Exhibit 10.38
FIRST AMENDMENT
TO FACTORING AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") to the Factoring Agreement is
entered into as of the 29th day of July, 2004, by and between DynTek, Inc.,
DynTek Services, Inc. (individually and collectively, "Customer") and SYSTRAN
Financial Services Corporation ("SYSTRAN").
RECITALS:
A. As of July 1, 2003, Customer and SYSTRAN executed a certain Factoring
Agreement and Addendum to Factoring Agreement (the "Factoring Agreement"),
setting forth the terms upon which SYSTRAN would purchase certain Bills from
Customer; and
B. In connection with the Factoring Agreement, Customer executed and
delivered to SYSTRAN certain other documents, agreements, guarantees, deposit
account control agreements, consents, certificates, assignments, and financing
statements in connection with the obligations referred to in the Factoring
Agreement (all of the foregoing, together with the Factoring Agreement, are
hereinafter collectively referred to as the "Transaction Documents"); and
C. Customer has requested that SYSTRAN amend and modify certain terms and
covenants in the Factoring Agreement, and SYSTRAN is willing to do so upon the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto for
themselves and their successors and assigns do hereby agree, represent and
warrant as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings ascribed to such terms in the Factoring Agreement.
2. The Addendum dated July 1, 2003 to the Factoring Agreement shall be
deleted in its entirety and replaced by this Amendment.
3. Paragraph 2.1 under Section 2, entitled, "PURCHASE OF BILLS," of the
Factoring Agreement is hereby amended to recite in its entirety as follows:
"2.1 Customer agrees to present on a monthly basis, a Minimum Anticipated
Volume of Bills for SYSTRAN to purchase which shall be equal to
$2,500,000.00. SYSTRAN, at its sole discretion, may purchase such Bills.
Xxxx(s) and or Special Purchase Xxxx(s) shall herein collectively be
referred to as the "Xxxx(s)". Customer shall instruct all Debtors to make
all payments directly to the lockbox address of SYSTRAN as follows: X.X.
Xxx 000000, Xxxxxxxxxx, XX 00000-0000 or such other address as SYSTRAN may
designate (the "SYSTRAN Designated Address"). SYSTRAN shall allow
Customer, so long as an event of default has not occurred under any term
of the Agreement and Customer is otherwise fulfilling all of its
obligations under the Agreement, to send the original Bills directly to
the Debtors provided that Customer submits a copy to SYSTRAN, whether in
the form of a photocopy, a facsimile copy or a scanned copy via Electronic
Data Interchange. Upon notice from SYSTRAN that an
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event of default has occurred under the Agreement or Customer is not
fulfilling its obligations under the Agreement, Customer shall immediately
begin to submit to SYSTRAN an original and one (1) copy, along with any
document that SYSTRAN deems necessary, of each Xxxx which shall contain
the legend contemplated under Section 2.4 below and be attached to a
schedule form provided by SYSTRAN. Should any Debtor require any
additional documentation as a prerequisite to payment, Customer will also
provide such documentation with each Xxxx. For a Transportation Account,
Customer shall also submit one (1) copy of the respective xxxx of lading.
The xxxx of lading must be signed by the Customer, the shipper, and the
consignee if the consignee's signature is necessary for payment."
Except as provided below, the remainder of Section 2 shall remain as originally
written.
4. Paragraph 2.4 under Section 2, entitled, "PURCHASE OF BILLS," of the
Factoring Agreement is hereby amended to recite in its entirety as follows:
"2.4 SYSTRAN at any time may give notice to the Debtors of the assignment
of the Xxxx(s) by placing a legend on the Xxxx(s) stating the Xxxx(s) have
been sold and assigned to SYSTRAN and are payable to SYSTRAN at an address
designated by SYSTRAN. However, SYSTRAN agrees to refrain from such
practice so long as SYSTRAN deems in its reasonable discretion (from the
perspective of a factor of accounts receivable) that an event of default
has not occurred and Customer is fulfilling its obligations under the
Agreement. Customer will not attempt to direct payment to any place other
than to the SYSTRAN Designated Address. Customer agrees to pay all costs
and expenses incurred by SYSTRAN in giving such notices provided under
this Section. All proceeds of the Xxxx(s) received by Customer shall be
delivered immediately to SYSTRAN in the identical form of payment received
by Customer. In the event that Customer collects directly from the Debtor
the Xxxx(s) that have been sold to SYSTRAN and Customer does not deliver
immediately to SYSTRAN the identical form of payment received by Customer,
Customer will be charged an administrative fee equal to fifteen percent
(15%) of the face amount of the Xxxx(s) collected directly. Customer
agrees that any collection directly from the Debtor by Customer of the
Xxxx(s) that have been sold to SYSTRAN will be considered a default by
Customer in the performance of its obligations under the terms of this
Agreement. Nothing in this Section shall limit SYSTRAN from exercising its
rights to collect Bills directly from Debtors after the occurrence of an
event of default or the failure of Customer to fulfill its obligations
under this Agreement."
Except as provided above, the remainder of Section 2 shall remain as originally
written.
5. Paragraph 4.1 under Section 4, entitled, "DEPOSIT," of the Factoring
Agreement is hereby amended to recite in its entirety as follows:
"4.1 In order to secure Customer's Obligations hereunder, Customer shall
deliver a deposit (the "Deposit") to SYSTRAN for each purchased Xxxx equal
to the following: (a) 15% for Bills that SYSTRAN in its sole discretion
designates as class A Bills; (b) 40% for Bills that SYSTRAN in its sole
discretion designates as class B Bills; and (c) 50% for Bills that SYSTRAN
in its sole discretion designates as class C Bills."
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The remainder of Section 4 shall remain as originally written.
6. Section 12, entitled, "FINANCIAL INFORMATION," of the Factoring
Agreement is hereby amended to recite in its entirety as follows:
"12. FINANCIAL INFORMATION AND FIELD EXAMINATIONS. Customer covenants and
agrees with SYSTRAN as follows:
12.1 FINANCIAL INFORMATION. Customer shall deliver to SYSTRAN:
1. Quarterly financial statements, including balance sheet and
income statement prepared in accordance with Generally Accepted
Accounting Principles (GAAP) within 45 days of each quarter end and
certified as correct by Customer's CEO or CFO; and
2. Annual Fiscal Year End financial statements, prepared in
accordance with GAAP by an accounting firm acceptable to SYSTRAN,
within 120 days of each fiscal year end; and
3. Invoice schedules submitted no less frequently than weekly; and
4. Any other reports reasonably requested by SYSTRAN, including by
not limited to accounts receivable and accounts payable agings in
form reasonably satisfactory to SYSTRAN within 30 days of each month
end.
12.2 FIELD EXAMINATIONS. One or more employees or agents of SYSTRAN may
perform field examinations of the books, records and other assets of
Customer. SYSTRAN shall perform a one-day field examination once a month
and a complete field examination each quarter (4 times each year), unless
an event of default occurs or Customer fails to fulfill its obligations
under the terms of the Agreement. Customer shall pay to SYSTRAN a field
examination fee (the "Field Examination Fee") in an amount equal to $850
for each day spent by each such employee or agent in performing and/or
summarizing the results of such examination (including all necessary
travel time) plus all reasonable "out of pocket" expenses. Each Field
Examination Fee shall be payable by Customer to SYSTRAN, in whole or in
part, as appropriate, on the date(s) on which such field examination was
performed."
7. Paragraph 18.1 under Section 18, entitled, "TERM AND TERMINATION," of
the Factoring Agreement is hereby amended to recite in its entirety as follows:
"This Agreement is for a term of thirty six (36) full months, which begins
on the July 1, 2003. The term of this Agreement shall renew automatically
for consecutive () month terms unless sooner terminated in accordance with
the terms of the Agreement. Customer may terminate this Agreement
effective at the end of any term by giving thirty (30) days prior written
notice to SYSTRAN at the address set forth in this Agreement. Customer may
continue to offer any of the Xxxx(s) to SYSTRAN during such thirty (30)
day period. SYSTRAN may terminate this Agreement at any time and for any
reason by notifying Customer in writing of such termination."
Except as provided below, the remainder of Section 18 shall remain as originally
written.
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8. Paragraph 18.3 under Section 18, entitled, "TERM AND TERMINATION," of
the Factoring Agreement is hereby amended to recite in its entirety as follows:
"18.3 Notwithstanding the foregoing, Customer has the option to terminate
this Agreement prior to the end of any term by giving SYSTRAN thirty (30)
days prior written notice. Customer may continue to offer any of the
Xxxx(s) to SYSTRAN during such thirty (30) day period. Customer shall be
deemed to have terminated this Agreement prior to the end of any term on
the date that Customer shall have ceased presenting the Xxxx(s) to SYSTRAN
in the normal course for an uninterrupted period of thirty (30) days
("Deemed Termination"). Upon notice of early termination, or the date of a
Deemed Termination by Customer, prior to the end of any term, whether or
not Customer continues to offer the Xxxx(s) to SYSTRAN during the thirty
(30) day notice period applicable to Customer, Customer shall be obligated
to pay to SYSTRAN, and Customer's Deposit may be charged, an early
termination premium ("Early Termination Premium") in the amount of two
percent (2%) of the Maximum Approved Credit Line if terminated prior to
July 31, 2005 and one percent (1%) of the Maximum Approved Credit Line if
terminated thereafter. Notwithstanding the above, if an Early Termination
of the Agreement results from the occurrence of an event of default under
this Agreement, then Customer shall pay an Early Termination Fee in the
amount of four percent (4%) of the Maximum Approved Credit Line."
Except as provided above and below, the remainder of Section 18 shall remain as
originally written.
9. A new Paragraph 18.6 is hereby added at the end of Section 18,
entitled, "TERM AND TERMINATION," of the Factoring Agreement as follows:
"Customer understands that SYSTRAN and its affiliates, which include
without limitation Textron Financial Corporation, offer a receivables
purchasing product commonly known as a Receivables Sale Agreement ("RSA").
Customer hereby acknowledges that SYSTRAN and its affiliates underwrite,
document and manage the RSA in a manner that is materially different from
the arrangement contemplated under the Agreement. Customer hereby further
acknowledges that any proposal by SYSTRAN or its affiliates to provide an
RSA to Customer shall be subject to additional due diligence and
documentation that is satisfactory in the sole discretion of SYSTRAN or
its affiliates. After the date of the Agreement, if SYSTRAN or an
affiliate enters into an RSA with Customer that serves to replace the
Agreement, then Customer and SYSTRAN understand and agree that any early
termination premium contemplated under the documentation related to such
RSA shall replace and not be in addition to the Early Termination Premium
required under Paragraph 18.3 of the Agreement. Customer further agrees
that any costs or expenses that SYSTRAN or an affiliate incurs in
connection with the due diligence or documentation of an RSA proposal
shall constitute expenses that are reimbursable to SYSTRAN under Section
20 of the Agreement. Customer shall receive pro-rata credit of the
Facility Fee to be applied towards the Receivables Sale Agreement ("RSA")
Facility."
Except as provided above, the remainder of Section 18 shall remain as originally
written.
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10. The last sentence of Section 21, entitled, "JURISDICTION AND VENUE,"
to the Factoring Agreement is hereby deleted in its entirety and replaced with
the following:
"Customer expressly authorizes service of process in any suit or action on
its behalf upon the Registered Agents at the address below or upon such
other agent as SYSTRAN may approve in writing, as its agent for such
purposes and that service may be deemed complete upon delivery via
expedited national overnight delivery service.
Customer: Registered Agent:
--------- -----------------
DynTek, Inc. National Corp. Research, Ltd.
000 Xxxxx Xxxxxx Xxx
Xxxxx, XX 00000
DynTek Services, Inc. Corporation Services Company
0000 Xxxxxxxxxxx Xx., Xxx. 000
Xxxxxxxxxx, XX 00000"
The remainder of Section 21 shall remain as originally written.
11. Exhibit A of the Factoring Agreement shall be deleted in its entirety
and replaced with the following:
"Exhibit A to Factoring Agreement dated July 1, 2003
The terms used in this Exhibit A have the same definitions as those used
in the Factoring Agreement. In case of conflict of definition, the
definitions in this Exhibit "A" shall prevail.
Customer shall pay a discount fee of fifteen tenths of one percent (.15%)
of the face amount of all Bills purchased ("Discount Fee"). In addition,
Customer shall pay a fee at an annual rate equal to prime plus two percent
(2.0%) of all funds employed to purchase Bills ("Prime Plus Fee"). Prime
is defined as the prime rate as announced by Xxxxx Fargo Bank, N.A. Funds
employed shall be calculated by SYSTRAN on a daily basis based upon bills
unpaid and outstanding, less the deposit. The above Discount Fee and Prime
Plus Fee may be deducted from Customer's funding for Bills purchased
pursuant to the Factoring Agreement or SYSTRAN may xxxx Customer. A change
in the Prime Plus Fee due to a prime rate change will be effective upon
the date of the change, which will be indicated on the settlement
statement.
Customer shall pay an annual line fee equal to $70,000.00 (the "Annual
Line Fee"). The Annual Line Fee is payable and shall be deducted from
Customer's funding on the effective date of the First Amendment to the
Factoring Agreement and on each anniversary date thereof.
A managed account shall also be created for all Bills that SYSTRAN is
unable to purchase and all Bills that Customer does not want to factor
(the "Managed Account"). Customer shall pay one-tenth of one percent
(.10%) of the face amount of all Managed Account Bills ("Managed Account
Fee"). The deposit on the Managed Account is 100%."
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12. Conditions of Effectiveness. This Amendment shall become effective as
of July 29, 2004, upon satisfaction of all of the following conditions
precedent:
(a) SYSTRAN shall have received one (1) duly executed copies of this
Amendment; and
(b) SYSTRAN shall have received the Annual Line Fee in the amount of
$70,000; and
(c) The representations contained in paragraph 13 of the Amendment below
shall be true and accurate.
13. Customer represents and warrants that after giving effect to this
Amendment, (a) each and every one of the representations and warranties made by
or on behalf of Customer in the Factoring Agreement is true and correct in all
respects on and as of the date hereof, except to the extent that any of such
representations and warranties related, by the expressed terms thereof, solely
to a date prior hereto; (b) Customer has duly and properly performed, complied
with and observed each of its covenants, agreements and obligations contained in
the Factoring Agreement; and (c) no event has occurred or is continuing, and no
condition exists which would constitute an event of default under the Factoring
Agreement.
14. Amendment to Factoring Agreement. (a) Upon the effectiveness of this
Amendment, each reference in the Factoring Agreement to "Factoring Agreement,"
"Agreement," the prefix "herein," "hereof," or words of similar import, and each
reference in the Transaction Documents to the Factoring Agreement, shall mean
and be a reference to the Factoring Agreement as amended hereby. (b) Except as
modified herein, all of the representations, warranties, terms, covenants and
conditions of the Factoring Agreement, the Transaction Documents and all other
agreements executed in connection therewith shall remain as written originally
and in full force and effect in accordance with their respective terms, and
nothing herein shall affect, modify, limit or impair any of the rights and
powers which SYSTRAN may have thereunder. The amendment set forth herein shall
be limited precisely as provided for herein, and shall not be deemed to be a
waiver of, amendment of, consent to or modification of any of SYSTRAN'S rights
under or of any other term or provisions of the Factoring Agreement, any
Transaction Document, or other agreement executed in connection therewith, or of
any term or provision of any other instrument referred to therein or herein or
of any transaction or future action on the part of Customer which would require
the consent of SYSTRAN, including, without limitation, waivers of events of
default which may exist after giving effect hereto. Customer ratifies and
confirms each term, provision, condition and covenant set forth in the Factoring
Agreement and the Transaction Documents and acknowledges that the agreement set
forth therein continue to be legal, valid and binding agreements, and
enforceable in accordance with their respective terms.
15. Authority. Customer hereby represents and warrants to SYSTRAN that (a)
Customer has legal power and authority to execute and deliver this Amendment;
(b) the officer executing this Amendment on behalf of Customer has been duly
authorized to execute and deliver the same and bind Customer with respect to the
provisions provided for herein; (c) the execution and delivery hereof by
Customer and the performance and observance by Customer of the provisions hereof
do not violate or conflict with the articles of incorporation, regulations or
by-laws of Customer or any law applicable to Customer or result in the breach of
any provision of
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or constitute a default under any agreement, instrument or document binding upon
or enforceable against Customer; and (d) this Amendment constitutes a valid and
legally binding obligation upon Customer in every respect.
16. Waiver of Claims. Customer waives any and all defenses, claims,
counterclaims and offsets against SYSTRAN that may have arisen or accrued
through the date of this Amendment. Customer acknowledges that SYSTRAN and its
employees, agents and attorneys have made no representations or promises except
as specifically reflected in this Amendment and in the written agreements that
have been previously executed.
17. Counterparts. This Amendment may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same document.
Separate counterparts may be executed with the same effect as if all parties had
executed the same counterparts.
18. Costs and Expenses. Customer agrees to pay on demand in accordance
with the terms of the Factoring Agreement all costs and expenses of SYSTRAN in
connection with the preparation, reproduction, execution and delivery of this
Amendment and all other Transaction Documents entered into in connection
herewith, including the reasonable fees and out-of-pocket expenses of SYSTRAN'S
counsel with respect thereto.
19. Governing Law. This Amendment shall be governed by and construed in
accordance with the law of Oregon.
IN WITNESS WHEREOF, Customer and SYSTRAN have hereunto set their hands as
of the date first set forth above.
[SIGNATURES ON FOLLOWING PAGE]
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SYSTRAN Financial Services Corporation
By: _____________________________
Title: __________________________
Dated: ______________________, 2004
DynTek, Inc.
By:______________________________
Print Name: _____________________
Title: __________________________
Dated: _______________________, 2004
DynTek Services, Inc.
By:______________________________
Print Name: _____________________
Title: __________________________
Dated: _______________________, 2004
CONSENT OF GUARANTOR
Each of the undersigned, being a guarantor of Customer's obligations to
SYSTRAN pursuant to a certain guaranty agreement with SYSTRAN, hereby consents
and agrees to be bound by the terms, conditions and execution of the above
Amendment and hereby further agrees that guarantor's obligations shall be
continuing as provided in said guaranty agreement, and said guaranty agreement
shall remain as written originally and continue in full force and effect in all
respects.
Date: ________________ ____________________________________
Xxxx X. Xxxxxxxxx
Date: ________________ ____________________________________
Xxxxxx X. Xxxx
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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Tekinsight Research, Inc.
Date: ________________ _____________________________________
Print Name:
Print Title:
Xxxxxxxxx.xxx, Inc.
Date: ________________ _____________________________________
Print Name:
Print Title:
Newport Acquisition Corp.
Date: ________________ _____________________________________
Print Name:
Print Title:
Tekinsight E-Government Service, Inc.
Date: ________________ _____________________________________
Print Name:
Print Title:
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