Exhibit 10.4
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO GLOBETEL COMMUNICATIONSCORP.
THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED. GLOBETEL COMMUNICATIONS CORP., a Delaware
corporation (hereinafter called "Borrower"),. hereby promises to pay to Infinity
Capital Partners, LLC (the "Holder') or order, without demand, the sum of One
hundred and twenty-five Thousand Dollars ($125,000.00), with simple interest
accruing at the annual rate of 12%, on November 5, 2003 (the `Maturity Date').
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a five (5) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of twenty percent (20%) per annum shall apply to
the amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth In
Article II shall remain in full forco and effect immediately from the date
hereof and until the Note is paid in full or is fully converted into shares of
the Company's Common Stock.
1.3 Interest Rate. Subject to the Holder's right to convert,
interest payable on this Note shall accrue at the annual rate of twelve percent
(12%) and be payable in arrears commencing December 31, 2002 and quarterly
thereafter, and on the Maturity Date, accelerated or otherwise, when the
principal and remaining accrued but unpaid interest shall be due and payable, or
sooner as described below.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
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.
(a) Conversion and Notice. The Holder shall have the right from and
after the issuance of this Note and then at any time until this Note is fully
paid, to convert any outatanding and unpaid principal portion of this Note,
and/or at the Holder's election, the interest accrued on the Note, (the date of
giving of such notice of conversion as provided in this Section 2.1(a) being a
"Conversion Date") into fully paid and nonassessable shares of common stock of
Borrower as such stock exists on the date of issuance of this Note, or any
shares of capital stock of Borrower into which such stock shall hereafter be
changed or reclassified (the "Common Stock") at the conversion price as defined
in Section 2.1(b) hereof (the "Conversion Price"), determined as provided in
that Section. Holder will give notice of its decision to exercise its right to
convert the Note or part thereof by transmitting an executed and completed
Notice of Conversion (as defined in the Note) together with the Note to the
Company via express courier. The Company will cause the transfer agent to
transmit the Company's Common Stock certificates representing the Shares
issuable upon conversion of the Note, and will transmit a new Note for the
balance of the Note not so converted, to the Holder via express courier for
receipt by such Holder within three (3) business days after receipt by the
Company of the Notice of Conversion (the "Delivery Date"). . The number of
shares of Common Stock to be issued upon each conversion of this Note shall be
determined by dividing that portion of the principal (and interest, at the
election of the Holder) of the Note to be converted, by the Conversion Price.
(b) Conversion Price. Subject to adjustment as provided in Section
2.1(c) hereof, the Conversion Price per share shall be the lower of the Fixed
Conversion Price and the Variable Conversion Price, computed as follows:
(i) Fixed Conversion Price. The Fixed Conversion Price shall
be $0.025 per share, and was computed as seventy-five percent
(75%) of the average of the five lowest closing bid prices for
the Common Stock on its Principal Market for the twenty
trading days prior to but not including the date on which the
Company received the proceeds of this Note from the Holder.
(ii) Variable Conversion Price. The Variable Conversion Price
shall be seventy-five percent (75%) percent of the average of
the three lowest closing bid prices for the Common Stock on
the Principal Market, or on any securities exchange or other
securities market on which the Common Stock is then being
listed or traded, for the twenty (20) trading days prior to
but not including the Conversion Date.
(iii) "Principal Market" means the NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System.
American Stock Exchange. or New York Stock Exchange (whichever
of the foregoing is at the time the principal trading exchange
or market for the Common Stock), or if not then trading on a
Principal Market, such other principal market or exchange
where the Common Stock is listed or traded.
2
(c) Antidilution Adjustment to Fixed Conversion Price. The Fixed
Conversion Price and number and kind of shares or other securities to be issued
upon conversion shall be subject to adjustment from rime to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and properly as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, (i)
the anti-dilution provisions of this Section shall apply to such securities of
such successor or purchaser after any such consolidation, merger, sale or
conveyance, and (ii) if as a result of any of the transactions referred to in
this Section 2.l(c)A the Common Stock ceases to exist, the Variable Conversion
Price provisions of Section 2.1(b)(ii) shall have no further applicability from
and after that event occurs.
B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock. the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Adjustment for Share Issuance.
i. If the Borrower at any time while this Note remains
outstanding shall issue any shares of Common Stock for a consideration less than
the Fixed Conversion Price that would be in effect at the time of such issue
(excluding "Excluded Share Issuances" defined in clause (ii) immediately
following), then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any, received by the Borrower upon such
issue of additional shares of
3
Common Stock; and (ii) the sum so obtained shall be divided by the number of
shares of Common Stock outstanding immediately after such issue. The resulting
quotient shall be the adjusted Fixed Conversion Price.
ii. No adjustment in the Fixed Conversion Price shall be
required on account of any of the following "Excluded Share Issuances";
1st. Issuance of shares in connection with an
event provided for in Sections 2.l(c)A,
2.l(c)B or 2.1(c)C immediately above;
2nd. Issuance of shares of Common Stock upon
conversion of this Note;
3rd. Issuance of shares of Common Stock or
options, warrants or other rights to
purchase Common Stock issued or granted to
employees, officers or directors of, or
consultants or advisors to the Corporation
or any subsidiary pursuant to stock purchase
or stock option plans or other arrangements
approved by the Company's Board of
Directors;
4th. Issuance of shares of Common Stock pursuant
to the exercise of options, warrants or
other rights to purchase Common Stock or
conversion of convertible securities
outstanding on the issue date of this Nate
or granted in accordance with clause "3rd";
5th. Issuance of shares of Common Stock pursuant
to any bona fide equipment leasing
arrangement, or debt financing from a bank
or similar financial institution approved by
the Board of Directors; and
6th. Issuance of securities issued in a
transaction with a vendor, customer or
strategic partner, up to a maximum of either
(i) 0.5% of outstanding shares of Common
Stock on a fully diluted basis in a single
transaction or (ii) 2.0% of outstanding
shares of Common Stock on a fully diluted
basis in the aggregate.
iii. Except for the Excluded Share Issuances, for
purposes of this adjustment, the issuance of any security of the Borrower
carrying the right to convert such security into shares of Common Stock or of
any warrant, right or option to purchase Common
4
Stock shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) Maximum Conversion. The Holder shall observe the following
limitations on the principal amount of the Note that is converted on any
Conversion Date:
i. Value/Volume Limit. The Holder will not convert a
greater principal amount of the Note on any Conversion
Date than (i) $30,000 or (ii) that principal amount that
yields a number of shares of Common Stock equal to the
highest trading volume on the Principal Exchange in any
period of 30 consecutive minutes on that Conversion
Date, whichever of (i) or (ii) produces the higher
limit; and
ii. Ownership Limit. The Holder will not convert, on any
Conversion Date, a principal amount of the Note
conversion of which would yield a number of shares of
Common Stock exceeding the limit in the next sentence.
That limit is (i) 4.99% of the outstanding shares of
Common Stock of the Company on such Conversion Date,
minus (ii) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates on
that Conversion Date, beneficial ownership being
determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder. The Holder shall not be
limited to aggregate conversions of only 4.99% otherwise
than by the terms of the preceding sentence. The Holder
may terminate the conversion limitation described in
this clause (c)(ii) upon 75 days prior written notice to
the Company.
(e) Late Delivery or Payments. The Company understands that a delay
in the delivery of the Shares in the form required pursuant to Section 2.1(a)
hereof, or the Mandatory Redemption Amount described in Section 2.1(f) hereof,
beyond the Delivery Date or Mandatory Redemption Payment Date (as defined in
Section 2.1(f)) could result in economic loss to the Holder. As compensation to
the Holder for such loss, the Company agrees to make late payments to the Holder
for late issuance of Shares in the form required pursuant to Section 2.1 hereof
upon Conversion of the Note or late payment of the Mandatory Redemption Amount,
in the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. 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 Holder, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Holder 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
5
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to the delivery of such notice, except that late
payment charges described above shall be payable through the date notice of
revocation or rescission is given to the Company.
(f) Buy-In. In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such shares issuable upon
conversion of a Note by the Delivery Date and if ten (10) days after the
Delivery Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a bona fide sale commitment
by such Holder of the Common Stock which the Holder anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder
(in addition to any remedies available to or elected by the Holder) the amount
by which (A) the Holders 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 Holder 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 Holder $1,000, plus interest. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-in,
together with proof reasonably satisfactory to the Company that the Holder had
in fact entered into a sale commitment for at least the number of shares
issuable upon the relevant conversion at or before the Lime notice of Conversion
was given.
(g) Mandatory Redemption Payment in Lieu of Share Delivery. In the
event the Holder gives notice of Conversion but the Company is prohibited from
issuing Shares, or fails to timely deliver Shares on a Delivery Date, then at
the Holders election, the Company shall pay to the Holder ten (10) business days
after request by the Holder or on the Delivery Date (if requested by the Holder)
a sum of money determined by multiplying the outstanding principal amount of the
Note designated in the notice of Conversion by 125%, together with accrued but
unpaid interest on that portion of the Note from the date the notice of
Conversion was given ("Mandatory Redemption Payment"). The Mandatory Redemption
Payment must be received by the Holder 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.
(h) Reservation of Shares. During the period the conversion right
exists. Borrower will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon the
full conversion of this Note. Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. Borrower
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.
6
2.2 Transfer Agent Instructions. Upon the conversion of the Note or
part thereof, the Company shall, at its own cost and expense, take all necessary
action (including the issuance of an opinion of counsel) to assure that the
Company's transfer agent shall issue stock certificates in the name of Holder
(or its nominee) or such other persons as designated by Holder and in such
denominations to be specified at conversion representing the number of shares of
common stock 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 the Shares will not
contain a legend restricting their resale or transferability provided the resale
of the Shares has been regoistered pursuant to an effective registration
statement, or that such resale is otherwise exempt from registration.
2.3 Injunction-Posting of Bond. In the event a Holder shall elect to
convert a Now or part thereof, the Company may not refuse conversion based on
any claim that such Holder or any one associated or affiliated with such Holder
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 said Note shall have been sought and obtained and the Company
posts a surety bond for the benefit of such Holder in the amount of 130% of the
amount of the Note, which is subject to the injunction, 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 Holder to the extent Holder obtains
judgment.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below;
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal or interest hereon when due and such failure
continues for a period of five (5) days after the due date, The five (5) day
period described in this Section 3.1 is the same five (5) day period described
in Section 1.1 hereof.
3.2 Breach of Covenant. The Borrower breaches any material covenant
or other term or condition of this Note in any material respect and such breach,
if subject to cure, continues for a period of seven (7) days after written
notice to the Borrower from the Holder.
3.3 Breach of Representation and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this Note,
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.
7
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 $50,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower and if instituted against Borrower are not dismissed within 45 days of
initiation.
3.7 Delisting. Delisting of the Common Stock from the Principal
Market or such other principal exchange on which the Common Stock is listed for
trading; Borrower's failure to comply with the conditions for listing; or
notification from the Principal Market that the Borrower is not in compliance
with the conditions for such continued listing.
3.8 Stop Trade. An SEC stop trade order or Principal Market trading
suspension is issued with respect to the Company's Common Stock and continues in
effect for more than three consecutive trading days.
3.9 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note, or to deliver a replacement Note for any unconverted
principal balance.
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. Any notice herein required or permitted to be given
shall be in writing and may be personally served or sent by fax transmission
(with copy sent by regular, certified or registered mail or by overnight
courier). For the purposes hereof, the address and fax number of the Holder is
as set forth on the first page hereof. The address and fax number of the
Borrower shall be Globetel Communications Corp., 000 Xxxxxxxx Xxxxxx. Xxxxx 000,
Xxxxx, XX 00000, fax number: 000.000.0000. Both Holder and Borrower may change
the address and fax number for service by service of notice to the other as
herein provided. Notice of Conversion shall be deemed given when made to the
Company pursuant to the Subscription Agreement.
8
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, and may be assigned by the Holder.
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 Nevada. 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 Nevada or in the federal
courts located in the state of Nevada. 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 Redemption. This Note may be redeemed, in whole or part, by the
Company at a price equal to 125% of the outstanding principle amount, including
interest (and penalties if applicable), within the first 180 days following the
effective date of the registration statement covering the Registrable Securities
(as defined in the Subscription Agreement).
4.9 Security Interest. The holder of this Note has been granted a
security interest in common stock of the Company more fully described in a
Security Agreement.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its President and Chief Executive Officer on this 5 day of November
2002.
GLOBETEL COMMUNICATIONS CORP.
By:__________________________
Xxxxxxx Xxxx
WITNESS:
___________________________
9