Exhibit 4.1
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO VALCOM, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, VALCOM, INC., a Delaware corporation (hereinafter
called "Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Onshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "Holder") or
order, without demand, the sum of Seven Hundred Fifty Thousand Dollars
($750,000.00), with simple interest accruing at the annual rate of 8%, on June
7, 2003 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10)
day grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of twenty percent (20%) per annum shall
apply to the amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges
set forth in Article II shall remain in full force and effect
immediately from the date hereof and until the Note is paid in full.
1.3 Interest Rate. Subject to the Holder's right to convert,
interest payable on this Note shall accrue at the annual rate of eight percent
(8%) and be payable in arrears commencing September 30, 2001 and quarterly
thereafter, and on the Maturity Date, accelerated or otherwise, when the
principal and remaining accrued but unpaid interest shall be due and payable, or
sooner as described below.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal
amount and interest due under this Note into Shares of the Borrower's Common
Stock as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the
issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and/or at the
Holder's election with the Company's consent, the interest accrued on the Note,
(the date of giving of such notice of conversion being a "Conversion Date") into
fully paid and nonassessable shares of common stock of Borrower as such stock
exists on the date of issuance of this Note, or any shares of capital stock of
Borrower into which such stock shall hereafter be changed or reclassified (the
"Common Stock") at the conversion price as defined in Section 2.1(b) hereof (the
"Conversion Price"), determined as provided herein. Upon delivery to the Company
of a Notice of Conversion as described in Section 9 of the subscription
agreement entered into between the Company and Holder relating to this Note (the
"Subscription Agreement") of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within three business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. At the election of the Holder,
the Company will deliver accrued but unpaid interest on the Note through the
Conversion Date directly to the Holder on or before the Delivery Date (as
defined in the Subscription Agreement). The number of shares of Common Stock to
be issued upon each conversion of this Note shall be determined by dividing that
portion of the principal of the Note to be converted and interest, if any, by
the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be the lower of (i) eighty percent
(80%) of the average of the three lowest closing prices for the Common Stock on
the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market
System, American Stock Exchange, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock, the "Principal Market"), or if not then trading on a Principal Market,
such other principal market or exchange where the Common Stock is listed or
traded, for the thirty (30) trading days prior to but not including the Closing
Date (as defined in the Subscription Agreement) in connection with which this
Note is issued ("Maximum Base Price"); or (ii) eighty percent (80%) of the
average of the three lowest closing prices for the Common Stock on the Principal
Market, or on any securities exchange or other securities market on which the
Common Stock is then being listed or traded, for the sixty (60) trading days
prior to but not including the Conversion Date.
(c) The Maximum Base Price described in Section 2.1(b)(i)
above and number and kind of shares or other securities to be issued upon
conversion determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the
Borrower at any time shall consolidate with or merge into or
sell or convey all or substantially all its assets to any other corporation,
this Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to purchase such
number and kind of shares or other securities and property as would have been
issuable or distributable on account of such consolidation, merger, sale or
conveyance, upon or with respect to the securities subject to the conversion or
purchase right immediately prior to such consolidation, merger, sale or
conveyance. The foregoing provision shall similarly apply to successive
transactions of a similar nature by any such successor or purchaser. Without
limiting the generality of the foregoing, the anti-dilution provisions of this
Section shall apply to such securities of such successor or purchaser after any
such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower
at any time shall, by reclassification or otherwise,
change the Common Stock into the same or a different number of securities of any
class or classes, this Note, as to the unpaid principal portion thereof and
accrued interest thereon, shall thereafter be deemed to evidence the right to
purchase an adjusted number of such securities and kind of securities as would
have been issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and
Dividends. If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.
D. Share Issuance. Subject to the provisions
of this Section, if the Borrower at any time shall
issue any shares of Common Stock prior to the conversion of the entire principal
amount of the Note (otherwise than as: (i) provided in Sections 2.1(c)A, 2.1(c)B
or 2.1(c)C or this subparagraph D; (ii) pursuant to options, warrants, or other
obligations to issue shares, outstanding on the date hereof as described in the
Reports and Other Written Information, as such terms are defined in the
Subscription Agreement (which agreement is incorporated herein by this
reference); or (iii) Excepted Issuances, as defined in Section 12 of the
Subscription Agreement; ((i), (ii) and (iii) above, are hereinafter referred to
as the "Existing Option Obligations") for a consideration less than the
Conversion Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
reduced as follows: (i) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of additional
shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted conversion price. Except for the
Existing Option Obligations, for purposes of this adjustment, the issuance of
any security of the Borrower carrying the right to convert such security into
shares of Common Stock or of any warrant, right or option to purchase Common
Stock shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, Borrower
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the full conversion
of this Note. Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part as described in Section 2.1(a) hereof and the
Subscription Agreement. Upon partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default
("Event of Default") shall, at the option of the Holder hereof, make all sums of
principal and interest then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable, all without demand, presentment
or notice, or grace period, all of which hereby are expressly waived, except as
set forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails
to pay any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after the due date. The ten (10) day
period described in this Section 3.1 is the same ten (10) day period described
in Section 1.1 hereof.
3.2 Breach of Covenant. The Borrower breaches any material
covenant or other term or condition of this Note in any material respect and
such breach, if subject to cure, continues for a period of seven (7) days after
written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this Note,
or in any agreement, statement or certificate given in writing pursuant hereto
or in connection therewith shall be false or misleading in any material respect.
3.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final
process shall be entered or filed against Borrower or any of its property or
other assets for more than $100,000, and shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower and if instituted against Borrower are not dismissed within 45 days of
initiation.
3.7 Delisting. Delisting of the Common Stock from the NASDAQ
SmallCap Market (unless a listing is obtained on the OTC Bulletin Board within
three trading days of such delisting) or delisting from such other principal
exchange on which the Common Stock is listed for trading; Borrower's failure to
comply with the requirements of the Principal Market for continued listing for a
period of three consecutive trading days; or notification from the Principal
Market that the Borrower is not in compliance with the conditions for such
continued listing.
3.8 Concession. A concession by the Borrower, after applicable
notice and cure periods, under any one or more obligations in an aggregate
monetary amount in excess of $100,000.
3.9 Stop Trade. An SEC stop trade order or Principal
Market trading suspension that lasts for five or more trading days.
3.10 Failure to Deliver Common Stock or Replacement Note.
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Section 9 of the Subscription Agreement,
or if required a replacement Note.
3.11 Registration Default. The occurrence of a
Non-Registration Event as described in Section 10.4 of the Subscription
Agreement except that with respect to a Non-Registration Event in connection
with the required declared effectiveness of the Registration Statement (as
defined in the Subscription Agreement).
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on
the part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by fax
transmission (with copy sent by regular, certified or registered mail or by
overnight courier). For the purposes hereof, the address and fax number of the
Holder is as set forth on the first page hereof. The address and fax number of
the Borrower shall be ValCom, Inc., 26030 Avenue Hall - Studio #5, Valencia,
California 91355, telecopier number: (661) 257-1780. Both Holder and Borrower
may change the address and fax number for service by service of notice to the
other as herein provided. Notice of Conversion shall be deemed given when made
to the Company pursuant to the Subscription Agreement.
4.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York. Both parties and
the individual signing this Agreement on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
4.8 Prepayment. This Note may not be paid prior to the
Maturity Date or after the occurrence of an Event of Default without the consent
of the Holder except as set forth in Section 9.7 of the Subscription Agreement.
4.9 Security Interest. The holder of this Note has been
granted a security interest in common stock of the Company more fully
described in a Security Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 7th day of June, 2001.
VALCOM, INC.
By:__________________________
WITNESS:
- -------------------------------
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by VALCOM, INC. on June 7,
2001 into Shares of Common Stock of VALCOM, INC. (the "Company") according to
the conditions set forth in such Note, as of the date written below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________