EXHIBIT 4.1
NOTE AND WARRANT AMENDMENT AGREEMENT
This Note and Warrant Amendment Agreement (this "AGREEMENT") is made and
entered into as of January 12, 2004, by and among Workstream Inc., a Canadian
corporation (the "COMPANY"), Sands Brothers Venture Capital III LLC ("FUND I"),
Sands Brothers Venture Capital IV LLC ("FUND II") and Sands Brothers & Co., LTD
("LTD").
RECITALS:
WHEREAS, on April 18, 2002, the Company sold to Fund I and Fund II 8%
Senior Subordinated Convertible Notes dated April 18, 2002 in the principal
amounts of One Million Dollars ($1,000,000), and Five Hundred Thousand Dollars
($500,000), respectively, (hereinafter referred to as the "FUND I NOTE," and the
"FUND II NOTE," respectively, and collectively, as the "CONVERTIBLE NOTES");
WHEREAS, in connection with the sale of the Convertible Notes, the Company
issued to each of Fund I and Fund II Common Stock Purchase Warrants dated April
18, 2002 (hereinafter referred to as the "FUND I WARRANT" and the "FUND II
WARRANT");
WHEREAS, in connection with the sale of the Convertible Notes, the Company
also issued to LTD a Common Stock Purchase Warrant dated April 18, 2002 to
purchase Fifty Thousand (50,000) shares of the Company's Common Stock (the "LTD
I WARRANT") and a Common Stock Purchase Warrant dated May 14, 2002 to purchase
Twenty-Eight Thousand (28,000) shares of the Company's Common Stock (hereinafter
referred to as the "LTD II WARRANT," and together with the LTD I Warrant, the
Fund I Warrant and the Fund II Warrant, as the "WARRANTS"); and
WHEREAS, the parties hereto desire to amend (a) the Convertible Notes to
provide for the automatic conversion of the outstanding amounts owed under the
Convertible Notes into shares of the Company's Common Stock (the "COMMON STOCK")
at a conversion price of $1.50 per share and (b) the Warrants to adjust (i) the
number of shares of Common Stock issuable upon exercise of the Warrants and (ii)
the exercise price to $2.00 per share of Common Stock.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual agreements and covenants set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Amendments to Convertible Notes. Each of the Convertible Notes are
hereby amended as follows:
(a) New Section 2.4. A new section is hereby added as follows to the
Convertible Notes:
"2.4. Automatic Conversion.
(a) Notwithstanding anything contained herein to the
contrary, on January 12, 2004 (the "AUTOMATIC CONVERSION DATE"), the entire
outstanding principal of and accrued interest on this Note as of the Automatic
Conversion Date shall automatically convert, without any action by or on behalf
of the Company or the Holder, into that number of shares of Common Stock
determined by dividing the entire outstanding principal of and accrued interest
on this Note as of the Automatic Conversion Date by $1.50 (the "NEW CONVERSION
PRICE"). No fractional shares of Common Stock shall be issued upon conversion.
In lieu of any fractional shares of Common Stock to which the Holder would
otherwise be entitled, Company shall pay the Holder cash in an amount equal to
such fraction multiplied by the New Conversion Price.
(b) Promptly following the Automatic Conversion Date,
the Holder shall surrender this Note to the Company for cancellation. Promptly
following delivery of this Note from the Holder to the Company for cancellation,
the Company shall deliver or cause to be delivered to Holder, in Holder's name,
certificates representing the number of fully paid and non-assessable shares of
Common Stock into which this Note has been converted in accordance with the
provisions of Section 2.4(a). Subject to the foregoing provisions hereof, such
conversion shall be deemed to have occurred on the Automatic Conversion Date so
that Holder shall be treated for all purposes as having become the record holder
of such shares of Common Stock at such time.
(c) On the Automatic Conversion Date, this Note shall be
deemed paid in full and, except as set forth in Section 2.4(b), the Company
shall have no further obligations hereunder.
(d) The shares of Common Stock issuable upon conversion
of this Note may not be offered, sold or otherwise transferred unless (i) they
first shall have been registered under the Act and applicable state securities
laws or (ii) the Company shall have been furnished with an opinion of legal
counsel (in form, substance and scope reasonably acceptable to the Company) to
the effect that such sale or transfer is exempt from the registration
requirements of the Act. Each certificate for shares of Common Stock issuable
upon conversion of this Note that have not been so registered and that have not
been sold pursuant to an exemption that permits removal of the applicable
legend, shall bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES
AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS."
2. Amendments to Warrants. Each of the Warrants are hereby amended as follows:
(a) Purchase Price. The words "$3.70 per Warrant Share" contained in the
first paragraph of the Warrants shall be replaced with the words "$2.00
per Warrant Share".
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(b) Deleted Sections. Each of Sections 6(c)(i), 6(c)(ii), 6(c)(iv),
6(d), 6(e), 6(f) and 6(h) of the Warrants is hereby amended by deleting such
Section in its entirety and replacing it with "[Intentionally Omitted]."
3. Amendment to Fund I Warrant, Fund II Warrant, LTD I Warrant and LTD II
Warrant.
(a) The Fund I Warrant is hereby amended to replace the words and
number "Two Hundred Thousand (200,000) shares" with the words and number "Two
Hundred Eleven Thousand Six Hundred Forty (211,640) shares".
(b) The Fund II Warrant is hereby amended to replace the words and
number "One Hundred Thousand (100,000) shares" with the words and number "One
Hundred Five Thousand Eight Hundred Twenty (105,820) shares".
(c) The LTD I Warrant is hereby amended to replace the words and
number "Fifty Thousand (50,000) shares" with the words and number "Fifty-Two
Thousand Nine Hundred Five (52,905) shares".
(d) The LTD II Warrant is hereby amended to replace the words and
number "Twenty-Eight Thousand (28,000) shares" with the words and number
"Twenty-Nine Thousand Six Hundred Thirty-Five (29,635) shares".
4. Acknowledgements.
(a) Each of the Company and Fund I acknowledges and agrees that (i)
as of the date hereof, the entire outstanding principal amount and accrued
interest owed by the Company to Fund I under the Fund I Note is One Million
Dollars ($1,000,000), (ii) as a result of the amendments herein to the Fund I
Note, the Company will issue Six Hundred Sixty-Six Thousand Six Hundred
Sixty-Six (666,666) shares of Common Stock on the Automatic Conversion Date to
Fund I in satisfaction of the Fund I Note and (iii) as of the date hereof, the
aggregate number of shares of Common Stock issuable upon exercise of the Fund I
Warrant is Two Hundred Eleven Thousand Six Hundred Forty (211,640) at an
exercise price of $2.00 per share.
(b) Each of the Company and Fund II acknowledges and agrees that (i)
as of the date hereof, the entire outstanding principal amount and accrued
interest owed by the Company to Fund II under the Fund II Note is Five Hundred
Thousand Dollars ($500,000), (ii) as a result of the amendments herein to the
Fund II Note, the Company will issue Three Hundred Thirty-Three Thousand Three
Hundred Thirty-Three (333,333) shares of Common Stock on the Automatic
Conversion Date to Fund II in satisfaction of the Fund II Note and (iii) as of
the date hereof, the aggregate number of shares of Common Stock issuable upon
exercise of the Fund II Warrant is One Hundred Five Thousand Eight Hundred
Twenty (105,820) at an exercise price of $2.00 per share.
(c) Each of the Company and LTD acknowledges and agrees that (i) as
of the date hereof, the aggregate number of shares of Common Stock issuable upon
exercise of the LTD I Warrant is Fifty-Two Thousand Nine Hundred Five (52,905)
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at an exercise price of $2.00 per share and (ii) as of the date hereof, the
aggregate number of shares of Common Stock issuable upon exercise of the LTD II
Warrant is Twenty-Nine Thousand Six Hundred Thirty-Five (29,635) at an exercise
price of $2.00.
5. Representations and Warranties. Each party hereby represents and
warrants to the other parties hereto as follows:
(a) Such party has not assigned, transferred, conveyed, pledged or
encumbered any of its rights or delegated any of its obligations under any of
the Convertible Notes or Warrants to any person or entity;
(b) Such party has all the power and authority to enter into this
Agreement and to carry out the transactions contemplated hereunder, and to
perform its obligations hereunder;
(c) The execution and delivery of this Agreement and the performance
of the obligations of such party hereunder have been duly authorized by all
corporate or other action on the part of such party;
(d) Neither the execution, delivery and performance of this
Agreement, nor the consummation of the transactions contemplated hereby and
thereby does or shall contravene, result in a breach of, or violate (i) any
provision of such party's charter or other governing documents, (ii) any law or
regulation, or any order or decree of any court or government instrumentality or
(iii) any indenture, mortgage, deed of trust, lease, agreement or other
instrument or agreement to which such party is a party of by which such party or
any its property is bound; and
(e) This Agreement has been duly executed and delivered by such
party and constitutes a legal, valid and binding obligation of such party,
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
general equitable principles.
6. Additional Company Covenants, Agreements and Representations.
(a) The Company covenants and agrees to deliver to Fund I and Fund
II certificates representing the number of fully paid and non-assessable shares
of Common Stock into which their respective Convertible Notes have been
converted in accordance with the provisions of Section 1(a) hereto within seven
(7) business days of the date hereof.
(b) The Company covenants and agrees that it will pay the fees and
expenses of counsel to Fund I, Fund II and LTD in connection with the
preparation, execution and delivery of this Agreement in an amount not to exceed
$2,500 in the aggregate within five (5) business days of its receipt of an
invoice for such fees and expenses.
(c) The Company further covenants and agrees to deliver to Fund I,
Fund II and LTD within two (2) business days of the date hereof copies of
resolutions of the Board of Directors of the Company approving and authorizing
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this Agreement in form and substance reasonably satisfactory to Fund I, Fund II
and LTD.
(d) The Company covenants and agrees to use its reasonable best
efforts to maintain the effectiveness of its registration statement on Form F-3,
as amended, filed with the Securities and Exchange Commission on January 16,
2003 (the "F-3 Registration Statement"), to allow for the resale of the shares
of Common Stock issuable upon conversion of the Convertible Notes and upon
exercise of the Warrants, as amended hereby.
(e) To the extent any shares of Common Stock issuable upon
conversion of the Convertible Notes and upon exercise of the Warrants, as
amended hereby, are not registered for resale under the F-3 Registration
Statement, the Company covenants and agrees to register such shares for resale
in the registration statement it has agreed to file on or before January 23,
2004 with the Securities and Exchange Commission in connection with the
Company's sale of $6,600,000 of Common Stock in December 2003.
(f) The Company represents and warrants that it has filed all
reports required to be filed by it under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT", including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as
the Company was required by law to file such material) (the foregoing materials
being collectively referred to herein as the "SEC REPORTS") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.
(g) From the date hereof until the earlier of (i) the date Fund I,
Fund II and LTD sell or otherwise dispose of all of the shares of Common Stock
issuable upon conversion of the Convertible Notes and upon exercise of the
Warrants, as amended hereby, or (ii) the date Fund I, Fund II and LTD are
eligible to use Rule 144(k) under the Securities Act of 1933, as amended, to
sell or otherwise dispose of the shares of Common Stock issuable upon conversion
of the Convertible Notes and upon exercise of the Warrants, as amended hereby,
the Company covenants to use its reasonable best efforts 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 the Exchange Act.
(h) The Company represents and warrants that simultaneous with the
execution of this Agreement, Crestview Capital Fund, L.P. and its affiliates
(the "CRESTVIEW ENTITIES") have entered into an agreement with the Company
pursuant to which the entire outstanding principal of and accrued interest on
the 8% Senior Subordinated Convertible Notes sold by the Company to the
Crestview Entities will be automatically converted on the Automatic Conversion
Date into shares of Common Stock at a conversion price of $1.50 per share.
7. Additional Covenants and Agreements of Fund I and Fund II.
(a) Each of Fund I and Fund II covenants and agrees to deliver their
respective Convertible Notes to the Company for cancellation in accordance with
the provisions of Section 1(a) hereof within seven (7) business days of the date
hereof.
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(b) Each of Fund I and Fund II authorizes the Company, at the
Company's sole cost and expense, to execute or cause the execution of one or
more termination statements terminating and removing any liens, security
interests or other encumbrances that Fund I, Fund II or their agent may have on
the assets of the Company or any of its subsidiaries. Each of Fund I and Fund II
covenants and agrees to execute or cause the execution of any and all documents
necessary to terminate and remove any liens, security interests or other
encumbrances that Fund I, Fund II or their agent may have on the assets of the
Company or any of its subsidiaries.
8. Confirmation of Convertible Notes and Warrants. Except as expressly
amended by this Agreement, each Convertible Note and each Warrant shall continue
in full force and effect in accordance with the provisions thereof. All
references in the Convertible Notes to this Agreement or words of similar import
shall refer to the Convertible Notes as amended by this Agreement. All
references in the Warrants to this Agreement or words of similar import shall
refer to the Warrants as amended by this Agreement.
9. Governing Law. This Agreement shall be governed by the internal laws of
the State of New York, without regard to conflicts of law principles. Each party
hereto (1) agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which such party may
have now or hereafter to the venue of any such suit, action or proceeding, and
(3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. Each party hereto
further agrees to accept and acknowledge service of any and all process which
may be served in any such suit, action or proceeding in the New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York and agrees that service of process upon such
party mailed by certified mail to such party's address shall be deemed in every
respect effective service of process upon such party, in any such suit, action
or proceeding. THE PARTIES HERETO AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
10. Severability. In case any provision of this Agreement is held by a
court of competent jurisdiction to be 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 Agreement will not in any way be affected or
impaired thereby.
11. Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
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12. Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
all of the parties hereto or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
13. 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.
14. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. Any
attempted assignment of this Agreement in violation of the terms of this Section
shall be void without legal effect. None of the parties hereto may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other parties hereto.
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IN WITNESS WHEREOF and intending to be legally bound hereby, the parties
hereto have executed this Note and Warrant Amendment Agreement as of the date
first written above.
WORKSTREAM INC.
By: /s/ Xxxxxxx Xxxxxxxxx
------------------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: Chief Executive Officer
SANDS BROTHERS VENTURE CAPITAL IV LLC
By: SB VENTURE CAPITAL MANAGEMENT IV
LLC, manager
By: /s/ Xxxxxx Xxxxx
--------------------
Name: Xxxxxx Xxxxx
Title: Manager
SANDS BROTHERS VENTURE CAPITAL III LLC
By: SB VENTURE CAPITAL MANAGEMENT III
LLC, manager
By: Xxxxxx Xxxxx
-------------------------
Name: Xxxxxx Xxxxx
Title: Manager
SANDS BROTHERS & CO., LTD
By: /s/ Xxxxxx Xxxxx
--------------------
Name: Xxxxxx Xxxxx
Title: C-Chairman
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