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Exhibit 10.12
SECOND WARRANT AND SENIOR SUBORDINATED CONVERTIBLE NOTE
PURCHASE AGREEMENT
SECOND WARRANT AND SENIOR SUBORDINATED CONVERTIBLE NOTE PURCHASE
AGREEMENT (the "Agreement"), dated as of March 15, 2000, among DYNACS INC., a
Delaware corporation (the "Company"), and each person who executes a counterpart
signature page to this Agreement and is listed as an investor on Schedule I
attached to this Agreement (individually, an "Investor" and collectively, with
the other investors in the Offering (as that term is defined below) as the
context may require, the "Investors"). Certain capitalized terms used in this
Agreement are defined in Section 8.16 hereof.
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and
the Investors desire to purchase from the Company, up to an aggregate principal
amount of $1,900,000 of the Company's Second Senior Subordinated Convertible
Promissory Notes, each substantially in the form of Exhibit A attached hereto
(collectively, the "Notes"), and Warrants in the form of Exhibit B attached
hereto (individually, a "Warrant" and collectively, the "Warrants") to purchase
shares ("Warrant Shares") of common stock of the Company, par value $.01 per
share (the "Common Stock"), on the terms and conditions set forth herein; and
WHEREAS, the Notes and the Warrants (together, the "Securities") are
being sold to the Investors in connection with the Company's private placement,
commencing February 8, 2000 (the "Offering"), of securities, consisting of the
Notes and the Warrants; and
WHEREAS, the Notes are convertible into Note Shares upon the occurrence
of a Liquidity Event, subject to certain limitations, at the Conversion Price,
or convertible into, or
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exchangeable for, Mezzanine Securities, at the election of each holder of a Note
if the Company consummates a Mezzanine Financing after the date of the first
issuance of any Notes; and
WHEREAS, the Warrants are exercisable for Warrant Shares at the
exercise price and on the other terms and conditions set forth in the Warrants;
and
WHEREAS, the Investors, as Registered Holders, have certain
registration rights pertaining to the Note Shares and the Warrant Shares
pursuant to the terms set forth herein and in the Notes and Warrants,
respectively;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase and Sale of Notes and Warrants. Upon the following
terms and conditions, the Company shall issue and sell to each Investor
severally, and not jointly, and each Investor severally, and not jointly, shall
purchase from the Company, the principal amount of Notes and Warrants for the
number of Warrant Shares, respectively, indicated next to such Investor's name
on Schedule I attached hereto.
Section 1.2 Purchase Price. The Notes shall be offered in $100,000
denominations (the "Purchase Price"), or fractions thereof at the option of the
Company. Each Investor shall also receive Warrants to purchase 15,000 shares of
Common Stock for each $100,000 in principal amount of Notes purchased by such
Investor.
Section 1.3 Closings. (a) The initial closing of the purchase and sale
of the Notes and the Warrants (the "Initial Closing") shall take place at the
offices of Frankfurt ▇▇▇▇▇▇ ▇▇▇▇▇ &
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▇▇▇▇, at 10:00 a.m., local time, or at such other time and location as may be
agreed upon by the Company and the Investors following acceptance by the Company
of one or more subscriptions for any Notes and Warrants on the later of the
following: (i) the date on which the last to be fulfilled or waived of the
conditions set forth in Article V hereof and applicable to the Closing Date is
fulfilled or waived in accordance herewith and (ii) such other time and place
and/or on such other date as the Investors and the Company may agree. Subsequent
Closings, if any, shall be held at such times as are agreed upon by the Company
and the Investors. The dates on which the Initial Closing and any subsequent
Closing occurs are each referred to herein as a "Closing Date."
(b) On each Closing Date, the Company shall either (i) deliver to each
Investor or ▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc. ("▇▇▇▇▇▇▇▇▇▇") on such Investor's behalf
a Note in the original principal amount set forth opposite such Investor's name
on Schedule I hereto, and a Warrant to purchase the number of Warrant Shares
registered in the name of such Investor or its nominee as is set forth opposite
such Investor's name on Schedule I hereto, or (ii) deposit such Note and Warrant
into accounts designated by such Investor or ▇▇▇▇▇▇▇▇▇▇ on such Investor's
behalf, and such Investor shall deliver to the Company the Purchase Price for
the principal amount of the Note purchased by such Investor hereunder by wire
transfer in immediately available funds to the escrow account maintained by
Escrow Agent for the Company and ▇▇▇▇▇▇▇▇▇▇. In addition, each party shall
deliver all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to such Closing Date.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Investors as of the date hereof and as of the Closing Date on which such
Investor purchases its Securities.
(a) Organization and Qualification; Material Adverse Effect. Each of
the Company and its Subsidiaries is a corporation duly incorporated and existing
in good standing under the laws of its respective jurisdiction of incorporation
and each of the Company and its Subsidiaries has the requisite corporate power
to own its properties and to carry on its business as now being conducted. As
indicated on Annex A attached hereto, the Company owns the percentage indicated
thereon of the outstanding capital stock of each Subsidiary. The Company does
not have any direct or indirect subsidiaries other than the Subsidiaries and
those entities listed on Annex B hereto. Each of the Company and the
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those jurisdictions in which the failure so to qualify would not have a Material
Adverse Effect.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Notes and the Warrants in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby, including the issuance of the Notes
and the Warrants, have been duly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required therefor, (iii) this Agreement has been duly
executed and delivered by
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the Company, and (iv) this Agreement constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock; without giving effect to the Offering or the Prior Offering, there are
4,768,750 shares of Common Stock and no shares of preferred stock issued and
outstanding. All of the outstanding shares of Common Stock have been validly
issued and are fully paid and non-assessable. There are no preemptive rights
with respect to shares of Common Stock other than the rights of holders of
record of shares of common stock of the Company's subsidiary, Cerulean FXs, Inc.
("Cerulean"), as set forth in Section 6 of that certain Exchange Agreement,
dated as of August 13, 1999, by and among the Company, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ Dallas, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and Offensive Group Associates,
LP. Without giving effect to the Offering or the Prior Offering (or the rights
of holders of the securities issued in connection therewith) or the obligation
of the Company to issue certain securities to ▇▇▇▇▇▇▇▇▇▇, but assuming the
exercise of other options and warrants or other rights currently outstanding to
acquire shares of Common Stock and the exchange or conversion of any other
currently outstanding securities of the Company that are convertible into or
exchangeable for, shares of Common Stock, there would be 5,778,500 shares of
Common Stock outstanding. Without giving effect to the Offering or the Prior
Offering (or the rights of holders of the securities issued in connection
therewith) or the Company's obligation to issue certain securities to
▇▇▇▇▇▇▇▇▇▇, there are outstanding options for 385,000 shares of Common
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Stock, and in addition, the holders of 20% of the issued and outstanding shares
of Cerulean have the right to convert such Cerulean shares into 624,750 shares
of the Company's Common Stock, subject to adjustment, and the Company has agreed
to issue to ▇▇▇▇▇▇▇▇▇▇ certain warrants to purchase shares of Common Stock and
other securities of the Company under certain conditions in connection with the
consummation of each of the Offering, the Prior Offering, any Mezzanine
Financing, and an initial public offering, if any, of Common Stock. Except as
indicated in this paragraph (c) or contemplated by this Agreement or disclosed
in the Documents, there are no other scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
exchangeable or convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, warrants, scrip, rights to subscribe for, or commitments to purchase
or acquire, any shares, or securities or rights convertible into shares, of
capital stock of the Company.
(d) Issuance of Common Shares. The Note Shares issuable upon conversion
of the Notes and the Warrant Shares issuable upon exercise of the Warrants are
duly authorized and will be, as of the applicable Closing Date, reserved for
issuance and, upon their issuance and such conversion in accordance with the
terms of the Notes or such exercise in accordance with the terms of the
Warrants, as the case may be, such Note Shares and Warrant Shares will be
validly issued, fully paid and non-assessable, free and clear of any and all
liens, claims and encumbrances, and the holders of such Note Shares and Warrant
Shares, as the case may be, shall be entitled to all rights and preferences
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby and
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thereby do not and will not (i) result in a violation of the charter or bylaws
of the Company or any of the Subsidiaries or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of the Subsidiaries is a
party, or result in a violation of any federal, state, local or foreign law,
rule, regulation, order, judgment or decree (including Federal and state
securities laws and regulations) applicable to the Company or any of the
Subsidiaries or by which any property or asset of the Company or any of the
Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect); provided
that: (A) for purposes of such representation as to Federal, state, local or
foreign law, rule or regulation, no representation is made herein with respect
to any of the same applicable solely to any of the Investors and not to the
Company or any of the Subsidiaries; and (B) the foregoing representation with
respect to any foreign law, rule or regulation is made herein to the best of the
Company's knowledge. Neither the business of the Company nor that of any of the
Subsidiaries is being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation nor, to the best
of its knowledge, any foreign law, rule or regulation to obtain any consent,
authorization or order of, or to make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Notes or the Warrants in
accordance with the terms hereof and issue the Note Shares upon conversion of
the Notes or the Warrant Shares upon exercise of
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the Warrants, except with respect to the registration provisions provided for
herein and "Blue Sky" filings with various states, provided that, for purposes
of the representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of each of the
Investors herein and the information contained in their respective Investor
Questionnaires.
(f) Documents; Financial Statements. The Company has delivered or made
available to the Investors itself or through ▇▇▇▇▇▇▇▇▇▇ true and complete copies
of the Offering Memorandum (as amended or supplemented) and each of the other
Documents.
(g) No Material Adverse Change. Since September 30, 1999, no event
which had or is likely to have a Material Adverse Effect has occurred or exists
with respect to the Company or any of the Subsidiaries, except the costs and
expenses of the Arbitration Proceedings and except as otherwise disclosed or
reflected in the Documents. Notwithstanding the foregoing, the financial summary
included in the Documents compiled from the unaudited financial statements of
the Company and its Subsidiaries for the fiscal year ended September 30, 1999
reflect a combined loss of $124,169 and, accordingly, as of September 30, 1999,
the Company had a working capital deficit of $2,241,040.
(h) No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities or obligations not disclosed in the Documents,
other than those liabilities incurred in the ordinary course of its respective
business since September 30, 1999, liabilities with respect to the ongoing
Arbitration Proceedings, liabilities or obligations, which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the Company
and the Subsidiaries, taken as a whole, and liabilities incurred in connection
with the sale of $1,000,000
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in principal amount of Senior Subordinated Convertible Notes in connection with
the Prior Offering.
(i) No General Solicitation. None of the Company, any of the
Subsidiaries nor, to the Company's knowledge, any of their respective Affiliates
or anyone acting on its or their behalf has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D
promulgated under the Securities Act) in connection with the Offering.
(j) No Integrated Offering. None of the Company, any of the
Subsidiaries, or, to the Company's knowledge, any of their respective
Affiliates, or anyone acting on its or, to the best of the Company's knowledge,
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 require registration of the Notes or the Warrants.
(k) Intellectual Property. Each of the Company and the Subsidiaries
owns or has licenses to use certain patents, copyrights and trademarks
("intellectual property") associated with its respective business. Each of the
Company and the Subsidiaries has all intellectual property rights which the
Company reasonably believes are needed to conduct its business as it is now
being conducted. The Company has no reason to believe that the intellectual
property rights owned by the Company or any of the Subsidiaries are invalid or
unenforceable or that the use of such intellectual property by the Company or
any of the Subsidiaries infringes upon or conflicts with any right of any third
party, and neither the Company nor any of the Subsidiaries has received notice
of any such infringement or conflict. Except in connection with the Arbitration
Proceedings and infringement notices sent on behalf of Cerulean or its
predecessor between 1996 and 1998, and the intellectual property which is the
subject matter thereof, the Company has no
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knowledge of any infringement by any third party of the intellectual property
rights of the Company or any of the Subsidiaries.
(l) No Litigation. Except with respect to the Arbitration Proceedings
or as set forth in the Documents, no litigation or claim (including those for
unpaid taxes) against the Company or any of the Subsidiaries is pending or, to
the Company's knowledge, threatened, and no other event has occurred, which, if
determined adversely, would have a Material Adverse Effect on the Company and
the Subsidiaries, taken as a whole, or would materially adversely effect the
transactions contemplated hereby.
(m) Brokers. The Company has taken no action which would give rise to
any claim by any person, other than ▇▇▇▇▇▇▇▇▇▇, for brokerage commissions,
finder's fees or similar payments by any Investor relating to this Agreement or
the transactions contemplated hereby.
(n) Unsecured Obligations; Subordination. The Notes and the amounts
payable thereunder, including principal and accrued interest, are unsecured
obligations of the Company, and shall be subordinate and junior to indebtedness
incurred by the Company pursuant to: (i) currently existing equipment
financings; (ii) currently existing debt of $585,000 secured by certain revenues
pursuant to a Loan Agreement dated May 10, 1999; and (iii) up to an aggregate of
$6,000,000 of indebtedness of the Company currently existing or hereinafter
incurred by the Company under a working capital facility with First National
Bank of Florida, or the renewal, modification, refinancing or replacement
thereof with a financial institution, bank or commercial lender. Except as set
forth in the preceding sentence, the Notes shall not be subordinate or junior to
any other indebtedness of the Company.
Section 2.2 Representations and Warranties of the Investors. Each of
the Investors, severally, and not jointly, hereby makes the following
representations and warranties to the
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Company and each of the Subsidiaries as of the date hereof and on the Closing
Date applicable to such Investor.
(a) Authorization; Enforcement. (i) Such Investor has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Notes and the Warrants being sold to it hereunder, (ii) the execution and
delivery of this Agreement by such Investor and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate, company or partnership action, as required, and (iii) this
Agreement constitutes the valid and binding obligation of such Investor
enforceable against such Investor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of such Investor's
organizational documents, or (ii) conflict with any agreement, indenture, or
instrument to which such Investor is a party, or (iii) result in a violation of
any law, rule, or regulation or any order, judgment or decree of any court or
governmental agency applicable to such Investor. Such Investor is not required
to obtain any consent or authorization of any governmental agency in order for
it to perform its obligations under this Agreement.
(c) Investment Representation. Such Investor is purchasing the Notes
and the Warrants for its own account and not with a view to the resale or
distribution thereof or any part thereof. Such Investor has no present intention
to sell the Notes or the Warrants and such
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Investor has no present intention to sell, transfer, assign, pledge or otherwise
hypothecate any of the Securities or any rights therein to or through any Person
in violation of any securities laws. The Company acknowledges that the Investors
have the rights to (i) convert their Notes into Note Shares, (ii) exercise the
Warrants for shares of Common Stock, and (iii) demand registration of their
Registrable Securities or participate in a registration of equity securities of
the Company on a piggyback basis, all as set forth herein and in the Notes and
the Warrants, and nothing contained in this paragraph (c) is intended to
restrict the Investors in the exercise of any such rights.
(d) Limitations on Transferability; Rule 144; Lock-Up Agreements. Such
Investor understands that: (i) there is no public trading market for the Notes,
the Warrants, the Note Shares, the Warrant Shares or the Mezzanine Securities
and that no such trading market is expected to develop; (ii) the Notes must be
held until repaid in full unless the Notes are (A) converted pursuant to their
terms or (B) registered under the Securities Act or an exemption from such
registration is available and the Company receives an opinion of counsel,
acceptable to the Company in its sole discretion, that such exemption is
available for such Investor's proposed disposition; (iii) the Warrants must be
held indefinitely unless (A) the Warrants are exercised in accordance with the
terms thereof or they are registered under the Securities Act and applicable
state securities law or (B) an exemption from such registration is available and
the Company receives an opinion of counsel, acceptable to the Company in its
sole discretion, that such exemption is available for such Investor's proposed
disposition; (iv) the Warrant Shares and the Note Shares must be held
indefinitely unless (A) such Warrant Shares or the Note Shares, as the case may
be, are registered under the Securities Act or (B) an exemption from such
registration is available and the Company receives an opinion of counsel,
acceptable to the Company in its sole
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discretion, that such exemption is available for such Investor's proposed
disposition; and (v) the Securities and the Registrable Securities will be
subject to (A) a lock-up agreement to be signed by such Investor imposing
restrictions on the transfer or other disposition of such securities for a
period of 180 days following the effective date of the registration statement,
if any, filed by the Company in connection with an initial public offering of
securities of the Company or such longer period as the NASD may require and (B)
such other restrictions on transfer as the NASD may require in connection with
such initial public offering (each such agreement or requirement, a "Lock-Up
Agreement"). Such Investor agrees not to transfer or otherwise dispose of the
Securities or the Registrable Securities, directly or indirectly, except (1) in
compliance with the terms of this Agreement, the Securities Act and applicable
state securities laws, (2) as to securities subject to any Lock-Up Agreement,
with the prior written consent of ▇▇▇▇▇▇▇▇▇▇ or if the transfer or other
disposition is made to any Affiliate of such Investor, as a bona fide gift or to
any trust. Such Investor has also been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act restricting the transfer of
securities under certain circumstances; and such Investor understands and agrees
that each Note, Warrant and certificate representing Note Shares or Warrant
Shares shall bear a legend substantially in the form of the legend set forth in
Article VI hereof.
(e) Accredited Investor. Such Investor is an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act, on the basis set forth
in such Investor's Investor Questionnaire. Such Investor knows that an
investment in the Securities is illiquid and involves a high degree of risk,
including, without limitation, (i) the potential loss of such Investor's entire
investment and (ii) the risks set forth in the Offering Memorandum. Such
Investor has such knowledge and experience in financial and business matters in
general and investments in
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particular, that such Investor is able to evaluate the merits and risks of an
investment in the Securities and to protect its own interests in connection with
such investment. Such Investor has been afforded the opportunity to ask
questions of the Company and its authorized representatives and request
information regarding the Company and/or its subsidiaries and their business
operations and all other information which such Investor deems necessary or
appropriate in deciding whether to invest in the Securities pursuant hereto, and
such Investor has received satisfactory responses to such questions and all such
information requested from the Company. Such Investor understands that an
investment in the Securities involves a high degree of risk and is capable of
sustaining the loss of such Investor's entire investment in the Securities.
(f) Brokers. Such Investor has taken no action which would give rise to
any claim by any Person for brokerage commissions, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby.
(g) Confidentiality. Such Investor understands that breach of the
covenant contained in Section 3.2 hereof relating to confidentiality and
non-disclosure of certain non-public information could result in a violation by
such Investor and the Company of federal securities laws and that the Company is
relying upon such covenant to avert a breach of such laws.
(h) Reliance by the Company. Such Investor understands that the Notes
and the Warrants are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Investor set forth herein and in such Investor's Investor Questionnaire in
order to determine the applicability of such exemption and the suitability of
such Investor to acquire the Notes and the Warrants.
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(i) ERISA. No part of the funds used by such Investor to purchase
Securities hereunder constitutes assets of any "employee benefit plan" (as
defined in Section 3(3) of ERISA or "plan" (as defined in Section 4975 of the
Internal Revenue Code of 1986, as amended, or any successor statute thereto).
(j) NASD Affiliation. All information provided by such Investor in its
Investor Questionnaire with respect to such Investor's status as an Affiliate of
any member of the NASD, or such Investor's association with any member of the
NASD (including, without limitation, ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇) or any related
person is true, complete and correct.
ARTICLE III.
COVENANTS
Section 3.1 Covenants of the Company.
(a) Certificates on Conversion and Exercise.
(i) Certificates on Conversion. Upon any conversion of the
Notes by an Investor or its Permitted Transferee, as the case may be,
the Company shall issue and deliver to such Investor or its Permitted
Transferee, as the case may be, within a reasonable time following the
Conversion Date, one or more certificates for Note Shares in accordance
with the terms of the Note.
(ii) Certificates upon Exercise. Upon any exercise of a
Warrant by an Investor or its Permitted Transferee, the Company shall
issue and deliver to such Investor or Permitted Transferee, as the case
may be, as soon as practicable after each such exercise, a certificate
or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of such Investor or Permitted Transferee, as the
case may be. If any Warrant should be exercised in part only, the
Company shall, upon surrender of such Warrant for
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cancellation, execute and deliver a new Warrant evidencing the right of
an Investor or its Permitted Transferee, as the case may be, to
purchase the Warrant Shares (or portions thereof) as to which the
Warrant may be but has not been exercised.
(b) Replacement Certificates. Any Note held by any Investor or
Permitted Transferee, upon its reasonable request, may be exchanged by such
Investor or Permitted Transferee, respectively, at any time and from time to
time for a replacement Note or Notes with different principal amounts,
representing, in the aggregate, the same principal amount as that of the Note
being replaced, upon the surrender thereof. Any warrant certificate representing
a Warrant held by any Investor or Permitted Transferee may be exchanged by such
Investor or Permitted Transferee at any time and from time to time for warrant
certificates exercisable for the aggregate number of Warrant Shares to which
such Registered Holder of such warrant certificate is entitled, as reasonably
requested by such Registered Holder upon surrendering the same. No service
charge will be payable for such registration, transfer or exchange.
(c) Securities Compliance. The Company shall take all necessary action
as may be required and permitted by applicable law, rule and regulation for the
legal and valid issuance of the Notes and the Warrants hereunder and the Note
Shares issuable upon conversion of the Notes and the Warrant Shares issuable
upon exercise of the Warrants.
(d) Notices. The Company agrees to provide all Registered Holders of
Notes and/or Note Shares and Warrants and/or Warrant Shares with copies of all
notices and information, including, without limitation, notices and proxy
statements in connection with any stockholder meetings, that are provided to the
holders of shares of Common Stock, contemporaneously with the delivery of such
notices or information to such Common Stockholders; provided, however, that
anything contained herein to the contrary notwithstanding, the Company shall not
be
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obligated to provide any notices or information to any Registered Holders that
are not stockholders of the Company if the Company reasonably believes that to
do so would violate any law, rule or regulation to which the Company or any of
its subsidiaries is or may be subject or by which any of them is or may be
bound.
(e) Reservation of Stock Issuable Upon Conversion or Exercise. The
Company shall at all times reserve and keep available out of its authorized but
unissued Common Stock, solely for the purpose of effecting the conversion of the
Notes and the exercise of the Warrants, such number of shares of its Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding Notes and the exercise of all outstanding Warrants, and if, at any
time, the number of authorized but unissued shares of Common Stock is not
sufficient to effect such conversion and such exercise, the Company shall take
such corporate action as may, in the opinion of its counsel, be necessary to
increase the number of its authorized but unissued shares of Common Stock to
such number of shares as will be sufficient for such purpose, including, without
limitation, engaging in commercially reasonable efforts to obtain the requisite
stockholder approval.
(f) Financial Statements and Reports. The Company shall provide to each
Investor or its Permitted Transferee, until the earlier of (i) the discharge in
full, through repayment or conversion, of all Notes held by such Investor or
Permitted Transferee and the exercise of all Warrants held by such Investor or
Permitted Transferee and (ii) the Company becomes subject to the reporting
requirements of the Exchange act, copies of all quarterly and audited annual
financial statements prepared by or on behalf of the Company, other reports
prepared by or on behalf of the Company for public disclosure and all documents
delivered to all stockholders of the Company; provided, however, that anything
contained herein to the contrary notwithstanding,
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the Company shall not be obligated to provide any documents to any Registered
Holders that are not stockholders of the Company if the Company reasonably
believes that to do so would violate any law, rule or regulation to which the
Company or any of its subsidiaries is or may be subject to by which any of them
is or may be bound.
(g) Use of Proceeds. The Company shall use the net proceeds of the
Offering for working capital. The Company shall not use any of the net proceeds
to repay any unsecured indebtedness for borrowed money of the Company.
3.2 Covenants of Investors and Permitted Transferees.
(a) Confidentiality. Each Investor acknowledges and agrees that (i)
such Investor has received certain information concerning the Company and its
Affiliates, and their business and financial plans which has not been disclosed
publicly ("Confidential Information") in connection with the Offering and (ii)
may receive additional Confidential Information from the Company pursuant to the
Company's obligations under this Agreement. Each Investor agrees that, except as
otherwise expressly provided in this Agreement, such Investor shall not disclose
or permit the disclosure of any Confidential Information to any party or parties
other than its officers, directors and employees and professional advisers, and
then only after each such party has agreed to abide by the terms of this
paragraph (a). The non-disclosure obligations set forth in this paragraph (a)
shall not apply to Confidential Information which: (A) is already known to such
Investor from sources other than the Company, any of its subsidiaries,
▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇▇▇▇ or any of their respective officers, directors,
employees, partners, stockholders, agents, representatives, advisers or
Affiliates; (B) becomes generally available to the public other than as a result
of a disclosure by such Investor or any of its officers, employees, directors,
employees partners, stockholders,
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agents, representatives, advisers or Affiliates; or (C) is disclosed in
compliance with the requirements of any law or regulatory or judicial process.
(b) Lock-Up Agreements. Each Investor hereby agrees to execute and
deliver a Lock-Up Agreement providing that such Investor agrees not to transfer
or otherwise dispose of the Securities or the Registrable Securities, directly
or indirectly, (i) for a period of 180 days following the effective date of the
registration statement, if any, filed by the Company in connection with an
initial public offering of securities of the Company, or (ii) on such other
terms and conditions as may be required of any stockholders of the Company by
the NASD in connection with such offering.
ARTICLE IV.
REGISTRATION
Section 4.1 Piggyback Registration. If, at any time during the
five-year period commencing six (6) months after the Company initially becomes
subject to the reporting requirements of Section 13 or Section 15(g) under the
Exchange Act (the "Registration Period"), the Company proposes to register any
of its securities under the Securities Act (other than in connection with (a)
the Company's initial public offering, (b) a transaction contemplated by Rule
145(a) promulgated under the Securities Act or any successor regulation or (c)
pursuant to Form S-8 or S-4 (or their respective successor forms)), the Company
shall give written notice of the Company's intention to do so by registered or
certified mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Registered Holders of the Registrable Securities
(each such Notice, a "Registration Notice"). Upon the written request by a
Registered Holder given within ten (10) days after receipt of a Registration
Notice, that any of such Holder's Registrable Securities be included in such
proposed registration statement (a "Registration
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Request"), the Company shall afford such Registered Holder the opportunity to
have such Registrable Securities registered under such registration statement.
(i) Notwithstanding the provisions of this Section 4.1, the
Company shall have the right at any time after giving a Registration
Notice pursuant to this Section 4.1 to the Registered Holders
(irrespective of whether a Registration Request shall have been made
with respect to any Registrable Securities) to elect not to file any
such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
(ii) If any registration pursuant to this Section 4.1 is
underwritten in whole or in part, the Company may require that the
Registrable Securities subject to a Registration Request received from
a Registered Holder be included in the underwriting on the same terms
and conditions as the securities otherwise being underwritten, and then
only in such quantity as, together with all other Registrable
Securities subject to any such Registration Request, will not, in the
opinion of the Managing Underwriter, jeopardize the success of the
underwritten public offering by the Company. In the case of (a) a
primary registration statement on behalf of the Company or (b) a
secondary registration statement on behalf of holders of securities of
the Company exercising a right to request or demand registration, if,
in the opinion of the Managing Underwriter, the registration of the
number of Registrable Securities subject to Registration Requests would
adversely affect such public offering, then the Company shall be
required to include in the underwriting only that number of Registrable
Securities, in addition to all other securities to be sold by the
Company or any other stockholders of the Company, which the Managing
Underwriter believes may be sold without causing such adverse effect.
The Registrable Securities to
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be so included in a registered offering shall be included in such
registration in the following order of priority: First, the securities
which the Company proposes to sell, in a primary offering or the
securities requested to be included therein by securityholders
exercising rights to demand registration or any unfulfilled automatic
rights to registration in the case of a secondary registration; and,
second, shares as to which there are piggyback registration rights. If
less than all shares in either group are to be registered by reason of
the Managing Underwriter's cutback, the shares within a group shall be
allowed to participate in such underwriting on a pro rata basis based
upon the number of securities requested to be included by each
participating stockholder, but in the case of any Registered Holders
pursuant to their respective Registration Requests.
Section 4.2 Demand Registration.
(a) At any time during the Registration Period, the Majority
Holders shall have the right (which right is in addition to the registration
rights under Section 4.1 hereof), exercisable by written notice to the Company
(each such notice, a "Demand Registration Notice"), to require the Company to
prepare and file with the Commission, on one (1) occasion only, a registration
statement and such other documents, including a prospectus, as may be necessary,
in the opinion of counsel for the Company, counsel for the underwriters, if any,
and counsel, if any, for the Majority Holders, to comply with the provisions of
the Securities Act so as to permit a public offering and sale of their
respective Registrable Securities for the period specified hereinbelow by such
Majority Holders and any other Registered Holders of Registrable Securities who
give written notice to the Company (a "Demand Registration Response") within ten
(10) days after receiving notice from the Company of such demand (each such
notice, a "Registration Notice"), provided that the Company is subject to the
reporting requirements of the
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Exchange Act at the time the Company receives the Demand Registration Notice and
the Demand Registration Response. Within ten (10) days after the Company's
receipt of such Demand Registration Notice, the Company shall give a
Registration Notice to all other Registered Holders of Registrable Securities of
such Demand Registration Notice. Anything contained herein to the contrary
notwithstanding, the Majority Holders shall not have the right to demand
registration as provided in this Section 4.2 if, within the preceding six-month
period, the Registered Holders had the opportunity, whether or not exercised, to
register their Registrable Securities pursuant to Section 4.1 hereof.
(b) The Company covenants and agrees to give a Registration Notice with
respect to its receipt of any Demand Registration Notice from any Registered
Holder under this Section 4.2 to all other Registered Holders of the Notes
and/or Note Shares, Warrants and Warrant Shares within ten (10) days of the
receipt of any such Demand Registration Notice.
(c) Each Investor acknowledges and agrees that the right to demand
registration of Registrable Securities set forth in this Section 4.2 shall not
be in addition to any rights of such Investor to demand registration pursuant to
the terms of any Note and/or Warrant issued to such Investor.
Section 4.3 Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
(a) to use commercially reasonable efforts to file a registration
statement within forty-five (45) days of the Company's receipt of a Registration
Request or a Demand Registration Notice, which request or demand triggers the
Company's obligation to register securities of any Registered Holders pursuant
to Section 4.1 or 4.2 hereof, respectively, and to cause such registration
statement to be declared effective at the earliest possible time;
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(b) to pay all costs (excluding transfer taxes, if any, and any
underwriting or selling commissions), fees and expenses in connection with all
registration statements filed pursuant to Section 4.1 or 4.2 hereof including,
without limitation, the Company's legal and accounting fees, printing expenses
and blue sky fees and expenses;
(c) as expeditiously as possible, to prepare and file with the
Commission any amendments and supplements to the registration statement and the
prospectus included in the registration statement as may be necessary to keep
the registration statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Securities covered
thereby or two hundred seventy (270) days after the effective date thereof;
(d) as expeditiously as possible, to furnish to each Seller such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Seller may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities owned by such
Seller pursuant to Section 4.1 or 4.2 hereof;
(e) as expeditiously as possible, to use its commercially reasonable
efforts to register or qualify the Registrable Securities covered by the
registration statement under the securities or blue sky laws of such states as
each Seller reasonably requests, and do any and all other acts and things that
may be necessary or desirable to enable each Seller to consummate the public
sale or other disposition in such states of the Registrable Securities owned by
such Seller; provided, however, that the Company shall not be required in
connection with this subsection (e) to qualify as a foreign corporation in any
jurisdiction in which it is not already obligated to qualify or
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execute or file a general consent to service of process in any jurisdiction or
subject itself to the laws of any jurisdiction other than the United States or
any state thereof;
(f) if the registration statement relates to an underwritten offering,
to enter into and perform its obligations under an underwriting agreement in the
usual and customary form, including, without limitation, customary
indemnification and contribution obligations;
(g) to notify each Seller at any time when a prospectus relating to
Registrable Securities covered by the registration statement is effective, of
the happening of any event as a result of which the prospectus included in the
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. The Company shall use commercially reasonable
efforts promptly to amend or supplement the registration statement to correct
any such untrue statement or omission;
(h) to notify each Seller of the issuance by the Commission or any
state securities commission or similar regulatory body of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose. The Company will make every commercially
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible time;
(i) if, after the Company shall have delivered preliminary or final
prospectuses to a Seller, the prospectus is amended to comply with the
provisions of the Securities Act or is otherwise amended or supplemented, the
Company shall promptly notify each Seller. In the event of such notification,
the Sellers shall immediately cease making offers of Registrable Securities and,
if requested, shall return all prospectuses to the Company. The Company shall
promptly provide each Seller with revised prospectuses and, following its
receipt of the revised
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prospectuses, each Seller shall be free to resume making offers of the
Registrable Securities, subject only to applicable law and the terms of any stop
order of the Commission or any state securities commission or similar regulatory
body.
(j) permit a single law firm, if any, designated by the Majority
Holders as counsel to the Registered Holders, to review the Registration
Statement and all amendments and supplements thereto within a reasonable period
of time prior to the filing thereof, and shall not file any document in a form
to which such counsel reasonably objects.
(k) the Company shall make available for inspection by the Registered
Holders and any representative of all Registered Holders, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney or accountant retained by any Registered Holder or underwriter, all
financial and other records customary for purposes of a due diligence
examination of the Company by the Registered Holders or such underwriters, as
the case may be, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such registration statement, provided
that such parties agree to keep all such records, documents, properties and
information confidential.
(l) In the event that the Company registers any of the Registrable
Securities under the Securities Act, the Company will indemnify and hold
harmless each of the Sellers and each underwriter of the Registrable Securities
so registered (including any broker or dealer through whom such Registrable
Securities may be sold pursuant to the applicable underwriting agreement) and
their respective officers, directors, Affiliates and each Controlling Person, if
any, of such Seller or any such underwriter, from and against (i) any and all
losses, claims, damages,
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expenses or liabilities, joint or several, as incurred, to which they or any of
them becomes subject under the Securities Act, applicable state securities laws
or under any other statute or at common law or otherwise, and (ii) except as
hereinafter provided, will reimburse each such Seller, underwriter and
Controlling Person, if any, for any legal or other expenses such Seller,
underwriter and/or Controlling Person, respectively, reasonably incurred in
connection with investigating or defending any actions whether or not resulting
in any liability, as incurred, but only insofar as such losses, claims, damages,
expenses, liabilities or actions set forth in the preceding clauses (i) and (ii)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the registration statement, in any preliminary
or amended preliminary prospectus or in the final prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented by the Company), in any application or other document executed by
the Company or based upon information furnished and filed by the Company in any
jurisdiction in order to qualify the securities under the securities laws
thereof or filed with the Commission, the NASD, the Nasdaq Stock Market or any
securities exchange, 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 in order to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act or any state securities laws applicable to the Company and
relating to action or inaction required of the Company in connection with such
registration, unless (i) such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or amended preliminary prospectus or final prospectus or
application, document or filing in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by a
Seller or any of its Controlling Persons (in the case of
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indemnification of a Seller or such Controlling Person), or any such underwriter
or its Controlling Persons (in the case of indemnification of such underwriter
or its Controlling Persons) expressly for use therein, or unless (ii) in the
case of a sale directly by such Seller (including a sale of such Registrable
Securities through any underwriter retained by such Seller to engage in a
distribution on its behalf), such untrue statement or alleged untrue statement
or omission or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus copies of which were delivered to
such Seller or such underwriter on a timely basis, and such Seller or
underwriter failed to deliver a copy of the final or amended prospectus at or
prior to the confirmation for the sale of the Registrable Securities to the
Person asserting any such loss, claim, damage or liability in any case where
such delivery is required by the Securities Act.
Promptly after receipt by any Seller, any underwriter or any of their
respective Controlling Persons of notice of the commencement of any action in
respect of which indemnity may be sought against the Company, such Seller,
underwriter or Controlling Person, as the case may be, shall notify the Company
in writing of the commencement thereof (provided, that failure to so notify the
Company shall not relieve the Company from any liability it may have hereunder,
except to the extent that the Company's defense of such action was materially
and adversely affected thereby), and, subject to the provisions hereinafter
stated, the Company shall assume the defense of such action (including the
employment of counsel, who shall be counsel reasonably satisfactory to such
Seller, underwriter or Controlling Person, as the case may be), and shall assume
the payment of expenses insofar as such action relates to any alleged liability
in respect of which indemnity may be sought against the Company hereunder.
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Such Seller, or any such underwriter and their respective Controlling
Persons shall have the right to employ separate counsel in any such action and
to participate in the defense thereof, but the fees and expenses of such counsel
subsequent to any assumption of the defense by the Company shall not be paid by
the Company unless (A) engagement of such counsel has been specifically
authorized in writing by the Company, (B) the Company shall not have engaged
counsel to defend such action by the earlier of (1) 45 days after the Company
shall have received notice of such action and (2) the date by which any filing
must be made with the court or administrative body adjudicating any such action
or any other action must be taken in order not to relinquish any rights
applicable to such Seller or any of its Controlling Persons, or (C) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in either such event, the fees and expenses of not more than one
additional firm of attorneys for the Seller(s), such underwriter and/or their
respective Controlling Persons shall be borne by the Company. The Company shall
not be liable to indemnify any Person for any settlement of any such action
effected without the Company's written consent. The Company shall not, except
with the approval of each party being indemnified under this paragraph 4.3(l),
consent to the entry of any judgment or enter into any settlement of any action,
suit or other proceeding which does not include as an unconditional term thereof
the giving by claimants or plaintiffs to the parties being so indemnified of a
release from all liability in respect of all claims made in such action, suit or
proceeding.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which any Seller or any
Controlling Person of a Seller makes a claim for
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indemnification pursuant to this Section 4.3(l), 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 4.3(l) provides for indemnification in such case, then,
each of the Company, such Seller and such Controlling Person shall contribute to
the aggregate losses, claims, damages or liabilities to which it may be subject
(after contribution from others) in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and that of such Seller and
each of its Controlling Persons on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Seller and/or its
Controlling Persons on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or by such Seller and/or its Controlling
Persons, on the other hand, and the relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission of
each of the Company, on the one hand and the Seller and/or its Controlling
Persons, on the other hand; provided, however, that, in any such case, (A) no
such Seller will be required to contribute any amount in excess of the public
offering price of all Registrable Securities sold by such Seller pursuant to
such registration statement, and (B) no Person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person that was not guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act.
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(m) If, at any time, the Company lists its Common Stock on any national
securities exchange and registers the Common Stock under the Exchange Act, the
Company shall, at its expense: (i) include in its application for such listing
the Registrable Securities and maintain such listing of the Common Stock; (ii)
use commercially reasonable efforts to timely file with the Commission such
information as the Commission may require under Section 13 or Section 15(d) of
the Exchange Act; and (iii) provided the Registration Period shall have
commenced, (A) use commercially reasonable efforts to list Registrable
Securities on such national securities exchange simultaneously with the
registration thereof, if any, and (iv) use commercially reasonable efforts to
take all action as may be required as a condition to the availability of Rule
144 or Rule 144A under the Securities Act (or any successor exemptive rule
hereinafter in effect) with respect to such Registrable Securities. If the
Company lists any class of equity securities on any national securities exchange
and registered such class of equity securities under the Exchange Act, the
Company shall furnish to any Seller forthwith upon such Seller's request (x) a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144, (y) a copy of the most recent annual or quarterly
report of the Company as filed with the Commission, and (z) such other reports
and documents as such Seller may reasonably request in availing itself of any
rule or regulation of the Commission allowing such Seller to sell any such
Registrable Securities without registration. The Company agrees to use
commercially reasonable efforts to facilitate and expedite transfers of
Registrable Securities pursuant to Rule 144 under the Securities Act, which
efforts shall include timely notice to its transfer agent to expedite such
transfers of Common Stock.
Section 4.4 Indemnification by Sellers. In the event that the Company
registers any of the Registrable Securities under the Securities Act, each
Seller of Registrable Securities so
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registered shall indemnify and hold harmless the Company, each of its directors
and each of its officers who have signed or otherwise participated in the
preparation of the registration statement, each of the Company's Controlling
Persons, each underwriter of the Registrable Securities so registered (including
any broker or dealer through whom such of the shares may be sold) and each of
such underwriter's Controlling Persons, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several as incurred, to which
they or any of them may become subject under the Securities Act, applicable
state securities laws or under any other statute or at common law or otherwise,
and, except as hereinafter provided, shall reimburse the Company and each such
director, officer, underwriter, broker, dealer or Controlling Person for any
legal or other expenses it reasonably incurs in connection with investigating or
defending any action, suit or proceeding whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final prospectus (or in
the registration statement or prospectus as from time to time amended or
supplemented) 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 in
order to make the statements therein not misleading, but only insofar as any
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
Seller or Controlling Person of the Seller expressly for use therein; provided,
however, that such Seller's obligations to any Person hereunder shall be limited
to an amount equal to the proceeds of the sale of all Registrable Securities
sold by such Seller pursuant to the relevant registration statement or
prospectus.
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Promptly after the Company's receipt of notice of the commencement of
any action, suit or proceedings in respect of which indemnity may be sought
against such Seller, the Company shall notify such Seller in writing of the
commencement thereof (provided, that failure to so notify such Seller shall not
relieve such Seller from any liability it may have hereunder, except to the
extent such Seller's defense of such action was materially adversely affected
thereby), and such Seller shall, subject to the provisions hereinafter stated,
be entitled to assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to the Company) and shall
assume the payment of all expenses insofar as such action, suit or proceedings
relates to the alleged liability in respect of which indemnity may be sought
against such Seller hereunder. The Company and each such director, officer,
underwriter or Controlling Person shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel subsequent to any assumption of the defense by
such Seller shall not be at the expense of such Seller unless (A) engagement of
such counsel is specifically authorized in writing by such Seller, (B) such
Seller shall not have employed counsel to defend such action by the earlier of
(1) 45 days after such Seller shall have received notice of such action and (2)
the date by which any filing must be made with the court or administrative body
adjudicating any such action or any other action must be taken in order not to
relinquish any legal rights applicable to the Company or any of its Controlling
Persons, or (C) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it which are different from or
additional to those available to such Seller (in which case such Seller shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in either such event, the fees and expenses of
not more than one additional firm of attorneys for each of the Company and/or
such underwriter shall be borne by
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such Seller. Such Seller shall not be liable to indemnify any Person for any
settlement of any such action, suit or proceeding effected without such Seller's
written consent.
In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which the Company's
exercise of its rights under this Section 4.4 involves a claim for
indemnification pursuant to this Section 4.4, 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 that
this Section 4.4 provides for indemnification then, in such case, the Company
and such Seller shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and of such Seller on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of such Seller on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or by such Seller on the other hand and their relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
Seller will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered by it pursuant to such
registration statement; and (B) no Person or entity guilty of any fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be
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entitled to contribution from any other Person that was not guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Securities Act.
Section 4.5 Cooperation of Registered Holders. Whenever under the
preceding Sections of this Article IV any Registered Holder is registering any
Registrable Securities pursuant to any registration statement, each such
Registered Holder agrees to timely provide to the Company, such information and
materials as the Company may reasonably request in order to effect the
registration of such Registrable Securities.
Section 4.6 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Article IV may be
assigned (but only with all related obligations) by an Investor to a Permitted
Transferee, provided that: (a) within a reasonable time before such transfer,
the Company is furnished with written notice of the name and address of the
proposed transferee and the number and type of Registrable Securities with
respect to which such registration rights are being assigned; (b) immediately
following such transfer, further disposition of such Registrable Securities by
the proposed transferee is restricted under the Securities Act; (c) in the
Company's judgment, such proposed transferee is not a competitor of the Company
or any of its subsidiaries; and (d) such transfer is not otherwise prohibited by
the terms of any applicable law or regulation or any lock-up agreement
(including, without limitation, the Lock-Up Agreement) then in effect with
respect to the Securities or the Registrable Securities; (e) the Company
receives an opinion of counsel, acceptable to the Company in its sole
discretion, that such assignment does not violate the Securities Act or
applicable state securities laws or regulations; and (f) the proposed transferee
agrees to execute and deliver to the Company an original counterpart signature
page to this Agreement, thereby agreeing to be bound by the terms hereof.
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Section 4.7 Delay of Registration. No holder of any Securities or
Registrable Securities shall have any right to obtain or seek an injunction
restraining or otherwise delaying any registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Article IV.
Section 4.8 No Required Exercise or Conversion. Nothing contained in
this Agreement shall be construed as requiring the Investors or any other
holder(s) to convert the Notes or exercise the Warrants, as the case may be,
prior to the initial filing of any registration statement or the effectiveness
thereof.
Section 4.9 Investor Compensation of Underwriter. In connection with
any registration made pursuant to Section 4.1 or 4.2 hereof, the Registered
Holders agrees as follows: (a) any public sale of Registrable Securities
included in the relevant registration statement shall be effected through the
underwriter, if any, for such registration and (b) such Registered Holders shall
compensate the underwriter in accordance with its customary compensation
practices for such transactions.
ARTICLE V.
CONDITIONS
Section 5.1 Conditions Precedent to the Obligation of the Company to
Issue the Notes. The obligation hereunder of the Company to issue the Notes and
the Warrants to the Investors is subject to the satisfaction, at or before the
applicable Closing Date, of each of the conditions set forth below. These
conditions are solely for the benefit of the Company and its subsidiaries and
may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor contained herein and all
statements made and information
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provided by each Investor in such Investor's Investor Questionnaire shall be
true and correct in all material respects as of the date when made and as of
such Closing Date as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Performance by the Investors. Each Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by such Investor at or prior to such Closing Date.
(c) No Injunction; No Litigation. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority which prohibits
the consummation of any of the transactions contemplated by this Agreement. No
action, suit or proceeding shall have been commenced before any court or
governmental authority or threatened and no investigation shall have been
commenced or have been threatened against the Company, any of its subsidiaries,
or any Investor (i) seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any such
transaction or (ii) which would, if resolved adversely to the Company, such
subsidiary or Investor, either severally or in the aggregate, have a Material
Adverse Effect or invalidate or call into question the availability of an
exemption applicable to the Offering under the Securities Act.
Section 5.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Notes and the Warrants. The obligation hereunder of each Investor
to acquire and pay for the Notes and the Warrants is subject to the
satisfaction, at or before the applicable Closing Date, of each of the
conditions set forth below. These conditions are for the Investors' sole benefit
and may be waived by any Investor at any time in its sole discretion.
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(a) Accuracy of the Company's Representations and Warranties. The
representation and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of such Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to such Closing Date.
(c) No Injunction; No Litigation. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority which prohibits
the consummation of any of the transactions contemplated by this Agreement. No
action, suit or proceeding shall have been commenced before any court or
governmental authority or threatened and no investigation shall have been
commenced or have been threatened against the Company, any of its subsidiaries,
or any Investor (i) seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any such
transaction or (ii) which would, if resolved adversely to the Company, such
subsidiary or Investor, either severally or in the aggregate, have a Material
Adverse Effect.
(d) Opinion of Counsel. At such Closing Date, the Investors shall have
received an opinion of counsel to the Company in form substantially similar to
the opinion attached hereto as Exhibit C and such other opinions, certificates
and documents as the Investors or their counsel shall reasonably require prior
to or at the Closing.
(e) Secretary's Certificate. The Company shall have delivered to the
Investors a certificate in form and substance reasonably satisfactory to the
Investors, executed by the
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Secretary of the Company on behalf of the Company, certifying as to satisfaction
of closing conditions, incumbency of signing officers, charter, by-laws, good
standing and authorizing resolutions of the Company.
(f) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Guaranty. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, the holder of over 50% of
the issued and outstanding shares of Common Stock at the date hereof, shall have
executed and delivered an unconditional guaranty, substantially in the form of
Exhibit D attached hereto, whereby he unconditionally guarantees the payment
when due of the obligations of the Company under the Notes (the "Guaranty").
ARTICLE VI.
LEGEND AND STOCK
Each certificate representing any Notes, Warrants, Note Shares, or
Warrant Shares shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED,
ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
WHICH IS EFFECTIVE AND CURRENT WITH RESPECT TO THESE SECURITIES OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, BUT ONLY IF (a) THE HOLDER
HEREOF HAS FIRST OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED
DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND (b) THE LOCK-UP
AGREEMENT TO WHICH THE ORIGINAL HOLDER IS (AND ITS PERMITTED
TRANSFEREES WILL BE) SUBJECT IS WAIVED OR IS NOT IN EFFECT.
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The certificates representing any Note Shares or Warrant Shares issued
upon conversion of any Notes or Warrant Shares issued upon exercise of any
Warrants shall bear a legend in substantially the same form as the legend on the
Notes and the Warrants indicated above.
ARTICLE VII.
TERMINATION
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Initial Closing Date by the mutual written
consent of the Company and the Investors.
Section 7.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors of the Company or by any of the Investors with
respect to such Investor at any time if the Initial Closing Date shall not have
been consummated by the fifth business day following the date of this Agreement.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1 Stamp Taxes; Agent Fees. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of the Notes
and Warrants pursuant hereto and the Note Shares issued upon conversion of the
Notes and the Warrant Shares issued upon the exercise of the Warrants.
Section 8.2 Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Investors acknowledge and agree that in the
event any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, irreparable injury and
damage would occur, which injury and damage cannot be adequately compensated for
by money damages. Accordingly, the parties agree that
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they 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, the same being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) Each of the Company and each Investor (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court, the
New York State courts and other courts of the United States sitting in New York
County, New York, for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement and (ii) hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that such party is not
personally subject to the jurisdiction of such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. The Company and each of the Investors consents
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
Section 8.3 Entire Agreement; Amendment. This Agreement, together with
the Notes, the Warrants, the Investor Questionnaires and the agreements and
documents executed in connection herewith and therewith, contains the entire
understanding of the parties with respect to the matters covered hereby and
thereby and, except as specifically set forth herein or therein, neither the
Company nor any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
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Section 8.4 Notices. Except as otherwise specified in Section 4.1 or
4.2 hereof, all notices and other communications hereunder shall be in writing
and shall be deemed to be received when delivered personally or sent by
facsimile with written confirmation of complete transmission, one day after
being sent by overnight courier service or express mail requiring signed
acknowledgment of delivery, or five (5) business days after mailing by
registered or certified mail, return receipt requested and all postage and
certified or registration fees prepaid, in all cases, if addressed to the party
for whom intended at the address for such party set forth below or to such other
address as such party may designate by notice given in accordance with the
provisions of this Section 8.4:
to the Company: Dynacs Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇, ▇.▇.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
to the Investors: To each Investor at the address set forth on
Schedule I of this Agreement
with copies to: ▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, Associate
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Section 8.5 Indemnity. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees but
excluding consequential damages) incurred
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as a result of such party's breach of any representation, warranty, covenant or
agreement in this Agreement.
Section 8.6 Waivers. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 8.7 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 8.8 Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The parties hereto may amend
this Agreement without notice to or the consent of any third party, other than
certain obligees of the Company with respect to certain Company indebtedness who
agreed to subordinate their rights to certain rights of the Investors under
their Notes. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of all Investors (which
consent may not be unreasonably withheld), except that: the Company may assign
this Agreement in connection with a merger, consolidation, business combination
or the sale of all or substantially all of its assets provided that the Company
is not released from any of its obligations hereunder or such successor in
interest or assignee assumes all obligations of the Company hereunder, and
appropriate adjustment of the provisions contained in this Agreement is made, in
form and substance satisfactory to the Investors, to place the Investors in
substantially the same position as they would have been but for such assignment;
and anything contained herein to the contrary
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notwithstanding, no Investor shall have the right to approve or consent to a
merger undertaken by the Company solely for the purposes of changing its state
of incorporation. Any Investor may assign this Agreement (in whole or in part)
or any rights or obligations hereunder without the consent of the Company in
connection with any sale or transfer of all or any portion of the Notes or the
Warrants held by such Investor, provided, however, that no Investor may assign
this Agreement except to a Permitted Transferee and only if such assignment is
exempt from the registration requirements of the Securities Act and applicable
state securities laws and (ii) the Company receives an opinion of counsel to the
Company or other counsel satisfactory to the Company that such exemption from
registration requirements is available for such assignment or transfer.
Section 8.9 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto, the Company's subsidiaries and their
respective permitted successors and assigns and their respective Control
Persons, but only as expressly set forth herein and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person.
Section 8.10 Governing Law. This Agreement has been prepared,
negotiated, executed and delivered in the state of New York and shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York without regard to such State's principles of conflict of
laws.
Section 8.11 Survival. The representations and warranties and the
agreements and covenants of the Company and each Investor contained herein shall
survive the applicable Closing.
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Section 8.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 8.13 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of any Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation or legal process, and then only to the extent of such
requirement, provided that the Company may name the Investors in any filing with
the Commission, the NASD, the NASDAQ Stock Market, any securities exchange or
any state securities commission or similar state regulatory body.
Section 8.14 Severability. The parties acknowledge and agree that the
Investors are not agents, Affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder in respect of such Investor.
Section 8.15 Like Treatment of Holders. Neither the Company nor any of
its Affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemption or
exchange of Notes or the Warrants, or otherwise, to any holders of Notes or
Warrants, as the case may be, for or as an inducement to, or in connection with
the solicitation of, any consent, waiver or amendment of any terms or provisions
of the Notes or the Warrants or this Agreement, unless such consideration is
required to be paid to all Registered Holders of Notes or Warrants, as the case
may be, bound by such consent, waiver or amendment whether or not such
Registered Holders so consent, waive or agree to amend and
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whether or not such Registered Holders tender their Notes or Warrants, as the
case may be, for redemption or exchange. The Company shall not, directly or
indirectly, redeem any Notes unless such offer of redemption is made pro rata to
all Registered Holders of Notes on identical terms. The Company shall not,
directly or indirectly, redeem any Warrants unless such offer of redemption is
made pro rata to all Registered Holders of Warrants on identical terms.
Section 8.16 Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Arbitration Proceedings" shall mean the claims of the Company against
Juno Pix, Inc., New Line Pictures, Inc. and New Line Cinema, Inc. in connection
with colorization and other work undertaken by the Company for the motion
picture, "Pleasantville," and the related claims of Juno, New Line Pictures
and/or New Line Cinema against the Company, all before the American Arbitration
Association in California.
"Affiliate" shall have the meaning set forth in Rule 405 promulgated
under the Securities Act.
"Closing" and "Closing Date" shall have the meanings ascribed to such
terms in Section 1.3 herein.
"Cerulean" shall have the meaning ascribed to it in Section 2.1(c)
hereof.
"Commission" shall mean the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Controlling Person" shall mean any Person that controls another Person
within the meaning of Section 15 of the Securities Act.
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"Conversion Date" with respect to each Investor shall mean the close of
business on the first business day following the date on which the Company
receives a Notice of Conversion (as defined in the Note) from such Investor.
"Documents" shall mean the Confidential Offering Memorandum of the
Company dated February 8, 2000 which includes the Term Sheet, certain
information concerning the Company and its business, the forms of the Notes, the
Warrants, this Agreement and the Guaranty, each such document as the same may
have been amended or supplemented.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" shall mean Continental Stock Transfer & Trust Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Guaranty" shall have the meaning set forth in Section 5.2(f) hereof.
"Investor" shall mean each Person that executes a counterpart signature
page to this Agreement and is listed as an Investor on Schedule I attached to
this Agreement and, as the context may require, each Person that purchases
Securities in this Offering.
"Investor Questionnaires" shall mean, collectively, the Investor
Questionnaires, in the form attached to the Offering Memorandum, provided by
each Investor to the Company in connection with the Offering.
"Lock-Up Agreement" shall have the meaning given to it in Section
2.2(d) hereof.
"Majority Holders" shall mean Registered Holders that, in the
aggregate, own beneficially, more than fifty percent (50%) of the Registrable
Securities that are not held by the Company or any of its officers, directors,
creditors, employees or agents or any of their respective Affiliates, family
members, or Persons acting as nominees of any of them and that have not been
resold to the public pursuant to a registration statement filed with the
Commission
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under the Securities Act or pursuant to Rule 144 promulgated under the
Securities Act; provided, however, that a Majority Holders shall not be the
beneficial owners of less than an aggregate of 35,000 Registrable Securities
(the "Minimum Amount"); and provided, further, however, that in the event the
piggyback registration rights pursuant to Section 4.1 hereof have not been
available for exercise within the twelve-month period prior to the exercise of a
demand registration pursuant to Section 4.2 hereof, the Minimum Amount shall be
reduced to zero.
"Managing Underwriter" shall mean the managing underwriter or the
representative of the underwriters.
"Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity and other entities controlling or controlled by such entity taken as a
whole, and any material adverse effect on the transactions contemplated under
this Agreement or any other agreement or document contemplated hereby or
thereby.
"Maturity Date" shall mean the maturity date of the Notes, as set forth
therein.
"Mezzanine Financing" shall mean shall mean the sale of at least
$2,000,000 (before deducting commissions and expenses) in Mezzanine Securities,
subsequent to the closing of the Offering, through an offering exempt from
registration under Section 4(2) and/or Regulation D promulgated under the
Securities Act.
"Mezzanine Securities" shall mean the equity or equity-linked
securities, if any, that may be offered for sale by the Company pursuant to a
Mezzanine Financing.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Notes" shall mean the Senior Subordinated Convertible Notes issued by
the Company pursuant to the Offering.
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"Offering" shall mean the offering by the Company of the Securities
pursuant to Regulation D promulgated under the Securities Act.
"Offering Memorandum" shall mean the Confidential Private Offering
Memorandum of the Company, dated February 8, 2000, as amended or supplemented.
"Permitted Transferee" shall mean any Person to whom any Registered
Holder or other Permitted Transferee transfers Securities or Registrable
Securities (that have not been sold to the public in compliance with the
Securities Act) or the registration rights conferred by Section 4.1 or Section
4.2 (but only as the context may require), in compliance with the terms of this
Agreement, the Securities Act, and applicable state securities laws and
regulations.
"Person" shall mean an individual, firm corporation, limited liability
company, partnership, trust, firm, incorporated or unincorporated association,
joint venture, joint stock company, government (or agency or political
subdivision thereof) or other entity of any kind, and any successor (by merger
or otherwise) of any such entity.
"Prior Offering" shall mean the Company's offering and sale of
$1,000,000 in principal amount of senior convertible subordinated notes and
warrants to purchase 150,000 shares of Common Stock pursuant to an offering
memorandum dated October 1999.
"Registered Holder" shall mean the original Investors and any Permitted
Transferee. The terms "register", "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean, collectively, the shares of Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares") and upon
conversion of the Notes (the
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"Note Shares") (if such conversion is permissible on the date of determination
of the securities constituting Registrable Securities), along with any other
securities issued (or issuable to a Registered Holder upon the conversion of any
Note or exercise of any Warrant) or any other security which is issued to a
Registered Holder in respect of any Registrable Securities as a result of any
stock split, stock dividend, recapitalization or similar event or upon exchange
of the shares of Common Stock, issued or issuable upon exercise of the Warrants
or the conversion of the Notes and any other securities of the Company issued as
a dividend or other distribution with respect to, in exchange for or in
replacement of the Warrant Shares or the Note Shares; provided, however, that
the term "Registrable Securities" shall not apply to any shares of Common Stock
remaining unregistered following the 90th day after such time as Rule 144(k)
under the Securities Act first becomes available for the sale of all Registrable
Securities without restriction.
"Registration Period" shall have the meaning set forth in Section 4.1
hereof.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act.
"Securities" shall mean the Notes and the Warrants.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean a Registered Holder of Note Shares and/or Warrant
Shares, any of which have been or are being registered pursuant to an effective
registration statement filed with the Commission under the Securities Act in
accordance with the provisions of Section 4.1 and/or 4.2 hereof.
"Subsidiaries" shall mean the subsidiaries of the Company listed on
Annex A hereto.
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"Warrants" shall mean the warrants to purchase shares of common stock
of the Company issued by the Company pursuant to this Agreement and the
Offering.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DYNACS INC.
By:
-------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, III
Title: Senior Vice President
INVESTOR:
By:
-------------------------------------
Name:
Exact Name in Which Note(s) Should
be registered:
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EXHIBITS AND SCHEDULES
Schedule I List of Investors
Exhibit A Form of Note
Exhibit B Form of Warrant
Exhibit C Form of Opinion of Counsel
Exhibit D Form of Guaranty of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Annex A Subsidiaries
Annex B Other Entities
53
SCHEDULE I
INVESTOR NOTE PRINCIPAL AMOUNT WARRANT SHARES
-------- --------------------- --------------
54
EXHIBIT A
FORM OF NOTE
55
EXHIBIT A
FORM OF NOTE
56
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS WHICH
HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY IF (a) THE
REGISTERED HOLDER HEREOF HAS FIRST OBTAINED THE WRITTEN OPINION OF COUNSEL TO
DYNACS INC. (THE "COMPANY"), OR OTHER COUNSEL ACCEPTABLE TO THE COMPANY, TO THE
EFFECT THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE STATE SECURITIES LAWS.
DYNACS INC.
SECOND SENIOR SUBORDINATED CONVERTIBLE PROMISSORY NOTE
The Transferability of this Note
is Restricted as Provided in Section 6
CERTAIN CAPITALIZED TERMS USED IN THIS NOTE ARE DEFINED IN SECTION 1.1
N- Dated: February , 2000
----- ----
$ New York, New York
----------
FOR VALUE RECEIVED, DYNACS INC., a Delaware corporation (the
"Company"), promises to pay to ___________________________ or his Permitted
Transferee(s) (the "Registered Holder"), the principal amount of _____________
Thousand Dollars and no/100 ($___,000.00), and to pay interest (computed on the
basis of 360-day years, each of twelve 30-day months) on the unpaid principal
amount hereof at the initial rate of eight percent (8%) per annum during the
period commencing on the date hereof until and including the 120th day from such
date and thereafter at a rate of fifteen percent (15%) per annum until the
earlier of: (i) the conversion of the unpaid principal amount and the accrued
but unpaid interest of this Note into shares of common stock of the Company, par
value $.01 per share ("Common Stock"), at the option of the Registered Holder
after a Liquidity Event in accordance with the terms of Section 5(a) hereof;
(ii) the unpaid principal amount and the accrued but unpaid interest of this
Note is exchanged for, or converted into, Mezzanine Securities in accordance
with the terms of Section 5(b) hereof; or (iii) repayment in full of the
principal amount and accrued and unpaid interest on this Note. Interest due
shall be payable by the Company on a quarterly basis in accordance with the
terms of Section 3 hereof. Principal and accrued but unpaid interest hereunder
shall be due and payable in cash on the Maturity Date, subject to the terms and
conditions of Sections 5 and 6 hereof. For the purposes of this Note, "cash"
shall mean such coin or currency of the United States of America which, at the
time of payment, constitutes legal tender for the payment of public and private
debts.
57
This Note is one of a series of Second Senior Subordinated Convertible
Notes (the "Notes") issued by the Company pari passu to the several purchasers
of the Notes and certain warrants (the "Warrants") to purchase shares of Common
Stock pursuant to the terms of that certain Second Warrant and Senior
Subordinated Convertible Note Purchase Agreement, dated as of the date hereof
(the "Agreement"), and the terms of the Company's private offering of the Notes
and Warrants commencing February 8, 2000 (the "Offering"). The Registered Holder
of this Note has certain rights, including the right to convert this Note into
shares of Common Stock or Mezzanine Securities pursuant to the terms of this
Note. The registered holders of the Note Shares, if any, issuable upon
conversion of this Note have certain rights, as set forth in the Agreement.
1. This Note is subject to the additional terms and conditions set forth
below:
1.1 Definitions. The following terms, as used in this Note, shall
have the meanings ascribed to them below:
"Affiliate" shall have the meaning set forth in Rule 405 promulgated
under the Securities Act.
"Change of Control" shall have the meaning set forth in Section 8(d)
hereof.
"Conversion Date" shall have the meaning set forth in Section 5(d)
hereof.
"Conversion Price" shall have the meaning set forth in Section 5(c)
hereof.
"Event of Default" shall have the meaning set forth in Section 8
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Interest Payment Date" shall mean each of May ___, August ___,
November ___, and February ___, commencing in May 2000 and prior to the Maturity
Date.
"Liquidity Event" shall mean each of (i) an initial public offering of
Common Stock by the Company pursuant to an effective registration statement on
an appropriate form filed with the Commission and (ii) the Company's sale of all
or substantially all of its assets to another entity other than an Affiliate of
the Company.
"Lock-Up" shall mean the lock-up agreement to be signed by each
Registered Holder of a Note providing that (a) its Note, the Note Shares, its
Warrant and the Warrant Shares cannot be transferred or otherwise disposed of,
directly or indirectly, for a period of 180 days following the effective date of
the registration statement, if any, filed by the Company in connection with an
initial public offering of its securities, or such longer period as the NASD may
require, except (i) with the prior written consent of ▇▇▇▇▇▇▇▇▇▇ or (ii) if the
transfer or other disposition is made to
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58
any Affiliates of such Registered Holder, as a bona fide gift or to any trust,
and/or (b) such other restrictions on transfer as the NASD may require in
connection with such initial public offering.
"Majority Holders" shall mean the Registered Holders of more than fifty
percent (50%) in aggregate principal amount of the Notes then outstanding.
"Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties, prospects, or financial condition of the
entity or entities with respect to which such term is used and which is material
to such entity and other entities controlling or controlled by such entity taken
as a whole, and any material adverse effect on the transactions contemplated
under this Agreement or any other agreement or document contemplated hereby or
thereby.
"Maturity Date" shall mean the first anniversary date of this Note.
"Mezzanine Financing" shall mean the sale of at least $2,000,000
(before deducting commissions and expenses) in Mezzanine Securities, subsequent
to the closing of the Offering, through an offering exempt from registration
under Section 4(2) and/or Regulation D promulgated under the Act.
"Mezzanine Securities" shall mean the equity or equity-linked
securities, if any, that may be offered for sale by the Company pursuant to a
Mezzanine Financing.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Note Shares" shall mean shares of Common Stock into which this Notes
is convertible.
"Notice of Conversion" shall mean the notice, substantially in the form
of Exhibit A attached hereto, given by the Registered Holder hereof to the
Company of such Holder's election to convert this Note into Note Shares.
"Permitted Transferee" shall mean any Person to whom any Registered
Holder or other Permitted Transferee transfers this Note or the Note Shares in
compliance with the terms of the Agreement, the Securities Act and the
regulations promulgated thereunder and applicable state securities laws and
regulations.
"Person" shall mean an individual, firm corporation, limited liability
company, partnership, trust, firm, incorporated or unincorporated association,
joint venture, joint stock company, government (or agency or political
subdivision thereof) or other entity of any kind, and any successor (by merger
or otherwise ) of any such entity.
"Registered Holder" shall mean the Person to whom this Note is first
issued and any Permitted Transferees hereof.
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59
"Registered Holders" shall mean the Persons to whom the Notes are first
issued and any Permitted Transferees thereof.
"Securities Act" shall mean the Securities Act of 1933, as the same may
be amended from time to time.
"Significant Subsidiary" shall have the meaning ascribed to it in Rule
405 promulgated under the Securities Act.
"▇▇▇▇▇▇▇▇▇▇" shall mean ▇. ▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc., the placement
agent for the Offering.
This Note is subject to the following terms and conditions.
1.2 Unsecured Obligations; Subordination. This Note and the
amounts payable hereunder, including principal and accrued interest, are
unsecured obligations of the Company, and shall be subordinate and junior to
indebtedness incurred by the Company pursuant to (a) currently existing
equipment financings, (b) currently existing debt of approximately $585,000
secured by certain revenues pursuant to a Loan Agreement dated May 10, 1999; and
(c) up to an aggregate of $6,000,000 of indebtedness currently existing or
hereinafter incurred by the Company under a working capital facility with First
National Bank of Florida, or the renewal or replacement thereof with any
financial institution, bank or commercial lender (collectively, the "Senior
Debt"). Except as set forth in the preceding sentence, the Notes shall not be
subordinate or junior to any other indebtedness of the Company.
2. Covenants. The Company covenants and agrees that, so long as this Note
is outstanding and unpaid:
(a) Payment of Note. The Company will punctually pay or cause to
be paid the principal and interest on this Note at the dates and places and in
the manner specified herein. Any sums required to be withheld from any payment
of principal or interest on this Note by operation of law or pursuant to any
order, judgment, execution, treaty, rule or regulation may be withheld by the
Company and paid over in accordance therewith.
Nothing in this Note or in any other agreement between the holder
hereof and the Company shall require the Company to pay, or such holder to
accept, interest in an amount which would subject the holder to any penalty or
forfeiture under applicable law. In the event that the payment of any charges,
fees or other sums due under this Note or provided for in any other agreement
between the Company and the holder are or could be held to be in the nature of
interest and would subject the holder to any penalty or forfeiture under
applicable law, then ipso facto the obligations of the Company to make such
payment to the holder shall be reduced to the highest rate authorized under
applicable law and, in the event that the holder shall have ever received,
collected, accepted or applied as interest any amount in excess of the maximum
rate of interest permitted to be charged by applicable law, such amount which
would be excess interest
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under applicable law shall be applied first to the reduction of principal then
outstanding, and, second, if such principal amount is paid in full, the
remainder, if any, shall forthwith be returned to the Company.
(b) Guaranty. All sums owed and payable to the Registered Holder
shall be guaranteed by ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, the Chief Executive Officer,
President and principal stockholder of the Company (the "guarantor").
(c) Maintenance of Corporate Existence; Merger and Consolidation.
The Company will at all times cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and the corporate
existence of any Significant Subsidiary and all of the respective rights and
franchises of the Company and each Significant Subsidiary, and neither the
Company nor any Significant Subsidiary shall consolidate with or merge into any
other corporation or transfer all or substantially all of its assets to any
Person unless (i) the survivor of such consolidation or merger is the Company or
is a company organized in a state other than the Company's original state of
incorporation into which the Company has merged solely to effect a change in the
state of incorporation of the Company, provided that such surviving company
assumes the obligations of the Company under the Notes pursuant to operation of
law, (ii) the company formed by such consolidation or into which the Company is
merged or to which the assets of the Company are transferred is a company which
expressly assumes all of the obligations of the Company under the Notes, and
(iii) after giving effect to such transaction, no Event of Default and no event
which, after notice or lapse of time, or both, would become an Event of Default,
shall have occurred and be continuing.
(d) Maintenance of Properties. The Company shall reasonably
maintain in good repair, working order and condition its properties and other
assets, and those of any Significant Subsidiary, and from time to time make all
reasonably necessary or desirable repairs, renewals and replacements thereto.
(e) Payment of Taxes. The Company will, and will cause any
Subsidiary to, set aside for payment, or discharge before the same becomes
delinquent, all taxes, assessments and governmental charges levied or imposed
upon the Company or any Subsidiary, as the case may be, or upon their respective
income, profits or property; provided, however, that neither the Company nor any
of its subsidiaries shall be required to pay or discharge or cause to be paid or
discharged any such tax, assessment or charge the amount or the applicability or
validity of which is being contested in good faith by appropriate proceedings.
(f) Compliance with Statutes. The Company will, and will cause any
Significant Subsidiary to, comply in all material respects with all applicable
statutes and regulations of the United States of America and of any State or
municipality thereof, and of any agency of the United States of America, any
such State or municipality, in respect of the conduct of business, and the
ownership of property by the Company or any Significant Subsidiary; provided,
however, that nothing contained in this Section 2.2(f) shall require the Company
or any
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61
Significant Subsidiary to comply with any such statute or regulation so
long as its legality or applicability is being contested in good faith.
(g) Liens. The Company shall not, and shall not permit any of its
subsidiaries to, create, incur or suffer to exist any liens, claims or
encumbrances upon any of its assets or properties, except for those in existence
on the date hereof or those incurred in the ordinary course of business.
(h) Restrictions on Dividends, Redemptions, etc. The Company shall
not, and shall cause any of its subsidiaries not to, (i) declare or pay any
dividend or make any other distribution on any equity securities of the Company,
except dividends or distributions payable in equity securities of the Company or
(ii) purchase, redeem or otherwise acquire or retire for value any equity
securities of the Company, except equity securities acquired upon conversion
thereof into other equity securities of the Company.
(i) Transactions with Affiliates. The Company shall not itself,
and shall not permit any of its subsidiaries to, engage in any transaction of
any kind or nature with any Affiliate of the Company or of any of its
subsidiaries, other than a wholly-owned subsidiary, unless such transaction is
upon terms which are fair to the Company or such subsidiary, as the case may be,
and which are reasonably similar to, or more beneficial to the Company or such
subsidiary than the terms deemed likely to occur in similar transactions with
unrelated Persons under the same circumstances.
(j) Indebtedness. The Company shall not, and shall not permit any
of its Subsidiaries to, incur any liability or obligation, direct or contingent,
for borrowed money, except for those liabilities and obligations (i) in
existence on the date hereof, (ii) incurred in the ordinary course of business
or otherwise incurred, provided that the Notes are not subordinate or junior
thereto, (iii) incurred with respect to the Senior Debt, and (iv) any
refinancings, replacements, amendments or modifications of any of the
foregoing."
3. Interest. Interest shall be payable quarterly on the unpaid
principal amount of this Note at rates established in the first paragraph of the
Preamble of this Note on each Interest Payment Date and on the Maturity Date.
4. Maturity. If this Note is not converted into Note Shares at
the option of the Registered Holder in accordance with the terms of Section 5(a)
hereof or converted into Mezzanine Securities in accordance with the terms of
Section 5(b) hereof, the principal amount of this Note, together with all
accrued and unpaid interest thereon, shall be due and payable in cash on the
Maturity Date.
5. Conversion.
(a) Liquidity Event. Upon the occurrence of a Liquidity Event, the
Registered Holder of this Note may convert, at any time after the date which is
120 days after the date of this Note
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62
all (but not less than all) unpaid principal of this Note and all accrued and
unpaid interest thereon into a number of Note Shares equal to the quotient of
(i) the unpaid principal and accrued and unpaid interest thereon divided by (ii)
the Conversion Price. Upon conversion of this Note into Note Shares pursuant to
this paragraph, the principal amount of this Note and accrued and unpaid
interest thereon shall have thereby been paid and discharged in full, this Note
shall be canceled, and the holder shall have no recourse to the Company or the
guarantor.
(b) Mezzanine Securities. In the event this Note has not been
converted into Note Shares in accordance with the terms of Section 5(a) hereof
and the Company consummates a Mezzanine Financing while this Note remains
outstanding, the unpaid principal of this Note and accrued and unpaid interest
thereon shall be (i) repaid in cash from the proceeds of the Mezzanine Financing
or (ii) at the election of the Registered Holder in accordance with this Section
5(b), converted into, or exchanged for, an amount of Mezzanine Securities on a
pari passu basis with investors in the Mezzanine Financing. The Company shall
give written notice of the proposed Mezzanine Financing at least five (5) days
prior to the final closing in such Mezzanine Financing. If the Company receives
written notice from the Registered Holder of its election to convert this Note
into, or exchange this Note for, Mezzanine Securities within one (1) business
day prior to the final closing of the Mezzanine Financing, this Note shall be
converted into, or exchanged for, Mezzanine Securities in accordance with the
terms of this Section 5(b). Upon conversion of this Note into Mezzanine
Securities pursuant to this paragraph, the principal amount of this Note and
accrued and unpaid interest thereon shall have thereby been paid and discharged
in full, this Note shall be canceled, and the holder shall have no recourse to
the Company or guarantor.
(c) Conversion Price. The Conversion Price in connection with a
Liquidity Event shall equal (i) sixty percent (60%) of the initial public
offering price per share of Common Stock in the event that the Liquidity Event
is the Company's initial public offering or (ii) in the event the Liquidity
Event is the sale of all or substantially all of the Company's assets to another
entity other than an Affiliate of the Company, sixty percent (60%) of the
consideration received for such assets divided by the total number of shares of
Common Stock outstanding on a fully-diluted basis before such sale.
(d) Method of Conversion. The Registered Holder of this Note shall
not be entitled to receive Note Shares upon the conversion of this Note unless
and until such Holder surrenders this Note and deliver a Notice of Conversion to
Company at its address set forth herein for notices or to an agent designated by
the Company by notice given to the Registered Holder. The Notice of Conversion
shall state therein the amount(s) in which the certificate(s) for Note Shares
are to be issued. The conversion shall be effective on the close of business on
the first business day following the date on which the Company receives the
Notice of Conversion (the "Conversion Date"). Interest on the principal amount
of this Note shall cease to accrue on and after the conversion hereof on the
Conversion Date.
(e) Issuance of Note Shares and Mezzanine Securities. The Company
shall, as soon as practicable after surrender of this Note and receipt of the
Notice of Conversion after the
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63
occurrence of a Liquidity Event, but in no event more than thirty (30) days
thereafter, issue and deliver to the Registered Holder, one or more certificates
for the number of Note Shares which such Holder is entitled to receive upon such
conversion. The Company shall issue and deliver to the Registered Holder a
certificate(s) evidencing the Mezzanine Securities to which the Holder is
entitled upon conversion or exchange in accordance with the terms of Section
5(b) hereof upon the later of (i) the Closing Date of the Mezzanine Financing
and (ii) surrender of this Note.
(f) Fractional Shares. If any fraction of a Note Share or
Mezzanine Security would be issuable upon conversion of this Note, as the case
may be, the Company shall, at its sole option, issue fractions of Note Shares or
Mezzanine Securities, as the case may be, or purchase such fraction for cash in
an amount equal to the fair market value of such fraction on the Conversion
Date. Nothing contained in this Note shall obligate the Company to issue
fractional Note Shares or Mezzanine Securities, as the case may be, upon the
conversion of this Note.
(g) Adjustments of Conversion Price; Merger.
(i) If, at any time or from time to time after the
consummation of a Liquidity Event while this Note is issued and outstanding, the
Company (A) declares or pays, without consideration, any dividend on the Common
Stock payable in Common Stock, or (B) effects a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock (by stock
split, reclassification or otherwise than by payment of a dividend in Common
Stock or in any right to acquire Common Stock) or if the number of outstanding
shares of Common Stock is reduced by combination, consolidation,
reclassification, reverse stock split or otherwise, then the Conversion Price in
effect immediately before such Liquidity Event shall, concurrently with the
effectiveness of such Liquidity Event, be proportionately decreased or
increased, as the case may be. If at any time or from time to time after the
consummation of a Liquidity Event while this Note is issued and outstanding, the
Company declares or pays, without consideration, any dividend on the Common
Stock in the form of a right to acquire Common Stock for no consideration, then,
for purposes of this subparagraph (i), the Company shall be deemed to have paid
a dividend in such number of shares of Common Stock as is equal to the maximum
number of shares thereof issuable upon exercise of such rights.
(ii) If, at any time or from time to time after the
consummation of a Liquidity Event while this Note is issued and outstanding, the
Common Stock is changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in Section 5(g)(i) hereof), the Conversion Price then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that this Note shall be
convertible into the number of shares of such other class or classes of stock
that the Registered Holder of this Note would have been entitled to receive had
such Holder converted this Note into Note Shares immediately prior to such
change.
(iii) The Company shall not merge with or consolidate into
any other corporation, limited liability company or any other entity (each such
transaction, a "Merger"),
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unless the entity surviving or formed by the Merger assumes, by operation of law
or otherwise, all of the obligations contained herein by way of covenants,
stipulations, promises or agreements. In the event of a Merger, the Company
shall make appropriate provisions so that the Registered Holder shall thereafter
have the right to convert this Note into the type and number of securities
receivable upon such Merger by a holder of the number of securities into which
this Note could have been converted immediately prior to such Merger. In the
event that more than one Merger occurs, the provisions contained in this
subparagraph (iii) shall apply to each such Merger.
(h) Reservation of Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the Notes into Note
Shares, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all Notes; and if at any time the number
of authorized but unissued shares of Common Stock is not sufficient to effect
the conversion of all Notes, then the Company shall take such corporate action
as in the opinion of its counsel may be necessary to increase the number of
authorized but unissued shares of Common Stock to the number of shares
sufficient for such purpose and shall use the Company's best efforts to obtain
the requisite stockholder approval.
(i) Issue Taxes. The Company shall pay any and all taxes other
than income taxes, payable by the Registered Holder of this Note in respect of
the issuance or delivery of Note Shares or other securities in connection with
the conversion of this Note; provided, however, that the Company shall not be
obligated to pay any taxes resulting from any transfer of Note Shares or other
securities issuable upon conversion of this Note to any Person upon the request
of the Registered Holder or otherwise.
6. Restrictions Upon Transferability. This Note has not been registered
under the Securities Act or applicable state securities laws, and may not be
offered, sold, transferred, pledged, hypothecated, assigned or otherwise
disposed of except (a) pursuant to an effective registration statement under the
Securities Act and such state laws which is current with respect to this Note or
(b) pursuant to an exemption from registration under the Securities Act and such
state laws if the Registered Holder hereof shall have first obtained the written
opinion of counsel to the Company or other counsel acceptable to the Company to
the effect that the proposed disposition is consistent with all applicable
provisions of the Securities Act and applicable state securities laws. In
addition, this Note may not be transferred while the Lock-Up, if any, is in
effect except (i) with the prior written consent of ▇▇▇▇▇▇▇▇▇▇ or (ii) if the
transfer or other disposition (A) is made to any Affiliate of such Registered
Holder, (B) is a bona fide gift, or (C) is made to any trust.
7. No Prepayment. Except as provided in Section 5 hereof, the principal
amount of this Note may not be prepaid, in whole or in part, prior to the
Mezzanine Financing.
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8. Events of Default; Remedies. The occurrence of each of the following
shall constitute an event of default hereunder (each, an "Event of Default"):
(a) Payment of Notes. The default by the Company in the payment of
the principal or interest of this Note, when and as the same becomes due and
payable, whether on the Maturity Date, upon acceleration or otherwise, which
default remains uncured for a period of five (5) days; or
(b) Performance of Covenants, Conditions or Agreements. The
default by the Company in any material respect in the performance or observance
of any material covenant, condition or agreement set forth in this Note, which
default continues uncured for a period of thirty (30) days after the Company
receives written notice from any Registered Holder indicating the particular
Event(s) of Default to have occurred; or
(c) Cross-default. A default by the Company under a material
agreement, which default: (i) is not cured or waived within the cure or other
applicable time periods provided in such agreement; and (ii) has a Material
Adverse Effect.
(d) Change of Control. The acquisition of beneficial ownership (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) of a majority of the
Company's then outstanding Common Stock by any person or group (as defined in
Section 13(d)(3) of the Exchange Act) of persons, other than (i) the executive
officers and directors of the Company and any individuals nominated to serve as
directors of the Company at the date hereof, (ii) the Registered Holders of the
Notes, and (iii) the Registered Holders of the Warrants.
(e) Bankruptcy, Insolvency, etc. The Company or any Significant
Subsidiary shall file or consent by answer or otherwise to the entry of an order
for relief or approving a petition for relief, reorganization or arrangement or
any other petition in bankruptcy for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or shall make an assignment
for the benefit of its respective creditors, or shall consent to the appointment
of a custodian, receiver, trustee or other officer with similar powers of itself
or of any substantial part of their respective property, or shall be adjudicated
a bankrupt or insolvent, or shall take corporate action for the purpose of any
of the foregoing, or if a court or governmental authority of competent
jurisdiction shall enter an order appointing a custodian, receiver, trustee or
other officer with similar powers with respect to the Company or any Significant
Subsidiary or any substantial part of their respective property or an order for
relief or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any bankruptcy
or insolvency law, or an order for the dissolution, winding up or liquidation of
the Company or any Significant Subsidiary, or if any such petition shall be
filed against the Company or any Significant Subsidiary and such petition shall
not be dismissed within sixty (60) days.
(f) Representations and Warranties. If any representation,
warranty or statement of fact made in writing by or on behalf of the Company or
by any officer of the Company herein, in
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the Agreement or in any writing furnished in connection with the transactions
contemplated hereby proves to have been incorrect, false or misleading in any
material respect on the date as of which made.
(g) Remedies. If an Event of Default, other than (i) an Event of
Default resulting from the Company's failure to pay the principal of this Note
or any interest thereon, when the same is due and payable in accordance with the
terms hereof and (ii) an Event of Default resulting from bankruptcy, insolvency
or reorganization, occurs and is continuing, the Majority Holders may declare,
by notice in writing to the Company, all unpaid principal and accrued interest
on all of the Notes then outstanding to be due and payable immediately. Upon the
occurrence of an Event of Default resulting from the Company's non-payment of
principal of, or interest on, this Note, the Registered Holder hereof may
declare all unpaid principal and accrued interest on this Note due and payable
immediately. Upon the occurrence of an Event of Default resulting from
bankruptcy, insolvency or reorganization, the outstanding principal balance of
this Note and accrued and unpaid interest thereon shall be due and payable
immediately without the requirement of any declaration or other act on the part
of the Registered Holder. Any such acceleration may be annulled and past
defaults (except a default in payment of principal or interest on the Note which
has not theretofore been cured) may be waived by the Majority Holders. (l) (m)
The rights and remedies provided herein are cumulative and are not
exclusive of any rights or remedies which any party may otherwise have at law or
in equity.
9. Costs of Collection. If the indebtedness represented by this Note or
any part thereof is collected in any proceeding or if this Note is placed in the
hands of attorneys for collection after the occurrence of an Event of Default,
the Company shall pay, as an obligation under this Note, in addition to the
obligation to pay principal and interest, all costs of collecting this Note,
including reasonable attorneys' fees.
10. Waiver and Amendments. This Note may be amended, modified, superseded,
canceled, renewed or extended, and the terms hereof may be waived only by a
written instrument signed by the Company and the Majority Holders; provided,
however, that the consent of the Registered Holder of each Note shall be
required to modify the terms thereof affecting the payment of the principal
amount of, or interest on, such Note or the Maturity Date thereof. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
11. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of (a) evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note and (b) indemnity or security
reasonably satisfactory to the Company, and upon (i) reimbursement to the
Company of all reasonable expenses incidental thereto and (ii) surrender
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and cancellation of this Note, if mutilated, the Company will make and deliver a
new Note of like tenor, in lieu of this Note. Any replacement note made and
delivered in accordance with the provisions of this Section 11 shall be dated
(A) as of the date to which interest has been paid on this Note, or (B) if no
such interest has theretofore been paid, then dated as of the date hereof.
12. Notices. All notices and other communications given hereunder shall be in
writing and shall be deemed to be received when delivered personally or sent by
facsimile with written confirmation of complete transmission, one day after
being sent by overnight courier service or express mail requiring signed
acknowledgment of delivery, or five (5) business days after mailing by
registered or certified mail, return receipt requested with all postage and
certified or registration fees prepaid, in each case if addressed to the party
for whom intended at the address for such party set forth below or to such other
address as such party may designate by notice given in accordance with the
provisions of this Section 12:
(a) if to the Company, to:
Dynacs Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
with a copy to:
Frankfurt, ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
(b) if to the Registered Holder, to the address of such
Holder as shown on the books of the Company,
with a copy to:
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, Associate
13. Governing Law. This Note has been prepared and delivered in the State of New
York and shall be governed by and construed in accordance with the laws of such
State without giving effect to the principles thereof relating to the conflict
of laws. The Company agrees that any dispute or controversy arising out of this
Note shall be adjudicated in a court located in New
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68
York County, and hereby submits to the exclusive jurisdiction of the federal
courts located in the Southern District of New York, but if such courts shall
not have subject matter jurisdiction, to the courts of the State of New York
located in New York County. The Company irrevocably waives any objection it now
has or hereafter may have with respect to (i) the venue of such action or
proceeding brought in any such court or (ii) the fact that such court is an
inconvenient forum and consents to the service of process in any such action or
proceeding by means of registered or certified mail, return receipt requested.
14. Successors and Assigns. All the covenants, stipulations, promises and
agreements by or on behalf of the Company contained in this Note shall be
binding upon the Company's successors and assigns whether or not so expressed
15. Severability. If any provision of this Note is found by a court of
competent jurisdiction to be invalid, illegal or unenforceable, all other
provisions of this Note shall remain in effect, and if any provision is
inapplicable to any Person or circumstances, such provision shall nevertheless
remain applicable to all other Persons and circumstances. The rate of interest
on this Note is subject to any limitation imposed by applicable usury laws. 6.
16. Headings. The headings in this Note are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its corporate name by a duly authorized officer and to be dated as of the date
first above written.
DYNACS INC.
By:
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III
Senior Vice President
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned, being the Registered Holder of the attached Second
Senior Subordinated Convertible Note(s) due the Maturity Date (as defined in the
Note) of DYNACS INC., a Delaware corporation, hereby exercises the option to
convert such Note into Note Shares (as defined in the Note) in accordance with
the terms of such Note.
The undersigned directs that the Note Shares be issued in the name of
the Registered Holder of the attached Note and delivered as soon as practicable
and in accordance with the provisions of the Note to:
Full Address: ____________________________
____________________________
____________________________
By: ____________________________
Signature
Date:______________________ ____________________________
Print Name
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EXHIBIT B
FORM OF WARRANT
71
Warrant Number: W-____
_______ Warrant Shares
WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK INTO WHICH IT IS CONVERTIBLE HAVE
BEEN ACQUIRED FOR INVESTMENT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WHICH IS
CURRENT WITH RESPECT TO SUCH SECURITIES OR (ii) PURSUANT TO A SPECIFIC EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS,
PROVIDED THAT (a) THE HOLDER HEREOF HAS FIRST OBTAINED A WRITTEN OPINION OF
COUNSEL TO THE COMPANY OR OTHER COUNSEL ACCEPTABLE TO THE COMPANY THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND (b) THE LOCK-UP
AGREEMENT TO WHICH THE ORIGINAL HOLDER IS SUBJECT IS WAIVED OR IS NOT IN EFFECT.
This Warrant is one of a series of warrants (collectively, the
"Warrants") issued by Dynacs Inc., a Delaware corporation (the "Company"),
pursuant to the terms of that certain Second Warrant and Senior Subordinated
Convertible Note Purchase Agreement, dated the date hereof (the "Agreement"),
and the terms of the Company's private placement (the "Offering") of the
Warrants and up to $1,900,000 in principal amount of Second Senior Convertible
Subordinated Notes of the Company (collectively, the "Notes").
1. DEFINITIONS. The following capitalized terms, when used in this
Warrant, shall have the meanings given to them below:
"Affiliate" shall have the meaning set forth in Rule 405 promulgated
under the Securities Act.
"Agreement" shall have the meaning set forth in the preamble to this
Warrant.
"Beneficial Ownership" shall have the meaning ascribed to it in Rules
13d-3 and 13d-5 promulgated under the Exchange Act; "Beneficial Owner" shall
have the meaning ascribed to it in Rule 13d promulgated under the Exchange Act.
"Change of Control" shall mean the acquisition by any Person or group
(as defined in Section 13(d)(3) of the Exchange Act) of Persons, other than (i)
the executive officers and directors of the Company and any Persons nominated to
serve as a director of the Company at the date hereof, (ii) the Registered
Holders of the Notes, and (iii) the Registered Holders of the Warrants, of
Beneficial Ownership of a majority of the Company's then outstanding shares of
Common Stock.
72
"Closing Price" shall have the meaning set forth in Section 6.2 hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean shares of common stock of the Company, par
value $.01 per share.
"Controlling Person" shall mean a Person that controls another Person
within the meaning of Section 15 of the Securities Act.
"Conversion Date" shall mean the date on which a Note is converted into
Note Shares as provided in the Note.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exercise Price" shall mean the price payable per share of Common Stock
(or such securities as may be substituted for one share of Common Stock pursuant
to the provisions of this Warrant) payable from time to time upon the exercise
of this Warrant (as the same may be adjusted pursuant to the terms hereof),
which shall be as set forth in Section 2.1 hereof.
"Initial Public Offering" shall mean an initial public offering of the
Company's Common Stock, except as otherwise specified in Section 6.2 hereof.
"Issuance Date" shall mean the date on which this Warrant is issued to
the Purchaser, as set forth on the signature page hereto.
"Liquidity Event" shall mean each of (i) an initial public offering of
Common Stock by the Company pursuant to a registration statement filed with the
Commission and (ii) the Company's sale of all or substantially all of its assets
to another entity other than an Affiliate of the Company.
"Lock-Up Agreement" shall mean the lock-up agreement to be signed by
each Registered Holder of a Warrant providing that (a) its Warrant, Warrant
Shares and its Note and Note Shares cannot be transferred or otherwise disposed
of, directly or indirectly, for a period of 180 days following the effective
date of the registration statement, if any, filed by the Company in connection
with an initial public offering of its securities or such longer period as the
NASD may require, except (i) with the prior written consent of ▇▇▇▇▇▇▇▇▇▇ or
(ii) if the transfer or other disposition is made (a) to any Affiliates of such
Registered Holder, (b) as a bona fide gift or (c) to any trust, or (b) such
other restrictions on transfer as the NASD may require in connection with such
initial public offering.
"Majority Holders" shall have the meaning set forth in Section 7.2(c)
hereof.
"Managing Underwriter" shall mean the managing underwriter or the
representative of the underwriters.
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"Maturity Date" shall mean the maturity date of each Note, which shall
be the first anniversary date thereof.
"Mezzanine Financing" shall mean the sale of at least $2,000,000
(before deducting commissions and expenses) in Mezzanine Securities, subsequent
to the closing of the Offering, through an offering exempt from registration
under Section 4(2) and/or Regulation D promulgated under the Securities Act.
"Mezzanine Securities" shall mean the equity or equity-linked
securities, if any, that may be offered for sale by the Company pursuant to a
Mezzanine Financing.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ System" shall mean the Automatic Quotation System of the
National Association of Securities Dealers, Inc.
"Note Shares" shall have the meaning set forth below in the definition
"Registrable Securities."
"Notes" shall have the meaning set forth in the preamble to this
Warrant.
"Notice of Conversion" shall mean the notice that may be given by the
Registered Holder of a Note to the Company of such Holder's election to convert
such Holder's Note into Note Shares or Mezzanine Securities in compliance with
the terms of the Note.
"Offering" shall have the meaning set forth in the preamble to this
Warrant.
"Permitted Transferee" shall mean any Person to whom any Registered
Holder or other Permitted Transferee transfers this Warrant, or any Warrant
Shares, such Person's Note or other Registrable Securities, as the context may
require, in compliance with the terms of the Agreement, the Securities Act and
the regulations promulgated thereunder and applicable state securities laws and
regulations.
"Person" shall mean an individual, firm, corporation, limited liability
company, partnership, trust, firm, incorporated or unincorporated association,
joint venture, joint stock company, government (or agency or political
subdivision thereof) or other entity of any kind, and any successor (by merger
or otherwise) of any such entity.
"Purchaser" shall mean the Person that purchased this Warrant in the
Offering whose name is set forth on the signature page hereof.
"Registered Holder" shall mean the Purchaser and any Permitted
Transferee(s).
"Registered Holders" shall mean the Registered Holder and the original
purchasers of the Notes and the other Warrants and their Permitted Transferees.
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"Registrable Securities" shall mean, collectively, the shares of Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares") and upon
conversion of the Notes (the "Note Shares") (if such conversion is permissible
on the date of determination of the securities constituting Registrable
Securities), along with any other securities issued (or issuable to a Registered
Holder upon the conversion of any Note or exercise of any Warrant) or any other
security which is issued to a Registered Holder in respect of any Registrable
Securities as a result of any stock split, stock dividend, recapitalization or
similar event or upon exchange of the shares of Common Stock, issued or issuable
upon exercise of the Warrants or the conversion of the Notes and any other
securities of the Company issued as a dividend or other distribution with
respect to, in exchange for or in replacement of the Warrant Shares or the Note
Shares; provided, however, that the term "Registrable Securities" shall not
apply to any shares of Common Stock remaining unregistered following the 90th
day after such time as Rule 144(k) under the Securities Act first becomes
available for the sale of all Registrable Securities without restriction.
"Registration Period" shall have the meaning set forth in Section 7.1
hereof.
"Securities" shall mean the Warrants and the Notes.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean each Registered Holder of Registrable Securities
that have been registered pursuant to a registration statement filed with the
Commission under the Securities Act pursuant to Section 7 of this Agreement.
"▇▇▇▇▇▇▇▇▇▇" shall mean ▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
"Warrant Shares" shall have the meaning set forth above in the
definition of "Registrable Securities." The number of Warrant Shares issuable to
the Registered Holder of this Warrant, subject to adjustment, is as set forth at
page 1 hereof.
"Warrants" shall have the meaning set forth in the preamble to this
Warrant.
2.SHARES SUBJECT TO WARRANT; ADJUSTMENTS.
2.1 NUMBER AND PRICE OF SHARES SUBJECT TO WARRANT. Subject to the
terms and conditions set forth herein, the Registered Holder hereof is entitled
to purchase from the Company, at any time from and after the first anniversary
of the Issuance Date until the earlier of (a) the fifth anniversary of the
Issuance Date or (b) the fourth anniversary of a Liquidity Event, fully-
paid and non-assessable shares of Common Stock, subject to adjustment, upon (a)
surrender hereof to the Company at its address set forth herein for notices or
to its agent designated by notice given hereunder, and (b) at the election of
the Registered Holder, upon either (i) payment of the Exercise Price to the
Company at such address in cash or by certified or bank check or (ii) tender of
a notice and surrender of this Warrant as provided in Section 6.2 hereof.
Subject to adjustment as hereinafter provided, the Exercise Price per share of
Common Stock (or such securities as may be substituted therefor pursuant to the
provisions hereinafter set forth) shall be equal to (A) seventy percent (70%)
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75
of the initial public offering price per share of Common Stock if the Liquidity
Event is an Initial Public Offering, (B) seventy percent (70%) of the
consideration received for the Company's assets if the Liquidity Event is the
sale of all or substantially all of the Company's assets, divided by the total
number of shares of Common Stock outstanding, on a fully-diluted basis, on the
close of business on the business day immediately prior to the date of such
Liquidity Event, or (C) prior to the occurrence of a Liquidity Event, the fair
market value per share of Common Stock on the last Closing Date (as defined in
the Agreement) as determined by the Board of Directors of the Company in good
faith.
2.2 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number and kind of
securities issuable to the Registered Holder hereof upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment at any time and
from time to time during the period from the date of this Warrant until the
first to occur of its exercise in full or expiration, upon the occurrence of
each of the following events:
(a) ADJUSTMENT FOR DIVIDENDS IN STOCK OR OTHER SECURITIES
OR PROPERTY. If the holders of the Common Stock (or any shares of stock or other
securities at the time receivable upon the exercise of this Warrant) receive,
or, on or after the record date fixed for the determination of eligible
stockholders, become entitled to receive, without payment therefor, other or
additional stock or other securities or property (other than cash) of the
Company by way of a dividend, then, and in each case, upon the exercise hereof,
the Registered Holder hereof shall be entitled to receive, in addition to the
number of Warrant Shares set forth at page 1 hereof and without payment of any
additional consideration therefor, the number of shares of such other or
additional stock or the number of such other securities, or an amount of
property (other than cash) of the Company which such Registered Holder would
hold on the date of such exercise had it been the holder of record of such
shares of Common Stock on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock or securities during such period,
giving effect to all adjustments required to have been made during such period
by paragraphs (b) and (c) of this Section 2.2.
(b) ADJUSTMENT FOR RECLASSIFICATION, REORGANIZATION OR
MERGER. If any reclassification or change of the outstanding securities of the
Company or any reorganization of the Company (or any other corporation the
securities of which are at the time issuable upon the exercise of this Warrant)
or any similar corporate reorganization, then, and in each such case, upon the
exercise of this Warrant at any time after the consummation of such
reclassification, change, or reorganization, the Registered Holder shall be
entitled to receive, in lieu of the stock or other securities and/or property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities and/or property to which such Registered Holder would have been
entitled upon consummation of such transaction if such Registered Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c) of this Section 2.2; and in
each such case, the terms of this Section 2.2 shall be applicable to the shares
of stock or other securities and/or property issuable upon the exercise of this
Warrant after consummation of each such transaction.
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(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If the Company
subdivides its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
thereby be proportionately reduced and the number of Warrant Shares shall
thereby be proportionately increased; and, conversely, if the shares of Common
Stock outstanding are combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall thereby be
proportionately increased and the number of Warrant Shares shall thereby be
proportionately decreased.
3. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. NO STOCKHOLDER RIGHTS. This Warrant shall not entitle the holder to any
of the rights of a holder of any class of capital stock of the Company.
5. RESERVATION OF STOCK. The Company covenants that during the period this
Warrant is exercisable, the Company will reserve, from its authorized and
unissued shares of Common Stock, a sufficient number of shares to provide for
the issuance of the Warrant Shares, as adjusted, upon the exercise of this
Warrant. The Company represents and warrants that its officers who are charged
with the duty of executing stock certificates shall have full authority to
execute and deliver certificates for Warrant Shares (or other securities of the
Company issuable) upon exercise of this Warrant.
6. EXERCISE OF WARRANT.
6.1 METHOD OF EXERCISE. This Warrant may be exercised by the
Registered Holder from time to time, in whole or in part, by surrender of this
Warrant, accompanied by (a) the "Election to Exercise," in the form attached
hereto, duly executed, (b) payment to the Company, by cash or certified or bank
check, of an amount equal to the then applicable Exercise Price multiplied by
the number of Warrant Shares for which this Warrant is being exercised, at the
address of the Company set forth herein for notices or to such other address or
to an agent of the Company designated by notice given pursuant to the terms of
Section 12 hereof, and (c) this Warrant, tendered for surrender. This Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the
Registered Holder shall be treated for all purposes as the holder of record of
Warrant Shares receivable upon such exercise of this Warrant as of the close of
business on such date. As promptly as practicable on or after such date, the
Company shall issue and deliver to the Registered Holder, at the Company's
expense, a certificate or certificates for the number of full Warrant Shares
issuable upon such exercise, together with cash in lieu of any fraction of a
share as provided above, and, unless this Warrant shall have been exercised in
full or shall have expired, a new Warrant representing the portion of the
Warrant Shares, if any, with respect to which this Warrant has not been
exercised, shall also be issued to the Registered Holder hereof. Any Warrant
Shares issued to the Registered Holder upon exercise hereof shall, upon their
issuance, be fully paid and non-assessable.
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6.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant in the
manner provided in Section 6.1 hereof, the Registered Holder may elect to
receive shares of Common Stock equal in value to the value of this Warrant (or
the portion thereof being surrendered) by surrender of this Warrant to the
Company at its address set forth for notices in Section 12 hereof or to its
agent designated by notice given pursuant to such Section, together with notice
of such election. Upon such surrender, the Company shall issue to the Registered
Holder hereof the number of shares of Common Stock computed in accordance with
the following formula:
Y(A-B)
X = ------
A
Where:
X = The number of shares of Common Stock to be issued to the
Registered Holder;
Y = The number of shares of Common Stock for which this
Warrant is exercisable (at the date of such calculation);
A = The fair market value per share of Common Stock (at the
date of such calculation); and
B = The Exercise Price (as adjusted to the date of such
calculation).
For purposes of this Section 6.2, the fair market value per share of
Common Stock on a particular date shall mean the average of the daily Closing
Prices (as defined below) per share of Common Stock for the ten (10) consecutive
trading days commencing 15 trading days before such date, unless an Initial
Public Offering shall have been consummated on such date, in which case, the
fair market value per share of Common Stock shall be the price per share of
Common Stock offered to the public pursuant to such Initial Public Offering. If,
on any such date, shares of Common Stock are not listed or admitted for trading
on the NASDAQ National Market or any national securities exchange or quoted by
the NASDAQ System or a similar service, then the fair market value per share of
Common Stock shall mean the price per share which the Company could obtain from
a willing buyer for the shares sold by the Company from authorized but unissued
shares, as such price shall be determined in good faith by the Board of
Directors of the Company. For purposes of this paragraph only, the term "Initial
Public Offering" shall mean the sale by the Company of its equity securities
pursuant to a registration statement on Form S-1 or any successor form adopted
by the Commission.
The term "Closing Price," as used in this Section with respect to each
share of Common Stock for any day shall mean (a) the last reported sale price
for such day or in the event that no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case, as
reported by the NASDAQ National Market or the principal national securities
exchange on which the Common Stock is listed or admitted for trading, or (b) if
the Common Stock is not listed or admitted for trading on the NASDAQ National
Market or any national securities exchange, the last reported sale price or, in
the event that no such sale takes places on such day, the average of the highest
reported bid and lowest reported asked quotation for the Common Stock, in either
case as reported on the NASDAQ System or a similar service if the NASDAQ System
is no longer reporting such information.
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7. REGISTRATION RIGHTS.
7.1 PIGGYBACK REGISTRATION. If, at any time during the five-year
period commencing on the date which is six (6) months after the Company first
becomes subject to the reporting requirements of Section 13 or Section 15(g) of
the Exchange Act (the "Registration Period"), the Company proposes to register
any of its securities under the Securities Act (other than in connection with
(a) the Company's Initial Public Offering or (b) a transaction contemplated by
Rule 145(a) promulgated under the Securities Act or any successor regulation or
pursuant to Form S-8 or S-4 (or their respective successor forms), the Company
shall give written notice of the Company's intention to do so by registered or
certified mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Registered Holder(s) of Registrable Securities
(each such notice, a "Registration Notice"). Upon the written request of a
Registered Holder given within ten (10) days after receipt of a Registration
Notice that any of such Holder's Registrable Securities be included in the
proposed registration statement (a "Registration Request"), the Company shall
afford such Registered Holder the opportunity to have any such Registrable
Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.1, the
Company shall have the right at any time after giving a Registration Notice
pursuant to this Section 7.1 to the Registered Holders (irrespective of whether
a Registration Request shall have been made with respect to any Registrable
Securities) to elect not to file the proposed registration statement or to
withdraw the same after its filing but prior to the effective date thereof.
If any registration pursuant to this Section 7.1 is
underwritten in whole or in part, the Company may require that the Registrable
Securities subject to a Registration Request be included in the underwriting on
the same terms and conditions as the securities being underwritten, and then
only in such quantity as, together with all other Registrable Securities subject
to any Registration Request, will not, in the opinion of the Managing
Underwriter, jeopardize the success of the underwritten offering by the Company.
In the case of (i) a primary registration statement on behalf of the Company or
(ii) a secondary registration statement on behalf of holders of any securities
of the Company exercising a right to request or demand registration, if, in the
opinion of the Managing Underwriter, registration of the number of Registrable
Securities subject to Registration Requests would adversely affect such public
offering, then the Company shall be required to include in the underwritten
offering only that number of Registrable Securities, in addition to all other
securities to be sold by the Company or any other stockholders of the Company,
which the Managing Underwriter believes may be sold without causing such adverse
effect. The Registrable Securities, including, without limitation, the Warrant
Shares, to be so included shall be included in such registered offering in the
following order of priority: First, the securities which the Company proposes to
sell in a primary offering or the securities requested to be included therein by
securityholders exercising rights to demand registration or any unfulfilled
automatic rights to registration in the case of a secondary registration; and,
second, shares as to which there are piggyback registration rights. If less than
all shares in either group are to be registered by reason of the Managing
Underwriter's cutback, shares within such group, including, without limitation,
Warrant Shares, shall be allowed to participate in such underwriting on a pro
rata basis based upon
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the number of securities requested to be included by each participating
securityholder, and in the case of Registered Holders, pursuant to their
respective Registration Requests.
7.2 DEMAND REGISTRATION.
(a) At any time during the Registration Period, the
Majority Holders shall have the right (which right is in addition to the
registration rights granted under Section 7.1 hereof), exercisable by written
notice to the Company (each such notice, a "Demand Registration Notice"), to
require that the Company prepare and file with the Commission, on one (1)
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary, in the opinion of counsel for the Company,
counsel for the underwriters, if any, and counsel, if any, for the Majority
Holders, to comply with the provisions of the Securities Act so as to permit a
public offering and sale of Registrable Securities for the period specified
hereinbelow by such Majority Holders and any other Registered Holders of
Registrable Securities who give written notice to the Company (a "Demand
Registration Response") within ten (10) days after receiving notice from the
Company (a "Registration Notice") of its receipt of such Demand Registration
Notice, provided that the Company is subject to the reporting requirements of
the Exchange Act at the time the Company receives the Demand Registration Notice
and the Demand Registration Response. Within ten (10) days after the Company's
receipt of any Demand Registration Notice from a Registered Holder, the Company
shall give a Registration Notice to all other Registered Holders with respect to
such receipt.
(b) The term "Majority Holders" shall mean Registered
Holders owning, in the aggregate, more than fifty percent (50%) of the
Registrable Securities that (i) are not held by the Company, an Affiliate,
officer, creditor, employee or agent thereof or any of their respective
Affiliates, family members, or nominees and (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Securities Act or pursuant to Rule 144 promulgated thereunder; provided,
however, that the Majority Holders shall not be the Beneficial Owners of less
than an aggregate of 35,000 Registrable Securities (the "Minimum Amount"); and
provided, further, however, that in the event the piggyback registration rights
pursuant to Section 7.1 hereof have not been available for exercise within the
twelve-month period prior to the exercise of demand registration rights pursuant
to Section 7.2 hereof, the Minimum Amount shall be reduced to zero.
(c) Anything contained herein to the contrary
notwithstanding, the Majority Holders shall not have the right to demand
registration as provided in this Section 7.2 if, within the preceding six-month
period, the Registered Holders had the opportunity, whether or not exercised, to
register any Registrable Securities pursuant to Section 7.1 hereof or Section
4.1 of the Agreement.
(d) The right to demand registration set forth in this
Section 7.2 shall not be in addition to any rights to demand registration
pursuant to any Note or the Agreement.
7.3 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 7.1 or 7.2 hereof, the Company
covenants and agrees as follows:
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(a) to use commercially reasonable efforts to file a
registration statement within forty-five (45) days of the Company's receipt of a
Registration Request or a Demand Registration Notice, which request or demand
triggers the Company's obligation to register Registrable Securities of any
Registered Holders pursuant to Section 7.1 or 7.2 hereof, and to cause any
registration statement to be declared effective at the earliest time
practicable. The Company shall furnish each Registered Holder that has given a
Registration Request, a Demand Registration Notice or a Notice of Participation
such number of prospectuses as shall reasonably be requested;
(b) to pay all costs (excluding transfer taxes, if any, and
any capital gains or other income taxes whatsoever, including, without
limitation, any withholding taxes, that may be imposed upon any holder of this
Warrant and any underwriting or selling commissions), fees and expenses in
connection with all registration statements filed pursuant to Section 7.1 or 7.2
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses and blue sky fees and expenses;
(c) as expeditiously as possible, to prepare and file with the
Commission any amendments and supplements to the registration statement and the
prospectus included in the registration statement as may be necessary to keep
the registration statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or two hundred seventy (270) days after the effective date thereof;
(d) as expeditiously as possible, to furnish to each Seller
such reasonable number of copies of the prospectus, including a preliminary
prospectus, and such other documents as such Seller may reasonably request in
order to facilitate the public sale or other disposition of the Warrant Shares
owned by him pursuant to Section 7.1 or 7.2 hereof;
(e) as expeditiously as possible, to use its commercially
reasonable efforts to register or qualify a Seller's Registrable Securities
covered by the registration statement under the securities or blue sky laws of
such states as each Seller reasonably requests, and do any and all other acts
and things that may be necessary or desirable to enable each Seller to
consummate the public sale or other disposition in such states of its
Registrable Securities; provided, however, that the Company shall not be
required in connection with this paragraph (e) to qualify as a foreign
corporation in any jurisdiction in which it is not already obligated to qualify
or execute or file a general consent to service of process in any jurisdiction
or subject itself to the laws of any jurisdiction other than the United States
or any state thereof;
(f) if the registration statement relates to an underwritten
offering, to enter into and perform its obligations under an underwriting
agreement in the usual and customary form, including, without limitation,
customary indemnification and contribution obligations;
(g) to notify each Seller at any time when a prospectus
relating to its Registrable Securities covered by the registration statement is
effective, of the happening of any event as a result of which the prospectus
included in the registration statement, as then in effect, includes an untrue
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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. The Company shall use commercially
reasonable efforts promptly to amend or supplement the registration statement to
correct any such untrue statement or omission;
(h) to notify each Seller of the issuance by the Commission or
any state securities commission of any stop order suspending the effectiveness
of the registration statement or the initiation of any proceedings for that
purpose. The Company will make every commercially reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time;
(i) if, after the Company has delivered preliminary or final
prospectuses to a Seller, the prospectus is amended to comply with the
provisions of the Securities Act or is otherwise amended or supplemented, the
Company shall promptly notify each Seller. In the event of such notification,
each Seller shall immediately cease making offers of the Registrable Securities
and, if requested, shall return all prospectuses to the Company. The Company
shall promptly provide each Seller with revised prospectuses and, following
receipt of the revised prospectuses, each Seller shall be free to resume making
offers of Registrable Securities, subject only to applicable laws and the terms
of any stop order of the Commission or any state securities commission.
(j) to permit a single law firm, if any, designated by the
Majority Holders as counsel to the Registered Holders to review the registration
statement and all amendments and supplements thereto within a reasonable period
of time prior to the filing thereof, and shall not file any document in a form
to which such counsel reasonably objects; and
(k) to make available for inspection by the Registered
Holders, and any representative of all Registered Holders, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney or accountant retained by any Registered Holder or underwriter, all
financial and other records customary for purposes of a due diligence
examination of the Company by the Registered Holders or such underwriters, as
the case may be, pertinent corporate documents and properties of the Company,
and to cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Registered Holder, representative,
underwriter, attorney or accountant in connection with such registration
statement, provided that such parties agree to keep all such records, documents,
properties and information confidential.
7.4 INDEMNIFICATION BY THE COMPANY.
(a) In the event that the Company registers any of the
Registrable Securities under the Securities Act, the Company shall indemnify and
hold harmless each participating Seller and each underwriter of such Registrable
Securities so registered (including any broker or dealer through whom such
Registrable Securities may be sold pursuant to the applicable underwriting
agreement, and the officers, directors, Affiliates and each Controlling Person,
if any, of such Seller or any such underwriter) from and against (i) any and all
losses, claims, damages, expenses or liabilities, joint or several, as incurred,
to which they or any of them becomes subject under the Securities Act,
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applicable state securities laws or under any other statute or at common law or
otherwise, and (ii) except as hereinafter provided, will reimburse each such
Seller, underwriter and Controlling Person, if any, for any legal or other
expenses such Seller, underwriter and Controlling Person, respectively,
reasonably incurred in connection with investigating or defending any actions
whether or not resulting in any liability, as incurred, but only insofar as such
losses, claims, damages, expenses, liabilities or actions set forth in the
preceding clauses (i) and (ii) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, in any preliminary or amended preliminary prospectus or
in the final prospectus (or the registration statement or prospectus as from
time to time amended or supplemented by the Company) in any application or other
document executed by the Company or based upon information furnished and filed
by the Company in any jurisdiction in order to qualify the securities under the
securities laws thereof or filed with the Commission, the NASD, the Nasdaq Stock
Market or any securities exchange, 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 in order to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act or any state securities laws applicable to
the Company and relating to action or inaction of the Company in connection with
such registration, (i) unless such untrue statement or alleged untrue statement
or omission or alleged omission was made in such registration statement,
preliminary or amended preliminary prospectus or final prospectus or
application, document or filing in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by a
Seller or any of its Controlling Persons (in the case of indemnification of such
Seller or any of its Controlling Persons), or any such underwriter or its
Controlling Persons, if any (in the case of indemnification of such underwriter
or its Controlling Persons), expressly for use therein, or (ii) unless, in the
case of a sale directly by such Seller (including a sale of such Registrable
Securities through any underwriter retained by such Seller to engage in a
distribution on its behalf), such untrue statement or alleged untrue statement
or omission or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus copies of which were delivered to
such Seller or such underwriter on a timely basis, and such Seller or
underwriter failed to deliver a copy of the final or amended prospectus at or
prior to the confirmation of the sale of the Warrant Shares and/or other
Registrable Securities to the Person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Securities Act.
(b) Promptly after receipt by any Seller, underwriter or any
of their Controlling Persons of notice of the commencement of any action in
respect of which indemnity may be sought against the Company, such Seller,
underwriter or Controlling Person, as the case may be, shall notify the Company
in writing of the commencement thereof (provided, that failure to so notify the
Company shall not relieve the Company from any liability it may have hereunder
except to the extent that the Company's defense of such action is materially and
adversely affected thereby), and, subject to the provisions hereinafter stated,
the Company shall be entitled to assume the defense of such action (including
the employment of counsel, who shall be counsel reasonably satisfactory to such
Seller, underwriter or Controlling Person, as the case may be), and shall assume
the payment of expenses insofar as such action relates to any alleged liability
in respect of which indemnity may be sought against the Company hereunder.
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(c) Such Seller or any such underwriter and their respective
Controlling Persons shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel subsequent to any assumption of the defense by the Company shall
not be payable by the Company unless (i) engagement of such counsel has been
specifically authorized in writing by the Company, or (ii) the Company shall not
have engaged counsel to defend such action by the earlier of (a) 45 days after
the Company shall have received notice of such action and (b) the date by which
any filing must be made with the court or other administrative body adjudicating
any such action or any other action must be taken in order not to relinquish any
rights applicable to such Seller or any of its Controlling Persons, or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties) in either such event, the fees and expenses of not more than one
additional firm of attorneys for the Seller(s), such underwriter and/or their
Controlling Persons shall be borne by the Company. The Company shall not be
liable to indemnify any Person for any settlement of any such action effected
without the Company's written consent. The Company shall not, except with the
approval of each party being indemnified under this Section 7.4, consent to the
entry of any judgment or enter into any settlement of any action, suit or other
proceeding which does not include as an unconditional term thereof the giving by
the claimants or plaintiffs to the parties being so indemnified of a release
from all liability in respect of all claims made in such action, suit or
proceeding.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which a Seller or any
Controlling Person of a Seller makes a claim for indemnification pursuant to
this Section 7.4 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 7.4 provides for indemnification in such case, then each of the
Company, such Seller and such Controlling Person shall contribute to the
aggregate losses, claims, damages or liabilities to which it may be subject
(after contribution from others) in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and that of such Seller and
each of its Controlling Persons on the other, in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the Seller and/or its Controlling Persons on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or by such Seller and/or its Controlling Persons on the other,
and the relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission of each of the Company, on the one
hand, and the Seller and/or its Controlling Persons, on the other hand;
provided, however, that, in any such case, (i) no such Seller will be required
to contribute any amount in excess of the public offering price of all such
Registrable Securities offered by such Seller pursuant to such registration
statement; and (ii) no Person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
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contribution from any Person that was not guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act).
7.5 LISTING; EXCHANGE ACT REGISTRATION. (a) If, at any time, the
Company lists any class of its equity securities on any national securities
exchange and registers such class of securities under the Exchange Act, the
Company shall, at its expense: (i) include in its application for such listing
the Registrable Securities and maintain such listing of, such class of equity
securities; and (ii) use commercially reasonable efforts to timely file with the
Commission such information as the Commission may require under Section 13 or
Section 15(d) of the Exchange Act; and (iii) provided the Registration Period
shall have commenced, use commercially reasonable efforts (a) to list
Registrable Securities on such national securities exchange simultaneously with
the registration thereof, if any, and (b) to take all action as may be required
as a condition to the availability of Rule 144 or Rule 144A under the Securities
Act (or any successor exemptive rule hereafter in effect) with respect to such
Registrable Securities.
(b) If the Company lists any class of equity securities on any
national securities exchange and registers such class of equity securities under
the Exchange Act, the Company shall furnish to any Seller, forthwith upon such
Seller's request, (i) a written statement by the Company as to its compliance
with the reporting requirements of Rule 144, (ii) a copy of the most recent
annual or quarterly report of the Company as filed with the Commission, and
(iii) such other reports and documents as such Seller may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Seller
to sell any such Registrable Securities without registration. The Company agrees
to use its commercially reasonable efforts to facilitate and expedite transfers
of Registrable Securities pursuant to Rule 144 under the Securities Act, which
efforts shall include timely notice to its transfer agent to expedite such
transfers.
7.6 SELLER INDEMNIFICATION.
(a) In the event that the Company registers any of the
Registrable Securities under the Securities Act, each Seller shall indemnify and
hold harmless the Company, each of its directors and each of its officers who
have signed or otherwise participated in the preparation of the registration
statement, each of the Company's Controlling Persons, each underwriter of the
Registrable Securities so registered (including any broker or dealer through
whom such of the shares may be sold) and each of such underwriter's Controlling
Persons, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, as incurred, to which they or any of them may
become subject under the Securities Act, applicable state securities laws or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, shall reimburse the Company and each such director,
officer, underwriter, broker, dealer or Controlling Person for any legal or
other expenses it reasonably incurs in connection with investigating or
defending any action, suit or proceeding whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final prospectus (or in
the registration statement or prospectus as from time to time amended or
supplemented) 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 in
order
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to make the statements therein not misleading, but only insofar as any such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
Seller or Controlling Person of such Seller expressly for use therein; provided,
however, that such Seller's obligations hereunder shall be limited to an amount
equal to the proceeds received by such Seller from the sale of Registrable
Securities pursuant to such registration statement or prospectus.
(b) Promptly after the Company's receipt of notice of the
commencement of any action, suit or proceeding in respect of which indemnity may
be sought against such Seller, the Company shall notify such Seller in writing
of the commencement thereof (provided, that failure to so notify such Seller
shall not relieve such Seller from any liability it may have hereunder except to
the extent that such Seller's defense of such action is materially and adversely
affected thereby), and such Seller shall, subject to the provisions hereinafter
stated, be entitled to assume the defense of such action (including the
employment of counsel, who shall be counsel reasonably satisfactory to the
Company) and shall assume the payment of all expenses insofar as such action,
suit or proceeding shall relate to the alleged liability in respect of which
indemnity may be sought against such Seller hereunder.
(c) The Company and each such director, officer, underwriter
or Controlling Person shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel subsequent to any assumption of the defense by such Seller shall
not be at the expense of such Seller unless (i) engagement of such counsel is
specifically authorized in writing by such Seller or (ii) such Seller shall not
have engaged counsel to defend such action by the earlier of (a) 45 days after
the Company shall have given notice to such Seller of such action and (b) the
date by which any filing must be made with the court or administrative body
adjudicating any such action or any other action must be taken in order not to
relinquish any legal rights applicable to the Company or any of its Controlling
Persons, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it which are different from or
additional to those available to such Seller (in which case such Seller shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in either such event, the fees and expenses of
not more than one additional firm of attorneys for each of the Company and/or
such underwriter shall be borne by such Seller. Such Seller shall not be liable
to indemnify any Person for any settlement of any such action effected without
such Seller's written consent.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which the Company's exercise
of its rights under this Section 7.6 involves a claim for indemnification
pursuant to this Section 7.6, 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 that this
Section 7.6 provides for indemnification, then, in such case, the Company and
such Seller shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and of such Seller on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages or
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liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of such Seller on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or by such Seller on the other, and their relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission; provided, however, that, in any such case, (i) no such Seller shall be
required to contribute any amount in excess of the public offering price of all
such Registrable Securities offered by it pursuant to such registration
statement; and (ii) no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person that was not guilty of such fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act).
7.7 UNDERWRITER COMPENSATION. In connection with any registration made
pursuant to Section 7.1 or 7.2 hereof, the Registered Holders of Warrant Shares
agree as follows: (i) any public sale of Registrable Securities included in such
registration statement shall be effected through the underwriter, if any, for
such registration and (ii) Sellers shall compensate the underwriter in
accordance with the underwriter's customary compensation practices for such
transactions.
7.8 STOCKHOLDER ACTS. Whenever under the preceding provisions of this
Section 7 a Registered Holder is registering any Warrant Shares pursuant to any
registration statement, such Holder agrees to timely provide to the Company such
information and materials as the Company may reasonably request in order to
effect the registration of such Warrant Shares.
7.9 NO REQUIRED EXERCISE. Nothing contained in this Warrant shall be
construed as requiring the holder to exercise the Warrant prior to the initial
filing of any registration statement or the effectiveness thereof.
7.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 7 may be assigned
(but only with all related obligations) by the Registered Holder to a Permitted
Transferee, provided that: (a) within a reasonable time before such transfer,
which time shall not be less than ten (10) days, the Company is furnished with
written notice of the name and address of such proposed transferee and the
number of Registrable Securities with respect to which such registration rights
are being assigned; (b) immediately following such transfer, further disposition
of such Registrable Securities by the proposed transferee is restricted under
the Securities Act; (c) in the Company's judgment, the proposed transferee is
not a competitor of the Company or any of its subsidiaries; (d) such transfer
is not otherwise prohibited by the terms of any applicable law or regulation or
any lock-up agreement, if any (including, without limitation, the Lock-Up
Agreement), then in effect with respect to the Securities or the Registrable
Securities; (e) the Company receives an opinion of counsel, acceptable to the
Company in its sole discretion, that such assignment does not violate the
Securities Act or any applicable state securities laws or regulations; and (f)
the proposed transferee agrees to execute and deliver to the Company an original
counterpart signature page to the Agreement, thereby agreeing to be bound by the
terms thereof.
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7.11 DELAY OF REGISTRATION. No holder hereof shall have any right to
obtain or seek an injunction restraining or otherwise delaying any registration
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Article 7.
8. CERTIFICATE OF ADJUSTMENT. Whenever the Exercise Price or number or type of
securities issuable upon exercise of this Warrant is adjusted as herein
provided, the Company shall promptly deliver to the Registered Holder of this
Warrant a certificate of an officer of the Company setting forth the nature of
such adjustment and a brief statement of the facts requiring such adjustment.
9. TRANSFER OF WARRANT. This Warrant may not be transferred by the holder
without the written consent of the Company. Notwithstanding the foregoing, no
such consent shall be necessary for a transfer by the Purchaser to a stockholder
or partner of the Purchaser, if the transferee or transferees agree in writing
to be subject to the terms hereof to the same extent as if they were the
Purchaser hereunder and executes a counterpart signature page and agrees to be
bound by, the Agreement.
10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft or mutilation of any Warrant and delivery of an
indemnification agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company shall execute and deliver, at its
expense, in lieu hereof, a new Warrant of like tenor.
11. SECURITIES LAWS. As a condition to the exercise of this Warrant, the
Registered Holder (including any permitted assignee) shall be required to make
such representations and warranties and execute such documents as reasonably
requested by the Company in order for the Company to perfect an exemption from
the registration and qualification requirements of applicable securities laws.
12. NOTICES. Except as otherwise specifically provided herein, all notices and
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to be received when delivered personally or sent by
facsimile with written confirmation of complete transmission, one day after
being sent by overnight courier service or express mail requiring signed
acknowledgment of delivery, or five (5) business days after mailing by
registered or certified mail, return receipt requested with all postage and
certified or registration fees prepaid, in each case if addressed to the party
for whom intended at the address for such party set forth below or to such other
address as such party may designate by notice given in accordance with the
provisions of this Section 12:
to the Company: Dynacs Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
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with copies to: Frankfurt ▇▇▇▇▇▇ ▇▇▇▇▇ & Selz, P.C.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
to the Purchaser: To each Registered Holder at the address set forth on
Schedule I to the Agreement.
with copies to: ▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, Associate
13. TERMINATION. The right to purchase securities upon exercise of this Warrant
shall terminate upon the earlier of (a) the fifth anniversary of the Issuance
Date and (b) the fourth anniversary of the first Liquidity Event.
14. MISCELLANEOUS. This Warrant has been prepared, negotiated and delivered in
the State of New York and shall be governed by the laws of said State. The
headings in this Warrant are for purposes of convenience and reference only, and
shall not be deemed to constitute a part hereof. Neither this Warrant nor any
term hereof may be changed, waived, discharged or terminated orally but only by
an instrument in writing signed by the Company and the Registered Holder hereof.
All notices and other communications from the Company to the Registered Holder
shall be mailed by first class registered or certified mail, postage prepaid, to
the address furnished to the Company in writing by the Registered Holder. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provisions. The language in this
Warrant shall be construed as to its fair meaning, and not strictly for or
against the Company or the Holder. This Warrant, together with the Agreement and
the Second Senior Subordinated Convertible Note issued by the Company to the
Purchaser on the date hereof, sets forth the final, complete and exclusive
statement of the terms and conditions between the parties pertaining to the
subject matter of this Warrant and supersedes all prior and contemporaneous
agreements or understandings, whether written or oral, with respect hereto.
ISSUED as of this _____ day of February, 2000 to ________ (the
"Purchaser").
DYNACS INC.
By
_________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, III
Senior Vice President
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Dynacs Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _________ Warrant
Shares covered by the within Warrant and tenders payment herewith in the amount
of $_______ in accordance with the terms thereof; and requests that certificates
for such securities be issued in the name of, and delivered to:
___________________________________________________
___________________________________________________
___________________________________________________
(Print Name, Address and Social Security or Tax Identification Number)
and, if such number of Warrant Shares are not all the Warrant Shares covered by
the within Warrant, that a new Warrant for the balance of the Warrant Shares
covered by the within Warrant be registered in the name of, and delivered to,
the undersigned at the address stated below.
___________________________________________________
___________________________________________________
___________________________________________________
(Print Name, Address and Social Security or Tax Identification Number)
Dated: __________________ Name: ______________________________________
(Print)
Address: _________________________________________________
______________________________________
(Signature)
______________________________________
(Signature Guarantee)
______________________________________
(Signature Guarantee)
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EXHIBIT C
FORM OF OPINION OF COUNSEL
▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇, PC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
________________, 2000
To the Investors listed
on Schedule I to the Warrant and
Senior Sub. Con. Note Pur. Agmt.
dated the date hereof
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Dynacs, Inc.
Ladies and Gentlemen:
We have acted as special counsel for Dynacs, Inc., a Delaware
corporation (the "Company"), in connection with its offer and sale (the
"Offering") of up to $1,900,000 in principal amount of one-year Second Senior
Subordinated Convertible Promissory Notes (the "Notes") and warrants to purchase
up to 285,000 shares of the Company's common stock, par value $.01 per share,
(the "Warrants") pursuant to a private placement conducted by ▇.▇. ▇▇▇▇▇▇▇▇▇▇ &
Co., Inc. acting as placement agent (the "Placement Agent") as more fully
described in the Confidential Offering Memorandum, dated February 8, 2000, which
includes a term sheet, the forms of (i) the Second Warrant and Senior
Subordinated Convertible Note Purchase Agreement, by and among the Company and
the purchasers of Notes and Warrants named on Schedule I thereto (collectively,
the "Investors"), (ii) the Warrants and (iii) the Notes, and certain information
with respect to the Company, its subsidiaries and their business and operations
(the "Offering Memorandum"). The Second Warrant and Senior Subordinated
Convertible Note Purchase Agreement is referred to herein as the "Agreement."
The transactions contemplated by the Offering Memorandum and the Agreement are
collectively referred to herein as the "Transactions."
This opinion is furnished to you on behalf of the Company pursuant to
Section 5.2(d) of the Agreement. Capitalized terms used herein which are not
otherwise defined shall have the respective meanings ascribed to them in the
Agreement.
92
Investors and 2
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
In such capacity, we have examined the following documents and
agreements as executed by the Company in connection with the Transactions:
(i) the Agreement;
(ii) the Warrants, each dated the date hereof;
(iii) the Notes, each dated the date hereof;
(iv) the Subordination Acknowledgment and Agreements between the
Company and each of the unsecured debt holders listed on
Schedule I to this opinion (the "Subordination Agreements");
(v) the Waiver of Preemptive Rights, dated November 1, 1999,
executed by the representative of the holders of outstanding
common stock of the Company's subsidiary, Cerulean FXs, Inc.
("Cerulean"), a copy of which waiver (the "Cerulean Waiver") is
attached to this Opinion; and
(vi) the Offering Memorandum.
We have also reviewed the Individual Guaranty, dated the date hereof, of
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Guarantor") in favor of the Investors (the "Guaranty").
The documents, instruments and agreements set forth in clauses (i) through (v)
immediately above are referred to in this opinion letter collectively as the
"Transaction Documents."
In addition, we have examined and relied upon such other documents,
instruments and records as we have deemed necessary for purposes of rendering
this opinion. Such documents, instruments and records, together with the
Transaction Documents and the Guaranty, are referred to in this opinion letter
collectively, as the "Reviewed Documents."
Insofar as the opinions expressed herein relate to factual matters,
information with respect to which is in the possession of the Company, we have
relied, with your permission, upon a certificate of ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
and Chief Executive Officer of the Company, annexed hereto, and upon statements
and representations of other officers and other representatives of the Company
and upon the Company's duly authorized representatives' and officers'
representations and warranties contained in the Reviewed Documents. No facts or
circumstances have come to our attention (but without our having made any
investigations for such purpose) that would cause us to believe that any such
representations, warranties or statements which are relevant to the opinions
expressed in this opinion letter and upon which we are relying in rendering this
opinion are inaccurate in any material respect.
93
Investors and 3
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
The opinion contained in paragraph 8 below is furnished to you on
behalf of the Guarantor solely in connection with his execution and delivery of
the Guaranty. In such capacity, we have examined the Guaranty as executed by the
Guarantor.
We are members of the Bar of the State of New York and we do not
purport to be experts in, and we do not express any opinion herein concerning,
any laws other than the laws of the State of New York, the General Corporation
Law of the State of Delaware, and the federal laws of the United States of
America, as currently in effect. In addition, our opinion is limited to the
matters expressly set forth herein, and no opinion is implied or may be inferred
beyond such matters. No opinion is rendered herein with respect to the effect or
enforceability of any conflicts of laws provisions of the Agreement, any other
Transaction Document or the Guaranty, and we express no opinion as to any
representation or warranty of any party other than the Company. We inform you
that we have not heretofore represented the Guarantor.
Based upon such review and examinations, and upon the assumptions,
qualifications and exceptions set forth in this opinion letter, we are of the
opinion that:
1. The execution, delivery and performance of the Agreement have been
duly and validly authorized by the Company, the Agreement and the Subordination
Agreements are each the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, and the Notes and the Warrants
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms. The Warrants, the Notes, the
Warrant Shares and the Note Shares have been duly authorized for issuance, and
assuming payment therefor by the Investors in accordance with the terms of the
Transaction Documents, (i) the Warrants issued to the Investors are validly
issued, fully paid and non-assessable and the holders thereof are not subject to
personal liability to third parties solely by reason of being such holders, (ii)
the Notes issued to the Investors are duly authorized and validly issued, and
(iii) the Warrant Shares and the Note Shares, if and when issued, will be
validly issued, fully paid and non-assessable and the holders thereof will not
be subject to personal liability to third parties solely by reason of being such
holders. All corporate action required to be taken for the authorization,
issuance and sale of the Warrants and the Notes and the authorization, issuance
and sale of the Warrant Shares and the Note Shares in accordance with the terms
of the Transaction Documents have been duly and validly taken by the Company.
The Notes, the Warrants, the Warrant Shares, and the Note Shares are not subject
to any preemptive rights, created by statute, of any security holder of the
Company, and, to our knowledge, such securities are not subject to contractual
preemptive rights of any other party, except the preemptive rights of the
holders of shares of common stock of Cerulean, pursuant to
94
Investors and 4
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
that certain Exchange Agreement, dated as of August 13, 1999, by and among the
Company, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ Dallas, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and
Offense Group Associates, LP (the "Exchange Agreement"), which preemptive rights
(the "Cerulean Holders' Rights"), have been waived pursuant to Cerulean Waiver.
2. The Company has been duly organized as a corporation under the laws
of the State of Delaware and is in good standing in such State. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each state of the United States in which the failure to so qualify or be in
good standing would have a material adverse effect on the business of the
Company and its subsidiaries, taken as a whole. The Company has all requisite
corporate power and corporate authority to own or lease its properties and
assets and to conduct its business as currently conducted.
3. All of the outstanding capital stock of the Company has been duly
authorized, validly issued and, to our knowledge, is fully paid and
non-assessable. To our knowledge, the holders of the outstanding capital stock
of the Company have no contractual rights of rescission or contractual
preemptive rights with respect to their shares, other than the Cerulean Holders'
Rights, and none of such securities was issued in violation of the contractual
preemptive rights of any holder of any security of the Company. The holders of
the outstanding capital stock of the Company are not subject to statutory
personal liability solely by reason of being such holders and none of such
outstanding capital stock was issued in violation of the statutory preemptive
rights of any holder of any security of the Company.
4. To our knowledge, neither the Company nor any domestic Subsidiary is
in breach of, or in default under, any term or provision of any indenture,
mortgage, deed of trust, lease, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound or affected. To our knowledge, neither the Company
nor any domestic Subsidiary is in violation of any provision of its articles or
certificate of incorporation or by-laws or in violation of any franchise,
license, permit, judgment, decree or order, or in violation of any state or
Federal statute, rule or regulation except as disclosed in the Agreement. To our
knowledge, neither the execution and delivery of the Agreement, nor the issuance
and sale or delivery of the Securities nor the consummation of any of the
transactions contemplated in the Agreement, nor the compliance by the Company
with the terms and provisions thereof, has conflicted with, or has resulted in a
breach of, any of the terms and provisions of, or has constituted a default
under, or has resulted in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its domestic
Subsidiaries or
95
Investors and 5
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company or
any Subsidiary may be bound or to which any of the property or assets of the
Company is subject. The execution, delivery and performance by the Company of
each of the Transaction Documents and the consummation by the Company of the
Transactions do not (a) contravene the Company's certificate of incorporation or
by-laws or (b) to our knowledge, violate any law, statute, rule, regulation
order, writ, judgment, injunction, decree, determination or award, the violation
or breach of which could reasonably be expected to have a material adverse
effect on the business of the Company and its subsidiaries, taken as a whole.
5. To the best of our knowledge, no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Company of any of the Transaction Documents.
6. To the best of our knowledge, there are no claims, actions, suits,
investigations or proceedings before or by any arbitrator, court, governmental
authority or instrumentality pending or threatened against or affecting the
Company or involving the properties of the Company, other than the Arbitration
Proceedings, which might materially and adversely affect the business,
properties, or financial condition of the Company and its subsidiaries, taken as
a whole.
7. We have participated in the preparation of the Offering Memorandum
and the Transaction Documents (collectively, the "Offering Documents"),
including, without limitation, participation in conferences with officers and
other representations and have reviewed the Reviewed Documents, and although we
do not pass upon and do not assume responsibility for the accuracy, completeness
or fairness of the statements contained in the Offering Documents, nothing has
come to our attention to cause us to have reason to believe that any of the
Offering Documents contains any untrue statement of a material fact required to
be stated therein or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that we are not expressing any opinion with respect to (i) the financial
schedules, financial statements, notes thereto and other financial information
and statistical data contained therein, including, without limitation, the
summary financial information and any financial forecasts or projections.
8. The Guaranty constitutes the legal, valid and binding obligation of
the Guarantor enforceable against the Guarantor in accordance with its terms.
96
Investors and 6
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
9. Assuming (i) that each Investor that purchases Notes and Warrants is
an Accredited Investor, (ii) that the representations made by the Company and
the Investors in the Agreement and in the Investors' Investor Questionnaires
were true and correct on the date of such Agreement and at the time of the
Closing, (iii) that a Form D will be filed in accordance with the provisions of
Section 503 of Regulation D, (iv) that ▇.▇. ▇▇▇▇▇▇▇▇▇▇ and any other parties
acting at the request of ▇.▇. ▇▇▇▇▇▇▇▇▇▇ as a co-placement agent complies with
the requirements of Sections 4(2), Regulation D or 4(6) of the Securities Act of
1933, as amended, no registration under the Securities Act is required in
connection with the sale and issuance of any of the securities. The offering and
sale of the Securities in the manner contemplated by the Agreement will not be
integrated with any offering made before the offer and sale of such securities
in a manner that would render unavailable any exemption from registration under
the Securities Act.
In our examination of the Reviewed Documents, we have assumed the
following:
(a) the signatures of all parties (other than the Company) contained in
such Reviewed Documents are genuine signatures of the parties purporting to have
signed the same, and all persons signing such Reviewed Documents had, at the
time of such signing, full legal capacity to sign and deliver such Reviewed
Documents;
(b) the legal capacity of each signatory (other than the Company) to
such Reviewed Documents;
(c) the authenticity and accuracy of all documents submitted to us as
originals and the conformity to original documents of all Reviewed Documents
submitted to us as originals and the conformity to original documents of all
Reviewed Documents submitted to us as certified or photostatic copies;
(d) the Transaction Documents are the valid and legally binding
obligations of each party thereto other than the Company and are enforceable
against each such party other than the Company in accordance with their
respective terms.
(e) no action has been taken which amends, revokes or otherwise affects
any of the Reviewed Documents;
(f) the Transaction Documents and the Guaranty accurately describe and
contain the full understanding of all parties thereto, including the Company,
and there are no oral or written
97
Investors and 7
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
statements or agreements by any party that modify, amend, vary or waive, or
purport to modify, amend, vary or waive, any of the terms of any Transaction
Document; and
(g) the facts and law governing the future performance by the Company
of its obligations under the Transaction Documents will be identical to the
facts and law governing the Company's performance of the Transaction Documents
on the date of this opinion letter.
Although we have not conducted an independent investigation of the accuracy or
reasonableness of any of these assumptions, nothing has come to our attention
leading us to question the accuracy of any of the above assumptions.
Any reference to any of the terms, "our knowledge," "knowledge," or
"our best knowledge," or to any matters "known to us," "coming to our attention"
or "of which we are aware," or any variation of any of the foregoing shall mean
the conscious awareness, as to the existence or absence of any facts which would
contradict any assumption or opinion set forth in this opinion letter, of those
attorneys of this firm who have rendered substantive attention to the Company or
any of its Subsidiaries or the Guarantor in connection with the Offering. Except
as specifically set forth in this opinion letter, we have not undertaken any
independent investigation to determine the existence or absence of such facts,
and no inference as to our knowledge of the existence or absence of such facts
should be drawn from the fact of our representation of the Company or the
Guarantor. Moreover, without limiting the generality of the foregoing and except
as specifically provided in this opinion letter, we have not searched any
computerized or electronic data bases or the dockets or records of any court,
regulatory body or governmental agency or other filing office (including,
without limitation, the U.S. Patent and Trademark Office) in any jurisdiction.
The opinions set forth in this opinion letter are subject to the
following additional qualifications, limitations and exceptions:
(a) The opinions concerning the validity, legally binding
nature or enforceability of any provision of any Transaction Document
are subject to (i) the application of bankruptcy, insolvency,
avoidance, usury, bulk transfer, reorganization, moratorium or other
laws affecting the rights and remedies of creditors, including, without
limitation, any statutory or other law regarding fraudulent transfers
or conveyances, (ii) the application of equitable principles and public
policy considerations (including, without limitation, principles of
commercial reasonableness, good faith and fair dealing) regardless of
whether such principles and considerations are considered in a
proceeding
98
Investors and 8
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
in equity or at law, (iii) the effect of procedural due process, and
(iv) the discretion of the court or body before which any proceeding
therefor may be brought, including, without limitation, the court's
failure or refusal to enforce provisions of agreements or other
documents if enforcement thereof is based upon defaults or breaches
which are immaterial to the ultimate performance contemplated thereby
or for other reasons deemed equitable by the court; furthermore, no
opinion is expressed as to whether any such provision is specifically
enforceable in equity.
(b) The unenforceability, under certain circumstances, of
terms of any of the Transaction Documents and the Guaranty providing
for indemnification of or contribution to a party where such
indemnification or contribution is contrary to public policy;
(c) We express no opinion as to prospective waivers of (i)
rights to any notice or hearing, (ii) provisions purporting to
establish evidentiary standards, or (iii) rights to the extent any such
waivers violate matters of public policy.
(d) We express no opinion as to the enforceability, in any
particular circumstance, of any provision of the Transaction Documents
or the Guaranty which provides for the severability of illegal or
unenforceable provisions.
This opinion is solely for your benefit and, without our prior written
consent, shall not be quoted in whole or in part, summarized or otherwise
referred to, relied upon or filed with or supplied to any other person or
entity, except that you may deliver copies of this opinion to (i) your attorneys
acting on your behalf in connection with the Agreement and the transactions
contemplated thereby, (ii) governmental regulatory agencies having jurisdiction
over you to the extent that disclosure of this opinion is required by applicable
law or regulation, (iii) designated persons pursuant to order or other legal
process of any court or governmental agency or authority of competent
jurisdiction, (iv) Investors and prospective investors in the Notes and the
Warrants, and (v) the National Association of Securities Dealers, Inc.
We assume no obligation to supplement or update this opinion to reflect
any facts or circumstances which may hereafter come to our attention or any
changes in any laws or court decisions which may hereafter occur.
99
Investors and 9
▇.▇. ▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
, 2000
Sincerely yours,
FRANKFURT, ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇
By:
100
EXHIBIT D
FORM OF GUARANTY OF ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
101
INDIVIDUAL GUARANTY
GUARANTY, dated as of February ____, 2000, from ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
("Guarantor") to the Investors, as such term is defined in the Second Warrant
and Senior Subordinated Convertible Note Purchase Agreement, dated the date
hereof (the "Agreement"), by and among the Investors and Dynacs Inc. (the
"Company").
For valuable consideration, the receipt of which is hereby
acknowledged, and to induce the Investors to loan the Company up to $1,900,000
evidenced by certain Second Senior Subordinated Convertible Promissory Notes
dated the date hereof (the "Notes"), the undersigned Guarantor hereby agrees as
follows:
1. Guarantor acknowledges that he is fully aware of the terms and
conditions of the Notes and does hereby jointly and severally, irrevocably and
unconditionally, guarantee, as primary obligor and not as a surety merely,
without offset or deduction, the full and prompt payment when due of all sums
presently or hereafter owing by the Company to each Investor pursuant to such
Investor's Note, whether arising by sale, note, assignment or otherwise (the
payment of all sums owing by the Company pursuant to each Note being hereinafter
referred to as an "Obligation"). In the event that the Company fails to pay any
Obligation for any reason, Guarantor will pay or otherwise provide for and bring
about promptly when due the payment of such Obligation. This Guaranty shall
constitute a guaranty of payment and not of collection. Guarantor specifically
agrees that it shall not be necessary or required, and that Guarantor shall not
be entitled to require, that any Investor (a) file suit or proceed to obtain or
assert a claim for personal judgment against the Company or any other person
liable for any Obligation, (b) make any effort at collection or other
enforcement of any Obligation from or against the Company or any other person,
(c) foreclose against or seek to realize upon collateral security now or
hereafter existing for any Obligation, (d) exercise or assert any other right or
remedy to which the Investors are or may be entitled in connection with any
Obligation or any collateral security or other guaranty thereof, or (e) assert
or file any claim against the assets of the Company or any other guarantor or
other person liable for any Obligation or any part thereof, before or as a
condition of requiring payment or performance of any Obligation by Guarantor
hereunder, or at any time hereunder.
2. Guarantor waives notice of the acceptance of this Guaranty,
presentment to or demand for payment or other performance by the Company or any
other person, notice of non-payment or failure to perform on the part of the
Company, and all other notices to which Guarantor might otherwise be entitled to
in connection with the Guaranty or any Obligation including, without limitation,
notice of sale of any collateral security therefore. The obligations of
Guarantor hereunder shall be absolute, continuing and unconditional. Each
Investor shall be at liberty, without giving any notice to or obtaining the
assent of Guarantor and without relieving Guarantor of any liability hereunder
or prejudicing, impairing or otherwise affecting the rights of any Investor
hereunder, to deal with the Company and with each other person who now is or
hereafter becomes liable for any
102
Obligation, in such manner as any such Investor in its sole discretion deems
fit, and to this end Guarantor gives each Investor full authority to do any and
all of the following things from time to time: (a) vary the terms (excluding (i)
an increase of the aggregate principal amount due under its Note or (ii) an
increase of the applicable interest rate provided for under its Note on the
applicable date of issuance) and grant extensions or renewals of any present or
future indebtedness of the Company or any such other person, (b) grant time,
waivers and other indulgences in respect thereof, (c) vary, exchange, surrender,
forfeit, release or discharge, wholly or partially, or delay in or abstain from
perfecting and enforcing, any collateral security or guaranty or other means of
obtaining payment of any Obligation, (d) accept partial payments from the
Company or any such other person, (e) release or discharge, wholly or partially,
any endorser or guarantor, and (f) compromise or make any settlement or other
arrangement with the Company or with any other person primarily liable with
respect to all Notes or otherwise with the Company, provided that such
compromise, settlement or other arrangement in no way prejudices the Company or
Guarantor or increases the liability of either of them hereunder.
NOTWITHSTANDING THE FOREGOING, UPON THE FULL SATISFACTION, CANCELLATION OR
CONVERSION OF ALL OF THE NOTES, GUARANTOR'S OBLIGATIONS UNDER THIS GUARANTY WITH
RESPECT TO ALL NOTES OR OTHERWISE SHALL AUTOMATICALLY TERMINATE IN THEIR
ENTIRETY WITHOUT FURTHER ACTION OF OR NOTICE GIVEN BY GUARANTOR AND WITHOUT
FURTHER RECOURSE BY THE HOLDERS OF THE NOTES, EXCEPT AS PROVIDED BY SECTION 5,
IF APPLICABLE.
3. No right, power or remedy herein conferred upon or reserved to the
Investors is intended to be exclusive of any other right, power or remedy or
remedies, and each and every right, power and remedy of the Investors pursuant
to this Guaranty now or hereafter existing at law or in equity or by statute or
otherwise shall, to the extent permitted by law, be cumulative and concurrent
and shall be in addition to each other right, power or remedy pursuant to this
Guaranty, and the exercise by the Investors of any one or more such rights,
powers or remedies shall not preclude the simultaneous or later exercise by the
Investors of any or all such other rights, powers or remedies.
4. No failure or delay by any Investor to insist upon the strict
performance of any term, condition, covenant or agreement of this Guaranty or to
exercise any right, power or remedy hereunder or consequent upon a breach hereof
shall constitute a waiver of any such term, condition, covenant, agreement,
right, power or remedy of any such breach by such Investor or any other
Investor, or preclude such Investor or any other Investor from exercising any
such right, power or remedy at any later time or times.
5. Guarantor shall reimburse each Investor on demand for all expenses
reasonably incurred by such Investor in the enforcement of any of such
Investor's rights hereunder against Guarantor, including accountable
out-of-pocket expenses and reasonable attorney's fees.
-2-
103
6. In case any one or more of the provisions contained in this Guaranty
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
7. This Guaranty (a) constitutes the entire agreement, and supercedes
all prior agreements and understandings, both written and oral, among the
Investors and Guarantor with respect to the subject matter hereof, (b) may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the applicable Investor and Guarantor, and (c) shall be binding upon
Guarantor and the Investors and shall inure to the benefit of Guarantor and the
Investors and their respective successors and assigns.
8. Unless otherwise specifically provided herein, all notices,
instructions, requests and other communications required or permitted hereunder
shall be in writing and shall become effective when received or if mailed when
deposited in the United States mail, postage prepaid, registered or certified
mail, return receipt requested. Notices shall be directed to each Investor at
its address set forth in the Agreement and to Guarantor at its address set forth
in the Agreement, or at such other address as such party may from time to time
furnish to the other by notice similarly given.
9. This Guaranty shall be governed by, and construed in accordance
with, the laws of the State of New York.
IN WITNESS HEREOF, the Guarantor has set his hand and seal as of the
date first written above.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Name of Guarantor
-------------------------------
Guarantor's Signature
-------------------------------
Home Address
-------------------------------
City, State & Zip Code
-------------------------------
Witness and Date
-3-
104
ANNEX A
SUBSIDIARIES
ENTITY OWNERSHIP BY DYNACS (%)
------ -----------------------
Dynacs Technical Services, Inc. 100%
Dynacs Digital Services, Inc. 100%
Dynacs Properties, Inc. 50%
Cerulean FXs, Inc. 80%
105
ANNEX B
ADDITIONAL SUBSIDIARIES
Dynacs Digital Studios (India) Pvt. Ltd. 99.992%
Dynacs Engineering (India) Pvt. Ltd. 99%
106
ADDENDUM TO SECOND WARRANT AND SENIOR SUBORDINATED CONVERTIBLE NOTE
PURCHASE AGREEMENT (the "Agreement"), dated as of March 15, 2000, between DYNACS
INC., a Delaware corporation (the "Company"), and _________.
Section 2.2 of the Agreement is amended to add the following provision:
(k) Non-U.S. Person. Investor is satisfied as to the full observance of
the laws of its jurisdiction in connection with the purchase of the Notes and
the Warrants, including (i) the legal requirements within its jurisdiction for
the purchase of the Notes and the Warrants, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale or transfer of the Notes and the Warrants. Such Investor's subscription and
payment for, and Investor's continued beneficial ownership of the Notes and the
Warrants, will not violate any applicable securities or other laws of the
Investor's jurisdiction.
All other terms and conditions of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DYNACS INC. INVESTOR:
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ III By:
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, III Name:
Title: Senior Vice President Title: