DynTek, Inc. Junior Secured Convertible Promissory NoteConvertible Promissory Note |
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Exhibit 10.3
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE BORROWER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND BLUE SKY LAWS.
DynTek, Inc.
Junior Secured Convertible Promissory Note
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Note No. |
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$3,000,000.00 |
March 8, 2006 |
FOR VALUE RECEIVED, subject to the terms and conditions of this Junior Secured Convertible Promissory Note (the “Note”), DynTek, Inc., a Delaware corporation with its principal offices located at 19700 Fairchild Road, Suite 230, Irvine, California (the “Borrower”), hereby promises to pay to the order of Trust A-4 - Lloyd I. Miller, located at 4550 Gordon Drive, Naples, Florida 34102 (the “Holder”), the principal sum of Three Million Dollars ($3,000,000.00), in lawful money of the United States and in immediately available funds on March 1, 2011 or, if such day is not a regular business day, on the next business day thereafter, with all accrued but unpaid interest (as provided below) to such date (the “Maturity Date”). Subject to the terms and conditions of this Note (including without limitation Section 7(f)), the Borrower also promises to pay to the Holder interest accrued on the outstanding unpaid principal amount hereof until such principal amount is paid (or converted as provided herein) at the rate of ten percent (10%) per annum, compounding quarterly, from the date hereof. The said interest shall become due quarterly in arrears and shall be payable on the last day of each fiscal quarter (each, an “Interest Payment Date”) in respect of the immediately preceding completed fiscal quarter. The first Interest Payment Date will be June 30, 2006. At the Borrower’s sole option, all interest payments due and payable before June 30, 2009 may be paid in kind at the rate of fourteen percent (14%) per annum, compounding quarterly, in which case the accrued interest will be added to the principal amount of the Note on the applicable Interest Payment Date, and interest will accrue on the aggregate principal amount. All interest payments due and payable on and after June 30, 2009 must be paid in cash.
This Note is being issued pursuant to that certain Note Purchase Agreement dated as of the date hereof, by and between the Borrower and the purchasers thereto, including the Holder hereto, (the “Note Purchase Agreement”), and shall be entitled to the benefits thereof. This Note is secured by a security interest in all of the assets of Borrower as described more fully in that certain Security and Pledge Agreement
(the “Security Agreement”) executed by Borrower and the holders thereto and dated as of the date hereof.
Until March 1, 2010, the Borrower may not prepay the Note in whole or in part without the prior written consent of the Holder, which may be given or withheld in Holder’s sole discretion. At anytime after March 1, 2010 until the Maturity Date, the Borrower may prepay this Note in whole or in part at any time without penalty.
1.
Definitions. Unless the context otherwise requires, the following
terms shall have the following respective meanings:
“Act” means the Securities Act of 1933, as amended.
“Blue Sky Laws” means applicable state securities laws.
“Base Share Price” shall have the meaning ascribed to such term in Section 4(f)(i) hereof.
“Board” shall mean the Borrower’s Board of Directors.
“Borrower” shall have the meaning ascribed to such term in the first paragraph of this Note.
“Common Stock” shall mean shares of the Borrower’s Common Stock, par value $0.0001 per share.
“Conversion Date” shall be the date upon which the Holder exercises its right to convert the outstanding amounts under this Note into shares of Borrower’s Common Stock in accordance with Section 3(a) of this Note, or the date such amounts are automatically converted in accordance with the terms hereof.
“Conversion Option” shall have the meaning ascribed to such term in Section 3(a) hereof.
“Conversion Price” shall have the meaning ascribed to such term in Section 3(a) of this Note.
“Event of Default” shall have the meaning ascribed to such term in Section 5(a) of this Note.
“Fair Market Value” shall mean the fair market value of a share of the Common Stock as mutually determined in good faith by the Holder and the Board.
“Holder” shall have the meaning ascribed to such term in the first paragraph of this Note.
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“Interest Payment Date” shall have the meaning ascribed to such term in the first paragraph of this Note.
“Maturity Date” shall have the meaning ascribed to such term in the first paragraph of this Note.
“Newly Issued Shares” shall have the meaning ascribed to such term in Section 4(f)(i) hereof.
“Note” shall have the meaning ascribed to such term in the first paragraph of this instrument.
“Note Purchase Agreement” shall have the meaning ascribed to such term in the second paragraph of this Note.
“Security Agreement” shall have the meaning ascribed to such term in the second paragraph of this Note.
2.
Accounting Terms. All accounting terms not specifically defined in
this Note shall be construed in accordance with United States generally
accepted accounting principles and, if applicable, consistent with those
applied in the preparation of the financial statements of the Borrower.
3.
Conversion.
(a)
Voluntary Conversion. At any time until the Note has been paid in full,
the Holder has the right, at its option, to convert all or any part of the
outstanding principal amount (including any accrued but unpaid interest on such
principal amount) (the “Conversion Principal Amount”) of
this Note into shares of Common Stock (in accordance with the procedures
described under Section 3(b) of this Note) (the “Conversion
Option”). The number of shares of Common Stock into which the
Conversion Principal Amount is convertible is equal to (i) the Conversion
Principal Amount divided by (ii) the Conversion Price (as defined below)
in effect at the time of conversion. The “Conversion Price”
shall initially be $0.02, subject to adjustment pursuant to Sections 3 and 4.
(b)
Conversion Mechanics. The Holder shall exercise its right to convert by
surrender of this Note, duly endorsed, at the office of the Borrower,
accompanied by written notice of conversion. The Borrower shall forthwith issue
and deliver to the Holder certificates for the number of shares of Common Stock
to which Holder is entitled (bearing such legends as may be required by
applicable state and federal securities laws). If on any conversion of this
Note a fraction of a share results, then the Borrower will pay the Holder the
cash value of that fractional share (based upon the Fair Market Value). All
Common Stock issued upon the conversion of this Note shall be validly issued,
fully paid and non-assessable. Any conversion shall be deemed to have
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occurred as of the Conversion Date, and the Holder shall be treated for all purposes as the record holder of such Common Stock as of that date. Upon conversion of this Note into Common Stock, Holder shall surrender this Note, duly endorsed, at the principal offices of Borrower. Borrower will, as soon as practicable thereafter, issue and deliver to Holder a certificate for the number of shares of Common Stock to which Holder is entitled upon such conversion, plus a check payable to Holder for any cash amounts payable for fractional shares and accrued but unpaid interest. If the Holder converts less than all of the indebtedness evidenced by this Note upon such conversion, then the Borrower shall also issue a convertible promissory note of like tenor for the amount of indebtedness not so converted.
(c)
Conversion Covenants. Subject to the terms herein, the Borrower covenants
that it will at all times promptly do any and all lawful things necessary
(i) to effect the conversion of this Note, or any part thereof, as
provided in this Note and, including, without limitation, by proper corporate
action taking all steps necessary to have available at all times during which
this Note remains outstanding all Common Stock issuable upon the conversion of
this Note and (ii) to ensure that the shares of Common Stock issuable upon
conversion of this Note are registered under the Act and are freely
transferable in the hands of the Holder, subject to the terms and conditions of
the registration provisions contained in the Note Purchase Agreement.
4.
Dilution. The number of shares of Common Stock issuable under
Section 3(a) of this Note shall be subject to adjustment from time to
time upon the happening of certain events as follows:
(a) Adjustment f
