Exhibit 10.3
NOTE PURCHASE
AGREEMENT
between
DYNTEK, INC.
and
THE PURCHASERS NAMED IN
SCHEDULE I
Dated as of October 26,
2005
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INDEX TO
SCHEDULES
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SCHEDULE I
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Schedule of Purchasers
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SCHEDULE II
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Disclosure Schedule
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INDEX TO EXHIBITS
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EXHIBIT A
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Form of Note
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EXHIBIT B
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Form of Stock Purchase Warrant
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EXHIBIT C
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Form of Security and Pledge
Agreement
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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”)
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