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NOTE PURCHASE AGREEMENT

Note Purchase Agreement

NOTE PURCHASE AGREEMENT | Document Parties: DYNTEK INC You are currently viewing:
This Note Purchase Agreement involves

DYNTEK INC

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Title: NOTE PURCHASE AGREEMENT
Governing Law: California     Date: 11/14/2005
Industry: Computer Services     Sector: Technology

NOTE PURCHASE AGREEMENT, Parties: dyntek inc
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Exhibit 10.3

 

NOTE PURCHASE AGREEMENT

 

between

 

DYNTEK, INC.

 

and

 

THE PURCHASERS NAMED IN SCHEDULE I

 

Dated as of October 26, 2005

 



 

INDEX TO SCHEDULES

 

SCHEDULE I

 

Schedule of Purchasers

SCHEDULE II

 

Disclosure Schedule

 

INDEX TO EXHIBITS

 

EXHIBIT A

 

Form of Note

EXHIBIT B

 

Form of Stock Purchase Warrant

EXHIBIT C

 

Form of Security and Pledge Agreement

 

 

 

 

 

 



 

NOTE PURCHASE AGREEMENT , dated as of October 26, 2005, between DynTek, Inc., a Delaware corporation (the “Company”), and the purchasers named in the attached Schedule I (individually a “Purchaser” and collectively the “Purchasers”).

 

WHEREAS , the Company wishes to issue and sell to the Purchasers up to an aggregate of $2,500,000 in principal amount of its promissory notes, together with stock purchase warrants exercisable for shares of capital stock of the Company; and

 

WHEREAS , the Purchasers, severally, wish to purchase the notes and warrants 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, SALE OF NOTES AND TERMS OF NOTES AND WARRANTS

 

SECTION 1.01.    The Notes .  The Company has authorized the issuance and sale to the Purchasers, in the respective amounts set forth in the Schedule of Purchasers attached hereto, of the Company’s Secured Promissory Notes, due December 31, 2006, in the original aggregate principal amount of up to $2,500,000.  The Notes shall be substantially in the form set forth in Exhibit A hereto and are herein referred to individually as a “Note” and collectively as the “Notes,” which terms shall also include any notes delivered in exchange or replacement therefor.

 

SECTION 1.02.    The Warrants .  The Company, in return for the commitment of the Purchasers to purchase the Notes, has also authorized the issuance to the Purchasers of the Company’s Stock Purchase Warrants (the “Warrants”) for the purchase (subject to adjustment as provided in the Warrants) of 1,000,000 shares of the Company’s common stock (“Common Stock”) as set forth in the Warrants.  The Warrants shall be substantially in the form set forth in Exhibit B hereto and are herein referred to individually as a “Warrant” and collectively as the “Warrants”, which terms shall also include any warrants delivered in exchange or replacement therefor.

 

SECTION 1.03.    Purchase and Sale of Notes .  The Company agrees to issue and sell to the Purchasers, and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, the Purchasers, severally and not jointly, agree to purchase, the Notes set forth opposite their respective names in the Schedule of Purchasers attached as Schedule I for the aggregate purchase price set forth therein.  The closing of such purchase and sale (the “Closing”) shall be held at the office of [           ], on October 26, 2005 at 10:00 A.M., Los Angeles time, or on such other date and at such time as may be mutually agreed upon.  At the Closing, the Company will issue and deliver to each Purchaser one Note, payable to the order of such Purchaser, in the principal amount set forth opposite such Purchaser’s name in the Schedule of Purchasers attached as Schedule I , and one Warrant, registered in the name of such Purchaser, exercisable for shares of Common Stock as provided therein, against (i) delivery to the Company of a check payable to the order of the Company, in the amount set forth opposite

 

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the name of such Purchaser under the heading “Aggregate Purchase Price for Notes and Warrants” on Schedule I, (ii) transference of such sum to the account of the Company by wire transfer, or (iii) delivery or transference of such sum to the Company by any combination of such methods of payment.

 

SECTION 1.04.    Payments and Endorsements .  Payments of principal and interest on the Notes shall be made directly by check duly mailed or delivered to the Purchasers at their addresses referred to in the Schedule of Purchasers attached as Schedule I or made to the account of the Purchaser by wire transfer referred to in the Schedule of Purchasers attached as Schedule I or indicated in any notice delivered by a Purchaser to the Company, without any presentment or notation of payment, except that prior to any transfer of any Note, the holder of record shall endorse on such Note a record of the date to which interest has been paid and all payments made on account of principal of such Note.

 

SECTION 1.05.    Redemptions of Notes .

 

(a)           Required Redemptions .  On the earlier of: (i) the stated maturity date of the Notes, (ii) the accelerated maturity date of the Notes upon any Event of Default, or (iii) the closing of a rights offering in an aggregate amount of approximately $15,000,000 (the “Rights Offering”), the Company will pay the principal amount of the Notes then outstanding together with all accrued and unpaid interest then due thereon. Additionally, the Company shall use all of the proceeds of any other sale of the Company’s capital stock to pay a portion or all of the principal amount of the Notes then outstanding together with all accrued and unpaid interest then due thereon.

 

(b)           Optional Redemptions .  The Notes may be voluntarily prepaid, without any penalty or premium, at any time.

 

(c)           Pro Rata Redemptions .  Each redemption of Notes shall be made to the holders of the Notes in the same ratio as the total principal amount of Notes then held by such holder bears to the aggregate principal amount of the Notes then outstanding.

 

SECTION 1.06.    Payment on Non-Business Days .  Whenever any payment to be made shall 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 shall in such case be included in the computation of payment of interest due.

 

SECTION 1.07.    Registration of Notes, etc .  The Company shall maintain at its principal office a register of the Notes and shall record therein the names and addresses of the registered holders of the Notes, the address to which notices are to be sent and the address to which payments are to be made as designated by the registered holder if other than the address of the holder, and the particulars of all transfers, exchanges and replacements of Notes.  No transfer of a Note shall be valid unless made on such register for the registered holder or his executors or administrators or his 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.  Each Note issued hereunder, whether originally or upon transfer,

 

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exchange or replacement of a Note or Notes, shall be registered on the date of execution thereof by the Company and shall be dated the date to which interest has been paid on such Notes or Note.  The registered holder of a Note shall be that person in whose name the Note has been so registered by the Company.  A registered holder shall be deemed the owner of a Note for all purposes of this Agreement and, subject to the provisions hereof, shall be entitled to the principal and interest evidenced by such 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 such Note.

 

SECTION 1.08.    Transfer and Exchange of Notes .  The registered holder of any Note or Notes may, prior to maturity or prepayment thereof, surrender such Note or Notes at the principal office of the Company for transfer or exchange; provided, however , the registered holder of any Note or Notes shall not transfer any such 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”) or (b) so long as no Event of Default has occurred, without the consent of the Company, which consent shall not be unreasonably withheld.  Within a reasonable time after notice to the Company from a registered holder of its intention to make such exchange and without expense (other than transfer taxes, if any) to such registered holder, subject to the Company’s consent if such consent is required by this Section 1.08, the Company shall issue in exchange therefor another Note or Notes, in such denominations as requested by the registered holder, for the same aggregate principal amount as the unpaid principal amount of the Note or Notes 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 or Notes so surrendered.  Each new Note shall be made payable to such person or persons, or registered assigns, as the registered holder of such surrendered Note or Notes may designate, and such transfer or exchange shall be made in such a manner that no gain or loss of principal or interest shall result therefrom.

 

SECTION 1.09.    Replacement of Notes .  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 a Purchaser whose name is set forth in the Schedule of Purchasers attached as Schedule I , its nominee, or any of its partners 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 registered holder setting forth the circumstances with respect to such loss, theft or destruction shall be accepted as satisfactory evidence thereof, and no indemnification bond or other security shall 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 registered holder’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:

 

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(a)           The Company shall fail to pay any installment of principal of, or interest due on, any of the Notes within five (5) days of when due; or

 

(b)           Any material representation or warranty made by the Company in this Agreement or the Security and Pledge Agreement (as hereinafter defined), or by the Company (or any officers of the Company) 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 shall prove to have been incorrect when made in any material respect; or

 

(c)           The Company shall fail to perform or observe any other material term, covenant or agreement contained in this Agreement, the Security and Pledge Agreement, the Notes, the Warrants, or any agreement executed and delivered by the Company 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 shall have been given to the Company by any registered holder of the Notes; or

 

(d)           The Company shall fail to pay any indebtedness in excess of an aggregate of $100,000 for borrowed money (other than as evidenced by the Notes) owing by the Company, 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 shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise, or shall 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 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 shall be waived by the holder or holders of such indebtedness or such trustee or trustees; or

 

(e)           The Company shall 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, or by its authorizing, by appropriate proceedings of its Board of Directors or other governing body, the commencement of such a voluntary case which is not dismissed within sixty (60) days; (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;

 

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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 shall be issued or levied against a substantial part of the property of the Company and such judgment, writ, or similar process shall 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 any Note may, by notice to the Company, declare the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such accrued interest and all such amounts shall become and be forthwith due and payable (unless there shall have occurred an Event of Default under subsection 1.10(e) in which case all such amounts shall 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 Purchasers that, as of the Closing and except as set forth in the Disclosure Schedule attached as Schedule II (which Disclosure Schedule makes explicit reference to the particular representation or warranty as to which exception is taken, which in each case shall constitute the sole representation and warranty as to which such exception shall 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 has 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, to issue, sell and deliver the Notes and Warrants and to issue and deliver the shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”).

 

(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 .

 

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SECTION 2.02.    Authorization of Agreements, Etc .

 

(a)           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 Notes and Warrants 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, 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 in the case of clauses (i), (iii), (iv) and (v), as would not have a material adverse effect on the Company.

 

(b)           The Notes and Warrants have 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 shares of Common Stock issuable upon exercise of the Warrants will be duly reserved for issuance upon exercise of the Warrants and, when so issued, will be duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company, except for transfer restrictions imposed by applicable securities laws.  Except as set forth on Schedule II , neither the issuance, sale or delivery of the Notes and Warrants nor the issuance or delivery of the Warrant Shares is subject to any preemptive right of shareholders of the Company or to any right of first refusal or other right in favor of any person.

 

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SECTION 2.03.    Validity .  This Agreement, the Security and Pledge Agreement, the Notes and the Warrants have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their terms.

 

SECTION 2.04.    Authorized Capital Stock .  The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock, $.0001 par value per share, and 10,000,000 shares of preferred stock, $.0001 par value per share (“Preferred Stock”).  As of October 24, 2005, 81,164,636 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 nonassessable.  No stockholder of the Company is entitled to any preemptive rights with respect to the purchase of or sale of any securities of any securities by 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 Investors true, accurate and complete copies of (a) the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005, (b) the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005, (c) the Company’s definitive proxy statement dated April 26, 2005 relating to its Annual Meeting of Stockholders, and (d) all the Company’s Current Reports on Form 8-K filed since July 1, 2005 (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, OCT 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”) cons


 
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