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
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March 8, 2006
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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 for Stock Splits and
Combinations . If the
Borrower at any time or from time to time after the date of this
Note effects a subdivision of sha
