Contribution And Exchange Agreement

Exhibit 10.16


EXECUTION COPY


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CONTRIBUTION AND EXCHANGE AGREEMENT


Dated as of August 12, 1999


By and Among


DYNACS ENGINEERING COMPANY, INC.
("DYNACS"),


CERULEAN FXS, INC.
("FX")


CERULEAN COLORIZATION, L.L.C.
("CERULEAN"),


And


MICHAEL BURNS
WILLIAM DALLAS
JON FELTHEIMER
OFFENSE GROUP ASSOCIATES, LP
("MEMBERS")


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TABLE OF CONTENTS


ARTICLE 1 CONTRIBUTION AND EXCHANGE ........................................2
1.1 Contribution of Membership Interests .............................2
1.2 Contribution of Digital Shares ...................................2
1.3 Delivery of FX Common Stock to the Members .......................2
1.4 Delivery of FX Common Stock to Dynacs ............................2


ARTICLE 2 CLOSING; MEMBER REPRESENTATIVE ...................................2
2.1 Closing ..........................................................2
2.2 Member Representative ............................................3


ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE MEMBERS ....................4
3.1 Title to the Membership Interests ................................4
3.2 Authority; Binding Obligation ....................................4
3.3 No Conflicts .....................................................4
3.4 Purchase for Investment ..........................................5
3.5 Accredited Investor ..............................................5


ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF CERULEAN AND BURNS ............................................5
4.1 Due Formation ....................................................5
4.2 Authority; Binding Obligation ....................................5
4.3 Qualification ....................................................6
4.4 No Conflicts .....................................................6
4.5 Membership Interests .............................................6
4.6 Charter Documents and Corporate Records ..........................7
4.7 Financial Statements .............................................7
4.8 No Material Adverse Change .......................................7
4.9 Compliance with Laws .............................................7
4.10 Permits ..........................................................8
4.11 Orders and Actions ...............................................8
4.12 Cerulean Material Contracts ......................................8
4.13 Real Property ....................................................8
4.14 Environmental Compliance Matters .................................9
4.15 Receivables ......................................................9
4.16 Accounts Payable ................................................10
4.17 Tangible Property ...............................................10
4.18 Intangible Property .............................................10
4.19 Title to Assets and Properties ..................................10
4.20 Liabilities .....................................................10
4.21 Employee Benefits ...............................................11
4.22 Employee Relations ..............................................11
4.23 Insurance .......................................................12


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4.24 Operations of Cerulean ..........................................12
4.25 No Brokers ......................................................12
4.25 Tax Matters .....................................................12
4.26 Year 2000 Reprogramming .........................................13
4.27 Full Disclosure .................................................13


ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF DYNACS ........................13
5.1 Title to the Digital Shares .....................................13
5.2 Purchase for Investment .........................................14
5.3 Accredited Investor .............................................14
5.4 Due Incorporation ...............................................14
5.5 Authority; Binding Obligation ...................................14
5.6 Qualification ...................................................14
5.7 No Conflicts ....................................................14
5.8 Capital Stock of Dynacs .........................................15
5.9 Capital Stock of FX .............................................16
5.10 Charter Documents and Corporate Records .........................16
5.11 Financial Statements ............................................17
5.12 No Material Adverse Change ......................................17
5.13 Compliance with Laws ............................................17
5.14 Permits .........................................................18
5.15 Orders and Actions ..............................................18
5.16 Dynacs Material Contracts .......................................18
5.17 Real Property ...................................................19
5.18 Environmental Compliance Matters ................................20
5.19 Receivables .....................................................20
5.20 Tangible Property ...............................................20
5.21 Intangible Property .............................................20
5.22 Title to Assets and Properties ..................................21
5.23 Liabilities .....................................................21
5.24 Employee Benefits ...............................................21
5.25 Employee Relations ..............................................22
5.26 Insurance .......................................................22
5.27 Operations of Dynacs ............................................22
5.28 Subsidiaries and Affiliates .....................................23
5.29 No Brokers ......................................................23
5.30 Tax Matters .....................................................23
5.31 Year 2000 Reprogramming .........................................23
5.32 Full Disclosure .................................................24


ARTICLE 6 COVENANTS AND AGREEMENTS ........................................24
6.1 Affirmative Covenants of Dynacs .................................24
6.2 Negative Covenants of Dynacs ....................................26
6.3 Affirmative Covenants of Cerulean ...............................26
6.4 Salaries of Cerulean ............................................26
6.5 Resignation of Burns as Manager .................................26


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6.6 Shareholders Agreement ..........................................27
6.7 Registration Agreement ..........................................27
6.8 Exchange Agreement ..............................................27
6.9 Loan to Burns ...................................................27
6.10 First Refusal Agreement .........................................27
6.11 Further Assurances ..............................................27


ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF FX AND DYNACS TO CLOSE .......................................28
7.1 Representations, Warranties and Covenants True ..................28
7.2 Approvals and Consents ..........................................28
7.3 Shareholders Agreement ..........................................28
7.4 Registration Agreement ..........................................28
7.5 Exchange Agreement ..............................................28
7.6 Promissory Note and Security Agreement ..........................28
7.7 First Refusal Agreement .........................................28
7.8 Resignation of Burns as Manager .................................28
7.9 Delivery of the Membership Interests ............................28
7.10 Delivery of the FX Common Stock .................................29
7.11 Articles of Incorporation of Dynacs .............................29
7.12 Opinion of Counsel to Cerulean ..................................29
7.13 Accounts Payable ................................................29


ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF CERULEAN AND THE MEMBERS TO CLOSE ............................29
8.1 Representations, Warranties and Covenants True ..................29
8.2 Approvals and Consents ..........................................29
8.3 Shareholders Agreement ..........................................29
8.4 Registration Agreement ..........................................30
8.5 Exchange Agreement ..............................................30
8.6 Loan to Burns ...................................................30
8.7 First Refusal Agreement .........................................30
8.8 Delivery of FX Common Stock .....................................30
8.9 Delivery of Digital Shares ......................................30
8.10 Articles of Incorporation of Dynacs .............................30
8.11 Opinion of Counsel to Dynacs and FX .............................30


ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; .....................30
INDEMNIFICATION .................................................30
9.1 Survival of Representations and Warranties ......................30
9.2 Indemnification .................................................30


ARTICLE 10 MISCELLANEOUS ...................................................33
10.1 Certain Definitions .............................................33
10.2 Business Day ....................................................38
10.3 Notices .........................................................38


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10.4 Entire Agreement ................................................39
10.5 Waivers and Amendments; Remedies ................................39
10.6 Governing Law ...................................................40
10.7 Binding Effect; No Assignment ...................................40
10.8 Variations in Pronouns ..........................................40
10.9 Counterparts ....................................................40
10.10 Exhibits and Schedules ..........................................40
10.11 Headings ........................................................40
10.12 Severability ....................................................40
10.13 Costs and Attorneys' Fees .......................................41
10.14 No Adverse Construction .........................................41


INDEX OF APPENDICES


Exhibits:


Exhibit A -- Members and Membership Interests; FX Shares Exhibit B -- Form of Shareholders Agreement Exhibit C -- Form of Registration Rights Agreement Exhibit D -- Form of Exchange Agreement Exhibit E -- Form of First Refusal Agreement Exhibit F -- Form of Promissory Note Exhibit G -- Form of Security Agreement Exhibit H -- Form of Amended and Restated Articles of
Incorporation of Dynacs Exhibit I -- Form of Opinion of Counsel to Cerulean Exhibit J -- Form of Opinion of Counsel to Dynacs


Schedules:


Schedule I -- Member Disclosure Schedule


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CONTRIBUTION AND EXCHANGE AGREEMENT


THIS CONTRIBUTION AND EXCHANGE AGREEMENT (this "Agreement"), is made and entered into as of August 12, 1999, by and among DYNACS ENGINEERING COMPANY, INC., a Florida corporation ("Dynacs"), CERULEAN FXS, INC., a Florida corporation ("FX"), CERULEAN COLORIZATION, L.L.C., a Delaware limited liability company ("Cerulean"), MICHAEL BURNS ("Burns") and the other members of Cerulean whose names appear on Exhibit A to this Agreement (the members of Cerulean, including Burns, are collectively referred to in this Agreement as the "Members" and each as a "Member"). Certain capitalized terms used in this Agreement are defined in Section 10.1.


RECITALS


A. The Members are the record and beneficial owners of the Membership Interests of Cerulean represented by the respective Percentage Interests set forth opposite their names on Exhibit A, constituting 100% of the Membership Interests of Cerulean.


B. Dynacs is the record and beneficial owner of 500 shares (the "Digital Shares") of common stock, no par value (the "Digital Common Stock"), of Dynacs Digital Services, Inc., a Delaware corporation ("Digital"), constituting 100% of the outstanding capital stock of Digital.


C. FX was formed for the purpose of effecting a combination of the businesses of Cerulean and Digital which, for federal income tax purposes, is intended to meet the requirements of Section 351 of the Code.


E. To effect the combination, the Members desire to contribute their Membership Interests to FX in exchange for an aggregate of 20,000 shares of the common stock, par value $0.01 per share, of FX (the "FX Common Stock"), and Dynacs desires to contribute the Digital Shares to FX in exchange for an aggregate of 80,000 shares of FX Common Stock.


F. In order to induce the Members and Cerulean to execute and deliver this Agreement and consummate the Contemplated Transactions, at the Closing (i) the Members, Dynacs and the capital stockholders of Dynacs are entering into a Shareholders Agreement in form and substance identical to Exhibit B attached to this Agreement (the "Shareholders Agreement"), relating to and providing for, among other things, the ownership of the capital stock of Dynacs, (ii) the Members and Dynacs are entering into a Registration Rights Agreement in form and substance identical to Exhibit C attached to this Agreement (the "Registration Agreement"), (iii) the Members and Dynacs are entering into an Exchange Agreement inform and substance identical to Exhibit D attached to this Agreement (the "Exchange Agreement"), relating to and providing for, among other things, the right of the Members to exchange their shares of FX Common Stock for shares of common stock, par value $.001 per share, of Dynacs (the "Dynacs Common Stock"), and (iv) Burns and Dynacs are entering into a Right of First Refusal Agreement in form and substance identical to Exhibit E attached to this Agreement (the "First Refusal Agreement"), providing Burns with a right of first refusal to acquire certain assets of Cerulean. 7


AGREEMENT


NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Agreement, on the terms and subject to the conditions set forth in this Agreement, the parties to this Agreement agree as follows:


ARTICLE 1


CONTRIBUTION AND EXCHANGE


1.1 Contribution of Membership Interests. At the Closing, each Member, severally and not jointly, agrees to contribute, assign, transfer and deliver to FX all of the Member's Membership Interests, and all right, title and interest of the Member in and to the Member's Membership Interests and Cerulean, and FX agrees to acquire the Membership Interests from each Member in exchange for an aggregate of 20,000 shares of FX Common Stock to be issued as provided in Section 1.3 below. At the Closing, each Member shall deliver to FX an assignment transferring the Member's respective Membership Interests to FX, in form reasonably satisfactory to FX.


1.2 Contribution of Digital Shares. At the Closing, Dynacs agrees to contribute, assign, transfer and deliver to FX all of the Digital Shares, and all right, title and interest of Dynacs in and to the Digital Shares, and FX agrees to acquire the Digital Shares from Dynacs in exchange for 80,000 shares of FX Common Stock to be issued as provided in Section 1.4 below. At the Closing, Dynacs shall deliver the stock certificate(s) representing the Digital Shares to FX, duly endorsed in blank or accompanied by stock powers duly executed in blank, in proper form for transfer.


1.3 Delivery of FX Common Stock to the Members. At the Closing, FX shall issue and deliver to each Member stock certificate(s) representing the number of validly issued, fully paid and nonassessable shares of FX Common Stock set forth opposite the Member's name on Exhibit A.


1.4 Delivery of FX Common Stock to Dynacs. At the Closing, FX shall issue and deliver to Dynacs stock certificate(s) representing 80,000 validly issued, fully paid and nonassessable shares of FX Common Stock.


ARTICLE 2


CLOSING; MEMBER REPRESENTATIVE


2.1 Closing. The closing of the transactions contemplated by Article 1 and the consummation of the other Contemplated Transactions (the "Closing") shall take place at the offices of Dynacs Engineering Company, Inc., 35111 U.S. Highway 19 North, Suite 300, Palm Harbor, Florida 34684, at 10:00 a.m., local time, on Friday, August 13, 1999, or such other time or date as


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the parties may agree to in writing, following the satisfaction or waiver (by the party entitled to waive the same) of all conditions to the consummation of the Contemplated Transactions. The time and date upon which the Closing occurs is referred to in this Agreement as the "Closing Date".


2.2 Member Representative


(a) The Member Representative (as defined below) is hereby appointed by and constitutes the authorized agent and attorney-in-fact of each of the Members, for and on behalf of the Members, to take any actions and make and deliver any certificate, notice, consent, instruction or instrument required or permitted to be taken, made or delivered by the Members under this Agreement or any other agreement to be delivered pursuant to this Agreement. In connection with the foregoing, the Member Representative may, at the sole cost and expense of the Members, hire or retain counsel, accountants and other professional advisors as determined by the Member Representative to be necessary, advisable or appropriate in order to carry out its obligations under this Section 2.2 and or the Charter Documents of Cerulean, and may rely in good faith upon the advice received from any of the foregoing Persons. A decision, act, consent or instruction of the Member Representative shall constitute a decision of all of the Members, and shall be final, binding and conclusive upon each of the Members, and Dynacs, FX and Cerulean may rely upon any decision, act, consent or instruction of the Member Representative as being the decision, act, consent or instruction of each and all of the Members. Notices or communications to or from the Member Representative with respect to this Agreement shall constitute notice to or from each of the Members, individually, and all of the Members, collectively. Dynacs, FX and Cerulean are relieved from any liability to any Person for any acts done by them in accordance with any decision, act, consent or instruction of the Member Representative made in accordance with this Section 2.2. Under no circumstances shall the Member Representative have any liability to the Members for any act or omission to act of the Member Representative while acting in his capacity as the Member Representative, unless the Member asserting liability is able to prove that the Member Representative was guilty of willful misconduct or bad faith. Each Member shall, severally but not jointly and pro rata based on the percentage of Membership Interests owned by the Member on the date of this Agreement as set forth on Exhibit A, indemnify, save and hold harmless the Member Representative from and against any and all Damages incurred in connection with, arising out of resulting from or incident to any act or omission to act of the Member Representative while acting in his capacity as the Member Representative, except to the extent caused by the willful misconduct or bad faith of the Member Representative.


(b) As used in this Agreement, the "Member Representative" shall mean Michael Burns, or any Person properly designated in writing delivered to Dynacs and the Members by Michael Burns, or his successors and assigns, as a successor Member Representative, but in no event may such successor Member Representative be an officer, director, shareholder, agent or affiliate of Dynacs.


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ARTICLE 3


REPRESENTATIONS AND WARRANTIES OF THE MEMBERS


Except as set forth in Schedule I to this Agreement, which Schedule shall refer to the relevant Sections of this Agreement (the "Member Disclosure Schedule"), each Member, severally and not jointly, represents and warrants to Dynacs and FX solely as to himself or itself as follows:


3.1 Title to the Membership Interests. The Member owns beneficially and of record, and has good and marketable title to, the Membership Interests represented by the respective Percentage Interest set forth opposite the Member's name on Exhibit A, free and clear of any Liens and restrictions other than restrictions on transfer of the Membership Interests imposed upon a limited liability company member of Cerulean under the Charter Documents of Cerulean and restrictions generally imposed by the securities laws of the United States and of the various states, and, upon delivery of and issuance of FX Common Stock in exchange for the Membership Interests as provided in this Agreement, FX will acquire good and marketable title thereto, free and clear of any Liens and restrictions other than restrictions on transfer of the Membership Interests imposed upon a limited liability company member of Cerulean under the Charter Documents of Cerulean and restrictions generally imposed by the securities laws of the United States and of the various states. The Member has no outstanding contractual obligations or rights to purchase or otherwise acquire. whether from Cerulean or otherwise, any shares of capital stock or other ownership interests, or securities convertible or exchangeable into or exercisable for shares of capital stock or other ownership interests, of Cerulean.


3.2 Authority: Binding Obligation. The Member has the full legal capacity and all authority required to execute, deliver and perform his or its obligations under this Agreement, to sell his or its respective Membership Interests and to consummate the Contemplated Transactions to which the Member is a party. This Agreement has been duly and validly executed and delivered by the Member and constitutes the Member`s legal, valid and binding obligation, enforceable against the Member in accordance with its terms.


3.3 No Conflicts. The execution, delivery and performance by the Member of this Agreement and each other agreement to be delivered by the Member pursuant to this Agreement, the compliance by the Member with the terms and provisions of this Agreement and each other agreement to be delivered by the Member pursuant to this Agreement, and the consummation of the Contemplated Transactions to which the Member is a party, will not (i) require the Member to obtain any consent, approval or action of, or make any filing with or give any notice to, any Governmental Body or any Person; (ii) violate, conflict with or result in the breach of any of the terms of, result in a material modification or acceleration of the effect of, otherwise cause the termination of or give any other contracting party the right to terminate or a right of first refusal, or constitute (or with notice or lapse of time or both, constitute) a default under, any Contract to which the Member is a party or by or to which the Member or any of the Member's assets or properties may be bound or subject, or result in the creation of any Lien upon the assets or properties of the Member pursuant to the terms of any of these Contracts; or (iii) violate any Law or Order against, or binding upon, the Member or his or its assets or properties.


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3.4 Purchase for Investment. The Member is acquiring the shares of FX Common Stock for investment purposes only and not with a view to the sale or distribution thereof in violation of any applicable federal or state securities laws; provided that nothing contained in this Section 3.4 shall prevent the Member from transferring shares of FX Common Stock in compliance with the provisions of this Agreement, the Exchange Agreement and the Shareholders Agreement. The Member acknowledges that the shares of FX Common Stock to be acquired by the Member pursuant to this Agreement are not registered under the Securities Act of 1933, as amended (the "Securities Act") and cannot be sold or otherwise disposed of except in compliance with the Securities Act or in reliance upon an exemption from the Securities Act. The Member acknowledges that the certificate(s) representing the shares of FX Common Stock shall bear a legend in substantially the following form:


"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS, HAVE BEEN ACQUIRED FOR INVESTMENT, AND MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."


3.5 Accredited Investor. The Member is an "accredited investor" as that term is defined in Rule 501(a) of the General Rules and Regulations under the Securities Act.


ARTICLE 4


REPRESENTATIONS AND WARRANTIES
OF CERULEAN AND BURNS


Except as set forth in the disclosure letter delivered by the Member Representative to Dynacs concurrently with the execution and delivery of this Agreement, which letter shall refer to the relevant Sections of this Agreement (the "Cerulean Disclosure Letter"), Cerulean and Burns represent and warrant to Dynacs and FX as follows:


4.1 Due Formation. Cerulean is a limited liability company duly organized, validly ...