EXHIBIT 10.4
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 VOIP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
FOR VALUE
RECEIVED, VOIP, INC., a Texas corporation (hereinafter called
"Borrower"), hereby promises to pay to
STONESTREET LIMITED PARTNERSHIP, 33
Prince Arthur Ave., Toronto, Ontario M5R
1B2, Canada, Fax: (416) 323-3693 (the
"Holder") or its registered assigns or
successors in interest or order, without
demand, the sum of
________________________________ Dollars ($__________)
("Principal Amount"), with simple and
unpaid interest thereon, on July 5, 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.
Intentionally Deleted.
1.2.
Minimum Monthly Principal Payments. Amortizing payments of the
outstanding Principal Amount and interest
of this Note shall commence on the
ninety-first (91st) day after the date of
this Note 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 in the amount of 4.7621% of the
initial Principal Amount together
with interest accrued on such portion of
the initial Principal Amount and any
other amounts which are then owing under
this Note that have not been paid
(collectively, the "Monthly Amount").
Amounts of conversions of Principal Amount
made by the Holder or Borrower pursuant to
Section 2.1 or Article III 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 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.
<PAGE>
1.3.
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%), 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 Common Stock. 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 for the fifteen (15)
trading days preceding such Repayment
Date. Such shares of Common Stock must be
delivered to the Holder not later than
three (3) business days of the applicable
Repayment Date. If the Company elects
to pay the Monthly Amount in cash, then
such payment must include an additional
amount equal to 8% 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. The
Borrower must send notice to the
Holder by confirmed telecopier not later
than 3:00 PM, New York City time on the
last 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 cash and or stock to be
paid 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, then Holder
shall have the right, instead of the
Company, to elect within five trading days
after the later of the applicable
Repayment Date or required Delivery Date,
as the case may be whether to be paid
in cash or Common Stock. 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.
2.2. No
Effective Registration. Notwithstanding anything to the
contrary
herein, no amount payable hereunder may be
paid in shares of Common 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.
<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 of $0.80 per share of
Common Stock ("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%.
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.
<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)
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 shares
to
the DTC on
the Holder's behalf via DWAC (or certificates free of
restrictive legends) if the registration statement providing for
the
resale of
the shares of Common Stock issuable upon the conversion of this
Note is
effective and the Holder has complied with all applicable
securities
laws in connection with the sale of the Common Stock,
including,
without limitation, the prospectus delivery requirements. In
the event
that Conversion Shares cannot be delivered to the Holder via
DWAC, the
Borrower shall deliver physical certificates representing the
Conversion
Shares by the Delivery Date.
3.4.
Conversion Calculations and Adjustments.
(a) The number of shares of Common Stock
