Note Purchase Agreement
December __, 2006
Dear Sirs:
The undersigned, i2 Telecom International, Inc., a Washington corporation
(the "Company"),
hereby agrees with you as follows:
Section 1.
Authorization of issue. The Company will authorize the issue of
up to $2,000,000
in aggregate principal amount of its 6% Senior Secured
Subordinated
Convertible Notes
(the "Convertible Notes" or "Notes"). The
Convertible Notes
shall, with appropriate insertions, be substantially in the
form attached as Exhibit A hereto, and shall mature on May __,
2007.
Section 2. Issuance of convertible notes. (a) Acquisition of convertible
notes. The
Company agrees to sell to you, and subject to the terms and
conditions herein set forth, you agree to purchase from the
Company, Convertible
Notes in the aggregate principal amount of $____________. The date
on which such
purchase and delivery is to be made is herein called the "Closing
Date." On the
Closing Date,
the Company will deliver to you the Convertible Notes in
accordance with
paragraph (b) of this Section 2 at any place and time
agreed
upon by you and Company, against payment of the purchase
price therefor by a
check payable to the
order of the Company in U.S. funds. The purchase price
shall be an amount equal to 100 percent of the aggregate principal
amount of the
Convertible Notes to be purchased by you on such Closing Date.
(b)
Delivery of convertible notes; closing date. On the Closing Date,
the
Company shall deliver to you Convertible Notes in the aggregate
principal amount
of $___________
dated as of the
Closing Date and registered in your name or to
the order of your nominee.
(c)
Securities Act. The Company agrees that it will not, either
directly or
through any agent,
sell or offer any of the Convertible Notes or substantially
similar securities
to, or solicit any offers to buy any thereof from, or
otherwise approach
or negotiate in respect thereof with, such number or
character of persons,
or in such manner, as would result in making the issuance
or sale of the Convertible Notes a violation of the provisions of
the Securities
Act of 1933, as amended (the "Securities Act").
(d)
Purchase for investment. You represent to the Company,
and in issuing
the Convertible Notes
to you on the Closing Date it is specifically understood
between you and the Company, that you are acquiring the
Convertible
Notes for
your own account,
for the purpose of investment, and not with a view to the
distribution or resale of any thereof.
Section 3.
Conditions.
Your obligation to purchase and pay for the
Convertible Notes to
be purchased by you on
the Closing Date is subject to the
accuracy and
correctness
of the Company's representations and warranties
contained in this
Agreement, and shall
be subject to the
satisfaction, on
or
before the Closing Date, of the following further conditions:
(a)
Officers' certificate.
The representations and warranties contained in
Section 4 shall
(except to the extent of changes caused by transactions
contemplated in or
expressly
<PAGE>
permitted by this Agreement) be true in all material respects on and as of
the Closing
Date with the same effect as though such representations and
warranties were
originally
made on and as of such
date; there shall
exist on
such Closing
Date no condition, event or act which constitutes an event of
default specified in
this Agreement and no condition, event or act which, with
notice or lapse of time or both, would constitute such an event of
default; all
covenants and
agreements to be performed by the Company hereunder on or before
such Closing Date shall have been duly performed; and the Company shall deliver
to you a certificate,
signed by its President or a Vice President and its
Secretary or an Assistant Secretary, dated as of such Closing Date to
each such
effect.
(b)
Proceedings and documents. All corporate and other proceedings
taken in
connection with
the transactions contemplated by this Agreement, and all
documents incident thereto, shall be satisfactory in form and
substance to you,
and you shall have
received copies of all
documents and records which you or
special counsel may reasonably request.
Section 4. Representations and warranties. The Company hereby
represents
and warrants that:
(a)
Financial statements.
The financial
statements of the Company and its
subsidiaries for the
period ended September
30, 2006 and which the Company has
previously furnished
to you are true and
correct and have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods involved. The consolidated balance sheets
and the related
notes fairly present the financial position of the Company and its
consolidated
subsidiaries as of the respective dates thereof, and the
consolidated statements
of income and retained earnings and the related notes fairly
present the results
of the operations
of the Company and such subsidiaries for the respective
periods indicated.
There has been no
material adverse change in the condition,
financial or otherwise, of the Company and its subsidiary taken as
a whole since
September 30, 2006.
(b)
Organization,
standing, and qualification of company. The Company is a
corporation duly
organized and existing
and in good standing under the laws of
the State of Washington, and has the corporate power to own its properties
and
to carry on its business as now being conducted and as proposed to
be conducted.
The Company is qualified to do business as a foreign corporation and is in good
standing in every
jurisdiction in which such qualification is necessary under
applicable provisions of law.
(c)
Organization,
standing, and qualification of subsidiary.
Exhibit B
annexed hereto
correctly sets forth
the name of the subsidiary of the Company.
The subsidiary has been duly incorporated and is existing in good
standing under
the laws of its
jurisdiction of
incorporation, has the
corporate power to own
its properties
and to carry on its
business as now being conducted and as
proposed to be
conducted,
and is qualified to do business as a foreign
corporation and is in
good standing in every jurisdiction in which such
qualification is
necessary under applicable provisions of law. All of the
outstanding shares of the capital stock of each class of the
subsidiary has been
validly issued, are
fully paid and
nonassessable, and are
wholly owned by the
Company free and clear of all liens, charges, security interests or
encumbrances
with the exception of any directors' qualifying shares required by
law.
(d)
Litigation. There are
no actions, suits or
proceedings pending or, to
the Company's
knowledge, threatened
against or affecting the Company or any of
its subsidiaries
<PAGE>
which may result in any material adverse change in their business,
properties or
condition with exception of former employee claims which are less
than $200,000
in the aggregate.
(e)
Title and liens.
The real property and all the other property and
assets of the Company are free from all liens, charges,
security interests,
and
encumbrances, except for liens, charges, security interests with
Troon & Co. and
Cornell Capital
Partners, LP; and, except as aforesaid, the Company and its
subsidiaries,
respectively, have good record and marketable title in fee
simple
absolute to all the real property, and good and marketable title to all other
property and assets,
included in their most recent consolidated balance sheet
furnished to
you or subsequently acquired by the Company or any of its
subsidiaries, except property and assets subsequently sold or
otherwise disposed
of in the ordinary course of business.
(f)
Leases. The Company
and its subsidiary
enjoy peaceful and undisturbed
possession under
all of the
leases to which any of them is a party or
under
which any of them is operating. All of such leases are valid and
subsisting and
none of them is in default.
(g)
Conflicting agreements
and charter
provisions. Neither
the execution
and delivery of this Agreement, the Convertible Notes or any other
documents to
be delivered by the Company hereunder, the consummation of the transactions
herein or therein contemplated, the fulfillment of the terms
hereof or thereof,
nor compliance with
the terms and provisions hereof or thereof, will conflict
with or result in a breach of any of the terms, conditions, or
provisions of any
corporate restriction
or of any agreement or instrument to which the Company or
any of its
subsidiaries is now a
party or by which any
of them is bound,
or
constitute a default thereunder, or result in the creation or
imposition of any
lien, charge, security
interest, or encumbrance of any nature
whatsoever upon
any of the property or assets of the Company or any of its
subsidiaries pursuant
to the terms of any such agreement or instrument.
(h)
Income tax returns.
The Company and its subsidiary have filed all
required federal,
state, and local tax
returns, and have paid
or provided for
payment of, all taxes as shown on said returns or pursuant to any assessment
received by the
Company, or its
subsidiary,
and do not know of any
proposed
assessment of additional taxes or any basis therefor. There has
been no audit of
the Company's tax returns.
(i)
Issuance of convertible notes. Upon receipt by the Company of
payment
for the Convertible
Notes as provided
herein, the
Convertible
Notes and the
shares issuable upon the conversion of the Convertible Notes will
have been duly
authorized, executed,
and issued and will
constitute the
Company's valid
and
legally binding obligations enforceable in accordance with
their terms and will
be entitled to the benefits provided by this Agreement.
(j)
Authorized and
outstanding capital
stock. The Company's authorized
capital stock consists of (i) 5,000,000 shares of Preferred Stock,
no par value,
of which 4,495 shares were outstanding on December 14, 2006 and
(ii) 250,000,000
shares of common stock, no par value (the "Common Stock"),
of which
161,564,855
shares of Common Stock were outstanding on December 14, 2006, of which
100,000,000 shares are
being held in escrow as additional collateral against a
$1,500,000 outstanding
loan. All of the Company's outstanding Common Stock has
been duly and validly
authorized and issued and is full paid and nonassessable.
The shares of Common
Stock initially
to be reserved
for issuance and to be
issued upon conversion of the Convertible Notes pursuant to this Agreement
have
been duly and validly authorized and are sufficient in number for
the conversion
of all the Convertible Notes at the initial conversion price.
<PAGE>
The
Company has granted or
issued, or agreed to
grant or issue no options
or warrants
or similar rights to others to acquire or receive any of its
authorized but
unissued shares of either Preferred or Common Stock, or
securities convertible
into its Common
Stock other than (i) the Convertible
Notes to be issued pursuant to this Agreement, (ii) options granted pursuant
to
the Company's
Qualified Stock Option
Plan and warrants to purchase 48,963,753
shares of the Company's Common Stock at an average
exercise price of $.36
each
as of September 30,
2006. The Company held zero shares of
its Common Stock in
its treasury as of September 30, 2006.
(k)
The Company is not in default, and there are no circumstances
with the
passage of time that will result in a default under any
agreements to which
the
Company is a party.
(l)
The Company
shall provide "Piggyback" registration rights for the
Shares and the Warrants on its next Registration Statement filing
or the earlier
of 60 days of a Closing Date, which Registration Statement shall be declared
effective within 90
days of such Closing Date (120 days if reviewed by the SEC)
or is unavailable
to the Investors for more than twenty (20) days during a
365-day period, the following penalties will be incurred; (i) a
2.0% penalty per
month will be assessed until the Registration Statement is declared
effective or
becomes available.
The penalty will be
payable monthly in
cash, and (ii) for
each $1,000 of Notes outstanding, the Note holders shall receive
500 warrants to
purchase Common Stock in the Company exercisable at $.07 each for a
period of 3
years as a penalty per
month which
will be assessed until the Registration
Statement is declared
effective or becomes
available. This
provision will be
subject to force majeure.
Section 5. Interest
payments and
redemptions.
(a) Interest
payments on
convertible notes.
The Convertible Notes shall be dated as of the Closing
Date(s) and shall bear
interest at the rate of six percent per
annum from the
Closing Date. Interest
shall be computed on the basis of a 360-day year, 30-day
month. On May __ 2007, the Company shall pay accrued interest on
the Convertible
Notes to such payment dates. The interest payment may be made
in cash or Common
Stock at the
discretion of the
Company, based on a share price of $.07 per
common share.
Section 6. Optional
Conversion of Convertible Notes. (a) Right to convert;
conversion price. Subject to and upon compliance with the
provisions hereof, the
holder of any
Convertible Note shall
have the right, at any time until such
Convertible Note has
been paid in full, to
convert all or any
portion of the
unpaid amount of such
Convertible
Note into Common
Stock of the Company
at a
price of $.07 per share, or in case an adjustment of such initial conversion
price has taken place pursuant to the further provisions of this
Section 6, then
at the price as last adjusted and in effect at the date such
Convertible Note or
portion thereof is surrendered for conversion (the initial
conversion
price or
such price as last adjusted, as the case may be, being referred to
herein as the
"Conversion Price");
provided, however,
that in no event shall
the Conversion
Price be reduced below the then applicable par value of the Company's Common
Stock. The
number of shares
of the Company's Common Stock into which any
Convertible Note is convertible shall be subject to adjustment
pursuant to the
further provisions
of this Section 6. The number of such
shares into which
a
portion of any Convertible Note is convertible shall be that proportion of
the
total number of such shares, as adjusted, into which such Convertible Note
<PAGE>
is then convertible which the principal amount of such portion to be so
converted bears to the then unpaid principal amount of such
Convertible Note. In
order to convert any
Convertible Note, the
holder thereof shall
surrender the
Convertible Note to
the Company
at its office in Roswell, GA (or any other
office or agency of the Company that it designates by notice in writing to the
holders of
the Convertible Notes), accompanied by a written statement
designating the principal amount of such Convertible Note, or portion thereof,
to be so converted. In
the case of any
Convertible Note which
is converted in
part only, the Company shall, upon such conversion, execute and deliver to the
holder thereof, at the
Company's expense, a new Convertible Note or Convertible
Notes of authorized
denominations in
principal amount equal to the unconverted
portion of such Convertible Note.
(b)
Issue of common stock; continuing obligation. Within a reasonable
time,
not exceeding
five business days after the receipt of the
written statement
referred to in
subsection
6(a), the Company shall issue and deliver to the
holder thereof (hereinafter in this subsection, the term "holder" shall
include
the nominee of any such holder), registered in the holder's name, a
certificate
or certificates for
the number of full shares of Common Stock issuable upon the
conversion of such Convertible Note (or specified portion thereof),
bearing the
restrictive legend
required by subsection 6(h). To the extent permitted by law,
such conversion shall
be deemed to have been effected and the conversion price
and the number of
shares of Common
Stock issuable in connection with such
conversion shall be
determined as of the close of business on the date on which
such written
statement shall have been received by the Company and such
Convertible Note shall have been surrendered as aforesaid,
and at such time
the
rights of the holder of such Convertible Note (or specified
portion thereof)
as
such holder shall
cease, and the person or persons in whose
name or names any
certificate or
certificates
for shares of Common
Stock shall be issuable upon
such conversion
shall be deemed to
have become the holder or holders of record
of the shares
represented
thereby. The Company will, at the time of such
conversion, in whole
or in part, upon request of the holder of such Convertible
Note, acknowledge in writing its continuing obligation to such
holder in respect
of any rights (including, without limitation, any right of registration of
the
shares of Common Stock issued upon such conversion) to which such holder shall
continue to be entitled under this Agreement after such conversion; provided,
that the failure of such holder to make any such requests shall not affect the
continuing obligation of the Company to such holder in respect of
such rights.
(c)
Dividends and interests. No payment or adjustments
shall be made upon
any conversion on
account of any cash dividends on the Common Stock issued upon
such conversion.
The Company
shall pay all interest
on the Convertible
Note
surrendered for conversion accrued to the date, in the form of cash
or shares of
Common Stock at the
discretion of the
Company, based on a
share price of $.07
per share, upon which the above-mentioned written statement has
been received by
the Company.
(d)
Anti-dilution
provisions.
A. Adjustment of conversion price. The
Conversion Price
shall be subject to adjustment from time to time only as
follows:
(1)
If shares of Common Stock are issued as a dividend or other
distribution on any
class of stock of the Company, the Conversion Price which
would otherwise be in effect at the opening of business on the day
following the
date fixed for
determination of stockholders entitled to receive such
dividend
or other distribution shall be reduced by multiplying such
Conversion Price by a
fraction of which the
numerator shall be the
number of shares of Common Stock
outstanding at the
close of business on
<PAGE>
the date fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution,
such reduction to become effective immediately after the
opening of business on the day following the date fixed for such
determination.
For the purpose
of this paragraph (1), the number of shares at any time
outstanding shall
include shares held by the Company if such dividend or
distribution is paid or made in respect thereof.
(2)
If the Common Stock is
subdivided
into a greater or
combined into a
lesser number
of shares of Common Stock, the Conversion Price in effect
immediately prior
thereto, or immediately prior to the record date for
such
subdivision or combination if a record date is fixed, shall be proportionately
adjusted so that it
will bear the same
relation to the Conversion Price in
effect immediately
prior to such
subdivision or
combination,
or such record
date, as the total
number of shares of
Common Stock
outstanding
immediately
prior to such subdivision or combination, or such record date shall bear to
the
total number of
shares of Common
Stock outstanding immediately after such
subdivision or
combination or such
record date. For purposes of this paragraph
(2), the number of shares at any time outstanding shall include shares held by
the Company if such subdivision or combination affects such
shares.
(3)
In case of any capital reorganization of the Company, or of any
reclassification of
the Common Stock, or
in case of the
consolidation of
the
Company with, or the merger of the Company into, any other
corporation or of the
sale of all or substantially all of the Company's properties and assets to any
other
corporation,
each Convertible
Note
shall after such capital
reorganization,
reclassification,
consolidation, merger,
or sale entitle
the
holder to receive upon conversion the number of shares of stock or other
securities or property of the Company, or of the corporation
resulting from such
consolidation or
surviving such merger
or to which such sale shall be made, as
the case may be, to which the holder of securities deliverable (at the time of
such capital reorganization, reclassification, consolidation, merger, or
sale)
upon conversion
of such Convertible Note would have been entitled upon such
capital reorganization, reclassification, consolidation, merger or sale; and
in
any such case the provisions of this Section 6(d) with respect to
the rights and
interests thereafter
of the holders of Convertible Notes shall be appropriately
adjusted so as to be
applicable, as nearly
as may reasonably be, to any shares
of stock or other
securities or any
property thereafter deliverable on the
conversion of the Convertible Notes. Any such adjustment which
shall be approved
by the Company's
Board of Directors
shall for all purposes
of this paragraph
conclusively be deemed
to be an appropriate
adjustment.
The subdivision or
combination of
shares of Common Stock deliverable upon conversion of the
Convertible Notes at
any time outstanding
into a greater or
lesser number of
shares of Common Stock
(whether with or
without par value) shall not be deemed
to be a reclassification of the Common Stock for the purposes of
this paragraph.
(4)
For the purposes of any adjustment of the Conversion Price pursuant to
this Section 6(d), the following provisions shall be
applicable:
(a) in case of the issuance of Common Stock for a consideration
part or all of which
shall be cash
(including
such issuance upon
exercise of
rights,
warrants
or options, granted without
consideration, to
subscribe for or purchase such shares), the amount
of the cash consideration shall be the amount of such
<PAGE>
cash received by the Company, provided that no deduction shall
be
made for any
commissions,
discounts or expenses incurred by the
Company for any
underwriting of the
issue or otherwise in connection
therewith; and
(b) in case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than
cash
shall be deemed to be the lower of the fair value thereof as
determined by the
Board of Directors
of the Company or the
value of
the shares issued
based on the
Current Market Value of the Common
Stock (determined as provided in Section 6(d)(F)).
(5)
For the purpose of
this Section
6(d)(A), shares of Common Stock or
other securities held in the treasury of the Company shall not be
deemed to
be
outstanding, except as
specifically provided
herein, and the sale or
other disposition of any shares of Common Stock or other securities
held in
the
treasury of the Company shall be deemed an issuance thereof.
B. In any case in which this Section 6(d) requires that an adjustment
shall become effective
immediately after a
record date for an event,
the Company may defer until the occurrence of such event (i) issuing
to the holder of a Convertible Note converted after such record date
and before the occurrence of such event the additional shares
issuable
upon such conversion
by reason of the
adjustment
required by such
event over and above the shares issuable upon such conversion before
giving effect to such
adjustment
and (ii) paying to
such holder any
amount in cash in lieu
of a fractional
share pursuant to Section
6(d)(F); provided,
however, that the Company shall deliver to such
holder a due bill or
other appropriate
instrument
evidencing
such
holders' right to receive such additional shares, and such cash, upon
the occurrence of the event requiring such adjustment.
C. Whenever the Conversion Price is adjusted as herein provided, the
Company shall
also adjust the Conversion Prices to be in effect for
subsequent Conversion
Periods, and shall compute the adjusted
Conversion
Prices in accordance
with Section 6(d)(A)
and shall prepare a certificate
signed by the Chairman of the Board, the President or a Vice President
and
by a
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company setting forth the adjusted Conversion Prices and
showing in reasonable detail the facts (and computations) upon which such
adjustments are based,
and such certificate,
as well as any
accountants'
certificate provided
for in Section
6(d)(A)(8)
on which the Company
has
relied in making such
adjustments,
shall forthwith be mailed (by first
class mail postage prepaid) to each registered holder of a
Convertible Note
at
such holder's last address as shown on the register of the
Company.
D. The form of
Convertible
Note Certificate need not be changed
because of any
change in the Conversion Prices and Convertible Note
Certificates issued
before or after such
change, and may state the same
Conversion
Prices as stated in the Convertible Note Certificates
theretofore issued pursuant to this Agreement, however, the Company may at
any
time in its sole discretion (which shall be conclusive) make any
change
in
the form of Convertible Note Certificate that it may deem
appropriate;
and
any Convertible Note Certificates thereafter issued may be in the
form
as
so changed.
E. Anything contained herein to the contrary
notwithstanding,
the
Company shall
not be
<PAGE>
required to issue any fraction of a share in connection with the
conversion
of
Convertible
Notes, but in any case where any holder
of a Convertible
Note
Certificate would,
except for the
provisions of this paragraph F, be
entitled und
