MODIFICATION AGREEMENT
MODIFICATION AGREEMENT dated as of June 25, 1999 (the "Agreement"),
among the entities listed on the signature page attached hereto (collectively
referred to as the "Investors" or individually as an "Investor"), SETTONDOWN
CAPITAL INTERNATIONAL LTD. (the "Placement Agent") located at ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇, Bahamas, a corporation organized
under the laws of Bahamas, and DYNATEC INTERNATIONAL, INC., a corporation
organized and existing under the laws of the State of Utah (the "Company"), and
trading on the Nasdaq SmallCap Stock Market under the symbol "DYNX."
Recitals
WHEREAS, the parties to the Agreement previously have entered into a
Convertible Debenture and Private Equity Line of Credit Agreement dated as of
May 22, 1998 (the "Line of Credit Agreement"), a Registration Rights Agreement
dated as of May 15, 1998 (the "Registration Rights Agreement"), and an Escrow
Agreement dated as of May 15, 1998 (the "Escrow Agreement," and together with
the Line of Credit Agreement and the Registration Rights Agreement, the "Funding
Agreements"); and
WHEREAS, under the Funding Agreements, the Investors agreed to purchase
from the Company and the Company agreed to issue to the Investors its
Convertible Debentures in the aggregate principal amount of Two Million dollars
($2,000,000), and Warrants according to the terms set forth in the Funding
Agreements; and
WHEREAS, under the Line of Credit Agreement, the Company acquired the
right to put to the Investors, and the Investors agreed to purchase pursuant to
the Company's exercises of such put right (the "Put Mechanism"), shares of the
Company's common stock having an aggregate purchase price of up to ten million
dollars ($10,000,000), which purchase price is determined according to the terms
set forth in the Funding Agreements; and
WHEREAS, at the initial closing under the Funding Agreements on May 22,
1998, the Company received from the Investors a total of One Million Five
Hundred Thousand dollars ($1,500,000), the entirety of such amount was paid as
the purchase price for corresponding principal amount of Convertible Debentures,
which Convertible Debentures were issued as of such date, and also on such date
the Company issued a total of 750,000 Warrants, of which amount 300,000 A
Warrants were issued to the Investors and the Placement Agents, and 450,000 B
Warrants were issued to the Investors and the Placement Agents, all in
accordance with the Funding Agreements; and
WHEREAS, under the Registration Right Agreement, the Company is
obligated to prepare, file and have declared effective by the Securities and
Exchange Commission ("SEC") a registration statement (the "Registration
Statement") covering all of the shares of common stock issuable in connection
with the Funding Agreements and the convertible instruments issued
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thereunder, which Registration Statement was filed by the Company originally in
June 1998 and was amended in June 1999; and
WHEREAS, under the Funding Agreements, upon the effectiveness of the
registration statement, the Company is obligated to issue and sell to the
Investors additional Convertible Debentures in the aggregate principal amount of
Five Hundred Thousand dollars ($500,000) (the "Additional Debentures"), subject
to the satisfaction of certain conditions precedent which may or may not be
satisfied or waived, and within the two year period following the date of
effectiveness of the registration statement, the Company is obligated to
exercise its put right as to shares of common stock having an aggregate purchase
price of at least One Million dollars ($1,000,000); and
WHEREAS, pursuant to the Funding Agreements, the Company is required to
pay liquidated damages to the Investors in the event that the Registration
Statement was not effective within the time periods specified in the
Registration Rights Agreement, and such Registration Statement was not declared
effective within such time period and is not effective as of the date hereof;
and
WHEREAS, the Registration Statement was not declared effective by the
time prescribed by the Funding Agreements, and the Company became obligated to
pay a monthly penalty (the "Liquidated Damages") to the Investors, which amount
was paid from September 23, 1998 through and including February 23, 1999; and
WHEREAS, subject to the terms and conditions set forth below, the
Company and the Investors desire (i) to terminate, cancel, and waive their own
and each others' obligations with respect to the entirety of the Put Mechanism
so the Company has no obligation to exercise all or any portion of the Put
Mechanism and the Investors have no desire to purchase any shares of common
stock upon the Company's exercise of the Put Mechanism, (ii) to terminate,
cancel, and waive their own and each others' obligations with respect to the
Additional Debentures so the Company has no obligation to sell the Additional
Debentures and the Investors have no obligation to purchase the Additional
Debentures, and (iii) to modify the Company's obligation to pay liquidated
damages.
Agreement
NOW, THEREFORE, in consideration of the covenants and mutual promises
below and other good and valuable consideration, the receipt and legal
sufficiency of which the parties acknowledge by their signatures appearing
below, and intending to be legally bound hereby, the parties to this Agreement
hereby agree as follows:
Section 1. Cancellation of the Equity Line of Credit. The Company and
the Investors hereby mutually release each other from any and all obligations of
either the Company or the Investors relating to the equity line of credit (the
"Equity Line of Credit") pursuant to the Line of Credit Agreement, as follows:
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(a) The Investors hereby release the Company from any and all
obligations to put shares of common stock of the Company to the Investors for
purchase, or to take any other action requiring the Investors to purchase shares
under the Put Mechanism, as such obligations are set forth in the Line of Credit
Agreement, specifically including but not limited to Article II, Sections 2.1,
2.2, 2.3, and 2.4 of the Line of Credit Agreement.
(b) The Company hereby releases the Investors from any and all
obligations to purchase any shares of common stock of the Company put to the
Investors for purchase, or to take any other action relating to the purchase of
shares under the Put Mechanism, as such obligations are set forth in the Line of
Credit Agreement, specifically including but not limited to Article II, Sections
2.1, 2.2, 2.3, and 2.4 of the Line of Credit Agreement.
Section 2. Placement Agent Shares. Pursuant to section 2.10 of the Line
of Credit Agreement, the Company was obligated to issue up to sixty thousand
(60,000) shares of its common stock to the Placement Agent (the "Placement Agent
Shares") upon exercises by the Company of the Put Mechanism. In light of the
cancellation of the Equity Line of Credit, the Placement Agent hereby releases
the Company from any obligation to issue the Placement Agent Shares, or any
additional compensation in connection with the Funding Agreements other than
that paid to date.
Section 3. Additional Debentures. Pursuant to Section 2.9 of the Line
of Credit Agreement, the Company agreed to sell and the Investors agreed to
purchase the Additional Debentures upon satisfaction of certain conditions set
forth in the Line of Credit Agreement. The Company and the Investors hereby
mutually release each other from any and all obligations of either the Company
or the Investors regarding the Additional Debentures, as follows:
(a) The Investors hereby release the Company from any and all
obligations to issue the Additional Debentures or to register any shares
underlying the Additional Debentures or to take any other actions related to the
Additional Debentures, as such obligations are set forth in the Line of Credit
Agreement, specifically including but not limited to Article II, Section 2.9 of
the Line of Credit Agreement.
(b) The Company hereby releases the Investors from any and all
obligations to purchase the Additional Debentures or to take any other actions
relating to the Additional Debentures, as such obligations are set forth in the
Line of Credit Agreement, specifically including but not limited to Article II,
Section 2.9 of the Line of Credit Agreement.
Section 4. Amendment to Obligation to Pay Liquidated Damages. Pursuant
to the Funding Agreements, including but not limited to Section 3(e) of the
Registration Rights Agreement, the Company is obligated to pay liquidated
damages to the Investors as a result of the Company's failure to have the
Registration Statement declared effective by the SEC by the deadline set forth
in the Funding Documents. Because the Company has been unable to comply with
this requirement, the Company is presently obligated to pay the sum of
Forty-five Thousand Dollars ($45,000) per month to the Investors until such time
as the Registration Statement is effective, which amount was accrued and paid by
the Company for the period of September 23,
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1998 through and including February 23, 1999. The Investors and the Company
hereby agree that the Company shall accrue amounts owed for liquidated damages
for the period from February 24, 1999 through and including June 23, 1999, which
amount shall be payable upon demand therefor by the Investors in cash or stock,
at the Company's option. The Investors may demand payment of such accrued
liquidated damages at any time after October 1, 1999. If the Investors demand
payment of such amount and the Company elects to pay such amount in shares of
its common stock, the number of shares issuable upon such payment shall be
determined by dividing the total dollar amount of accrued liquidated damages to
be paid in common stock by the one hundred percent (100%) of the average of the
closing bid prices of the Company's common stock as quoted on the Nasdaq
SmallCap Market for the five (5) trading days immediately preceding the date
such payment demand is made by the Investors. The Company agrees that it will
cause such shares issued as payment for accrued liquidated damages to be issued
and delivered to the Investors within five (5) business days after demand for
payment is made by the Investors. No liquidated damages shall accrue for the
period from June 24, 1999 to September 23, 1999, but liquidated damages shall
accrue from and after September 24, 1999 as described in the Funding Agreement,
which liquidated damages shall be payable in cash or common stock at the
Company's option as set forth above in this Section 4.
Section 5. Termination of Escrow. Pursuant to the Escrow Agreement,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, LLP (the "Escrow Agent") had an obligation to
continue as Escrow Agent until the satisfaction of certain events under the
Funding Agreements. In light of the cancellation of the Equity Line of Credit
pursuant to Section 1 above, the termination of the obligation of the Company to
issue additional Placement Agent Shares pursuant to Section 2 above, and the
termination of the obligation to issue or purchase the Additional Debentures
pursuant to Section 3 above, the parties to this Agreement, who are also the
parties to the Escrow Agreement, hereby agree that the Escrow Agreement shall
be, and hereby is, terminated, and that the Company shall notify the Escrow
Agent, upon the execution of this Agreement by the parties hereto, of the
termination of the Escrow Agreement. The Company shall pay the reasonable fees
of the Escrow Agent accrued as of the date of termination. This Section 5 shall
not affect the obligations of the parties under the Escrow Agreement to take
such other actions as are required by such party. The Escrow Agent is hereby
directed upon receipt of notification of cancellation of the Escrow Agreement to
forthwith return to the Company any items then held by the Escrow Agent pursuant
to the Escrow Agreement.
Section 6. Amendment of Registration Rights Agreement. Pursuant to the
Registration Rights Agreement, the Company agreed to prepare and file with the
SEC the Registration Statement covering the shares underlying the Convertible
Debentures, the Placement Agent Shares, the Additional Debentures, the shares
issuable under the Equity Line of Credit, and the shares underlying the
Warrants. In light of the cancellation of the Equity Line of Credit pursuant to
Section 1 above, the termination of the obligation of the Company to issue
additional Placement Agent Shares pursuant to Section 2 above, and the
termination of the obligation to issue or purchase the Additional Debentures
pursuant to Section 3 above, the parties to this Agreement, who are also the
parties to the Registration Rights Agreement hereby agree that the Registration
Rights Agreement shall mean and be enforceable as follows:
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(a) The term "Convertible Debentures," as used in the
Registration Rights Agreement, shall mean the One Million Five Hundred Thousand
($1,500,000) principal amount of Convertible Debentures, but shall exclude the
Additional Debentures.
(b) The term "Common Stock," as used in the Registration
Rights Agreement, shall mean the 20,000 shares of common stock of the Company
issued to the Placement Agent, but shall exclude the 60,000 Placement Agent
Shares as defined in Section 2 above.
(c) The terms "Stock" or "Securities" of the Company, as used
in the Registration Rights Agreement, shall mean the shares of common stock
underlying the Convertible Debentures, the shares of common stock underlying the
Warrants issued and outstanding as of the date of this Agreement (together with
the shares of common stock underlying the Warrants issued to the Placement
Agent), the 20,000 shares of common stock issued to the Placement Agent and any
shares issuable by the Company as payment in common stock of liquidated damages
as provided in this Agreement.
(d) The parties to this Agreement intend that this Section 6
amend and supersede any conflicting terms in the Registration Rights Agreement.
Section 7. Amendment of Convertible Debentures.
(a) No Mandatory Conversion. Notwithstanding anything to the
contrary in the Funding Agreements or in the Convertible Debentures, the
Convertible Debentures shall not automatically be converted into shares of the
Company's common stock upon the terms and conditions set forth in the Funding
Agreements and the Convertible Debentures unless and until, in addition to
satisfaction or waiver by the Investors of all otherwise applicable conditions,
the Registration Statement covering such shares of common stock shall then be
effective.
(b) Maximum Conversion. Neither the Company nor any of the
Investors shall be entitled to convert into common stock on any Conversion Date
that principal amount of Convertible Debentures that would be in excess of the
sum of (i) the number of shares of the Company's common stock beneficially owned
by such converting Investor and its affiliates on a Conversion Date, and (ii)
the number of shares of the Company's common stock issuable upon the conversion
of the principal amount of Convertible Debentures and any interest accrued
thereon, with respect to which the determination of this proviso is being made
on a Conversion Date, which would result in beneficial ownership by such
Converting Investor and its affiliates of more than 9.99% of the outstanding
shares of common stock of the Company on such Conversion Date. For the purposes
of the immediately preceding sentence, "beneficial ownership" shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and regulation 13d-3 thereunder. Subject to the foregoing, the
Investors individually or collectively shall not be limited to aggregate
conversions of only 9.99%. Any Investor may revoke the restriction described in
this Section 7(b) upon 75 days' prior notice to the Company, provided that any
individual Investor shall have the ability to waive such restriction only as to
itself and not as to any other Investor.
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Section 8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 9. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10. Severability. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision were not contained
herein.
Section 11. Entire Agreement. This Agreement is the final expression
of, and contains the entire Agreement between, the parties with respect to the
subject matter hereof, and supersedes all prior understandings with respect
thereto. The parties to this Agreement expressly intend to amend certain terms
of the Line of Credit Agreement and the Registration Rights Agreement, and
intend that the terms of this Agreement shall control in the event of any
disagreement between the terms of this Agreement and the Line of Credit
Agreement or the Registration Rights Agreement.
Section 12. Definitions. Capitalized terms used in this Agreement but
not specifically defined in this Agreement shall have the meanings set forth in
the Funding Agreements.
Section 13. Rescission. At the option of the Investors, Section 4 of
this Agreement may be rescinded if (i) the Registration Statement is not
declared effective on or before October 31, 1999, or (ii) if the Company fails
to obtain the approval of the transactions contemplated by the Funding
Agreements as contemplated by Section 6.13 of the Line of Credit Agreement or
otherwise before October 31, 1999; or (iii) if the Company does not timely
deliver cash or common stock pursuant to Section 4 of this Agreement. In the
event of rescission of Section 4 of this Agreement pursuant to this Section 13,
all liquidated damages otherwise payable under the Funding Agreements shall be
deemed to have accrued at all times during the term of this Agreement and shall
be due and payable in accordance with the terms of the Funding Agreements,
assuming the parties had never executed and delivered this Agreement.
Section 14. Limited Effect of Modification. Except to the extent
specifically modified or amended by this Agreement the terms and conditions of
the Funding Agreements shall not be amended, modified, superceded or affected in
any way and shall continue to have full force and effect on the parties thereto.
Section 15. Limitation on Interest Charges. Nothing contained or
referred to in this Agreement or the Funding Agreements shall be deemed to
establish or require payment of a rate of interest or other charges in excess of
the maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges under this Agreement or the Funding
Agreements exceed the maximum permitted by such law, any payments in excess of
such
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maximum shall be credited against amounts owed by the Company to the Investors
and thus refunded to the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Modification
Agreement as of the 25th day of June, 1999.
DYNATEC INTERNATIONAL, INC. SETTONDOWN CAPITAL
INTERNATIONAL, LTD.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇ By:
-------------------------------- ---------------------------------
Its: Chief Financial Officer Its:
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▇▇▇▇▇ ENTERPRISES
By: /s/ SIGNED
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Its: Director
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TLG REALTY
By: /s/ SIGNED
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Its: President
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BALMORE FUNDS, S.A.
By: /s/ SIGNED
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Its:
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AUSTOST ANSTALT ▇▇▇▇▇▇
By: /s/ SIGNED
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Its:
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7
HEWLETT FUND
By: /s/ SIGNED
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Its:
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