EXHIBIT 99.6
CONVERSION AND SETTLEMENT AGREEMENT
This Conversion and Settlement Agreement (the "Agreement") is entered into
as of March 8, 2006 (the "Effective Date") by and between, DynTek, Inc., a
Delaware corporation ("DynTek"), and Xxxxx X. Xxxxxx, III (the "Holder").
RECITALS
A. WHEREAS, as of the Effective Date, Holder is owed a total of
$1,304,657.53 in principal and accrued but unpaid interest (the "Payable
Amount") pursuant to that certain Secured Promissory Note dated October 26, 2005
(the "Bridge Note"), which was issued pursuant to that certain Note Purchase
Agreement dated as of an even date therewith, by and among DynTek and the
purchasers named therein (the "Bridge Note Purchase Agreement");
B. WHEREAS, payment of all principal and interest under the Bridge Note, as
well as performance of the obligations of DynTek and its wholly-owned
subsidiary, DynTek Services, Inc., is secured by a perfected security interest
under a Security and Pledge Agreement (the "Security Agreement") entered into on
October 26, 2005, between the holders of the Bridge Notes and DynTek;
C. WHEREAS, DynTek proposes to enter into a Note Purchase Agreement by and
among DynTek, SACC Partners, L.P., Xxxxx X. Xxxxxx, III and Trust A-4 - Xxxxx X.
Xxxxxx, pursuant to which DynTek will issue approximately (i) $6.7 million in
new senior secured promissory notes (the "Senior Notes"), due March 1, 2010 (the
"Senior Debt Financing") to SACC Partners, L.P. and Xxxxx X. Xxxxxx, III (the
"Senior Lenders"), and (ii) $3.0 million in new junior secured convertible
promissory notes convertible at $0.02 per share (the "Junior Notes") to Trust
A-4 - Xxxxx X. Xxxxxx (the "Junior Lender"), due March 1, 2011 (the "Junior Debt
Financing," and together with the Senior Note Financing, the "New Debt
Financings");
D. WHEREAS, concurrently with the closing of the New Debt Financings,
DynTek proposes to enter into (i) a Common Stock Purchase Agreement to be
entered into by and among DynTek and certain accredited investors (the
"Investors"), which provides for (i) the sale and issuance of up to 75,000,000
shares of common stock, par value $0.0001 (the "Common Stock") by DynTek at a
purchase price per share equal to $0.02 per share (the "First PIPE Offering");
E. WHEREAS, on or before April 30, 2006, DynTek proposes to enter into (i)
a Common Stock Purchase Agreement with the Investors, which provides for (i) the
sale and issuance of up to an additional 150,000,000 shares of Common Stock by
DynTek at a per share price equal to $0.02 per share (the "Second PIPE
Offering"), and (ii) a Registration Rights Agreement (the "Registration
Agreement") between DynTek and the Investors to provide for the registration
with the Securities and Exchange Commission (the "SEC") of the shares of Common
Stock sold to the Investors in the First PIPE Offering and the Second PIPE
Offering, respectively, and which will be filed as soon as practicable after the
closing of the Second PIPE Offering and in no event later than June 30, 2006;
F. WHEREAS, each of the New Debt Financings and the First and Second PIPE
Offerings is contingent on Holder converting the Payable Amount into shares of
Common Stock of DynTek;
G. WHEREAS, to induce Holder to enter into this Agreement, DynTek has
agreed to convert the Bridge Note into shares of DynTek Common Stock at a
conversion price of $0.02 per share (the "Conversion Price");
H. WHEREAS, subject to the terms and conditions herein, Holder wishes to
convert the Payable Amount into shares of Common Stock of DynTek, and DynTek
wishes to issue such shares to Holder in reliance upon the exemption from
securities registration afforded by Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") and Rule 506 under Regulation D;
I. WHEREAS, DynTek has agreed to register for resale all of the Conversion
Shares (as defined in Section 1 below); and
J. WHEREAS, Holder's conversion of the Payable Amount into shares of Common
Stock of DynTek will effectuate a complete settlement on the Payable Amount and
provide a release of DynTek from any present or further liability with respect
to the Payable Amount or the Security Agreement.
NOW, THEREFORE, in consideration of the obligations set forth below, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. CONVERSION. Subject to the terms and conditions of this Agreement,
Holder hereby irrevocably elects to convert (the "Conversion") the Payable
Amount into that number of shares of Common Stock of DynTek equal to the Payable
Amount divided by the Conversion Price, or 65,232,877 shares (the "Conversion
Shares"). Holder shall deliver the Bridge Note for cancellation concurrently
with the execution of this Agreement; provided, however that (i) the Bridge Note
will not be cancelled until the Conversion Date, and (ii) the Bridge Note will
be returned to Holder and will continue to accrue interest from the Effective
Date if the Conversion is not completed on or before June 30, 2006. The
Conversion shall be effective as of the date immediately following the effective
date of DynTek's 1-for10 reverse stock split (the "Conversion Date") or June 30,
2006, whichever is earlier. Within five (5) business days following the
Conversion Date, DynTek shall issue, or cause to be issued by submitting an
instruction letter to its transfer agent instructing the transfer agent to
issue, to Holder a certificate representing the Conversion Shares to which
Holder is thereby entitled. If the shares of Common Stock are to be issued in
the name of a person other than Holder, Holder will pay all transfer taxes
payable with respect thereto, if any. No fee will be charged to Holder for the
Conversion, except for any applicable transfer taxes.
2. PAYABLE AMOUNT. Holder hereby represents that the Payable Amount is the
entire outstanding obligation of DynTek to Holder as of the Effective Date and
that no other liabilities or obligations have accrued as of the Effective Date
for which DynTek is responsible; provided,
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however, that additional interest will accrue on the Bridge Note from the
Effective Date through the Conversion Date if the Conversion is not completed on
or before June 30, 2006.
3. REPRESENTATIONS AND WARRANTIES OF DYNTEK. DynTek hereby represents and
warrants to Holder that:
3.1 Organization and Qualification. DynTek is duly incorporated,
validly existing and in good standing under the laws of the state of Delaware,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. DynTek is qualified and in good standing
in each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except where the failure
to so qualify or be in good standing is not reasonably likely to have a material
adverse effect on DynTek.
3.2 Authorization; Enforcement. (a) DynTek has all requisite corporate
power and authority to enter into and to perform its obligations under this
Agreement, to consummate the transactions contemplated hereby and to issue the
Conversion Shares in accordance with the terms hereof; (b) the execution,
delivery and performance of this Agreement by DynTek and the consummation by it
of the transactions contemplated hereby have been duly authorized by the
DynTek's Board of Directors and no further consent or authorization of DynTek,
its Board or Directors, or its stockholders is required; (c) this Agreement has
been duly executed by DynTek; and (d) this Agreement constitutes a legal, valid
and binding obligation of DynTek enforceable against the Company in accordance
with its terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or moratorium or similar laws affecting the rights of creditors
generally and the application of general principles of equity.
3.3 Valid Issuance. Upon issuance in accordance with the terms of this
Agreement, the Conversion Shares will be duly authorized and will be validly
issued, fully paid and non-assessable, free from all taxes, liens, claims,
encumbrances and charges with respect to the issue thereof, will not be subject
to preemptive rights or other similar rights of stockholders of DynTek, and will
not impose personal liability on the holders thereof.
4. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder hereby represents and
warrants to DynTek that:
4.1 Accredited Investors. Holder is: (i) experienced in making
investments of the kind contemplated by this Agreement; (ii) able, by reason of
business and financial experience, to protect its own interests in connection
with the transactions contemplated by this Agreement; (iii) able to afford the
entire loss of its investment in the Conversion Shares; (iv) an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D; and (v) not a
broker-dealer or an affiliate of a broker-dealer as such terms are defined in
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
4.2 No Public Distribution. Holder is acquiring the Conversion Shares
for its own account, for investment purposes only, and not with a present view
towards the public sale or distribution thereof, except pursuant to a sale or
sales that are registered under the Securities Act or exempt from such
registration; provided, however, that by making the representations herein,
Holder does not agree to hold any of the Conversion Shares for any minimum or
other specific term and reserves the right to dispose of the Conversion Shares
at any time in accordance with or pursuant to a
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registration statement or an exemption under the Securities Act. Holder has not
been organized for the purpose of investing in securities of DynTek, although
such investment is consistent with its purposes.
4.3 Subsequent Offers and Sales. All subsequent offers and sales of
the Conversion Shares by Holder shall be made pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from such registration; provided that any offers and sales made
pursuant to an applicable exemption from registration will be accompanied by a
legal opinion obtained by Holder, which legal opinion shall be reasonably
satisfactory to DynTek and DynTek's legal counsel.
4.4 Accuracy of Holder's Representations and Warranties. Holder
understands that the Conversion Shares are being offered and sold to it in
reliance upon exemptions from the registration requirements of the United States
federal securities laws, and that DynTek is relying upon the truth and accuracy
of Holder's representations and warranties contained herein in order to
determine the availability of such exemptions and the eligibility of Holder to
acquire the Conversion Shares accordance with the terms and provisions hereof.
4.5 Financial Information. Holder (i) has been provided with and has
reviewed all requested information concerning the business of DynTek, including,
without limitation, DynTek's audited financial statements for the fiscal year
ended June 30, 2005 and (ii) has had all requested access to the management of
DynTek and has had the opportunity to ask questions of the management of DynTek.
4.6 Brokers. Holder has not employed, engaged or retained, or
otherwise incurred any liability to, any person as a broker, finder, agent or
other intermediary in connection with the transactions contemplated herein.
4.7 No General Solicitation. Holder has not learned of the investment
in the Conversion Shares as a result of any public advertising or general
solicitation.
4.8 Legends. Holder understands that until (a) the Conversion Shares
may be sold pursuant to an applicable exemption from registration or (b) such
time as the Conversion Shares have been registered for resale under the
Securities Act as contemplated by Section 5 herein, the certificates
representing the Conversion Shares will bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
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4.9 Residency. Holder is a resident of (or, if an entity, has its
principal place of business in) the jurisdiction set forth below such Holder's
name on the signature page hereto.
5. REGISTRATION. Holder shall have the registration rights as set forth in
the Note Purchase Agreement with respect to the Conversion Shares and the
warrants issued to Holder on October 26, 2005 in connection with the Bridge
Loan.
6. GENERAL RELEASE.
6.1 RELEASE. Upon the Conversion Date, Holder on behalf of itself and
on behalf of its affiliates, as well as its respective directors, officers,
equityholders, agents and employees, past and present (collectively, the
"Releasing Parties") hereby agrees to waive and release all claims relating in
any way to Holder's right to collect the Payable Amount (such waiver and release
shall not include the Holder's right to receive the Conversion Shares and the
related rights of Holder under this Agreement and for any obligations pursuant
to expense reimbursement and other provisions of the Bridge Note Purchase
Agreement and related documentation which by their terms survive the payment of
the Payable Amount) (the "Release Claims"). For the avoidance of doubt, the
warrant issued to the Holder by DynTek on October 26, 2005, to purchase 500,000
shares of DynTek common stock (subject to adjustment pursuant to the terms
thereof) at an initial exercise price of $0.10 (subject to adjustment pursuant
to the terms thereof) shall remain in full force and effect pursuant to the
terms thereof and the related provisions of the Bridge Note Purchase Agreement
thereto shall expressly survive the conversion in full of the Payable Amount.
6.2 UNKNOWN CLAIMS. It is further understood and agreed that as a
condition of this Agreement, all rights under Section 1542 of the Civil Code of
the State of California are expressly waived by Holder. Such Section reads as
follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Notwithstanding Section 1542, and for the purpose of implementing a full and
complete release and discharge of the Released Claims, Holder, for itself and on
behalf of the applicable Releasing Parties, expressly acknowledges that the
foregoing release is intended to include, and does include in its effect,
without limitation, all Released Claims which the Releasing Parties do not know
or suspect to exist in their favor against DynTek at the time of execution
hereof, and that the foregoing release expressly contemplates the extinguishment
of all such claims.
7. MISCELLANEOUS PROVISIONS.
7.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties and supersedes all prior agreements and undertakings, both
written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
7.2 GOVERNING LAW. This Agreement is made under and shall be governed
by and construed in accordance with the laws of the State of California. Any
action or proceeding brought to enforce this Agreement shall be instituted and
maintained in Orange County, California and the parties hereto consent to such
jurisdiction.
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7.3 ASSIGNMENT. Neither this Agreement nor any duties or obligations
under this Agreement may be assigned by either party without the prior written
consent of the other party.
7.4 ATTORNEYS' FEES. If any action is brought to enforce or interpret
the provisions of this Agreement, the prevailing party in such action will be
entitled to its reasonable attorneys' fees and costs incurred, in addition to
any other relief to which such party may be entitled.
7.5 WAIVER OF BREACH. The waiver of either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of this Agreement.
7.6 SEVERABILITY. To the extent any provision of this Agreement shall
be invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance and not in limitation of the
foregoing, should the duration or the geographical extent of or business
activities covered by any provision of this Agreement be in excess of that which
is valid and enforceable under applicable law, then such provision shall be
construed to cover only the maximum duration, extent or activities which may
validly and enforceably be covered under applicable law.
7.7 AUTHORITY. Each individual signing for each of the parties herein
warrants and represents that he is an authorized agent of such party, for whose
benefit he is executing this Agreement, and is authorized to execute the same.
7.8 FURTHER ASSURANCES. Each party agrees to execute such other and
further instruments and documents as may be necessary or proper in order to
complete the transactions contemplated by this Agreement.
7.9 AMENDMENTS. No amendment or modification of this Agreement shall
be deemed effective unless made in writing signed by the parties hereto.
7.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and first set forth above.
DYNTEK, INC.
By: C.W. Xxxxx, Jr.
------------------------------------
Name: X.X. Xxxxxx, Xx.
Its: C.E.O.
DynTek's address for notices:
DynTek, Inc.
00000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
XXXXX X. XXXXXX, III
By: Xxxxx X. Xxxxxx, III
------------------------------------
Name: Xxxxx X. Xxxxxx, III
Holder's Address for notices:
0000 Xxxxxx Xxxxx
Xxxxxx, Xxxxxxx 00000
With a copy to:
Xxxx X. Xxxxxxxxxxx, Esq.
Xxxxxxx Xxxxx, LLP
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
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