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 WHALEHAVEN CAPITAL
FUND LIMITED, 3rd Floor, 14 Par-Laville Road, Hamilton, Bermuda HM08, Fax:
(441) 292-1373 (the "Holder") or order, without demand, the sum of Four
Hundred Thousand Dollars ($400,000.00) ("Principal"), with simple interest
accruing at the annual rate of five percent (5%) on June 28, 2006 (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 of five percent (5%) and be payable upon each conversion,
commencing April 1, 2005 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 $1.50 ("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 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.
2.3 Mandatory Conversion. Provided an Event of Default has not occurred,
then, commencing after the Actual Effective Date, the Borrower will have the
option by written notice to the Holder ("Notice of Mandatory Conversion") of
compelling the Holder to convert all or a portion of the outstanding and
unpaid principal of the Note and accrued interest, thereon, into Common Stock
at the Conversion Price then in affect ("Mandatory Conversion"). The Notice of
Mandatory Conversion, which notice must be given on the first day following a
consecutive seven (7) day trading period during which the closing bid price
for the Company's Common Stock as reported by Bloomberg, LP for the Principal
Market shall be more than $3.00 each day with an average daily trading volume
of 80,000 shares. The date the Notice of Mandatory Conversion is given is the
"Mandatory Conversion Date." The Notice of Mandatory Conversion shall specify
the aggregate principal amount of the Note which is subject to Mandatory
Conversion, which amount may not exceed in the aggregate, for all Holders who
received Notes similar in term and tenure as this Note, the dollar volume of
Common Stock traded on the Principal Market during the seven (7) trading days
immediately preceding the Mandatory Conversion Date. Mandatory Conversion
Notices must be given proportionately to all Holders of Notes who received
Notes similar in term and tenure as this Note. The Borrower shall reduce the
amount of Note principal and interest subject to a Notice of Mandatory
Conversion by the amount of Note Principal and interest for which the Holder
had delivered a Notice of Conversion to the Borrower during the twenty (20)
trading days preceding the Mandatory Conversion Date. Each Mandatory
Conversion Date shall be a deemed Conversion Date and the Borrower will be
required to deliver the Common Stock issuable pursuant to a Mandatory
Conversion Notice in the same manner and time period as described in Section
2.2 above.
2.4 Maximum Conversion. The Holder shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number
of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, (ii) any Common Stock issuable in connection
with the unconverted portion of the Note, and (iii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to which
the determination of this provision is being made on a Conversion Date,
which would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock of the Borrower on
such Conversion Date. For the purposes of the provision to the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not
be limited to aggregate conversions of only 4.99% and aggregate conversion by
the Holder may exceed 4.99%. The Holder shall have the authority and
obligation to determine whether the restriction contained in this Section 2.4
will limit any conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of Default")
shall, at the option of the Holder hereof, make all sums of Principal,
interest and Premium then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable, upon demand, without
presentment, or grace period, all of which hereby are expressly waived, except
as set forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of Principal, interest, or other sum due under this Note when due
and such failure continues for a period of fifteen (15) days after the due
date.
3.2 Breach of Covenant. The Borrower breaches any material covenant or other
term or condition of the Subscription Agreement or this Note in any material
respect and such breach, if subject to cure, continues for a period of fifteen
(15) business days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any material representation or
warranty of the Borrower made herein, in the Subscription Agreement, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading in any material respect as
of the date made and the Closing Date.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or
such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any
law, or the issuance of any notice in relation to such event, for the relief
of debtors shall be instituted by or against the Borrower and if instituted
against Borrower are not dismissed within 45 days of initiation.
3.7 Delisting. Delisting of the Common Stock from the OTC Bulletin Board
("OTCBB") or such other principal exchange on which the Common Stock is listed
for trading; failure to comply with the requirements for continued listing on
the OTCBB for a period of three consecutive trading days; or notification from
the OTC Bulletin Board or any Principal Market that the Borrower is not in
compliance with the conditions for such continued listing on the OTCBB or
other Principal Market.
3.8 Stop Trade. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.
3.9 Failure to Deliver Common Stock or Replacement Note. Borrower's failure
to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.
3.10 Non-Registration Event. The occurrence of a Non-Registration Event
as described in Section 11.4 of the Subscription Agreement.
3.11 Cross Default. A default by the Borrower first occurring after the date
of this Note of a material term, covenant, warranty or undertaking of any
other agreement to which the Borrower and Holder are parties, or the initial
occurrence after the date of this Note of a material event of default under
any such other agreement, in each case, which is not cured after any required
notice and/or cure period.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage
prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall
have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address
or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on
the second business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Borrower to: Wizzard Software
Corporation, 5001 Baum Boulevard, Suite 770, Pittsburgh, PA 15213, Attn:
Christopher J. Spencer, President and Chief Executive Officer, telecopier:
(412) 621-2625, with a copy by telecopier only to: Burningham & Burningham,
455 East 500 South, Suite 205, Salt Lake City, Utah 84111, Attn: Leonard W.
Burningham, Esq. and Branden T. Burningham, Esq., telecopier: (801) 355-7126;
and (ii) if to the Holder, to the name, address and telecopy number set forth
on the front page of this Note, with a copy by telecopier only to Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575.
4.3 Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by
either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in
the federal courts located in the state of New York. Both parties and the
individual signing this Agreement on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.
4.8 Redemption. This Note may not be redeemed or paid before or after the
Maturity Date except as described in the Subscription Agreement.
4.9 Shareholder Status. The Holder shall not have rights as a shareholder of
the Borrower with respect to unconverted portions of this Note. However, the
Holder will have the right of a shareholder of the Borrower with respect to
the Shares of Common Stock to be received after delivery by
the Holder of a Conversion Notice to the Borrower.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
an authorized officer on this th day of ________, 2005.
WIZZARD SOFTWARE CORP.
By: /s/ Christopher J. Spencer
Name: Christopher J. Spencer
Title: President
WITNESS: /s/
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the
interest due on the Note issued by WIZZARD SOFTWARE CORP. on January 28, 2005
into Shares of
Common Stock of WIZZARD SOFTWARE CORP.(the "Borrower") according to the
conditions set forth
in such Note, as of the date written below.
Date of
Conversion:___________________________________________________________________
_
Conversion
Price:______________________________________________________________________
Shares To Be
Delivered:_________________________________________________________________
Signature:____________________________________________________________________
________
Print
Name:_________________________________________________________________________
_
Address:______________________________________________________________________
_______
____________________________________________________________________________