Exhibit 10.4 Convertible Note for
$350,000
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 WIZZARD SOFTWARE CORP.THAT SUCH
REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
FOR
VALUE RECEIVED, WIZZARD SOFTWARE CORP., a Colorado corporation
(hereinafter called "Borrower"), hereby promises to pay to GENESIS
MICROCAP
c/o SDC Capital LLC, 20 East Sunrise Highway, Suite 302, Valley
Stream, NY
11581 (the "Holder") or order, without demand, the sum of Three
Hundred Fifty
Thousand Dollars ($350,000) ("Principal"), with simple interest
accruing at
the annual rate of five percent (5%) on April ___, 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
Interest Rate.
Simple interest
payable on this Note shall accrue
at the annual rate equal to the prime rate as reported in the Wall
Street
Journal for October 25, 2006 and be payable upon each conversion,
commencing
January 1, 2007 and semi-annually thereafter, and on the Maturity
Date,
accelerated or otherwise, when the principal and remaining accrued
but unpaid
interest shall be due and payable, or as described below.
1.2 Manner of Payment. Borrower may elect to pay sixty
percent of the
regular one-half yearly interest due on this Note by delivering
unlegended
registered Common Stock in lieu of cash not later than the due date
of such
interest payment. Such
Common Stock will be valued at the average closing
price of the Common Stock for the trading day immediately preceding
the
relevant payment due date.
1.3
Payment Grace Period.
The Borrower shall
have a ten (10) day
grace period to pay any monetary amounts due under this Note, after
which
grace period a default interest rate of fifteen percent (15%) per
annum shall
apply to the amounts owed hereunder.
ARTICLE II
CONVERSION RIGHTS
The
Holder shall have the right to convert the principal 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) 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
nonassessable shares of Common Stock as such stock exists on the
date of
issuance of this Note, or any shares of capital stock of Borrower
into which
such Common Stock shall hereafter be changed or reclassified, 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
Notice of
Conversion as described in Section 7 of the Subscription Agreement
of the
Holder's written request for conversion, Borrower shall issue and
deliver to
the Holder within four (4) business days from the Conversion Date
("Delivery
Date") that number of shares of Common Stock 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 Note
in the
manner provided in Section 1.2 through the Conversion Date directly
to the
Holder on or before the Delivery Date (as defined in the
Subscription
Agreement). 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 of the Note and 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 equal to $2.00
("Maximum Base
Price").
(c) The Maximum
Base 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. 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 property 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, 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.
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 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.
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. Share
Issuance. If at
any time this Note is
outstanding the Borrower shall 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) except for
the Excepted
Issuances (as defined in the Subscription Agreement) for a
consideration less
than the Conversion Price in effect at the time of such issue,
then, and
thereafter successively upon each such issue, the Conversion Price
shall be
reduced to such other lower issue price. For purposes of this adjustment,
the
issuance of any security 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 an adjustment to the Conversion Price upon
the issuance
of security and again upon the issuance of shares of Common Stock
at any time
upon exercise of such conversion or purchase rights if such
issuance is at a
price lower than the then applicable Conversion Price.
(d) Whenever the
Conversion Price is adjusted pursuant to
Section 2.1(c) above, the Borrower shall promptly mail to the
Holder a notice
setting forth the Conversion Price after such adjustment and
setting forth a
brief statement of the facts requiring such adjustment.
(e) 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.
2.2
Method of Conversion.
This Note may be
converted by the Holder in
whole or in
