PROMISSORY NOTES

6 Months Ended

Jun. 30, 2022

PROMISSORY NOTES

10. PROMISSORY NOTES

10. PROMISSORY NOTES

In connection with the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.), we issued a promissory note totaling $4,500,000 to Michael McMillan (the “Seller Note”). In March 2018, the Company repaid $2,250,000 plus accrued interest on the Seller Note and agreed to amend and restate the Seller Note in the remaining principal amount of $2,250,000. The Seller Note bore interest at a rate of 8% per annum, provided for quarterly payments of principal and interest and matured on March 31, 2022. As of June 30, 2022, and December 31, 2021, the outstanding principal balance due under the Seller Note was $0 and $0.1 million, respectively.

Interest charges associated with the Seller Note totaled approximately $0 and $2,000, respectively for the three and six months ended June 30, 2022, and $10,000 and $23,000, respectively for the three and six months ended June 30, 2021.

In August of 2022, we issued a revolving promissory note in a principal amount of up to $750,000 to Clearwater (the “Clearwater Note”). The Clearwater Note bears interest at a rate of 10.0% per annum and provides for quarterly payments of principal and interest. CynergisTek may make advances under the Clearwater Note in such amounts and at such times as we request from time to time in increments of at least $50,000, but not more than $750,000 in the aggregate (“the Clearwater Revolving Loan”).

The Clearwater Note matures and any remaining outstanding principal balance and all accrued and unpaid interest shall become due and payable upon the earliest to occur of (i) the five-year anniversary of the date hereof, (ii) the termination of the Merger Agreement, or (iii) the incurrence by CynergisTek or any of its subsidiaries of any debt of any kind whatsoever from a third party, other than payables incurred in the ordinary course of business; provided, however, that (x) if the Merger Agreement is terminated pursuant to Sections 7.1(a), 7.1(b), 7.1(c), 7.1(d), or 7.1(g) of the Merger Agreement, then all outstanding principal and interest under the Clearwater Note shall be due and payable by the 60th day following such termination; and (y) if the Merger Agreement is terminated in connection with the entry into an Acquisition Transaction (as such term is defined in the Merger Agreement), then CynergisTek shall be required to repay all outstanding interest and principal then due under the Clearwater Note as a condition to, and prior to or concurrently with, the termination of the Merger Agreement by CynergisTek.