Exhibit 4.1
CONVERTIBLE DEBENTURE
EXCHANGE AGREEMENT / CONVERSION OF NOTES
This Convertible Debenture Exchange Agreement (this "Agreement"), dated as of
February27, 2004, is entered into by and between Network Installation Corp., a
Nevada corporation (the "Company"), and Dutchess Private Equities Fund LP,
(the "Holder").
RECITALS
WHEREAS, the Holder currently has notes ("Notes"), executed on December 17, 2003
($35,000), January 9, 2004 ($125,00), February 2, 2004 ($75,000), and February
5, 2004 ($25,000) due and payable on their respective dates, and as of February
27, 2004, such amount owed by the Company to the Holder totals $260,000.
WHEREAS, the Holder hereby agrees to convert the entire outstanding amount
of the Notes of $260,000 into a Convertible Debentures ("Debentures"). Pursuant
to the Holder's rights of conversion, upon conversion of the Convertible
Debentures into the Company's common shares ("Stock") and for purposes of resale
of such Stock pursuant to Rule 144 or Rule 145, the date of consideration shall
remain respective to the original dates of the Notes mentioned above.
WHEREAS, the Holder desires to acquire, and the Company desires to issue
and sell to the Holder, a Convertible Debenture of the Company in exchange for
the Notes; and
WHEREAS, the parties hereto desire to enter into this Agreement.
Article 1 AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 Authorization. The Company has, or will have, duly authorized the sale
and issuance of up to $260,000 of Convertible Debentures having the rights,
restrictions, privileges and preferences set forth in the form of the
Certificate of Designation attached hereto as Exhibit A (the "Certificate of
Designation").
1.2 Agreement to Exchange. Subject to the terms and conditions of this
Agreement, the Company will sell and issue to the Holder, and the Holder will
acquire from the Company, $260,000 of Convertible Debentures of the Company in
exchange for the cancellation of the outstanding debt currently owed to the
Holder in the aggregate amount of $260,000 in the form of Notes.
1.3 No Public Solicitation. The Holder is not subscribing for the Debentures
as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person not previously known to the Holder in
connection with investments in securities generally.
1.4. Reserved
2. Representations of the Company. The Company hereby represents and
warrants to the Holder, that, to the extent applicable, all representations and
warranties of the Company set forth in the Subscription Agreement dated
September 23, 2003, are incorporated herein as though fully set forth. The
Company also agrees that all rights granted to the Holder as set forth in the
Subscription Agreement dated September 23, 2003 are also incorporated herein as
though fully set forth.
3. Representations of the Holder. The Holder represents and warrants to the
Company as follows:
3.1 Investment Intent. The Debentures, and the shares of Common Stock into
which the Debentures, may be converted or exercised (collectively, the
"Securities") are, or will be, acquired for the Holder's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act.
3.2 Reviews and Inspection. The Holder and his or its representatives and
legal counsel have been granted the opportunity to review and inspect the
Company's corporate books, financial statements, records, contracts, documents,
offices and facilities, and have been afforded an opportunity to ask questions
of the Company's officers, employees, agents, accountants and representatives
concerning the Company's business. Holder is relying on its own analysis
regarding the Company's operations, financial condition, assets, liabilities and
other relevant matters as Holder deemed necessary or desirable in order to
evaluate the merits and risks of the prospective investment contemplated herein.
Holder acknowledges that it has not relied upon any information given to Holder,
or any statements made, by the Company or any officers or directors of the
Company, except for the representations and warranties of the Company expressly
made herein.
3.3 Holder Due Diligence. The Holder and its representatives are solely
responsible for the Holder's own "due diligence" investigation of the Company
and its management and business and for Holder's analysis of the financial
future and viability of the Company and desirability of the terms of this
investment. Holder acknowledges that neither the Company nor any officer or
director of the Company is making any representation or warranty regarding the
Company's financial projections previously given to Holder or the assumptions
underlying such financial projections, as such financial projections are subject
to significant business, economic and other uncertainties and contingencies.
Holder acknowledges that if the Company is not able to operate profitably or
generate positive cash flows, the Company may have difficulty meeting its
obligations and may not be able to continue to operate its business, and Holder
could lose all of its investment. The Holder has such knowledge and experience
in financial and business matters that the Holder is capable of evaluating the
merits and risks of the purchase of the Securities pursuant to the terms of this
Agreement and of protecting the Holder's interest in connection therewith.
3.4 Accredited Investor Status. Holder is an "Accredited Investor" as that
term is defined in Rule 501 of Regulation D promulgated under the Securities Act
because each member of Holder is an "Accredited Investor" and Holder is able to
bear the economic risk of the purchase of the Securities pursuant to the terms
of this Agreement, including a complete loss of the Holder's investment in the
Securities.
3.5 Authority for Agreement. The Holder has the full right, power and
authority to enter into and perform the Holder's obligations under the this
Agreement, and the Agreement constitutes the valid and binding obligations of
the Holder enforceable in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and rules or laws concerning equitable remedies.
3.6 Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Holder is required in connection with the valid execution, delivery and
performance of this Agreement.
3.7 Not an Investment Company. Neither the Holder nor any of its members is
an "investment company" or a company controlled by an "investment company",
within the meaning of the Investment Company Act of 1940, or principally engaged
in, or undertaking as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock.
3.8 Tax Matters. The Holder has not relied on any statements or
representations of the Company or any of its agents with respect to the federal,
state, local and foreign tax consequences of this investment and the federal,
state, local and foreign tax consequences of transactions contemplated by this
Agreement. With respect to such matters, the Holder understands that it (and
not the Company) shall be responsible for its own tax liability that may arise
as a result of this investment or the transactions contemplated by this
Agreement.
4. Reserved
5. Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and there respective
successors and permitted assigns. Any party hereunder may assign neither this
Agreement nor any of the rights, interests or obligations without prior written
consent of the other party.
6. Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement; provided, however, that except as provided above,
such representations and warranties need only be accurate as of the date of such
execution.
7. Notices. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be delivered by hand or fax or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If, to the Company, at _____________________________________________,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Company to the Holder.
If to the Holder, __________________________________________________, Attention:
_______________, or at such other address or addresses as may have been
furnished in writing by the Holder to the Company.
Notices provided in accordance with this Section shall be deemed delivered
upon personal delivery or two business days after deposit in the mail.
8. Brokers. Each of the Holder and the Company (a) represents and warrants
to the other party that it has not retained any finders or brokers in connection
with the transactions contemplated by this Agreement, and (b) will indemnify and
save the other party harmless from and against any and all claims, liabilities
or obligations with respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated by this
Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by it.
9. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
10. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and the Holder. No waivers of or exceptions
to any term, condition or provision of this Agreement, in any one or
More instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
12. Section Headings. The Section headings are for the convenience of the
parties and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
13. Severability. Any part, provision, representation or warranty of this
Agreement that is prohibited or that is held to be void or unenforceable shall
be ineffective solely to the extent of such prohibition or non-enforceability
without invalidating the remaining provisions hereof.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Massachusetts (without regard to its
conflict of laws principles). The parties hereto irrevocably consent to the
exclusive personal jurisdiction of the federal and state courts located in
Massachusetts, as applicable, for any matter arising out of or relating to this
Agreement.
[Signature page follows]
DEBENTURE EXCHANGE AGREEMENT / NOTE CONVERSION
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written in the preamble of this Agreement.
"COMPANY":
NETWORK INSTALLATION CORP.
a Nevada corporation
By: /s/ Michael Cummings
____________________
"HOLDER":
By: /s/ Douglas Leighton
___________________
EXHIBIT A
Certificate of Designation
FOR VALUE RECEIVED, Network Installations Corpa Nevada corporation (the
"Company"), hereby promises to pay Dutchess Private Equities Fund, L.P. (the
"Holder") on the respective dates of Notes owed as outlined in the Convertible
Debenture Exchange Agreement - October 5, 2003 ($75,000), December 17, 2003
($35,000), January 9, 2004 ($125,00)), February 2, 2004 ($75,000), and February
5, 2004 ($25,000) (the "Maturity Dates"), the total principal amount of Two
Hundred and Sixty Thousand Dollars ($260,000) U.S., and to pay interest on the
principal amount hereof, in such amounts, at such times and on such terms and
conditions as are specified herein.
Tacking
The Company does hereby irrevocably agree to allow the Holder to "tack
back" to the original date of each Note as described above for the Date of
Consideration for the Debentures.
Interest
The Company shall pay interest on the unpaid principal amount of the
Debentures (the "Debenture") at the time of each conversion until the principal
amount hereof is paid in full or has been converted. The Debentures shall pay
six percent (6%) cumulative interest, in cash or in shares of common stock, par
value $.001 per share, of the Company ("Common Stock"), at the Holder's option,
at the time of each conversion. The closing shall be deemed to have occurred on
the dates of the respective Notes as outlined above ("Closing Date"). The
Debentures are subject to automatic conversion at the end of four (4) years from
the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 3.2.
Conversion
Conversion Privilege
The Holder of the Debentures shall have the right to convert it into shares of
Common Stock at any time following the Closing Date and which is before the
close of business on the Maturity Date, except as set forth in Section 3.1(c)
below. The number of shares of Common Stock issuable upon the conversion of the
Debentures is determined pursuant to Section 4.2 and rounding the result to the
nearest whole share.
The Debentures may not be converted, whether in whole or in part, except in
accordance with Article 3.
In the event all or any portion of the Debentures remains outstanding on the
Maturity Date, the unconverted portion of such Debenture will automatically be
converted into shares of Common Stock on such date in the manner set forth in
Section 3.2.
Conversion Procedure.
Conversion Procedures. The face amount of the Debentures may be converted, in
whole or in part, any time following the Closing Date. Such conversion shall be
effectuated by surrendering to the Company, or its attorney, the Debentures to
be converted together with a facsimile or original of the signed Notice of
Conversion which evidences Holder's intention to convert the Debenture
indicated. The date on which the Notice of Conversion is effective ("Conversion
Date") shall be deemed to be the date on which the Holder has delivered to the
Company a facsimile or original of the signed Notice of Conversion, as long as
the original Debenture(s) to be converted are received by the Company within
five (5) business days thereafter. At such time that the original Debenture has
been submitted to the Company, the Holder can elect to whether a reissuance of
the debenture is warranted, or whether the Company can retain the Debenture as
to a continual conversion by Holder. Notwithstanding the above, any Notice of
Conversion received by 4:00 P.M. EST, shall be deemed to have been received the
previous business day. Receipt being via a confirmation of time of facsimile of
the Holder.
Common Stock to be Issued. Upon the conversion of any Debentures and upon
receipt by the Company or its attorney of a facsimile or original of Holder's
signed Notice of Conversion the Company shall instruct its transfer agent to
issue stock certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement has been declared
effective (or with proper restrictive legend if the Registration Statement has
not as yet been declared effective), in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion, as applicable. The Company shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture. The Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely resold, except as may be set forth
herein.
Conversion Rate. Holder is entitled to convert the face amount of the
Debentures, plus accrued interest, anytime following the Closing Date, at the
lesser of (i) 75% of the lowest closing bid price during the fifteen (15)
trading days prior to the Conversion Date or (ii) 100% of the average of the
closing bid prices for the twenty (20) trading days immediately preceding the
Closing Date ("Fixed Conversion Price"), each being referred to as the
"Conversion Price". No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded up or down, as the case may be, to the nearest whole share.
Nothing contained in the Debentures shall be deemed to establish or require the
payment of interest to the Holder at a rate in excess of the maximum rate
permitted by governing law. In the event that the rate of interest required to
be paid exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically reduced to the
maximum rate permitted under the governing law and such excess shall be returned
with reasonable promptness by the Holder to the Company.
It shall be the Company's responsibility to take all necessary actions and to
bear all such costs to issue the Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the transfer agent,
if so required. The person in whose name the certificate of Common Stock is to
be registered shall be treated as a shareholder of record on and after the
conversion date. Upon surrender of any Debentures that are to be converted in
part, the Company shall issue to the Holder a new Debenture equal to the
unconverted amount, if so requested in writing by Holder.
Within three (3) business days after receipt of the documentation referred to
above in Section 3.2(a), the Company shall deliver a certificate, in accordance
with Section 3.2(c) for the number of shares of Common Stock issuable upon the
conversion. In the event the Company does not make delivery of the Common
Stock, as instructed by Holder, within three (3) business days after the
Conversion Date, then in such event the Company shall pay to Holder one percent
(1%) in cash, of the dollar value of the Debentures being converted, compounded
daily, per each day after the third (3rd) business day following the Conversion
Date that the Common Stock is not delivered to the Purchaser.
The Company acknowledges that its failure to deliver the Common
Stock within three (3) business days after the Conversion Date will cause the
Holder to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in the
Debentures a provision for liquidated damages. The parties acknowledge and
agree that the liquidated damages provision set forth in this section represents
the parties' good faith effort to quantify such damages and, as such, agree that
the form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not relieve the
Company from its obligations to deliver the Common Stock pursuant to the terms
of the Debentures.
To the extent that the failure of the Company to issue the Common
Stock pursuant to this Section 3.2(f) is due to the unavailability of authorized
but unissued shares of Common Stock, the provisions of this Section 3.2(f) shall
not apply but instead the provisions of Section 3.2(g) shall apply.
The Company shall make any payments incurred under this Section
3.2(f) in immediately available funds within three (3) business days from the
date the Common Stock is fully delivered. Nothing herein shall limit a Holder's
right to pursue actual damages or cancel the conversion for the Company's
failure to issue and deliver Common Stock to the Holder within three (3)
business days after the Conversion Date.
The Company shall at all times reserve (or make alternative written arrangements
for reservation or contribution of shares) and have available all Common Stock
necessary to meet conversion of the Debentures by all Holders of the entire
amount of Debentures then outstanding. If, at any time Holder submits a Notice
of Conversion and the Company does not have sufficient authorized but unissued
shares of Common Stock (or alternative shares of Common Stock as may be
contributed by Stockholders) available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to the Holder
all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), may be deemed null and void upon written notice sent
by the Holder to the Company. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all existing Holders of
outstanding Debentures, by facsimile, within three (3) business day of such
default (with the original delivered by overnight or two day courier), and the
Holder shall give notice to the Company by facsimile within five business days
of receipt of the original Notice of Conversion Default (with the original
delivered by overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures payments
for a Conversion Default ("Conversion Default Payments") in the amount of
(N/365) x (.24) x the initial issuance price of the outstanding and/or tendered
but not converted Debentures held by each Holder where N = the number of days
from the Conversion Default Date to the date (the "Authorization Date") that the
Company authorizes a sufficient number of shares of Common Stock to effect
conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, upon written notice sent by the Holder to the
Company, which Conversion Default shall be payable as follows: (i) in the event
Holder elects to take such payment in cash, cash payments shall be made to such
Holder of outstanding Debentures by the fifth day of the following calendar
month, or (ii) in the event Holder elects to take such payment in stock, the
Holder may convert such payment amount into Common Stock at the conversion
rate set forth in Section 3.2(c) at any time after the 5th day of the calendar
month following the month in which the Authorization Notice was received, until
the expiration of the mandatory four (4) year conversion period.
The Company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debentures will cause the Holder to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such liquidated damages
are reasonable and will not constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the Common
Stock pursuant to the terms of the Debentures. Nothing herein shall limit the
Holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
If, by the third (3rd) business day after the Conversion Date of any portion of
the Debentures to be converted (the "Delivery Date"), the transfer agent fails
for any reason to deliver the Common Stock upon conversion by the Holder and
after such Delivery Date, the Holder purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") solely in order to
make delivery in satisfaction of a sale of Common Stock by the Holder (the "Sold
Shares"), which delivery such Holder anticipated to make using the Common Stock
issuable upon conversion (a "Buy-In"), the Company shall pay to the Holder, in
addition to any other amounts due to Holder pursuant to the Debentures, and not
in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy In
Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
Covering Shares over (y) the net proceeds (after brokerage commissions, if any)
received by the Holder from the sale of the Sold Shares. The Company shall pay
the Buy-In Adjustment Amount to the Holder in immediately available funds within
five (5) business days of written demand by the Holder. By way of illustration
and not in limitation of the foregoing, if the Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions) of $11,000
to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which the Company will be
required to pay to the Holder will be $1,000.
Prospectus and Other Documents. The Company shall furnish to Holder such number
of prospectuses and other documents incidental to the registration of the shares
of Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
Limitation on Issuance of Shares. If the Company's Common Stock becomes listed
on the Nasdaq SmallCap Market after the issuance of the Debentures, the Company
may be limited in the number of shares of Common Stock it may issue by virtue of
(X) the number of authorized shares or (Y) the applicable rules and regulations
of the principal securities market on which the Common Stock is listed or
traded, including, but not necessarily limited to, NASDAQ Rule 4310(c)(25)(H)(i)
or Rule 4460(i)(1), as may be applicable (collectively, the "Cap Regulations").
Without limiting the other provisions thereof, (i) the Company will take all
steps reasonably necessary to be in a position to issue shares of Common Stock
on conversion of the Debentures without violating the Cap Regulations and (ii)
if, despite taking such steps, the Company still cannot issue such shares of
Common Stock without violating the Cap Regulations, the holder of a Debenture
which cannot be converted as result of the Cap Regulations (each such Debenture,
an "Unconverted Debenture") shall have the right to elect either of the
following remedies:
(x) if permitted by the Cap Regulations, require the Company to issue
shares of Common Stock in accordance with such holder's Notice of Conversion at
a conversion purchase price equal to the average of the closing bid price per
share of Common Stock for any five (5) consecutive trading days (subject to
certain equitable adjustments for certain events occurring during such period)
during the sixty (60) trading days immediately preceding the Conversion Date; or
(y) require the Company to redeem each Unconverted Debenture for an amount
(the "Redemption Amount"), payable in cash, equal to the sum of (i) one hundred
thirty-three percent (133%) of the principal of an Unconverted Debenture, plus
(ii) any accrued but unpaid interest thereon through and including the date (the
"Redemption Date") on which the Redemption Amount is paid to the holder.
A holder of an Unconverted Debenture may elect one of the above remedies
with respect to a portion of such Unconverted Debenture and the other remedy
with respect to other portions of the Unconverted Debenture. The Debentures
shall contain provisions substantially consistent with the above terms, with
such additional provisions as may be consented to by the Holder. The provisions
of this section are not intended to limit the scope of the provisions otherwise
included in the Debentures.
Limitation on Amount of Conversion and Ownership. Notwithstanding anything to
the contrary in the Debentures, in no event shall the Holder be entitled to
convert that amount of Debenture, and in no event shall the Company permit that
amount of conversion, into that number of shares, which when added to the sum of
the number of shares of Common Stock beneficially owned, (as such term is
defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of
1934, as may be amended, (the "1934 Act")), by the Holder, would exceed 4.99% of
the number of shares of Common Stock outstanding on the Conversion Date, as
determined in accordance with Rule 13d-1(j) of the 1934 Act. In the event that
the number of shares of Common Stock outstanding as determined in accordance
with Section 13(d) of the 1934 Act is different on any Conversion Date than it
was on the Closing Date, then the number of shares of Common Stock outstanding
on such Conversion Date shall govern for purposes of determining whether the
Holder would be acquiring beneficial ownership of more than 4.99% of the number
of shares of Common Stock outstanding on such Conversion Date.
Legend. The Holder acknowledges that each certificate representing the
Debentures, and the Common Stock unless registered pursuant to the Registration
Rights Agreement dated TTedDate of the original reg rights., shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(m) Prior to conversion of all the Debentures, if at any time the conversion of
all the Debentures and exercise of all the Warrants outstanding would result in
an insufficient number of authorized shares of Common Stock being available to
cover all the conversions, then in such event, the Company will move to call and
hold a shareholder's meeting or have shareholder action with written consent of
the proper number of shareholders within thirty (30) days of such event, or such
greater period of time if statutorily required or reasonably necessary as
regards standard brokerage house and/or SEC requirements and/or procedures, for
the purpose of authorizing additional shares of Common Stock to facilitate the
conversions. In such an event management of the Company shall recommend to all
shareholders to vote their shares in favor of increasing the authorized number
of shares of Common Stock. Management of the Company shall vote all of its
shares of Common Stock in favor of increasing the number of shares of authorized
Common Stock. Company represents and warrants that under no circumstances will
it deny or prevent Holder's right to convert the Debentures as permitted under
the terms of this Subscription Agreement or the Registration Rights Agreement.
Nothing in this Section shall limit the obligation of the Company to make the
payments set forth in Section 3.2(g). The investor, at their option, may
request the company to authorize and issue additional shares if the investor
feels it is necessary for conversions in the future In the event the Company's
shareholder's meeting does not result in the necessary authorization, the
Company shall redeem the outstanding Debentures for an amount equal to (x) the
sum of the principal of the outstanding Debentures plus accrued interest thereon
multiplied by (y) 133%.
Fractional Shares. The Company shall not issue fractional shares of Common
Stock, or scrip representing fractions of such shares, upon the conversion of
the Debentures. Instead, the Company shall round up or down, as the case may
be, to the nearest whole share.
Taxes on Conversion. The Company shall pay any documentary, stamp or similar
issue or transfer tax due on the issue of shares of Common Stock upon the
conversion of the Debentures. However, the Holder shall pay any such tax which
is due because the shares are issued in a name other than its name.
Company to Reserve Stock. The Company shall reserve the number of shares of
Common Stock required pursuant to and upon the terms set forth in the
Subscription Agreement to permit the conversion of the Debentures. All shares
of Common Stock which may be issued upon the conversion hereof shall upon
issuance be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof.
Restrictions on Sale. The Debentures has not been registered under the
Securities Act of 1933, as amended, (the "Act") and is being issued under
Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act.
The Debentures and the Common Stock issuable upon the conversion thereof may
only be sold pursuant to registration under or an exemption from the Act.
Mergers, Etc. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, it may thereafter be converted on
the terms and subject to the conditions set forth above into the kind and amount
of stock, securities or property receivable upon such merger, consolidation,
sale or transfer by a holder of the number of shares of Common Stock into which
the Debentures might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable to adjustments provided for in this Article 3.
Company Mandatory Redemption. The Holder, at its sole option, shall have the
right to exercise a "Mandatory Redemption" to redeem, in whole or in part, the
outstanding amount of the Debenture, as follows: The Holder must notify the
Company in writing, via facsimile transmission, that it is exercising its right
of Mandatory Redemption. In the event the Holder exercises such right of
Mandatory Redemption the Company shall pay the Holder in U.S. currency 130% of
that portion of the Debentures being redeemed, plus accrued but unpaid interest
and liquidated damages, if any. The redemption amount shall be paid to the
Holder within five (5) calendar days of the date the Company receives written
notice from the Holder of the Mandatory Redemption notice and if not paid in
such time the Company shall not be entitled to any further Mandatory Redemption.
Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under the Debentures and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Reports
The Company will mail to the Holder hereof at its address as shown on the
Register a copy of any annual, quarterly or current report that it files with
the Securities and Exchange Commission promptly after the filing thereof and a
copy of any annual, quarterly or other report or proxy statement that it gives
to its shareholders generally at the time such report or statement is sent to
shareholders.
Defaults and Remedies
Events of Default. An "Event of Default" occurs if (a) the Company does not
make the payment of the principal of the Debentures by conversion into Common
Stock within ten (10) business days of the Maturity Date, upon redemption or
otherwise, (b) the Company does not make a payment, other than a payment of
principal, for a period of three (3) business days thereafter, (c) any of the
Company's representations or warranties contained in the Subscription Agreement
or the Debentures were false when made or the Company fails to comply with any
of its other agreements in the Subscription Agreement or the Debentures and such
failure continues for the period and after the notice specified below, (d) the
Company pursuant to or within the meaning of any Bankruptcy Law (as hereinafter
defined): (i) commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian (as hereinafter defined) of it or for all or
substantially all of its property or (iv) makes a general assignment for the
benefit of its creditors or (v) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that: (A) is for relief against the
Company in an involuntary case; (B) appoints a Custodian of the Company or for
all or substantially all of its property or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for sixty (60)
calendar days, (e) the Company's Common Stock is suspended or no longer listed
on any recognized exchange including electronic over-the-counter bulletin board
for in excess of five (5) consecutive trading days. As used in this Section
7.1, the term "Bankruptcy Law" means Title 11 of the United States Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event of Default
until the holders of at least 25% of the aggregate principal amount of the
Debentures outstanding notify the Company of such default and the Company does
not cure it within thirty (30) business days after the receipt of such notice,
unless the Company commences to cure such default within such period, which must
specify the default, demand that it be remedied and state that it is a "Notice
of Default". Prior to the expiration of the time for curing a default as set
forth in the preceding sentence, the holders of a majority in aggregate
principal amount of the Debentures at the time outstanding (exclusive of
Debentures then owned by the Company or any subsidiary or affiliate) may, on
behalf of the holders of all of the Debentures, waive any past Event of Default
hereunder (or any past event which, with the lapse of time or notice and lapse
of time designated in subsection (a), would constitute an Event of Default
hereunder) and its consequences, except a default in the payment of the
principal of or interest on any of the Debentures. In the case of any such
waiver, such default or Event of Default shall be deemed to have been cured for
every purpose of the Debentures and the Company and the holders of the
Debentures shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other default
or impair any right consequent thereon.
Acceleration. If an Event of Default occurs and is continuing, the Holder
hereof by notice to the Company may declare the remaining principal amount of
the Debentures, together with all accrued interest and any liquidated damages,
to be due and payable. Upon such declaration, the remaining principal amount
shall be due and payable immediately.
Seniority, No indebtedness of the Company is senior to the Debentures in right
of payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise.
Registered Debentures
Record Ownership. The Company, or its attorney, shall maintain a register of
the holders of the Debentures (the "Register") showing their names and addresses
and the serial numbers and principal amounts of Debentures issued to them. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of the Debentures in the
Register as the sole owner of the Debentures. The Holder of the Debentures is
the person exclusively entitled to receive payments of interest on the
Debentures, receive notifications with respect to the Debentures, convert it
into Common Stock and otherwise exercise all of the rights and powers as the
absolute owner hereof.
Worn or Lost Debentures. If the Debentures becomes worn, defaced or mutilated
but is still substantially intact and recognizable, the Company or its agent may
issue a new Debenture in lieu hereof upon its surrender. Where the Holder of
the Debentures claims that the Debenture has been lost, destroyed or wrongfully
taken, the Company shall issue a new Debenture in place of the original
Debenture if the Holder so requests by written notice to the Company actually
received by the Company before it is notified that the Debenture has been
acquired by a bona fide purchaser and the Holder has delivered to the Company an
indemnity bond in such amount and issued by such surety as the Company deems
satisfactory together with an affidavit of the Holder setting forth the facts
concerning such loss, destruction or wrongful taking and such other information
in such form with such proof or verification as the Company may request.
Notice.
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of the Debentures must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Michael Cummings, CEO
Network Installations Corp
18 Technology Dr., Suite 140A,
Irvine, CA
Telephone: 949-753-7551
Facsimile: 949-753-7499
If to the Investor:
At the address listed in the Questionnaire.
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
Time
Where the Debentures authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of the Debentures. A "business day"
shall mean a day on which the banks in New York are not required or allowed to
be closed.
No Assignment
The Debentures shall not be assignable.
Rules of Construction.
In the Debentures, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of the Debentures
nor are they to be used in the construction or interpretation hereof. Wherever,
in the Debentures, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of the Debentures.
Governing Law
The validity, terms, performance and enforcement of the Debentures shall be
governed and construed by the provisions hereof and in accordance with the laws
of the Commonwealth of Massachusetts applicable to agreements that are
negotiated, executed, delivered and performed solely in the Commonwealth of
Massachusetts.
Litigation
Disputes subject to arbitration governed by massachusetts law
All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
IN WITNESS WHEREOF, the Company has duly executed the Debentures as of the
date first written above.
NETWORK INSTALLATION CORP.
By/s/ Michael Cummings
Name: Michael Cummings
Title: CEO
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By: /s/ Douglas Leighton
Name: Douglas H. Leighton
Title: A Managing Member