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
COMMUNICATIONS
CORP. 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 Steelhead
Investments Ltd. (the "Holder") or order,
without demand, the sum of Three
Million Five Hundred Thousand Dollars
($3,500,000), with simple interest
accruing at the rate described below, on
August 31, 2007 (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. Subject to Section 4.7 hereof, interest payable
on
this Note shall accrue from the date hereof
at a rate per annum (the "Interest
Rate") equal to five percent (5%), subject
to adjustment pursuant to Section
1.2. Interest on the principal amount
outstanding shall be payable quarterly, in
arrears, commencing on December 1, 2005 and
on the first day of each third
calendar month thereafter and on the
Maturity Date, whether by acceleration or
otherwise. Interest shall be computed for
actual days elapsed on the basis of a
360 day year consisting of twelve 30-day
months.
1.2 Payment Grace Period. From and after the 10th day after an
Event of
Default under Section 3.1, the Interest
Rate applicable to any unpaid amounts
owed hereunder shall be increased to
sixteen percent (16%) per annum.
1.3 Conversion Privileges. The Conversion Privileges set forth
in
Article II shall remain in full force and
effect immediately from the date
hereof and until the Note is paid in full
regardless of the occurrence of an
Event of Default. The Note shall be payable
in full on the Maturity Date, unless
previously converted into Common Stock in
accordance with Article II hereof;
provided, that if an Event of Default has
occurred, the Holder may elect to
extend the Maturity Date by the amount of
days of the pendency of the Event of
Default.
1.4 Principal Amortization. The Borrower shall reduce the
principal
amount of the note by 12.5% per quarter
starting December 31, 2005, payable in
cash and/or, subject to the conditions in
this Section 1.4, Common Stock as
described below.
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(a) If any portion of such principal amortization payment is
made in cash, the payment will be at 102%
of the principal amortization amount.
(b) If any portion of such principal amortization and accrued
interest payment is in Common Stock, such
principal amortization and accrued
interest amount will be converted into that
number of shares of Common Stock as
determined by dividing such principal
amortization and accrued interest amount
by an amount equal to 87.5% of the volume
weighted average price of the Common
Stock as reported by Bloomberg over the
five (5) trading days prior to, but not
including, the date the principal
amortization payment is due.
(c) The maximum amount of Common Stock the Company may issue
to satisfy any quarterly principal
amortization and accrued interest payment
shall equal 10% of the total dollar volume
of the Common Stock over the ten (10)
trading days prior to, but not including,
the date the principal amortization
payment is due.
(d) The Borrower may only elect to pay in Common Stock only if
the following conditions are met:
(i) the number of authorized but unissued shares of Common
Stock is sufficient for such issuance;
(ii) the Common Stock is listed or quoted (and is not
suspended from trading) on a trading market and such
shares of Common Stock are approved for listing on such
trading market upon issuance;
(iii) such Common Stock is registered for resale under the
Registration Statement and the prospectus under such
Registration Statement is available for the sale of all
Registrable Securities held by the Holder;
(iv) such issuance would be permitted in full without
violating Section 2.3 herein or the rules or regulations
of any trading market on which such Common Stock may be
listed or quoted;
(v) both immediately before and after giving effect
thereto, no default under the Subscription Agreement or
this Note shall or would exist; and
(vi) the Borrower shall have provided the Holder with
written notice of its election to pay all or a portion of
such principal amortization and accrued payment (and the
amount thereof) in Common Stock not less than seven (7)
trading days before the date the principal amortization
payment is due. In such event, the Company covenants and
agrees that it will honor all Conversion Notices tendered
by the Holder until 6:30 p.m. on the sixth (6) day
following delivery of such notice by the Company. If the
Company does not provide such notice in a timely manner,
it shall be considered an election by the Company to pay
any such applicable amounts in cash.
(e) If the Holder or the Borrower converts any outstanding and
unpaid principal portion of this Note into
stock prior to any quarterly
amortization payment, those conversions
will be credited toward the next
quarterly principal amortization payment
due. Any conversions above the
quarterly principal amortization payment
due amount will be credited towards
future required payments.
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<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal and
accrued
and unpaid interest due under this Note
into Shares of the Borrower's Common
Stock, $.00001 par value per share ("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
completed Notice of Conversion, a form of
which is annexed hereto, Borrower shall
issue and deliver to the Holder within
three (3) business days from the Conversion
Date (such third day being the
"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 principal amount of
the Note being converted in the manner
provided in Section 1.1 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
accrued 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 $1.65.
(c) The Conversion 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. 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.
B. Reclassification. 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.
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<PAGE>
C. Favored Nation Provision. Except for the Excepted
Issuances, if at any time Notes are
outstanding the Company shall offer, 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) to any person or entity at a
price per share or conversion or
exercise price per share which shall be
less than the Conversion Price in
respect of the Shares, or if less than the
Warrant exercise price in respect of
the Warrant Shares, without the consent of
each Subscriber holding Notes,
Shares, and/or Warrants, then the Company
shall issue, for each such occasion,
additional shares of Common Stock to each
Subscriber so that the average per
share purchase price of the shares of
Common Stock issued to the Subscriber (of
only the Common Stock or Warrant Shares
still owned by the Subscriber) is equal
to such other lower price per share and the
Conversion Price and Warrant
Exercise Price shall automatically be
reduced to such other lower price per
share. The average Purchase Price of the
Shares and average exercise price in
relation to the Warrant Shares shall be
calculated separately for the Shares and
Warrant Shares. The foregoing calculation
and issuance shall be made separately
for Shares received upon conversion and
separately for Warrant Shares. The
delivery to the Subscriber of the
additional shares of Common Stock shall be not
later than the closing date of the
transaction giving rise to the requirement to
issue additional shares of Common Stock.
The Subscriber is granted the
registration rights described in Section 11
hereof in relation to such
additional shares of Common Stock except
that the Filing Date and Effective Date
vis-a-vis such additional common shares
shall be, respectively, the sixtieth
(60) and one hundred and twentieth (120)
date after the closing date giving rise
to the requirement to issue the additional
shares of Common Stock. For purposes
of the issuance and adjustment described in
this paragraph, the issuance of any
security of the Company 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 the issuance of the
additional shares of Common Stock upon the
issuance of such convertible security,
warrant, right or option and again at any
time upon any subsequent issuances of
shares of Common Stock upon exercise of
such conversion or purchase rights if such
issuance is at a price lower than the
Conversion Price in effect upon such
issuance. The rights of the Subscriber set
forth in this Section 12 are in addition to
any other rights the Subscriber has
pursuant to this Agreement, the Note, any
Transaction Document, and any other
agreement referred to or entered into in
connection herewith.
D. 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) 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
statement of the facts requiring such
adjustment.
2.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part as described in
Section 2.1(a) hereof and the
Subscription Agreement. Upon partial
conversion of this Note, a new Note
containing the same date and provisions of
this Note shall, at the request of
the Holder, be issued by the Borrower to
the Holder for the principal balance of
this Note and interest which shall not have
been converted or paid.
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<PAGE>
2.3 Maximum
Conversion.
(a) Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that
may be acquired by the Subscriber
upon conversion of the Notes (or otherwise
in respect hereof) shall
be limited to the extent necessary to
insure that, following such conversion (or
other issuance), the total number of shares
of Common Stock then beneficially
owned by such Subscriber and its affiliates
and any other persons whose
beneficial ownership of Common Stock would
be aggregated with the Subscriber's
for purposes of Section 13(d) of the 1934
Act, does not exceed 4.999% of the
total number of issued and outstanding
shares of Common Stock (including for
such purpose the shares of Common Stock
issuable upon such conversion). For such
purposes, beneficial ownership shall be
determined in accordance with Section
13(d) of the 1934 Act and the rules and
regulations promulgated thereunder. By
written notice to the Company, a Subscriber
may waive the provisions of this
Section 2.3(a) as to itself but any such
waiver will not be effective until the
61st day after delivery thereof and such
waiver shall have no effect on any
other Investor.
(b) Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that
may be acquired by the Subscriber upon
conversion of the Notes (or otherwise in
respect hereof) shall be limited to the
extent necessary to insure that, following
such conversion (or other issuance),
the total number of shares of Common Stock
then beneficially owned by such
Subscriber and its affiliates and any other
persons whose beneficial ownership
of Common Stock would be aggregated with
the Subscriber's for purposes of
Section 13(d) of the 1934 Act, does not
exceed 9.999% of the total number of
issued and outstanding shares of Common
Stock (including for such purpose the
shares of Common Stock issuable upon such
conversion). For such purposes,
beneficial ownership shall be determined in
accordance with Section 13(d) of the
1934 Act and the rules and regulations
promulgated thereunder. This provision
may not be waived.
(c) Notwithstanding anything to the contrary in this Note,
if the Company has not previously obtained
Shareholder Approval (as defined
below), then the Company may not issue
shares of Common Stock in excess of the
Issuable Maximum upon conversions of this
Note at a conversion price which is
less than the closing bid price on the
trading day immediately preceding the
Closing Date or date of the Subscription
Agreement, whichever is higher (the
"Threshold Price"). The "Issuable Maximum"
means, as of any date, a number of
shares of Common Stock equal to 15,421,757,
less such number of shares of Common
Stock as have been issued at a price below
the Threshold Price upon (1)
conversion of Notes, or (2) in payment of
interest thereunder, or (3) upon
exercise of the Warrants, or (4) upon
operation of any rights of first refusal
under the Agreement. Each Subscriber shall
be entitled to a portion of the
Issuable Maximum equal to the quotient
obtained by dividing: (x) the principal
amount of Notes issued and sold to such
Subscriber on the Closing Date by (y)
the aggregate principal amount of all Notes
issued and sold by the Company on
the Closing Date. If any Subscriber shall
no longer hold Notes, then such
Subscriber's remaining portion of the
Issuable Maximum shall be allocated
pro-rata among the remaining Subscribers,
giving effect to the Company's desire
to allocate this limitation among the class
of securities known as the Notes. If
on any Conversion Date, or at such time as
a Subscriber shall notify the Company
that the condition in (A) following this
clause shall be in effect: (A) the
aggregate
