Note Purchase Agreement
December __, 2006
Dear Sirs:
The undersigned, i2 Telecom International, Inc., a Washington corporation
(the "Company"), hereby agrees with you as follows:
Section 1. Authorization of issue. The Company will authorize the issue of
up to $2,000,000 in aggregate principal amount of its 6% Senior Secured
Subordinated Convertible Notes (the "Convertible Notes" or "Notes"). The
Convertible Notes shall, with appropriate insertions, be substantially in the
form attached as Exhibit A hereto, and shall mature on May __, 2007.
Section 2. Issuance of convertible notes. (a) Acquisition of convertible
notes. The Company agrees to sell to you, and subject to the terms and
conditions herein set forth, you agree to purchase from the Company, Convertible
Notes in the aggregate principal amount of $____________. The date on which such
purchase and delivery is to be made is herein called the "Closing Date." On the
Closing Date, the Company will deliver to you the Convertible Notes in
accordance with paragraph (b) of this Section 2 at any place and time agreed
upon by you and Company, against payment of the purchase price therefor by a
check payable to the order of the Company in U.S. funds. The purchase price
shall be an amount equal to 100 percent of the aggregate principal amount of the
Convertible Notes to be purchased by you on such Closing Date.
(b) Delivery of convertible notes; closing date. On the Closing Date, the
Company shall deliver to you Convertible Notes in the aggregate principal amount
of $___________ dated as of the Closing Date and registered in your name or to
the order of your nominee.
(c) Securities Act. The Company agrees that it will not, either directly or
through any agent, sell or offer any of the Convertible Notes or substantially
similar securities to, or solicit any offers to buy any thereof from, or
otherwise approach or negotiate in respect thereof with, such number or
character of persons, or in such manner, as would result in making the issuance
or sale of the Convertible Notes a violation of the provisions of the Securities
Act of 1933, as amended (the "Securities Act").
(d) Purchase for investment. You represent to the Company, and in issuing
the Convertible Notes to you on the Closing Date it is specifically understood
between you and the Company, that you are acquiring the Convertible Notes for
your own account, for the purpose of investment, and not with a view to the
distribution or resale of any thereof.
Section 3. Conditions. Your obligation to purchase and pay for the
Convertible Notes to be purchased by you on the Closing Date is subject to the
accuracy and correctness of the Company's representations and warranties
contained in this Agreement, and shall be subject to the satisfaction, on or
before the Closing Date, of the following further conditions:
(a) Officers' certificate. The representations and warranties contained in
Section 4 shall (except to the extent of changes caused by transactions
contemplated in or expressly
permitted by this Agreement) be true in all material respects on and as of
the Closing Date with the same effect as though such representations and
warranties were originally made on and as of such date; there shall exist on
such Closing Date no condition, event or act which constitutes an event of
default specified in this Agreement and no condition, event or act which, with
notice or lapse of time or both, would constitute such an event of default; all
covenants and agreements to be performed by the Company hereunder on or before
such Closing Date shall have been duly performed; and the Company shall deliver
to you a certificate, signed by its President or a Vice President and its
Secretary or an Assistant Secretary, dated as of such Closing Date to each such
effect.
(b) Proceedings and documents. All corporate and other proceedings taken in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be satisfactory in form and substance to you,
and you shall have received copies of all documents and records which you or
special counsel may reasonably request.
Section 4. Representations and warranties. The Company hereby represents
and warrants that:
(a) Financial statements. The financial statements of the Company and its
subsidiaries for the period ended September 30, 2006 and which the Company has
previously furnished to you are true and correct and have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods involved. The consolidated balance sheets and the related
notes fairly present the financial position of the Company and its consolidated
subsidiaries as of the respective dates thereof, and the consolidated statements
of income and retained earnings and the related notes fairly present the results
of the operations of the Company and such subsidiaries for the respective
periods indicated. There has been no material adverse change in the condition,
financial or otherwise, of the Company and its subsidiary taken as a whole since
September 30, 2006.
(b) Organization, standing, and qualification of company. The Company is a
corporation duly organized and existing and in good standing under the laws of
the State of Washington, and has the corporate power to own its properties and
to carry on its business as now being conducted and as proposed to be conducted.
The Company is qualified to do business as a foreign corporation and is in good
standing in every jurisdiction in which such qualification is necessary under
applicable provisions of law.
(c) Organization, standing, and qualification of subsidiary. Exhibit B
annexed hereto correctly sets forth the name of the subsidiary of the Company.
The subsidiary has been duly incorporated and is existing in good standing under
the laws of its jurisdiction of incorporation, has the corporate power to own
its properties and to carry on its business as now being conducted and as
proposed to be conducted, and is qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which such
qualification is necessary under applicable provisions of law. All of the
outstanding shares of the capital stock of each class of the subsidiary has been
validly issued, are fully paid and nonassessable, and are wholly owned by the
Company free and clear of all liens, charges, security interests or encumbrances
with the exception of any directors' qualifying shares required by law.
(d) Litigation. There are no actions, suits or proceedings pending or, to
the Company's knowledge, threatened against or affecting the Company or any of
its subsidiaries
which may result in any material adverse change in their business, properties or
condition with exception of former employee claims which are less than $200,000
in the aggregate.
(e) Title and liens. The real property and all the other property and
assets of the Company are free from all liens, charges, security interests, and
encumbrances, except for liens, charges, security interests with Troon & Co. and
Cornell Capital Partners, LP; and, except as aforesaid, the Company and its
subsidiaries, respectively, have good record and marketable title in fee simple
absolute to all the real property, and good and marketable title to all other
property and assets, included in their most recent consolidated balance sheet
furnished to you or subsequently acquired by the Company or any of its
subsidiaries, except property and assets subsequently sold or otherwise disposed
of in the ordinary course of business.
(f) Leases. The Company and its subsidiary enjoy peaceful and undisturbed
possession under all of the leases to which any of them is a party or under
which any of them is operating. All of such leases are valid and subsisting and
none of them is in default.
(g) Conflicting agreements and charter provisions. Neither the execution
and delivery of this Agreement, the Convertible Notes or any other documents to
be delivered by the Company hereunder, the consummation of the transactions
herein or therein contemplated, the fulfillment of the terms hereof or thereof,
nor compliance with the terms and provisions hereof or thereof, will conflict
with or result in a breach of any of the terms, conditions, or provisions of any
corporate restriction or of any agreement or instrument to which the Company or
any of its subsidiaries is now a party or by which any of them is bound, or
constitute a default thereunder, or result in the creation or imposition of any
lien, charge, security interest, or encumbrance of any nature whatsoever upon
any of the property or assets of the Company or any of its subsidiaries pursuant
to the terms of any such agreement or instrument.
(h) Income tax returns. The Company and its subsidiary have filed all
required federal, state, and local tax returns, and have paid or provided for
payment of, all taxes as shown on said returns or pursuant to any assessment
received by the Company, or its subsidiary, and do not know of any proposed
assessment of additional taxes or any basis therefor. There has been no audit of
the Company's tax returns.
(i) Issuance of convertible notes. Upon receipt by the Company of payment
for the Convertible Notes as provided herein, the Convertible Notes and the
shares issuable upon the conversion of the Convertible Notes will have been duly
authorized, executed, and issued and will constitute the Company's valid and
legally binding obligations enforceable in accordance with their terms and will
be entitled to the benefits provided by this Agreement.
(j) Authorized and outstanding capital stock. The Company's authorized
capital stock consists of (i) 5,000,000 shares of Preferred Stock, no par value,
of which 4,495 shares were outstanding on December 14, 2006 and (ii) 250,000,000
shares of common stock, no par value (the "Common Stock"), of which 161,564,855
shares of Common Stock were outstanding on December 14, 2006, of which
100,000,000 shares are being held in escrow as additional collateral against a
$1,500,000 outstanding loan. All of the Company's outstanding Common Stock has
been duly and validly authorized and issued and is full paid and nonassessable.
The shares of Common Stock initially to be reserved for issuance and to be
issued upon conversion of the Convertible Notes pursuant to this Agreement have
been duly and validly authorized and are sufficient in number for the conversion
of all the Convertible Notes at the initial conversion price.
The Company has granted or issued, or agreed to grant or issue no options
or warrants or similar rights to others to acquire or receive any of its
authorized but unissued shares of either Preferred or Common Stock, or
securities convertible into its Common Stock other than (i) the Convertible
Notes to be issued pursuant to this Agreement, (ii) options granted pursuant to
the Company's Qualified Stock Option Plan and warrants to purchase 48,963,753
shares of the Company's Common Stock at an average exercise price of $.36 each
as of September 30, 2006. The Company held zero shares of its Common Stock in
its treasury as of September 30, 2006.
(k) The Company is not in default, and there are no circumstances with the
passage of time that will result in a default under any agreements to which the
Company is a party.
(l) The Company shall provide "Piggyback" registration rights for the
Shares and the Warrants on its next Registration Statement filing or the earlier
of 60 days of a Closing Date, which Registration Statement shall be declared
effective within 90 days of such Closing Date (120 days if reviewed by the SEC)
or is unavailable to the Investors for more than twenty (20) days during a
365-day period, the following penalties will be incurred; (i) a 2.0% penalty per
month will be assessed until the Registration Statement is declared effective or
becomes available. The penalty will be payable monthly in cash, and (ii) for
each $1,000 of Notes outstanding, the Note holders shall receive 500 warrants to
purchase Common Stock in the Company exercisable at $.07 each for a period of 3
years as a penalty per month which will be assessed until the Registration
Statement is declared effective or becomes available. This provision will be
subject to force majeure.
Section 5. Interest payments and redemptions. (a) Interest payments on
convertible notes. The Convertible Notes shall be dated as of the Closing
Date(s) and shall bear interest at the rate of six percent per annum from the
Closing Date. Interest shall be computed on the basis of a 360-day year, 30-day
month. On May __ 2007, the Company shall pay accrued interest on the Convertible
Notes to such payment dates. The interest payment may be made in cash or Common
Stock at the discretion of the Company, based on a share price of $.07 per
common share.
Section 6. Optional Conversion of Convertible Notes. (a) Right to convert;
conversion price. Subject to and upon compliance with the provisions hereof, the
holder of any Convertible Note shall have the right, at any time until such
Convertible Note has been paid in full, to convert all or any portion of the
unpaid amount of such Convertible Note into Common Stock of the Company at a
price of $.07 per share, or in case an adjustment of such initial conversion
price has taken place pursuant to the further provisions of this Section 6, then
at the price as last adjusted and in effect at the date such Convertible Note or
portion thereof is surrendered for conversion (the initial conversion price or
such price as last adjusted, as the case may be, being referred to herein as the
"Conversion Price"); provided, however, that in no event shall the Conversion
Price be reduced below the then applicable par value of the Company's Common
Stock. The number of shares of the Company's Common Stock into which any
Convertible Note is convertible shall be subject to adjustment pursuant to the
further provisions of this Section 6. The number of such shares into which a
portion of any Convertible Note is convertible shall be that proportion of the
total number of such shares, as adjusted, into which such Convertible Note
is then convertible which the principal amount of such portion to be so
converted bears to the then unpaid principal amount of such Convertible Note. In
order to convert any Convertible Note, the holder thereof shall surrender the
Convertible Note to the Company at its office in Roswell, GA (or any other
office or agency of the Company that it designates by notice in writing to the
holders of the Convertible Notes), accompanied by a written statement
designating the principal amount of such Convertible Note, or portion thereof,
to be so converted. In the case of any Convertible Note which is converted in
part only, the Company shall, upon such conversion, execute and deliver to the
holder thereof, at the Company's expense, a new Convertible Note or Convertible
Notes of authorized denominations in principal amount equal to the unconverted
portion of such Convertible Note.
(b) Issue of common stock; continuing obligation. Within a reasonable time,
not exceeding five business days after the receipt of the written statement
referred to in subsection 6(a), the Company shall issue and deliver to the
holder thereof (hereinafter in this subsection, the term "holder" shall include
the nominee of any such holder), registered in the holder's name, a certificate
or certificates for the number of full shares of Common Stock issuable upon the
conversion of such Convertible Note (or specified portion thereof), bearing the
restrictive legend required by subsection 6(h). To the extent permitted by law,
such conversion shall be deemed to have been effected and the conversion price
and the number of shares of Common Stock issuable in connection with such
conversion shall be determined as of the close of business on the date on which
such written statement shall have been received by the Company and such
Convertible Note shall have been surrendered as aforesaid, and at such time the
rights of the holder of such Convertible Note (or specified portion thereof) as
such holder shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby. The Company will, at the time of such
conversion, in whole or in part, upon request of the holder of such Convertible
Note, acknowledge in writing its continuing obligation to such holder in respect
of any rights (including, without limitation, any right of registration of the
shares of Common Stock issued upon such conversion) to which such holder shall
continue to be entitled under this Agreement after such conversion; provided,
that the failure of such holder to make any such requests shall not affect the
continuing obligation of the Company to such holder in respect of such rights.
(c) Dividends and interests. No payment or adjustments shall be made upon
any conversion on account of any cash dividends on the Common Stock issued upon
such conversion. The Company shall pay all interest on the Convertible Note
surrendered for conversion accrued to the date, in the form of cash or shares of
Common Stock at the discretion of the Company, based on a share price of $.07
per share, upon which the above-mentioned written statement has been received by
the Company.
(d) Anti-dilution provisions. A. Adjustment of conversion price. The
Conversion Price shall be subject to adjustment from time to time only as
follows:
(1) If shares of Common Stock are issued as a dividend or other
distribution on any class of stock of the Company, the Conversion Price which
would otherwise be in effect at the opening of business on the day following the
date fixed for determination of stockholders entitled to receive such dividend
or other distribution shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such determination.
For the purpose of this paragraph (1), the number of shares at any time
outstanding shall include shares held by the Company if such dividend or
distribution is paid or made in respect thereof.
(2) If the Common Stock is subdivided into a greater or combined into a
lesser number of shares of Common Stock, the Conversion Price in effect
immediately prior thereto, or immediately prior to the record date for such
subdivision or combination if a record date is fixed, shall be proportionately
adjusted so that it will bear the same relation to the Conversion Price in
effect immediately prior to such subdivision or combination, or such record
date, as the total number of shares of Common Stock outstanding immediately
prior to such subdivision or combination, or such record date shall bear to the
total number of shares of Common Stock outstanding immediately after such
subdivision or combination or such record date. For purposes of this paragraph
(2), the number of shares at any time outstanding shall include shares held by
the Company if such subdivision or combination affects such shares.
(3) In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock, or in case of the consolidation of the
Company with, or the merger of the Company into, any other corporation or of the
sale of all or substantially all of the Company's properties and assets to any
other corporation, each Convertible Note shall after such capital
reorganization, reclassification, consolidation, merger, or sale entitle the
holder to receive upon conversion the number of shares of stock or other
securities or property of the Company, or of the corporation resulting from such
consolidation or surviving such merger or to which such sale shall be made, as
the case may be, to which the holder of securities deliverable (at the time of
such capital reorganization, reclassification, consolidation, merger, or sale)
upon conversion of such Convertible Note would have been entitled upon such
capital reorganization, reclassification, consolidation, merger or sale; and in
any such case the provisions of this Section 6(d) with respect to the rights and
interests thereafter of the holders of Convertible Notes shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of stock or other securities or any property thereafter deliverable on the
conversion of the Convertible Notes. Any such adjustment which shall be approved
by the Company's Board of Directors shall for all purposes of this paragraph
conclusively be deemed to be an appropriate adjustment. The subdivision or
combination of shares of Common Stock deliverable upon conversion of the
Convertible Notes at any time outstanding into a greater or lesser number of
shares of Common Stock (whether with or without par value) shall not be deemed
to be a reclassification of the Common Stock for the purposes of this paragraph.
(4) For the purposes of any adjustment of the Conversion Price pursuant to
this Section 6(d), the following provisions shall be applicable:
(a) in case of the issuance of Common Stock for a consideration
part or all of which shall be cash (including such issuance upon
exercise of rights, warrants or options, granted without
consideration, to subscribe for or purchase such shares), the amount
of the cash consideration shall be the amount of such
cash received by the Company, provided that no deduction shall be
made for any commissions, discounts or expenses incurred by the
Company for any underwriting of the issue or otherwise in connection
therewith; and
(b) in case of the issuance 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 lower of the fair value thereof as
determined by the Board of Directors of the Company or the value of
the shares issued based on the Current Market Value of the Common
Stock (determined as provided in Section 6(d)(F)).
(5) For the purpose of this Section 6(d)(A), shares of Common Stock or
other securities held in the treasury of the Company shall not be deemed to
be outstanding, except as specifically provided herein, and the sale or
other disposition of any shares of Common Stock or other securities held in
the treasury of the Company shall be deemed an issuance thereof.
B. In any case in which this Section 6(d) requires that an adjustment
shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing
to the holder of a Convertible Note converted after such record date
and before the occurrence of such event the additional shares issuable
upon such conversion by reason of the adjustment required by such
event over and above the shares issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such holder any
amount in cash in lieu of a fractional share pursuant to Section
6(d)(F); provided, however, that the Company shall deliver to such
holder a due xxxx or other appropriate instrument evidencing such
holders' right to receive such additional shares, and such cash, upon
the occurrence of the event requiring such adjustment.
C. Whenever the Conversion Price is adjusted as herein provided, the
Company shall also adjust the Conversion Prices to be in effect for
subsequent Conversion Periods, and shall compute the adjusted Conversion
Prices in accordance with Section 6(d)(A) and shall prepare a certificate
signed by the Chairman of the Board, the President or a Vice President and
by a Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company setting forth the adjusted Conversion Prices and
showing in reasonable detail the facts (and computations) upon which such
adjustments are based, and such certificate, as well as any accountants'
certificate provided for in Section 6(d)(A)(8) on which the Company has
relied in making such adjustments, shall forthwith be mailed (by first
class mail postage prepaid) to each registered holder of a Convertible Note
at such holder's last address as shown on the register of the Company.
D. The form of Convertible Note Certificate need not be changed
because of any change in the Conversion Prices and Convertible Note
Certificates issued before or after such change, and may state the same
Conversion Prices as stated in the Convertible Note Certificates
theretofore issued pursuant to this Agreement, however, the Company may at
any time in its sole discretion (which shall be conclusive) make any change
in the form of Convertible Note Certificate that it may deem appropriate;
and any Convertible Note Certificates thereafter issued may be in the form
as so changed.
E. Anything contained herein to the contrary notwithstanding, the
Company shall not be
required to issue any fraction of a share in connection with the conversion
of Convertible Notes, but in any case where any holder of a Convertible
Note Certificate would, except for the provisions of this paragraph F, be
entitled under the terms of this Agreement to receive a fraction of a share
upon the conversion of Convertible Notes, the Company shall pay a sum in
cash equal to such fraction multiplied by the Current Market Value of the
shares (determined as provided in Section 6(d)(F) except that the Current
Market Value shall be deemed to be the market price for the business day
next preceding the day of conversion), unless the Board of Directors of the
Company shall determine to adjust fractional shares by the issue of scrip
of the Company in respect of such fraction or in some other manner.
F. For the purposes of any computation under this subsection 6(d), the
"Current Market Value" of Common Stock per share or of any other security
(herein collectively referred to as a "security") at the date therein
specified shall be deemed to be the average of the daily market prices for
the 20 consecutive business days commencing 30 business days before such
date. The market price for each such business day shall be the last
reported trade price on such day, as reported by a reputable quotation
source designated
by the Company.
(e) Shares issuable upon conversion. The Company covenants and agrees
that all shares of Common Stock which are issued upon the conversion of all
outstanding Convertible Notes will, upon issuance, be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issue thereof. The Company further covenants
and agrees that it will at all times have authorized, and reserved and kept
available solely for the purpose of issue upon the conversion of
Convertible Notes as herein provided, a sufficient number of shares of its
Common Stock as are then issuable upon the conversion of all outstanding
Convertible Notes.
(f) Registration, approval or listing of common stock. If any shares
of Common Stock required to be reserved for purposes of conversion of
Convertible Notes hereunder require registration with or approval of any
governmental authority under any federal (other than the Securities Act or
similar federal statute than in force) or state law, or listing on any
national securities exchange, before such shares may be issued upon
conversion, the Company will, at its expense, as expeditiously as possible
exercise its best efforts to cause such shares to be duly registered or
approved or listed on the relevant national securities exchange, as the
case may be. Shares of Common Stock issued upon conversion of the
Convertible Notes shall be registered by the Company under the Securities
Act if required by subsection (h) below and subject to the conditions
stated therein.
(g) Issuance tax and expenses. The Company shall pay all expenses,
issuance taxes and other charges payable in connection with the
preparation, execution and delivery of certificates for Common Stock
issuable upon each conversion of the Convertible Notes, except that, if any
such certificate is registered in a name or names other than the name of
the holder of such Convertible Note, funds sufficient to pay all stock
transfer taxes which are payable upon the execution and delivery of such
certificate shall be paid by such holder to the Company when such
Convertible Note is surrendered for conversion.
(h) A. Legend; restrictions on conversion and transfer. Each
Convertible Note issued pursuant to this Agreement shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"This Note, and any shares or other securities acquired upon the
conversion of this Note, have not been registered under the Securities Act
of 1933 and may be offered and sold or transferred only if registered
pursuant to the provisions of that Act or if an exemption, supported by an
opinion of counsel, from registration is available."
Each stock certificate issued upon the conversion of any Convertible
Note except as permitted by this Section 6 shall be stamped or imprinted
with a legend in substantially the following form:
" These securities have not been registered under the Securities Act
of 1933 and may be offered and sold or transferred only if registered
pursuant to the provisions of that Act or if an exemption, supported by an
opinion of counsel, from registration is available."
The outstanding stock of the Company evidenced by a certificate or
certificates bearing such legend is herein sometimes called "Legend Stock."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless in the
opinion of such holder's counsel specified in Clause B below (addressed to
such holder), the securities represented thereby need no longer be subject
to the restrictions contained in this Section 6. The provisions of this
Section 6 shall be binding upon all subsequent holders of Legend Stock, and
shall also be applicable to and inure to the benefit of all subsequent
holders of the Convertible Notes.
B. Notice of intention to convert or transfer; opinions of counsel;
registration required by holders of convertible notes. The Convertible
Notes and the Legend Stock to be issued upon conversion thereof shall not
be transferable except upon the conditions specified in this subsection
6(h)(B). Each holder of any Convertible Note or Legend Stock, by acceptance
thereof, agrees, prior to any transfer of such Convertible Note or Legend
Stock or concurrently with any conversion of such Convertible Note, to give
written notice to the Company expressing such holder's intention to effect
such transfer or conversion and describing briefly the manner of the
proposed transfer or, in the case of such conversion, such holder's
intention as to the disposition (and the intended method thereof) or
retention to be made of Common Stock issuable upon the proposed conversion,
together, if registration of such Convertible Note or Legend Stock or
Common Stock is deemed unnecessary, with a copy of the opinion of counsel
selected by such holder and reasonably satisfactory to the Company
(addressed to such holder) as to the nonnecessity for registration under
the Securities Act of such Convertible Note or Legend Stock or Common Stock
in connection with such proposed transfer or disposition or retention upon
such proposed conversion. The following provisions shall apply:
(1) If in the opinion of such counsel, the proposed transfer of such
Convertible Note or Legend Stock, or the proposed disposition or retention
of Common Stock to be issued upon such conversion, may be effected without
such registration of such Convertible Note or of such Legend Stock or of
such Common Stock under the Securities Act, such holder shall be entitled
to transfer such Convertible Note or Legend Stock or to dispose of or
retain such Common Stock to be issued upon conversion, all in accordance
with the terms of the notice delivered by such holder to the Company.
Unless in the opinion of such counsel subsequent disposition by such holder
or by others of the Common Stock to be issued upon conversion or of the
Legend Stock to be so transferred may require such registration, the
Company will promptly upon such conversion or transfer deliver certificates
for Common Stock not bearing
a legend of the character set forth in the first sentence of this
subsection (h), all as contemplated by such form of legend.
(2) If the proposed transfer of such Convertible Note or Legend Stock,
or the proposed disposition (including retention) of the Common Stock to be
issued upon such conversion, may not be effected without such registration
of such Convertible Note, Legend Stock, or such Common Stock, (i) the
holder thereof shall not be entitled to transfer such Convertible Note or
such Legend Stock until such registration is in effect, and (ii) the
Company shall promptly give written notice to all holders of outstanding
Convertible Notes and or Legend Stock of a possible registration of Legend
Stock under the Securities Act.
C. "Piggyback" registrations. The Company shall provide "Piggyback"
registration rights for the Shares and the Warrants on its next
Registration Statement filing or the earlier of 60 days of a Closing Date,
which Registration Statement shall be declared effective within 90 days of
such Closing Date (120 days if reviewed by the SEC) or is unavailable to
the Investors for more than twenty (20) days during a 365-day period, the
following penalties will be incurred; (i) a 2.0% penalty per month will be
assessed until the Registration Statement is declared effective or becomes
available. The penalty will be payable monthly in cash, and (ii) for each
$1,000 of Notes outstanding, the Note holders shall receive 500 warrants to
purchase Common Stock in the Company exercisable at $.07 each for a period
of 3 years as a penalty per month which will be assessed until the
Registration Statement is declared effective or becomes available. This
provision will be subject to force majeure.
D. Payment of registration expenses. With respect to any registration
statement filed pursuant to clause C of this Section 6(h), the Company
shall bear all the costs and expenses incidental thereto, with the
exception of the filing fees of the National Association of Securities
Dealers, Inc., the registration fee payable to the Securities and Exchange
Commission, the blue sky fees and expenses, and transfer taxes attributable
to the Legend Stock being included, which fees and expenses shall be borne
by the holders of such Legend Stock.
E. Information to be furnished. Notices and requests delivered
pursuant to this Section 6(h)E shall contain such information regarding the
Legend Stock and the intended method of disposition thereof as shall
reasonably be required in connection with the action to be taken.
F. Exchange of stock certificates. As expeditiously as possible after
the effectiveness of any registration pursuant to this Section 6(h), the
Company will deliver in exchange for any certificates representing shares
of Legend Stock so registered, new common stock certificates not bearing
the legend set forth above.
G. Indemnification. (1) In the event of any registration pursuant to
this Section 6(h)G, the Company will indemnify each holder of Legend Stock
so registered and each other person, if any, who controls such holder
within the meaning of the Securities Act and each other person (including
underwriters) who participates in the offering of such Legend Stock against
any losses, claims, damages, or liabilities, joint or several, to which
such holder or controlling person or participating person may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or proceedings in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained, on the effective date thereof, in any
registration statement under which such Legend Stock was registered under
the Securities Act ("Registration Statement"), in any preliminary
prospectus or
final prospectus contained therein, or in any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse such holder and each such controlling person or
participating person for any legal or any other expenses reasonably
incurred by such holder or such controlling person or participating person
in connection with investigating or defending any such loss, claim, damage,
liability, or proceeding; provided, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, said preliminary or final prospectus or said amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by an instrument with respect to such holder or
person duly executed by such holder or person specifically for use in the
preparation thereof.
(2) Each holder of Legend Stock included in the Registration Statement
shall agree to indemnify and hold harmless the Company and each person, if
any (including underwriters), who participate in the offering to the same
extent as the foregoing indemnity from the Company but only with respect to
any information furnished in writing by or on behalf of and with respect to
such holder expressly for use in any preliminary prospectus, the
Registration Statement or any amendment or supplement thereof. In case any
action shall be brought against the Company or any underwriter or any other
person so indemnified based on any preliminary prospectus, the Registration
Statement or prospectus or any amendment or supplement thereof or any
application, and in respect of which indemnity may be sought against the
holder of Legend Stock, such holder shall have the rights and duties given
to the Company by the provisions in the preceding paragraph.
H. Survival of obligations. The obligations of the Company contained
in this Section 6(h) shall survive payment in full of the Convertible
Notes.
I. The Company will keep any Registration Statement filed pursuant to
this Section 6(h)I current for a period of one hundred twenty (120) days or
until the Holder or Holders have completed the distribution described in
the registration statement relating thereto or the Registrable Securities
are eligible to be sold or transferred under Rule 144(k) (or similar
provisions then in effect) promulgated by the SEC under the 1933 Act,
whichever first occurs.
Section 7. Mandatory Conversion of Convertible Notes. The Notes will
automatically convert into Common Stock if any of the following events
occur: (i) the Shares become registered and freely trading, or (ii) the
financial Closing by the Company of $10,000,000 or more.
Section 8. Seniority. The Notes shall be secured by all assets of the
Company and its subsidiaries, however, subordinate to a $1,200,000 senior
loan and a $1,500,000 convertible debenture. All future debt securities
issued by the Company will be subordinate in right of payment to the
Convertible Notes; provided, however, that the Company may raise up to $1.0
million of senior indebtness that ranks pari passu with the Convertible
Notes in the future.
Section 9. Affirmative covenants of company. The Company covenants and
agrees that, so long as any of the Convertible Notes shall be outstanding:
(a) Insurance. The Company will maintain or cause to be maintained
with well
rated and reputable insurers, insurance with respect to its
properties and business and the properties and businesses of its
subsidiaries against such risks (including, without limitation, risks of
business interruption), casualties and contingencies and of such types and
in such amounts as is customary in the case of corporations engaged in the
same or similar business or having similar properties.
(b) Notice of event of default. If any officer of the Company obtains
knowledge of the occurrence of any event of default specified in this
Agreement which has not been cured, or if the holder of any of the
Convertible Notes demands payment of such Convertible Notes or takes any
other action permitted upon the occurrence and continuance of such an event
of default, the Company will at once give notice to every other holder of
the Convertible Notes, specifying the nature of such demand or of such
event of default or of such action, as the case may be.
(c) Notices of certain events. The Company agrees to give notice to
the holders of the Convertible Notes within twenty days after it has filed
with the Securities and Exchange Commission an application to register any
of the securities of the Company pursuant to the Securities and Exchange
Act of 1934 (the "Exchange Act"), or any comparable federal statute. The
Company agrees to review its stock ledgers, stock transfer books and other
corporate records periodically (and not less often than once in each
calendar quarter) in order to determine whether you are or shall have
become, directly or indirectly, the beneficial owner of more than such
percentage of any class of its equity securities (as defined in the
Exchange Act) as shall cause you to be required to make any filings or
declarations to the Company, the Securities and Exchange Commission
pursuant to any provision of the Exchange Act or any comparable federal
statute, and the Company will give prompt notice to you whenever it shall
have determined, upon the basis of the information disclosed by any such
review, that you are or have become such a holder, which notice shall also
specify the information upon which the Company bases such determinations.
(d) Payment of taxes, etc. The Company will pay, and will cause each
of its subsidiaries to pay, before they become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed
upon it or its property, and
(ii) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons which, if unpaid, might
result in the creation of a lien upon its property.
Neither the Company nor its subsidiary shall be required to pay any such tax,
assessment, charge, levy, claim or demand if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company or such subsidiary, as the case may be, shall
have set aside on its books reserves in accordance with generally accepted
accounting principles deemed by its independent public accountants to be
adequate with respect thereto.
e) Books and records. The Company will at all times keep, and
will cause each of its subsidiaries to keep, in accordance with
generally accepted accounting principles, true and complete books and
records in connection with its assets and operations.
(f) Preservation of properties. The Company will at all times keep its
properties,
and will cause its subsidiary to keep its properties, whether
owned in fee or otherwise, or leased, in good operating condition, and from
time to time will make, and will cause its subsidiary to make, all proper
repairs, renewals, replacements, additions and improvements thereto needed
to maintain such properties in good operating condition, will at all times
comply with, and will cause its subsidiary to comply with, the provisions
of all material leases to which it or its subsidiary is a party or under
which it or its subsidiary occupies property so as to prevent any loss or
forfeiture thereof or thereunder, and at all times will comply with, and
will cause its subsidiary to comply with, all laws, rules, regulations, and
orders applicable to the properties or business or any part thereof of it
or its subsidiary.
Section 10. Use of proceeds. The Company represents and warrants that
the net proceeds of the sale of the Convertible Notes will be added to the
general funds of the Company and be used for working capital or to complete
pending acquisitions.
Section 11. Exchange, transfer, or replacement of convertible notes.
At the request of a holder of Convertible Notes, the Company at its own
expense will issue, upon transfer and surrender, or in exchange or
replacement, of Convertible Notes or mutilated portions thereof, new
Convertible Notes of the same tenor (except, in the case of a transfer, for
the payee thereof) as, and in an aggregate principal amount not exceeding
the sum of, the outstanding Convertible Notes held by such holder and so
transferred and surrendered or exchanged or replaced; notwithstanding the
foregoing the Company may condition such transfer on the payment to it by
such holder of a sum sufficient to cover any stamp tax or other
governmental charge imposed in respect of any such transfer and may
condition the replacement of any of the Convertible Notes reported as lost,
stolen, or destroyed by a holder upon the receipt from such holder of
indemnity or security reasonably satisfactory to the Company; provided,
however, that if you or your designee shall be such holder, your agreement
of indemnity shall be sufficient for all purposes of this Section.
Section 12. Amendments and waivers. This Agreement may be amended or
any of its restrictions or provisions may be waived with the written
consent of the holders of 66 2/3 percent of the principal amount of the
Convertible Notes at the time outstanding, except that without the written
consent of the holders of all Convertible Notes at the time outstanding no
amendment to this Agreement shall extend the maturity of any of the
Convertible Notes, or reduce the rate of interest payable with respect to
any Convertible Note, or affect the amount or allocation of any interest
payments required under Section 5(a), or affect the conversion rights of
the Convertible Notes or reduce the proportion of the principal amount of
the Convertible Notes required with respect to any consent or amendment.
Section 13. Events of default and remedies. The following events shall
constitute "events of default" under this agreement:
(a) The Company defaults (i) in the payment of principal on any
Convertible Note when and as it becomes due and payable, whether at
maturity, on a date fixed for an interest payment under Section 5(a) or for
a redemption or otherwise, or (ii) in the payment of interest on any
Convertible Note when and as it becomes due and payable in accordance with
the provisions hereof and of the Convertible Notes such default continues
for a period of more than 15 days,
(b) The Company defaults with respect to any material
misrepresentation in the representations or warranties made in Sections 4
or 10 hereof or in any certificate provided
for herein which confirms any
such material representation or warranty;
(c) The Company defaults in the performance or observance of any other
covenant, condition, or agreement made by it, or its successors or assigns,
either in this Agreement or in any Convertible Note, and such default
continues for a period of more than 60 days;
(d) A court of competent jurisdiction enters a decree or order
adjudging the Company or any material subsidiary a bankrupt or insolvent,
or approves as properly filed a petition seeking reorganization,
readjustment, arrangement, composition, or similar relief for the Company
or any subsidiary under the federal bankruptcy laws, or any other similar
applicable federal or state law, and such decree or order continues
undischarged and unstayed for a period of 60 days; a court of competent
jurisdiction enters a decree or order for the appointment of a receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of the Company
or any subsidiary or a substantial part of the Company's or subsidiary's
property, or for the winding up or liquidation of its affairs, and such
decree or order remains in force undischarged and unstayed for a period of
60 days; or any property of the Company or a subsidiary is sequestered or
attached and is not returned to the Company's or subsidiary's possession or
released from such attachment within 60 days thereafter;
(e) The Company or any material subsidiary: institutes proceedings to
be adjudicated a voluntary bankrupt; consents to the filing of a bankruptcy
proceeding against it; or files a petition, answer, or consent seeking
reorganization, readjustment, arrangement, composition, or similar relief
under the federal bankruptcy laws, or any other similar applicable federal
or state law; or consents to the filing of any such petition; consents to
the appointment of a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency of it or a substantial part of its business; or
makes an assignment for the benefit of creditors; admits in writing its
inability to pay its debts generally as they become due; or the Company or
any subsidiary takes corporate action in furtherance of any of the above
purposes;
(f) The Company or any material subsidiary defaults in any payment of
principal or interest on, or any other payment of money due under, any
other obligation for borrowed money (including any obligation secured by
purchase money mortgages) beyond any period of grace provided with respect
thereto, and such default is not cured, or in the performance of any other
agreement, term, or condition contained in any agreement under which any
such obligation is created if the effect of such default is to cause, or
permit the holder or holders of such obligation (or a trustee on behalf of
the holder or holders) to cause, such obligation to become due prior to its
stated maturity, unless such default has been cured or effectively waived
before the obligation is declared due; or
(g) A court or other governmental body renders final judgment against
the Company or any of its material subsidiaries for the payment of money,
which together with other outstanding judgments against the Company or its
subsidiaries, exceeds a total of $250,000, and the Company or such
subsidiary does not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay thereof, within 60 days from
the date of entry thereof and within such 60-day period, or within any
longer period during which execution of such judgment has been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal.
If any one or more of the above events of default occurs and has not
been cured within the requisite cure period, any holder of the Convertible
Notes then outstanding may declare the entire principal of all the
Convertible Notes held by such holder, and all accrued unpaid interest
thereon. Upon any such declaration the principal of such Convertible Notes
and said accrued unpaid interest shall be immediately due and payable,
anything in such Convertible Notes or in this Agreement contained to the
contrary notwithstanding, and the holder of any of such Convertible Notes
may thereupon proceed to protect and enforce its rights either by suit in
equity, or by action at law, or by other appropriate proceedings whether
for the specific performance (to the extent permitted by law) of any
covenant or agreement contained in this Agreement or such Convertible Notes
or in aid of the exercise of any power granted in this Agreement, and
proceed to enforce the payment of any of such Convertible Notes held by it,
and to enforce any other legal or equitable right of such holder.
Section 14. Method of payment of principal and interest.
Notwithstanding any contrary provision in the Convertible Notes or in this
Agreement, the Company will promptly and punctually pay to you at the
address set forth on the signature page hereof or to you or to your nominee
at any other address you designate to the Company in writing, all amounts
payable in respect of the principal of or interest on any of the
Convertible Notes, so long as it is held by you or by such nominee, without
any presentment thereof. You or your nominee may, but need not, make any
notation on any of the Convertible Notes as to any such payment, except
that prior to any sale or other disposition of any of the Convertible Notes
by you or your nominee, you or such nominee, as the case may be, will give
written notice of such sale or other disposition to the Company specifying
the name and address of the transferee (if known to you or such nominee).
Section 15. Survival of covenants, agreements, representations and
warranties; successors and assigns. All covenants, agreements,
representations, and warranties made herein and in certificates delivered
pursuant hereto shall survive the execution and delivery of the Convertible
Notes, and shall continue in full force and effect as long as any of the
Convertible Notes are outstanding and unpaid and thereafter as provided in
Section 6(h) and Section 17.
Section 16. Entire agreement; no oral change. This Agreement embodies
the entire agreement and understanding between the Company and you relating
to the subject matter hereof, and supersedes all prior agreements and
understandings relating to such subject matter. This Agreement may not be
changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, or discharge
is sought.
Section 17. Notices, etc. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be delivered, or
mailed by registered mail, postage prepaid, addressed: (a) if to you, to
your address to which this Agreement is addressed, or to any other address
you have furnished to the Company in writing, or (b) if to any other holder
of the Convertible Notes to such address or such holder as may appear on,
or in the registration of, such Convertible Notes, or to any other address
such holder has furnished to the Company in writing, or (c) if to the
Company, to its address set forth below or to any other address the Company
has furnished to you in writing. Notices shall be deemed delivered when
received by the party being notified.
Section 18. Law governing. This Agreement and the Convertible Notes
shall be construed
in accordance with and governed by the laws of the State
of Georgia and all parties hereby consent to subject themselves to the
jurisdiction of the State of Georgia.
(the remainder of this page has been intentionally left blank)
Upon your signing the form of acceptance on the enclosed counterpart
of this Agreement and returning such counterpart to the Company, this
Agreement shall become a binding agreement between you and the Company.
Very truly yours,
i2 Telecom International, Inc.
By:___________________________
Xxxx X. Arena
Chief Executive Officer
0000 Xxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
The foregoing is hereby accepted
as of the date first above written.
[NAME]
By:________________________
_________________________
_________________________
(Address)
EXHIBIT A
6% SENIOR SECURED SUBORDINATED CONVERTIBLE SENIOR NOTE
Roswell, GA
December __, 2006
$
FOR VALUE RECEIVED, the undersigned i2 Telecom International, Inc.
(the "Company"), a corporation organized and existing under the laws of the
State of Washington, hereby promises to pay to the order of
____________________________________________ the principal amount of
$____________ as hereinafter provided, together with interest (computed on
the basis of a 360-day year of twelve 30-day months) on the unpaid
principal amount hereof at the rate of six percent (6%) per annum from the
date hereof to maturity, whether by acceleration or otherwise, payable
semiannually in the form of cash or common stock of the Company, no par
value per share (the "Common Stock") at the discretion of the Company,
based on a share price of $.07 per share on May ___, 2007.
The principal of this Note shall be due and payable on May __, 2007.
All payments of principal and interest are to be made in lawful money of
the United States of America at _____________________.
This Note is one of the Company's 6% Senior Secured Subordinated
Convertible Notes, limited in aggregate original principal of up to
$2,000,000 aggregate principal amount of notes and issued pursuant to a
Note Purchase Agreement dated December __, 2006 (the "Agreement"), entered
into by the Company with
__________________________________________________________, and others. The
Notes will automatically convert into Common Stock if any of the following
events occur: (i) the Shares become registered and freely trading, or (ii)
the financial Closing by the Company of $10,000,000 or more.
The Notes shall be secured by all assets of the Company and its
subsidiaries, however, subordinate to a $1,200,000 senior loan and a
$1,500,000 convertible debenture. All future debt securities issued by the
Company will be subordinate in right of payment to the Notes; provided,
however, that the Company may raise up to $1.0 million of senior
indebtedness that ranks pari passu with the Notes in the future.
The maturity of this Note may be accelerated by the holder hereof
following an event of default. The following events shall constitute an
"event of default":
(a) The Company defaults (i) in the payment of principal on any
Convertible Note when and as it becomes due and payable, whether at
maturity, on a date fixed for an interest payment under Section 5(a) or for
a redemption or otherwise, or (ii) in the payment of interest on any
Convertible Note when and as it becomes due and payable in accordance with
the provisions hereof and of the Convertible Notes such default continues
for a period of more than 15 days;
(b) The Company defaults with respect to any material
misrepresentation in the representations or warranties made in Section 4 of
the Agreement or in any certificate provided for herein which confirms any
such material representation or warranty;
(c) The Company defaults in the performance or observance of any other
covenant,
condition, or agreement made by it, or its successors or assigns,
either in this Agreement or in any Convertible Note, and such default
continues for a period of 60 days;
(d) A court of competent jurisdiction enters a decree or order
adjudging the Company or any material subsidiary a bankrupt or insolvent,
or approves as properly filed a petition seeking reorganization,
readjustment, arrangement, composition, or similar relief for the Company
or any subsidiary under the federal bankruptcy laws, or any other similar
applicable federal or state law, and such decree or order continues
undischarged and unstayed for a period of 60 days; a court of competent
jurisdiction enters a decree or order for the appointment of a receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of the Company
or any subsidiary or a substantial part of the Company's or subsidiary's
property, or for the winding up or liquidation of its affairs, and such
decree or order remains in force undischarged and unstayed for a period of
60 days; or any property of the Company or a subsidiary is sequestered or
attached and is not returned to the Company's or subsidiary's possession or
released from such attachment within 60 days thereafter;
(e) The Company or any material subsidiary: institutes proceedings to
be adjudicated a voluntary bankrupt; consents to the filing of a bankruptcy
proceeding against it; files a petition, answer, or consent seeking
reorganization, readjustment, arrangement, composition, or similar relief
under the federal bankruptcy laws, or any other similar applicable federal
or state law; consents to the filing of any such petition; consents to the
appointment of a receiver, liquidator, trustee, or assignee in bankruptcy
or insolvency of it or a substantial part of its business; makes an
assignment for the benefit of creditors; admits in writing its inability to
pay its debts generally as they become due; or the Company or any
subsidiary takes corporate action in furtherance of any of the above
purposes;
(f) The Company or any material subsidiary defaults in any payment of
principal or interest on, or any other payment of money due under, any
other obligation for borrowed money (including any obligation secured by
purchase money mortgages) beyond any period of grace provided with respect
thereto, and such default is not cured, or in the performance of any other
agreement, term, or condition contained in any agreement under which any
such obligation is created if the effect of such default is to cause, or
permit the holder or holders of such obligation (or a trustee on behalf of
the holder or holders) to cause, such obligation to become due prior to its
stated maturity, unless such default has been cured or effectively waived
before the obligation is declared due: or
(g) A court or other governmental body renders final judgment against
the Company or any of its material subsidiaries for the payment of money,
which together with other outstanding judgments against the Company or its
subsidiaries, exceeds a total of $250,000, and the Company or such
subsidiary does not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay thereof, within 60 days from
the date of entry thereof and within such 60-day period, or within any
longer period during which execution of such judgment has been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal.
All future debt securities issued by the Company will be subordinate
in right of payment to the Notes; provided, however, that the Company may
raise up to $1.0 million of senior indebtness that ranks pari passu with
the Notes in the future.
This Note is convertible into Common Stock of the Company in the
manner, and upon the terms and conditions, provided in the Agreement.
If the indebtedness represented by this Note or any part thereof is
placed in the hands of attorneys for collection after an event of default,
as defined in the Agreement, the Company agrees to pay the principal and
interest due and payable hereon, and all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
This Note shall be governed by the laws of Georgia and any dispute
shall be subject to the jurisdiction of Georgia.
The parties hereto waive presentment, notice of dishonor, notice of
protest, presentment and demand in connection with the delivery,
acceptance, performance or default of this Note.
i2 Telecom International, Inc.
By:_____________________
Xxxx X. Arena
Chief Executive Officer
By:_____________________
Xxxx X. Arena
Secretary
EXHIBIT B
i2 TELECOM INTERNATIONAL, INC.
LIST OF SUBSIDIARIES
--------------------- ---------------------------------------------------------
Name State of Incorporation/Organization
------------------------------------------ ------------------------------------
------------------------------------------ ------------------------------------
i2 Telecom International, Inc.(DE) Delaware
SuperCaller Community, Inc. California
------------------------------------------ -------------------------------------
o SuperCaller Community, Inc. is a corporation and a wholly-owned
subsidiary of i2 Telecom International, Inc.
o i2 Telecom International, Inc.(DE). is a corporation and a
wholly-owned subsidiary of i2 Telecom International, Inc.(WA)
