Exhibit 10.5
THIS WARRANT AND THE SECURITIES ISSUED UPON ANY EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED BY ANY PERSON,
UNLESS (1) EITHER (A) A REGISTRATION WITH RESPECT TO THERETO SHALL BE EFFECTIVE
UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH
ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
No. of Shares of Common Stock: ______________
Warrant No. __
COMMON STOCK PURCHASE WARRANT
(PLACEMENT AGENT WARRANT)
To Purchase Common Stock of
DYNTEK, INC.
THIS IS TO CERTIFY THAT Network 1 Financial Securities, Inc. and/or
assigns, is entitled, at any time from the Closing Date (as hereinafter defined)
to the Expiration Date (as hereinafter defined), to purchase from Dyntek, Inc.,
a Delaware corporation (the "Company"), up to ________ [20% of number of shares
sold in Private Placement] shares of Common Stock (as hereinafter defined and
subject to adjustment as provided herein), in whole or in part, including
fractional parts, at a purchase price per share (the "Exercise Price") equal to
$0.90 per share of Common Stock (as defined herein), all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall have the meaning set forth in the Placement Agent
Agreement, dated March __, 2004, between the Company and Network 1 Financial
Securities Inc.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, $0.0001 par value, of the Company as constituted on the
Closing Date, and any capital stock into which such Common Stock may thereafter
be changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Common Stock
of the Company in the circumstances contemplated by SECTION 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities, which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean a date five (5) years commencing one (1) year
from the Termination Date as defined in the Placement Agency Agreement dated
March ____, 2004 with respect to a Private Offering of a minimum of 37 Units and
a maximum of 150 Units.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of this Warrant, outstanding on such date, and other
options or warrants to purchase, or securities convertible into, shares of
Common Stock outstanding on such date which would be deemed outstanding in
accordance with GAAP for purposes of determining book value or net income per
share.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant Stock
set forth herein is registered on the books of the Company maintained for such
purpose.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock,
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except shares then owned or held by or for the account of the Company or any
subsidiary thereof, and shall include all shares issuable in respect of
outstanding options or any certificates representing fractional interests in
shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated of a date even herewith by and between the Company and Network 1
Financial Securities, Inc., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this Warrant would be, evidenced by
a certificate bearing the restrictive legend set forth in SECTION 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or
of any interest in either thereof, which would constitute a sale thereof within
the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in SECTION 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to SECTION
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 MANNER OF EXERCISE. From and after the Closing Date and until 5:00
p.m., New York time, on the Expiration Date, Holder may exercise this Warrant,
on any Business Day, for all or any part of the number of shares of Common Stock
purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or at the office or agency designated by the
Company pursuant to SECTION 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the
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number of shares of Common Stock to be purchased (ii) payment of the Warrant
Price in cash or by wire transfer or cashier's check drawn on a United States
bank and (iii) this Warrant. Such notice shall be substantially in the form of
the subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney-in-fact. Upon receipt of the items
referred to in clauses (i), (ii) and (iii) above, the Company shall, as promptly
as practicable, and in any event within five (5) Business Days thereafter if
requested in writing by Holder, execute or cause to be executed and deliver or
cause to be delivered to Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to SECTION 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with receipt of the items
referred to in clauses (i), (ii) and (iii) above is received by the Company as
described above and all taxes required to be paid by Holder, if any, pursuant to
SECTION 2.2 prior to the issuance of such shares have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Stock, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same returned to
Holder. Notwithstanding any provision herein to the contrary, the Company shall
not be required to register shares in the name of any Person who acquired this
Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with
this Warrant.
2.2 PAYMENT OF TAXES AND CHARGES. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and without any preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof, unless such tax or charge is imposed by law upon Holder, in which case
Holder shall pay such taxes or charges. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
satisfaction of the Company that no such tax or other charge is due.
2.3 FRACTIONAL SHARES. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the fair market value of the Warrant Stock
reasonably determined by the Board of Directors of the Company.
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2.4 RIGHT TO CONVERT WARRANT INTO STOCK: NET ISSUANCE.
(a) Right to Convert. Subject to Section 4.4, in addition to and
without limiting the rights of the Holder under the terms of this Warrant, the
Holder shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into shares of Common Stock as provided in this Section 2.4
at any time or from time to time during the term of this Warrant. Upon exercise
of the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
Holder (without payment by the Holder of any Exercise Price or any cash or other
consideration) that number of shares of fully paid and nonassessable Common
Stock equal to the quotient obtained by dividing (X) the value of this Warrant
(or the specified portion hereof) on the Conversion Date (as defined in
subsection (b) hereof), which value shall be determined by subtracting (A) the
aggregate Exercise Price of the Converted Warrant Shares immediately prior to
the exercise of the Conversion Right from (B) the aggregate fair market value of
the Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date (as herein defined) by (Y) the
fair market value of one share of Common Stock on the Conversion Date (as herein
defined).
Expressed as a formula, such conversion shall be computed as
follows:
X = B-A
---
Y
where: X = the number of shares of Common Stock that may be
issued to Holder
Y = the fair market value (FMV) of one share of Common
Stock
A = the aggregate Converted Warrant Price (Converted
Warrant Shares x Exercise Price)
B = the aggregate FMV (i.e., FMV x Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the
Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the Holder an amount in cash equal to the fair market value of the
resulting fractional share of the Conversation Date (as herein defined).
(b) Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the principal office of the Company
together with the subscription notice in the form attached hereto duly completed
and executed and indicating the number of shares subject to this Warrant which
are being surrendered (referred to in Section 2.4(a) hereof as the Converted
Warrant Shares) in exercise of the Conversion Right. Such conversion shall be
effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), and, at the election of the Holder hereof, may be made
contingent upon the occurrence of any of the events specified in Section 4.4.
Certificates for the shares issuable upon exercise of the Conversion Right and,
if applicable, a new Warrant evidencing the balance of the shares
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remaining subject to this Warrant, shall be issued as of the Conversion Date and
shall be delivered to the Holder within thirty (30) days following the
Conversion Date.
(c) Determination of Fair Market Value. For purposes of this Section
2.4(c), "fair market value" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with
and contingent upon a public offering, and if the Company's Registration
Statement relating to such public offering ("Registration Statement") has been
declared effective by the Commission, then the initial "Price to Public"
specified in the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection
with and contingent upon a public offering, then as follows:
(1) If traded on a securities exchange, the fair market
value of the Common Stock shall be deemed to be the average of the closing
prices of the Common Stock on such exchange over the five-day period
ending one business day prior to the Determination Date or, if less, such
number of days as the Common Stock has been traded on such exchange;
(2) If traded over-the-counter, the fair market value of
the Common Stock shall be deemed to be the average of the closing bid
prices of the Common Stock over the five-day period ending one business
day prior to the Determination Date or, if less, such number of days as
the Common Stock has been traded over-the-counter; and
(3) If there is no public market for the Common Stock,
then fair market value shall be determined in good faith by the Board of
Directors of the Company.
2.5 CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the
exercise of this Warrant, in whole or in part (other than a holder who acquires
such shares after the same have been publicly sold pursuant to a Registration
Statement under the Securities Act or sold pursuant to Rule 144 thereunder),
shall continue to be entitled with respect to such shares to all rights to which
it would have been entitled as Holder under SECTIONS 9, 10 AND 14 of this
Warrant. The Company will, at the time of exercise of this Warrant, in whole or
in part, upon the request of Holder, acknowledge in writing, in form reasonably
satisfactory to Holder, its continuing obligation to afford Holder all such
rights; PROVIDED, HOWEVER, that if Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 TRANSFER. Subject to compliance with SECTION 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in SECTION 2.1
or the office or agency designated by the Company
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pursuant to SECTION 12, together with a written assignment of this Warrant
substantially in the form of EXHIBIT B hereto duly executed by Holder or its
agent or attorney-in-fact and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall, subject to SECTION 9, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be canceled. A Warrant, if properly assigned in
compliance with SECTION 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2 DIVISION AND COMBINATION
Subject to SECTION 9, this Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with SECTION 3.1 and with SECTION 9, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
3.3 EXPENSES. The Company shall prepare, issue, and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
SECTION 3.
3.4 MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this SECTION 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this SECTION 4 promptly after the
occurrence of such event.
4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the
Company shall:
(a) issue additional shares of Common Stock as a dividend or other
distribution of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, then (i) the number of shares of Common Stock
for which this Warrant is exercisable immediately after the occurrence of any
such event shall be adjusted to equal the number of shares of Common Stock which
a record holder of the same number of
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shares of Common Stock for which this Warrant is exercisable immediately prior
to the occurrence of such event would own or be entitled to receive after the
happening of such event, and (ii) the Current Warrant Price shall be adjusted to
equal (A) the Current Warrant Price multiplied by the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares for which this Warrant is exercisable
immediately after such adjustment.
4.2 NOTICE OF CERTAIN OTHER DISTRIBUTIONS. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever, or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other securities
or property of any nature whatsoever, then Holder shall receive Notice of the
Company's determination to make such distribution fifteen (15) days prior to the
record date for determining those Common Stock holders entitled to receive such
distribution in accordance with SECTION 5.2 of this Warrant. A reclassification
of the Common Stock (other than a change in par value, or from par value to no
par value or from no par value to par value) into shares of Common Stock and
shares of any other class of stock shall be deemed a distribution by the Company
to the holders of its Common Stock of such shares of such other class of stock
within the meaning of this Section 4.2; PROVIDED, HOWEVER, that if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1, and in
order for the Holder to receive any portion of the reclassification distribution
(other than an adjustment to the number of shares of Common Stock for which the
Warrant can be exercised) the Holder must exercise the Warrant.
4.3 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this SECTION 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence.
(b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
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(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
4.4 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION
OF ASSETS. In case the Company shall reorganize its capital, reclassify its
capital stock (other than a change in par value or a subdivision or combination
as provided for in Section 4.1), consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company
other than (i) solely a change or distribution as contemplated by SECTION 4.1
above, or (ii) a merger or reorganization involving only a change in the state
of incorporation of the Company), or sell, transfer or otherwise dispose of all
or substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company (with any action pursuant to which
such distribution, reclassification, merger, etc., is to be undertaken being
referred to as the "Transaction"), then Holder shall receive notice of the
Transaction prior to the record date for determining those Common Stockholders
entitled to vote on and/or to receive a distribution in connection with
consummation of such Transaction in accordance with SECTION 5.2 of this Warrant.
Upon the consummation of any Transaction pursuant to which the Company is not
the surviving corporation, this Warrant, to the extent previously unexercised,
shall be of no further force and effect, null and void and unexercisable. The
foregoing provisions of this SECTION 4.4 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or dispositions of
assets.
5. NOTICES TO HOLDER
5.1 NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common Stock
for which this Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to SECTION 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such adjustment was
made pursuant to SECTION 4.5) describing the number and kind of any other shares
of stock or Other Property for which this Warrant is exercisable, and any change
in the purchase price or prices thereof, after giving effect to such adjustment
or change. The Company shall promptly cause a signed copy of such certificate to
be delivered to the Holder in accordance with SECTION 15.2. Delivery of such
certificate shall be deemed to be a final and binding determination with respect
to such adjustment unless challenged by the Holder within ten (10) days of
receipt thereof. The
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Company shall keep at its office or agency designated pursuant to SECTION 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by the Holder.
5.2 NOTICE OF CORPORATE ACTION. If at any time
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of such
cases, the Company shall give to Holder (i) at least 15 days' prior written
notice of the date on which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, and (ii) in the case of any
such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 21 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with SECTION
15.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
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upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the period
this Warrant is outstanding acknowledge in writing, in form satisfactory to
Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of SECTION 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrant and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this SECTION 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder, by acceptance of this Warrant, agrees to be bound by the provisions of
this SECTION 9.
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9.1 RESTRICTIVE LEGEND. (a) The Holder by accepting this Warrant and any
Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon
exercise hereof may not be assigned or otherwise transferred unless and until
(i) the Company has received an opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act") or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a
legend as follows unless such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"). The
securities may not be offered for sale, sold or otherwise transferred
except (i) pursuant to an effective registration statement under the Act
or (ii) pursuant to an exemption from registration under the Act and
applicable state securities laws in respect of which the Company has
received an opinion of counsel satisfactory to the Company to such effect.
Copies of the agreement covering both the purchase of the securities and
restricting their transfer may be obtained at no cost by written request
made by the holder of record of this certificate to the Secretary of the
Company at the principal executive offices of the Company."
(b) Except as otherwise provided in this SECTION 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THIS WARRANT AND THE SECURITIES ISSUED UPON ANY EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED BY ANY PERSON, UNLESS (1) EITHER (A) A REGISTRATION WITH
RESPECT TO THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE
STATE SECURITIES OR "BLUE SKY" LAWS."
9.2 NOTICE OF PROPOSED TRANSFERS. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Restricted Common Stock, the Holder
shall give ten days' prior written notice (a "Transfer Notice") to the Company
of Holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel who shall be
reasonably satisfactory to the Company, an opinion that the proposed Transfer of
such Warrants or such Restricted Common Stock may be effected without
registration under the Securities Act and applicable state securities laws.
After receipt of the Transfer Notice and opinion, the Company shall, within five
Business Days thereof, notify the
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Holder as to whether such opinion is reasonably satisfactory and, if so, such
holder shall thereupon be entitled to Transfer such Warrants or such Restricted
Common Stock, in accordance with the terms of the Transfer Notice. Each
certificate, if any, evidencing such shares of Restricted Common Stock issued
upon such Transfer shall bear the restrictive legend set forth in SECTION
9.1(a), and the Warrant issued upon such Transfer shall bear the restrictive
legend set forth in SECTION 9.1(b), unless in the opinion of counsel to the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Holder shall not be entitled to Transfer such Warrants or
such Restricted Common Stock until receipt of notice that such opinion of
counsel referred to above under this SECTION 9.2(a) is reasonably satisfactory
to the Company.
9.3 REQUIRED REGISTRATION. Pursuant to the terms and conditions set forth
in the Registration Rights Agreement, being simultaneously executed herewith,
the Company shall prepare and file with the Commission a Registration Statement
relating to the offer and sale of the Common Stock issuable upon exercise of the
Warrant and shall use its reasonable best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act pursuant
to the terms and conditions of the Registration Rights Agreement.
9.4 TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing provisions
of SECTION 9, the restrictions imposed by this Section upon the transferability
of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common
Stock issuable upon the exercise of the Warrants) and the legend requirements of
SECTION 9.1 shall terminate as to any particular Warrant or share of Warrant
Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of
the Warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (ii)
when the Company shall have received an opinion of counsel reasonably
satisfactory to it that such shares may be transferred without registration
thereof under the Securities Act and applicable state securities law. Whenever
the restrictions imposed by SECTION 9 shall terminate as to this Warrant, as
hereinabove provided, the Holder hereof shall be entitled to receive from the
Company upon written request of the Holder, at the expense of the Company, a new
Warrant bearing the following legend in place of the restrictive legend set
forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN
SECTION 9 HEREOF TERMINATED ON __________ _____, 200__, AND ARE OF NO
FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in SECTION 9.1(a).
9.5 LISTING ON SECURITIES EXCHANGE. If the Company shall list any shares
of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent
-13-
permissible under the applicable securities exchange rules, issuable upon the
exercise of this Warrant so long as any shares of Common Stock shall be so
listed during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement and affidavit of the Holder shall be
sufficient indemnity), and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Warrant of
like tenor to Holder; PROVIDED, in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company. Until
the exercise of this Warrant, the Holder shall not have or exercise any rights
by virtue hereof as a stockholder of the Company.
14. MISCELLANEOUS
14.1 NONWAIVER AND EXPENSES. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies.
14.2 NOTICE GENERALLY. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service or by
facsimile (with confirmation back), and shall be
-14-
deemed given when so delivered personally or by overnight courier service or by
facsimile, or, if mailed, five (5) days after the date of deposit in the United
States mails, as follows:
(1) If to the Company, to:
Dyntek, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ Peabody, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(2) If to the Holder, to:
Network 1 Financial Securities, Inc.
The Galleria
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇., President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
The Galleria, ▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The Company or the Holder may change the foregoing address by notice given
pursuant to this SECTION 14.2.
14.3 SUCCESSORS AND ASSIGNS. Subject to the provisions of SECTIONS 3.1 AND
9, this Warrant and the rights evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant
-15-
and, with respect to SECTION 9 hereof, holders of Warrant Stock, and shall be
enforceable by any such Holder or holder of Warrant Stock.
14.4 AMENDMENT. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder.
14.5 SEVERABILITY. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
14.6 HEADINGS. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
14.7 GOVERNING LAW. This Warrant shall be governed by the laws of the
State of New York, without regard to the provisions thereof relating to conflict
of laws.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: _____________ _____, 200____
DYNTEK, INC.
By: _______________________________
▇▇▇▇▇▇ ▇▇▇▇
President
Attest:
By: ______________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇
Secretary
-17-
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
To: Dyntek, Inc.
The undersigned pursuant to the provisions set forth in the attached
Warrant (No. W-____), hereby irrevocably elects to (check one):
_____ (A) purchase ___ shares of the Common Stock, par value $___
per share, of Dyntek, Inc. (the "Common Stock"), covered by
such Warrant and herewith makes payment of $_____,
representing the full purchase price for such shares at the
price per share provided for in such Warrant; or
_____ (B) convert ______ Converted Warrant Shares into that number
of shares of fully paid and nonassessable shares of Common
Stock, determined pursuant to the provisions of Section 2.4 of
the Warrant.
The Common Stock for which the Warrant may be exercised or converted shall
be known herein as the "Warrant Stock".
The undersigned is aware that the Warrant Stock has not been and will not
be registered under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities laws. The undersigned understands that reliance by
the Company on exemptions under the Securities Act is predicated in part upon
the truth and accuracy of the statements of the undersigned in this Subscription
Form.
The undersigned represents and warrants that (1) it has been furnished
with all information which it deems necessary to evaluate the merits and risks
of the purchase of the Warrant Stock, (2) it has had the opportunity to ask
questions concerning the Warrant Stock and the Company and all questions posed
have been answered to its satisfaction, (3) it has been given the opportunity to
obtain any additional information it deems necessary to verify the accuracy of
any information obtained concerning the Warrant Stock and the Company and (4) it
has such knowledge and experience in financial and business matters that it is
able to evaluate the merits and risks of purchasing the Warrant Stock and to
make an informed investment decision relating thereto.
The undersigned hereby represents and warrant that it is purchasing the
Warrant Stock for its own account for investment and not with a view to the sale
or distribution of all or any part of the Warrant Stock.
The undersigned understands that because the Warrant Stock has not been
registered under the Securities Act, it must continue to bear the economic risk
of the investment for an indefinite period of time and the Warrant Stock cannot
be sold unless it is subsequently
A-1
registered under applicable federal and state securities laws or an exemption
from such registration is available.
The undersigned agrees that it will in no event sell or distribute or
otherwise dispose of all or any part of the Warrant Stock unless (1) there is an
effective registration statement under the Securities Act and applicable state
securities laws covering any such transaction involving the Warrant Stock, or
(2) the Company receives an opinion satisfactory to the Company of the
undersigned's legal counsel stating that such transaction is exempt from
registration. The undersigned consents to the placing of a legend on its
certificate for the Warrant Stock stating that the Warrant Stock has not been
registered and setting forth the restriction on transfer contemplated hereby and
to the placing of a stop transfer order on the books of the Company and with any
transfer agents against the Warrant Stock until the Warrant Stock may be legally
resold or distributed without restriction.
The undersigned has considered the federal and state income tax
implications of the exercise of the Warrant and the purchase and subsequent sale
of the Warrant Stock.
Dated: ____________________________ Print Name: ____________________________
Signature: _____________________________
Witness: _______________________________
Insert Social Security or Other
Identifying Number of Holder: _________________________
A-2
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
NO. OF SHARES
NAME AND ADDRESS OF ASSIGNEE OF COMMON STOCK
---------------------------- ---------------
and does hereby irrevocably constitute and appoint _______________________
attorney-in-fact to register such transfer on the books of
______________________________ maintained for the purpose, with full power of
substitution in the premises.
Dated: ____________________________ Print Name: ____________________________
Signature: _____________________________
Witness: _______________________________
Insert Social Security or Other
Identifying Number of Holder: _________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
B-1