NEITHER THIS PROMISSORY NOTE NOR THE UNDERLYING COMMON STOCK AND WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW, OR AN OPINION OF COUNSEL TO THE
PAYEE SATISFACTORY TO COUNSEL OF THE COMPANY THAT AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE. HEDGING TRANSACTIONS IN THESE SECURITIES
MAY NOT BE CONDUCTED, EXCEPT IN COMPLIANCE WITH THE ACT.
FORM OF
8% CONVERTIBLE PROMISSORY NOTE
------------------------------
(This 8% Convertible Promissory Note is one of
a series of promissory notes of like tenor and terms)
________________, 2000. $____________
FOR VALUE RECEIVED, the undersigned, PHON-NET.COM, INC., an Florida
corporation ("Maker"), hereby promises to pay to the order of
_____________________ ("Payee") the principal sum of ___________________________
($________) with interest on the unpaid principal amount at the rate of 8% per
annum and on any overdue payment of principal or interest at the rate of 1 1/2%
per month (18% per annum), and with the principal balance and all accrued
interest being due and payable on ___________, ____, all as hereinafter
provided.
This Note is being issued pursuant to a Subscription Agreement relating
thereto between the Maker and the Payee.
1 PAYMENTS OF INTEREST AND PRINCIPAL.
1 INTEREST. Maker shall pay interest to Payee on the unpaid
outstanding principal balance owed to Payee hereunder at the rate of 8% per
annum. Interest shall be payable upon conversion, as hereinafter provided, or at
the time of maturity of this Note on _____________, ____.
1
2 PRINCIPAL. Maker shall have no duty or obligation to pay any
portion of the outstanding principal owed hereunder, except as hereinafter
provided, until ___________, ____. On ___________, ____ all accrued interest and
outstanding principal shall be due and payable, and shall be paid to Payee.
3 PAYMENTS. All payments made hereunder shall be applied as made
first to the payment of interest then due, and the balance of said payment shall
be applied to the payment of the principal sum.
2 PLACE OF PAYMENT. So long as Payee shall hold this Note, all payments
of principal and interest shall be made at the address of Payee at its address
specified in the Subscription Agreement, or as otherwise specified by Payee, in
writing, to Maker.
3 CONVERSION AND REDEMPTION.
1 CONVERSION. Commencing 120 days following the date hereof, and
continuing until 5:00 p.m. Florida time, twelve (12) months from the date
hereof, the Payee may convert all, or portions of the principal amount hereof
and accrued interest thereon in increments of at least $10,000, into shares of
Common Stock ("Conversion Shares") and Common Stock Purchase Warrants
("Warrants") of the Maker. The number of Conversion Shares shall be equal to the
principal plus accrued interest thereon to be converted, divided by $.35. The
number of Warrants shall be equal to the number of Conversion Shares, divided by
two. The form of Warrant is attached to this Note as Exhibit "A". The Payee
shall exercise the option to convert by sending this Note and written election
to such effect to the Maker, which election shall specify the amount of
principal and accrued to be converted. If this Note is converted as to less than
the entire unpaid principal amount hereof, a new Note for the unconverted
balance of this Note shall be delivered to the Payee.
2 ADJUSTMENTS. In the event that the outstanding Common Stock of the
Maker hereafter is restructured or revised by recapitalization,
reclassification, combination of shares, stock split or split-up or stock
dividend, the aggregate number and kind of Common Stock subject to conversion
under this Note shall be adjusted appropriately, both as to the number of shares
of Common Stock and the conversion price. No fractional shares will be issued
upon any conversion, but an adjustment therefor in cash will be made with
respect to any fraction of a share which would otherwise be issuable based upon
the market price for one share of the Maker's Common Stock on the trading day
immediately preceding any notice of conversion hereunder multiplied by such
fraction or, in the alternative, at the election of the Maker, the fractional
share may be rounded up to the nearest whole share.
3 SALE, EXCHANGE, ETC. In case of any sale, exchange, tender offer,
redemption or buyout of the Maker's shares, or any consolidation of the Maker
with or merger of the Maker into another corporation, or in case of any sale,
transfer or lease to another corporation of all or substantially all other
property of the Maker, the Maker or such successor or purchasing corporation, as
2
the case may be, shall execute with the Payee an agreement that the Payee shall
have the right thereafter, upon payment of the per share conversion price in
effect immediately prior to such action, to convert, on the same basis which it
would have or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such conversion been
accomplished immediately prior to such action. Such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided herein. These provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or leases.
4 COVENANTS. The Maker covenants and agrees that: (i) all shares of
Common Stock delivered upon conversion (in accordance with the terms and
conditions set forth herein) of this Note will, upon delivery, be duly and
validly authorized and issued, fully paid and non-assessable and free from all
liens and charges with respect to the purchase thereof; and (ii) it will at all
times reserve and keep available an authorized number of shares of its Common
Stock sufficient to permit the conversion rights under this Note to be fully
exercised, including shares issuable upon exercise of the Warrants.
4 DEFAULT AND REMEDIES.
1 DEFAULT. The occurrence of any of the following shall constitute an
event of default ("Event of Default"):
(1) FAILURE TO PAY. Maker fails to pay, when due, any of the
obligations provided for in this Note at their due date, and such failure
continues unremedied for a period of three (3) business days after written
notice from Payee to Maker of such failure.
(2) DENOMINATED EVENTS. The occurrence of any event expressly
denominated as an Event of Default in this Note;
(3) FAILURE TO PERFORM. Maker fails to perform or observe any
material covenant, term or condition of this Note to be performed or observed by
Maker and such failure continues unremedied for a period of ten (10) business
days after written notice from Payee to Maker of such failure;
(4) PETITION BY OR AGAINST MAKER. There is filed by or against
Maker any petition or complaint with respect to its own financial condition
under any state or federal bankruptcy law or any amendment thereto (including
without limitation a petition for reorganization, arrangement or extension of
debts) or under any other similar insolvency laws providing for the relief of
debtors and such petition or complaint is not set aside, stayed or terminated
within sixty (60) days after filing; or
3
(5) APPOINTMENT OF RECEIVER. A receiver, trustee, conservator or
liquidator is appointed for Maker, or for all or a substantial part of its
assets; or Maker shall be adjudicated bankrupt, insolvent or in need of any
relief provided to debtors by any court and such appointment or adjudication is
not set aside, stayed or terminated within sixty (60) days after filing.
2 REMEDIES. Upon the occurrence of an Event of Default and for so
long as such default is continuing:
(1) The outstanding principal amount of this Note and interest
thereon at the rate of 1 1/2% per month from said occurrence until paid in full
(the "Default Amount") shall, at the option of Payee, become immediately due and
payable.
(2) Payee may exercise any of the other remedies provided under
applicable laws.
(3) Maker shall be liable for all costs, charges and expenses
incurred by Payees by reason of the occurrence of any Event of Default or the
exercise of Payees' remedies with respect thereto.
5 INVESTMENT INTENT. This Note is given to Payee with the understanding
that Payee is acquiring this Note and, upon conversion, the Conversion Shares
and Warrants, for investment purposes and not with a view to, for resale in
connection with, or with an intent of participating directly or indirectly in
any distribution within the meaning of the Securities Act of 1933, as amended.
Payee shall not divide his participation with others or resell, assign or
otherwise dispose of all or any part of this Note.
6 MISCELLANEOUS.
1 WAIVERS. No waiver of any term or condition of this Note shall be
construed to be a waiver of any succeeding breach of the same term or condition.
No failure or delay of Payee to exercise any power hereunder, or to insist upon
strict compliance by Maker of any obligations hereunder, and no custom or other
practice at variance with the terms hereof shall constitute a waiver of the
right of Payee to demand exact compliance with such terms.
2 INVALID TERMS. In the event any provision contained in this Note
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Note, and this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
4
3 SUCCESSORS. This Note shall be binding upon Maker, its legal
representatives, successors and assigns, and inure to the benefit of Payee, its
legal representatives, successors and assigns.
4 CONTROLLING LAW. This Note shall be read, construed and governed in
all respects in accordance with the laws of the State of Florida.
5 AMENDMENTS. This Note may be amended only by an instrument in
writing executed by the party against which enforcement of the amendment is
sought.
6 NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be sufficiently given if
addressed to the Maker at 600-750 West Pender Street, Vancouver, British
Columbia, Canada V6C 2T7 and to Payee at the address specified in the
Subscription Agreement executed by Payee, posted in the U.S. mail by certified
or registered mail, return receipt requested. Any party may change said address
by giving the other party hereto notice of such change of address. Notice given
as hereinabove described shall be deemed given on the date of its deposit in the
U.S. mail and, unless sooner received, shall be deemed received by the party to
whom it is addressed on the fifth calendar day following the date on which said
notice is deposited in the mail.
7 CONSTRUCTION OF TERMS. Whenever the context so requires, any gender
is deemed to include any other, and the singular is deemed to include the
plural, and conversely.
8 TIME OF ESSENCE. Time is of the essence in this Note and each and
every provision hereof.
9 HEADINGS. All section and subsection headings herein, wherever they
appear, are for convenience only and shall not affect the construction of any
terms herein.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized officer and its seal affixed hereto, as of the day and
year first above written.
PHON-NET.COM, INC.
By:______________________________________
Brian Collins, Chief Executive Officer
5
EXHIBIT A
TO
8% CONVERTIBLE PROMISSORY NOTE
FORM OF COMMON STOCK PURCHASE WARRANT
-------------------------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO COUNSEL TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE. HEDGING
TRANSACTIONS IN THESE SECURITIES MAY NOT BE CONDUCTED, EXCEPT IN
COMPLIANCE WITH THE ACT.
W-__________
WARRANT TO PURCHASE
COMMON STOCK
OF
PHON-NET.COM, INC.
This is to certify that _________________________________ (the
"Holder") is entitled, subject to the terms and conditions hereinafter set
forth, to purchase _______________________ (_______) shares (the "Common
Shares") of Common Stock, $.001 par value per share (the "Common Stock"),
PHON-NET.COM, INC., a Florida corporation (the "Company"), from the Company at
the price per share and on the terms set forth herein and to receive a
certificate for the Common Shares so purchased on presentation and surrender to
the Company with the subscription form attached, duly executed and accompanied
by payment of the exercise price of each share purchased, either in cash or by
certified or bank cashier's check or other check payable to the order of the
Company. This Warrant is issued in connection with the Company's offering of
$500,000 in Convertible Promissory Notes (the "Offering").
EXERCISE
The purchase rights represented by this Warrant are exercisable at a
price per Common Share of Fifty Cents ($0.50), beginning on the date hereof and
terminating at 5:00 p.m., Florida time, twelve (12) months from the date hereof,
subject to adjustment as hereinafter provided.
The purchase rights represented by this Warrant are exercisable at the
option of the registered owner hereof in whole or in part, from time to time,
within the period specified; provided, however, that such purchase rights shall
not be exercisable with respect to a fraction of a Common Share. In case of the
purchase of less than all the Common Shares purchasable under this Warrant, the
Company shall cancel this Warrant on surrender hereof and shall execute and
deliver a new Warrant of like tenor and date for the balance of the shares
purchasable hereunder.
The Company agrees at all times to take appropriate action to reserve
or hold available a sufficient number of Common Shares to cover the number of
shares issuable on exercise of this and all other Warrants of like tenor then
outstanding. The Company agrees to obtain any authorization required from its
shareholders in order to amend its Articles of Incorporation to increase the
authorized capitalization to permit the exercise of this Warrant and other
Warrants of like tenor.
NO SHAREHOLDER RIGHTS
This Warrant shall not entitle the holder hereof to any voting rights
or other rights as a shareholder of the Company, or to any other rights whatever
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this Warrant or the interest represented hereby or the Common
Shares purchasable hereunder until or unless, and except to the extent that,
this Warrant shall be exercised.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon exercise of this
Warrant and the Purchase Price shall be subject to adjustments from time to time
as follows:
If the Company shall at any time prior to the expiration of this
Warrant subdivide or combine its Common Stock, by forward or reverse stock split
or otherwise, or issue additional shares of its Common Stock as a dividend with
respect to any shares of its Common Stock, the number of Common Shares issuable
upon exercise of this Warrant shall forthwith be proportionately increased or
decreased. Appropriate adjustments shall also be made to the per share purchase
price, but the aggregate purchase price payable for the total number of Common
Shares purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective, or as of the
record date of such dividend, or in the event that no record date is fixed, upon
the making of such dividend. The good faith determination of the Company's Board
of Directors in connection with any adjustment required under this paragraph
shall be conclusive.
In the event of any reclassification, capital reorganization or other
change in the Common Stock of the Company or in the event of any sale of all or
substantially all of the Company's assets or any merger, consolidation or
restructuring to which the Company is a party in which the Company's
stockholders before the transaction or series of transactions hold 50% or more
of the voting power of the surviving entity immediately after the transaction or
series of transactions (other than as a result of a subdivision, combination or
stock dividend provided for above), lawful provision shall be made, and duly
executed documents evidencing the same shall be made and shall be delivered to
the Holder in substitution for the Holder's rights under this Warrant, so that
the Holder shall have the right at any time and from time to time prior to the
expiration of this Warrant to purchase at a total price equal to that payable
upon exercise of this Warrant immediately prior to such event, the kind and
amount of shares of stock or other securities or property receivable in
connection with such reclassification, reorganization or change by a Holder of
same number of shares of Common Stock as were purchasable by the Holder
immediately prior to such reclassification, reorganization or change. In any
such case, appropriate provisions shall be made with respect to the rights and
interest of the Holder so that the provisions hereof shall hereafter be
applicable with respect to any shares of stock or other securities or property
deliverable upon exercise hereof, and appropriate adjustment shall be made to
the purchase price per Common Share payable hereunder, provided the aggregate
purchase price shall remain the same. The good faith determination of the
Company's Board of Directors in connection with any adjustment required under
this paragraph shall be conclusive.
In the event of dissolution, liquidation, merger or combination of the
Company in which the Company is not a surviving corporation, this Warrant shall
terminate, but the registered owner of this Warrant shall have the right, until
5:00 p.m., Florida time, on the day prior to the effective date of such
dissolution, liquidation, merger or combination, to exercise this Warrant in
whole or in part, to the extent that it shall not have theretofore been
exercised.
Upon any adjustments of the number of Common Shares issuable upon
exercise of this Warrant or the purchase price pursuant to this paragraph, the
Company within thirty (30) days thereafter shall cause to be prepared a
certificate of the Chief Financial or Accounting Officer of the Company setting
forth the number of Common Shares issuable upon exercise of this Warrant and the
purchase price after such adjustments, and setting forth in reasonable detail
the method of calculation used and cause a copy of such certificate to be mailed
to the Holder of the Warrant.
The foregoing adjustments and the manner of application of the
foregoing provisions may provide for the elimination of fractional share
interests.
MISCELLANEOUS
The Company shall not be required to issue or deliver any certificate
for Common Shares purchased on exercise of this Warrant or any portion thereof
prior to fulfillment of all the following conditions:
(U) the completion of any registration or other
qualification of such Common Shares under any federal
or state law or under the rulings or regulations of
the Securities and Exchange Commission or any other
government regulatory body which is necessary;
(V) the obtaining of any approval or other clearance
from any federal or state government agency which is
necessary;
(C) the obtaining from the registered owner of the Warrant a
representation in writing that the owner is acquiring such Common
Shares for the owner's own account for investment and not with a view
to, or for sale in connection with, the distribution of any part
thereof, if the Warrants and the related shares have not been
registered under the Act; and
(D) the placing on the certificate of an appropriate legend
and the issuance of stop transfer instructions in connection therewith
if this Warrant and the related, Common Shares have not been registered
under the Act to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE
AND HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION. THESE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
The Company may make any changes or corrections in this Warrant (i)
that it shall deem appropriate to cure any ambiguity or to correct any defective
or inconsistent provision or manifest mistake or error herein contained; or (ii)
that it may deem necessary or desirable and which shall not adversely affect the
interests of the Holder; provided, however, that this Warrant shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Holder of not less than 50% of the aggregate number of
Warrants issued of the tenor and kind then outstanding; and provided, further,
that no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or any increase in the purchase price therefor, or any
shortening of the Warrant exercise period shall be made without the consent in
writing of the Holders representing such Warrant, other than such changes as are
specifically prescribed by this Warrant.
The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and its successors and assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by the signature of its duly authorized officer.
PHON-NET.COM, INC.
By:______________________
Brian Collins
President and CEO
Dated: ___________, ____
EXHIBIT B
AMENDMENT NO. 1 TO FORM SB-2
----------------------------
The following Registration Statement has been filed with the United
States Securities and Exchange Commission but has not yet become
effective under applicable law. The Registration Statement is being
furnished to provide prospective purchasers of the Convertible Notes
and Warrants pursuant to Regulation S with information concerning
Phon-Net.com, Inc. No representation is made that the information set
forth in the following Registration Statement will not change.