement of the Assignee, subordinate the security interest to any lender;
(iii) reduce the interest rate to 6.5%; (iv) extend the maturity date of Note 1
to November 1, 2006; and (v) increase the principal amount of Note 1 to
$1,108,333.45.
4. Upon Debtor becoming a public entity, Note 1 will
automatically convert into shares of common stock at the lesser of (i) $3.85 per
share, or (ii) a price that is equal to 80% of the price of a share of common
stock in an initial public offering of Debtor's securities (the "Conversion
Price"). The common stock issued upon conversion will be subject to a one (1)
year lock-up from the date that the Debtor becomes a public entity. In the event
Debtor desires to pre-pay Note 1 or the New Note (as defined herein), Debtor
shall give Assignee 30 days written notice that it intends to pre-pay Note 1 and
the New Note, at which time Assignee shall have 30 days to convert all or a
portion of the principal and accrued interest under Note 1 and the New Note into
shares of common stock at the Conversion Price. Assignee shall have the right to
convert all or a portion of the principal and accrued interest on Note 1 and the
New Note at the Conversion Price at any time while they are outstanding.
5. Debtor consents to the assignment and transfer of Note 1 from
Assignor to Assignee.
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6. Xxxxxx X. Xxxxx and Xxxxxx X. Xxxxxx hereby agree to
subordinate their promissory notes with Debtor to Note 1 and the New Note until
the later of (i) such time as Debtor becomes a public entity, or (ii) until such
time as Assignee converts Note 1 and the New Note as set forth in paragraphs 4
and 8, or (iii) until Note 1 and the New note is paid in full. The Debtor agrees
to cause Messrs. Xxxxx and Turits to execute a subordination agreement, in form
acceptable to Assignee, to evidence this subordination, upon request of
Assignee.
7. In the event that the Debtor does not consummate an initial
public offering of its securities and a third party purchases more than 50% of
Debtor's outstanding capital stock and all or a portion of the capital stock of
Xxxxxx X. Xxxxx and Xxxxxx X. Xxxxxx is included in such sale, Assignee shall
have the right to convert all or any part of Note 1 and the New Note into common
stock and include a pro rata portion of his capital stock in such third party
sale on the same terms as Messrs. Xxxxx and Turits. The Debtor agrees to cause
Messrs. Xxxxx and Turtis to execute an agreement to formalize this agreement,
upon the request of Assignee.
8. In addition to Note 1, Assignee will purchase a convertible
promissory note (the "New Note") in the amount of $1,400,000 (the "Principal
Amount"). A form of the New Note is attached as Exhibit 2. The New Note shall
have a maturity date of November 9, 2006 and accrue interest at a rate of 6.5%
payable annually; however, if the Debtor becomes a public entity within one (1)
year of the date of the New Note, no interest will be paid or be payable. If the
Debtor becomes a public entity within the second (2nd) year from the date of the
New Note, no interest accrued during the 2nd year will be paid or be payable. In
the event the Company becomes a public entity, upon such date, the Principal
Amount of this New Note shall be automatically converted into common stock, at
the Conversion Price.
Debtor shall give Assignee 30 days written notice that it intends to
pre-pay the New Note at which time Assignee shall have 30 days to convert all or
a portion of the outstanding principal and accrued interest under the New Note
into shares of common stock at the Conversion Price. The common stock will be
subject to a one (1) year lock-up from the date the Debtor becomes a public
entity should such act occur at a later date.
9. In the event that the Debtor intends to redeem all or any
portion of the Series C preferred stock, the Debtor will first give the Assignee
30 days' notice of such intent and the maturity date of the New Note and Note 1
will accelerate to the date of such notice.
10. The Conversion Price for Note 1 will be subject to
anti-dilution protection in the exact same manner as set forth in Section 4 of
the New Note.
11. The parties agree that all covenants, agreements, and
representations in this Assignment will survive execution of this Agreement.
12. This Agreement shall be binding upon the heirs, executors,
administrators, successors, and assigns of the parties to this Agreement.
Assignee and Debtor shall execute and deliver such further and additional
instruments, agreements, and other documents as may be necessary to evidence or
carry out the provisions of this Agreement.
13. This Agreement contains the entire understanding of the
parties to this Agreement with respect to the transactions contemplated by this
Agreement and may be amended, modified, supplemented or altered only by a
writing duly executed by all of the parties to this Agreement and any prior
agreements or understandings, whether oral or written are entirely superseded by
this Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first written.
ASSIGNEE
----------------------------
DEBTOR
BY:_________________________
XXXXXXX X. XXXXX
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
Solely with respect to paragraph 6:
By:_________________________
Xxxxxx Xxxxx
By:_________________________
Xxxxxx Xxxxxx
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FORM OF PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER REGULATIONS PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS NOTE SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE NOTE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS NOTE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION
UNDER THE PROVISIONS OF THE 1933 ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS.
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
6.5% CONVERTIBLE PROMISSORY NOTE
US$1,400,000.00 November 10, 2004
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC., a Delaware corporation (the
"Company"), the principal office of which is located at 000 Xxxxxxxxx Xxxxxx,
Xxxxx 000, Xxx Xxxx, Xxx Xxxx 00000, for value received hereby promises to pay
to the order of Xxxxxx Xxxxxx or his assignee (the "Holder"), the sum of
US$1,400,000.00 or such lesser amount as shall then equal the outstanding
principal amount hereof (the "Principal Amount") and any unpaid accrued interest
hereon (together with the Principal Amount, the "Outstanding Amount") as set
forth below, on November 10, 2006, (the "Maturity Date"). Payment for all
amounts due hereunder shall be made by mail to the registered address of the
Holder.
The following is a statement of the rights of the Holder of this Note and
conditions to which this Note is subject, and to which the Holder hereof, by the
acceptance of this Note, agrees:
1. INTEREST.
(i) The Company shall pay interest (computed on the basis of a 365-day
year) at a rate of six and 1/2 percent (6.5%) per annum on the Principal Amount
during the period beginning on the date of issuance of this Note and ending on
the later of the date the Outstanding Amount is paid in full or the date of the
final conversion.
(ii) Notwithstanding the foregoing, if the Company becomes a public
entity, with a class of securities registered under the Securities Exchange Act
of 1934 within one (1) year of the date of the Note, no interest will be paid or
be payable. If the Company becomes a public entity within the second (2nd) year
from the date of this Note, no interest accrued during the second (2nd) year
will be paid or be payable. The Company may pre-pay the Note without a penalty.
2. EVENTS OF DEFAULT. If one or more of the following described "Events of
Default" shall occur,
a. The Company shall fail to perform or observe in any
material respect any
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covenant, term, provision, condition, agreement or obligation of the Company
under this Note and such failure shall continue uncured for a period of ten (10)
days after written notice from the Holder specifically describing such failure
or, if such failure is by its nature curable but not curable within thirty (30)
days from the date of such notice, if the Company shall have failed to commence
within such thirty (30) day period in good faith to cure such failure and shall
have failed to cure such failure within a reasonable time longer than thirty
(30) days; or
b. A trustee, liquidator or receiver shall be appointed
by the Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
c. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within thirty (30) calendar days
thereafter;
d. Bankruptcy reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief or debtors shall be instituted by or against the Company and, if
instituted against the Company, the Company shall by any action or answer
approve of, consent to or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition filed in any such
proceeding or such proceedings shall not be dismissed within sixty (60) days
thereafter.
e. Any Event of Default under the promissory note
between the Company and Xxxxxx Xxxxx as Trustee dated on or around January 25,
2001, which is being assigned to the Holder.
3. CONVERSION.
3.1 AUTOMATIC CONVERSION. In the event the Company becomes a
public entity, with a class of securities registered under the Securities
Exchange Act of 1934, upon such date, the Outstanding Amount of this Note shall
be automatically converted into Common Stock, at the lesser of (i) $3.85 per
share, or (ii) 80% of price of a share of common stock in an initial public
offering (the "Conversion Price"). The Common Stock will be subject to a one (1)
year lock-up.
3.2 OPTIONAL CONVERSION. The Holder shall have the right to
convert the Outstanding Amount on this Note in whole or in part into common
stock at the Conversion Price at any time until the Maturity Date.
3.3 DELIVERY OF STOCK CERTIFICATES. As promptly as practicable
after the conversion of this Note (but in no case later than ten (10) business
days after receipt of the Note and the signed Notice of Conversion), the
Company, at its expense, will issue and deliver by express courier service for
delivery to the Holder of this Note a certificate or certificates for the number
of full shares of Common Stock issuable upon such conversion, pursuant to
Section (4.1) of this Note.
The share certificates shall bear a restrictive legend in substantially the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD,
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TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE
FOREGOING LAWS. ACCORDINGLY, THIS WARRANT MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS (i) PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT OR (ii) IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS. HEDGING TRANSACTIONS RELATED TO THESE
SECURITIES ARE PROHIBITED UNLESS CONDUCTED IN COMPLIANCE WITH THE
SECURITIES ACT. THE SECURITIES ARE SUBJECT TO A TRANSFER RESTRICTION.
3.4 MECHANICS AND EFFECT OF CONVERSION. No fractional shares of
Common Stock shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to the Holder upon the conversion of this
Note, the Company shall pay to the Holder the amount of outstanding principal
that is not so converted, such payment to be in the form as provided below. Upon
conversion of this Note, the Company shall be forever released from all its
obligations and liabilities under this Note, except that the Company shall be
obligated to pay the Holder, upon conversion, any interest accrued and unpaid or
unconverted to and including the date of such conversion, and no more.
3.5 The Company shall give Holder 30 days written notice that it
intends to pre-pay this Note at which time Holder shall have 30 days to convert
all or a portion of the outstanding principal and accrued interest under this
Note into shares of common stock at the Conversion Price. The common stock
issuable upon conversion will be subject to a one (1) year lock-up from the date
the Company becomes a public entity should such act occur at a later date. The
Company may otherwise pre-pay this Note without a penalty.
4. CONVERSION PRICE ADJUSTMENTS.
4.1 ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event
the Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or the distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock' issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of this Note shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of this Note shall be increased in proportion to such increase
of outstanding shares.
4.2 ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of shares
of Common Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock, then following the record
date of such combination, the Conversion Price for this Note shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.
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5. ACCELERATION. In the event that the Company chooses to redeem its all
or any portion of the outstanding Series C preferred stock, the Company will
give the Holder 30 days' notice of its intention to redeem and the Maturity Date
of this Note will accelerate to the date of such notice.
6. MERGER. If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another person
and the Holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee shall amend this Note to provide that it may
thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, entities or property receivable upon
such merger, consolidation, sale or transfer by a Holder of the number of shares
of Common Stock into which this Note might have been converted immediately
before such merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable to adjustments
provided for in Section 4.
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes the
obligations of the Company under this Note and immediately after such
transaction no Event of Default exists. Any reference herein to the Company
shall refer to such surviving or transferee corporation and the obligations of
the Company shall terminate upon such assumption.
7. ASSIGNMENT. Subject to the restrictions or transfer described below,
the rights and obligations of the Company and the Holder of this Note shall be
binding upon and benefit the successors, assigns, heirs, administrators, and
transferees of the parties.
8. WAIVER AND AMENDMENT. This Note and the Purchase Agreement constitute
the full and entire understanding and agreement between the parties with respect
to the subject matter hereof and supersedes all prior agreements with respect to
the subject matter hereof. Any provision of this Note may be amended, waived or
modified upon the written consent of the Company and Holder thereof.
9. RESTRICTIONS ON TRANSFER. This Note and the Common Stock issuable upon
the conversion hereof have not been registered under the Securities Act of 1933,
as amended, (the "Securities Act") and have been sold pursuant to an exemption
from registration under the 1933 Act. The Common Stock issuable upon the
conversion of this Note may only be offered or sold pursuant to registration
under or an exemption from the Securities Act.
10. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if made by hand delivery, by an express courier company, by registered or
certified mail, or by facsimile transmission, at the respective addresses and/or
facsimile number of the parties as set forth herein.
11. GOVERNING LAW; INTERPRETATION. This Agreement, and all exhibits
attached, shall be governed by and construed under the laws of the State of New
York and the laws applicable therein without regard to its choice of law
principles. All disputes should be determined and litigated in the courts of New
York.
Any legal action or proceeding in connection with this Agreement or the
performance hereof may be brought in the state courts located in New York, and
the parties hereby irrevocably submit to the non-exclusive jurisdiction of such
courts for the purpose of any such action or proceeding.
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12. HEADING; REFERENCES. All headings used herein are used for convenience
only and shall not be used to construe or interpret this Note. Except where
otherwise indicated, all references herein to Sections refer to Sections hereof.
13. ATTORNEY'S FEES. Should any party bring an action to enforce the terms
of this Note, then the prevailing party in the action shall be entitled to
recovery of its attorney's fees from the other party.
IN WITNESS WHEREOF, the Company has caused this Note to be issued this 10th day
of November 2004.
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
By:
Name:
Title:
Address:
Facsimile:
HOLDER: XXXXXX XXXXXX
By:
Name:
Title:
Address:
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