EXHIBIT 10.5
VOIP TECHNOLOGY, INC.
10% SUBORDINATED NOTE DUE DECEMBER 1, 2003
This 10% Note (called this "Note") is dated November 21, 2001.
Borrower: VOIP Technology, Inc.
Address: 00 Xxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxx, Xxxxxx 00000
The word "Borrower" means the original Borrower and anyone else who merges with
the Borrower or assumes the Borrower's obligations under this Note. However, the
assumption of the Borrower's obligations under this Note shall not release the
Borrower from such obligations.
Lender: Xxxxx Management Services, Inc.
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Address: 000 - 000 Xxxx Xxxxxxxx Xxxxxx
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Vancouver, BC V6C 3N6
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The Lender may transfer all or any part of this Note with written notice to the
Borrower of the transfer, including the name, address of the transferee and the
amount of the Note transferred. The Borrower may treat the Lender as the owner
of this Note until it received written notice of a transfer of all or part of
this Note to another Lender. The word "Lender" means the original Lender and
anyone else to whom this Note is transferred.
1. PROMISE TO PAY. In return for a loan that is received from the original
Lender, the Borrower promises to pay to the Lender $5,000 (called "principal"),
plus interest at a rate of 10% per annum. The Borrower will repay the entire
principal 2 years from date, unless the Lender demands earlier payment under
"Xxxxxx's Right of Acceleration" below or the parties agree to extend the due
date. The Borrower may make earlier principal payments.
2. INTEREST PAYMENTS. The Borrower will make quarterly interest payments to the
Lender in the amount of $125, each payable on March 31, June 30, September 30
and December 31 beginning on March 31, 2002. The first payment shall also
include interest from this day through March 31, 2002, if any. However, if an
interest payment is due on a Saturday, Sunday or legal holiday, then the
Borrower will make the interest payment the next day.
3. XXXXXX'S RIGHT OF ACCELERATION. The Lender has the right, called
acceleration, to declare the entire unpaid principal and interest under this
Note due immediately for any of the following causes:
(a) If the Borrower fails to make any payment or principal or
interest within fifteen days after its due date.
(b) If the Borrower fails to keep any other promise made in this
Note within thirty days after written notice from the Lender.
(c) If one or more judgments is entered against the Borrower which
exceed, in the aggregate, $100,000 if the Borrower does not
pay such judgments or arrange for their enforcement to be
postponed no later than within thirty days after the judgments
have been entered.
(d) If bankruptcy, receivership, or insolvency proceedings are
started by or against the Borrower, or if the Borrower
dissolves, liquidates or otherwise winds up its business.
4. AGREEMENT OF SUBORDINATION. The Lender's rights to receive payments of
principal, interest and fees under this Note is subordinated to the prior
payment of all loans or other extensions of credit made to the Borrower by any
bank, savings and loan association, finance company, insurance company or any
similar financial institution (such loans and extensions of credit, together
with any interest or fees payable on or in connection with such loans and
extensions of credit, are from now on called "Senior Indebtedness") on the
following types:
(a) The Lender shall not be entitled to receive any principal,
interest or fee payments, and the Borrower shall not make such
payments, unless, at the time of such payment (i) the Borrower
shall have had all amounts due at such time under any Senior
Indebtedness, and (ii) the Borrower shall not be in default
under the terms of any Senior Indebtedness and payment of the
amount due under this Note would not result in a default under
any Senior Indebtedness. The word "default" includes defaults
declared by holders of any Senior Indebtedness and any
conditions, event or act which, with notice or the passage of
time, would result in a default under any Senior Indebtedness.
(b) If bankruptcy, receivership, or insolvency proceedings by or
against the Borrower or its property occurs, or if the
Borrower dissolves, liquidates its assets or otherwise winds
up its business, the Borrower shall pay all outstanding Senior
Indebtedness before making any payment of principal, interest
or fees due under this Note. Any payments or distributions
(including distributions of the Borrower's non-cash assets or
securities that would otherwise be made to the Lender will
first be paid on account of all outstanding Senior
Indebtedness.
(c) If the Lender demands early payment of this Note for any
reason, the Borrower shall first pay all outstanding Senior
Indebtedness before making any payments under this note.
(d) If the Lender receives any payment which is not entitled under
this Note, the Lender shall hold such payment for the benefit
of the holder of Senior Indebtedness and deliver such payment
or distribution to the holders of Senior Indebtedness or their
representatives for payment on account of all outstanding
Senior Indebtedness.
(e) After the Senior Indebtedness has been paid in full, the
Lender shall be entitled to the rights of Senior Indebtedness
to receive payments until all amounts due under this Note are
paid in full
5. NOTICES. All notices under this Note must be in writing. They may be given by
(a) personal delivery, or (b) certified mail, return receipt requested. Each
Party mush accept and claim the notices given by the other. Notices shall be
addressed to the other party at the address written at the beginning of this
Note, or, if the notice is to a Lender to whom this Note was transferred, the
address stated in the notice to the Borrower of such transfer. Either party may
notify the other of a change of address.
6. CONVERSION OF CONVERTIBLE NOTES.
6.1. RIGHT TO CONVERT. Subject to and upon compliance with the provisions of
this Section 6, at the option of the holder of any Convertible Notes,
such Convertible Notes, or any portion of the principal amount thereof,
may at any time at or before the close of business on the maturity date
of such Convertible Notes be converted at 100% or so much of the
principal amount of such Convertible Notes as are so converted into
Common Stock at the Conversion Price, determined as hereinafter
provided, in effect at the date of the conversion.
6.2. MANNER OF EXERCISE OF CONVERSION PRIVILEGE. In order to exercise the
conversion privilege, the holder shall surrender this Convertible Note
to the Company at any time during usual business hours at its office or
agency in the City of Las Vegas, State of Nevada, accompanied by
written notice to the Company at such office or agency that the holder
elects to convert this Convertible Note or a specified portion thereof
and stating the name or names (with address) in which the certificate
or certificates for shares of Common Stock which shall be issuable on
such conversion shall be issued. All Convertible Notes surrendered for
conversion shall (if so required by the Company) be accompanied by
proper assignments thereof to the Company or be blank. As promptly as
practicable after the receipt of such notice and the surrender of this
Convertible Note as aforesaid the Company shall issue and deliver at
such office or agency to the holder, or on his written order, a
certificate or certificates for the number of full shares of Common
Stock issuable on such conversion in accordance with the provision of
this Article and cash, as provided in Subsection 3, in respect of any
fraction of a share of Common Stock otherwise issuable upon such
conversion. Such conversion shall be deemed to have been effected at
the close of business on the Date of Conversion, 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 on such date; provided, however, that any such
surrender on any date when the stock transfer books of the Company
shall be closed shall constitute the person or persons in whose name or
names the certificate or certificates for such shares are to be issued
as the record holder or holders thereof for all purposes at the close
of business on the next succeeding day on which such stock transfer
books are open, and the Note surrendered shall not be deemed to have
been converted until such time for all purposes, but such conversion
shall be at the conversion price in effect at the close of business on
the date of such surrender. Anything contained in this Section 6.2 to
the contrary notwithstanding, the Company shall not be obligated to
effect the transfer of any Conversion Shares upon conversion of any
portion of any Convertible Notes or cause any Conversion Shares upon
conversion of any Convertible Notes to be registered in any name or
names other than the name of the holder of the Convertible Notes,
converted or to be converted (or such holder's nominee or nominees)
unless such holder delivers to the Company an opinion of counsel
reasonably satisfactory to the Company to the effect that such transfer
is in compliance with applicable securities laws.
In case any Convertible Note shall be surrendered for conversion of
only a portion of the principal amount thereof, the Company shall
execute and deliver to the holder of such Convertible Note, at the
expense of the Company, a new Convertible Note in the denomination or
denominations ($1,000 and integral multiples thereof, plus one
Convertible Note in a lesser denomination, if required) as such holder
may request in an aggregate principal amount equal to the unconverted
portion of the Convertible Note so surrendered.
6.3. FRACTIONS OF SHARE. The Company shall not be required to issue
fractions of a share or scrip representing fractional shares of Common
Stock upon conversion of Convertible Note. If any fraction of a share
of Common Stock would, except for the provisions of this Section be
issuable on the conversion of any Convertible Notes (or specified
portions thereof), the Company shall pay a cash adjustment in respect
of such fraction, equal to the value of such fraction based on the then
conversion price.
6.4. CONVERSION PRICE.
(i) The price at which shares of Common Stock shall be delivered
upon conversion (herein called the Conversion Price) shall
initially be $0.01 per share of Common Stock.
(ii) The Conversion Price in effect or to be in effect at any time
shall be subject to adjustment from time to time as provided
in subsection 6.5.
6.5 ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THE CONVERTIBLE NOTES. Upon each adjustment
of the Conversion Price, the Note-Holders shall thereafter be entitled
to purchase, at the conversion price resulting from such adjustment,
the number of shares obtained by multiplying the Conversion Price in
effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the conversion price resulting from
such adjustment.
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. In case the Company shall at any time or from time to time after the
date hereof (I) issue or sell any additional shares of Common Stock for
a consideration per share less than the Conversion Price in effect
immediately prior to the issue or sale of such additional shares, or
without consideration, or (II) pay or make a dividend (other than in
cash payable from retained earnings or earned surplus) or other
distribution on Common Stock, then and thereafter successively upon
each such issue, sale, dividend or other distribution, the Conversion
Price for each share of Common Stock in effect immediately prior to
such issue, sale, dividend or other distribution, the Conversion Price
for each share of Common Stock in effect immediately prior to such
issue, sale, dividend or other distribution shall forthwith be reduced
to a price (calculated to the nearest full cent) equal to the quotient
obtained by dividing (i) an amount equal to the sum of (a) the total
number of shares of Common Stock outstanding immediately prior to such
issue sale, dividend or other distribution multiplied by such
Conversion Price in effect immediately prior to such issue, sale,
dividend or other distribution, plus (b) in the case of such an issue
or sale, the consideration, if any, received by the Company upon such
issue or sale, or minus (c) in the case of such a dividend or other
distribution, the amount of such dividend or other distribution, by
(ii) the total number of shares of Common Stock outstanding immediately
after such issue, sale, dividend or other distribution.
The Company shall not be required to make any adjustment of the
Conversion Price if the amount of such adjustment shall be less than
$0.001 per share, but in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made
at the time and together with any adjustment so carried forward, shall
amount to not less than $0.001 per share.
For the purpose of any adjustment as provided in this subsection A, the
following provisions shall also be applicable:
(i) In case of the issue of additional shares of Common Stock for cash,
the consideration received by the Company therefore shall be deemed to
be the cash proceeds received by the Company for such shares, without
deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith.
(ii) In case at any time the Company shall grant any rights to
subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such convertible or exchangeable stock
or securities being herein called "Convertible Securities"), whether or
not such rights or options or the rights to convert or exchange any
such Convertible Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon the exercise of such
rights or options or upon conversion or exchange of such Convertible
Securities,
(determined by dividing (a) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights
or options, plus, in the case of any such rights or options which
relate to such Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange
thereof, by (b) the total maximum numbers of shares of Common Stock
issuable upon the exercise of such rights or options or upon the
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such right or options).
shall be less than the conversion price in effect immediately prior to
the time of the granting of such rights or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of granting of
such rights or options) be deemed to be outstanding and to have been
issued for such price per share. No further adjustments of the
conversion price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such rights or
options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(iii) In case at any time the Company shall declare a dividend or make
any other distribution upon any stock of the Company payable in Common
Stock or Convertible Securities, any Common Stock or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(iv) In case any shares of Common Stock or Convertible Securities or
any rights or options to purchase any such Common Stock or Convertible
Securities shall be issued or sold, in whole or in part, for a
consideration other than cash, the amount of the consideration other
than cash received by the Company shall be deemed to be the fair value
of such consideration as determined by the Board of Directors of the
Company.
(v) In the event of the consolidation of the Company with or the merger
of the Company into any other corporation or of the sale of the
properties and assets of the Company as, or substantially as, an
entirety for stock or other securities of any corporation, or the
merger of any other corporation into the Company as a result of which
the holders of shares of Common Stock of the Company shall be deemed to
have become the holders of, or shall become entitled to, stock or other
securities of any corporation other than the Company, the Company shall
be deemed to have issued a number of shares of its Common Stock for
such stock or securities computed on the basis of the exchange ratio
actually applied in the transaction and for a consideration equal to
the fair market value on the date of such transaction of such stock or
securities of the other corporation. If such determination shall cause
an adjustment in the Conversion Price, the determination of the number
of shares of Common Stock issuable upon the conversion of any
Convertible Note immediately prior to such consolidation, merger or
sale for the purpose of subsection (iii) of this subsection 6.5 shall
be made after giving effect to such adjustment of the Conversion Price.
(vi) In case of the payment or making of a dividend or other
distribution on Common Stock in property (other than in shares of
Common Stock and securities convertible into or exchangeable for shares
for Common Stock, but including all other securities) such dividend or
other distribution shall be deemed to have been paid or make at the
close of business at the record date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be the amount of cash and, if in property other than cash, shall
be deemed to be the value of such property as determined in good faith
by the Board of Directors of the Company at the time of the declaration
of such dividend or other distribution.
(vii) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered
an issue of sale of Common Stock.
B. Anything to the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Conversion Price as a result of
the happing of any of the following:
(i) The issue of the Convertible Notes of which this note is a part;
(ii) The issue of shares of Common Stock upon the conversion from time
to time of the Convertible Notes;
(iii) The issue of not more than 100,000 shares of Common Stock upon
the exercise of options granted under the Company's Employee's
Qualified Stock Option Plan;
(iv) The issue of non-qualified stock options (and the issuance of
shares upon the exercise thereof) by the Company to its officers and
employees for not exceeding an aggregate of 100,000 shares of Common
Stock;
(v) Such additional shares as may be issuable upon the exercise of such
options by reason of stock dividends, stock splits, and other changes
in the capitalization of the Company; and
C. In case at any time the Company's shares shall be combined into a
small number of shares, the conversion price in effect immediately
prior to such combination shall remain unchanged.
D. If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that
holders of Common Stock (or any other securities of the Company then
issuable upon the conversion of this Convertible Note) shall be
entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock (or such other securities) then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
holder hereof shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this
Convertible Note and in lieu of the shares of the Common Stock (or
other securities) of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such
shares of stock, securities or assets as my be issued or payable with
respect to or in exchange for a number of shares of such Common Stock
(or such other securities) immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, had such
reorganization, reclassification, consolidation , merger or sale not
taken place, and in any case appropriate provision shall be made with
respect to the rights and interest of the holder of this Convertible
Note to the end that the provisions hereof (including without
limitation provisions fro adjustments of the conversion price and of
the number of shares purchasable upon the conversion of this
Convertible Note) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion hereof (including an immediate
adjustment, by reason of such consolidation, merger or sale, of the
conversion price, to the value for the Common Stock reflected by the
terms of such consolidation, merger or sale if the value so reflected
is less than the conversion price in effect immediately prior to such
consolidation, merger or sale). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof
the successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets
shall assume, by written instrument executed and mailed to the
registered holder hereof at the last address of such holder appearing
on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets, as, in accordance with the
foregoing provisions, such holder may be entitled to purchase. The
successor corporation shall be deemed substituted for the Company for
all purposes of this Agreement and the Convertible Notes.
The provisions of subsection D governing the substitution of another
corporation for the Company shall similarly apply to successive
instances in which the corporation then deemed to be the Company
hereunder shall either sell all or substantially all of its properties
and assets to any other corporation or shall be the surviving
corporation of the merger into it of any other corporation as a result
of which the holders of any of its tock or other securities shall be
deemed to have become the holders of, or shall become entitled to, the
stock or other securities of any corporation other than the corporation
at the time deemed to be the Company hereunder.
6.6 NOTICE OF CONVERSION PRICE. Upon any adjustment of the conversion
price, than and in each such case the Company shall give written notice
thereof, to the holder thereof, which notice shall state the conversion
price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the
exercise of this Convertible Note, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is
based.
The Company will, within 90 days after the end of each of its fiscal
years, and at such other times as the Holder may reasonably request,
mail to the holder of each Convertible Note at the address of such
holder shown on the books of the Company a certificate of the
independent public accountants for the Company specifying the
Conversion Price in effect as the end of such fiscal year and the
number of shares of Common Stock, or the kind and amount of any
securities or property other than Common Stock or both, issuable upon
the conversion of the Convertible Notes.
6.7 NOTICE OF DISTRIBUTIONS, RIGHTS OF REORGANIZATION, ETC. In case at any
time:
(1) the Company shall pay any dividend payable in stock upon its Common
Stock or make any distribution (other than regular cash dividend) to
the holders of its Common Stock;
(2) the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other
rights;
(3) there shall be any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company, or sale of all or substantially all of its assets to, another
corporation; or
(4) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then in any one or more of said cases, the Company shall give written
notice, to the holder of this Convertible Note, of the date on which
(a) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall also specify the dates as of which the
holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such
written notice shall be given at least 20 days prior to the record date
or the date on which the Company's transfer books are closed in respect
thereto.
6.8 TAXES ON CONVERSION. The issue of certificates on conversion of
Convertible notes hall be made without charge to the converting
Noteholder for any tax in respect of the issue thereof. The Company
shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of stock in
any name other than that of the holder of any Note converted, and the
Company shall not be required to issue or deliver any certificate in
respect to such stock unless and until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that
such tax has been paid.
6.9 COMPANY TO RESERVE STOCK. The Company shall at all times reserve and
keep available out of its authorized but unissued stock, for the
purpose of effecting the conversion of the Convertible Notes, such
number of its duly authorized shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding
Convertible Notes. If any shares of Common Stock, reserved or to be
reserved, for such purposes, required registration under any Federal or
state law before such shares may be validly issued to the holder, the
Company covenants that it will in good faith and as expeditiously as
possibly endeavor to secure such registration or approval, as the case
may be.
The Company will not take any action which would cause the conversion
price to be below the then par value, if any, per share of the Common
Stock, or in the case of no-par stock, below the amount for which such
shares may be issued as fully paid and nonassesable.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Convertible Notes will upon issue be fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
6.10 NO RIGHTS AS STOCKHOLDERS. Prior to the conversion of any Convertible
Note, the holder of such Convertible Note shall not be entitled to any
rights of a stockholder of the Company, including without limitation
the right to vote, to receive dividends or other distributions or to
exercise any pre-emptive rights, and shall not be entitled to receive
any notice of any proceedings of the Company, except as provided
herein.
Dated: November 21, 2001
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Signature: /s/ Xxxxxx Xxxxxxxx
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Name: Xxxxxx Xxxxxxxx
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Title: President
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