Exhibit 10.1
DYNTEK, INC.
SECURITIES PURCHASE AGREEMENT
January 30, 2004
Table of Contents
Page
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1. Agreement to Sell and Purchase.............................................1
2. Fees and Warrant...........................................................1
3. Closing, Delivery and Payment..............................................2
3.1 Closing.........................................................2
3.2 Delivery........................................................2
4. Representations and Warranties of the Company..............................2
4.1 Organization, Good Standing and Qualification...................3
4.2 Subsidiaries....................................................3
4.3 Capitalization; Voting Rights...................................3
4.4 Authorization; Binding Obligations..............................4
4.5 Liabilities.....................................................4
4.6 Agreements; Action..............................................4
4.7 Obligations to Related Parties..................................5
4.8 Changes.........................................................6
4.9 Title to Properties and Assets; Liens, Etc......................7
4.10 Intellectual Property...........................................7
4.11 Compliance with Other Instruments...............................8
4.12 Litigation......................................................8
4.13 Tax Returns and Payments........................................8
4.14 Employees.......................................................9
4.15 Registration Rights and Voting Rights...........................9
4.16 Compliance with Laws; Permits...................................9
4.17 Environmental and Safety Laws..................................10
4.18 Valid Offering.................................................10
4.19 Full Disclosure................................................10
4.20 Insurance......................................................10
4.21 SEC Reports....................................................10
4.22 Listing........................................................11
4.23 No Integrated Offering.........................................11
4.24 Stop Transfer..................................................11
4.25 Dilution.......................................................11
5. Representations and Warranties of the Purchaser...........................11
5.1 No Shorting....................................................11
5.2 Requisite Power and Authority..................................12
5.3 Investment Representations.....................................12
5.4 Purchaser Bears Economic Risk..................................12
5.5 Acquisition for Own Account....................................12
5.6 Purchaser Can Protect Its Interest.............................12
5.7 Accredited Investor............................................13
5.8 Legends........................................................13
6. Covenants of the Company..................................................14
6.1 Stop-Orders....................................................14
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6.2 Listing........................................................14
6.3 Market Regulations.............................................14
6.4 Reporting Requirements.........................................14
6.5 Use of Funds...................................................14
6.6 Access to Facilities...........................................14
6.7 Taxes..........................................................15
6.8 Insurance......................................................15
6.9 Intellectual Property..........................................16
6.10 Properties.....................................................16
6.11 Confidentiality................................................16
6.12 Required Approvals.............................................16
6.13 Reissuance of Securities.......................................16
6.14 Opinion........................................................17
7. Covenants of the Purchaser................................................18
7.1 Confidentiality................................................18
7.2 Non-Public Information.........................................18
8. Covenants of the Company and Purchaser Regarding Indemnification..........18
8.1 Company Indemnification........................................18
8.2 Purchaser's Indemnification....................................18
8.3 Procedures.....................................................18
8.4 Offering Restrictions..........................................19
9. Miscellaneous.............................................................19
9.1 Governing Law..................................................20
9.2 Survival.......................................................20
9.3 Successors.....................................................20
9.4 Entire Agreement...............................................20
9.5 Severability...................................................20
9.6 Amendment and Waiver...........................................21
9.7 Delays or Omissions............................................21
9.8 Notices........................................................21
9.9 Attorneys' Fees................................................22
9.10 Titles and Subtitles...........................................22
9.11 Facsimile Signatures; Counterparts.............................22
9.12 Broker's Fees..................................................22
9.13 Construction...................................................23
LIST OF EXHIBITS
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Form of Convertible Term Note......................................... Exhibit A
Form of Warrant....................................................... Exhibit B
Form of Opinion....................................................... Exhibit C
Form of Escrow Agreement.............................................. Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of January 30 , 2004, by and between DYNTEK, INC., a Delaware
corporation (the "Company"), and __________ (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Three Million Five
Hundred Thousand dollars ($3,500,000.00) (the "Note"), which Note is convertible
into shares of the Company's common stock, $0.01 par value per share (the
"Common Stock") at a fixed conversion price of $0.90 per share of Common Stock
("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 425,000 shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $3,500,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Note and this Agreement. The Note purchased on
the Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
of thirty six (36) months from the date of issuance. Collectively, the Note and
Warrant (as defined in Section 2) and Common Stock issuable in payment of the
Note, upon conversion of the Note and upon exercise of the Warrant are referred
to as the "Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 425,000 shares of Common Stock in connection with the
Offering (the "Warrant") pursuant to Section 1 hereof. The Warrant must be
delivered on the Closing
Date. A form of Warrant is annexed hereto as
Exhibit B. All the representations, covenants, warranties, undertakings,
and indemnification, and other rights made or granted to or for the
benefit of the Purchaser by the Company are hereby also made and granted
in respect of the Warrant and shares of the Company's Common Stock
issuable upon exercise of the Warrant (the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall
pay to __________, manager of Purchaser a closing payment in an amount
equal to three and one-half percent (3.50%) of the aggregate principal
amount of the Note (the "Closing Payment") and one-half of one percent
(0.5%) the outstanding principal amount on each anniversary (the "Renewal
Payment.")
(c) The Company shall reimburse the Purchaser for its reasonable
legal fees for services rendered to the Purchaser in preparation of this
Agreement and the Related Agreements (as hereinafter defined), and
expenses in connection with the Purchaser's due diligence review of the
Company and relevant matters. Amounts required to be paid hereunder will
be paid at the Closing and shall be $29,500 (net of the $10,000 deposit
paid by the Company on January 22, 2004) for legal expenses and for
performing due diligence inquiries on the Company.
(d) The Closing Payment, legal fees and due diligence fees (net of
deposits previously paid by the Company) shall be paid at closing out of
funds held pursuant to a Funds Escrow Agreement of even date herewith
among the Company, Purchaser, and an Escrow Agent (the "Funds Escrow
Agreement") and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment. Subject to the terms and conditions
herein, the closing of the transactions contemplated hereby (the "Closing"),
shall take place on the date hereof, at such time or place as the Company and
Purchaser may mutually agree (such date is hereinafter referred to as the
"Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement in the form attached
hereto as Exhibit C, at the Closing on the Closing Date, the Company will
deliver to the Purchaser, among other things, a Note in the form attached as
Exhibit A representing the principal amount of $3,500,000 and a Warrant in the
form attached as Exhibit B in the Purchaser's name representing 425,000 Warrant
Shares and the Purchaser will deliver to the Company, among other things, the
amounts set forth in the Disbursement Letter by certified funds or wire
transfer.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as of the date of this Agreement as set
forth below which disclosures are in all cases supplemented by, without further
reference, information contained in the Certification of Officers of the
Company, dated January 25, 2004 and previously delivered to the Purchaser and
subject to, information included in the Company's filings under the Securities
Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which
have been provided to the Purchaser.
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4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, and the Note and the Warrant to be issued in connection with this
Agreement, the Security Agreement relating to the Note dated as of January 30,
2004 between the Company and the Purchaser, and the Registration Rights
Agreement relating to the Securities dated as of January 30, 2004 between the
Company and the Purchaser (collectively, the "Related Agreements"), to issue and
sell the Note and the shares of Common Stock issuable upon conversion of the
Note (the "Note Shares"), to issue and sell the Warrant and the Warrant Shares,
and to carry out the provisions of this Agreement and the Related Agreements and
to carry on its business as presently conducted. The Company is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Company or its business.
4.2 Subsidiaries. The Company owns all of the issued and outstanding
capital stock of DynTek Services, Inc. The Company does not own or control any
equity security or other interest of any other corporation, limited partnership
or other operating business entity, except as set forth in the Exchange Act
Filings.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of 100,000,000 shares, of which 90,000,000 are shares of
Common Stock, par value $.0001 per share, 46,761,572 shares of which are
issued and outstanding, and 10,000,000 are shares of preferred stock, par
value $.0001 per share of which 1,214,796 shares of Series A Preferred
Stock with a stated value of $.0001 per share and an initial conversion
ration of 2.5 shares of Common Stock per preferred share are issued and
outstanding.
(b) Except as disclosed on Schedule 4.3 or in any Exchange Act
Filings, other than: (i) the shares reserved for issuance under the
Company's stock option plans; and (ii) shares which may be granted
pursuant to this Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, or
arrangements or agreements of any kind for the purchase or acquisition
from the Company of any of its securities. Except as disclosed on Schedule
4.3 or in any Exchange Act Filings, neither the offer, -------------
issuance or sale of any of the Note or Warrant, or the issuance of any of
the Note Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other
similar provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and
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(ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance
with the provisions of this Agreement and the Company's Charter, the
Securities will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate action on the part
of the Company, its officers and directors necessary for the authorization of
this Agreement and the Related Agreements, the performance of all obligations of
the Company hereunder at the Closing and, the authorization, sale, issuance and
delivery of the Note and Warrant has been taken or will be taken prior to the
Closing. The Agreement and the Related Agreements, when executed and delivered
and to the extent it is a party thereto, will be valid and binding obligations
of the Company enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. The Company, to the best of its knowledge, has no
material contingent liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company is a party or to its knowledge by which it is bound which may
involve: (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to,
the Company arising from purchase or sale agreements entered into in the
ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf"
or other standard products); or (iii) provisions
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restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect
to infringements of proprietary rights.
(b) Since September 30, 2003, the Company has not: (i) declared or
paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than
ordinary course obligations or obligations under agreements identified in
any Exchange Act Filings) individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate; (iii) made any loans or advances to
any person not in excess, individually or in the aggregate, of $100,000,
other than ordinary advances for travel expenses; or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale
of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth in any Exchange
Act Filings or on Schedule 4.7, there are no obligations of the Company to
officers, directors, stockholders or employees of the Company other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
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set forth in any Exchange Act Filings or on Schedule 4.7, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 Changes. Since September 30, 2003, except as disclosed in any Exchange
Act Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:
(a) Any change in the assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had
or is reasonably expected to have a material adverse effect on such
assets, liabilities, financial condition, prospects or operations of the
Company;
(b) Any resignation or termination of any officer, key employee or
group of employees of the Company;
(c) Any material change, except in the ordinary course of business,
in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect material loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution
of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
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(l) Any change in any material agreement to which the Company is a
party or by which it is bound which may materially and adversely affect
the business, assets, liabilities, financial condition, operations or
prospects of the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect
the business, assets, liabilities, financial condition, prospects or
operations of the Company; or
(n) Any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9 or in any Exchange Act Filings, the Company has good and marketable
title to its properties and assets, and good title to its leasehold estates, in
each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and repair
and are reasonably fit and usable for the purposes for which they are being
used. Except as set forth on Schedule 4.9 or in any Exchange Act Filings, the
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and to the Company's knowledge
as presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing proprietary rights, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements
arising from the purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging that
the Company has violated any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company aware of any basis
therefor.
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(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company.
4.11 Compliance with Other Instruments. Except as set forth on Schedule
4.11 or in any Exchange Act Filings, the Company is not in violation or default
of any term of its Charter or Bylaws, or of any material provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound (other than any which have been waived), or of any
judgment, decree, order or writ. The execution, delivery and performance of and
compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Company and the other
Securities by the Company each pursuant hereto, will not, with or without the
passage of time or giving of notice, result in any such material violation, or
be in conflict with or constitute a default under any such term or provision, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto or in any
Exchange Act Filings, there is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that prevents the Company to enter into this Agreement or the Related
Agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for any of the
foregoing. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 4.13 or as disclosed in any Exchange
Act Filings, the Company has not been advised:
(a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
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4.14 Employees. Except as set forth on Schedule 4.14, the Company has no
collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the Company's knowledge, threatened
with respect to the Company. Except as disclosed in the Exchange Act Filings or
on Schedule 4.14, the Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to the Company. The Company has not received any notice alleging
that any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company, no employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. Except as set
forth on Schedule 4.14 or in any Exchange Act Filings, the Company is not aware
that any officer, key employee or group of employees intends to terminate his,
her or their employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, the Company is
presently not under any obligation, and has not granted any rights, to register
any of the Company's presently outstanding securities or any of its securities
that may hereafter be issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of
the Company has entered into any agreement with respect to the voting of equity
securities of the Company.
4.16 Compliance with Laws; Permits. Except as set forth on Schedule 4.16,
and except as disclosed in Exchange Act Filings, to its knowledge, the Company
is not in violation in any material respect of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of any of the Securities, except
such as has been duly and validly obtained or filed, or with respect to any
filings that must be made after the Closing, as will be filed in a timely
manner. The Company has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
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conducted by it, the lack of which would materially and adversely affect the
business, properties, prospects or financial condition of the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or, to the Company's knowledge, by any other person or entity on any property
owned, leased or used by the Company. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous"
or "toxic" under any applicable local, state, federal and/or foreign laws
and regulations that govern the existence and/or remedy of contamination
on property, the protection of the environment from contamination, the
control of hazardous wastes, or other activities involving hazardous
substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the Company believes is
reasonably necessary to make such investment decision. Neither this Agreement,
the exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Company to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company were
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future events which the Company, at the date of the issuance of
such projections or estimates, believed to be reasonable.
4.20 Insurance. The Company has general commercial, product liability,
fire and casualty insurance policies with coverages which the Company believes
are customary for companies similarly situated to the Company in the same or
similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company has
filed all proxy statements, reports and other documents required to be filed by
it under the Exchange Act. The Company has furnished the Purchaser with copies
of: (i) its Annual Report on Form 10-K
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for the fiscal year ended June 30, 2003; and (ii) its Quarterly Reports on Form
10-Q for the fiscal quarter ended September 30, 2003, and the Form 8-K filings
which it has made during 2003 to date (collectively, the "SEC Reports"). Except
as set forth on Schedule 4.21, each SEC Report was, at the time of its filing,
in substantial compliance with the requirements of its respective form and none
of the SEC Reports, nor the financial statements (and the notes thereto)
included in the SEC Reports, as of their respective filing dates, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.22 Listing. The Company's Common Stock is listed for trading on the
NASDAQ SmallCap Market ("NASDAQ SC") and satisfies all requirements for the
continuation of such listing (other than that the current "bid" price for its
Common Stock is below the $1.00 minimum bid threshold on the date hereof). The
Company has not received any notice that its Common Stock will be delisted from
NASDAQ SC or that its Common Stock does not meet all requirements for listing.
4.23 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 that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. The Company will not issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
4.25 Dilution. The Company specifically acknowledges that its obligation
to issue the shares of Common Stock upon conversion of the Note and exercise of
the Warrant is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement)
5.1 No Shorting. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Common Stock or any
other hedging strategies as long as the Note shall be outstanding.
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5.2 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser's representations contained
in the Agreement, including, without limitation, that the Purchaser is an
"accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's business, management and financial affairs and the terms
and conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 Purchaser Bears Economic Risk. Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this investment until
the Securities are sold pursuant to: (i) an effective registration statement
under the Securities Act; or (ii) an exemption from registration is available
with respect to such sale.
5.5 Acquisition for Own Account. Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for Purchaser's own account
for investment only, and not as a nominee or agent and not with a view towards
or for resale in connection with their distribution.
5.6 Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its
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own interests in connection with the transactions contemplated in this
Agreement, and the Related Agreements. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.7 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES
LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO DYNTEK, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO DYNTEK, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
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REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TODYNTEK, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
6. Covenants of the Company. At all times that any principal and accrued
interest and/or fees are outstanding under the Note, the Company covenants and
agrees with the Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the shares
of Common Stock issuable upon conversion of the Note and upon the exercise of
the Warrant on the NASDAQ SC (the "Principal Market") upon which shares of
Common Stock are listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will use its best efforts to maintain the listing of its
Common Stock on the Principal Market, and will use its best efforts to comply in
all material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. The Company will use its best efforts to file
timely with the SEC all reports required to be filed pursuant to the Exchange
Act. The Company will refrain from terminating its status as an issuer required
by the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds of the
sale of the Note and Warrant for working capital purposes only, including for
the operations of its subsidiaries.
6.6 Access to Facilities. The Company will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon reasonable
notice and during normal business hours, at such person's expense and
accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company;
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(b) examine the corporate and financial records of the Company
(unless such examination is not permitted by federal, state or local law
or by contract) and make copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company with
the directors, officers and independent accountants of the Company.
Notwithstanding the foregoing, the Company will not provide any material,
non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
6.7 Taxes. The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto; and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner which the Company reasonably believes is customary for companies
in similar business similarly situated as the Company and to the extent
available on commercially reasonable terms. The Company and each of its
subsidiaries set forth in Section 4.2 hereof (the "Subsidiaries") will jointly
and severally bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to the Purchaser as security for its
obligations hereunder and under the Related Agreements. At the Company's own
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of the Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the Subsidiary's insuring against
larceny, embezzlement or other criminal misappropriation of insured's officers
and employees who may either singly or jointly with others at any time have
access to the assets or funds of the Company either directly or through
governmental authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which the Company
or the Subsidiary is engaged in business; and (v) furnish Purchaser with (x)
copies of all policies and evidence of the
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maintenance of such policies at least thirty (30) days before any expiration
date, (y) excepting the Company's workers' compensation policy, endorsements to
such policies naming Purchaser as "co-insured" or "additional insured" and
appropriate loss payable endorsements in form and substance satisfactory to
Purchaser, naming Purchaser as loss payee, subject to the rights of creditors of
the Company who hold perfected security interests prior in right of payment to
Purchaser's, and (z) evidence that as to Purchaser the insurance coverage shall
not be impaired or invalidated by any act or neglect of the Company or any
Subsidiary and the insurer will provide Purchaser with at least thirty (30) days
notice prior to cancellation. The Company and each Subsidiary shall instruct the
insurance carriers that, in the event of any loss thereunder, the carriers shall
make payment for such loss to the Company and/or the Subsidiary, and the
Purchaser and other parties with prior rights in the Companies' assets as their
rights shall appear. In the event that as of the date of receipt of each loss
recovery upon any such insurance, the Purchaser has not declared an event of
default with respect to this Agreement or any of the Related Agreements, then
the Company shall be permitted to direct the application of such loss recovery
proceeds toward investment in property, plant and equipment that would comprise
"Collateral" secured by Purchaser's security interest pursuant to its security
agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an Event of Default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine, subject to the prior rights of other parties in the Company's assets.
Any surplus (following satisfaction of all Company obligations to Purchaser)
shall be paid by Purchaser to the Company or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by the Company or the
Subsidiary, as applicable, to Purchaser, on demand,
6.9 Intellectual Property. The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
6.10 Properties. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.11 Confidentiality. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. The Company may disclose Purchaser's identity and the terms of this
Agreement to its current and prospective debt and equity financing sources.
6.12 Required Approvals. For so long as fifty percent (50%) of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:
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(a) directly or indirectly declare or pay any dividends, other than
dividends with respect to its preferred stock;
(b) liquidate, dissolve or effect a material reorganization;
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's right to
perform the provisions of this Agreement or any of the agreements
contemplated thereby;
(d) materially alter or change the scope of the business of the
Company;
(e) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of five percent (5%) per annum of the Company's
assets) whether secured or unsecured other than (i) the Company's
indebtedness to either __________ or Systran Financial Services
Corporation and as set forth on Exhibit 6.12(e) attached hereto and made a
part hereof, or any refinancings or replacements thereof or any debt
incurred in connection with the purchase of assets or in connection with
operating lines of credit as necessary to operate such assets, or any
refinancings or replacements thereof, provided however, that the Company's
secured indebtedness incurred or existing (other than to __________)
pursuant to this Section 6.12(e)(i) shall not exceed an aggregate of seven
million dollars ($7,000,000); (ii) cancel any debt owing to it in excess
of $100,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person (other than the
Company's subsidiaries), except the endorsement of negotiable instruments
by a Company for deposit or collection or similar transactions in the
ordinary course of business or guarantees provided to any of the lenders
set forth in subparagraph (i) immediately above.
6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7 above
at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion reasonable acceptable to the Purchaser from the Company's
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are reasonably necessary for the conversion of
the Note and exercise of the Warrant.
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7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose, and
will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any sales
in the shares of the Company's Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.3 Procedures. (a) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 8 and shall only relieve it from any liability which it may have to such
indemnified party under this Section 8 if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 8. for any
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legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof; if the indemnified party retains its own counsel, then
the indemnified party shall pay all fees, costs and expenses of such counsel,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
(b) In order to provide for just and equitable contribution in the event
of joint liability under the Securities Act in any case in which either: (i) the
Purchaser, or any controlling person of the Purchaser, makes a claim for
indemnification pursuant to this Section 8 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case; or (ii)
contribution under the Securities Act may be required on the part of the
Purchaser or controlling person of the Purchaser in circumstances for which
indemnification is provided under this Section 8; then, and in each such case,
the Company and the Purchaser will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that the Purchaser is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10 of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
8.4 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors or consultants of the Company; or shares of preferred
stock issued to pay dividends in respect of the Company's preferred stock; or
equity or debt issued in connection with an acquisition of a business or assets
by the Company; or the issuance by the Company of stock in connection with the
establishment of a joint venture, partnership, licensing arrangement or other
strategic relationship (these exceptions hereinafter referred to as the
"Excepted Issuances"), the Company will not issue any securities with a
continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Note (the "Exclusion Period").
9. Miscellaneous
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9.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER
CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY
IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF
NEW YORK. BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND OTHER
AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH
COURTS AND WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS
AGREEMENT OR ANY OTHER AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR
UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION
SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND
SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH
PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF ANY AGREEMENT.
9.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby to the extent provided therein.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
9.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
9.4 Entire Agreement. This Agreement, the exhibits and schedules hereto,
the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
9.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
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9.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
9.7 Delays or Omissions.. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
9.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
All communications shall be sent as follows:
If to the Purchaser, to: DynTek, Inc.
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Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
▇▇▇▇▇ Peabody LLP
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Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Company, to:
with a copy to:
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
9.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
9.10 Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
9.11 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
9.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof, Each
party hereto represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such party hereto
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11.12 being untrue.
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9.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
[the remainder of this page is intentionally left blank
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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
DYNTEK, INC. ______________________________________
By: ___________________________________ By: __________________________________
Name: _________________________________ Name: ________________________________
Title: ________________________________ Title: _______________________________
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EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreement and Related Agreements.
All corporate action on the part of the Company and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and Related Agreements and the performance of all obligations of the
Company thereunder at the Closing; and (ii) the authorization, sale, issuance
and delivery of the Securities pursuant to the Agreement and the Related
Agreements. The Note Shares and the Warrant Shares, when issued pursuant to and
in accordance with the terms of the Agreement and the Related Documents and upon
delivery shall be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the Note or
the Related Agreements by the Company and the consummation of the transactions
on its part contemplated by any thereof, will not, with or without the giving of
notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws of the Company;
or
(b) To the best of such counsel's knowledge, violate any judgment,
decree, order or award of any court binding upon the Company.
4. The Agreement and Related Agreements will constitute, valid and
legally binding obligations of the Company, and are enforceable against
the Company in accordance with their respective terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.
6. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company that prevents
the right of the Company to enter into this Agreement or any of the Related
Agreements, or to consummate the transactions
C-1
contemplated thereby. To such counsel's knowledge, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality; nor is there any action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
7. The UCC-1 Financing Statement naming the Company as debtor and
__________ as secured party is in proper form for filing and assuming that such
UCC-1 Financing Statement has been filed with the Secretary of State of
Delaware, the security interest created under the Security Agreement will
constitute a perfected security interest under the Uniform Commercial Code in
favor of __________.
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