Exhibit 10.1
JUNIOR SECURED CONVERTIBLE NOTE
PURCHASE AGREEMENT
between
DYNTEK, INC.
and
TRUST A-4 – LLOYD I.
MILLER
Dated as of April 13,
2007
INDEX TO
SCHEDULES
|
SCHEDULE I
|
Schedule for Notices and Payment
|
|
SCHEDULE II
|
Disclosure Schedules
|
|
SCHEDULE III
|
Use of Proceeds
|
INDEX TO
EXHIBITS
|
EXHIBIT A
|
Form of Junior Secured Convertible Promissory
Note
|
|
EXHIBIT B
|
Form of Security and Pledge Agreement
|
THIS JUNIOR SECURED CONVERTIBLE
NOTE PURCHASE AGREEMENT (as the same may be amended, modified,
supplemented or restated from time to time in accordance herewith,
the “Agreement”) is dated as of April 13, 2007, by and
between DynTek, Inc., a Delaware corporation (the
“Company”), and Trust A-4 – Lloyd I. Miller (the
“Purchaser”).
WHEREAS , the Company wishes to issue and sell to the
Purchaser up to an aggregate of $5,000,000 in principal amount of a
junior secured convertible promissory note; and
WHEREAS , the Purchaser desires to purchase such note on
the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE
, in consideration of the premises
and the mutual covenants contained in this Agreement, the parties
agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTE AND TERMS
OF NOTE
SECTION 1.01.
Purchase and Sale of
Note . The Company agrees to
issue and sell to the Purchaser, and, subject to and in reliance
upon the representations, warranties, terms and conditions of this
Agreement, the Purchaser agrees to purchase, the Company’s
Junior Secured Convertible Promissory Note (the “Note”,
which term will also include any notes delivered in exchange or
replacement therefor), due April 13, 2012 (the “Note Maturity
Date”), in the original aggregate principal amount of
$5,000,000.00. The Note will be substantially in the form set
forth in Exhibit A hereto. The closing of such
purchase and sale (the “Closing”) will be held at the
office of Stradling Yocca Carlson & Rauth, P.C., 660 Newport
Center Drive, Newport Beach, Suite 1600, CA 92660, on April 13,
2007 (the “Closing Date”) at 10:00 A.M., Pacific Time,
or at such other time and place as the Company and the Purchaser
mutually agree upon. At the Closing, the Company will issue
and deliver to the Purchaser one Note payable to the order of the
Purchaser, in the principal amount of $5,000,000.00, against
delivery to the Company of cash in the aggregate amount of
$5,000,000, less the Purchaser’s reasonable estimated
expenses to be paid by the Company pursuant to Section 7.01, which
shall be payable to the Company by check, wire transfer, or
delivery or transference of such sum to the Company by any
combination of such methods of payment.
SECTION 1.02.
Payments and
Endorsements . Payments of principal
and interest on the Note will be made directly by (i) check duly
mailed or delivered to the Purchaser or, in the event of a
subsequent transfer or exchange of the Note pursuant to Section
1.08 hereof, to the then registered holder of the Note (in either
case, the “Holder”) at the address referred to in
Schedule I or in any notice delivered by the Holder to the
Company, or (ii) wire transfer to the account of the Holder
referred to in Schedule I or in any notice delivered by the
Holder to the Company, without any presentment or notation of
payment, except that prior to any transfer of the Note, the then
Holder of record will endorse on the Note a record of the date to
which interest has been paid and all payments made on account of
principal of the Note.
SECTION 1.03.
Interest Rate; Payment of
Principal and Interest . The Note will accrue
interest at the rate of nine percent (9.00%) per annum. The
said interest shall become due quarterly in arrears and shall be
payable on the last day of each fiscal quarter (each, an
“Interest Payment Date”) in respect of the immediately
preceding completed fiscal quarter. The first Interest
Payment Date will be June 30, 2007. At the
Company’s sole option, all interest payments due and payable
through June 30, 2010 may be paid in kind at the rate of
thirteen percent (13.00%) per annum, compounding quarterly, in
which case the accrued interest will be added to the principal
amount of the Note on the applicable
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Interest Payment
Date, and interest will accrue on the aggregate principal
amount. All interest payments due and payable after
June 30, 2010 must be paid in cash. The Note shall be
due and payable in full at the Note Maturity Date unless earlier
converted in accordance with Section 3 of the Note.
SECTION 1.04.
Redemption of Note
. At any
time until the Note has been repaid in full, the Company may, at
its sole option, redeem a portion of the outstanding principal
amount of the Note, from time to time, or the entire outstanding
principal amount of the Note, plus any and all accrued but unpaid
interest on such principal amount, through the date of repayment
(such entire outstanding principal amount, plus all such accrued
but unpaid interest, hereinafter referred to for purposes of this
Agreement as the “Redemption Amount”) by paying to the
holder of the Note: (i) 113% of the Redemption Amount if the date
of repayment occurs any time prior to or on the first anniversary
of this Agreement; (ii) 109.75% of the Redemption Amount if the
date of repayment occurs any time after the first anniversary of
this Agreement but prior to or on the second anniversary of this
Agreement; (iii) 106.50% of the Redemption Amount if the date of
repayment occurs any time after the second anniversary of this
Agreement but prior to or on the third anniversary of this
Agreement; (iv) 103.25% of the Redemption Amount if the date of
repayment occurs any time after the third anniversary of this
Agreement but prior to or on the fourth anniversary of this
Agreement; and (v) 100.00% of the Redemption Amount if the
date of repayment occurs any time after the fourth anniversary of
this Agreement but prior to or on the Note Maturity
Date.
SECTION 1.05.
Conversion of Note
. All or
any part of the principal plus accrued but unpaid interest on the
Note may be converted at any time into a number of fully paid and
nonassessable shares of Common Stock of the Company, at the sole
option of the Holder, pursuant to the terms and conditions of
conversion set forth in the Note. The conversion price shall
initially be $0.175, subject to adjustment pursuant to the terms of
the Note. The Company acknowledges and agrees that the
conversion price of each of those certain Junior Secured
Convertible Promissory Notes, issued on March 8, June 15 and
September 26, 2006, respectively, shall be reduced from $0.20 to
$0.175 in accordance with their terms.
SECTION 1.06.
Payment on Non-Business
Days . Whenever any payment
to be made will be due on a Saturday, Sunday or a public holiday
under the laws of the State of California, such payment may be made
on the next succeeding business day, and such extension of time
will in such case be included in the computation of payment of
interest due.
SECTION 1.07.
Registration of Note
. The
Company will maintain at its principal office a register of the
Note and will record therein the name and address of the registered
Holder of the Note, the address to which notices are to be sent and
the address to which payments are to be made as designated by the
Holder if other than the address of the Holder, and the particulars
of all transfers, exchanges and replacements of Note. No
transfer of the Note will be valid unless made on such register for
the Holder or its executors or administrators or its or their duly
appointed attorney, upon surrender therefor for exchange as
hereinafter provided, accompanied by an instrument in writing, in
form and execution reasonably satisfactory to the Company.
The Note issued hereunder, whether originally or upon transfer,
exchange or replacement of the Note, will be registered on the date
of execution thereof by the Company and will be dated the date to
which interest has been paid on the Note. The Holder of the
Note will be that person in whose name the Note has been so
registered by the Company. The Holder will be deemed the
owner of the Note for all purposes of this Agreement and, subject
to the provisions hereof, will be entitled to the principal and
interest evidenced by the Note free from all equities or rights of
setoff or counterclaim between the Company and the transferor of
such registered holder or any previous registered holder of the
Note.
SECTION 1.08.
Transfer and Exchange of
Note . The Holder of the
Note may, prior to maturity or prepayment thereof, surrender the
Note at the principal office of the Company for transfer
or
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exchange;
provided, however , the Holder will not transfer the Note
(a) to any person or entity which is not an “accredited
investor” within the meaning of Rule 501 under the Securities
Act of 1933, as amended (the “Securities Act”),
(b) to any person or entity that could result in the loss of
the exemption from registration under the Securities Act applicable
to the original sale of the Note, as determined in the reasonable
discretion of the Company pursuant to a written opinion of the
Company’s counsel, (c) so long as no Event of Default
has occurred, without the consent of the Company, which consent
will not be unreasonably withheld, and (d) to any person or entity
unless such person or entity shall have agreed in writing to be
bound by the terms of this Agreement. Within a reasonable
time after notice to the Company from the Holder of its intention
to make such exchange and without expense (other than transfer
taxes, if any) to the Holder, subject to the Company’s
consent, if such consent is required by this Section 1.08, the
Company will issue in exchange therefor another Note, in such
denomination as requested by the Holder, for the same aggregate
principal amount as the unpaid principal amount of the Note so
surrendered and having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and
conditions as the Note so surrendered. The new Note will be
made payable to such person or persons, or registered assigns, as
the Holder of such surrendered Note may designate, and such
transfer or exchange will be made in such a manner that no gain or
loss of principal or interest will result therefrom.
SECTION 1.09.
Replacement of Note
. Upon
receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Note and, if requested in the case
of any such loss, theft or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably
satisfactory to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of such Note, the
Company will issue a new Note, of like tenor and amount and dated
the date to which interest has been paid, in lieu of such lost,
stolen, destroyed or mutilated Note; provided ,
however , if any Note of which the Purchaser is the
registered holder is lost, stolen or destroyed, the affidavit of
the President, Treasurer or any Assistant Treasurer or any other
authorized representative of the Purchaser setting forth the
circumstances with respect to such loss, theft or destruction will
be accepted as satisfactory evidence thereof, and no
indemnification bond or other security will be required as a
condition to the execution and delivery by the Company of a new
Note in replacement of such lost, stolen or destroyed Note other
than the Purchaser’s written agreement to indemnify the
Company.
SECTION 1.10.
Events of Default
. If any of
the following events (“Events of Default”) shall occur
and be continuing:
(a)
The Company will
fail to pay any installment of principal of, or interest due on,
the Note within five (5) calendar days of the date such
installment is due;
(b)
Any material
representation or warranty made by the Company or DynTek Services,
Inc. a Delaware corporation and a wholly-owned subsidiary of the
Company (“DSI”), in this Agreement or the Security and
Pledge Agreement (as hereinafter defined), or by the Company or DSI
(or any officers of the Company or DSI) in any certificate,
instrument or written statement contemplated by or made or
delivered pursuant to or in connection with this Agreement or the
Security and Pledge Agreement will prove to have been incorrect
when made in any material respect;
(c)
The Company or
DSI will fail to perform or observe any other material term,
covenant or agreement contained in this Agreement, the Security and
Pledge Agreement, the Note or any agreement executed and delivered
by the Company or DSI in connection with this Agreement or the
Security and Pledge Agreement on its part to be performed or
observed and any such failure remains unremedied for
ten (10) business days after written notice thereof will
have been given to the Company by any registered holder of the
Note;
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(d)
The Company or
any of its subsidiaries, will fail to pay any indebtedness in
excess of an aggregate of $100,000 for borrowed money (other than
as evidenced by the Note) owing by the Company or any of its
subsidiaries, or any interest or premium thereon, when due (or, if
permitted by the terms of the relevant document, within any
applicable grace period), whether such indebtedness will become due
by scheduled maturity, by required prepayment, by acceleration, by
demand or otherwise, or will fail to perform any term, covenant or
agreement on its part to be performed under any agreement or
instrument evidencing or securing or relating to any indebtedness
in excess of an aggregate of $100,000 owing by the Company or any
of its subsidiaries when required to be performed (or, if permitted
by the terms of the relevant document, within any applicable grace
period), if the effect of such failure to pay or perform is to
accelerate, or to permit the holder or holders of such
indebtedness, or the trustee or trustees under any such agreement
or instrument to accelerate, the maturity of such indebtedness,
unless such failure to pay or perform will be waived by the holder
or holders of such indebtedness or such trustee or
trustees;
(e)
The Company or
any of its subsidiaries will be involved in financial difficulties
as evidenced (i) by its admitting in writing its inability to
pay its debts generally as they become due; (ii) by its
commencement of a voluntary case under Title 11 of the United
States Code as from time to time in effect; (iii) by its
filing an answer or other pleading admitting or failing to deny the
material allegations of a petition filed against it commencing an
involuntary case under said Title 11, or seeking, consenting to or
acquiescing in the relief therein provided, or by its failing to
controvert timely the material allegations of any such petition;
(iv) by the entry of an order for relief in any involuntary
case commenced under said Title 11; (v) by its seeking relief
as a debtor under any applicable law, other than said Title 11, of
any jurisdiction relating to the liquidation or reorganization of
debtors or to the modification or alteration of the rights of
creditors, or by its consenting to or acquiescing in such relief;
(vi) by the entry of an order by a court of competent
jurisdiction (a) finding it to be bankrupt or insolvent,
(b) ordering or approving its liquidation, reorganization or
any modification or alteration of the rights of its creditors, or
(c) assuming custody of, or appointing a receiver or other
custodian for, all or a substantial part of its property; or
(vii) by its making an assignment for the benefit of, or
entering into a composition with, its creditors, or appointing or
consenting to the appointment of a receiver or other custodian for
all or a substantial part of its property; or
(f)
Any judgment,
writ, warrant of attachment or execution or similar process will be
issued or levied against a substantial part of the property of the
Company or any of its subsidiaries and such judgment, writ, or
similar process will not be released, vacated or fully bonded
within sixty (60) days after its issue or levy;
then, and in any such event, any
holder of the Note may, by notice to the Company, declare the
entire unpaid principal amount of the Note, all interest accrued
and unpaid thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Note, all
such accrued interest and all such amounts will become and be
forthwith due and payable (unless there will have occurred an Event
of Default under subsection 1.15(e) in which case all such
amounts will automatically become due and payable), without
presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company represents and warrants
to the Purchaser that, as of the Closing and except as set forth in
the Disclosure Schedule attached as Schedule II (which
Disclosure Schedule makes explicit
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reference to the
particular representation or warranty as to which exception is
taken, which in each case will constitute the sole representation
and warranty as to which such exception will apply):
SECTION 2.01.
Organization, Qualifications and
Corporate Power .
(a)
The Company is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of
the business transacted by it or the character of the properties
owned or leased by it requires such licensing or qualification,
except where the failure to be so licensed or qualified does not
have a material adverse effect on the Company’s business or
financial condition. The Company and its subsidiaries have
the corporate power and authority to own and hold its properties
and to carry on its business as now conducted and as proposed to be
conducted, to execute, deliver and perform this Agreement and the
Security and Pledge Agreement, and to issue, sell and deliver the
Note.
(b)
The Company has
no subsidiaries, other than as set forth on Schedule II
. The Company does not (i) own of record or
beneficially, directly or indirectly, (A) any shares of
capital stock or securities convertible into capital stock of any
other corporation or (B) any participating interest in any
partnership, joint venture or other non-corporate business
enterprise or (ii) control, directly or indirectly, any other
entity, other than as set forth on Schedule II
.
SECTION 2.02.
Authorization of Agreements,
Etc .
(a)
Except as set
forth on Schedule II, the execution and delivery by the Company of
this Agreement and the Security and Pledge Agreement, the
performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Note have been
duly authorized by all requisite corporate action and will not
(i) violate any provision of law, any order of any court or
other agency of government, (ii) violate the Certificate of
Incorporation or the By-laws of the Company, each as amended,
(iii) violate any provision of any indenture, agreement or
other instrument to which the Company or any of its properties or
assets is bound, (iv) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or
(v) result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company (except pursuant to the
terms of the Security and Pledge Agreement).
(b)
The Note has been
duly authorized and, when issued in accordance with this Agreement,
will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company. The
issuance, sale and delivery of the Note are not subject to any
preemptive right of stockholders of the Company or to any right of
first refusal or other right in favor of any person.
SECTION 2.03.
Validity . Each of this
Agreement, the Security and Pledge Agreement and the Note has been
duly executed and delivered by the Company and DSI and constitute
the legal, valid and binding obligations of the Company and DSI,
enforceable in accordance with their terms.
SECTION 2.04.
Authorized Capital
Stock . The authorized
capital stock of the Company consists of 450,000,000 shares of
Common Stock, $.0001 par value per share, and 10,000,000 shares of
preferred stock, $0.0001 par value per share (“Preferred
Stock”).
As of the date of
this Agreement, 58,234,989 shares of Common Stock and no shares of
Preferred Stock were validly issued and outstanding, fully paid and
nonassessable. Except as disclosed in SEC Reports (as defined
below), there are no options, warrants and convertible securities
of the Company, and any other rights to acquire securities of the
Company. All outstanding securities of the Company are
validly issued, fully paid and
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nonassessable. No
stockholder of the Company is entitled to any preemptive rights
with respect to the purchase of or sale of any securities of the
Company.
SECTION 2.05.
SEC Filings, Other Filings and
Regulatory Compliance . Since January 1,
2002, the Company has timely made all filings required to be made
by it under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The Company has delivered or
made accessible to the Purchaser true, accurate and complete copies
of (a) the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2006, (b) the Company’s
Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 2006 and December 31, 2006, (c) the
Company’s definitive proxy statement dated October 27,
2006 relating to its Annual Meeting of Stockholders, and
(d) all the Company’s Current Reports on Form 8-K filed
since July 1, 2006 (collectively, the “SEC
Reports”). The SEC Reports when filed, complied in all
material respects with all applicable requirements of the Exchange
Act and the Sarbanes-Oxley Act of 2002, if and to the extent
applicable, and the rules and regulations of the Securities and
Exchange Commission (the “SEC”) thereunder applicable
to the SEC Reports. None of the SEC Reports, at the time of
filing, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading in
light of the circumstances in which they were made. The
Company has taken, or will have taken prior to the Closing, all
necessary actions to maintain eligibility of its Common Stock for
trading on OTC Bulletin Board under all currently effective
inclusion requirements. Each balance sheet included in the
SEC Reports (including any related notes and schedules) fairly
presents in all material respects the consolidated financial
position of the Company as of its date, and each of the other
financial statements included in the SEC Reports (including any
related notes and schedules) fairly presents in all material
respect the consolidated results of operations of the Company for
the periods or as of the dates therein set forth in accordance with
generally accepted accounting principles (“GAAP”)
consistently applied during the periods indicated or as a result of
year end adjustments and except as may be indicated in the notes
thereto or, in the case of interim consolidated financial
statements, where information and footnotes contained in such
financial statements are not required to be in compliance with
GAAP). Such financial statements included in the SEC Reports
were, at the time they were filed, consistent with the books and
records of the Company in all material respects and complied as to
form in all material respects with then applicable accounting
requirements and with the rules and regulations of the SEC with
respect thereto. The Company keeps accounting records in
which all material assets and liabilities, and all material
transactions, including off-balance sheet transactions, of the
Company are recorded in accordance with GAAP.
SECTION 2.06.
Governmental Approvals
. Subject
to the accuracy of the representations and warranties of the
Purchaser set forth in Article III, no registration or filing with,
or consent or approval of or other action by, any federal, state or
other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the
Company of this Agreement, the issuance, sale and delivery of the
Note, other than filings pursuant to state securities laws (all of
which filings have been made by the Company, other than those which
are required or permitted to be made after the Closing and which
will be duly made on a timely basis) in connection with the sale of
the Note.
SECTION 2.07.
Offering of the Note
. 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 in any security or solicited any offers to buy any security
under circumstances that would require registration under the
Securities Act of the issuance of the Note to the Purchaser.
Based, in part, upon the Purchaser’s representations in
Article III, the issuance of the Note to the Purchaser will not be
integrated with any other issuance of the Company’s
securities (past, current or future) for purposes of the Securities
Act.
SECTION 2.08.
Material Changes
. Except as
set forth in Schedule II attached hereto, since
June 30, 2006, there has not been (i) any direct or
indirect redemption, purchase or other acquisition by
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the Company of
any shares of Common Stock; (ii) any declaration, setting
aside or payment of any dividend or other distribution by the
Company with respect to the Common Stock; (iii) any material
liabilities (absolute, accrued or contingent) incurred or assumed
by the Company, other than current liabilities incurred in the
ordinary course of business, liabilities under contracts entered
into in the ordinary course of business, purchase price payment
obligations incurred in connection with the acquisition of Sensible
Security Solutions Inc., an Ontario corporation, and liabilities
not required to be reflected on the Company’s financial
statements pursuant to GAAP; or (iv) any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind
(including any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in connection with such
mortgage, pledge, security interest, encumbrance, lien or charge)
(each, a “Lien”) or adverse claim on any of the
Company’s properties or assets, except for Liens for taxes
not yet due and payable, interest of lessors under operating
capital leases, purchase money liens, amounts deposited for
security for surety bonds, Liens incurred in connection with the
Company’s credit facility with New England Technology
Finance, LLC, Liens incurred in the ordinary course of business or
Liens that are not material in amount to the Company and its
subsidiaries.
SECTION 2.09.
Litigation
. Except as
disclosed in the Schedule II attached hereto, there is
no action, suit, proceeding or investigation pending or, to the
Company’s knowledge, currently threatened against the Company
or any of its subsidiaries that questions the validity of this
Agreement or the right of the Company to enter into it, or to
consummate the transactions contemplated hereby, or that could
reasonably be expected to result, either individually or in the
aggregate, in a material adverse effect on the Company. The
foregoing includes, without limitation, actions pending or, to the
Company’s knowledge, threatened involving the prior
employment of any of the Company’s employees or their use in
connection with the Company’s business of any information or
techniques allegedly proprietary to any of their former
employers. Neither the Company nor any of its subsidiaries is
a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or governmental
authority. Except as disclosed in Schedule II
attached hereto, there is no action, suit, proceeding or
investigation by the Company or any of its subsidiaries currently
pending or which the Company or any of its subsidiaries currently
intends to initiate, which could reasonably be expected to have a
material adverse effect.
SECTION 2.10.
Ownership of Property;
Liens . The Company and each
of its subsidiaries has good and marketable title in fee simple, or
a valid leasehold interest in, all of its real property; and good
title to, or a valid leasehold interest in, all of its other
property, and none such property is subject to any Lien except as
set forth on Schedule II attached hereto.
SECTION 2.11.
Intellectual Property
Rights . To the best of its
knowledge, the Company owns or possesses the licenses or rights to
use all patents, patent applications, patent rights, inventions,
know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights necessary
to enable it to conduct its business as now operated (the
“Intellectual Property”). Except as set forth in
Schedule II attached hereto, there are no material
outstanding options, licenses or agreements relating to the
Intellectual Property, nor is the Company bound by or a party to
any material options, licenses or agreements relating to the
patents, patent applications, patent rights, inventions, know-how,
trade secrets, trademarks, trademark applications, service marks,
service names, trade names or copyrights of any other person or
entity. Except as set forth in Schedule II
attached hereto, there is no claim or action or proceeding pending
or, to the Company’s knowledge, threatened that challenges
the right of the Company with respect to any Intellectual
Property. Except as set forth in Schedule II
attached hereto, to the knowledge of the Company, the
Company’s Intellectual Property does not infringe any
intellectual property rights of any other person which, if the
subject of an unfavorable decision, ruling or finding would have a
material adverse effect.
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SECTION 2.12.
Insurance . The Company and its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in
the businesses in which the Company and its subsidiaries are
engaged.
SECTION 2.13.
Brokers . The Company has no
contract, arrangement or understanding with any broker, finder or
similar agent with respect to the transactions contemplated by this
Agreement.
SECTION 2.14.
Non-Operational
Subsidiaries . Neither
BugSolver.Com, Inc., TekInsight e-Government Services, Inc., nor
TekInsight Research, Inc. operates any business, nor does any such
entity own any material assets.
SECTION 2.15.
Federal Reserve
Regulations . The Company is not
engaged in the business of extending credit for the purpose of
purchasing or carrying margin securities (within the meaning of
Regulation G of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of the Notes will be used to
purchase or carry any margin security or to extend credit to others
for the purpose of purchasing or carrying any margin security or in
any other manner which would involve a violation of any of the
regulations of the Board of Governors of the Federal Reserve
System.
SECTION 2.16.
Office Headquarters
. The sole lease agreement now
currently in full force and effect for the Company’s
principal place of business is that certain Office Lease Agreement,
made and entered into as of the 21st day of July, 2003, by and
between CA-Fairchild Corporate Center Limited Partnership, a
Delaware limited partnership, as landlord, and Integration
Technologies, Inc., a California corporation, tenant (as amended,
supplemented, or otherwise modified from time to time) (the
“Office Lease”).
SECTION 2.17.
Representations
Complete . The representations
and warranties made by the Company in this Agreement, the
statements made in any certificates furnished by the Company
pursuant to this Agreement, and the statements made by the Company
in any documents mailed, delivered or furnished to the Purchaser in
connection with this Agreement, taken as a whole, do not contain
and will not contain, as of their respective dates and as of the
Closing Date, any misstatements of material fact or omit to state
any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances
under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
The Purchaser represents and
warrants to the Company that:
(a)
it is an
“accredited investor,” as such term is defined in Rule
501(a) of Regulation D promulgated under the Securities
Act;
(b)
it has sufficient
knowledge and experience in investing in companies similar to the
Company in terms of the Company’s stage of development so as
to be able to evaluate the risks and merits of its investment in
the Company and it is able financially to bear the risks
thereof;
(c)
it has had an
opportunity to discuss the Company’s business, management and
financial affairs with the Company’s management;
10
(d)
the Note being
purchased by it is being acquired for its own account for the
purpose of investment and not with a view to or for sale in
connection with any distribution thereof;
(e)
it understands
that (i) the Note has not been registered under the Securities
Act, by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section
4(2) thereof or 506 promulgated under the Securities Act,
(ii) the Note must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Note will bear a
legend to such effect and (iv) the Company will make a
notation on its transfer books to such effect;
(f)
each of this
Agreement and the Security and Pledge Agreement is a valid, binding
and enforceable obligation of the Purchaser, subject to applicable
bankruptcy, insolvency, reorganization or similar laws relating to
or affecting the enforcement of creditor’s rights and to the
availability of the remedy of specific performance. The
Purchaser has all requisite power and authority to execute and
deliver each of this Agreement and the Security and Pledge
Agreement;
(g)
it understands
that (i) the Note is being offered and sold to Purchaser in
reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws,
and (ii) that the Company is relying upon the truth and
accuracy of, and Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of Purchaser set forth herein in order to determine
the availability of such exemptions and the eligibility of
Purchaser to acquire the Note;
(h)
the Company or
its counsel have made available all materials relating to the
business, finances and operations of the Company and materials
relating to the offer and sale of the Note which have been
specifically requested by the Purchaser. The Purchaser has
been afforded the opportunity to ask questions of the Company, was
permitted to meet with the Company’s officers and has
received what the Purchaser believes to be complete and
satisfactory ans
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