SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is made as of
January 31, 2000, by and between CYNET, Inc., a corporation organized under the
laws of the State of Texas, U.S.A., with headquarters located at 00000 Xxxxx
Xxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 (the "Company") and the Augustine Fund,
L.P., an Illinois limited partnership with its headquarters at 000 Xxxx Xxxxxxx
Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000 (the "Buyer").
RECITALS
A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act") and Section 4(2) under the 1933 Act;
B. The Buyer desires to purchase from the Company, and the Company
desires to sell to the Buyer, for the amounts and upon the terms and conditions
stated in this Agreement, in a closing (the "Closing") as herein described,
certain of the Company's convertible notes as listed and described in Recital
B(i) immediately below, and certain warrants as listed and described in Recital
B(ii) below.
(i) At the Closing (the "Closing"), the Company's Series
A Eight Percent (8%) Convertible Notes, the form of
which is attached hereto as Exhibit A (the "Notes"),
which may be converted into Class A voting common
stock of the Company, no par value per share ("Common
Stock"), upon the terms and conditions hereof and
upon the terms and conditions of the Notes. The
purchase price for the Notes sold pursuant to this
Agreement shall be as stated in Section 1(a) below.
The total aggregate face amount of the Notes to be
issued and sold by the Company at the Closing is One
Million Six Hundred Thousand and no/100 United States
Dollars ($1,600,000.00), all in accordance with the
terms of this Agreement and of the Notes.
(ii) At the Closing, as additional consideration for
Buyer's purchase of the Notes, a warrant (the
"Warrants") to purchase 160,000 shares of Common
Stock at a purchase price per share equal to one
hundred twenty percent (120%) of the average of the
closing bid prices for the Common Stock during the
five (5) trading days prior to the Closing Date
(defined below), which Warrants must be exercised if
at all within three (3) years after the date of
issuance. The Warrants shall be substantially in the
form attached hereto as Exhibit B.
The Common Stock into which the Notes may (in accordance with their
terms) be convertible shall be collectively referred to herein as the
"Conversion Shares." Certain shares of Common Stock may (at the Company's option
as described in the Notes) be issued to the Buyer in payment of interest (the
"Interest Shares"). The Common Stock received upon exercise of the
Warrants shall be referred to as the "Warrant Shares." The Notes, the
Conversion Shares, the Interest Shares (if any), the Warrants and the Warrant
Shares may be collectively referred to herein as the "Securities."
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
(the "Registration Rights Agreement") substantially in the form of Exhibit C
attached hereto pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the Company and the Buyer hereby
agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
a. PURCHASE. The Buyer hereby agrees to purchase from the Company, and
the Company agrees to sell to the Buyer, $1,600,000.00 in aggregate principal
amount of Notes at the Closing. The purchase price (the "Purchase Price") for
the Notes purchased at the Closing shall be $1,600,000.00.
b. THE CLOSING. The date of the Closing (the "Closing Date") shall be
January 31, 2000. The Purchase Price for the Notes being purchased at the
Closing shall be delivered to the Escrow Agent (as defined in the Escrow
Agreement substantially in the form of Exhibit D attached hereto (the "Escrow
Agreement")) on behalf of the Company on or before the Closing Date. On or
before the Closing Date, the Company shall deliver the original Notes and
Warrants (or a facsimile of the signature pages thereof, with the originals to
follow via express courier within one (1) business day) being purchased at the
Closing, duly issued, authorized and executed by the authorized officers on
behalf of the Company, to the Escrow Agent (as defined in the Escrow Agreement)
on behalf of the Buyer.
c. FORM OF PAYMENT. The Buyer shall pay the Purchase Price for the
Securities purchased at the Closing by wire transfer of immediately available
funds in United States Dollars, to be deposited into the Escrow Account as
defined in the Escrow Agreement, against delivery to the Escrow Agent of duly
executed Notes and Warrants being purchased by the Buyer hereunder at such
Closing. The Escrow Agent shall be responsible for delivery of the Purchase
Price to the Company and the Notes and Warrants to the Buyer in accordance with
the terms of the Escrow Agreement and with the instructions of the said parties.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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The Buyer understands, agrees with, and represents and warrants to the
Company with respect to its purchase hereunder, that:
a. INVESTMENT PURPOSES; COMPLIANCE WITH 1933 ACT. The Buyer is
purchasing the Securities for its own account for investment only and not with a
view towards, or in connection with, the public sale or distribution thereof,
except pursuant to sales registered under or exempt from the 1933 Act and
applicable state securities laws. The Buyer is not purchasing the Securities for
the purpose of covering short sale positions in the Common Stock established on
or prior to the Closing Date. The Buyer agrees to offer, sell or otherwise
transfer the Securities only (i) in accordance with the terms of this Agreement,
the Notes and the Warrants, as applicable, and (ii) pursuant to registration
under the 1933 Act or to an exemption from registration under the 1933 Act and
any other applicable securities laws. The Buyer does not by its representations
contained in this Section 2(a) agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time pursuant to a registration statement or in accordance with an exemption
from registration under the 1933 Act, in all cases in accordance with applicable
state and federal securities laws. The Buyer understands that it shall be a
condition to the issuance of the Conversion Shares, the Warrant Shares and the
Interest Shares (if any) that the Conversion Shares, the Warrant Shares and the
Interest Shares (if any) be and are subject to the representations set forth in
this Section 2(a).
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor" as
that term is defined in Rule 501 (a) of Regulation D. The Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment made pursuant to this
Agreement. The Buyer is aware that it may be required to bear the economic risk
of an investment made pursuant to this Agreement for an indefinite period of
time, and is able to bear such risk for an indefinite period.
c. RELIANCE ON EXEMPTIONS. The Buyer understands the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of the applicable United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties,
acknowledgments, understandings, agreements and covenants of the Buyer set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities that have
been requested by the Buyer. The Buyer and its advisors, if any, have been
afforded the opportunity to ask all such questions of the Company as they have
in their discretion deemed advisable. The Buyer understands that its investment
in the Securities involves a high degree of risk. The Buyer has sought such
accounting, legal and tax advice as it has considered necessary to an informed
investment decision with respect to the investment made pursuant to this
Agreement.
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e. NO GOVERNMENT REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
approved or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. TRANSFER OR RESALE. The Buyer understands that: (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless either (a)
subsequently registered thereunder or (b) the Buyer shall have delivered to the
Company an opinion by counsel reasonably satisfactory to the Company, in form,
scope and substance reasonably satisfactory to the Company, to the effect that
the securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, (ii) any sale of
such securities made in reliance on Rule 144 (as hereafter defined) may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person though whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder and applicable state securities laws, and (iii) neither the
Company nor any other person is under any obligation to register such securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement).
g. LEGEND. The Buyer understands that the Notes, the Warrants, and
until such time as the Conversion Shares, the Warrant Shares and the Interest
Shares (if any) (collectively, the "Registrable Securities"), have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold by the Buyer pursuant to Rule 144 (as
amended, or any applicable rule which operates to replace said Rule) promulgated
under the 1933 Act ("Rule 144"), the stock certificates representing the
Registrable Securities will bear a restrictive legend (the "Legend") in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
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The Legend shall be removed and the Company will issue certificates
without the Legend to the holder of the applicable Notes or any Registrable
Securities upon which the Legend is stamped, in accordance with Section 5(b).
h. AUTHORIZATION; ENFORCEMENT. This Agreement, the Registration Rights
Agreement and the Escrow Agreement have been duly and validly authorized,
executed and delivered by the Buyer and are each and collectively valid and
binding agreements of the Buyer enforceable in accordance with their terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company understands, agrees with, and represents and warrants to
the Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated, except as would not have a Material Adverse Effect (as
defined below), and has the requisite corporate power to own its properties and
to carry on its business as now being conducted. The Company 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 by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on the operations, properties or financial condition of the Company taken
as a whole. The Common Stock is eligible to trade and is listed for trading on
the OTC BULLETIN BOARD MARKET. The Company has received no notice, either
written or oral, with respect to the continued eligibility of the Common Stock
for such listing, and the Company has maintained all requirements for the
continuation of such listing, and the Company does not reasonably anticipate
that the Common Stock will be delisted from the OTC BULLETIN BOARD MARKET for
the foreseeable future. The Company has complied or will timely comply with all
requirements of the National Association of Securities Dealers and the OTC
BULLETIN BOARD MARKET with respect to the issuance of the Securities.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Escrow Agreement, to issue and sell the
Notes and the Registrable Securities in accordance with the terms hereof, and to
perform its obligations under the Notes in accordance with the requirements of
the same, (ii) the execution, delivery and performance of this Agreement, the
Notes, the Warrants, the Registration Rights Agreement and the Escrow Agreement
by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its stockholders is required, (iii) this Agreement, the Registration Rights
Agreement, the Escrow Agreement and, on the Closing Date, the Notes and Warrants
sold at the Closing, have been duly and validly authorized, executed and
delivered by the Company, and (iv) this Agreement, the Notes (when issued), the
Warrants (when issued), the Registration Rights
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Agreement and the Escrow Agreement constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective 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. The Company (and its legal counsel) has examined this Agreement
and is satisfied in its sole discretion that this Agreement and the
accompanying Exhibits, Schedules and the Addenda, if any, are in accordance
with Regulation D and the 1933 Act and are effective to accomplish the
purposes set forth herein and therein.
c. CAPITALIZATION. As of December 1, 1999, the authorized Class A
common stock of the Company consists of 40,000,000 shares of Common Stock of
which 26,665,000 shares were issued and outstanding. There are 116,000 shares of
preferred stock that are convertible on a "one for one" basis into Common Stock.
All of such outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances. Except for the
above-referenced preferred stock and as disclosed in Schedule 3(c) (attached if
applicable), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, (ii) there are no outstanding debt securities except
those issued or to be issued to Houston Equal Opportunity Fund, LP ("HEOF" whose
general partner is Enron Economic Development Corporation) in a transaction
parallel to Buyer's transaction and whose terms are pari passu or junior to
those of the Buyer, and (iii) there are no agreements or arrangements under
which the Company or any of its subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except as provided herein,
in Schedule 3 and in the Registration Rights Agreement). If requested by the
Buyer, the Company has furnished to the Buyer, and the Buyer acknowledges
receipt of same by its signature hereafter, true and correct copies of the
Company's Articles of Incorporation, as amended, as in effect on the date hereof
("Articles of Incorporation"), and the Company's Bylaws, as in effect on the
date hereof (the "Bylaws").
d. ISSUANCE OF SECURITIES. The Registrable Securities are all duly
authorized and reserved for issuance, and in all cases upon issuance shall be
validly issued, fully paid and non-assessable, free from all taxes, liens and
charges with respect to the issue thereof, and will not be subject to preemptive
rights or other similar rights of stockholders of the Company.
e. ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE SECURITIES. The
Company acknowledges and agrees that the Buyer is not acting as financial
advisor to or fiduciary of the Company (or in any similar capacity with respect
to this Agreement or the transactions contemplated hereby), that this Agreement
and the transactions contemplated hereby, and the relationship between the Buyer
and the Company, are and will be considered "arms-length" notwithstanding any
other or prior agreements or nexus between the Buyer and the Company, whether or
not disclosed, and that any statement made by the Buyer, or any of its
representatives or agents, in connection with this
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Agreement and the transactions contemplated hereby is not advice or a
recommendation, is merely incidental to the Buyer's purchase of the
Securities and has not been relied upon in any way by the Company, its
officers or directors. The Company further represents to the Buyer that the
Company's decision to enter into this Agreement and the transactions
contemplated hereby have been based solely upon an independent evaluation by
the Company, its officers and directors.
f. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances which would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the 1933 Act and specifically in accordance with the
provisions of Regulation D. The transactions contemplated hereby are exempt from
the registration requirements of the 1933 Act, assuming the accuracy of the
representations and warranties contained herein of the Buyer.
g. NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Articles of
Incorporation or Bylaws 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 or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its 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). Except as set forth in Schedule 3(g)
(attached if applicable), neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or other organizational documents,
and neither the Company nor any of its/subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the Company
or any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for possible defaults or rights as would not, in the aggregate or individually,
have a Material Adverse Effect. The business of the Company and its subsidiaries
is not being conducted, and shall not be conducted so long as the Buyer owns any
of the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which neither singly or in
the aggregate would have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws (any of which exceptions are set forth in
Schedule 3(g)), the Company is not required to obtain any consent, authorization
or order of, or 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, the Notes, the Warrants, the Registration Rights Agreement
or the Escrow Agreement in accordance with the terms hereof and thereof, or to
perform its
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obligations with respect to the Notes exactly as described in the Notes (once
issued), and with respect to the Warrants exactly as described in the
Warrants (once issued).
h. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed on Schedule
3(h) hereof, since at least September 30, 1999, the Company has timely filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to as
the "SEC Documents"). The Company has delivered to the Buyer as requested by
the Buyer true and complete copies of the SEC Documents, except for such
exhibits, schedules and incorporated documents. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in
all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer (including the information referred to in Section 2(d) of this
Agreement) contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
Except as set forth in the financial statements of the Company included in
the SEC Documents, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to the date of such financial statements and (ii) obligations
under contracts and commitments incurred in the ordinary course of business
and not required under generally accepted accounting principles to be
reflected in such financial statements, in each case of clause (i) and (ii)
next above which, individually or in the aggregate, are not material to the
financial condition, business, operations, properties, operating results or
prospects of the Company. The SEC Documents contain a complete and accurate
list of all written and oral contracts, agreements, leases or other
instruments to which the Company or any subsidiary is a party or by which the
Company or any subsidiary is subject which are required by the rules and
regulations promulgated by the SEC to be so listed (each a "Contract"). None
of the Company, its subsidiaries or, to the best of the Company's knowledge,
any of the other parties thereto, is in breach or violation of any Contract,
which breach
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or violation would, or with the lapse of time, the giving of notice, or both,
have a Material Adverse Effect.
i. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Documents, since at least January 1, 1999, there has been no material adverse
change and no material adverse development in the business, properties,
operation, financial condition, results of operations or prospects of the
Company. The Company has not taken any steps, and does not currently have any
reasonable expectation of taking any steps, to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge that its creditors intend
to initiate involuntary bankruptcy proceedings. The Company shall, at least
until Buyer no longer holds any of the Securities, maintain its corporate
existence in good standing and shall pay all taxes when due except for taxes it
reasonably disputes.
j. ABSENCE OF LITIGATION. Except as set forth in Schedule 3(j)
(attached if applicable), there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, wherein
an unfavorable decision, ruling or finding would have a Material Adverse Effect
or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of the documents contemplated herein.
k. FOREIGN CORRUPT PRACTICES. Neither the Company nor any of its
subsidiaries, nor any officer, director or other person acting on behalf of the
Company or any subsidiary has, in the course of his actions for or on behalf of
the Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity, made any
direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.
l. BROKERS; NO GENERAL SOLICITATION. The Company has taken no action
that would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments relating to this Agreement and the
transactions contemplated hereby, other than to Delano Group Securities and to
Wall Street Concepts. The Company and the Buyer both acknowledge that no other
broker or finder was involved with respect to the transactions contemplated
hereby, other than Delano Group Securities and Wall Street Concepts. Neither the
Company nor any distributor participating on the Company's behalf in the
transactions contemplated hereby nor any person acting for the Company, or any
such distributor, has conducted any "general solicitation," as described in Rule
502(c) under Regulation D, with respect to the Securities being offered hereby.
The Company has agreed to compensate Delano Group Securities by delivering to it
10,000 shares of Common Stock, which shares shall be delivered to the Escrow
Agent within five (5) business days after the Closing Date, and which shares
shall be included for registration along with the securities subject to the
Registration Rights Agreement. The Company has agreed to compensate Wall Street
Concepts with
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a cash payment or payments to be made separate from the closing of the
transactions contemplated herein.
m. ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares issuable
upon conversion of the Notes may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize they have a potential dilutive effect. The board of directors of
the Company has concluded in its good faith business judgment that such issuance
is in the best interests of the Company. The Company acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes is binding
upon it and enforceable regardless of the dilution that such issuance may have
on the ownership interests of other stockholders.
n. ELIGIBILITY TO FILE REGISTRATION STATEMENT. The Company is currently
eligible to file a registration statement with the SEC either on Form SB-1 or
Form SB-2 under the 0000 Xxx.
o. (Intentionally Omitted.)
p. NON-DISCLOSURE OF NON-PUBLIC INFORMATION. (a) The Company shall in
no event disclose non-public information to the Buyer, advisors to or
representatives of the Buyer unless prior to such disclosure of information the
Company marks such information as "non-public information - confidential" and
provides the Buyer, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information hereunder, require
the Buyer, its advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Buyer.
(b) Nothing herein shall require the Company to disclose
non-public information to the Buyer, its advisors or representatives, and the
Company represents that it does not disseminate non-public information to
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts; provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Buyer and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
registration statement to be filed pursuant to the Registration Rights
Agreement, would cause such prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing herein shall be construed to mean that such persons or
entities other than the Buyer (without the written consent of the Buyer prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall
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prevent any such persons or entities from notifying the Company of their
opinion that, based upon such due diligence by such persons or entities, that
the registration statement contains an untrue statement of a material fact or
omits a material fact required to be stated in such registration statement or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
4. COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. SECURITIES LAWS. The Company agrees to timely file a Form D (or
equivalent form required by applicable state law) with respect to the Securities
if and as required under Regulation D and applicable state securities laws and
to provide a copy thereof to the Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as is necessary to sell
the Securities being sold to the Buyer on each such date under applicable
securities laws of the United States and the relevant state(s), and shall if
specifically so requested provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date.
c. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations hereunder would permit such termination.
d. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Securities for the payment of production expenses, securities issuance and
legal expenses and general operational expenses.
e. FINANCIAL INFORMATION. Until such time as the Buyer no longer
beneficially owns Notes and Warrants, or the Common Stock into which the Notes
are convertible and/or the Warrants are exercisable, the Company agrees to send
the following reports to the Buyer: (i) after filing with the SEC, a copy of
each of its Annual Reports, its quarterly Reports, and any reports filed on Form
8-K; and (ii) as soon as practicable after release thereof, copies of all press
releases issued by the Company or any of its subsidiaries.
f. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the issuance of all of the Conversion
Shares, the Warrant Shares and the Interest Shares (if any). Prior to complete
conversion of the Notes and exercise of the Warrants, the Company shall not
reduce the number of shares of Common Stock reserved for issuance hereunder
without the written consent of the Buyer except for a reduction proportionate to
a reverse stock split effected for a business purpose other than affecting the
requirements of this Section, which reverse stock split affects all shares of
Common Stock equally.
-11-
g. LISTING. Upon the Closing, the Company shall promptly secure the
listing of the Common Stock underlying the Notes and the Warrants upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of shares of Registrable Securities from time to time
issued under the terms of this Agreement and the Registration Rights Agreement.
The Company shall at all times comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the
National Association of Securities Dealers and the OTC BULLETIN BOARD MARKET (or
such other national securities exchange or market on which the Common Stock may
then be listed, as applicable).
h. PROSPECTUS DELIVERY REQUIREMENT. The Buyer understands that the 1933
Act requires delivery of a prospectus relating to the Common Stock in connection
with any sale thereof pursuant to a registration statement under the 1933 Act
covering any resale by the Buyer of the Common Stock being sold, and the Buyer
shall comply with any applicable prospectus delivery requirements of the 1933
Act in connection with any such sale. The Company shall have the unequivocal
right to rely upon the Buyer's representation contained in this Section 4(h),
and thus, with respect to any resales by the Buyer pursuant to a registration
statement of Common Stock issued to the Buyer upon conversion of the Notes (or
in payment of interest on the Notes) or upon exercise of the Warrants, such
Common Stock shall not contain a restrictive legend of any kind.
i. INTENTIONAL ACTS OR OMISSIONS. Neither party shall intentionally
perform any act that if performed, or omit to perform any act which if omitted
to be performed, would prevent or excuse the performance of this Agreement or
any of the transactions contemplated hereby.
j. NO SHORTING. As a material inducement for the Company to enter into
this Agreement, the Buyer represents that it has not as of the date hereof, and
covenants on behalf of itself and its affiliates that neither Buyer nor any
affiliate of Buyer will at any time in which the Buyer or any affiliate of the
Buyer beneficially owns any of the Securities, engage in any short sales of, or
hedging or arbitrage transactions with respect to, the Common Stock, or sell
"put" options or similar instruments with respect to the Common Stock. The
Company acknowledges that a sale of Conversion Shares (or Warrant Shares) on the
date a conversion of the Notes (or exercise notice for the Warrants) is made,
even if such sale is made prior to delivery of the notice of conversion with
respect to such Conversion Shares (or exercise notice with respect to such
Warrant Shares), is not a "short sale" for purposes of this Section 4(j).
k. EXPENSES. The Company agrees to pay to or at the direction of the
Buyer the sum of $10,000.00 at the Closing as reimbursement for the attorney's
fees and expenses of the Buyer incurred by it in connection with the
transactions contemplated by this Agreement.
l. LOWEST CLOSING BID. The Buyer represents that it has not as of the
date hereof, and covenants on behalf of itself, its affiliates and/or agents
that neither Buyer, any affiliate, person or
-12-
entity acting directly or indirectly in Buyer's behalf will at any time from
the Closing Date until after the date (in this Section 4(l), the "Final
Conversion Date") of the conversion into Common Stock of the last of the
Notes eligible to be sold to Buyer under this Agreement, will make or has
made a bid or purchase of Common Stock in an amount equal to the closing bid
on the day of such purchase, or will sell Common Stock at the bid price, in
either case, for the purpose of lowering the closing bid price for the Common
Stock in order to obtain a better conversion price. In the event that Buyer,
Buyer's affiliate, or a person or entity acting directly or indirectly on
Buyer's behalf makes a purchase of Common Stock during the interval between
the Closing Date and the Final Conversion Date, or sells Common Stock at the
lowest bid price for the Common Stock for that trading day, unless the low
bid price is also the high bid price for the Common Stock for that day, then
on the subsequent trading day for the Common Stock, the Buyer may not sell
more than five percent (5%) of the trading volume for the Common Stock on
such subsequent trading day.
m. RESTRICTION ON BELOW MARKET ISSUANCE OF SECURITIES. Until the date
which is the earlier of nine (9) months from the Closing Date or the date the
Notes have been paid or converted in full, the Company shall not issue or agree
to issue {other than (i) to the Buyer pursuant to the transactions contemplated
herein, (ii) pursuant to any employee stock option plan or employee stock
purchase plan of the Company established during the term of this restriction for
a legitimate business purpose and not to avoid the restrictions imposed in this
Section 4(m), (iii) pursuant to any existing security, option, warrant, scrip,
call or commitment or right in each case as disclosed on Schedule 3(c) hereof,
or (iv) with the consent of the Buyer, not to be unreasonably withheld} any
equity securities of the Company (or any security convertible into or
exercisable or exchangeable, directly or indirectly, for equity securities of
the Company) or debt securities of the Company if such securities are issued at
a price (or provide for a conversion, exercise or exchange price) which may be
less than the current market price for the Common Stock on the date of issuance
(in the case of Common Stock) or the date of conversion, exercise or exchange
(in the case of securities convertible into or exercisable or exchangeable,
directly or indirectly, for Common Stock). Except as provided with respect to
the transactions contemplated herein and in subsections (i), (ii), (iii), or
(iv) above of this Section 4(m), until such time as the Notes have been paid or
converted in full, the Company shall not grant any additional so-called
"registration rights."
5. LEGEND AND TRANSFER INSTRUCTIONS.
a. TRANSFER AGENT INSTRUCTIONS. The Company shall instruct its transfer
agent to issue certificates, registered in the name of the Buyer or its
permitted nominee, for the Conversion Shares, the Warrant Shares and the
Interest Shares (if any) in accordance with the terms of the applicable Notes
and Warrants and in such amounts as specified from time to time by the Buyer to
the Company, upon conversion of the Notes or exercise of the Warrants (as
applicable). All such certificates shall bear the restrictive legend specified
in Section 2(g) of this Agreement only to the extent required by applicable law
and as specified in this Agreement and the Exhibits and Addenda hereto. The
Company warrants that no instruction other than such instructions referred to in
this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof in the case of the Conversion Shares, the Warrant Shares and the Interest
Shares (if any) prior to the registration of
-13-
same under the 1933 Act, will be given by the Company to its transfer agent
and that the Conversion Shares, the Warrant Shares and the Interest Shares
(if any) shall otherwise be freely transferable on the books and records of
the Company as and to the extent permitted by applicable law and provided by
this Agreement, the Warrants and the Registration Rights Agreement. Nothing
in this Section shall affect in any way the Buyer's obligations and agreement
to comply with all applicable securities laws upon resale of the Conversion
Shares, the Warrant Shares and/or the Interest Shares (if any). If the Buyer
(x) provides the Company with an opinion of counsel reasonably satisfactory
to Company that registration by the Buyer of the Notes, the Warrants, the
Warrant Shares, the Conversion Shares and/or the Interest Shares (if any) is
not required under the 1933 Act, or (y) transfers Securities to an affiliate
which is an accredited investor (in accordance with the provisions of this
Agreement) or in compliance with Rule 144, then in either instance the
Company shall permit the said transfer, and if applicable promptly (and in
all events within two (2) trading days) instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified
by the Buyer.
b. REMOVAL OF LEGENDS. The Legend shall be removed and the Company
shall issue a certificate without such Legend to the holder of any Security upon
which it is stamped, and a certificate for a security shall be originally issued
without the Legend, if, unless otherwise required by state securities laws, (x)
the sale of such Security is registered under the 1933 Act, or (y) such holder
provides the Company with an opinion by counsel reasonably satisfactory to the
Company, that is in form, substance and scope reasonably satisfactory to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act or (z) such holder provides the
Company with assurances reasonably satisfactory to the Company and its counsel,
that such Security can be sold pursuant to Rule 144. The Buyer agrees that its
sale of all Securities, including those represented by a certificate(s) from
which the Legend has been removed, or which were originally issued without the
Legend, shall be made only pursuant to an effective registration statement (and
to deliver a prospectus in connection with such sale) or in compliance with an
exemption from the registration requirements of the 1933 Act. In the event the
Legend is removed from any Security or any Security is issued without the Legend
and thereafter the effectiveness of a registration statement covering the sales
of such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to the holder of such Security, the Company shall be
entitled to require that the Legend be placed upon any such Security which
cannot then be sold pursuant to an effective registration statement or Rule 144
or with respect to which the opinion referred to in clause (y) next above has
not been rendered, which Legend shall be removed when such Security may be sold
pursuant to an effective registration statement or Rule 144 (or such holder
provides the opinion with respect thereto described in clause (y) next above.
c. CONVERSION OF NOTES. The Buyer shall have the right to convert the
Notes sold hereunder by delivering via facsimile an executed and completed
Notice of Conversion (as defined in the Notes) to the Company and delivering
within two (2) business days thereafter the original Notice of Conversion and
the original Note being converted (but only at such time as it is converted in
full into Common Stock) by express courier to the Company. Each date on which a
Notice of
-14-
Conversion is faxed to the Company in accordance with the provisions hereof
shall be deemed a "Conversion Date." The Company will transmit the
certificates representing the shares of Common Stock issuable upon conversion
of any Notes (along with a replacement Note representing the amount of
principal of said Note not so converted, if applicable) to the Buyer via
express courier, within five (5) business days after the relevant Conversion
Date (with respect to each conversion, the "Deadline"). Time is of the
essence with respect to the requirements of the immediately preceding
sentence.
d. INJUNCTIVE RELIEF FOR BREACH. The Company acknowledges that a breach
of its obligations under Sections 5(a), 5(b) and 5(c) above will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly the Company agrees that the remedy
at law for a breach of its obligations under such Sections would be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of such Sections, the Buyer shall be entitled, in addition to all
other remedies at law or in equity, to an injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
e. LIQUIDATED DAMAGES FOR NON-DELIVERY OF CERTIFICATES. In addition to
the provisions of Section 5(d) above, the Company understands and agrees that a
delay in the issuance of the Certificates beyond the Deadline will result in
substantial economic loss and other damages to the Buyer. As partial
compensation to the Buyer for such loss, the Company agrees to pay liquidated
damages (and which the Company acknowledges is not a penalty) to the Buyer for
issuance and delivery of the Certificates after the Deadline, in accordance with
the following schedule (where "No. Business Days Late" is defined as the number
of business days beyond five (5) business days from the date of delivery by the
Buyer to the Company of a facsimile Notice of Conversion (or, if later, from the
date on which all other necessary documentation duly executed and in proper form
required for conversion of Notes as described in this Agreement, including the
original Notice of Conversion, all in accordance with this Agreement ONLY IF
such necessary documentation has not been delivered to the Company within the
two (2) business day period after the facsimile delivery to the Company of the
Notice of Conversion required in this Agreement)):
NO. BUSINESS DAYS LATE LIQUIDATED DAMAGES
---------------------- ------------------
(in US$)
1 $300
2 $400
3 $500
4 $600
5 $700
6 $800
7 $900
8 $1,000
9 $1,000
-15-
10 $1,500
11+ $1,500 + $500 for
each Business Day Late
beyond 11 days
The Company shall pay the Buyer any liquidated damages incurred as
called for under this Section 5(e) by certified or cashier's check upon the
earlier of (i) issuance of the Certificates to the Buyer or (ii) each monthly
anniversary of the receipt by the Company of the Buyer's Notice of Conversion.
Nothing herein shall limit the Buyer's right to pursue actual damages for the
Company's failure to issue and deliver the Certificates to the Buyer in
accordance with the terms of this Agreement or for breach by the Company of this
Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to sell Notes and Warrants at
the Closing is subject to the satisfaction, on or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The parties shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, and the parties shall have delivered
the respective documents or signature pages thereof (via facsimile or otherwise
as permitted in the Escrow Agreement) to the Escrow Agent.
b. The Buyer shall have delivered to the Escrow Agent on behalf of the
Company the Purchase Price for the Notes and Warrants purchased at the Closing,
by wire transfer of immediately available funds pursuant to the wiring
instructions provided by the Escrow Agent.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date made and as of the Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
e. The Company's Board of Directors shall have approved this Agreement
and the related documentation referred to herein.
-16-
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer to purchase Notes and Warrants is subject
to the satisfaction, on or before the Closing Date, of each of the following
conditions, provided that these conditions are for the sole benefit of the Buyer
and may be waived by the Buyer at any time in its sole discretion:
a. The parties shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, the parties shall have delivered the
respective documents or signature pages thereof (via facsimile or otherwise as
permitted in the Escrow Agreement) to the Escrow Agent on behalf of each other.
b. The representations and warranties of the Company shall be true and
correct in all material respects as of the date made and as of Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer may require a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by the Buyer.
c. With respect to the Closing, the Company shall have issued and have
duly executed by the authorized officers of the Company, and delivered to the
Escrow Agent on behalf of the Buyer, the Note and Warrant being sold at the
Closing (via facsimile or otherwise as required by the Escrow Agreement,
provided that any permitted facsimile of such documents shall be followed with
physical delivery to the Escrow Agent of the original instrument or security
within one (1) business day after facsimile of same to the Escrow Agent).
d. The Common Stock shall be authorized for quotation on the OTC
BULLETIN BOARD MARKET (or another national securities exchange or market) and
trading in the Common Stock on such market shall not have been suspended by the
SEC or other relevant regulatory agency.
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
f. The Escrow Agent shall have received on behalf of the Buyer the
opinion of Company counsel, dated as of the Closing Date, substantially in the
form attached hereto as Exhibit E.
8. GOVERNING LAW; MISCELLANEOUS.
-17-
a. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. In the event of any litigation regarding the
interpretation or application of this Agreement, the parties irrevocably consent
to jurisdiction in any of the state or federal courts located in the City of
Chicago, State of Illinois and waive their rights to object to venue in any such
court, regardless of the convenience or inconvenience thereof to any party.
Service of process in any civil action relating to or arising out of this
Agreement (including also all Exhibits or Addenda hereto) or the transaction(s)
contemplated herein may be accomplished in any manner provided by law. The
parties hereto agree that a final, non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and signature pages from such counterparts have been delivered to the
Escrow Agent on behalf of the other party. In the event any signature page is
delivered by facsimile transmission (which the parties agree is an acceptable
form of delivery), the party using such means of delivery shall cause three (3)
additional originally executed signature pages to be physically delivered to the
Escrow Agent on behalf of the other party within one (1) business day of the
execution and delivery hereof.
c. HEADINGS; GENDER, ETC. The headings of this Agreement are for
convenience of reference and shall not form a part of, or affect the
interpretation of this Agreement. As used herein, the masculine shall refer to
the feminine and neuter, the feminine to the masculine and neuter, and the
neuter to the masculine and feminine, as the context may require. As used
herein, unless the context clearly requires otherwise, the words "herein,"
"hereunder" and "hereby," shall refer to this entire Agreement and not only to
the Section or paragraph in which such word appears. If any date specified
herein falls upon a Saturday, Sunday or public or legal holidays, the date shall
be construed to mean the next business day following such Saturday, Sunday or
public or legal holiday. For purposes of this Agreement, a "business day" is any
day other than a Saturday, Sunday or public or legal holiday.
d. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer 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 an instrument in writing
signed by the party to be charged with enforcement.
-18-
f. NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by U. S. Mail or delivered personally or
by courier or via facsimile (if via facsimile, to be followed within three (3)
business days by an original of the notice document via U.S. Mail or courier)
and shall be effective five (5) days after being placed in the mail, if mailed,
certified or registered, return receipt requested, or upon receipt, if delivered
personally or by courier or by facsimile, in each case properly addressed to the
party to receive the same. The addresses for such communications shall be:
If to the Company: CYNET, Inc.
00000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone: 281.897.8317 ext. 332
Facsimile: 281.894.7952
Attention: Xx. Xxxxxx Xxxxx, General Counsel
If to the Buyer, at the address on the signature page of this Agreement. Each
party shall provide written notice to the other party of any change in address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other (which
consent shall not be unreasonably withheld), and in any event any assignee of
the Buyer shall be an accredited investor (as defined in Regulation D), in the
written opinion of counsel who is reasonably satisfactory to the Company and in
form, substance and scope reasonably satisfactory to the Company.
Notwithstanding the foregoing, if applicable, any of the entities constituting
the Buyer (if greater than one (1) entity) may assign its rights hereunder to
any of its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company; provided, however, that any such assignment shall not
release such assigning entity from its obligations hereunder unless such
obligations are assumed by such affiliate and the Company has prior to such
assignment and assumption consented in writing to the same; and no such
assignment shall be made unless it is made in accordance with any applicable
securities laws of any applicable jurisdiction. Any request for an assignment
made hereunder by the Buyer shall be accompanied by a legal opinion in form,
substance and scope reasonably satisfactory to the Company, that such assignment
is proper under applicable law. Notwithstanding anything herein to the contrary,
Buyer may pledge the Securities as collateral for a bona fide loan pursuant to a
security agreement with a third party lender, and such pledge shall not be
considered an assignment in violation of this Agreement so long as it is made in
compliance with all applicable law.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
-19-
i. SURVIVAL. Unless this Agreement is terminated under Section 8(1),
the representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
8 shall survive the Closing of the purchase and sale of Securities purchased and
sold hereby.
j. PUBLICITY. The Company and the Buyer shall have the right to review
before issuance by the other, any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without prior consultation with or approval of
the Buyer, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations.
k. FURTHER ASSURANCE. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. TERMINATION. In the event that the Closing shall not have occurred
on or before ten (10) business days from the date hereof, this Agreement shall
terminate at the close of business on such date. Neither party may unilaterally
terminate this Agreement after the Closing for any reason other than a material
breach of this Agreement by the non- breaching party. Such termination shall not
be the sole remedy for a breach of this Agreement by the non-breaching party,
and each party shall retain all of its rights hereunder at law or in equity.
Notwithstanding anything herein to the contrary, a party whose breach of a
covenant or representation and warranty or failure to satisfy a condition
prevented the Closing shall not be entitled to terminate this Agreement.
m. REMEDIES. No provision of this Agreement providing for any specific
remedy to a party shall be construed to limit such party to the specific remedy
described, and any other remedy that would otherwise be available to such party
at law or in equity shall be so available. Nothing in this Agreement shall limit
any rights a party may have with any applicable federal or state securities laws
with respect to the transactions contemplated hereby.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
[SIGNATURE PAGE FOLLOWS]
List of Exhibits
Exhibit A Form of Note
-20-
Exhibit B Warrant to Purchase Common Stock
Exhibit C Registration Rights Agreement
Exhibit D Escrow Agreement
Exhibit E Opinion of Counsel for CYNET, Inc.
-21-
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT DATED
AS OF JANUARY 31, 2000]
COMPANY:
CYNET, INC.
By: /s/ Xxxxxxx X. Xxxxx, Xx.
----------------------------------------------------
Xx. Xxxxxxx X. Xxxxx, Xx., Chairman
BUYER:
THE AUGUSTINE FUND, L.P.
By: Augustine Capital Management, Inc., its General Partner
By: /s/ Xxxxxx X. Xxxxxxxxx
----------------------------------------------------
Xx. Xxxxxx X. Xxxxxxxxx, Chief Operating Officer
BUYER'S ADDRESS:
000 Xxxx Xxxxxxx Xxxx.
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Telephone: 000.000.0000
Telecopier: 312.427.5396
-22-
SECURITIES PURCHASE AGREEMENT
Schedule 3(c)
OUTSTANDING OPTIONS TO PURCHASE COMMON STOCK:
Cynet Holdings, LLC subscription agreement disclosed in the October 18, 1999 and
December 6, 1999 Prospectuses and subsequently amended to extend the expiration
date of June 30, 2000 and raise the exercise price to $1.51 for all exercises
after December 31, 1999.
Houston Economic Opportunity Fund, LP (Enron Economic Development Corporation,
general partner) Debenture for $1,600,000 [changed from Preferred Stock after
receiving the summary of Buyer's terms] the terms of which are pari passu or
junior to Buyer's terms. In addition, their conversion of some or all of their
existing Common Stock into a class of Non-voting Preferred with conversion
rights back into Common Stock as additional condition for the $1,600,000
debenture.
OUTSTANDING WARRANTS TO PURCHASE COMMON STOCK:
Warrants to be issued to Houston Economic Opportunity Fund, LP pursuant to the
$1,600,000 transaction (if any).
All Warrants disclosed in the October 18, 1999 and December 6, 1999 Prospectuses
including warrants for 100,000 shares to be issued to Xxxxxxx Xxxxxxx [see
Prospectus].
OTHER STOCK PURCHASE RIGHTS
-23-
SECURITIES PURCHASE AGREEMENT
Schedule 3(g)
Registration of all the Registrable Securities under the Securities Act
of 1933, as amended, requires the filing of a registration statement with the
Securities and Exchange Commission and a declaration of effectiveness of the
registration statement by the Securities and Exchange Commission.
Houston Economic Opportunity Fund, LP Common Stock including any Common
Stock received in the conversion from Preferred Stock.
All of the shares issued to Holdings under its Subscription Agreement
as amended, all of the stock underlying warrants issued to all parties prior to
this Closing and the warrants to be issued to Xxxxxxx Xxxxxxx per the October
18, 1999 and December 6, 1999 Prospectuses.
-24-
EXHIBIT A (Form of Note)
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
DATE: JANUARY 31, 2000
NOTE # 01 U.S.$1,600,000.00
CYNET, INC.
SERIES A EIGHT PERCENT (8%) CONVERTIBLE PROMISSORY NOTE
DUE JANUARY 31, 2002
THIS NOTE is one of a duly authorized issue of Notes (a "Note" or the
"Notes") of CYNET, Inc., a corporation duly organized and validly existing under
the laws of the State of Texas, U.S.A. (the "Company") designated as its Series
A Eight Percent (8%) Convertible Notes Due January 31, 2002, in an aggregate
principal face value for all Notes of this series of One Million Six Hundred
Thousand and no/100 United States Dollars (US$1,600,000.00).
FOR VALUE RECEIVED, the Company promises to pay to THE AUGUSTINE FUND,
L.P., the registered holder hereof and its successors and assigns (the
"Holder"), the principal sum of One Million Six Hundred Thousand and no/100
United States Dollars ($1,600,000.00) on January 31, 2002 (the "Maturity Date"),
and to pay interest on the principal sum outstanding, at the rate of eight
percent (8%) per annum due and payable in quarterly installments in arrears, on
June 30, September 30, December 31 and March 31 of each year during the term of
this Note, with the first such payment to be made on June 30, 2000. Accrual of
interest on the outstanding principal amount, payable in cash or Common Stock
(defined hereinafter) at the Company's option, shall commence on the date hereof
and shall continue until payment in full of the outstanding principal amount has
been made or duly provided for. The interest so payable will be paid to the
person in whose name this Note (or one or more predecessor Notes) is registered
on the records of the
Company regarding registration and transfers of the Note (the "Note
Register"); provided, however, that the Company's obligation to a transferee
of this Note arises only if such transfer, sale or other disposition is made
in accordance with the terms and conditions of that Securities Purchase
Agreement of even date herewith between the Company and The Augustine Fund,
L.P. (the "Securities Purchase Agreement").
The principal of, and interest on, this Note are payable in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Note Register of the Company as designated in writing by the Holder hereof
from time to time. The Company will pay the outstanding principal of and any and
all accrued and unpaid interest due upon this Note on the Maturity Date, less
any amounts required by law to be deducted or withheld, to the record Holder of
this Note as of the fifth business day (as defined in the Securities Purchase
Agreement) prior to the Maturity Date and addressed to such Holder at the last
address appearing on the Note Register. The forwarding of such funds shall
constitute a payment of outstanding principal and interest hereunder and shall
satisfy and discharge the liability for principal and interest on this Note to
the extent of the sum represented by such payment plus any amounts so deducted
or withheld. Except as herein provided, this Note may not be prepaid without the
prior written consent of the Holder. Interest may at the Company's option be
paid in Common Stock, with the number of shares of Common Stock to be delivered
in payment of such interest determined by taking the dollar amount of interest
being paid divided by the applicable Conversion Price (defined below).
This Note is subject to the following additional provisions:
1. NOTE EXCHANGEABLE. The Note is exchangeable commencing thirty (30)
days from the date hereof for an equal aggregate principal amount of Notes of
different authorized denominations, as requested by the Holder surrendering the
same, but not of denominations of less than Fifty Thousand United States Dollars
(US$50,000.00) without the Company's written consent. No service charge will be
made for such registration or transfer or exchange.
2. WITHHOLDING. The Company shall be entitled to withhold from all
payments of principal or interest pursuant to this Note any amounts required to
be withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3. TRANSFER/EXCHANGE OF NOTE; REGISTERED HOLDER; OPINION OF COUNSEL;
LEGEND. This Note has been issued subject to investment representations of the
original purchaser hereof and may be transferred or exchanged only in compliance
with the Securities Act of 1933, as amended (the "1933 Act") and applicable
state securities laws. Prior to due presentment for transfer of this Note, the
Company and any agent of the Company may treat the person in whose name this
Note is duly registered on the Company's Note Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Note be overdue, and neither the Company nor any such agent
shall be affected or bound by notice to the contrary.
2
The Holder understands and acknowledges by its acceptance hereof that
(i) except as provided in the Securities Purchase Agreement and in that
Registration Rights Agreement attached as Exhibit C to the Securities Purchase
Agreement (the "Registration Rights Agreement"), both such documents
incorporated herein by reference, this Note and the shares of common stock in
the Company issuable upon conversion thereof as herein provided ("Conversion
Shares") and any shares of Common Stock payable as interest hereunder have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (a)
subsequently registered thereunder, or (b) the Holder shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in form, substance
and scope to the Company, to the effect that the securities to be sold, assigned
or transferred may be sold, assigned or transferred pursuant to an exemption
from such registration; (ii) any sale of such securities made in reliance on
Rule 144 promulgated under the 1933 Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other regulation
and/or exemption under the 1933 Act or the rules and regulations of the United
States Securities and Exchange Commission (the "SEC") thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws (other than
pursuant to the terms of the Securities Purchase Agreement and the Registration
Rights Agreement) or to comply with the terms and conditions of any exemption
thereunder.
Any Conversion Shares issued upon conversion of this Note, and if
applicable, any Common Stock issued in payment of interest as herein provided,
shall, if and only to the extent required by law, bear legends in similar form
to the legends set forth on the first page of this Note.
4. CONVERSION OF NOTE INTO COMMON STOCK.
The Holder of this Note is entitled, at its option, at any time
commencing the earlier of (i) the date on which the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective by the SEC;
or (ii) the date which is one hundred twenty (120) days after the date first
written at the top of this Note, to convert all or a portion of the original
principal face amount of this Note into shares of Class A voting common stock in
the Company, no par value per share (defined herein as "Common Stock"), at a
conversion price (the "Conversion Price") for each share of Common Stock equal
to the lesser of (x) one hundred ten percent (110%) of the average of the
closing bid prices for the Common Stock for the five (5) trading days prior to
the date of this Note, or (y) a percentage (the "Applicable Percentage") of the
average of the three (3) lowest closing bid prices for the Common Stock for the
thirty (30) trading days immediately preceding the Conversion Date (as
hereinafter defined), as reported on the National Association of Securities
Dealers OTC Bulletin Board Market (or on such other national securities exchange
or market as the Common Stock may trade at such time). The Applicable Percentage
shall be equal to the following: (i) for conversions made on or before 120 days
after the date of this Note, 75%; or (ii) for conversions made 121 or more days
after the date of this Note, 75%, so long as the Registration Statement (as
3
defined in the Registration Rights Agreement) has been declared effective by the
SEC and remains effective as of the date of conversion. Notwithstanding anything
herein to the contrary, if the Registration Statement is not declared effective
by the SEC within 120 days after the date of this Note (or does not remain
effective on the date of conversion if such date is more than 120 days after the
date of this Note), the Applicable Percentage shall decrease by two percent (2%)
for each thirty (30) day period (pro-rated for partial periods and rounded to
the nearest half-month) beginning on the date which is 121 days after the date
of this Note and ending on the date the Registration Statement is declared
effective by the SEC; and if the Registration Statement has not been declared
effective by the SEC within one (1) year after the date of this Note (or does
not remain effective until the Holder has converted this Note in full into
non-restricted Common Stock), the Applicable Percentage shall from the date
which is one (1) year after the date of this Note be fifty percent (50%). As an
example, and not by way of limitation, if the Registration Statement is declared
effective by the SEC 192 days after the date of this Note, then the Applicable
Percentage will be equal to seventy percent (70%) [75% less {2% X 2.5 months)].
For purposes of determining the Conversion Price as described in this Section 4,
the provisions of Section 4(l) of the Securities Purchase Agreement shall apply
(if applicable).
Any conversion of this Note shall be achieved by submitting to the
Company the fully completed form of conversion notice attached hereto as Exhibit
I (a "Notice of Conversion"), executed by the Holder of this Note evidencing
such Holder's intention to convert this Note or the specified portion (as herein
provided) hereof. A Notice of Conversion may be submitted via facsimile to the
Company at the telecopier number for the Company provided in the Securities
Purchase Agreement (or at such other number as requested in advance of such
conversion in writing by the Company), and if so submitted the original Notice
of Conversion shall be delivered to the Company within two (2) business days
thereafter. The Company and the Holder shall each keep records with respect to
the portion of this Note then being converted and all portions previously
converted; upon receipt by the Holder of the requisite Conversion Shares, the
outstanding principal amount of the Note shall be reduced by the amount
specified in the Notice of Conversion resulting in such Conversion Shares. The
Company may from time to time, but is not required to, instruct the Holder and
the Holder shall surrender this Note along with the Notice of Conversion for the
purposes of making a notation thereon as to the amount of principal being
converted, or of canceling this Note and issuing a new Note in the same form
with the principal amount of such Note reduced by the amount converted. Such new
or notated Note shall be delivered to the Holder within three (3) business days
after such Holder's surrender to the Company. No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. Accrued interest on
the converted portion of the Note shall be payable upon conversion thereof, in
cash or Common Stock at the Conversion Price, at the Company's option. The date
on which a notice of conversion is given (the "Conversion Date") shall be deemed
to be either the date on which the Company receives from the Holder an original
Notice of Conversion duly executed, or, if earlier, the date set forth in such
Notice of Conversion if the original Notice of Conversion is received by the
Company within two (2) business days thereafter.
4
In all cases, the Company shall deliver the Conversion Shares to the
Holder within five (5) business days after the Conversion Date with respect to
such Conversion Shares being delivered, and at the address specified in the
Notice of Conversion. The Company acknowledges that the Securities Purchase
Agreement requires that the Company pay liquidated damages for late or
non-delivery of Conversion Shares.
Subject to the provisions of Paragraph 4(b) hereof, at the Maturity
Date, the remaining portion of this Note which remains unconverted, if any, plus
accrued interest shall be automatically converted into shares of Common Stock as
of the Maturity Date, as if the Holder had converted the remaining portion of
this Note according to the provisions of this Section 4, with the Conversion
Date being equivalent in such event to the Maturity Date, as if the Holder had
provided the Company with a Notice of Conversion with respect to the outstanding
principal amount of this Note on the Maturity Date. Other than a conversion made
on the Maturity Date in accordance with this paragraph, conversions of this Note
must be effected in increments of at least Ten Thousand U.S. Dollars ($10,000)
of principal amount of this Note (or such lesser outstanding principal amount of
this Note).
5. OBLIGATIONS OF THE COMPANY HEREIN ARE UNCONDITIONAL. No provision of
this Note shall alter or impair the obligation of the Company, which obligation
is absolute and unconditional, to repay the principal amount of this Note at the
time, place, rate, and in the coin currency, hereinabove stated. This Note and
all other Notes now or hereafter issued in replacement of this Note on the same
or similar terms are direct obligations of the Company. This Note ranks at least
equally with all other Notes now or hereafter issued under the terms set forth
herein. The Conversion Price and number of shares of Common Stock issuable upon
conversion shall be subject to adjustment from time to time as provided in
Section 6 below.
6. ADJUSTMENTS.
(a) In the event the Company should at any time or from time to time,
after the date of this Note, fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock (equal to at least ten percent
(10%) or more of the Company's then issued and outstanding shares of Common
Stock) or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend, distribution, split or subdivision if no record date
is fixed), then unless the Conversion Price is otherwise automatically adjusted
in accordance with the terms of this Note, the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of this Note shall be increased in proportion to such increase in the
aggregate number of
5
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the date of this Note is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable upon conversion of this Note shall be decreased in
proportion to such decrease in outstanding shares.
(c) In the event the Company, at any time while all or any portion of
this Note is outstanding, shall be consolidated with or merged into any other
corporation or corporations or shall sell or lease all or substantially all of
its property and business as an entirety, then lawful provisions shall be made
as part of the terms of such consolidation, merger, sale or lease so that the
holder of this Note may thereafter receive in lieu of such Common Stock
otherwise issuable to such holder upon conversion of this Note, but at the
conversion rate which would otherwise be in effect at the time of conversion, as
hereinbefore provided, the same kind and amount of securities or assets as may
be issuable, distributable or payable upon such consolidation, merger, sale or
lease with respect to Common Stock of the Company.
7. RESERVATION OF SHARES. 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 this Note, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the outstanding principal amount, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of this Note, in addition to such other remedies as
shall be available to Holder, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase the number of
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes, including without limitation, using its best
efforts to obtain the requisite stockholder approval necessary to increase the
number of authorized shares of the Company's Common Stock.
8. NOTE HOLDER NOT DEEMED A STOCKHOLDER. No Holder, as such, of this
Note shall be entitled (prior to conversion of this Note into Common Stock, and
only then to the extent of such conversion) to vote or receive dividends or be
deemed the holder of shares of the Company for any purpose, nor shall anything
contained in this Note be construed to confer upon the Holder hereof, as such,
any of the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the holder of this Note of the
Conversion Shares which he or she is then entitled to receive upon the due
conversion of all or a portion of this Note. Notwithstanding the foregoing, the
Company will provide the Holder with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
6
9. NO LIMITATION ON CORPORATE ACTION. No provisions of this Note and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or
merge with or into another corporation, or to transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
10. REPRESENTATIONS OF HOLDER.Upon conversion of all or a portion of
this Note, the Holder shall confirm in writing, in a form reasonably
satisfactory to the Company, that the Conversion Shares so purchased are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and that such Holder is an Accredited Investor (as defined in Rule 501(a)
of Regulation D promulgated under the 1933 Act). The Company acknowledges that
Holder's duly executed certification on the Notice of Conversion is satisfactory
confirmation of the facts set forth in the immediately preceding sentence. If
such Holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such Holder's conversion of all or a
portion of the Note that the Company receive such other representations as the
Company considers reasonably necessary to assure the Company that the issuance
of its securities upon conversion of the Note shall not violate any United
States or state securities laws.
11. WAIVER OF DEMAND, PRESENTMENT, ETC. The Company hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereunder, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.
12. ATTORNEY'S FEES. The Company agrees to pay all costs and expenses,
including without limitation reasonable attorney's fees, which may be incurred
by the Holder in collecting any amount due under this Note or in enforcing any
of Holder's conversion rights as described herein.
13. DEFAULT. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall continue in default in the payment of principal
or interest on this Note for a period of ten (10) days after a notice
of default is received by the Company with respect to any such payment,
or the Company shall not timely honor any Notice of Conversion as
specified herein and in the Securities Purchase Agreement; or
(b) Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights
Agreement, or in any certificate or financial or other written
statement heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this Note or
the Securities Purchase Agreement or the Registration Rights Agreement
shall be false or misleading in any material respect at the time made
and the Holder shall have provided seven (7) days
7
prior written notice to the Company of the alleged misrepresentation
or breach of warranty and the same shall continue uncured for a period of
seven (7) days after such written notice from the Holder; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under this Note or the Securities Purchase
Agreement and such failure shall continue uncured for a period of seven
(7) days after written notice from the Holder of such failure; or
(d) The Company shall either: (i) become insolvent; (ii) admit in
writing its inability to pay its debts generally or as they become due;
(iii) make an assignment for the benefit of creditors or commence
proceedings for its dissolution; or (iv) apply for, or consent to the
appointment of, a trustee, liquidator, or receiver for its or for a
substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without
the Company's consent and such appointment is not discharged within
sixty (60) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control
of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days
thereafter; or
(g) Any money judgment, writ or Note of attachment, or similar process
in excess of Two Hundred Thousand United States Dollars (US$200,000.00)
in the aggregate shall be entered or filed against the Company or any
of its properties or assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days or in any event
later than five (5) days prior to the date of any proposed sale
thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company
and, if instituted against the Company, shall not be dismissed within
sixty days after such institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in answering a petition
filed in, any such proceeding; or
(i) The Company shall have its Common Stock delisted from the OTC
BULLETIN BOARD Market or suspended from trading thereon, and shall not
have its Common Stock relisted on the same or another national
securities exchange (other than the National Quotation Bureau, Inc.,
"pink sheets" market), or have such suspension lifted, as the case may
be, within ninety days after such delisting or suspension; or
8
(j) The Company shall have received a notice of default on the payment
of any debt(s) aggregating in excess of Two Hundred Thousand United
States Dollars (US$200,000.00) beyond any applicable grace period;
then, or at any time thereafter, and in any and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
in one instance shall not be deemed to be a waiver in another instance or for
any other prior or subsequent Event of Default) at the option of the Holder and
in the Holder's sole discretion, the Holder may immediately accelerate the
maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by the Company, anything
herein or in any Note or other instrument contained to the contrary
notwithstanding, and the Holder may immediately, and upon the expiration of any
period of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law or equity.
14. NOTE A GENERAL UNSECURED OBLIGATION OF THE COMPANY. This Note
represents a general unsecured obligation of the Company. No recourse shall be
had for the payment of the principal of, or the interest on, this Note, or for
any claim based thereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer, director, or agent of the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
15. ENFORCEABILITY. In case any provision of this Note is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby.
16. ENTIRE AGREEMENT. This Note and Exhibit I attached hereto, the
Securities Purchase Agreement and the Exhibits attached thereto and the
Registration Rights Agreement and the Exhibits attached thereto (if any)
constitute the full and entire understanding between the Company and the Holder
with respect to the subject matter hereof and thereof. Neither this Note nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
17. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the state of Delaware without giving effect to
applicable principles of conflict of law.
18. HEADINGS. Headings in this Note are for convenience only, and shall
not be used in the construction of this Note.
9
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized, all as of the date first
hereinabove written.
CYNET, INC.
By:
------------------------------------------
Xx. Xxxxxxx X. Xxxxx, Chairman
10
EXHIBIT I
NOTICE OF CONVERSION
(To Be Executed by the Registered Holder in Order to Convert the Note)
The Undersigned hereby irrevocably elects to convert $________ of the Eight
Percent (8%) Convertible Note Due January 31, 2002, No. 01, into shares of
Common Stock of CYNET, Inc. (the "Company"), according to the terms and
conditions set forth in such Note, as of the date written below. If securities
are to be issued to a person other than the Undersigned, the Undersigned agrees
to pay all applicable transfer taxes with respect thereto.
The Undersigned represents that it, as of this date, is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D promulgated by
the SEC under the 1933 Act.
The Undersigned also represents that the Conversion Shares are being
acquired for the Holder's own account and not as a nominee for any other party.
The Undersigned represents and warrants that all offers and sales by the
Undersigned of the Conversion Shares shall be made pursuant to registration of
the same under the 1933 Act, or pursuant to an exemption from registration under
the 1933 Act. The Undersigned acknowledges that the Conversion Shares shall if
(and only if) required by law contain the legend contained on page 1 of the
Note.
Conversion Date:* _____________________
Applicable Conversion Price: ______________________________
Holder (Print True Legal Name): ______________________________________
--------------------------------------------------
(Signature of Duly Authorized Representative of Holder)
Address of Holder:
----------------------------
----------------------------
----------------------------
----------------------------
* This original Notice of Conversion must be received by the Company by the
second business day following the Conversion Date.
11
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
CYNET, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No. 218 Number of Shares: 160,000
Date of Issuance: January 31, 2000
CYNET, Inc., a Texas corporation (the "Company"), hereby certifies that,
for value received, the Augustine Fund, L.P., and permitted assigns, the
registered holder hereof ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company upon surrender of this Warrant, at any time
after the date hereof, but not after 5:00 P.M. Chicago time on the Expiration
Date (as defined herein) 160,000 fully paid and nonassessable shares of Common
Stock (as defined herein) of the Company (each a "Warrant Share" and
collectively the "Warrant Shares") at a purchase price per share equal to one
hundred twenty percent (120%) of the average of the closing bid prices for the
Common Stock for the five (5) trading days prior to the date of this Warrant
(the "Exercise Price") in lawful money of the United States. The number of
Warrant Shares purchasable hereunder and the Exercise Price are subject to
adjustment as provided in Section 9 below.
Section 1.
(a) Definitions. The following words and terms used in this Warrant shall
have the following meanings:
"Common Stock" means (a) the Company's Class A voting common stock and
(b) any capital stock into which such Common Stock shall have been changed or
any capital stock resulting from a reclassification of such Common Stock.
"Convertible Securities" mean any securities issued by the Company which
are convertible into or exchangeable for, directly or indirectly, shares of
Common Stock.
"Expiration Date" means the date which is three (3) years from the date
of this Warrant or, if such date falls on a Saturday, Sunday or other day on
which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois (a "Holiday"), the next preceding date that is not a
Holiday.
"Market Price" means the closing bid price on the day prior to the date
on which the Exercise Form is delivered to the Company, as quoted on the
National Association of Securities Dealers' OTC Bulletin Board Market or such
other national securities exchange or market on which the Common Stock may then
be listed.
"Registration Rights Agreement" shall have the meaning assigned to it in
the Securities Purchase Agreement (defined below).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement between the holder hereof (or its predecessor in interest) and the
Company for the purchase of this Warrant and the other Securities (as defined in
the Securities Purchase Agreement).
"Transfer" shall include any disposition of this Warrant or any Warrant
Shares, or of any interest in either thereof which would constitute a sale
thereof within the meaning of the Securities Act of 1933, as amended, or
applicable state securities laws.
"Warrant" shall mean this Warrant and all Warrants issued in exchange,
transfer or replacement of any thereof.
"Warrant Exercise Price" per share shall be equal to one hundred twenty
percent (120%) of the average of the closing bid prices for the Common Stock for
the five (5) trading days prior to the date of this Warrant.
(b) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to
the Company shall be deemed to include the Company's successors; and (B) to any
applicable law defined or referred to herein, shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.
(ii) When used in this Warrant, unless the otherwise specified in a
particular instance, the words "herein," "hereof," and "hereunder," and words of
similar import, shall refer to this Warrant as a whole and not to any provision
of this Warrant, and the words "Section," "Schedule," and "Exhibit" shall refer
to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise
specified.
(iii) Whenever the context so requires the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and vice
versa.
2
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the Holder, as a whole or in part, at any time prior to 5:00 P.M.
Chicago Time on the Expiration Date. The rights represented by this Warrant may
be exercised by the Holder, as a whole or from time to time in part (except that
this Warrant shall not be exercisable as to a fractional share) by (i) delivery
of a written notice, in the form of the exercise form attached as Exhibit I
hereto (an "Exercise Form"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of Warrant Shares to be purchased, (ii)
payment to the Company of an amount equal to the Warrant Exercise Price
multiplied by the number of Warrant Shares as to which the Warrant is being
exercised (plus any applicable issue or transfer taxes) in immediately available
funds (either by wire transfer or a certified or cashier's check drawn on a
United States bank), for the number of Warrant Shares as to which this Warrant
shall have been exercised, and (iii) the surrender of this Warrant, properly
endorsed, at the principal office of the Company (or at such other agency or
office of the Company as the Company may designate by notice to the Holder).
In addition, and notwithstanding anything to the contrary contained in
this Warrant, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company in a cashless exercise, including a written
calculation of the number of Warrant Shares to be issued upon such exercise in
accordance with the terms hereof (a "Cashless Exercise"). In the event of a
Cashless Exercise, in lieu of paying the Exercise Price, the Holder shall
surrender this Warrant for, and the Company shall issue in respect thereof, the
number of Warrant Shares determined by multiplying the number of Warrant Shares
to which the Holder would otherwise be entitled by a fraction, the numerator of
which shall be the difference between the then current Market Price per share of
the Common Stock and the Exercise Price, and the denominator of which shall be
the then current Market Price per share of Common Stock.
The Warrant Shares so purchased shall be deemed to be issued to the
Holder or Holder's designees, as the record owner of such Warrant Shares, as of
the date on which this Warrant shall have been surrendered, the completed
Exercise Form shall have been delivered, and payment (or notice of an election
to effect a Cashless Exercise) shall have been made for such Warrant Shares as
set forth above.
In the event of any exercise of the rights represented by this Warrant
in compliance with this Section 2(a), a certificate or certificates for the
Warrant Shares so purchased, registered in the name of, or as directed by, the
Holder, shall be delivered to, or as directed by, the Holder within three (3)
business days after such rights shall have been so exercised.
(b) Unless this Warrant shall have expired or shall have been fully
exercised, the Company shall issue a new Warrant identical in all respects to
the Warrant exercised except (i) it shall represent rights to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
the Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised, and (ii) the holder thereof shall be deemed to have
become the holder of record of such Warrant Shares immediately prior to the
close of business on the date on which the Warrant is surrendered and payment of
the amount due in respect of such exercise and any applicable taxes is made,
irrespective of the date of delivery of such share certificate, except that, if
the date of such surrender and payment
3
is a date when the stock transfer books of the Company are properly closed,
such person shall be deemed to have become the holder of such Warrant Shares
at the opening of business on the next succeeding date on which the stock
transfer books are open.
(c) In the case of any dispute with respect to an exercise, the Company
shall promptly issue such number of Warrant Shares as are not disputed in
accordance with this Section. If such dispute only involves the number of
Warrant Shares receivable by the Holder under a Cashless Exercise, the Company
shall submit the disputed calculations to an independent accounting firm of
national standing via facsimile within two (2) business days of receipt of the
Exercise Form. The accountant shall audit the calculations and notify the
Company and the Holder of the results no later than two (2) business days from
the date it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error. The Company shall then issue
the appropriate number of shares of Common Stock in accordance with this
Section.
Section 3. Covenants as to Common Stock. The Company covenants and agrees
that all Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable. The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock to provide for the exercise of the rights then
represented by this Warrant and that the par value of said shares will at all
times be less than or equal to the applicable Warrant Exercise Price.
Section 4. Taxes. The Company shall not be required to pay any tax or
taxes attributable to the initial issuance of the Warrant Shares or any
permitted transfer involved in the issue or delivery of any certificates for
Warrant Shares in a name other than that of the registered holder hereof or upon
any permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. No holder, as such,
of this Warrant shall be entitled to vote or receive dividends or be deemed the
holder of shares of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. Notwithstanding the foregoing, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. No Limitation on Corporate Action. No provisions of this
Warrant and no right or option granted or conferred hereunder shall in any way
limit, affect or abridge the exercise by the Company of any of its corporate
rights or powers to recapitalize, amend its Certificate of Incorporation,
reorganize, consolidate or merge with or into another corporation, or to
transfer all or any part of its property or assets, or the exercise of any other
of its corporate rights and powers.
4
Section 7. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment and not with a view to, or for sale in
connection with, any distribution hereof or of any of the shares of Common Stock
or other securities issuable upon the exercise thereof, and not with any present
intention of distributing any of the same. Upon exercise of this Warrant, the
holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale. If
such holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder's exercise of the Warrant that
the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of the Warrant shall not violate any United States or state
securities laws.
Section 8. Transfer; Opinions of Counsel; Restrictive Legends.
(a) The holder of this Warrant understands that (i) this Warrant and the
Warrant Shares have not been and are not being registered under the Securities
Act or any state securities laws (other than as described in the Securities
Purchase Agreement and the Registration Rights Agreement), and may not be
offered for sale, sold, assigned or transferred unless (a) subsequently
registered thereunder, or (b) pursuant to an exemption from such registration;
(ii) any sale of such securities made in reliance on Rule 144 promulgated under
the Securities Act may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities (other than as described in the
Securities Purchase Agreement and the Registration Rights Agreement) under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
Section 9. Adjustments.
(a) Reclassification and Reorganization. In case of any reclassification,
capital reorganization or other change of outstanding shares of the Common
Stock, or in case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock),
the Company shall cause effective provision to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation or merger by a holder of the number of shares of Common Stock that
could have been purchased upon exercise of the Warrant immediately prior to such
reclassification, capital reorganization or other change, consolidation or
merger. Any such provision shall include provision for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 9. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations or mergers. If
5
the consideration received by the holders of Common Stock is other than cash,
the value shall be as determined by the Board of Directors of the Company
acting in good faith.
(b) Dividends and Stock Splits. If and whenever the Company shall effect
a stock dividend, a stock split, a stock combination, or a reverse stock split
of the Common Stock, the number of Warrant Shares purchasable hereunder and the
Warrant Exercise Price shall be proportionately adjusted in the manner
determined by the Company's Board of Directors acting in good faith. The number
of shares, as so adjusted, shall be rounded down to the nearest whole number and
the Warrant Exercise Price shall be rounded to the nearest cent.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen or destroyed, the Company shall, on receipt of an
indemnification undertaking reasonably satisfactory to the Company, issue a new
Warrant of like denomination and tenor as the Warrant so lost, stolen or
destroyed. In the event the holder hereof asserts such loss, theft or
destruction of this Warrant, the Company may require such holder to post a bond
issued by a surety reasonably satisfactory to the Company with respect to the
issuance of such new Warrant.
Section 11. Notice. Any notices required or permitted to be given under
the terms of this Warrant shall be sent by mail or delivered personally or by
courier and shall be effective five days after being placed in the mail, if
mailed, certified or registered, return receipt requested, or upon receipt, if
delivered personally or by courier or by facsimile, in each case properly
addressed to the party to receive the same. The addresses for such
communications shall be as provided in the Securities Purchase Agreement (Holder
is defined therein as the "Buyer"). Each party shall provide notice to the other
party of any change in address.
Section 12. Registration Right. Notwithstanding anything herein to the
contrary, unless the Warrant Shares have been registered in accordance with the
Registration Rights Agreement, during the three (3) year period commencing on
the date of this Warrant, if the Company proposes to file a registration
statement for a public offering of any of its securities under the Securities
Act of 1933, as amended, it will give written notice, at least twenty (20) days
prior to the filing of each such registration statement, to the holder of the
Warrant and/or the Common Stock previously received upon exercise hereof (and
not previously sold by such holder) of its intention to do so. Upon the holder's
request within ten (10) days after it has received such notice from the Company,
the Company shall include the Common Stock received or receivable upon exercise
of this Warrant owned in such registration statement such that said Common Stock
received or receivable upon such exercise shall be registered or qualified under
such registration statement. This provision is not applicable to a registration
statement filed on Form S-4 or Form S-8, nor is it applicable to the Warrant
once it has expired under the terms hereof or has been exercised and the holder
received non-restricted Common Stock upon such exercise. The rights described in
this Section 12 are in addition to the rights afforded the Holder by the
applicable provisions of the Securities Purchase Agreement.
Section 13. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought. This Warrant shall be governed by
and interpreted under the laws of the State of Delaware. Headings are for
convenience only and shall not affect the meaning or construction of any of the
provisions hereof. This Warrant
6
shall be binding upon the Company and its successors and assigns and shall
inure to the benefit of the Holder and its successors and assigns. The Holder
may not assign this Warrant except in accordance with applicable federal and
state securities laws. The Holder shall immediately notify the Company with
respect to any permitted assignment of this Warrant.
Section 14. Date. The date of this Warrant is January 31, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
CYNET, INC.
By:
----------------------------------------
Xx. Xxxxxxx X. Xxxxx, Xx., Chairman
7
EXHIBIT I TO WARRANT
EXERCISE FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
CYNET, INC.
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by the Warrant attached hereto as specified below
according to the conditions thereof and herewith makes payment of U.S.
$_______ (unless effected by a Cashless Exercise in accordance with the terms
of the Warrant), the aggregate Warrant Exercise Price of such Warrant Shares
in full pursuant to the terms and conditions of the Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained upon exercise of the Warrant, except under
circumstances that will not result in a violation of the 1933 Act or applicable
state securities laws.
(ii) The undersigned requests that the stock certificates for the Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the terms of the Warrant in the name of the Holder (or such
other person(s) indicated below) and delivered to the undersigned (or
designee(s)) at the address or addresses set forth below.
Dated: _____________ , _____.
HOLDER: ____________________________________
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
Address: ___________________________________
___________________________________
___________________________________
Number of Warrant Shares
Being Purchased: ________________________
8
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made
as of January 31, 2000, by and between CYNET, Inc., a corporation organized
under the laws of the State of Texas, U.S.A., with headquarters located at 00000
Xxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 (the "COMPANY") and the Augustine
Fund, L.P., an Illinois limited partnership with its headquarters at 000 Xxxx
Xxxxxxx Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000. (the "PURCHASER").
This Agreement is being entered into pursuant to that
Securities Purchase Agreement, dated as of the date hereof, by and between the
Company and the Purchaser (the "PURCHASE AGREEMENT").
The Company and the Purchaser hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"ADVICE" shall have the meaning set forth in Section 3(m).
"AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "CONTROL," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"BLACKOUT PERIOD" shall have the meaning set forth in
Section 3(n).
"BOARD" shall have the meaning set forth in Section 3(n).
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of Delaware generally are authorized or required by law or other
government actions to close.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Class A Voting Common
Stock, no par value per share.
"EFFECTIVENESS DATE" means with respect to the Registration
Statement the 120th day following the Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2(a).
"EVENT" shall have the meaning set forth in Section 7(e)(i).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means the 30th day following the Closing Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in
Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in
Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"NOTE" or "NOTES" means the Series A Eight Percent (8%)
Convertible Notes of the Company, the form of which is shown as Exhibit A to the
Purchase Agreement, issued or to be issued to the Purchaser pursuant to the
Purchase Agreement.
"OTC BULLETIN BOARD" shall mean the over-the-counter
electronic bulletin board market or exchange.
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means (i) the shares of Common Stock
issuable upon conversion of the Note (the "Conversion Shares") or in payment of
interest in accordance with the terms of the Note ("Interest Shares") and
exercise of the Warrants (the "Warrant Shares"), and upon any stock split, stock
dividend, recapitalization or similar event with respect to such Conversion
Shares, Interest Shares, Warrant Shares or any Note, (ii) the shares of Common
2
Stock issued upon any redemption of Note pursuant to the terms of the Notes and
(iii) any other dividend or other distribution with respect to, conversion or
exchange of, or in replacement of, Registrable Securities; PROVIDED, HOWEVER,
that Registrable Securities shall include (but not be limited to) a number of
shares of Common Stock (the "Required Number") equal to no less than the greater
of (x) 900,000 shares of Common Stock, or (y) 200% of the maximum number of
shares of Common Stock which would be issuable upon conversion of the Note and
upon exercise of the Warrants, assuming such conversion and exercise occurred on
the Closing Date or the Filing Date, whichever date would result in the greater
number of Registrable Securities. Notwithstanding anything contained herein to
the contrary, if the actual number of shares of Common Stock issuable upon
conversion of the Note and upon exercise of the Warrants exceeds the Required
Number, the term "Registrable Securities" shall be deemed to include such
additional shares of Common Stock as are necessary to include all of the shares
of Common Stock issuable upon conversion of the Note (and in payment of
Interest, if applicable) and upon exercise of the Warrants.
"REGISTRATION STATEMENT" means the registration statements and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means any special counsel to the Holder, for
which the Holder will be reimbursed by the Company pursuant to Section 4.
2. REGISTRATION.
(a) REQUIRED REGISTRATION. On or prior to the Filing Date the
Company shall prepare and file with the Commission a Registration Statement
covering all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form SB-1,
Form SB-2 or Form S-3 (except if the Company is not then eligible to register
for resale the Registrable Securities on Form SB-1, Form SB-2 or Form S-3, in
which case such registration shall be on another appropriate form in accordance
herewith). The Company shall use its best efforts to cause the Registration
Statement to be
3
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and to keep
such Registration Statement continuously effective under the Securities Act
until such date as is the earlier of (x) the date when all Registrable
Securities covered by such Registration Statement have been sold or (y) the
date on which the Registrable Securities may be sold without any restriction
pursuant to Rule 144(k) as determined by the counsel to the Company pursuant
to a written opinion letter, addressed to the Company's transfer agent to
such effect (the "EFFECTIVENESS PERIOD"). If an additional Registration
Statement is required to be filed because the actual number of shares of
Common Stock into which the Note is convertible and the Warrants are
exercisable exceeds the number of shares of Common Stock initially registered
in respect of the Conversion Shares and the Warrant Shares based upon the
computation on the Closing Date, the Company shall have twenty (20) Business
Days to file such additional Registration Statement, and the Company shall
use its best efforts to cause such additional Registration Statement to be
declared effective by the Commission as soon as possible, but in no event
later than ninety (90) days after filing.
(b) SHELF REGISTRATION. If the Company is not on the Filing
Date eligible to file a registration statement on Form S-3, then as soon as
possible but no later than thirty (30) days after becoming eligible to file a
registration statement for a secondary or resale offering of the Registrable
Securities on Form S-3, the Company shall prepare and file with the Commission a
post-effective amendment to Form SB-2 (or such other applicable form filed in
accordance with Section 2(a) above) on Form S-3 to continue the registration of
all Registrable Securities pursuant to a "shelf" Registration Statement on Form
S-3 covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. Notwithstanding anything to the contrary
contained herein, at no time during the Effectiveness Period shall any of the
Registrable Securities cease being registered.
3. REGISTRATION PROCEDURES.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form SB-1 or Form SB-2 (or if the
Company is not then eligible to register for resale the Registrable Securities
on Form SB-1 or Form SB-2 such registration shall be on another appropriate form
in accordance herewith) in accordance with the method or methods of distribution
thereof as specified by the Holder (except if otherwise directed by the Holder),
and cause the Registration Statement to become effective and remain effective as
provided herein; PROVIDED, HOWEVER, that not less than five (5) Business Days
prior to the filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holder
and any Special Counsel, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will be subject to
the review of the Holder and such Special Counsel, and (ii) at the request of
the Holder cause its officers and directors, counsel and independent certified
public accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of counsel to such Holder, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to
4
which the Holder or any Special Counsel shall reasonably object in writing
within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible to any comments received
from the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as possible provide the Holder true and complete copies
of all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holder thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holder of Registrable Securities to be sold and
any Special Counsel as promptly as possible (and, in the case of (i)(A) below,
not less than five (5) Business Days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
5
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of
the Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.
(f) Furnish to the Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to the Holder and any Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder reasonably requests
in writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
PROVIDED, HOWEVER, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall be free
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any Holder may request at
least two (2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective
6
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein
by reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin Board
and any other securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which similar securities issued by the Company are
then listed as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) Require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who fails to furnish such information within a reasonable time
prior to the filing of each Registration Statement, supplemented Prospectus
and/or amended Registration Statement.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement
7
contemplated by Section 3(j), or until it is advised in writing (the
"ADVICE") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "BOARD") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may postpone or suspend
filing or effectiveness of a registration statement for a period not to exceed
20 consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period (each, a "BLACKOUT PERIOD"); PROVIDED, HOWEVER, that no such
postponement or suspension shall be permitted for consecutive 20 day periods,
arising out of the same set of facts, circumstances or transactions.
4. REGISTRATION EXPENSES
All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the OTC Bulletin Board and each other securities exchange or market on
which Registrable Securities are required hereunder to be listed, (B) with
respect to filings required to be made with the Commission, (C) with respect to
filings required to be made under the OTC Bulletin Board and (D) in compliance
with state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holder in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holder, in the case of the Special Counsel,
to a maximum amount of $2,500.00, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
Company's independent public accountants (including the expenses of any comfort
letters or costs associated with the delivery by independent public accountants
of a comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation
8
of the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "LOSSES"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, which information was
reasonably relied on by the Company for use therein or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto.
The Company shall notify the Holder promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of an
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Holder.
(b) INDEMNIFICATION BY HOLDER. The Holders shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in or omitted from any information so
furnished in writing by such Holder to the
9
Company specifically for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the
Company for use in the Registration Statement, such Prospectus or such form
of prospectus or to the extent that such information relates to such Holder
or such Holder's proposed method of distribution of Registrable Securities
and was reviewed and expressly approved in writing by such Holder expressly
for use in the Registration Statement, such Prospectus or such form of
Prospectus Supplement. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable under this Section 5(b) for only that
amount as does not exceed the net proceeds to such Holder as a result of the
sale of Registrable Securities pursuant to such Registration Statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY) in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party
10
(regardless of whether it is ultimately determined that an Indemnified Party
is not entitled to indemnification hereunder; provided, that the Indemnifying
Party may require such Indemnified Party to undertake to reimburse all such
fees and expenses to the extent it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying, Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable or required to contribute under this Section
5(c) for only that amount as does not exceed the net proceeds to such Holder as
a result of the sale of Registrable Securities pursuant to such Registration
Statement.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties
6. RULE 144.
As long as any Holder owns Notes, Interest Shares, Conversion
Shares, Warrants or Warrant Shares, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly furnish
the Holder with true and complete copies of all such filings. As long as any
Holder owns Notes, Interest Shares, Conversion Shares, Warrants or Warrant
Shares, if the Company is not required to file reports pursuant to Section 13(a)
or 15(d) of the Exchange Act, it will prepare and furnish
11
to the Holder and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been
made under the Exchange Act. The Company further covenants that it will take
such further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Person to sell Interest Shares,
Conversion Shares and Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions
of counsel to the Company referred to in the Purchase Agreement. Upon the
request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
7. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of
its subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holder in this Agreement or
otherwise conflicts with the provisions hereof except for registration rights
provisions disclosed in the Company's Disclosure Schedule to the Purchase
Agreement. Except for registration rights provisions disclosed in the Company's
Disclosure Schedule to the Purchase Agreement, neither the Company nor any of
its subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holder set forth herein, and are not otherwise in conflict with the
provisions of this Agreement. This Section 7(b) shall not prohibit the Company
from entering into any agreements concerning the registration of securities on
Form S-8 or Form S-4.
(c) [INTENTIONALLY OMITTED.]
(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not
an effective Registration Statement covering (i) Conversion Shares or (ii)
Warrant Shares, the Company shall
12
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under
the Securities Act of any of its equity securities, other than on Form S-4 or
Form S-8 (each as promulgated under the Securities Act) or its then
equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable
in connection with stock option or other employee benefit plans, the Company
shall send to each holder of Registrable Securities written notice of such
determination and, if within thirty (30) days after receipt of such notice,
any such holder shall so request in writing (which request shall specify the
Registrable Securities intended to be disposed of by the Purchaser), the
Company will cause the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to such holder and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay
expenses in accordance with Section 4 hereof), and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering
any Registrable Securities being registered pursuant to this Section 7(d) for
the same period as the delay in registering such other securities. The
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; PROVIDED,
HOWEVER, that the Company shall not be required to register any Registrable
Securities pursuant to this Section 7(d) that are eligible for sale pursuant
to Rule 144(k) of the Securities Act. In the case of an underwritten public
offering, if the managing underwriter(s) or underwriter(s) should reasonably
object to the inclusion of the Registrable Securities in such registration
statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such
Registrable Securities, would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer or none of the
Registrable Securities of the Holder, then (x) the number of Registrable
Securities of the Holders included in such registration statement shall be
reduced pro-rata among such Holders (based upon the number of Registrable
Securities requested to be included in the registration), if the Company
after consultation with the underwriter(s) recommends the inclusion of fewer
Registrable Securities, or (y) none of the Registrable Securities of the
Holder shall be included in such registration statement, if the Company after
consultation with the underwriter(s) recommends the inclusion of none of such
Registrable Securities; PROVIDED, HOWEVER, that if securities are being
offered for the account of other persons or entities as well as the Company,
such reduction shall not represent a greater fraction of the number of
Registrable Securities intended to be offered by the Holder than the fraction
of similar reductions imposed on such other persons or entities (other than
the Company).
(e) FAILURE TO FILE REGISTRATION STATEMENT AND OTHER EVENTS.
The Company and the Purchaser agree that the Holder will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if certain other events occur. The Company and the Holder further agree
13
that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if (i) the Registration Statement is not filed on or
prior to the Filing Date, or is not declared effective by the Commission on
or prior to the Effectiveness Date (or in the event an additional
Registration Statement is filed because the actual number of shares of Common
Stock into which the Note is convertible and the Warrants are exercisable
exceeds the number of shares of Common Stock initially registered is not
filed and declared effective within the time periods set forth in Section
2(a)), or (ii) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 12dl-2 promulgated under the Exchange
Act within five (5) Business Days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further
review, or (iii) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the
Effectiveness Period, without being succeeded immediately by a subsequent
Registration Statement filed with and declared effective by the Commission,
or (iv) trading in the Common Stock shall be suspended or if the Common Stock
is delisted from the OTC Bulletin Board for any reason for more than ninety
(90) days in the aggregate, or (v) the conversion rights of the Holder are
suspended for any reason, including by the Company, or (vi) the Company
breaches in a material respect any covenant or other material term or
condition to this Agreement, the the Notes, the Purchase Agreement (other
than a representation or warranty contained therein) or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby, and such breach continues for a
period of thirty days after written notice thereof to the Company, or (vii)
the Company has breached Section 3(n) of this Agreement (any such failure or
breach being referred to as an "EVENT"), the Company shall pay in cash as
liquidated damages for such failure and not as a penalty to the Holder an
amount equal to 1% of the Purchase Price paid by the Holder for all Notes and
Warrants purchased and then outstanding pursuant to the Purchase Agreement
for each thirty (30) day period until the applicable Event has been cured,
which shall be pro rated for such periods less than thirty (30) days (the
"Periodic Amount"). Payments to be made pursuant to this Section 7(e) shall
be due and payable immediately upon demand in immediately available funds.
The parties agree that the Periodic Amount represents a reasonable estimate
on the part of the parties, as of the date of this Agreement, of the amount
of damages that may be incurred by the Holder if the Registration Statement
is not filed on or prior to the Filing Date or has not been declared
effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period
or if any other Event as described herein has occurred.
(f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(i) The Company and the Purchaser acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Registration Rights Agreement or the Purchase Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Registration Rights Agreement or the Purchase Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
14
(ii) Each of the Company and the Purchaser (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the County of Xxxx, State of Illinois for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Purchase Agreement and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Purchaser 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 Section 7(f) shall affect or limit any right to serve
process in any other manner permitted by law.
(g) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holder. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holder and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; PROVIDED,
HOWEVER, that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(h) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., pacific
standard time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., pacific
standard time, on any date and earlier than 11:59 p.m., pacific time, on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be with respect to the Holder at its address set forth in
the Purchase Agreement, or with respect to the Company, addressed to:
CYNET, Inc.
00000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxxxx Xxxxx, General Counsel
Telephone No.: 281.897.8317 ext. 332
Facsimile No.: 281.894.7952
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice.
15
(i) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of the Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the Holder. The
Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
(j) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any transferee of such Holder of all
or a portion of the Notes or the Registrable Securities if: (i) the Holder
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other Person with the prior written consent of the Company, which consent shall
not be unreasonably withheld. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.
(k) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(l) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflicts of law thereof.
(m) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(n) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would
16
have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
(o) 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.
(p) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage and shall not be counted as outstanding.
(q) NOTICE OF EFFECTIVENESS. Within two (2) business days
after the Registration Statement which includes the Registrable Securities is
ordered effective by the Commission, the Company shall deliver, and shall cause
legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities and to the Purchaser (with copies to the Holders whose
Registrable Securities are included in such Registration Statement, if other
than the Purchaser) confirmation that the Registration Statement has been
declared effective by the Commission in the form attached hereto as EXHIBIT A.
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
[SIGNATURE PAGE FOLLOWS]
17
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 31, 2000]
CYNET, INC.
By:
---------------------------------
Name: Xx. Xxxxxxx X. Xxxxx, Xx.
Title: Chairman
THE AUGUSTINE FUND, L.P.
By: Augustine Capital Management, Inc.
By:
---------------------------------
Xx. Xxxxxx X. Xxxxxxxxx, Chief
Operating Officer
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
[NAME AND ADDRESS OF TRANSFER AGENT]
Attn: _____________
The Augustine Fund, L.P.
C/o Augustine Capital Mangement, Inc.
000 Xxxx Xxxxxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xx. Xxxxxx X. Xxxxxxxxx
Re: CYNET, INC.
-----------
Ladies and Gentlemen:
We are counsel to CYNET, Inc., a Texas corporation (the "COMPANY"), and
have represented the Company in connection with that certain Securities Purchase
Agreement (the "PURCHASE AGREEMENT"), dated as of January 31, 2000, by and among
the Company and the Purchaser named therein (the "HOLDER") pursuant to which the
Company issued to the Holder its Series A Eight Percent (8%) Convertible Notes
(the "NOTES") along with warrants (the "WARRANTS") to purchase shares of the
Company's Class A voting common stock, no par value per share (the "COMMON
STOCK"). Pursuant to the Purchase Agreement, the Company has also entered into a
Registration Rights Agreement with the Holder (the "REGISTRATION RIGHTS
AGREEMENT"), dated of even date with the Purchase Agreement, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants,
under the Securities Act of 1933, as amended (the "1933 ACT"). In connection
with the Company's obligations under the Registration Rights Agreement, on
__________, 2000, the Company filed a Registration Statement on Form _____
(File No. 333-______) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the resale of the Registrable
Securities which names the Holder as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
EXHIBIT D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is dated as of January 31,
2000, by and among CYNET, Inc., a corporation organized under the laws of the
State of Texas, U.S.A. (the "Company"), the buyer set forth on the execution
page hereof (the "Buyer") and H. XXXXX XXXXXXX, XX., a duly licensed attorney
who practices law in the State of North Carolina, U.S.A., as Escrow Agent (the
"Escrow Agent").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in that Securities Purchase Agreement between the
Company and the Buyer dated of even date herewith (the "Securities Purchase
Agreement").
W I T N E S S E T H:
WHEREAS, the Buyer and the Company have entered into the Securities
Purchase Agreement, pursuant to which the Company has agreed to sell, and the
Buyer has agreed to purchase, at the Closing, a number of Notes along with a
number of Warrants (collectively, the "Securities"); and
WHEREAS, the Buyer and the Company have agreed to effectuate the
Closing utilizing an escrow arrangement as described in this Agreement; and
WHEREAS, it is a condition of the Company's obligation to sell, and the
Buyer's obligation to purchase, the Securities, that this Agreement be executed
and delivered; and
WHEREAS, the Escrow Agent is willing to act hereunder on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth below, the parties hereto hereby agree as follows:
1. ESCROW ACCOUNT.
1.1 DEPOSIT. On the Closing Date, by wire transfer of immediately
available funds in United States Dollars, Buyer shall deposit the full Purchase
Price (the "Escrow") with the Escrow Agent, to be held by the Escrow Agent in a
separate non-interest bearing account (the "Escrow Account"), established at
Wachovia Bank, N.A., (the "Bank"), subject to the terms and provisions contained
herein. At the request of the Company the Escrow Agent shall provide the Company
with all Bank statements, notices and other writings that it receives from the
Bank in connection with the Escrow Account.
2. DISBURSEMENT OF ESCROW/SECURITIES.
2.1 DISBURSEMENT. At the Closing, upon receipt by the Escrow Agent of
all of the moneys, documents, and things from the respective parties with
respect to such Closing as described in the Securities Purchase Agreement and as
further described in Sections 2.1(a) and 2.1(b) below, the Escrow Agent shall
deliver to each party via facsimile the documents and things (or if requested by
the parties, only the signature pages thereto) to have been delivered by the
other party in accordance with the Securities Purchase Agreement and this
Agreement. The Escrow Agent shall transfer, by the next business day following
the Closing, by wire transfer to the Company the full Escrow then held, less any
charges and fees agreed to be paid by the Company. The Escrow Agent shall, upon
receipt thereof, deliver (via overnight delivery service) to the Company
originals of all other documents and things listed in Section 2.1(b) below. The
Escrow Agent shall, upon receipt thereof, deliver (via overnight delivery
service) originals of all of the documents and things listed in Section 2.1(a)
below to the Buyer at the address provided in writing by the Buyer to the Escrow
Agent.
The Closing may take place via facsimile. This shall be accomplished in
the following manner. Each party shall deliver via facsimile to the Escrow
Agent, at the telecopier number provided on the signature page to this
Agreement, the first page and the fully executed signature page to each of the
documents and things to be executed by such party at the Closing. If stock
certificates, Notes or Warrants are to be delivered, each such certificate or
document shall be delivered via overnight courier to the Escrow Agent. Upon
receipt of the requisite documents and things via facsimile or otherwise from
each party, the Escrow Agent shall in turn send to each party the documents and
things received from the other party. Thereafter, upon receipt by the Escrow
Agent of the Purchase Price and the original Notes and Warrants being sold at
such Closing, the Escrow Agent shall wire transfer the Escrow (less any charges
and fees agreed to be paid by the Company to third parties) to the Company. Each
party closing the transactions contemplated herein via facsimile shall deliver
via overnight courier service to the Escrow Agent complete originals of all
documents and things (as called for in Sections 2.1(a) and 2.1(b) below) within
one (1) business day after such delivery via facsimile. Each party hereby agrees
that a facsimile of each document and thing to be delivered hereunder, once
delivered to the Escrow Agent, shall be binding upon such party in the same
manner as would an original to the full extent allowed by applicable law.
(a). ITEMS TO BE DELIVERED BY THE COMPANY TO THE ESCROW AGENT.
AT THE CLOSING. On the Closing Date, the Company shall deliver to the
Escrow Agent on behalf of the Buyer, unless otherwise stated, three (3) fully
executed (by the authorized officer(s) of the Company) originals of each of the
following documents: (I) the Securities Purchase Agreement, (II) the
Registration Rights Agreement, (III) one (1) original of each Note, as
applicable, fully executed, along with two (2) copies of each Note issued by the
Company; (IV) one (1) original fully executed Warrant along with two (2) copies
of the Warrant; (V) the executed original Legal Opinion (Exhibit E to the
Securities Purchase Agreement) along with two (2) copies thereof; (VII) this
Agreement; and, within five (5) business days after the Closing Date, a stock
certificate representing 10,000 shares of Common Stock issued in the name of
Delano Group Securities.
(b) ITEMS TO BE DELIVERED BY THE BUYER TO THE ESCROW AGENT.
2
AT THE CLOSING. On or before the Closing Date, the Buyer shall deliver
to the Escrow Agent on behalf of the Company, unless otherwise stated, three (3)
fully executed originals of each of the following documents: (I) the Securities
Purchase Agreement, (II) the Registration Rights Agreement, (III) this
Agreement; and (IV) the full purchase price for the Securities being purchased
at such Closing, via wire transfer to the Escrow Account.
2.2 CONTROVERSIES. If any controversy arises between two or more of the
parties hereto, or between any of the parties hereto and any person not a party
hereto, as to whether or not or to whom the Escrow Agent shall deliver the
Escrow or any portion thereof or as to any other matter arising out of or
relating to this Escrow Agreement, the Escrow Agent shall not be required to
determine the same and need not make any delivery of the Escrow concerned or any
portion thereof but may retain the same until the rights of the parties to the
dispute shall have been finally determined by agreement or by final judgment of
a court of competent jurisdiction after all appeals have been finally determined
(or the time for further appeals has expired without an appeal having been
made). The Escrow Agent shall deliver that portion of the Escrow concerned
covered by such agreement or final order within five (5) days after the Escrow
Agent receives a copy thereof. The Escrow Agent shall assume that no such
controversy has arisen unless and until it receives written notice from the
Buyer or the Company that such controversy has arisen, which refers specifically
to this Agreement and identifies the adverse claimants to the controversy.
2.3 NO OTHER DISBURSEMENTS. No portion of the Escrow monies shall be
disbursed or otherwise transferred except in accordance with this Section 2,
Section 4 or Section 5.1(b). Without limiting the foregoing, neither Escrow
Agent nor the Buyer shall be entitled to any right of offset against the Escrow
or otherwise entitled to receive any portion of the Escrow.
3. ESCROW AGENT. The acceptance by the Escrow Agent of his duties
hereunder is subject to the following terms and conditions, which the parties to
this Agreement hereby agree shall govern and control with respect to the rights,
duties, liabilities and immunities of the Escrow Agent:
3.1 The Escrow Agent shall not be responsible or liable in any manner
whatever for the sufficiency, correctness, genuineness or validity of any cash,
investments or other amounts deposited with or held by the Escrow Agent.
3.2 The Escrow Agent shall be protected in acting upon any written
notice, certificate, instruction, request or other paper or document believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties.
3.3 The Escrow Agent shall not be liable for any act done hereunder
except in the case of the Escrow Agent's willful misconduct or bad faith.
3.4 The Escrow Agent shall not be obligated or permitted to investigate
the correctness or accuracy of any document or to determine whether or not the
signatures contained
3
in said documents are genuine or to require documentation or evidence
substantiating any such document or signature.
3.5 The Escrow Agent shall have no duties as Escrow Agent except those
that are expressly set forth herein, and in any modification or amendment
hereof; provided, however, that no such modification or amendment hereof shall
affect his duties unless it shall have given his written consent thereto. The
Escrow Agent shall not be prohibited from owning an equity interest in the
Company, the Buyer, another buyer, any of their respective subsidiaries or any
third party that is in any way affiliated with or conducts business with either
the Company, the Buyer or another buyer.
3.6 The Company and the Buyer specifically acknowledge that the Escrow
Agent is a practicing attorney in Raleigh, North Carolina U.S.A., and may have
worked with or be affiliated with the Company, the Buyer, or affiliates of
either of them on other unrelated transactions, and that they and each of them
has specifically requested that the Escrow Agent draft the documents for the
said transactions and act as Escrow Agent with respect to the said transactions.
Each party represents that it has retained legal and other counsel of its
choosing with respect to the transac-tions contemplated herein and in the
Securities Purchase Agreement, and is satisfied in its sole discretion with the
form and content of the documentation drafted by the Escrow Agent, as the same
has been approved prior to closing by the parties and their respective counsel.
The Escrow Agent may own an equity interest in the Company and/or may be an
equity owner of the Buyer or another buyer, and may increase or sell any such
interest, so long as in accordance with any and all applicable law. The said
parties hereby waive any objection to the Escrow Agent so acting based upon
conflict of interest or lack of impartiality. The Escrow Agent agrees to act
impartially and in accordance with the terms of this Agreement and with the
parties' respective instructions, so long as they are not in conflict with the
terms of this Agreement.
4. TERMINATION. This Agreement shall terminate on the earlier of (a)
the date on which the Escrow and all other escrowed documents and things
described herein shall have been fully disbursed in accordance with the terms
and conditions of this Agreement, (b) any other date agreed to by the Buyer and
the Company, or (c) the next business day after the expiration of the last of
the Notes and the Warrants to be issued by the Company in accordance with the
terms of the Securities Purchase Agreement, in which event the Escrow shall be
disbursed in full to the Company.
5. MISCELLANEOUS.
5.1 INDEMNIFICATION OF ESCROW AGENT.
(a) The Company and the Buyer each agree, jointly and severally, to
indemnify the Escrow Agent for, and to hold him harmless against, any loss
incurred without willful misconduct or bad faith on the Escrow Agent's part,
arising out of or in connection with the administration of this Agreement,
including the costs and expenses of defending himself against any claim or
liability in connection with the exercise or performance of any of his powers or
duties hereunder. This indemnification shall not apply to a party with respect
to a direct claim against the Escrow Agent by such party alleging in good faith
a breach of this Agreement by the
4
Escrow Agent, which claim results in a final non-appealable judgment against
the Escrow Agent with respect to such claim.
(b) In the event of any dispute as to the nature of the rights or
obligations of the Buyer, the Company or the Escrow Agent hereunder, the Escrow
Agent may at any time or from time to time interplead, deposit and/or pay all or
any part of the Escrow Funds with or to a court of competent jurisdiction
sitting in Wake County, North Carolina or in any appropriate federal court, in
accordance with the procedural rules thereof. The Escrow Agent shall give notice
of such action to the Company and the Buyer. Upon such interpleader, deposit or
payment, the Escrow Agent shall immediately and automatically be relieved and
discharged from all further obligations and responsibilities hereunder,
including the decision to interplead, deposit or pay such funds.
5.2 AMENDMENTS. This Agreement may be modified or amended only by a
written instrument executed by each of the parties hereto.
5.3 NOTICES. All communications required or permitted to be given under
this Agreement to any party hereto shall be sent by first class mail or
facsimile to such party at the address, except in the case of the Escrow Agent,
of such party set forth in the Securities Purchase Agreement and, in the case of
the Escrow Agent, at 0000 Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx Xxxxxxxx
X.X.X. 00000.
5.5 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Escrow Agent shall not assign his duties under this
Agreement.
5.6 GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of North Carolina.
5.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
[SIGNATURE PAGE FOLLOWS]
5
[SIGNATURE PAGE TO ESCROW AGREEMENT DATED AS OF JAN. 31, 2000]
THE COMPANY:
CYNET, INC.
By:
----------------------------------------
Xx. Xxxxxxx X. Xxxxx, Chairman
THE BUYER:
THE AUGUSTINE FUND, L.P.
By: Augustine Capital Management, Inc.,
its General Partner
By:
----------------------------------------
Xx. Xxxxxx X. Xxxxxxxxx,
Chief Operating Officer
ESCROW AGENT:
------------------------------------------
H. XXXXX XXXXXXX, XX., ESQ.
Address: 0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx XXX 00000
Telephone 000.000.0000
Telecopier 919.785.3116
6