Exhibit 10.1
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
FTS GROUP INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
Principal
$_______________
Issue Date: December
___, 2005
SECURED CONVERTIBLE PROMISSORY NOTE
-----------------------------------
FOR
VALUE RECEIVED, FTS GROUP INC., a Nevada corporation
(hereinafter
called "Borrower"),
hereby promises to pay to ALPHA CAPITAL AKTIENGESELLSCHAFT,
Pradafant 7,
9490 Furstentums, Vaduz, Lichtenstein,
Fax: 011-42-32323196 (the
"Holder") or its
registered assigns or successors in interest or order, without
demand, the
sum of ________________________
Dollars ($__________) ("Principal
Amount"), with
unpaid interest thereon, on March ___, 2007 (the "Maturity
Date"), if
not sooner paid.
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
INTEREST; AMORTIZATION
=
1.1.
Minimum Monthly
Principal Payments. Amortizing payments of
the
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outstanding Principal
Amount and interest of this Note shall
commence on the
earlier of
the Actual Effective Date (as defined in Section
11.1(iv) of the
Subscription Agreement), or the ninety-first (91st) day after the
Issue Date and
on the same day of each month thereafter (each a
"Repayment Date") until the
Principal Amount
has been repaid in
full, whether by the payment of cash or by
the conversion of such principal into Common Stock pursuant to the
terms hereof.
Subject to Section 2.1 and Article 3 below, on each Repayment Date,
the Borrower
shall make
payments to the Holder equal to the initial
Principal Amount the
quotient of the number
of days from the first Repayment Date until the Maturity
Date divided
by 30, together with
any other amounts which are then owing under
this Note that have not been paid (collectively, the
"Monthly Amount").
In
addition to the regular payment of the Monthly Amount, additional
payments (each
an "Interim Payment") will be required to be made at the written
election of the
Holder (a form of which is annexed hereto) for each and every day
(each a
"Determination Date")
the total reported dollar volume of the Common Stock
exceeds $100,000
("Liquidity
Benchmark").
The amount of each
Interim Payment
will be determined by
multiplying the Fixed Principal Portion by a fraction the
numerator of which is
the total reported dollar volume of the Common Stock on a
Determination Date and the denominator of which is the Liquidity
Benchmark. The
Holder must give written notice to the Borrower within two business
days after a
Determination Date of
Holder's election to receive an Interim Payment. If such
notice is given, the Holder may elect to receive
and the Borrower must pay or
deliver either
(i) cash on the third
business day following the date notice is
given, or (ii) Common
Stock valued at eighty-five percent (85%) of the weighted
average volume
price of the Common
Stock using the AQR function as reported by
Bloomberg L.P.
("VWAP") for the five (5) trading days preceding the date
notice
is given by the Holder of the demand for an Interim
Payment. If the
Holder
elects to receive Common Stock in
satisfaction of an Interim Payment, then the
date of the Holder's notice shall be deemed a
Conversion Date and the Common
Stock must
be delivered in the same manner and under the same
conditions as
required in
connection
with a Notice of Conversion.
All payments of cash
or
amounts converted
into Common Stock pursuant to this Note by the Holder or
Borrower shall
be applied first against outstanding fees and damages,
then
accrued interest
on the Principal Amount and then to
Principal Amounts of not
yet due Monthly Amounts, commencing with the Monthly Amount
next payable and
then Monthly
Amounts thereafter in
reverse chronological order. Any Principal
Amount, interest and
any other sum arising under the Transaction Documents that
remains outstanding
on the Maturity Date shall be due and payable on the
Maturity Date.
1
<PAGE>
1.2.
Default Interest
Rate. Following the occurrence and during the
-----------------------
pendency of
an Event of Default, which, if susceptible to
cure is not cured
within twenty (20)
days, otherwise then from the first date of such occurrence,
the annual
interest rate on this Note shall (subject to Section 6.7)
automatically be
fifteen percent (15%) compound interest,
and all outstanding
obligations under this Note shall accrue interest from the date of
such Event of
Default at such interest rate applicable to such obligations until
such Event of
Default is
cured or waived.
ARTICLE II
CONVERSION REPAYMENT
2.1.
Payment of
Monthly Amount in Cash or CommonStock. Subject to
------------------------------------------------
Section 3.2
hereof, the Borrower, at the Borrower's election, shall
pay the
Monthly Amount
(i) in cash within
three (3) business days after the applicable
Repayment Date, or (ii) in registered Common Stock at an applied
conversion rate
equal to the lesser of (A) the Fixed Conversion Price (as defined
in Section 3.1
hereof), or
(B) eighty-five
percent (85%) of the weighted average volume price
of the Common Stock using the AQR function as
reported by Bloomberg, L.P. for
the Principal
Market ("VWAP") for the five (5) trading days preceding
such
Repayment Date
("Alternate Price") (as such amount may be adjusted as
described
herein). The
Borrower must send notice to the Holder by
confirmed telecopier
not later than 3:00 PM, New York City time on the eleventh Trading
Day preceding
a Repayment
Date notifying Holder of Borrower's election to pay the
Monthly
Redemption Amount
in cash or stock. The Notice must state the amount
of the
Monthly Redemption Amount and include supporting calculations.
Elections by the
Borrower must be made to all Holders of Notes similar to this Note
in proportion
to the relative Note principal held by such Note Holders.
If such notice is
not
timely sent
or if the Monthly Redemption Amount
is not timely delivered or if
the Borrower elects to pay the Monthly Redemption Amount with
Common Stock, then
Holder shall have the
right, instead of the Company, to elect in writing within
three trading
days prior to the
applicable Repayment Date or required Delivery
Date, as the case may be whether to be paid in cash or Common Stock
or defer the
cash payment of the relevant Monthly Redemption Amount until three
business days
after demand
therefore by the Holder. Such Holder's election shall not be
construed to
be a waiver of any default by Borrower relating
to non-timely
compliance by Borrower
with any of its obligations under this Note. Shares of
Common Stock
must be delivered to
the Holder not later than three (3) business
days after
the applicable Repayment Date. If the Company elects to pay
the
Monthly Amount in cash or if the payment of an Interim Payment is
required to be
made with cash, then
such payment must include an additional amount equal to 3%
of the principal portion of the Monthly Amount. Whichever of the Principal
Market or such other principal market or exchange where the
Common Stock is
listed or traded is the principal trading exchange or
market for the Common
Stock is the Principal Market.
2.2.
No
Effective Registration. Notwithstanding anything to the
---------------------------
contrary herein,
no amount payable hereunder may be paid in shares
ofCommon
============
Stock by the Borrower without the Holder's consent unless (a)
either (i) an
effective current
Registration Statement covering the shares of Common Stock to
be issued in
satisfaction of such obligations exists, or (ii) an exemption
from
registration of
the Common Stock is available pursuant to
Rule 144(k) of the
Securities Act,
and (b) an Event of
Default (or an event that with the passage
of time or the giving of notice could become an Event of Default) is
not
continuing or
was not extant during the prior twenty business days, then
commencing after
the date the Registration Statement described in Section
11.1(iv) of
the Subscription Agreement has been declared effective
("Actual
Effective Date")
is not extent or
waived in writing by
the Holder in whole or
in part at the Holder's option.
2
<PAGE>
ARTICLE III
CONVERSION RIGHTS
3.1.
Holder's Conversion
Rights. Subject to Section 3.2 and the
----------------------------
mandatory conversion
provisions
therein, the Holder
shall have the right, but
not the obligation, to convert all or any portion of the then aggregate
outstanding Principal
Amount of this Note,
together with interest and fees due
hereon, and
any sum arising under
the Transaction Documents, including but not
limited to Liquidated Damages, into shares of Common Stock, subject
to the terms
and conditions set
forth in this Article III at the rate equal to $0.04 ("Fixed
Conversion Price")
as same may be adjusted pursuant to this Note and the
Subscription
Agreement. The
Holder may exercise
such right by delivery to the
Borrower of
a written Notice of Conversion pursuant to Section 3.3.
3.2.
Conversion Limitation. Notwithstanding anything
contained herein
---------------------
to the contrary, the Holder shall not be entitled to
convert pursuant to the
terms of this Note nor may this Note be
converted in whole or in part into an
amount of Common Stock that would be convertible into that
number of Common
Stock which
would exceed the
difference between the number of shares of Common
Stock beneficially
owned by such Holder
and 4.99% of the outstanding shares of
Common Stock. For the purposes of the immediately preceding
sentence, beneficial
ownership shall
be determined in
accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The foregoing limitation shall be
calculated as
of each Conversion Date. Aggregate conversions over time
shall
not be limited to 4.99%. The Holder may waive the
Conversion Share limitation
described in this Section 3.2, in whole or in part, upon 61 days
prior notice to
the Borrower.
The Holder may allocate which of the equity of the Borrower
deemed beneficially
owned by the Holder shall be included in
the 4.99% amount
described above
and which shall be allocated to the excess
above 4.99%. The
Holder is solely responsible for determining its beneficial ownership.
3.3.
Mechanics of
Holder's Conversion.
-----------------------------------
(a)
In the event that the Holder elects to convert any
amounts
outstanding under
this Note into Common
Stock, the Holder shall give notice of
such election
by delivering an executed and
completed notice of conversion (a
"Notice of
Conversion")
to the Borrower, which Notice of Conversion shall
provide a breakdown in reasonable detail of the Principal Amount, accrued
interest and
amounts being
converted. The
original Note is not required to be
surrendered to
the Borrower until all sums due under
the Note have been paid.
On each Conversion Date (as hereinafter defined) and in
accordance with its
Notice of Conversion, the Holder shall make the appropriate
reduction to the
Principal Amount,
accrued interest and fees as entered in its
records. Each
date on which a Notice
of Conversion is delivered or telecopied to the Borrower
in accordance with the
provisions hereof shall be deemed a "Conversion Date." A
form of Notice of Conversion to be
employed by the Holder is annexed hereto as
Exhibit A.
3
<PAGE>
(b)
Pursuant to the terms
of a Notice of Conversion, the Borrower
will issue
instructions
to the transfer agent accompanied by an opinion
of
counsel, if
so required by the Borrower's transfer agent, within two (2)
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business days
after the date of the delivery to Borrower of the Notice
of
====
Conversion and
shall cause the transfer agent to transmit the
certificates
representing the Conversion Shares to the Holder by crediting the
account of the
Holder's designated broker with the Depository Trust Corporation
("DTC") through
its Deposit
Withdrawal
Agent Commission ("DWAC") system within three (3)
business days
after receipt by the Borrower of the Notice of
Conversion (the
"Delivery Date"). In the case of the exercise of the conversion
rights set forth
herein the
conversion privilege
shall be deemed to have been exercised and the
Conversion Shares
issuable upon such conversion shall be deemed to
have been
issued upon the date of receipt by the Borrower of the Notice of
Conversion. The
Holder shall be
treated for all purposes as the record holder of such shares of
Common Stock,
unless the Holder provides the Borrower
written instructions to
the
contrary.Notwithstanding the foregoing to the contrary, the
Borrower or its
transfer agent
shall only be obligated to issue and
deliver the sha
