Exhibit 4.1
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM
REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR
SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION
D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
iVOICE TECHNOLOGY, INC.
5% Secured Convertible Debenture
Due August ___, 2006
No. CCP-001 $280,000
This Secured Debenture is issued by iVoice Technology, Inc., a Nevada
corporation (the "Company"), to Cornell Capital Partners L.P. (together with its
permitted successors and assigns, the "Holder") pursuant to exemptions from
registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, on August ____,
2006, the Company hereby promises to pay to the order of the Holder in lawful
money of the United States of America and in immediately available funds the
principal sum of Two Hundred Eighty Thousand Dollars ($280,000), together with
interest on the unpaid principal of this Debenture at the rate of five percent
(5%) per year (computed on the basis of a 365-day year and the actual days
elapsed) from the date of this Debenture until paid. At the Company's option,
the entire principal amount and all accrued interest shall be either (a) paid to
the Holder on the second (2nd)
year anniversary from the date hereof or (b) converted in accordance with
Section 1.02 herein provided, however, that in no event shall the Holder be
entitled to convert this Debenture for a number of shares of Common Stock in
excess of that number of shares of Common Stock which, upon giving effect to
such conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the Holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion (which
provision may be waived by the Investor by written notice from the Investor to
the Company, which notice shall be effective 61 days after the date of such
notice). This limitation shall not apply to an automatic conversion pursuant to
Section 4.03 hereof.
Section 1.02 Optional Conversion. Once the Company's Common Stock has
commenced trading on the Principal Market, the Holder is entitled, at its
option, to convert, and sell on the same day, at any time and from time to time,
until payment in full of this Debenture, all or any part of the principal amount
of the Debenture, plus accrued interest, into shares (the "Conversion Shares")
of the Company's Class A common stock, par value $.0001 per share ("Common
Stock"), at the price per share (the "Conversion Price") equal to the lesser of
(a) an amount equal to one hundred twenty percent (120%) of the initial bid
price of the Common Stock (the "Fixed Price") as listed on a Principal Market
(as defined herein), as made by a market maker, submitted on Form 211 to and
approved by the NASD, or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Company's Common Stock, as quoted by Bloomberg,
LP (the "Closing Bid Price"), for the five (5) trading days immediately
preceding the Conversion Date (as defined herein). Subparagraphs (a) and (b)
above are individually referred to as a "Conversion Price". As used herein,
"Principal Market" shall mean The National Association of Securities Dealers
Inc.'s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American
Stock Exchange. If the Common Stock is not traded on a Principal Market, the
Closing Bid Price shall mean the reported Closing Bid Price for the Common
Stock, as furnished by the National Association of Securities Dealers, Inc., for
the applicable periods. No fraction of shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. To convert this Debenture, the Holder hereof
shall deliver written notice thereof, substantially in the form of Exhibit "A"
to this Debenture, with appropriate insertions (the "Conversion Notice"), to the
Company at its address as set forth herein. The date upon which the conversion
shall be effective (the "Conversion Date") shall be deemed to be the date set
forth in the Conversion Notice.
Section 1.03 Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Debenture, such number of
shares of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within sixty
(60) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
Section 1.04 Right of Redemption. The Company at its option shall have the
right to redeem, with fifteen (15) days advance written notice (the "Redemption
Notice"), a portion or all
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outstanding convertible debenture. The redemption price shall be one hundred
twenty percent (120%) of the amount redeemed plus accrued interest.
Section 1.05 Registration Rights. The Company is obligated to register the
resale of the Conversion Shares under the Securities Act of 1933, as amended,
pursuant to the terms of a Registration Rights Agreement of even date herewith
between the Company and the Holder (the "Investor Registration Rights
Agreement").
Section 1.06 Interest Payments. Accrued interest shall be paid at the time
of maturity or conversion to the person in whose name this Debenture is
registered. At the time such interest is payable, the Holder, in its sole
discretion, may elect to receive the interest in cash (via wire transfer or
certified funds) or in the form of Common Stock. In the event of default, as
described in Article III Section 3.01 hereunder, the Holder may elect that the
interest be paid in cash (via wire transfer or certified funds) or in the form
of Common Stock. If paid in the form of Common Stock, the amount of stock to be
issued will be calculated as follows: the value of the stock shall be the
Closing Bid Price on: (i) the date the interest payment is due; or (ii) if the
interest payment is not made when due, the date the interest payment is made. A
number of shares of Common Stock with a value equal to the amount of interest
due shall be issued. No fractional shares will be issued; therefore, in the
event that the value of the Common Stock per share does not equal the total
interest due, the Company will pay the balance in cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will act
as paying agent and registrar. The Company may change any paying agent,
registrar, or Company-registrar by giving the Holder not less than ten (10)
business days' written notice of its election to do so, specifying the name,
address, telephone number and facsimile number of the paying agent or registrar.
The Company may act in any such capacity.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be
amended without the consent of the Holder. Notwithstanding the above, without
the consent of the Holder, the Debenture may be amended to cure any ambiguity,
defect or inconsistency, to provide for assumption of the Company obligations to
the Holder or to make any change that does not adversely affect the rights of
the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows:
(a) failure by the Company to pay amounts due hereunder within fifteen (15) days
of the date of maturity of this Debenture; (b) failure by the Company to comply
with the terms of the Irrevocable Transfer Agent Instructions; (c) failure by
the Company's transfer agent to issue freely tradeable Common Stock to the
Holder within five (5) days of the Company's receipt of the attached Notice of
Conversion from Holder; (d) failure by the Company for ten (10) days after
notice to it to comply with any of its other agreements in the Debenture; (e)
events of bankruptcy or insolvency; (f) a breach by the Company of its
obligations under the Securities Purchase
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Agreement, the Escrow Agreement, the Investor Registration Rights Agreement or
any other agreement entered into on the date hereof between the Company and the
Holder which is not cured by the Company within ten (10) days after receipt of
written notice thereof. Upon the occurrence of an Event of Default, the Holder
may, in its sole discretion, accelerate full repayment of all debentures
outstanding and accrued interest thereon or may, notwithstanding any limitations
contained in this Debenture and/or the Securities Purchase Agreement of even
date herewith between the Company and Cornell Capital Partners, L.P. (the
"Securities Purchase Agreement"), convert all debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in
Article III Section 3.01, a breach by the Company of its obligations under the
Investor Registration Rights Agreement shall be deemed an Event of Default,
which if not cured within ten (10) days, shall entitle the Holder to accelerate
full repayment of all debentures outstanding and accrued interest thereon or,
notwithstanding any limitations contained in this Debenture and/or the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
The Company acknowledges that failure to honor a Notice of Conversion shall
cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or
in part, may be converted at any time following the date of closing into shares
of Common Stock at a price equal to the Conversion Price as described in Section
1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a
part of the Debenture, then the Company shall reissue a new Debenture in the
same form as this Debenture to reflect the new principal amount.
Section 4.03 Termination of Conversion Rights. The Holder's right to
convert the Debenture into the Common Stock in accordance with paragraph 4.01
shall terminate on the date that is the second (2nd) year anniversary from the
date hereof and this Debenture shall be automatically converted on that date in
accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.
ARTICLE V.
Section 5.01 Anti-dilution. In the event that the Company shall at any
time subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
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Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security
Interests. Except for the Standby Equity Distribution Agreement dated the date
hereof between the Company and Cornell Capital Partners, LP. so long as any of
the principal of or interest on this Note remains unpaid and unconverted, the
Company shall not, without the prior consent of the Holder, issue or sell (i)
any Common Stock or Preferred Stock without consideration or for a consideration
per share less than its fair market value determined immediately prior to its
issuance, (ii) issue or sell any Preferred Stock, warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock without consideration or for a consideration per
share less than such Common Stock's fair market value determined immediately
prior to its issuance, (iii) enter into any security instrument granting the
holder a security interest in any of the assets of the Company, or (iv) file any
registration statement on Form S-8, except for the registration of an employee
stock option plan. Notwithstanding anything to the contrary, the Company may
issue Common Stock issuable pursuant to the Company's obligations upon the
conversion of stock options, convertible debt or Class B Common Stock.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other parties,
in writing, of a change of address:
If to the Company, to: iVoice Technology, Inc.
750 Highway 34
Matawan, NJ 07747
Attention: Jerome R. Mahoney
President and Chief Executive Officer
Telephone: (732) 441-7700
Facsimile: (732) 441-9895
With a copy to: Meritz & Muenz LLP
Three Hughes Place
Dix Hills, New York 11746
Attention: Lawrence A. Muenz, Esq.
Telephone: (631) 242-7384
Facsimile: (631) 242-6715
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: Butler Gonzalez LLP
1416 Morris Avenue, Suite 207
Union, NJ 07083
Attention: David Gonzalez, Esq.
Telephone: (908) 810-8588
Facsimile: (908) 810-0973
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Section 6.02 Governing Law. This Debenture shall be deemed to be made
under and shall be construed in accordance with the laws of the State of New
Jersey without giving effect to the principals of conflict of laws thereof. Each
of the parties consents to the exclusive jurisdiction of the U.S. District Court
sitting in the District of the State of New Jersey or the state courts of the
State of New Jersey sitting in Hudson County, New Jersey in connection with any
dispute arising under this Debenture and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens to the bringing of any such proceeding in such jurisdictions.
Section 6.03 Severability. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments,
except as set forth herein. This Debenture may be amended only by an instrument
in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of the date first written above.
iVOICE TECHNOLOGY, INC.
By:_____________________________
Name: Jerome R. Mahoney
Title: President
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EXHIBIT "A"
-----------
NOTICE OF CONVERSION
--------------------
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert
$______________________ of the principal amount of the above Debenture into
Shares of Common Stock of iVoice Technology, Inc., according to the conditions
stated therein, as of the Conversion Date written below.
Conversion Date: ________________________________________________
Applicable Conversion Price: ________________________________________________
Signature: ________________________________________________
Name: ________________________________________________
Address: ________________________________________________
Amount to be converted: $ ________________________________________________
Amount of Debenture
unconverted: $ ________________________________________________
Conversion Price per share: $ ________________________________________________
Number of shares of Common
Stock to be issued: ________________________________________________
Please issue the shares of
Common Stock in the
following name and to the
following address: _________________________________________________
Issue to: _________________________________________________
Authorized Signature: _________________________________________________
Name: _________________________________________________
Title: _________________________________________________
Phone Number: _________________________________________________
Broker DTC Participant Code: _________________________________________________
Account Number: _________________________________________________
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