EXECUTION COPY
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. ___ $ _______
GLOBETEL COMMUNICATIONS CORP.
7% Convertible Note
Due August 30, 2008
FOR VALUE RECEIVED, GLOBETEL COMMUNICATIONS CORP., a Delaware
corporation (hereinafter called the "Borrower" or the "Company"), hereby
promises to pay to _____________________________ (the "Holder") or order,
without demand, the sum of _____________________________________ Dollars
($________), with simple interest accruing at the rate described below, on
August 30, 2008 (the "Maturity Date").
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 Payments. The entire unpaid principal amount due under this Note
(the "Principal") shall be due and payable on the Maturity Date. Interest on the
Notes (the "Interest") will be payable semi-annually commencing on the date that
shall be six (6) months from the date hereof (each such date, a "Semi-Annual
Payment Date") as further described on the payment schedule attached hereto as
Exhibit A (the "Payment Schedule"). Interest shall be payable in cash or, at the
Company's option, in shares of the Company's common stock, par value $0.00001
per share (the "Common Stock"). Any payment made on a Semi-Annual Payment Date
is referred to herein as a "Semi-Annual Payment."
Upon any conversion in part by the Holder in accordance with
Article II, the Holder and the Borrower shall in good faith recalculate the
outstanding principal balance and the amounts of the Semi-Annual Payments. Upon
any full conversion by the Holder in accordance with Article II of all of the
Semi-Annual Payments and the Principal due hereunder, all of the Borrower's
payment obligations shall terminate. All payments in respect of the indebtedness
evidenced hereby shall be applied in the following order: to accrued Interest,
Principal, and charges and expenses owing under or in connection with this Note.
If any payment is paid in Common Stock, the number of shares
issuable will be determined utilizing a fair market value per share equal to the
last sale price of the Common Stock on the date immediately prior to the
Semi-Annual Payment Date. Notwithstanding the foregoing, the Company's right to
pay the Notes, including any Interest due thereunder, in shares of Common Stock
on each Semi-Annual Payment Date is subject to the condition that: (i) the
Common Stock is trading on the OTC Bulletin Board, American Stock Exchange or
Nasdaq; and (ii) the Registration Statement is effective on such Semi-Annual
Payment Date.
In the event a Holder converts any portion of the principal
amount of its Note into shares of Common Stock prior to the date of the next
Semi-Annual Payment, such Semi-Annual Payment shall be reduced by the principal
amount so converted. In addition, if a Holder converts any portion of its Note
into shares of Common Stock prior to the date of the next Semi-Annual Payment in
an amount that is greater than the amount of such Semi-Annual Payment and any
accrued interest, the excess over such Semi-Annual Payment will be credited
against future Semi-Annual Payments.
1.2 Interest. Interest shall accrue on the outstanding principal
balance hereof at an annual rate equal to seven percent (7%) from the date
Principal was advanced in connection with this Note. Interest shall be
calculated on the basis of a 360-day year and the actual number of days elapsed,
to the extent permitted by applicable law. Interest hereunder will be paid to
the Holder or its assignee in whose name this Note is registered on the records
of the Borrower regarding registration and transfers of Notes (the "Note
Register"). In the event the Holder has elected to convert Interest due
hereunder into shares of Common Stock or the Company has elected to make an
Interest payment hereunder in shares of Common Stock, the number of shares of
such Common Stock to be issued will be calculated using a value of the Common
Stock that shall be its last sale price on the date immediately preceding the
Semi-Annual Payment Date. A number of shares of Common Stock with a value equal
to the amount of Interest due shall be issued to the Holder within five (5) days
of the Semi-Annual Payment Date. No fractional shares will be issued; therefore,
in the event that the value of the Common Stock per share does not equal the
total Interest due, the Company shall round up the number of shares of Common
Stock due.
1.3 Payment Grace Period. From and after the 10th day after an Event of
Default under Section 3.1, the Interest Rate applicable to any unpaid amounts
owed hereunder shall be increased to sixteen percent (16%) per annum.
1.4 Conversion Privileges. The conversion privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred, the Holder may elect to
extend the Maturity Date by the amount of days of the pendency of the Event of
Default.
1.5 Corporate Existence. So long as any of the Notes remains
outstanding, the Company shall not directly or indirectly consummate any merger,
reorganization, restructuring, reverse stock split, consolidation, sale of all
or substantially all of the Company's assets or any similar transaction or
related transactions (each such transaction, a "Fundamental Change") unless,
prior to the consummation a Fundamental Change, the Company obtains the written
consent of each of the Holders. In any such case, the Company will (i) make
appropriate provision with respect to such holders' rights and interests to
ensure that the provisions of this Section 1.5 will thereafter be applicable to
the Notes, (ii) grant the Holders the right to put the Notes to the Company at
115% of the then outstanding Principal plus any unpaid and accrued Interest and
(iii) take any other action required under Section 2.1(c) hereof.
This Note is subject to the following additional provisions:
ARTICLE II
CONVERSION RIGHTS AND REDEMPTION RIGHTS
The Holder shall have the right to convert the principal and accrued
and unpaid interest due under this Note into Shares of the Borrower's Common
Stock as set forth below.
2.1 Conversion into the Borrower's Common Stock.
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(a) The Holder shall have the right from and after the date of
the issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and accrued
Interest, at the election of the Holder (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and non-assessable shares
of Common Stock as such stock exists on the date of issuance of this Note (such
shares, the "Conversion Shares"), or any shares of capital stock of Borrower
into which such Common Stock shall hereafter be changed or reclassified (the
"Other Securities"), at the conversion price as defined in Section 2.1(b) hereof
(the "Conversion Price"), determined as provided herein. Upon delivery to the
Borrower of a completed Notice of Conversion, a form of which is attached hereto
as Exhibit B, Borrower shall issue and deliver to the Holder within three (3)
business days from the Conversion Date (such third day being the "Delivery
Date") that number of Conversion Shares for the portion of the Note converted in
accordance with the foregoing. At the election of the Holder, the Borrower will
deliver accrued but unpaid interest on the principal amount of the Note being
converted in the manner provided in Section 1.1 through the Conversion Date
directly to the Holder on or before the Delivery Date. The number of Conversion
Shares to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note and accrued interest to be
converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be $__.
(c) The Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening of
certain events while this conversion right remains outstanding, as follows:
A. Reorganization, Consolidation, Merger, etc.;
Reclassification. In case at any time or from time to time, the Company shall,
subject to Section 1.5 hereof, effect a Fundamental Change, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this Note,
on the conversion hereof as provided in Article II, at any time after the
consummation of such Fundamental Change, shall receive, in lieu of the
Conversion Shares (or Other Securities) issuable on such conversion prior to
such consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation of a Fundamental Change if such Holder had so converted this
Note, immediately prior thereto, all subject to further adjustment thereafter as
provided in Section 2.1(c)(E).
If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes that may be issued or
outstanding, this Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right to purchase
an adjusted number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.
B. Dissolution. In the event of any dissolution of
the Company following the transfer of all or substantially all of its properties
or assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holder of the Notes after the
effective date of such dissolution pursuant to this Article II to a bank or
trust company (a "Trustee") having its principal office in New York, NY, as
trustee for the Holder of the Notes.
C. Continuation of Terms. Upon any Fundamental Change
or transfer (and any dissolution following any transfer) referred to in this
Article II, this Note shall continue in full force and effect and the terms
hereof shall be applicable to the Other Securities and property receivable on
the conversion of this Note after the consummation of such Fundamental Change or
transfer or the effective date of dissolution following any such transfer, as
the case may be, and shall be binding upon the issuer of any other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Note as provided in
Section 2.1(c)(E). In the event this Note does not continue in full force and
effect after the consummation of the transaction described in this Article II,
then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Notes be delivered to
the Trustee as contemplated by Section 2.1(c)(B).
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D. Share Issuance. If at any time Notes or the
Warrants are outstanding the Company shall offer, issue or agree to issue any
common stock or securities convertible into or exercisable for shares of common
stock (or modify any of the foregoing which may be outstanding) to any person or
entity at a price per share or conversion or exercise price per share which
shall be less than the Conversion Price in respect of the Shares, without the
consent of each Subscriber holding Notes and/or other Securities, then the
Company shall issue, for each such occasion, additional shares of Common Stock
to each Subscriber so that the average per share purchase price of the shares of
Common Stock issued to the Subscriber (of only the Conversion Shares or Warrant
Shares still owned by the Subscriber) is equal to such other lower price per
share and the Conversion Price shall automatically be reduced to such other
lower price per share. The average Conversion Price of the Conversion Shares and
average Warrant Exercise Price in relation to the Warrant Shares shall be
calculated separately for the Conversion Shares and Warrant Shares. The
foregoing calculation and issuance shall be made separately for Conversion
Shares received upon conversion and separately for Warrant Shares. The delivery
to the Subscriber of the additional shares of Common Stock shall be not later
than the closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock. The Subscriber is granted the registration
rights described in Section 11 of the Subscription Agreement in relation to such
additional shares of Common Stock except that the Filing Date and Effective Date
with respect to such additional shares of Common Stock shall be, respectively,
the sixtieth (60th) and one hundred and twentieth (120th) date after the closing
date giving rise to the requirement to issue the additional shares of Common
Stock. For purposes of the issuance and adjustment described in this paragraph,
the issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the issuance of the additional shares of
Common Stock upon the issuance of such convertible security, warrant, right or
option and again at any time upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights if such issuance is at
a price lower than the Conversion Price in effect upon such issuance. The rights
of the Subscriber set forth in this Section 2.1 (c)(D) are in addition to any
other rights the Subscriber has pursuant to this Note, the Subscription
Agreement, any Transaction Document and any other agreement referred to or
entered into in connection herewith.
E. Extraordinary Events Regarding Common Stock. In
the event that the Company shall (a) issue additional shares of the Common Stock
as a dividend or other distribution on outstanding Common Stock, (b) subdivide
its outstanding shares of Common Stock, or (c) subject to Section 1.5 hereof,
combine its outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock, then, in each such event, the Conversion Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such event, and the product so obtained
shall thereafter be the Conversion Price then in effect. The Conversion Price,
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 2.1(c)(E). The
number of Conversion Shares that the Holder of this Note shall thereafter, on
the conversion hereof as provided in Article II, be entitled to receive shall be
adjusted to a number determined by multiplying the number of Conversion Shares
that would otherwise (but for the provisions of this Section 2.1(c)(E)) be
issuable on such conversion by a fraction of which (a) the numerator is the
Conversion Price that would otherwise (but for the provisions of this Section
2.1(c)(E)) be in effect, and (b) the denominator is the Conversion Price in
effect on the date of such conversion.
F. Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the conversion of the Notes, the Company at its expense will
promptly cause its Chief Financial Officer or other appropriate designee to
compute such adjustment or readjustment in accordance with the terms of the Note
and prepare a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by the
Company for any additional shares of Common Stock (or Other Securities) issued
or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and
(c) the Conversion Price and the number of Conversion Shares to be received upon
conversion of this Note, in effect immediately prior to such adjustment or
readjustment and as adjusted or readjusted as provided in this Note. The Company
will forthwith mail a copy of each such certificate to the Holder of the Note
and any transfer agent of the Company.
2.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part as described in Section 2.1(a) hereof and the
Subscription Agreement. Upon partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid.
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2.3 Maximum Conversion.
(a) Notwithstanding anything to the contrary contained herein,
the number of Conversion Shares that may be acquired by the Subscriber upon
conversion of the Notes (or otherwise in respect hereof) shall be limited to the
extent necessary to ensure that, following such conversion (or other issuance),
the total number of shares of Common Stock then beneficially owned by such
Subscriber and its affiliates and any other persons whose beneficial ownership
of Common Stock would be aggregated with the Subscriber's for purposes of
Section 13(d) of the 1934 Act, does not exceed 4.999% of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such conversion). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
1934 Act and the rules and regulations promulgated thereunder. By written notice
to the Company, a Subscriber may waive the provisions of this Section 2.3(a) as
to itself but any such waiver will not be effective until the 61st day after
delivery thereof and such waiver shall have no effect on any other Subscriber.
(b) Notwithstanding anything to the contrary contained herein,
the number of Conversion Shares that may be acquired by the Subscriber upon
conversion of the Notes (or otherwise in respect hereof) shall be limited to the
extent necessary to ensure that, following such conversion (or other issuance),
the total number of shares of Common Stock then beneficially owned by such
Subscriber and its affiliates and any other persons whose beneficial ownership
of Common Stock would be aggregated with the Subscriber's for purposes of
Section 13(d) of the 1934 Act, does not exceed 9.999% of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such conversion). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
1934 Act and the rules and regulations promulgated thereunder. This provision
may not be waived.
(c) Notwithstanding anything to the contrary in this
Note, while the shares of Common Stock are listed for trading on the American
Stock Exchange, if the Company has not previously obtained Shareholder Approval
(as defined below), then the Company may not issue Conversion Shares in excess
of the Issuable Maximum (as defined below) upon any conversion of this Note at a
conversion price which is less than the closing bid price on the trading day
immediately preceding the Closing Date or date of the Subscription Agreement,
whichever is higher (the "Threshold Price"). The "Issuable Maximum" means, as of
any date, a number of shares of Common Stock equal to 21,504,469, less such
number of shares of Common Stock as have been issued at a price below the
Threshold Price upon (1) conversion of Notes, (2) in payment of interest
thereunder, (3) upon exercise of the Warrants, or (4) upon operation of any
rights of first refusal under the Subscription Agreement. Each Subscriber shall
be entitled to a portion of the Issuable Maximum equal to the quotient obtained
by dividing: (x) the principal amount of Notes issued and sold to such
Subscriber on the Closing Date by (y) the aggregate principal amount of all
Notes issued and sold by the Company on the Closing Date. If any Subscriber
shall no longer hold Notes, then such Subscriber's remaining portion of the
Issuable Maximum shall be allocated pro-rata among the remaining Subscribers,
giving effect to the Company's desire to allocate this limitation among the
class of securities known as the Notes. If on any Conversion Date, or at such
time as a Subscriber shall notify the Company that the condition in (A)
following this clause shall be in effect: (A) the aggregate number of Conversion
Shares that would then be issuable upon conversion in full of all then
outstanding principal amount of Notes would exceed the Issuable Maximum on such
date, and (B) the Company shall not have previously obtained the vote of
shareholders, as may be required by the applicable rules and regulations of the
American Stock Exchange (or any successor entity or any other trading market on
which the Company's securities then trade), applicable to approve the issuance
of shares of Common Stock in excess of the Issuable Maximum pursuant to the
terms hereof (the "Shareholder Approval"), then, the Company shall issue to the
Subscribers a number of shares of Common Stock equal to the Issuable Maximum
and, with respect to the remainder of the principal amount of Notes then held by
the Subscribers for which a conversion would result in an issuance of shares of
Common Stock in excess of the Issuable Maximum, the Company must use its best
efforts to seek and obtain Shareholder Approval as soon as possible, but in any
event not later than the 60th day following such Conversion Date or the date of
such request. The Company and the Subscriber understand and agree that
Conversion Shares issued to and then held by the Subscriber as a result of
conversions of Notes shall not be entitled to cast votes on any resolution to
obtain Shareholder Approval pursuant hereto.
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2.4 Mandatory Conversion. Commencing after the Effective Date,
the Borrower will have the option by written notice to the Holder ("Notice of
Mandatory Conversion") of compelling the Holder to convert the outstanding and
unpaid principal amount, and accrued interest, of this Note into Common Stock at
the Conversion Price then in affect ("Mandatory Conversion"). The Notice of
Mandatory Conversion must be given, if at all, within thirty (30) days following
any consecutive ten (10) day trading period (the "Lookback Period") during which
the closing bid price or last sale price, as the case may be, for the Borrower's
Common Stock as reported by Bloomberg, LP for the principal market on which the
shares of Common Stock are then traded (the "Principal Market") is more than
150% of the Conversion Price each day during the Lookback Period and there is
not less than reported average daily trading of 1,000,000 shares of Common Stock
during the Lookback Period. The date the Notice of Mandatory Conversion is given
is the "Mandatory Conversion Date." The Notice of Mandatory Conversion shall
specify the aggregate principal amount of the Note which is subject to Mandatory
Conversion. Mandatory Conversion Notices must be given proportionately to all
Holders of Notes who hold Notes similar in terms and tenure as this Note. A
Notice of Mandatory Conversion may not be given unless the Registration
Statement has been effective for the unrestricted public resale of the
Registrable Securities each day during the Lookback Period and for the three
trading days thereafter. Notices of Mandatory Conversion may not be given in
connection with the aggregate amount of Common Stock that would exceed 25% of
the aggregate volume of Common Stock traded on the Principal Market as reported
by Bloomberg L.P. for the fifteen (15) trading days preceding the Mandatory
Conversion Date, or 20% of the initial principal amount of this Note. The amount
of Note principal included in a Mandatory Conversion Notice shall be further
reduced to an amount that would not cause the Holder to exceed the limitation
described in Section 2.3 of this Note. A further Mandatory Conversion Notice may
not be given until thirty (30) trading days have elapsed from the preceding
Mandatory Conversion Date. Each Mandatory Conversion Date shall be a Deemed
Conversion Date (as hereinafter defined) and the Borrower will be required to
deliver the Common Stock issuable pursuant to a Mandatory Conversion Notice in
the same manner and time period as described in Section 2.1 above. In the event
the Borrower fails to deliver the Common Stock in the same manner and time
period as described in Section 2.1 above, then such Notice of Conversion will be
null and void. A Notice of Conversion must be given to all Holders of Notes
similar to this Note, in proportion to the amount of Note Principal held by all
Holders of such Notes. Except as described in this Section 2.4, the Note may not
be paid prior to the Maturity Date without the consent of the Holder.
2.5 Conversion of Note.
(a) Upon the conversion of a Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action,
including obtaining and delivering, an opinion of counsel to assure that the
Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by Subscriber
and in such denominations to be specified at conversion representing the number
of Conversion Shares issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Conversion Shares will be free-trading, and freely transferable,
and will not contain a legend restricting the resale or transferability of the
Conversion Shares provided the Conversion Shares are being sold pursuant to an
effective registration statement covering the Conversion Shares or are otherwise
exempt from registration.
(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (a form of which is attached as
Exhibit B to the Note) to the Company via confirmed telecopier transmission and
overnight courier or otherwise pursuant to Section 4.2 of this Note. The
Subscriber will not be required to surrender the Note until the Note has been
fully converted or satisfied, with each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a Conversion Date (as defined above). The Company will itself or cause
the Company's transfer agent to transmit the Company's Common Stock certificates
representing the Conversion Shares issuable upon conversion of the Note to the
Subscriber via express courier for receipt by such Subscriber on or before the
Delivery Date (as defined above). In the event the Conversion Shares are
electronically transferable, then delivery of the Conversion Shares must be made
by electronic transfer provided request for such electronic transfer has been
made by the Subscriber and the Subscriber has complied with all applicable
securities laws in connection with the sale of the Common Stock, including,
without limitation, the prospectus delivery requirements. A Note representing
the balance of the Note not so converted will be provided by the Company to the
Subscriber if requested by Subscriber, provided the Subscriber delivers the
original Note to the Company.
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(c) The Company understands and agrees that a delay
in the delivery of the Conversion Shares in the form required pursuant to
Section 2.5(a) hereof, or the Mandatory Redemption Amount described in Section
2.8 hereof, respectively after the Delivery Date or the Mandatory Redemption
Payment Date (as hereinafter defined) could result in economic loss to the
Subscriber. As compensation to the Subscriber for such loss, the Company agrees
to pay (as liquidated damages and not as a penalty) to the Subscriber for late
issuance of Conversion Shares upon Conversion of the Note in the amount of $20
per business day after the Delivery Date for each $10,000 of Note principal
amount being converted of the corresponding Conversion Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Conversion Shares by the
Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company.
(d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith 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 or dividends 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 Company to the Subscriber and thus refunded
to the Company.
2.6 Injunction Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof in whole or in part, the Company
may not refuse conversion based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of such Note shall have
been sought and obtained by the Company and the Company has posted a surety bond
for the benefit of such Subscriber in the amount of 120% of the amount of the
Note, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment.
2.7 Optional Redemption.
(a) Provided that the Company has a number of
authorized but unissued shares of Common Stock sufficient for the issuance of
all Conversion Shares underlying the remaining principal amount of this Note,
such Common Stock is listed or quoted (and is not suspended from trading) on the
Principal Market and such shares of Common Stock are approved for listing on
such Principal Market upon issuance if applicable, such Common Stock is
registered for resale under the Registration Statement and the prospectus under
such Registration Statement is available for the sale of all Registrable
Securities held by the Subscriber, such issuance would be permitted in full
without violating Section 2.3 herein or the rules or regulations of any trading
market on which such Common Stock may be listed or quoted, and both immediately
before and after giving effect thereto, no Event of Default under the
Subscription Agreement or this Note shall or would exist, the Borrower will have
the option of prepaying the outstanding principal amount of this Note ("Optional
Redemption"), in whole or in part, together with interest accrued thereon, by
paying to the Holder a sum of money equal to one hundred twenty-five percent
(125%) of the principal amount to be redeemed, together with accrued but unpaid
interest thereon and interest that will accrue until the actual repayment date
and any and all other sums due, accrued or payable to the Holder arising under
the Note, the Subscription Agreement or any Transaction Document (the
"Redemption Amount") on the day written notice of redemption (the "Notice of
Redemption") is given to the Holder. The Notice of Redemption shall specify the
date for such Optional Redemption (the "Redemption Payment Date"), which date
shall be not less than five (5) business days after the date of the Notice of
Redemption (the "Redemption Period"). The Borrower may provide a Notice of
Redemption prior to the Effective Date only in connection with up to 20% the
principal amount of this Note then outstanding together with interest accrued
thereon. A Notice of Redemption shall not be effective with respect to any
portion of the Note for which the Holder has a pending election to convert, or
for Conversion Notices given by the Holder prior to the Redemption Payment Date.
During a Redemption Period occurring after the Actual Effective Date, the Holder
may deliver Notices of Conversion for up to 20% of the initial principal amount
of the Note and accrued interest. On the Redemption Payment Date, the Redemption
Amount shall be paid in good funds to the Holder. In the event the Borrower
fails to pay the Redemption Amount on the Redemption Payment Date as set forth
herein, then (i) such Notice of Redemption will be null and void, (ii) Borrower
will have no further right to deliver another Notice of Redemption, and (iii)
Borrower's failure may be deemed by Holder to be a non-curable Event of Default.
7
(b) A Notice of Redemption must be given
proportionately to all Holders of Notes bearing similar terms to this Note
issued on the date of this Note.
2.8 Mandatory Redemption at Subscriber's Election. In the
event the Company is prohibited from issuing Conversion Shares, or fails to
timely deliver Shares on a Delivery Date, or upon the occurrence of any other
Event of Default (as defined in this Note or in the Subscription Agreement) or
for any reason other than pursuant to the limitations set forth in Section 2.3
hereof, then at the Subscriber's election, the Company must pay to the
Subscriber ten (10) business days after request by the Subscriber, at the
Subscriber's election, a sum of money in immediately available terms equal to
the greater of (i) the product of the outstanding principal amount of the Note
designated by the Subscriber multiplied by 120%, or (ii) the product of the
number of Conversion Shares otherwise deliverable upon conversion of an amount
of Note principal and/or interest designated by the Subscriber (with the date of
giving of such designation being a "Deemed Conversion Date") at the then
Conversion Price that would be in effect on the Deemed Conversion Date
multiplied by the average of the closing bid prices for the Common Stock for the
five consecutive trading days preceding either: (1) the date the Company becomes
obligated to pay the Mandatory Redemption Payment, or (2) the date on which the
Mandatory Redemption Payment is made in full, whichever is greater, together
with accrued but unpaid interest thereon and any liquidated damages then payable
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding. Liquidated damages calculated pursuant to Section 2.5(c)
hereof, that have been paid or accrued for the twenty (20) day period prior to
the actual receipt of the Mandatory Redemption Payment by the Subscriber shall
be credited against the Mandatory Redemption Payment.
2.9 Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber the Conversion
Shares issuable upon conversion of a Note by the Delivery Date and if after five
(5) business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.
2.10 Reservation. During the period the conversion right
exists, Borrower will reserve from its authorized and unissued Common Stock a
number of shares of Common Stock equal to 150% of the amount of Common Stock
issuable 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.
ARTICLE III
EVENTS OF DEFAULT
An "Event of Default," wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
8
3.1 Failure to Pay Principal or Interest. The Borrower fails
to pay any installment of Principal, Interest or other sum due under this Note
when due.
3.2 Breach of Covenant. The Borrower breaches any other
covenant or other term or condition of the Subscription Agreement or this Note
in any material respect and such breach, if subject to cure, continues for a
period of ten (10) business days after written notice to the Borrower from the
Holder.
3.3 Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.
3.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final
process shall be entered or filed against Borrower or any of its property or
other assets for more than $100,000, and shall remain unvacated, unbonded or
unstayed for a period of thirty (30) days.
3.6 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 and if
instituted against Borrower are not dismissed within thirty (30) days of
initiation.
3.7 Non-Payment. A default by the Borrower under any one or
more obligations in an aggregate monetary amount in excess of $50,000 for more
than twenty (20) days after the due date.
3.8 Stop Trade. An SEC or judicial stop trade order or
Principal Market trading suspension that lasts for five or more consecutive
trading days.
3.9 Failure to Deliver Common Stock or Replacement Note.
Xxxxxxxx's failure to timely deliver Common Stock to the Holder pursuant to and
in the time required by this Note and Sections 9 and 11 of the Subscription
Agreement, or, if required, a replacement Note.
3.10 Non-Registration Event. The occurrence of a
Non-Registration Event as described in Section 11.4 of the Subscription
Agreement.
3.11 Reverse Splits. The Borrower effectuates a reverse split
of its Common Stock without the prior written consent of each Holder.
3.12 Reservation Default. Failure by the Borrower to have
reserve for issuance upon conversion of the Note the amount of Common stock as
set forth in the Subscription Agreement.
3.13 Cross Default. A default by the Borrower of a material
term, covenant, warranty or undertaking of any other agreement to which the
Borrower and Holder are parties, or the occurrence of a material event of
default under any such other agreement which is not cured after any required
notice and/or cure period.
3.14 Change in Control. A change in control of the Company
without the written consent of each Holder. A change in control shall mean that
more than 30% of the shares of common stock are consolidated in one person or
entity so that the person or entity may control the election of the board of
directors or the passage of a proposal that would normally require a shareholder
vote without such shareholder vote and that such person or entity was not a
holder of shares of the Company at the date of execution hereof.
9
3.15 Asset Sales. Any instance, undertaken without the written
consent of each Holder, whereby the Company or any of its subsidiaries, sells,
transfers, leases or otherwise disposes (including pursuant to a merger) of
substantially all of the Company's assets, including any asset constituting an
equity interest in any other person, except sales, transfers, leases and other
dispositions of inventory, used, obsolete or surplus equipment or other
property, in each case in the ordinary course of the Company's business and
consistent with past practice.
3.16 Delisting. Delisting of the Common Stock from the
American Stock Exchange or such other Principal Market, including the
Over-the-Counter Bulletin Board, on which the Common Stock is then listed or
quoted for trading.
During the time that any portion of this Note is outstanding,
if any Event of Default has occurred, the full principal amount of this Note,
together with interest and other amounts owing in respect hereof, to the date of
acceleration shall become, at the Holder's election, immediately due and payable
in cash, provided however, the Holder may request (but shall have no obligation
to request) payment of such amounts in Common Stock of the Borrower. In addition
to any other remedies, the Holder shall have the right (but not the obligation)
to convert this Note at any time after (x) an Event of Default or (y) the
Maturity Date at the Conversion Price then in-effect. The Holder need not
provide and the Borrower hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Note or any Transaction Document, the Holder shall have
no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Note or the sale of the Conversion Shares, Shares or Other
Securities.
ARTICLE IV
MISCELLANEOUS
4.1 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.
4.2 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: Globetel Communications
Corp., 0000 Xxxxx Xxxx., Xxxxx 000, Xxxxxxxx Xxxxx, XX 00000, Attn: Xxxxxxx
Xxxx, CEO, telecopier number: (000) 000-0000, with a copy by telecopier only to
(not with respect to Conversion Notices): Xxxxxxxx X. Xxxxxxxx, Esq. 0000 Xxxxx
Xxxx., Xxxxx 000, Xxxxxxxx Xxxxx, XX 00000, telecopier number: (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 (not with respect
to Conversion Notices): Xxxxxxx Xxxx LLP 00 Xxxx 00xx Xxxxxx, 00xx Xxxxx Xxx
Xxxx, XX 00000 Attn: Xxxxxxx X. Xxxxx, Esq. telecopier number: (000) 000-0000.
10
4.3 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.
4.4 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.
4.5 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.
4.6 Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York. Both parties and
the individual signing this Agreement on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.
4.7 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.
4.8 Waiver of Jury Trial. THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE
OF THIS AGREEMENT.
4.9 Redemption. This Note may not be redeemed or paid without
the consent of the Holder except as described in this Note or in the
Subscription Agreement.
4.10 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 all the rights of a shareholder of the Borrower
with respect to the shares of Common Stock to be received by Holder after
delivery by the Holder of a Conversion Notice to the Borrower.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its name by an
authorized officer as of the 30th day of August, 2006.
GLOBETEL COMMUNICATIONS CORP.
By:________________________________
Name: Xxxxxxx Xxxx
Title: CEO
WITNESS:
--------------------------------------
11
Exhibit A
PAYMENT SCHEDULE
Exhibit B
NOTICE OF CONVERSION
--------------------
(To be executed by the Holder in order to Convert the Note)
TO:
The undersigned hereby irrevocably elects to convert $_________________ of the
principal amount of the above Note into Shares of Common Stock of Sunset Brands,
Inc., according to the conditions stated therein, as of the Conversion Date
written below.
Conversion Date: ____________________________________
Applicable Conversion Price: ____________________________________
Signature: ____________________________________
Name: ____________________________________
Address: ____________________________________
Amount to be converted: $___________________________________
Amount of Note unconverted: $___________________________________
Conversion Price per share: $___________________________________
Number of shares to be issued: ____________________________________
Amount of Interest Converted: $___________________________________
Conversion Price per share: $___________________________________
Number of shares of to be issued: ____________________________________
Please issue the shares of to: ____________________________________
Issue to: ____________________________________
Authorized Signature: ____________________________________
Name: ____________________________________
Title: ____________________________________
Phone Number: ____________________________________
Broker DTC Participant Code: ____________________________________
Account Number: ____________________________________
