Exhibit 4.2
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and ValCom, Inc., a
Delaware corporation (the "Company") hereby agrees to issue and to sell to the
Subscriber, Secured 8% Convertible Notes (the "Notes") convertible in accordance
with the terms thereof into shares of the Company's $.001 par value common stock
(the "Company Shares") for the aggregate consideration as set forth on the
signature page hereof ("Purchase Price"). The form of Convertible Note is
annexed hereto as Exhibit A. (The Company Shares included in the Securities (as
hereinafter defined) are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Notes, the Company Shares, Common Stock Purchase Warrants
("Warrants") issuable to the recipients identified on Schedule B hereto, and the
Common Stock issuable upon exercise of the Warrants are collectively referred to
herein as, the "Securities"). Upon acceptance of this Agreement by the
Subscriber, the Company shall issue and deliver to the Subscriber the Note
against payment, by federal funds wire transfer of the Purchase Price.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties.
The Subscriber hereby represents and warrants to and agrees with the Company
that:
(a) Information on Company. The Subscriber
has been furnished with the Company's Form 10-KSB for the
year ended December 31, 2000 as filed with the Securities and Exchange
Commission (the "Commission") together with all subsequently filed forms 10-QSB,
and other publicly available filings made with the Commission (hereinafter
referred to as the "Reports"). In addition, the Subscriber has received from the
Company such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing, and considered all
factors the Subscriber deems material in deciding on the advisability of
investing in the Securities (such information in writing is collectively, the
"Other Written Information").
(b) Information on Subscriber. The Subscriber
is an "accredited investor", as such term is defined in
Regulation D promulgated by the Commission under the Securities Act of 1933, as
amended (the "1933 Act"), is experienced in investments and business matters,
has made investments of a speculative nature and has purchased securities of
United States publicly-owned companies in private placements in the past and,
with its representatives, has such knowledge and experience in financial, tax
and other business matters as to enable the Subscriber to utilize the
information made available by the Company to evaluate the merits and risks of
and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on the
signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Note. On the Closing Date,
the Subscriber will purchase the Note for its own account and not with a view
to any distribution thereof.
(d) Compliance with Securities Act. The
Subscriber understands and agrees that the Securities have
not been registered under the 1933 Act, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of Subscriber contained
herein), and that such Securities must be held unless a subsequent disposition
is registered under the 1933 Act or is exempt from such registration.
(e) Company Shares Legend. The Company
Shares, and the shares of Common Stock issuable upon the exercise of the
Warrants, shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO VALCOM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear
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. 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 UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO VALCOM, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(g) Note Legend. The Note shall bear the
following legend:
"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."
(h) Communication of Offer. The offer to sell
the Securities was directly communicated to the Subscriber. At no time
was the Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
(i) Correctness of Representations. The
Subscriber represents that the foregoing representations and warranties are
true and correct as of the date hereof and, unless the Subscriber otherwise
notifies the Company prior to the Closing Date (as hereinafter defined), shall
be true and correct as of the Closing Date. The foregoing representations and
warranties shall survive the Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each
of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their properties and
to carry on their business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.
(b) Outstanding Stock. All issued and
outstanding shares of capital stock of the Company and each of its subsidiaries
has been duly authorized and validly issued and are fully paid and
non-assessable.
(c) Authority; Enforceability. This Agreement
has been duly authorized, executed and delivered by the Company and is a valid
and binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company
has full corporate power and authority necessary to enter into this Agreement
and to perform its obligations hereunder and all other agreements entered into
by the Company relating hereto.
(d) Additional Issuances. There are no
outstanding agreements or preemptive or similar rights affecting the
Company's common stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other
Written Information.
(e) Consents. No consent, approval,
authorization or order of any court, governmental agency or body
or arbitrator having jurisdiction over the Company, or any of its affiliates,
the NASD, NASDAQ or the Company's Shareholders is required for execution of this
Agreement, and all other agreements entered into by the Company relating
thereto, including, without limitation issuance and sale of the Securities, and
the performance of the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true
and correct and the Subscriber complies with its obligations under this
Agreement, neither the issuance and sale of the Securities nor the performance
of its obligations under this Agreement and all other agreements entered into
by the Company relating thereto by the Company will:
(i) violate, conflict with, result
in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the certificate of incorporation,
charter or bylaws of the Company or any of its affiliates, (B) to the Company's
knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company or any of its affiliates of any court,
governmental agency or body, or arbitrator having jurisdiction over the Company
or any of its affiliates or over the properties or assets of the Company or any
of its affiliates, (C) the terms of any bond, debenture, note or any other
evidence of indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the
Company or any of its affiliates is a party, by which the Company or any of its
affiliates is bound, or to which any of the properties of the Company or any of
its affiliates is subject, or (D) the terms of any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company, or any
of its affiliates is a party; or
(ii) result in the creation or
imposition of any lien, charge or encumbrance upon the Securities or
any of the assets of the Company, or any of its affiliates.
(g) The Securities. The Securities upon
issuance:
(i) are, or will be, free and clear
of any security interests, liens, claims or other encumbrances, subject to
restrictions upon transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and
validly authorized and on the date of issuance and on the Closing Date, as
hereinafter defined, and the date the Note is converted, and the Warrants are
exercised, the Securities will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted,
provided that the Subscriber complies with the Prospectus delivery
requirements);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company; and
(iv) will not subject the holders
thereof to personal liability by reason of being such holders.
(h) Litigation. There is no pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would affect
the execution by the Company or the performance by the Company of its
obligations under this Agreement, and all other agreements entered into by the
Company relating hereto. Except as disclosed in the Reports or Other Written
Information, there is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates.
(i) Reporting Company. The Company is a
publicly-held company subject to reporting obligations pursuant to Sections
15(d) and 13 of the Securities Exchange Act of 1934, as amended (the "1934 Act")
and has a class of common shares registered pursuant to Section 12(g) of the
1934 Act. The Company's common stock is trading on the NASD Over-The-Counter
Market ("OTC Market"). Pursuant to the provisions of the 1934 Act, the Company
has filed all reports and other materials required to be filed thereunder with
the Securities and Exchange Commission during the preceding twelve months except
as set forth in the Reports.
(j) 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 the Securities or affect the price at which the Securities
may be issued.
(k) Information Concerning Company. The
Reports and Other Written Information contain all material information
relating to the Company and its operations and financial condition
as of their respective dates which information is required to be disclosed
therein. Since the date of the financial statements included in the Reports, and
except as modified in the Other Written Information, there has been no material
adverse change in the Company's business, financial condition or affairs not
disclosed in the Reports. The Reports and Other Written Information do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(l) Dilution. The number of Shares issuable
upon conversion of the Note 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 of
the Note. The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize that
they 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 upon conversion of the Note and exercise of the
Warrants is binding upon the Company and enforceable, except as otherwise
described in this Subscription Agreement or the Note, regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.
(m)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 the Securities, except as may be required by federal securities
laws.
(n) Defaults. Neither the Company nor any of
its subsidiaries is in violation of its Certificate of
Incorporation or ByLaws. Neither the Company nor any of its subsidiaries is (i)
in default under or in violation of any other material agreement or instrument
to which it is a party or by which it or any of its properties are bound or
affected, which default or violation would have a material adverse effect on the
Company, (ii) in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to its knowledge in violation of any
statute, rule or regulation of any governmental authority which violation would
have a material adverse effect on the Company.
(o) No Integrated Offering. To the best
of its knowledge after due inquiry with regulatory authorities, 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 1933 Act or any
applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the NASD OTC Market, as applicable, 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.
(p) No General Solicitation. Neither the
Company, nor any of its affiliates, nor to its knowledge,
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) in connection with the offer or sale of the Securities.
(q) Listing. The Company's Common Stock
is listed for trading on the NASD OTC Market 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 NASD OTC
Market or that the Common Stock does not meet all requirements for the
continuation of such listing.
(r) No Undisclosed Liabilities. The Company
has no liabilities or obligations which are material, individually or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company's
businesses since December 31, 2000 and which, individually or in
the aggregate, would not reasonably be expected to have a material adverse
effect on the Company's financial condition.
(s) No Undisclosed Events or Circumstances.
Since December 31, 2000, no event or circumstance has
occurred or exists with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, under applicable law, rule
or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed
in the Reports.
(t) Capitalization. The authorized and
outstanding capital stock of the Company as of the date of
this Agreement and the Closing Date are set forth on Schedule 2 hereto. Except
as set forth in the Reports and Other Written Information, there are no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
(u) Correctness of Representations. The
Company represents that the foregoing representations and
warranties are true and correct as of the date hereof in all material respects,
will be true and correct as of the Closing Date, and, unless the Company
otherwise notifies the Subscriber prior to the Closing Date, shall be true and
correct in all material respects as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C. 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 Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the 1933 Act in the opinion of counsel reasonably satisfactory to the
Company, or (b) upon resale subject to an effective registration statement after
the Securities are registered under the 1933 Act. The Company agrees to
cooperate with the Subscriber 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 all reasonably requested
written representations from the Subscriber and selling broker, if any. If the
Company fails to remove any legend as required by this Section 4 (a "Legend
Removal Failure"), then beginning on the tenth (10th) day following the date
that the Subscriber has requested the removal of the legend and delivered all
items reasonably required to be delivered by the Subscriber, the Company
continues to fail to remove such legend, the Company shall pay to each
Subscriber or assignee holding shares subject to a Legend Removal Failure an
amount equal to one percent (1%) of the Purchase Price of the shares subject to
a Legend Removal Failure per day that such failure continues. If during any
twelve (12) month period, the Company fails to remove any legend as required by
this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee
holding Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities subject to
a Legend Removal Failure held by such Subscriber or assignee at a price per
share equal to 120% of the applicable Purchase Price.
5. Redemption. The Company may not redeem the
Securities without the consent of the holder of the Securities except as
otherwise described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the Subscriber
its fees of $15,000 for services rendered to Subscribers in connection with
this Agreement and the other Subscription Agreements for aggregate subscription
amounts of up to $750,000 (the "Offering"). The Company will pay the escrow
agent for the Offering a fee of $750. The Company will pay to the Fund Managers
identified on Schedule B hereto a cash fee in the amount of: eight percent (8%)
of the Purchase Price ("Fund Manager's Fee") and of the actual cash proceeds
received by the Company in connection with the exercise of the Warrants issued
in connection with the Offering ("Warrant Exercise Compensation"). The Fund
Manager's Fee must be paid each Closing Date with respect to the Notes issued
on such date. The Warrant Exercise Compensation must be paid to the Fund
Managers identified on Schedule B hereto, within ten (10) days of receipt of
the Warrant exercise "Purchase Price" (as defined in the Warrant). The Fund
Manager's Fee and legal fees will be payable out of funds held pursuant to a
Funds Escrow Agreement to be entered into by the Company, Subscriber and an
Escrow Agent. On the Closing Date, the Company will pay the Fund Manager
identified on Schedule B, the sum of $2,500 as an expense allowance ("Expense
Allowance").
(b) The Company will also issue and deliver to the
Subscribers (sometimes referred to as "Subscribers"), Warrants in the amounts
designated on Schedule B hereto in connection with the Initial Offering. A form
of Warrant is annexed hereto as Exhibit D. The per share "Purchase Price" of
Common Stock as defined in the Warrant shall be equal to the lesser of (i) 120%
of the average of the three lowest closing prices of the Common Stock as
reported by Bloomberg Financial for the Pink Sheets, the NASD OTC Bulletin
Board, NASDAQ SmallCap Market, NASDAQ National Market, American Stock Exchange,
or New York Stock Exchange (each of the foregoing the Principal Market"), or
such other principal market or exchange where the Common Stock is listed or
traded for the ten (10) trading days preceding but not including the Closing
Date or (ii) 120% of the average of the three lowest closing prices of the
Common Stock as reported by Bloomberg Financial on the Principal Market for the
ten trading days prior to but not including the date the Warrant is exercised.
The Warrants designated on Schedule B hereto must be delivered to the
Subscribers on the Closing Date. Failure to timely deliver the Warrant Exercise
Compensation, the Warrants or Fund Manager's Fee shall be an Event of Default as
defined in Article III of the Note.
(c) The Fund Manager's Fee, legal fees and escrow
agent's fee will be paid to the Fund Managers and attorneys only when, as, and
if a corresponding subscription amount is released from escrow to the Company
and out of the escrow proceeds. All the representations, covenants, warranties,
undertakings, remedies, liquidated damages, indemnification, rights in Section 9
hereof, and other rights but not including registration rights made or granted
to or for the benefit of the Subscriber are hereby also made and granted to the
Subscribers in respect of the Warrants and Company Shares issuable upon exercise
of the Warrants.
(d) The Company on the one hand, and the
Subscriber on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any other
persons claiming brokerage commissions or fund manager's fees except as
identified on Schedule B hereto on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby and arising out of such party's actions.
Except as set forth on Schedule B hereto, the Company represents that there are
no other parties entitled to receive fees, commissions, or similar payments in
connection with the offering described in the Subscription Agreement.
7. Covenants of the Company. The Company covenants and
agrees with the Subscriber as follows:
(a) The Company will advise the Subscriber,
promptly after it receives notice of issuance by the
Securities and Exchange Commission, 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.
(b) The Company shall promptly secure the
listing of the Company Shares, and Common Stock issuable
upon the exercise of the Warrants upon each national securities exchange, or
automated quotation system, if any, 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 Subscriber
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD
and applicable state authorities, in accordance with their
requirements, if any, 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 the Subscriber and promptly provide copies thereof
to Subscriber.
(d) Until at least two (2) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 10.1(iv) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of Shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Acts until the later of (y) two (2) years
after the actual effective date of the Registration Statement on Form SB-2
or such other Registration Statement described in Section 10.1(iv) hereof, or
(z) the sale by the Subscribers and Warrant Recipients of all the Company Shares
and Securities issuable by the Company pursuant to this Agreement. Until at
least two (2) years after the Warrants have been exercised, the Company will use
its commercial best efforts to continue the listing of the Common Stock on the
OTC Market, and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and NASDAQ.
(e) The Company undertakes to use the proceeds
of the Subscriber's funds for the purposes set forth on
Schedule 7(e) hereto. Purchase Price may not and will not be used to pay debt or
non-trade obligations outstanding on or after the Closing Date. A deviation from
the use of proceeds set forth on Schedule 7(e) of more than 10% per item or more
than 20% in the aggregate shall be deemed a material breach of the Company's
obligations hereunder.
(f) The Company undertakes to use its best
efforts to acquire, within three months of the Closing
Date, at a commercially reasonable cost, a standard officers and directors
errors and omissions liability insurance policy covering the transactions
contemplated in this Agreement.
(g) The Company undertakes to reserve pro rata
on behalf of each holder of a Note or Warrant, from its
authorized but unissued Common Stock, at all times that Notes or Warrants remain
outstanding, a number of Common Shares equal to not less than 200% of the amount
of Common Shares necessary to allow each such holder to be able to convert all
such outstanding Notes, at the then applicable Conversion Price and one Common
Share for each Common Share issuable upon exercise of the Warrants.
8. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify,
hold harmless, reimburse and defend Subscriber, Subscriber'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 Subscriber or any such person 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 other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the
Company's officers and directors 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 or any such person which
results, arises out of or is based upon (i) any misrepresentation by Subscriber
in this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by Subscriber of any covenant
or undertaking to be performed by Subscriber hereunder, or any other agreement
entered into by the Company and Subscribers relating hereto.
(c) The procedures set forth in Section 10.6
shall apply to the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) 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 Subscriber (or its nominee) or such other persons as designated by
Subscriber and in such denominations to be specified at conversion representing
the number of shares of common stock issuable upon such conversion. The Company
warrants that no instructions other than these instructions have been or will be
given to the transfer agent of the Company's Common Stock and that the Shares
will be unlegended, free-trading, and freely transferable, and will not contain
a legend restricting the resale or transferability of the Company Shares
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares to be sold or are otherwise exempt from
registration when sold.
(b) Subscriber will give notice of its
decision to exercise its right to convert the Note or part thereof by
telecopying an executed and completed Notice of Conversion (as defined in the
Note) to the Company via confirmed telecopier transmission. The Subscriber will
not be required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will or cause the transfer agent to transmit the Company's
Common Stock certificates representing the Shares issuable upon conversion of
the Note to the Subscriber via express courier for receipt by such Subscriber
within three (3) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). A Note representing the balance of the Note
not so converted will be provided to the Subscriber, if requested by Subscriber.
To the extent that a Subscriber elects not to surrender a Note for reissuance
upon partial payment or conversion, the Subscriber hereby indemnifies the
Company against any and all loss or damage attributable to a third-party claim
in an amount in excess of the actual amount then due under the Note.
(c) The Company understands that a delay in
the delivery of the Shares in the form required pursuant to Section 9 hereof,
or the Mandatory Redemption Amount described in Section 9.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as hereinafter defined)
could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay late payments to the
Subscriber for late issuance of Shares in the form required pursuant to Section
9 hereof upon Conversion of the Note or late payment of the Mandatory Redemption
Amount, 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 of Note principal amount 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 Subscriber, in the event that the Company fails for any reason to effect
delivery of the Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Subscriber 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 Subscriber 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 permitted by such law, any payments in excess of
such maximum shall be credited against amounts owed by the Company to the
Subscriber and thus refunded to the Company.
9.2. Mandatory Redemption. In the event the Company is
prohibited from issuing Shares, or fails to timely deliver Shares on a Delivery
Date, or upon the occurrence of an Event of Default (as defined in the Note) or
for any reason other than pursuant to the limitations set forth in Section 9.3
hereof, then at the Subscriber's election, the Company must pay to the
Subscriber ten (10) business days after request by the Subscriber or on the
Delivery Date (if requested by the Subscriber) a sum of money determined by
multiplying up to the outstanding principal amount of the Note designated by the
Subscriber by 130%, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) 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.
9.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates 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 provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 4.99% of
the outstanding shares of Common Stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99%. The Subscriber may void the conversion limitation
described in this Section 9.3 upon 75 days prior written notice to the Company.
The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other 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 such Subscriber
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 Subscriber to the extent Subscriber obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber'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 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 Subscriber 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 Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
9.6 Adjustments. The Conversion Price and amount of Shares
issuable upon conversion of the Notes and Put Notes shall be adjusted consistent
with customary anti-dilution adjustments.
10.1. Registration Rights. The Company hereby grants
the following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing
121 days after the Closing Date, but not later than three
years after the Closing Date ("Request Date"), the Company, upon a written
request therefor from any record holder or holders of more than 50% of the
aggregate of the Company's Shares issued and issuable upon Conversion of the
Notes (the Common Stock issued or issuable upon conversion of the Notes or
issuable by virtue of ownership of the Note, being, the "Registrable
Securities"), shall prepare and file with the SEC a registration statement under
the Act covering the Registrable Securities which are the subject of such
request, unless such Registrable Securities are the subject of an effective
registration statement. In addition, upon the receipt of such request, the
Company shall promptly give written notice to all other record holders of the
Registrable Securities that such registration statement is to be filed and shall
include in such registration statement Registrable Securities for which it has
received written requests within 10 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised
their demand registration right under this Section 10.1(i). As a condition
precedent to the inclusion of Registrable Securities, the holder thereof shall
provide the Company with such information as the Company reasonably requests.
The obligation of the Company under this Section 10.1(i) shall be limited to one
registration statement.
(ii) 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 S-4, S-8 or another form not available for registering the Registrable
Securities for sale to the public, provided the Registrable Securities are not
otherwise registered for resale by the Subscriber or Holder pursuant to an
effective registration statement, each such time it will give at least 30 days'
prior written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within 20 days after the giving of any such notice by the Company, to
register any of the Registrable Securities, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller"). In the event that any
registration pursuant to this Section 10.1(ii) 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 Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 10.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request
for registration is received by the Company pursuant to
Section 10.1(i), the Company has determined to proceed with the actual
preparation and filing of a registration statement under the 1933 Act in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account, such written request shall be deemed to have been
given pursuant to Section 10.1(ii) rather than Section 10.1(i), and the rights
of the holders of Registrable Securities covered by such written request shall
be governed by Section 10.1(ii).
(iv) The Company shall file with the
Commission within 30 days after the Closing Date (the "Filing
Date"), and use its reasonable commercial efforts to cause to be declared
effective 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 Act. The registration statement described in this
paragraph must be declared effective by the Commission within 120 days of the
Closing Date (as defined herein) ("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 300% of the Company Shares issuable at
the Conversion Price that would be in effect on the Closing Date or the date of
filing of such registration statement (employing the Conversion Price which
would result in the greater number of Shares), assuming the conversion of 100%
of the Notes. The Registrable Securities shall be reserved and set aside
exclusively for the benefit of the Subscriber, and not issued, employed or
reserved for anyone other than the Subscriber. 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 10.1(iv).
10.2. Registration Procedures. If and whenever the
Company is required by the provisions hereof to effect the
registration of any shares of Registrable Securities under the Act, the Company
will, as expeditiously as possible:
(a) prepare and file with the Commission 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 holders of Registrable Securities
("Sellers") copies of all filings and Commission letters of comment;
(b) prepare and file with the Commission
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 latest of: (i) twelve
months after the latest Maturity Date of a Note; (ii) thirty months after the
Closing Date; or (iii) until such registration statement has been effective for
a period of not less than 270 days, and comply with the provisions of the Act
with respect to the disposition of all of the Registrable Securities covered by
such registration statement in accordance with the Seller's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each
underwriter if any, such number of copies of the registration
statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate the
public sale or their disposition of the securities covered by such registration
statement;
(d) use its best efforts to register or
qualify the Seller's Registrable Securities covered by such
registration statement under the securities or "blue sky" laws of such
jurisdictions as the Seller 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 Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the 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;
(g) make available for inspection by the Seller,
any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
the Seller 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.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a
demand for registration has been made pursuant to Section 10.1(i) or a request
for registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration
hereunder, the Seller 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 10.1(i) or 10.1(ii) covering an
underwritten public offering, the Company and the Seller 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.
10.4. Non-Registration Events. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 30 days after
written request by the Holder and not declared effective by the Commission
within 90 days after such request (or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or such
other form described in Section 10.1(iv)), and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not
filed within 30 days of such written request, or is not declared effective by
the Commission 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 described in
Section 10.1(iv) 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 business
days of receipt by the Company of a written or oral communication from the
Commission that the registration statement described in Section 10.1(iv) will
not be reviewed, or (iii) any registration statement described in Sections
10.1(i), 10.1(ii) or 10.1(iv) 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 clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay, at the Subscriber's option, in cash or
stock at the applicable Conversion Price, 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 Notes 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 10.4 shall be due and payable within five (5) business days
after demand in immediately available funds. In the event a Mandatory Redemption
Payment is demanded from the Company by the Holder pursuant to Section 9.2 of
this Subscription Agreement, then the Liquidated Damages described in this
Section 10.4 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 also be deemed a
Non-Registration Event if at any time a Note is outstanding, there is less than
125% of the amount of Common Shares necessary to allow full conversion of such
Note at the then applicable Conversion Price registered for unrestricted resale
in an effective registration statement.
10.5. Expenses. All expenses incurred by the Company in
complying with Section 10, 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 National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, 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 Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any
Registrable Securities under the Act pursuant to Section 10, the Company will
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 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 was registered under the Act pursuant to
Section 10, 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 Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to the Seller to
the extent that any such damages arise out of or are based upon an untrue
statement or omission made in any preliminary prospectus if (i) the Seller
failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) 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 such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any
of the Registrable Securities under the Act pursuant to
Section 10, the Seller will indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the Act, each
officer of the Company who signs the registration statement, each director of
the Company, each underwriter and each person who controls any underwriter
within the meaning of the Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 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 Act pursuant to
Section 10, 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 officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
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 made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(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 10.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 10.6(c), except
and only 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 10.6(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
Act in any case in which either (i) the Seller, or any controlling person of the
Seller, makes a claim for indemnification pursuant to this Section 10.6 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 10.6 provides for
indemnification in such case, or (ii) contribution under the Act may be required
on the part of the Seller or controlling person of the Seller in circumstances
for which indemnification is provided under this Section 10.6; then, and in each
such case, the Company and the Seller 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 Seller 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, (y) the Seller 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 (z) 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.
10.7. Underwriter Liability. Nothing contained in this
Agreement or any document delivered herewith shall require or imply that the
Subscriber is or be an Underwriter as defined in the 1933 Act of 1934 Act, nor a
"statutory underwriter." The Subscriber shall not be required to take any action
or assume any liability or obligation which would or could impose Underwriter or
"statutory underwriter" status or liability on the Subscriber.
11. Offering Restrictions. Except (i) as disclosed in the
Reports or Other Written Information prior to the date of this Subscription
Agreement, and (ii) stock or stock options granted to employees or directors of
the Company pursuant to a plan which has been approved by the shareholders of
the Company (these exceptions hereinafter referred to as the "Excepted
Issuances"), the Company will not issue any equity, convertible debt or other
securities, prior to the expiration of a period equal to the later of (x) 270
days during which the registration statement described in Section 10.1(iv) above
has been effective, or (y) 12 months after the Closing Date, other than with
respect to a bona fide business acquisition of or by the Company. The Excepted
Issuances (other than (i) above) may be issued during the above described time
periods provided such securities are not transferable until after a time period
equal to one year during which the registration statement described in Section
10.1(iv) above has been effective.
12. Security Interest. As a condition of Closing, the Company
will deliver to the Subscriber Common Shares of the Company owned by certain
shareholders of the Company, together with signature guaranteed stock powers.
Collectively, the foregoing stock is referred to as "Security Shares." The
Security Shares will be held by the Subscriber pursuant to a Security Agreement.
Subscriber will be granted a security interest in certain assets of the Company
to be memorialized in a Security Agreement. The Company will also execute all
such documents reasonably necessary to memorialize and further protect the
security interest described above.
13. Miscellaneous.
(a) Notices. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided that a
copy is delivered by first class mail) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: (i) if to the
Company, to ValCom, Inc., 26030 Avenue Hall - Studio #5, Valencia, California
91355, telecopier number: (661) 257-1780, with a copy by telecopier only to:
Gregory Sichenzia, Esq., 135 West 50th Street, New York, New York 10020,
telecopier number: (212) 664-7329, and (ii) if to the Subscriber, to the name,
address and telecopy number set forth on the signature page hereto, with a copy
by telecopier only to Daniel M. Laifer, Esq., 135 West 50th Street, Suite 1700,
New York, New York 10020, telecopier number: (212) 541-4434.
(b) Closing. The consummation of the
transactions contemplated herein shall take place at the offices
of Daniel M. Laifer, Esq., 135 West 50th Street, Suite 1700, New York, New York
10020, upon the satisfaction of all conditions to Closing set forth in this
Agreement. The closing date shall be the date that subscriber funds representing
the net amount due the Company from the Purchase Price are transmitted by wire
transfer to the Company (the "Closing Date").
(c) Entire Agreement; Assignment. This
Agreement represents the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by both parties. No right or obligation of either party shall
be assigned by that party without prior notice to and the written consent of the
other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) Law Governing this Agreement. This
Agreement shall be governed by and construed in accordance with the laws of
the State of New York 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 New
York or in the federal courts located in the state of New York. 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.
(f) Specific Enforcement, Consent to
Jurisdiction. The Company and Subscriber acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity. Subject to Section 13(e)
hereof, each of the Company and Subscriber hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.
(g) Confidentiality. The Company agrees that
it will not disclose publicly or privately the identity of the Subscriber
unless expressly agreed to in writing by the Subscriber or only to the extent
required by law.
(h) Automatic Termination. This Agreement
shall automatically terminate without any further action of either party hereto
if the Closing shall not have occurred by the tenth (10th) business day
following the date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
VALCOM, INC.
A Delaware Corporation
By:_______________________
Name:
Title:
Dated: June 7, 2001
ATTEST:
By:___________________________________
Purchase Price: $750,000.00
-----------
Warrants: 545,454
ACCEPTED: Dated as of June 7, 2001
LAURUS MASTER FUND, LTD. - Subscriber
A Cayman Island corporation
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
By:______________________________
SCHEDULE B TO SUBSCRIPTION AGREEMENT
FUND MANAGER FUND MANAGER'S FEES AND WARRANT EXERCISE COMPENSATION
LAURUS CAPITAL MANAGEMENT, L.L.C. 8% Fund Manager's Fees and Warrant Exercise Compensation
135 West 50th Street, Suite 1700 payable in connection with investment and warrant
New York, New York 10020 exercise by Laurus Master Fund Ltd. for which Laurus
Fax: 212-541-4434 Capital Management, L.L.C. is the Fund Manager.
Recipient of $2,500 Expense Allowance described in Section 6(e) is: Laurus Capital Management, L.L.C.