VALCOM, INC.
VALENCIA ENTERTAINMENT INTERNATIONAL, L.L.C.
SECURITIES PURCHASE AGREEMENT
May __, 2002
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE...........................................................................1
2. FEES AND WARRANT.........................................................................................1
3. CLOSING, DELIVERY AND PAYMENT............................................................................2
3.1 Closing.........................................................................................2
3.2 Delivery........................................................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................3
4.1 Organization, Good Standing and Qualification...................................................3
4.2 Subsidiaries....................................................................................3
4.3 Capitalization; Voting Rights...................................................................3
4.4 Authorization; Binding Obligations..............................................................4
4.5 Liabilities.....................................................................................4
4.6 Agreements; Action..............................................................................4
4.7 Obligations to Related Parties..................................................................5
4.8 Changes.........................................................................................5
4.9 Title to Properties and Assets; Liens, Etc......................................................7
4.10 Intellectual Property...........................................................................7
4.11 Compliance with Other Instruments...............................................................7
4.12 Litigation......................................................................................8
4.13 Tax Returns and Payments........................................................................8
4.14 Employees.......................................................................................8
4.15 Registration Rights and Voting Rights...........................................................8
4.16 Compliance with Laws; Permits...................................................................9
4.17 Environmental and Safety Laws...................................................................9
4.18 Valid Offering..................................................................................9
4.19 Full Disclosure.................................................................................9
4.20 Insurance......................................................................................10
4.21 SEC Reports....................................................................................10
4.22 No Market Manipulation.........................................................................10
4.23 Listing........................................................................................10
4.24 No Integrated Offering.........................................................................10
4.25 Stop Transfer..................................................................................10
4.26 Dilution.......................................................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................................................11
5.1 Requisite Power and Authority..................................................................11
5.2 Investment Representations.....................................................................11
5.3 Purchaser Bears Economic Risk..................................................................11
5.4 Acquisition for Own Account....................................................................11
5.5 Purchaser Can Protect Its Interest.............................................................11
5.6 Accredited Investor............................................................................12
5.7 Legends........................................................................................12
5.8 No Shorting....................................................................................12
6. COVENANTS OF THE COMPANY................................................................................13
6.1 Stop-Orders....................................................................................13
6.2 Listing........................................................................................13
6.3 Market Regulations.............................................................................13
6.4 Reporting Requirements........................................................................13
6.5 Use of Funds...................................................................................14
6.6 Access to Facilities...........................................................................14
6.7 Taxes..........................................................................................14
6.8 Insurance......................................................................................14
6.9 Intellectual Property..........................................................................14
6.10 Properties.....................................................................................14
6.11 Confidentiality................................................................................15
6.12 Required Approvals.............................................................................15
6.13 Reissuance of Securities.......................................................................15
6.14 Opinion........................................................................................16
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.......................................16
7.1 Company Indemnification........................................................................16
7.2 Purchaser's Indemnification....................................................................16
7.3 Procedures.....................................................................................16
8. CONVERSION OF CONVERTIBLE NOTE..........................................................................16
8.1 Mechanics of Conversion........................................................................17
8.2 Mandatory Redemption...........................................................................18
8.3 Maximum Conversion.............................................................................18
8.4 Injunction - Posting of Bond...................................................................18
8.5 Buy-In.........................................................................................19
8.6 Optional Redemption............................................................................19
9. REGISTRATION RIGHTS.....................................................................................20
9.1 Registration Rights Granted....................................................................20
9.2 Registration Procedures........................................................................21
9.3 Provision of Documents.........................................................................22
9.4 Non-Registration Events........................................................................23
9.5 Expenses.......................................................................................24
9.6 Indemnification and Contribution...............................................................24
10. OFFERING RESTRICTIONS...................................................................................26
11. SECURITY INTEREST.......................................................................................26
12. MISCELLANEOUS...........................................................................................26
12.1 Governing Law..................................................................................26
12.2 Survival.......................................................................................27
12.3 Successors and Assigns.........................................................................27
12.4 Entire Agreement...............................................................................27
12.5 Severability...................................................................................27
12.6 Amendment and Waiver...........................................................................27
12.7 Delays or Omissions............................................................................27
12.8 Notices........................................................................................28
12.9 Attorneys' Fees................................................................................28
12.10 Titles and Subtitles...........................................................................28
12.11 Counterparts...................................................................................28
12.12 Broker's Fees..................................................................................28
12.13 Indemnification................................................................................28
12.14 Construction...................................................................................28
VALCOM, INC.
VALENCIA ENTERTAINMENT INTERNATIONAL, L.L.C.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May ___, 2002, by and among ValCom, Inc., a Delaware
corporation ("ValCom"), Valencia Entertainment International, L.L.C., a
California limited liability company and a wholly owned subsidiary of ValCom
("Valencia" and, collectively with ValCom, the "Company"), and Laurus Master
Fund, Ltd. a Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale of a Convertible Note in
an aggregate principal amount of up to $2,000,000 (the "Note"), convertible into
shares of ValCom's common stock, $.001 par value per share (the "Common Stock");
WHEREAS, the Company wishes to issue a warrant (the "Warrant") to the
Purchaser to purchase shares of the Common Stock in connection with Purchaser's
purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of up to $2,000,000 convertible
in accordance with the terms thereof into shares of the Common Stock. The Note
purchased on the Closing Date shall be known as the "Offering." The form of Note
is annexed hereto as Exhibit A. The Note will have a Maturity Date (as defined
in the Note) two years from the date of issuance. Collectively, the Note and
Warrant (as defined in Section 2) and Common Stock issuable in payment of the
Note upon conversion of the Note and upon exercise of the Warrant are referred
to as the "Securities."
2. FEES AND WARRANT.
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase 300,000 shares of the Common Stock in connection with the Offering (the
"Warrant") pursuant to Section 1 hereof. The Warrant must be delivered on the
Closing Date. A form of Warrant is annexed hereto as Exhibit B. The per share
"Purchase Price" of Common Stock as defined in the Warrants shall be as set
forth in the Warrant. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or granted to or for
the benefit of the Purchaser by the Company are hereby also made and granted in
respect of the Warrant and shares of the Common Stock issuable upon exercise of
the Warrant (the "Warrant Shares").
(b) The Company shall reimburse the Purchaser for its reasonable legal fees
for services rendered to the Purchaser in preparation of this Agreement and the
Related Agreements, and expenses in connection with the Purchaser's due
diligence review of the Company and relevant matters. Amounts required to be
paid hereunder will be paid at the Closing and shall not exceed $20,000.
(c) The Company will pay a cash fee in the amount of seven percent (7%) of
the aggregate gross purchase price to be paid to the Company from the sale of
Note in the Offering (the "Fund Management Fee") to Laurus Capital Management,
L.L.C., a Delaware limited liability company. The Fund Management Fee must be
paid on the Closing Date. The aforementioned Fund Management Fee and legal fees
will be payable at the Closing out of funds held pursuant to a Funds Escrow
Agreement to be entered into by the Company, Purchaser and an Escrow Agent (the
"Funds Escrow Agreement").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement, at the Closing,
subject to the terms and conditions hereof, the Company will deliver to the
Escrow Agent, among other things, a Note in the form attached as Exhibit A
representing the principal amount of up to $2,000,000 and a Common Stock
Purchase Warrant in the form attached as Exhibit B in the Purchaser's name
representing 300,000 Warrant Shares and the Purchaser will deliver to the Escrow
Agent, among other things, up to $2,000,000, by certified funds or wire transfer
made payable to the order of the Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the date
of this Agreement as set forth below.
4.1 Organization, Good Standing and Qualification. ValCom is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Valencia is a company duly organized, validly existing and in
good standing under the laws of the State of California. The Company has the
corporate power and authority to own and operate its properties and assets, to
execute and deliver this Agreement, the Warrant to be issued in connection with
this Agreement, the Funds Escrow Agreement, the Security Agreement, the Deed of
Trust, and all other agreements referred to herein (collectively, the "Related
Agreements"), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the "Note Shares"), to issue and sell the Warrant
and the Warrant Shares, and to carry out the provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted. The
Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company does not
own or control any equity security or other interest of any other corporation,
limited partnership or other business entity. If any entity is listed on
Schedule 4.2 and the Company owns a controlling interest in such entity, each of
the representations and warranties set forth in this Section 4 are being hereby
restated with respect to such entity (modified as appropriate to the nature of
such entity.)
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of ValCom, as of May __, 2002, consists of
(i) 100,000,000 shares of Common Stock, $.001 par value per share, ____________
shares of which are issued and outstanding and 10,000,000 shares of Preferred
Stock, $.001 par value per share, _______________of which are issued and
outstanding.
(b) Other than (i) the shares reserved for issuance under the ValCom's
stock option plans; and (ii) shares which may be granted pursuant to this
Agreement and the Related Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or agreements of any
kind for the purchase or acquisition from the Company of any of its securities.
Neither the offer, issuance or sale of any of the Note or Warrant, or the
issuance of any of the Note Shares or Warrant Shares, nor the consummation of
any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Common Stock (i) have been
duly authorized and validly issued and are fully paid and nonassessable and (ii)
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares of
the Common Stock are as stated in ValCom's Certificate of Incorporation (the
"Charter"). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity securities or
rights to purchase equity securities provides for acceleration or other changes
in the vesting provisions or other terms of such agreement or understanding as
the result of any merger, consolidated sale of stock or assets, change in
control or any other transaction(s) by the Company, including the transactions
contemplated hereunder.
4.4 Authorization; Binding Obligations. All corporate action on the part of
the Company, its officers and directors necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Company hereunder at the Closing and the authorization, sale, issuance and
delivery of the Note and Warrant has been taken or will be taken prior to the
Closing. The Agreement and the Related Agreements, when executed and delivered,
will be valid and binding obligations of the Company enforceable in accordance
with their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable remedies. The sale of the Note and the
subsequent conversion of the Note into Note Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with. The sale of the Warrant and the subsequent
exercise of the Warrant for Warrant Shares are not and will not be subject to
any preemptive rights or rights of first refusal that have not been properly
waived or complied with. The Note and the Warrant, when executed and delivered
in accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
4.5 Liabilities. The Company has no material liabilities and, to the best
of its knowledge, knows of no material contingent liabilities, except current
liabilities incurred in the ordinary course of business which have not been,
either in any individual case or in the aggregate, material.
4.6 Agreements; Action.
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or to its knowledge by which it is bound which may involve (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business), or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products), or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series of its
capital stock, (ii) incurred any indebtedness for money borrowed or any other
liabilities individually in excess of $50,000 or, in the case of indebtedness
and/or liabilities individually less than $50,000, in excess of $100,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
4.7 Obligations to Related Parties. There are no obligations of the Company
to officers, directors, stockholders or employees of the Company other than (a)
for payment of salary for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company, (c) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company) and (d) obligations listed in the Company's financial
statements. None of the officers, directors or stockholders of the Company, or
any members of their immediate families, are indebted to the Company. Except as
described above, none of the officers, directors or, to the best of the
Company's knowledge, key employees or stockholders of the Company or any members
of their immediate families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since December 31, 2001, there has not been:
(a) Any change in the assets, liabilities, financial condition, prospects
or operations of the Company, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is
reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key employee or group of
employees of the Company;
(c) Any material change, except in the ordinary course of business, in the
contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, business or prospects or
financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material debt
owed to it;
(f) Any direct or indirect loans made by the Company to any stockholder,
employee, officer or director of the Company, other than advances made in the
ordinary course of business;
(g) Any material change in any compensation arrangement or agreement with
any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution of the
assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or guaranteed by
the Company, except those for immaterial amounts and for current liabilities
incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a party or
by which it is bound which may materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company;
(m) Any other event or condition of any character that, either individually
or cumulatively, has or may materially and adversely affect the business,
assets, liabilities, financial condition, prospects or operations of the
Company; or
(n) Any arrangement or commitment by the Company to do any of the acts
described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. (a) The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
(b) There are no leases of the property whose address is ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, except as to: (a) that certain facilities agreement
dated _______ between Valencia, or its predecessor in interest, and [Paramount];
(b) that certain facilities agreement dated _____ between Valencia, or its
predecessor in interest and [Saban]; that certain unrecorded lease purportedly
by and between Valencia and itself as identified in that certain Subordination
Agreement recorded against the Mortgaged Property on December 30, 1999 as
instrument number ▇▇-▇▇▇▇▇▇▇ in the official records of the recorder's office in
and for the County of Los Angeles ("Valencia Lease"). Valencia concurrently
herewith shall execute and deliver the Subordination Agreement in favor of the
Purchaser as to the Valencia Lease. Further, Valencia shall obtain from the
other parties to the above mentioned facilities agreements their execution of
the Subordination and Nondisturbance Agreement in favor of Purchaser
concurrently submitted herewith within ten (10) days of the date hereof. It
shall be an Event of Default under the Note if such fully executed Subordination
and Nondisturbance Agreements are not so obtained within the time frame set
forth herein. Upon receipt of the fully executed Subordination and
Nondisturbance Agreements, the Purchaser shall fund the remaining $500,000, so
that the aggregate investment made by the Purchaser pursuant to this Agreement
shall be no more than $2,000,000.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes necessary for its
business as now conducted and to the Company's knowledge as presently proposed
to be conducted (the "Intellectual Property"), without any known infringement of
the rights of others. There are no outstanding options, licenses or agreements
of a*ny kind relating to the foregoing proprietary rights, nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging that the
Company has violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity, nor is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company, except for inventions, trade
secrets or proprietary information that have been rightfully assigned to the
Company.
4.11 Compliance with Other Instruments. The Company is not in violation or
default of any term of the Charter or Bylaws or other organizational documents,
or of any provision of any mortgage, indenture, contract, agreement, instrument
or contract to which it is party or by which it is bound or of any judgment,
decree, order or writ. The execution, delivery and performance of and compliance
with this Agreement and the Related Agreements, and the issuance and sale of
Securities pursuant hereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
4.12 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 Employees. The Company has no collective bargaining agreements with
any of its employees. There is no labor union organizing activity pending or, to
the Company's knowledge, threatened with respect to the Company. The Company is
not a party to or bound by any currently effective employment contract, deferred
compensation arrangement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation plan or agreement. To the
Company's knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company is
not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with their duties to the Company. The Company has not received
any notice alleging that any such violation has occurred. No employee of the
Company has been granted the right to continued employment by the Company or to
any material compensation following termination of employment with the Company.
The Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer, key
employee or group of employees.
4.15 Registration Rights and Voting Rights. The Company is presently not
under any obligation, and has not granted any rights, to register any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued. To the Company's knowledge, no stockholder of the Company
has entered into any agreement with respect to the voting of equity securities
of the Company.
4.16 Compliance with Laws; Permits. To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of any of the Securities, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The Company has all franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition of
the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the Company believes is
reasonably necessary to make such investment decision. Neither this Agreement,
the exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Company to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company were
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future events which the Company, at the date of the issuance of
such projections or estimates, believed to be reasonable. As of the date hereof
no facts have come to the attention of the Company that would, in its opinion,
require the Company to revise or amplify in any material respect the assumptions
underlying such projections and other estimates or the conclusions derived
therefrom.
4.20 Insurance. The Company has general commercial, product liability, fire
and casualty insurance policies with coverage customary for companies similarly
situated to the Company.
4.21 SEC Reports. The Company has filed all proxy statements, reports and
other documents required to be filed by it under the Exchange Act. The Company
has furnished the Purchaser with copies of (i) its Annual Report on Form 10-K
for the fiscal year ended September 30, 2001, (ii) its Quarterly Report on Form
10-Q for the fiscal quarter ended March 30, 2002 and (iii) its Proxy Statement
dated January 23, 2002 (collectively, the "SEC Reports"). Each SEC Report was in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.22 No Market Manipulation. The Company has not taken, and will not take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 Listing. The Common Stock is listed for trading on the OTC Bulletin
Board and satisfies all requirements for the continuation of such listing. The
Company has not received any notice that its Common Stock will be delisted from
the OTC Bulletin Board or that the Common Stock does not meet all requirements
for the continuation of such listing.
4.24 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.25 Stop Transfer. The Securities are restricted securities as of the date
of this Agreement. The Company will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities at such time as
the Securities are registered for public sale or an exemption from registration
is available, except as required by federal securities laws.
4.26 Dilution. The number of shares of Common Stock issuable upon
conversion of the Note and exercise of the Warrant may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
conversion or exercise of such securities. The Company understands the nature of
the Securities being sold hereby and recognize that they may have a potential
dilutive effect. The Board of Directors of the Company has concluded, in its
good faith business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
shares of Common Stock upon conversion of the Note and exercise of the Warrant
is binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.
5.2 Investment Representations. Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser's representations contained
in the Agreement, including, without limitation, that the Purchaser is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this investment until
the Securities are sold pursuant to (i) an effective registration statement
under the Securities Act, or (ii) an exemption from registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for Purchaser's own account
for investment only, and not with a view towards their distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by reason
of its, or of its management's, business and financial experience, Purchaser has
the capacity to protect its own interests in connection with the transactions
contemplated in this Agreement, and the Related Agreements. Further, Purchaser
is aware of no publication of any advertisement in connection with the
transactions contemplated in the Agreement or the Related Agreements.
5.6 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Note shall bear substantially the following legend until the Note
and Note Shares are covered by an effective registration statement filed with
the SEC:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK 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 OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO VALCOM, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares shall bear a legend which shall
be in substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO VALCOM, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
VALCOM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
5.8 No Shorting. The Purchaser will not and will not cause any person or
entity to engage in "short sales" of the Company's Common Stock.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the shares of
Common Stock issuable upon conversion of the Note and upon the exercise of the
Warrant upon the on the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market, American Stock Exchange or California
Stock Exchange (the "Principal Market") upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain such
listing so long as any other shares of Common Stock shall be so listed. The
Company will maintain the listing of its Common Stock on a Principal Market, and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company will provide the
Purchaser copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. The Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination. In addition, within 15 days after the end of each
calendar month, the Company will provide to the Purchaser a monthly cash flow
statement for the immediately preceding month.
6.5 Use of Funds. The Company agrees that it will use the proceeds of the
sale of the Note and Warrant for general corporate purposes only, in the
ordinary course of its business and consistent with past practice and, without
limiting the generality of the foregoing, shall not use such proceeds to make a
loan to any employee, officer, director or stockholder of the Company, to repay
any loan or other obligation of the Company or to repurchase or pay a dividend
on shares of Common Stock or other securities of the Company (in any such case,
regardless of whether such loan or payment was authorized by the Company's Board
of Directors prior to the date hereof), other than any such repurchase or
payment explicitly required, permitted or contemplated by the terms of this
Agreement or the other Related Agreements.
6.6 Access to Facilities. The Company will permit any representatives
designated by the Purchaser (or any transferee of the Purchaser), so long as
such person holds any Securities upon reasonable notice and during normal
business hours, at such person's expense and accompanied by a representative of
the Company, to (a) visit and inspect any of the properties of the Company, (b)
examine the corporate and financial records of the Company (unless such
examination is not permitted by federal, state or local law or by contract) and
make copies thereof or extracts therefrom and (c) discuss the affairs, finances
and accounts of any such corporations with the directors, officers and
independent accountants of the Company.
6.7 Taxes. The Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than 100% of
the insurable value of the property insured; and the Company will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
6.9 Intellectual Property. The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
6.10 Properties. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.11 Confidentiality. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
6.12 Required Approvals. For so long as at least 20% of the principal
amount of the Note is outstanding, the Company, without the prior written
consent of the Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities (or any
securities directly or indirectly convertible into or exercisable or
exchangeable for equity securities);
(b) liquidate, dissolve or effect a recapitalization, reclassification or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for federal income tax
purposes or a stock split or "reverse" stock split of the Common Stock);
(c) become subject to (including, without limitation, by way of amendment
to or modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict the Company's right to perform the provisions
of this Agreement or any of the agreements contemplated thereby;
(d) consent to or implement any termination, amendment, modification,
supplement or waiver of (a) the certificate or articles of incorporation,
bylaws, regulations or other constitutional documents of the Company or any
subsidiary or (b) any material contract to which it is a party; provided,
however, that such documents may be amended or modified if and to the extent
that such amendment or modification is not substantive or material and could not
be adverse to the Company or the Purchaser; or
(e) materially alter or change the business of the Company.
6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7 above
at such time as (a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon resale
subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrant.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.3 Procedures. The procedures and limitations set forth in Section 9.6
shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
8. CONVERSION OF CONVERTIBLE NOTE.
8.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration when
sold: (i) Upon the conversion of the Note or part thereof, the Company shall, at
its own cost and expense, take all necessary action (including the issuance of
an opinion of counsel) to assure that the Company's transfer agent shall issue
stock certificates in the name of the Purchaser (or its nominee) or such other
persons as designated by the Purchaser and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Common Stock and that the
Note Shares issued will be unlegended, free-trading, and freely transferable,
and will not contain a legend restricting the resale or transferability of the
Note Shares.
(b) Purchaser will give notice of its decision to exercise its right to
convert the Note or part thereof by telecopying or otherwise delivering an
executed and completed notice of the number of shares to be converted to the
Company (the "Notice of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a certificate or certificates,
as the case may be, representing the Note Shares or until the Note has been
fully satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." The Company will or will cause the transfer agent to
transmit the Common Stock certificates representing the shares issuable upon
conversion of the Note (and a certificate representing the balance of the Note
not so converted, if requested by Purchaser) to the Purchaser via express
courier for receipt by such Purchaser within three business days after receipt
by the Company of the Notice of Conversion (the "Delivery Date").
(c) The Company understands that a delay in the delivery of the Note Shares
in the form required pursuant to Section 8 hereof, or the Mandatory Redemption
Payment described in Section 8.2 hereof, beyond the Delivery Date or Mandatory
Redemption Payment Date (as defined in Section 8.2) could result in economic
loss to the Purchaser. As compensation to the Purchaser for such loss, the
Company agrees to pay late payments to the Purchaser for late issuance of the
Note Shares in the form required pursuant to Section 8 hereof upon conversion of
the Note or late payment of the Mandatory Redemption Payment, in the amount of
$100 per business day after the Delivery Date or Mandatory Redemption Payment
Date, as the case may be, for each $10,000 Note principal being converted or
redeemed. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Purchaser, in the event that the Company
fails for any reason to effect delivery of the Note Shares by the Delivery Date
or make payment by the Mandatory Redemption Payment Date, the Purchaser will be
entitled to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a notice to
such effect to the Company whereupon the Company and the Purchaser shall each be
restored to their respective positions immediately prior to the delivery of such
notice, except that late payment charges described above shall be payable
through the date notice of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith 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 or dividends
required to be paid or other charges hereunder exceed the maximum amount
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to a Purchaser and thus refunded to the
Company.
8.2 Mandatory Redemption. In the event the Company is unable to issue Note
Shares on a Delivery Date or at any time when a Note is convertible, for any
reason, then at the Purchaser's election, the Company must pay to the Purchaser
five (5) business days after request by the Purchaser or on the Delivery Date
(if requested by the Purchaser) a sum of money determined by multiplying the
principal of the Note required to be converted and not so converted (or
otherwise not convertible, as applicable) by 130%, together with accrued but
unpaid interest thereon ("Mandatory Redemption Payment"). The Mandatory
Redemption Payment must be received by the Purchaser on the same date as the
Note Shares are otherwise deliverable or within five (5) business days after
request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt
of the Mandatory Redemption Payment, the corresponding Note principal and
interest will be deemed paid and no longer outstanding.
8.3 Maximum Conversion. The Purchaser shall not be entitled to convert on a
Conversion Date that amount of a 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 Purchaser on a Conversion Date, and
(ii) the number of shares of Common Stock issuable upon the conversion of the
Note with respect to which the determination of this proviso is being made on a
Conversion Date, which would result in beneficial ownership by the Purchaser of
more than 4.99% of the outstanding shares of Common Stock of the Company on such
Conversion Date. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13d-3 thereunder. Subject to the foregoing, a
Purchaser shall not be limited to aggregate conversions of only 4.99%. A
Purchaser may void the conversion limitation described in this Section 8.3 upon
75 days prior notice to the Company. Upon an Event of Default under the Note,
the conversion limitation in this Section 8.3 shall automatically become null
and void.
8.4 Injunction - Posting of Bond. In the event a Purchaser shall elect to
convert a Note or part thereof, the Company may not refuse conversion for any
reason, unless an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of the Purchaser in
the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Purchaser to the extent it obtains judgment.
8.5 Buy-In. In addition to any other rights available to the Purchaser, if
after receipt of a valid Notice of Conversion, the Company fails to deliver to
the Purchaser within five (5) business days of the Delivery Date and if after
giving written notice to the Company the Purchaser purchases (in an open market
transaction) shares of Common Stock in the amount of the Note Shares which the
Purchaser anticipated receiving upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Purchaser (in addition to any remedies
available to or elected by such Purchaser) the amount by which (A) the
Purchaser's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note, for which such Notice ov Conversion was not
timely honored, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if the Purchaser purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of Note principal and/or interest, the Company shall be
required to pay the Purchaser $1,000, plus interest. The Purchaser shall provide
the Company written notice indicating the amounts payable to the Purchaser in
respect of the Buy-In.
8.6 Optional Redemption. The Company will have the option of redeeming any
outstanding Note ("Optional Redemption") by paying to the Purchaser a sum of
money as follows:
from the Closing Date through 30 days after the Closing Date - 102%
from 31 days through 60 days after the Closing Date - 104%
from 61 days through 90 days after the Closing Date - 106%
from 91 days through 120 days after the Closing date -108%
from 121 days through 150 days after the Closing date -110%
from 151 days through 180 days after the Closing date -112%
after 180 days following the Closing Date - 125%
of the principal amount of the Note together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to the
Purchaser arising under this Agreement, Note or any other document delivered
herewith ("Redemption Amount") outstanding on the day notice of redemption
("Notice of Redemption) is given to a Purchaser ("Redemption Date"). A Notice of
Redemption may not be given in connection with any portion of Note for which
notice of conversion has been given by the Purchaser at any time before receipt
of a Notice of Redemption. The Purchaser may elect within five (5) business days
after receipt of a Notice of Redemption to give the Company Notice of Conversion
in connection with some or all of the Note principal and interest which was the
subject of the Notice of Redemption. The Redemption Amount must be paid in good
funds to the Purchaser no later than the seventh (7th) business day after the
Redemption Date ("Optional Redemption Payment Date"). In the event the Company
fails to pay the Redemption Amount by the Optional Redemption Payment Date, then
the Redemption Notice will be null and void and the Company will thereafter have
no further right to effect an Optional Redemption, and at the Purchaser's
election, the Redemption Amount will be deemed a Mandatory Redemption Payment
and the Optional Redemption Payment Date will be deemed a Mandatory Redemption
Payment Date. Such failure will also be deemed an Event of Default under the
Note. Any Notice of Redemption must be given to all holders of Note issued in
connection with the Offering, in proportion to their holdings of Note principal
on a Redemption Date. A Notice of Redemption may be given by the Company,
provided no Event of Default, as described in the Note shall have occurred or be
continuing. Note proceeds may not be used to effect an Optional Redemption.
9. REGISTRATION RIGHTS.
9.1 Registration Rights Granted. The Company hereby grants the following
registration rights to the Purchaser.
(a) For a period commencing 90 days after the Closing Date, but not later
than four (4) years after the Closing Date (the "Request Date"), the Company,
upon a written request ("Request for Registration") therefore from the Purchaser
(the Note Shares and Warrant Shares issued or issuable upon conversion of the
Note or exercise of the Warrant issued hereunder, being, the "Registrable
Securities"), shall prepare and file with the SEC a registration statement under
the Securities Act covering the Registrable Securities which are the subject of
such request, unless the Company has given the Purchaser a Notice of
Registration and/or such Registrable Securities are the subject of an effective
registration statement. As a condition precedent to the Company's preparation
and filing of a registration statement, the Purchaser shall promptly provide the
Company with all such information as the Company reasonably requests. The
obligation of the Company under this Section 9.1 shall be limited to two
registration statements.
(b) If the Company at any time proposes to register any of its securities
under the Act for sale to the public, whether for its own account or for the
account of other security holders or both, except with respect to registration
statements on Forms ▇-▇, ▇-▇ or another form not available for registering the
Registrable Securities for sale to the public, provided the Registrable
Securities are not otherwise subject to an effective registration statement, the
Company will give the Purchaser written notice ("Notice of Registration") to
cause such Registrable Securities to be included with the securities to be
covered by the registration statement proposed to be filed by the Company. In
the event that any registration pursuant to this Section 9.1(b) shall be, in
whole or in part, an underwritten public offering of Common Stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Purchaser in writing of any such reduction. Notwithstanding the forgoing
provisions, or Section 9.1(a) hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in Section 9.1(a) or
(b) without thereby incurring any liability to the Purchaser, so long as the
registration provisions are otherwise complied with by the Company.
(c) If, a Request for Registration is received by the Company pursuant to
Section 9.1(a) and the Company determines to proceed with the preparation and
filing of a registration statement under the Securities Act, such Request for
Registration shall be deemed to have been given pursuant to Section 9.1(b)
rather than Section 9.1(a), and the rights of the Purchaser pursuant to such
Request for Registration shall be governed by Section 9.1(b).
(d) The Company shall use its reasonable commercial efforts to file a Form
SB-2 registration statement (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the Securities Act with the SEC within 14 days of the Closing Date (the "Filing
Date"), and use its reasonable commercial efforts to cause such registration
statement to be declared effective within 90 days of the Filing Date (the
"Effective Date"). The Company will register not less than a number of shares of
Common Stock in the aforedescribed registration statement that is equal to the
Warrant Shares and 200% of the Note Shares issuable at the Conversion and
Purchase Prices set forth in the Note and Warrant, respectively, that would be
in effect on the Closing Date or the date of filing of such registration
statement (employing the price which would result in the greater number of
Shares), assuming the conversion of 100% of the principal amount of the Note
which is then outstanding, and at least one share of Common Stock for each
common share issuable upon exercise of the Warrant. Such registration statement
will be promptly amended or additional registration statements will be promptly
filed by the Company as necessary to register additional Company Shares to allow
the public resale of all Common Stock included in and issuable by virtue of the
Registrable Securities. No securities of the Company other than the Registrable
Securities will be included in the registration statement described in this
Section 9.1(d).
9.2 Registration Procedures. If and whenever the Company is required by the
provisions hereof to effect the registration of the Registrable Securities under
the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), and promptly provide to the Purchaser
copies of all filings and SEC letters of comment;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until the later of: (i)
six months after the latest exercise period of the Warrant; (ii) twelve months
after the Maturity Date of the Note or (iii) four years after the Closing Date,
and comply with the provisions of the Securities Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Purchaser's intended method of disposition set
forth in such registration statement for such period;
(c) furnish to the Purchaser, and to each underwriter if any, such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as the Purchaser reasonably may request
to facilitate the public sale or disposition of the securities covered by such
registration statement;
(d) use its best efforts to register or qualify the Purchaser's Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the Purchaser and in the case of an
underwritten public offering, the managing underwriter shall reasonably request,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration statement
with any securities exchange on which the Common Stock of the Company is then
listed;
(f) immediately notify the Purchaser and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing; and
(g) make available for inspection by the Purchaser, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Purchaser or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
9.3 Provision of Documents.
(a) In connection with each registration hereunder, the Purchaser will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Section 9
covering an underwritten public offering, the Company and the Purchaser agree to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
9.4 Non-Registration Events. If (i) the Registration Statement described in
Section 9.1(a) is not filed within 30 days of such written request, or is not
declared effective by the SEC on or prior to the date that is 90 days after such
request, or (ii) the registration statement on Form SB-2 or such other form as
described in Section 9.1(d) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within five
days of receipt by the Company of a communication from the SEC that the
registration statement described in Section 9.1(d) will not be reviewed, or
(iii) any registration statement described in Section 9.1(a) or (d) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive calendar days (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in this Section 9.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to two percent (2%) per
month or part thereof during the pendency of such Non-Registration Event of the
principal of the Note issued in connection with the Offering, whether or not
converted, then owned of record by such holder or issuable as of or subsequent
to the occurrence of such Non-Registration Event. Payments to be made pursuant
to this Section shall be due and payable immediately upon demand in immediately
available funds. In the event a Mandatory Redemption Payment is demanded from
the Company by the holder pursuant to Section 8.2 of this Agreement, then the
Liquidated Damages described in this Section 9.4 shall no longer accrue on the
portion of the purchase price underlying the Mandatory Redemption Payment, from
and after the date the holder receives the Mandatory Redemption Payment. It
shall be deemed a Non-Registration Event to the extent that all the Common Stock
included in the Registrable Securities and underlying the Securities is not
included in an effective registration statement as of and after the Effective
Date at the conversion prices in effect from and after the Effective Date.
9.5 Expenses. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
fees of, and disbursements incurred by, one counsel for the Purchaser, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Purchaser beyond those
included in Registration Expenses, are called "Selling Expenses."
The Company will pay all Registration Expenses. All Selling Expenses in
connection with each registration statement under Section 9 shall be borne by
the Purchaser.
9.6 Indemnification.
(a) In the event of a registration of any Registrable Securities under the
Securities Act pursuant to Section 9, the Company will indemnify and hold
harmless the Purchaser, and its officers, directors and each other person, if
any, who controls the Purchaser within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Purchaser, or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities Act
pursuant to Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Purchaser, and each such person for any reasonable legal
or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any the Purchaser or any such person in
writing specifically for use in any such document.
(b) In the event of a registration of the Registrable Securities under the
Securities Act pursuant to Section 9, the Purchaser will indemnify and hold
harmless the Company, and its officers, directors and each other person, if any,
who controls the Company within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such person for any reasonable legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that the
Purchaser will be liable in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
specifically for use in any such document.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the event of
joint liability under the Securities Act in any case in which either (i) the
Purchaser, or any controlling person of the Purchaser, makes a claim for
indemnification pursuant to this Section 9.6 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 9.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the
Purchaser or controlling person of the Purchaser in circumstances for which
indemnification is provided under this Section 9.6; then, and in each such case,
the Company and the Purchaser will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that the Purchaser is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or stock or stock options granted to employees or directors of the
Company; or equity or debt issued in connection with an acquisition of a
business or assets by the Company; or the issuance by the Company of stock in
connection with the establishment of a joint venture partnership or licensing
arrangement (these exceptions hereinafter referred to as the "Excepted
Issuances"), the Company will not issue any securities with a variable/floating
conversion feature which are or could be (by conversion or registration)
free-trading securities prior to the expiration of 12 months from the actual
effective date of the registration statement described in Section 9.1(d) above
(the "Exclusion Period"). This restriction shall not prohibit the Company from
issuing any equity, convertible debt or other securities prior to the expiration
of the Exclusion Period, provided that such equity, convertible debt or other
securities are restricted securities when issued and remain restricted until the
expiration of the Exclusion Period. Notwithstanding the above, if the Purchaser
elects not to further fund the Company following the transaction contemplated
hereby, the Purchaser shall waive the provisions of this Section 10.
11. SECURITY INTEREST. As a condition of Closing, the Company will grant to
the Purchaser a security interest in certain assets of the Company pursuant to a
Security Agreement. The Company will also execute all such documents reasonably
necessary to memorialize and further protect the security interest described
above.
12. MISCELLANEOUS.
12.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to
principles of conflicts of laws. 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 California or in the federal courts located
in the state of California. Both parties and the individuals executing this
Agreement and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
12.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
12.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Securities from time to time.
12.4 Entire Agreement. This Agreement, the exhibits and schedules hereto,
the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
12.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
12.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written consent
of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the holders of the
Securities under the Agreement may be waived only with the written consent of
such holders of Securities. The rights of the holder of a Note may be waived
only with the written consent of the holder of such Note.
12.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
12.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to the Purchaser at
the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchaser to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at
such other address as the Company or the Purchaser may designate by ten days
advance written notice to the other parties hereto.
12.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
12.10 Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
12.11 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
12.12 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the Purchaser. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 12.12 being untrue.
12.13 Indemnification. The Company shall indemnify the Purchaser for any
losses or expenses incurred by the Purchaser in connection with any claims
brought against the Purchaser by any third party (including any other
stockholder of the Company) as a result of the transactions contemplated by this
Agreement, other than for a breach of representation or warranty made by the
Purchaser herein.
12.14 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
[Securities Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
VALCOM, INC. LAURUS MASTER FUND, LTD.
By:
By: Name:
--------------------------------------------------
Name: Address: c/o Ironshore Corporate Services Ltd.
Title: ▇.▇. ▇▇▇ ▇▇▇▇ ▇.▇., ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
Address: Church Street
26030 Avenue Hall - Studio #5 Grand Cayman, Cayman Islands
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
VALENCIA ENTERTAINMENT INTERNATIONAL, L.L.C.
By:
Name:
Title:
Address:
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇▇ #▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
LIST OF EXHIBITS
Form of Offering Convertible Note Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
A-1
EXHIBIT A
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT B
Form of warrant
C-2
EXHIBIT C
FORM OF OPINION
1. ValCom is a corporation validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted. Valencia is a company validly existing
and in good standing under the laws of the state of California and has all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted.
2. The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Agreement and Related
Agreements. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization of the Agreement
and Related Agreements, and the performance of all obligations of the Company
thereunder at the Closing, and (ii) the authorization, sale, issuance and
delivery of the Securities pursuant to the Agreement and the Related Agreements
has been taken. The Note Shares and the Warrant Shares, when issued pursuant to
and in accordance with the terms of the Agreement and upon delivery, shall be
validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement,
the Note or the Related Agreements by the Company and the consummation of the
transactions contemplated by any thereof, will not, with or without the giving
of notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws
of the Company; or
(b) To the best of such counsel's knowledge, violate
any judgment, decree, order or award of any court binding upon
the Company.
4. The Agreement and Related Agreements constitute and the
Note, upon their issuance will constitute, valid and legally binding obligations
of the Company, and are enforceable against the Company in accordance with their
respective terms.
5. The sale of the Note and the subsequent conversion of the
Note into Note Shares are not and will not be subject to any preemptive rights
or, to such counsel's knowledge, rights of first refusal that have not been
properly waived or complied with. The sale of the Warrant and the subsequent
exercise of the Warrant for Warrant Shares are not and will not be subject to
any preemptive rights or, to such counsel's knowledge, rights of first refusal
that have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties
of the Purchasers contained in the Agreement, the offer, sale and issuance of
the Securities will be exempt from the registration requirements of the
Securities Act, and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. To the best of such
counsel's knowledge, neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy and security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.
7. There is no action, suit, proceeding or investigation
pending or, to the best of such counsel's knowledge, currently threatened
against the Company that questions the validity of the Agreement or the Related
Agreements or the right of the Company to enter into any of such agreements, or
to consummate the transactions contemplated thereby, or which might result,
either individually or in the aggregate, in any material adverse change in the
assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company. To the
best of such counsel's knowledge, the Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality; nor is there any action, suit, proceeding
or investigation by the Company currently pending or which the Company intends
to initiate.