EXHIBIT 10.6
AMENDMENT NO. 14 AND WAIVER TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 14 AND WAIVER, dated as of August 20, 2002 (this
"AMENDMENT"), to the LOAN AND SECURITY AGREEMENT, dated as of September 30, 1998
(as amended by AMENDMENT NO. 1, dated as of September, 1999, AMENDMENT NO. 2 AND
WAIVER, dated as of September, 1999, AMENDMENT NO. 3, dated as of December 13,
1999, AMENDMENT NO. 4, dated as of January 12, 2000, AMENDMENT NO. 5, dated as
of March 24, 2000, AMENDMENT NO. 6, dated as of May 26, 2000, AMENDMENT NO. 7,
dated as of July 17, 2000, AMENDMENT NO. 8 AND WAIVER, dated as of August 11,
2000, AMENDMENT NO. 9, dated as of March 30, 2001, AMENDMENT NO. 10, dated as of
June 30, 2001, AMENDMENT NO. 11, dated as of December 27, 2001, AMENDMENT NO.
12, dated as of March 27, 2002, and AMENDMENT NO. 13 AND WAIVER, dated as of May
20, 2002, as hereafter modified, amended and/or restated from time to time, the
"LOAN AND SECURITY AGREEMENT"), between FOOTHILL CAPITAL CORPORATION, a
California corporation ("FOOTHILL") and DYNTEK SERVICES, INC., a Delaware
corporation, formerly known as TEKINSIGHT SERVICES, INC. and successor by merger
to DATA SYSTEMS NETWORK CORPORATION, a Michigan corporation ("BORROWER").
PREAMBLE
Pursuant to the Loan and Security Agreement, Foothill
established a revolving line of credit for the benefit of Borrower. Borrower has
requested that Foothill agree and, Foothill has agreed, to certain amendments,
consents and waivers to the Loan and Security Agreement. Accordingly, Borrower
and Foothill hereby agree as follows:
1. DEFINITIONS. All capitalized terms used herein which are
defined in the Loan and Security Agreement and not otherwise
defined herein are used herein as defined therein.
2. CHANGES TO DEFINITIONS.
(a) Section 1.1 of the Loan and Security Agreement is
hereby amended by adding the following definitions, in appropriate alphabetical
order:
"AMENDMENT NO. 14 AND WAIVER" means Amendment No. 14 and
Waiver, dated as of August 20, 2002, to this Agreement, between
Borrower and Foothill.
"DYNCORP" means DynCorp, a Delaware corporation.
"DYNCORP NOTE" means the Promissory Note, dated August 20,
2002, made by Parent to the order of DynCorp in the principal amount
of $5,000,000, provided that such Promissory Note shall at all times
be unsecured and shall be subject to subordination provisions
satisfactory to Foothill in its sole discretion.
"DYNCORP WARRANT" means the Warrant, dated August 20, 2002,
issued by Parent to DynCorp covering the purchase of up to 7,500,000
shares of common stock of Parent;
"FOURTEENTH AMENDMENT EFFECTIVE DATE" means the date upon
which all of the conditions set forth in Section 9 of Amendment No.
14 and Waiver shall have been satisfied in full.
"STOCK PURCHASE AND SETTLEMENT AGREEMENT" means the Stock
Purchase and Settlement Agreement, dated August 20, 2002, between
Parent and DynCorp.
"VA NET CONTRACT" means the Agreement, dated March 8, 2001,
between Borrower, as successor in interest to DynCorp Management
Resources, Inc., and the Commonwealth of Virginia, Department of
Medical Assistance Services, for non-emergency transportation
brokerage services, and as further identified as contract number
80649.
"VA NET CONTRACT ACCOUNT" means Account Number 9860995530
in the name of DynTek, Inc. maintained at Standard Federal, Troy,
Michigan, provided that, all amounts in such account shall be used
solely to pay vendors or creditors of Borrower that are owed money
by Borrower in connection with the VA Net Contract.
(b) Paragraph (h) of the definition of the term "Eligible
Accounts" in Section 1.1 of the Loan and Security Agreement is hereby amended in
its entirety to read as follows:
"(h) Accounts with respect to an Account Debtor (including
but not limited to, Accounts with respect to which the Account
Debtor is a state or city Governmental Authority) whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts,
to the extent of the obligations owing by such Account Debtor in
excess of such percentage; PROVIDED, HOWEVER, that for Accounts with
respect to which the Account Debtor is (i) the State of New York,
the City of New York, or a Governmental Authority located in the
State of New York or City of New York, Accounts resulting in the
total obligations owing by all such Account Debtors to the Borrower
exceeding 35% of all Eligible Accounts in the aggregate shall not be
included to the extent of the obligations in excess of such
percentage, (ii) the Commonwealth of Virginia or a Governmental
Authority located in the Commonwealth of Virginia (including,
without limitation, Accounts arising in connection with the VA Net
Contract), Accounts resulting in the total obligations owing by all
such Account Debtors to the Borrower exceeding 25% of all Eligible
Accounts in the aggregate shall not be included to the extent of the
obligations in excess of such percentage, and (iii) the State of
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Connecticut or a Governmental Authority located in the State of
Connecticut, Accounts resulting in the total obligations owing by
all such Account Debtors to the Borrower exceeding 15% of all
Eligible Accounts in the aggregate shall not be included to the
extent of the obligations in excess of such percentage; and FURTHER
PROVIDED, that Foothill, in its reasonable credit judgment, remains
satisfied with the credit quality of such Account Debtors;"
3. BORROWING BASE. Paragraph (a) of Section 2.1 of the Loan
and Security Agreement is hereby amended and restated in its entirety to read as
follows:
"2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of
this Agreement, Foothill agrees to make advances ("Advances")
to Borrower in an amount outstanding not to exceed at any one
time the lesser of (i) the Maximum Revolving Amount LESS the
outstanding balance of all undrawn or unreimbursed Letters of
Credit, or (ii) an amount equal to (A) the Borrowing Base LESS
(B) the aggregate amount of all undrawn or unreimbursed
Letters of Credit. For purposes of this Agreement, "Borrowing
Base", as of any date of determination, shall mean the result
of:
(w) THE LESSER OF (i) 85% of Eligible
Accounts (excluding, for purposes of clarification, Accounts
arising under the VA Net Contract), LESS the amount, if any,
of the Dilution Reserve, and (ii) an amount equal to
Borrower's Collections with respect to Accounts for the
immediately preceding 60 day period, MINUS
(x) the Michigan Tax Accrual Reserve,
MINUS
(y) the sum of (i) the Bank Products
Reserve, and (ii) the aggregate amount of reserves, if any,
established by Foothill under SECTION 2.1(B); PLUS
(z) notwithstanding that the Accounts
arising in connection with the VA Net Contract are not
Eligible Accounts pursuant to Paragraph (m) of the definition
of Eligible Accounts, as an accommodation to Borrower, but in
the sole discretion of Foothill, an amount not to exceed
$1,000,000 based on advance rates to be determined by Foothill
in its sole discretion with respect to the Accounts arising in
connection with the VA Net Contract, provided that, all
proceeds from any Advances attributable to this clause (z)
shall be transferred by Borrower into the VA Net Contract
Account and shall be used solely to pay vendors or creditors
of Borrower that are owed money by Borrower in connection with
the VA Net Contract in accordance with procedures satisfactory
to Foothill.
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4. FEES. Paragraph (d) of Section 2.11 of the Loan and
Security Agreement is hereby amended by deleting "$650" and substituting in lieu
thereof "$750".
5. COVENANTS.
(a) Section 6.2 of the Loan and Security Agreement is
hereby amended by (i) deleting the word "and" at the end of paragraph (i) and
substituting in lieu thereof "," (ii) redesignating existing paragraph (j) as
paragraph (k), and (iii) inserting the following new paragraph (j):
"(j) with respect to the VA Net Contract, (i)
on a weekly basis, copies of the check register for the VA Net
Contract Account itemizing the name of the vendor paid, the
check number and the amount of the check, together with a
certificate from the Chief Financial Officer or Vice President
- Finance of Borrower certifying as to the accuracy and
completeness of such check register, (ii) on a weekly basis
bank debit registers itemizing the check number and the amount
of the check referred to in clause (i) above, together with,
at the request of Foothill, the name of the vendor so paid and
a certificate from the Chief Financial Officer or Vice
President - Finance of Borrower certifying as to the accuracy
and completeness of such debit register and (iii) on a weekly
basis, a list of outstanding checks from such account
identifying the name of the vendor, the check number and the
amount of the check, together with a certificate of the Chief
Financial Officer or Vice President - Finance of Borrower
certifying as to the accuracy and completeness of such list,
(iv) at the request of Foothill, account reconciled
confirmations signed by the applicable vendor validating
amounts billed and outstanding through invoice dates, (v) on a
monthly basis, a written list of vendors, contact names, phone
numbers and addresses of each vendor, provided that, at any
time such information shall not be correct, Borrower shall
immediately provide an update to such list, (vi) on the 20th
of each calendar month commencing in August 2002, the prior
calendar month financial reports on all aspects of the VA Net
Contract reflecting total receipts, cost of revenue, overhead
costs, provider costs, and any other relevant information
concerning contract operations and/or claims or disputes with
the Commonwealth of Virginia or any department thereof,
including without limitation, the Department of Medical
Assistance Services, and (vi) at the request of Foothill, such
other information, documentation, or information as Foothill
may request in its sole discretion.
(b) Section 6.3 of the Loan and Security Agreement is
hereby amended by adding the following new sentence at the end thereof:
"Further, Borrower shall, simultaneously with the
delivery to DynCorp, deliver to Foothill copies of all
reports, projections and other financial information that it
or that Parent delivers to DynCorp in connection with the
Stock Purchase and Settlement Agreement."
(c) Section 6.23 of the Loan and Security Agreement is
hereby amended and restated in its entirety to read as follows:
6.23 EQUITY PROCEEDS. Borrower shall cause Parent to
receive not less than $903,560 of cash proceeds of equity
during the period between August 20, 2002 through November 20,
2002, which proceeds shall be used to pay the Obligations in
accordance with Section 2.8(b) on or before November 20, 2002.
(d) Article 6 of the Loan and Security Agreement is hereby
amended by adding a new Section 6.24, to read in its entirety as follows:
"6.24 NOTICES OF DEFAULT. Borrower shall immediately
notify Foothill in writing of (a) any default or event of
default under (i) the VA Net Contract, (ii) the DynCorp Note
or (iii) the Stock Purchase and Settlement Agreement, and (b)
its failure to make timely vendor, transportation provider, or
supplier payments invoiced to Borrower under the VA Net
Contract."
(e) Paragraph (c) of Section 7.20 of the Loan and Security
Agreement is hereby amended and restated in its entirety to read as follows:
"(c) Minimum Availability: minimum Availability of (i)
$250,000 at all times on or before October 31, 2002, and (ii) $500,000 at all
times thereafter; or"
(f) Article 7 of the Loan and Security Agreement is hereby
amended by adding a new Section 7.22, to read in its entirety as follows:
"7.22 VA NET CONTRACT. Extend the VA Net Contract
beyond June 2003 or modify the VA Net Contract in any manner
or enter into any settlement agreement with the Commonwealth
of Virginia or any department thereof (including, without
limitation, the Department of Medical Assistance Services) in
connection with the VA Net Contract."
(g) Article 7 of the Loan and Security Agreement is hereby
amended by adding a new Section 7.23, to read in its entirety as follows:
"7.23 DYNCORP DOCUMENTS. Permit Parent to amend,
restate, supplement or otherwise modify in any manner the
DynCorp Note, the Stock Purchase and Settlement Agreement or
the DynCorp Warrant."
6. EVENTS OF DEFAULT. Section 8.10 of the Loan and Security
Agreement is hereby amended and restated in its entirety to read as follows:
"8.10 If there is a default under (a) any agreement
relating to Indebtedness owing by Borrower to IBM Credit
Corporation or in any other material agreement to which any
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Loan Party is a party with one or more third Persons and such
default (i) occurs at the final maturity of the obligations
thereunder, or (ii) results in a right by such third
Person(s), irrespective of whether exercised, to accelerate
the maturity of any Loan Party's obligations thereunder, (b)
the DynCorp Note or (c) the Stock Purchase and Settlement
Agreement;"
7. CONSENTS AND WAIVERS.
(a) Effective as of the Amendment Effective Date (as
defined below), and in reliance upon the representations and warranties of
Borrower set forth in the Loan and Security Agreement, this Amendment and the
other Loan Documents, Foothill hereby:
(i) consents to, and waives any Event of Default that
would otherwise arise under Section 8.2 of the Loan and Security
Agreement solely resulting from Borrower's noncompliance with Section
7.14 of the Loan and Security Agreement by reason of, Parent's
execution and delivery of the Stock Purchase and Settlement Agreement
and the DynCorp Note; and
(ii) waives any Event of Default under Section 8.2 of
the Loan and Security Agreement solely resulting from Borrower's
noncompliance with Section 6.23 of the Loan and Security Agreement by
reason of Borrower's failure to cause Parent to receive not less than
$3,000,000 of cash proceeds of equity during the period between
December 27, 2001 through June 30, 2002, and the failure to apply such
proceeds to the Obligations in accordance with Section 2.8(b) of the
Loan and Security Agreement on or before June 30, 2002.
(b) The consent and waiver set forth above shall be
specifically limited to the period indicated and to the matters expressly
covered thereby and shall not by implication or otherwise limit, impair,
constitute a consent to or waiver of or otherwise affect the rights or remedies
of Foothill under the Loan and Security Agreement or any other Loan Document.
Foothill's granting of such consent and waiver shall not be construed as an
indication that any future consent or waiver of financial covenants or any other
provision of the Loan and Security Agreement will be consented to, it being
understood that the granting or denying of any consent or waiver which may
hereafter be requested by Borrower remains in the sole and absolute discretion
of Foothill.
8. RELEASE. In consideration of Foothill's willingness to
enter into this Amendment, Borrower and Parent hereby agree to forever release
Foothill, its affiliates, and each of its and its affiliates' stockholders,
controlling persons, officers, directors, employees and representatives, and
their respective successors and assigns from any and all claims, demands,
liabilities, proceedings, causes of action, orders, obligations, agreements, or
other rights, whether presently known or hereafter arising, both at law and in
equity, that either Parent and/or Borrower now has, has ever had or may
hereafter have against Foothill, which arise out of or otherwise are in
connection with the Loan and Security Agreement or the transactions arising
thereunder occurring prior to the date hereof.
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9. CONDITIONS AND COVENANTS. This Amendment shall become
effective only upon, or substantially contemporaneous with, the satisfaction in
full of the following conditions precedent (the first date upon which all such
conditions have been satisfied being herein called the "AMENDMENT EFFECTIVE
DATE"):
(a) The representations and warranties contained in this
Amendment and in Section 5 of the Loan and Security Agreement and each other
Loan Document shall be correct on and as of the Amendment Effective Date as
though made on and as of such date (except where such representations and
warranties relate to an earlier date in which case such representations and
warranties shall be true and correct as of such earlier date); no Default or
Event of Default shall have occurred and be continuing on the Amendment
Effective Date or result from this Amendment becoming effective in accordance
with its terms.
(b) Foothill shall have received two (2) counterparts of
this Amendment, duly executed by Borrower and the Parent.
(c) Foothill shall have received a certificate of the
Secretary of Borrower certifying as to true, correct and complete fully executed
copies of the following documents:
(i) the DynCorp Note;
(ii) the DynCorp Warrant;
(iii) the Stock Purchase and Settlement Agreement;
(iv) a letter from the Department of Medical Assistance
Services of the Commonwealth of Virginia agreeing to provide Foothill
with notice if it exercises its right to terminate the VA Net Contract
or it calls in the performance bond on such contract; and
(v) a schedule of aged payables of Borrower as of the
date hereof.
(d) Foothill shall have received evidence satisfactory to
it that DynCorp shall have paid, on Borrower's behalf, an amount equal to at
least $5,000,000 in cash (which amount shall include the $1,000,000 payment
previously made on Borrower's behalf to Medical Transportation Management on
July 19, 2002) to Borrower's vendors or creditors specified on Exhibit A
attached hereto, including, without limitation, (i) a certificate from the Chief
Financial Officer of Borrower certifying the identity of such vendors and
creditors, the amount to be paid to each such vendor and creditor and the date
the valid billing for such payment was first received and booked by Borrower and
(ii) a certificate from an authorized officer of DynCorp certifying to Parent
that it has made payment, via wire transfer or pursuant to an automated
clearance system, of such amount to such vendors and creditors.
(e) All legal matters incident to this Amendment shall be
reasonably satisfactory to Foothill and its counsel.
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(f) Foothill shall have received (i) a nonrefundable fee of
$25,000 in consideration of the execution and delivery by Foothill of this
Amendment and (ii) $70,901.24 representing the billed and unpaid legal expenses
of Xxxxxxx Xxxx & Xxxxx LLP, counsel to Foothill, through June 30, 2002.
10. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Foothill as follows:
(a) Borrower (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (ii)
has all requisite corporate power, authority and legal right to execute, deliver
and perform this Amendment, and to perform the Loan and Security Agreement, as
amended hereby.
(b) The execution, delivery and performance of this
Amendment by Borrower, and the performance by Borrower of the Loan and Security
Agreement, as amended hereby (i) have been duly authorized by all necessary
corporate action, (ii) do not and will not contravene its charter or by-laws or
any applicable law, and (iii) except as provided in the Loan Documents, do not
and will not result in the creation of any Lien upon or with respect to any of
its respective properties.
(c) This Amendment and the Loan and Security Agreement, as
amended hereby, constitute the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with its terms.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or other Person is required
in connection with the due execution, delivery and performance by Borrower of
this Amendment and the performance by Borrower of the Loan and Security
Agreement, as amended hereby.
(e) The representations and warranties contained in Section
5 of the Loan and Security Agreement and each other Loan Document are correct on
and as of the Amendment Effective Date as though made on and as of the Amendment
Effective Date (except to the extent such representations and warranties
expressly relate to an earlier date in which case such representations and
warranties shall be true and correct as of such earlier date) and no Default or
Event of Default has occurred and is continuing on and as of the Amendment
Effective Date or will result from this Amendment becoming effective in
accordance with its terms.
11. CONTINUED EFFECTIVENESS OF THE LOAN AND SECURITY AGREEMENT
AND LOAN DOCUMENTS. Borrower hereby (i) confirms and agrees that each Loan
Document to which it is a party is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that on and
after the Amendment Effective Date of this Amendment all references in any such
Loan Document to "the Loan and Security Agreement", the "Agreement", "thereto",
"thereof", "therein", "thereunder", "hereunder", "herein", "hereof" or words of
like import referring to the Loan and Security Agreement shall mean the Loan and
Security Agreement as amended by this Amendment, (ii) confirms and agrees that
to the extent that any such Loan Document purports to assign or pledge to
Foothill, or to grant a security interest in or Lien on, any collateral as
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security for the obligations of Borrower from time to time existing in respect
of the Loan and Security Agreement and the Loan Documents, such pledge,
assignment and/or grant of the security interest or Lien is hereby ratified and
confirmed in all respects and (iii) confirms that Foothill is authorized, at its
option, without prior notice to Borrower, to charge any fees payable by Borrower
pursuant to Sections 9(f) of this Amendment to Borrower's Loan Account.
12. MISCELLANEOUS.
(a) This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of
this Amendment by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Amendment. Any party delivering an
executed counterpart of this Amendment by telefacsimile also shall deliver an
original executed counterpart of this Amendment, but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability and
binding effect of this Amendment.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by and construed in
accordance with, the laws of the State of New York.
(d) Borrower will pay on demand all reasonable fees, costs
and expenses of Foothill in connection with the preparation, execution and
delivery of this Amendment including, without limitation, reasonable fees
disbursements and other charges of Xxxxxxx Xxxx & Xxxxx LLP, counsel to
Foothill.
(e) Parent, by its acknowledgement hereof, hereby agrees
that it shall not (i) amend, restate, supplement or otherwise modify in any
manner the DynCorp Note, the Stock Purchase and Settlement Agreement or the
DynCorp Warrant or (ii) make any payment, whether for principal, interest or
otherwise (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), to DynCorp in respect of the indebtedness evidenced by the
DynCorp Note until the later of (x) the cash payment in full of the Obligations
(as defined in the Guaranty) (other than indemnification obligations as to which
no claim has been made) and all other amounts payable under the Guaranty and (y)
the Maturity Date, provided, however, that Parent may pay to DynCorp regularly
scheduled principal and interest payments in respect of the indebtedness
evidenced by the DynCorp Note as in effect on the date hereof in the stated
amounts and on the stated dates of payment thereof as set forth in the DynCorp
Note as in effect on the date hereof if, after giving effect thereto, no Event
of Default under the Loan and Security Agreement shall have occurred and be
continuing, in each case of clauses (i) and (ii) above, without the prior
written consent of Foothill.
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IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered as of the date set forth on the first
page hereof.
DYNTEK SERVICES, INC.,
a Delaware corporation
By: /s/ Xxxxxx X. Xxxx
----------------------------------
Name: Xxxxxx X. Xxxx
Title: President and CEO
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Xxxxxxx X. Xxxx, Xx.
-----------------------------------
Name: Xxxxxxx X. Xxxx, Xx.
Title: Vice President
Acknowledged and Agreed upon (including, without
limitation, with respect to Section 12(e))
as of this 20th day of August, 2002
DYNTEK, INC.,
a Delaware corporation
By: /s/ Xxxxxx X. Xxxx
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Name: Xxxxxx X. Xxxx
Title: President and CEO
